<PAGE> 1
FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
(MARK ONE)
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From to
---------------------- --------------------------
Commission file number 1-8801
GRAHAM-FIELD HEALTH PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2578230
- --------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Rabro Drive East, Hauppauge, New York 11788
-----------------------------------------------
(Address of principal executive offices)
(516) 582-5900
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(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name,former address and former fiscal year,if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by the court.
Yes No
--- ---
Applicable Only to Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.025 Par Value --- 21,138,253 shares as of November 4,
1997
<PAGE> 2
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
I N D E X
Part I. Financial Information:
Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - September
30, 1997 (Unaudited) and December 31, 1996 (Audited) 3
Condensed Consolidated Statements of Operations for
the three and nine months ended September 30, 1997
and 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997 and 1996
(Unaudited) 5-6
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-20
Part II. Other Information:
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
Page 2
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CONDENSED CONSOLIDATED BALANCE SHEETS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------- -------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,682,000 $ 1,241,000
Marketable securities 12,832,000 --
Accounts receivable - net 74,770,000 45,703,000
Inventories 60,314,000 48,245,000
Other current assets 8,146,000 3,023,000
Recoverable and prepaid income taxes 256,000 256,000
------------- -------------
TOTAL CURRENT ASSETS 162,000,000 98,468,000
PROPERTY, PLANT AND EQUIPMENT - net 14,801,000 11,264,000
EXCESS OF COST OVER NET ASSETS ACQUIRED - net 103,232,000 91,412,000
OTHER ASSETS 13,015,000 5,112,000
DEFERRED TAX ASSET -- 938,000
------------- -------------
TOTAL ASSETS $ 293,048,000 $ 207,194,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ -- $ 13,985,000
Current maturities of long-term debt 2,054,000 2,016,000
Accounts payable 22,945,000 22,995,000
Acceptances payable -- 19,800,000
Accrued expenses 21,829,000 25,608,000
------------- -------------
TOTAL CURRENT LIABILITIES 46,828,000 84,404,000
LONG-TERM DEBT 8,440,000 6,535,000
SENIOR SUBORDINATED NOTES 100,000,000 --
OTHER LONG TERM LIABILITIES 1,522,000 1,752,000
------------- -------------
TOTAL LIABILITIES 156,790,000 92,691,000
STOCKHOLDERS' EQUITY:
Preferred Stock 31,600,000 31,600,000
Common Stock 530,000 496,000
Additional paid-in capital 115,702,000 101,569,000
(Deficit) (11,548,000) (18,995,000)
Unrealized gain on marketable securities 72,000 --
Cumulative translation adjustment 61,000 (12,000)
------------- -------------
Sub-total 136,417,000 114,658,000
Notes receivable from sale of shares (159,000) (155,000)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 136,258,000 114,503,000
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 293,048,000 $ 207,194,000
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
Page 3
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Medical equipment and supplies $ 70,745,000 $ 36,436,000 $189,515,000 $100,674,000
Interest and other income 363,000 31,000 759,000 537,000
------------ ------------ ------------ ------------
71,108,000 36,467,000 190,274,000 101,211,000
COST AND EXPENSES:
Cost of revenues 47,159,000 24,942,000 128,100,000 69,203,000
Selling, general and
administrative 16,018,000 9,021,000 43,976,000 25,678,000
Interest expense 2,394,000 672,000 4,557,000 1,962,000
------------ ------------ ------------ ------------
65,571,000 34,635,000 176,633,000 96,843,000
INCOME BEFORE INCOME TAXES 5,537,000 1,832,000 13,641,000 4,368,000
INCOME TAXES 2,187,000 811,000 5,395,000 1,943,000
------------ ------------ ------------ ------------
NET INCOME 3,350,000 1,021,000 8,246,000 2,425,000
PREFERRED STOCK DIVIDENDS 266,000 -- 799,000 --
------------ ------------ ------------ ------------
NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS $ 3,084,000 $ 1,021,000 $ 7,447,000 $ 2,425,000
============ ============ ============ ============
PER SHARE DATA (NOTE 2):
NET INCOME PER COMMON AND
COMMON EQUIVALENT
SHARES $ .13 $ .07 $ .32 $ .16
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 26,739,000 15,674,000 25,888,000 15,466,000
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------------
1997 1996
-------- ------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $8,246,000 $2,425,000
Adjustments to reconcile net
income to net cash (used in) provided by
operating activities:
Depreciation and amortization 4,700,000 2,487,000
Provision for losses on accounts
receivable 935,000 441,000
Deferred income taxes 1,538,000 1,861,000
Gain on sale of product line - (360,000)
Gain on sale of marketable securities (41,000) -
Changes in operating assets and
liabilities:
Accounts receivable (24,519,000) (8,573,000)
Inventories, other current assets and
recoverable and prepaid income taxes (11,404,000) (6,601,000)
Accounts and acceptances payable,
accrued expenses, and other (8,468,000) 9,753,000
----------- ----------
NET CASH (USED IN) PROVIDED
BY OPERATING ACTIVITIES (29,013,000) 1,433,000
----------- ----------
INVESTING ACTIVITIES
Purchases of marketable securities (97,216,000) -
Purchases of property, plant and equipment (3,637,000) (762,000)
Acquisitions, net of cash acquired (10,006,000) (2,191,000)
Notes receivable from officers (4,000) (199,000)
Proceeds from sale of marketable securities 84,497,000 -
Proceeds from sale of product line - 500,000
Proceeds from sale of assets under leveraged lease - 487,000
Net increase in other assets (1,653,000) (158,000)
------------ ------------
NET CASH USED IN INVESTING $(28,019,000) $(2,323,000)
ACTIVITIES ------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
Page 5
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------------
1997 1996
-------- ------
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of senior subordinated notes $100,000,000 $ --
Proceeds from notes payable and long-term debt 147,138,000 6,590,000
Payments on notes payable and long-term debt (162,352,000) (6,112,000)
Payments on acceptances payable, net (19,800,000) --
Proceeds on exercise of stock options 1,052,000 479,000
Payments for note issue costs (4,565,000) --
----------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 61,473,000 957,000
----------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 4,441,000 67,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,241,000 284,000
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $5,682,000 $351,000
=========== =========
</TABLE>
See notes to condensed consolidated financial statements.
Page 6
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
1. GENERAL
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
as of September 30, 1997 (unaudited), the results of operations for the three
and nine months ended September 30, 1997 and 1996 (unaudited) and the statements
of cash flows for the nine months ended September 30, 1997 and 1996 (unaudited).
Additionally, it should be noted that the accompanying financial
statements and notes thereto do not purport to be complete disclosures in
conformity with generally accepted accounting principles. While the Company
believes that the disclosures presented are adequate to make the information
contained herein not misleading, it is suggested that these financial statements
be read in conjunction with the financial statements and the notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Inventories at September 30, 1997 have been valued at average cost
based on perpetual records or the gross profit method.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share", which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in an increase in primary earnings per share for the quarter and nine
month period ended September 30, 1997 of $.02 and $.05 per share, respectively.
The impact of Statement 128 on the calculation of fully diluted earnings per
share for the quarter and nine month period ended September 30, 1997 is not
expected to be material.
The results of operations for the three and nine months ended September
30, 1997 and 1996 are not necessarily indicative of results for the full year.
Certain amounts in the 1996 financial statements have been reclassified
to conform to the 1997 presentation.
2. NET INCOME PER SHARE
Net income per common share was computed using the weighted average
number of common shares and dilutive common equivalent shares outstanding during
the period. For the 1997 period, net income per common share was calculated
assuming the conversion of the Company's Series B Cumulative Convertible
Preferred Stock (the "Series B Preferred Stock") and the Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") into an aggregate
of 4,435,484 common shares and the
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<PAGE> 8
elimination of a dividend of 1.5% on the Series B and Series C Preferred Stock
in the aggregate amount of $266,000 and $799,000, respectively for the three and
nine month periods ended September 30, 1997.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $14,258,000 $ 8,423,000
Work-in-process 4,558,000 4,430,000
Finished goods 41,498,000 35,392,000
----------- -----------
$60,314,000 $48,245,000
=========== ===========
</TABLE>
4. INCOME TAXES
As of September 30, 1997, the Company has recorded net deferred tax
assets primarily comprised of net operating loss carryforwards acquired in
connection with the Everest & Jennings acquisition, which expire at various
dates from 2008 to 2010. For financial reporting purposes, due to losses of
Everest & Jennings incurred prior to the Company's acquisition of Everest &
Jennings and SRLY limitations, a full valuation allowance has been recognized
in connection with the net operating loss carryforwards of Everest & Jennings
to offset the net deferred tax asset. If realized, the tax benefit for such
items will be recorded as a reduction to the excess of cost over net assets
acquired.
The effective tax rate for the quarter and nine months ended September
30, 1997 is 39.5% primarily due to the percentage of income earned by foreign
entities which are taxed at lower rates. Deferred taxes have not been provided
on the undistributed earnings of the foreign entities since it is management's
intention to invest such earnings in the entities indefinitely.
5. ACQUISITION OF BUSINESS
On September 5, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement"), by and among Fuqua Enterprises, Inc., a
Delaware corporation ("Fuqua"), GFHP Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of the Company ("Sub"), and the Company providing
for the acquisition of Fuqua. Pursuant to the Merger Agreement, following the
satisfaction of the conditions contained therein, Sub will be merged with and
into Fuqua with Fuqua continuing as the surviving corporation wholly owned by
the Company (the "Merger"). The Company has received the written opinion of
Smith Barney Inc. to the effect that the consideration payable by the Company
pursuant to the Merger Agreement is fair from a financial point of view to the
Company.
In the Merger, each share of Fuqua's common stock, par value $2.50 per
share (the "Fuqua Common Stock"), other than shares of Fuqua Common Stock
canceled pursuant to the Merger Agreement, will be converted into the right to
receive 2.1 (the "Conversion Number") shares of common stock, par value $.025
per share, of the Company (the "Company Common Stock"); provided that the
Conversion Number is subject to upward adjustment in the event the Company's
average stock price for the 10-day
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
period ending two days prior to the Merger falls below $13.57, and to downward
adjustment in the event that the average stock price exceeds $17.62.
Accordingly, Fuqua stockholders are assured of receiving Company Common Stock
valued at not less than $28.50 nor more than $37.00 in exchange for each share
of Fuqua Common Stock. There were 4,482,709 shares of Fuqua Common Stock
outstanding on September 5, 1997.
The Merger Agreement contains customary representations and warranties
of the parties, which will not survive the effectiveness of the Merger. In
addition, pursuant to the Merger Agreement, the Company and Fuqua have agreed to
operate their businesses in the ordinary course pending consummation of the
Merger, and Fuqua has agreed not to solicit or enter into negotiations or
agreements relating to a competing business combination transaction. The Merger
is conditioned, among other things, upon the approval of the holders of at least
a majority of the outstanding shares of Fuqua capital stock entitled to vote
thereon, upon the approval of the holders of at least a majority of the shares
of Company Common Stock voting at a special meeting of the stockholders of the
Company, and upon the expiration of certain regulatory waiting periods. Either
party may terminate the Merger Agreement if the Merger is not consummated on or
prior to March 31, 1998.
To induce the Company and Sub to enter into the Merger Agreement, the
Company entered into (1) a Stockholders Agreement, dated as of September 5,
1997 (the "Stockholders Agreement"), with BIL (Far East Holdings) Limited and
BIL Securities (Offshore) Ltd. (together, "BIL"), Irwin Selinger ("Mr.
Selinger"), the Chairman of the Board and Chief Executive Officer of the Company
and J.B. Fuqua, J. Rex Fuqua, Fuqua Holdings I, L.P., The Jennifer Calhoun Fuqua
Trust, The Lauren Brooks Fuqua Trust and The J.B. Fuqua Foundation, Inc.
(together, the "Fuqua Stockholders") and (2) a Voting Agreement (the "Voting
Agreement") with Gene J. Minotto ("Mr. Minotto"), pursuant to which, among other
things, the Fuqua Stockholders and Mr. Minotto (who, as of September 5, 1997,
own collectively 45.9% of the outstanding Fuqua Common Stock) have agreed to
vote their shares of Fuqua Common Stock in favor of approval of the Merger and
adoption of the Merger Agreement and all transactions contemplated thereby at a
special meeting of Fuqua stockholders. The Fuqua Stockholders and Mr. Minotto
also agreed, until the Effective Time, not to dispose of any of the Fuqua Common
Stock or any interest therein, exercise any right of conversion with respect to
such shares, deposit any of such 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 such shares. In addition, the Fuqua
Stockholders and Mr. Minotto agreed pursuant to the Stockholders Agreement and
Voting Agreement not to initiate, solicit or encourage, directly or indirectly,
any inquiries with respect to any alternative business combination transaction
relating to Fuqua or engage in any negotiations concerning any such transaction.
The Fuqua Stockholders and Mr. Minotto also agreed to promptly notify the
Company of any inquiries or proposed negotiations with respect to any such
proposed transaction.
Pursuant to the Stockholders Agreement, BIL and Mr. Selinger (who, as
of September 5, 1997, own collectively 37% of the voting power of the capital
stock of the Company), have agreed to vote their shares of Company Common Stock
in favor of approval of the Merger and adoption of the Merger Agreement and all
transactions contemplated thereby at a special meeting of Company stockholders.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
The Fuqua Stockholders have agreed in the Stockholders Agreement not
to acquire additional shares of the Company Common Stock, 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 Company
Board provided that the Fuqua Stockholders own securities representing at
least 5% of the voting power of the outstanding capital stock of the Company.
Pursuant to the Stockholders Agreement, so long as the Fuqua Stockholders
beneficially own 5% or more of the voting power of the outstanding capital
stock of the Company, the Fuqua Stockholders will have the right to designate
one member of the Board of Directors of the Company (the "Company Board"). The
Fuqua Stockholders also agreed to certain restrictions in their transfer of
shares of Company Common Stock received in the Merger.
The Stockholders Agreement and Voting Agreement will automatically
terminate upon a termination of the Merger Agreement in accordance with its
terms. In addition, the Stockholders Agreement will terminate following the
Merger, if the Fuqua Stockholders beneficially own less than 5% of the voting
power of the outstanding capital stock of the Company or upon a change of
control of the Company Board.
In addition, on September 5, 1997, the Company entered into a
Registration Rights Agreement with the Fuqua Stockholders (the "Registration
Rights Agreement") providing certain demand and "piggyback" registration rights
to the Fuqua Stockholders with respect to the securities of the Company to be
acquired by the Fuqua Stockholders pursuant to the Merger Agreement. The Company
will be required to pay the expenses incurred by the Fuqua Stockholders in
connection with any such registrations. The Registration Rights Agreement will
automatically terminate upon a termination of the Merger Agreement in accordance
with its terms. The Company has also agreed to provide certain registration
rights to Mr. Minotto.
The Company believes that it has obtained all material regulatory
approvals, other than clearance of the proxy materials by the Securities and
Exchange Commission. The Company expects to mail its proxy materials to
stockholders during November 1997 following approval by the Securities and
Exchange Commission. Stockholder meetings to approve the Merger and the closing
are anticipated to occur in late December 1997.
On August 28, 1997, the Company acquired all of the issued and
outstanding shares of the capital stock of Medical Supplies of America, Inc., a
Florida corporation ("Medapex"), pursuant to an Agreement and Plan of
Reorganization (the "Reorganization Agreement") dated August 28, 1997, by and
among the Company, S.E. (Gene) Davis and Vicki Ray (collectively, the "Medapex
Selling Stockholders"). In accordance with the terms of the Reorganization
Agreement, Medapex became a wholly-owned subsidiary of the Company and the
Medapex Selling Stockholders received in the aggregate 960,000 shares of
Company Common Stock in exchange for all of the issued and outstanding shares
of the capital stock of Medapex. Pursuant to a Real Estate Sales Agreement
dated as of August 28, 1997 (the "Real Estate Sales Agreement"), by and
between the Company and BBD&M, a Georgia limited partnership and an affiliate
of Medapex, the Company acquired Medapex's principal corporate headquarters and
distribution facility in Atlanta, Georgia for a purchase price consisting of
(i) $622,335 payable (x) by the issuance of 23,156 shares of Company Common
Stock and (y) in cash in the amount of $311,167, and (ii) the assumption of
debt in the amount
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
of $477,664. In connection with the transaction, the Company also entered into a
registration rights agreement dated as of August 28, 1997, pursuant to which the
Company agreed to register for resale the shares of Company Common Stock issued
pursuant to the Reorganization Agreement and the Real Estate Sales Agreement.
Each of the Medapex Selling Stockholders entered into a two-year employment
agreement and non-competition agreement with the Company.
The acquisition of Medapex qualifies as a tax-free reorganization and
was accounted for as a "pooling of interests." Accordingly, the Company's
financial statements have been restated to include the results of Medapex for
all periods presented. Separate results of operations for the periods prior to
the share exchange with Medapex are as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
------------------------------- -------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Revenues:
Graham-Field $ 67,827,000 $ 32,384,000 $176,987,000 $ 89,360,000
Medapex 3,281,000 4,083,000 13,287,000 11,851,000
------------ ------------ ------------ ------------
Combined $ 71,108,000 $ 36,467,000 $190,274,000 $101,211,000
============ ============ ============ ============
Net Income:
Graham-Field $ 3,158,000 $ 965,000 $ 7,859,000 $ 2,290,000
Medapex 192,000 56,000 387,000 135,000
------------ ------------ ------------ ------------
Combined $ 3,350,000 $ 1,021,000 $ 8,246,000 $ 2,425,000
============ ============ ============ ============
</TABLE>
On August 17, 1997, the Company acquired substantially all of the
assets and certain liabilities of Medi-Source, Inc. ("Medi-Source"), a
privately-owned distributor of medical supplies, for $4,500,000 in cash. The
Company also entered into a five (5) year non-competition agreement with the
previous owner in the aggregate amount of $301,000 payable over the five year
period. The acquisition was accounted for as a purchase, and accordingly, assets
and liabilities were recorded at fair value at the date of acquisition and the
results of operations are included subsequent to that date. The excess of the
purchase price over net assets acquired was approximately $3,428,000.
On June 25, 1997, the Company acquired all of the capital stock of
LaBac Systems, Inc., a Colorado corporation ("LaBac"), in a merger transaction
pursuant to an Agreement and Plan of Merger dated June 25, 1997, by and among
the Company, LaBac Acquisition Corp., a wholly-owned subsidiary of the Company,
LaBac, Gregory A. Peek and Michael L. Peek (collectively, the "LaBac Selling
Stockholders"). LaBac, a privately-owned Company, manufactures and distributes
custom power wheelchair seating systems and manual wheelchairs throughout North
America. In connection with the acquisition, LaBac became a wholly-owned
subsidiary of the Company, and the LaBac Selling Stockholders received
in the aggregate 772,557 shares of Company Common Stock valued at $11.77 per
share in exchange for all of the issued and outstanding shares of the capital
stock of LaBac. In addition, 77,255 of the shares of Company Common Stock were
placed in escrow for a period of one (1) year following the Effective Date
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
of the Merger for payment of indemnity claims to the Company or purchase price
adjustments in favor of the Company. The Company also entered into a three (3)
year consulting agreement with the LaBac Selling Stockholders and an entity
controlled by the LaBac Selling Stockholders, and non-competition agreements
with each of the LaBac Selling Stockholders. The acquisition was accounted for
as a purchase and accordingly, assets and liabilities were recorded at fair
value at the date of acquisition and the results of operations are included
subsequent to that date. The excess of cost over net assets acquired amounted
to approximately $7.4 million.
On March 7, 1997, Everest & Jennings, a wholly-owned subsidiary of the
Company, acquired Kuschall of America, Inc. ("Kuschall"), a manufacturer of
pediatric wheelchairs, high-performance adult wheelchairs and other
rehabilitation products, for a purchase price of $1.51 million representing the
net book value of Kuschall. The purchase price was paid by the issuance of
116,154 shares of Company Common Stock valued at $13.00 per share, of which
23,230 shares were delivered into escrow. The escrow shares will be released on
March 7, 1999, subject to any purchase price adjustments in favor of the Company
and claims for indemnification. The acquisition was accounted for as a purchase
and accordingly, assets and liabilities were recorded at fair value at the date
of acquisition and the results of operations are included subsequent to that
date.
On February 28, 1997, Everest & Jennings Canada, a wholly-owned
subsidiary of the Company, acquired substantially all of the assets and certain
liabilities of Motion 2000 Inc. and its wholly-owned subsidiary, Motion 2000
Quebec Inc., for a purchase price equal to Cdn. $2.9 million (Canadian Dollars)
(approximately $2.15 million). The purchase price was paid by the issuance of
187,733 shares of the Company Common Stock valued at $11.437 per share, of which
28,095 shares were delivered into escrow. All of the escrowed shares were held
in escrow until June 28, 1997, at which time 9,366 shares were released. The
balance of the escrowed shares will be released on December 31, 1997, subject
to any claims for indemnification. The acquisition was accounted for as a
purchase and accordingly, assets and liabilities were recorded at fair value
at the date of acquisition and the results of operations are included
subsequent to that date. The excess of cost over the net assets acquired
amounted to approximately $1.9 million.
On November 27, 1996, the Company acquired Everest & Jennings pursuant
to the terms and provisions of 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 the Company, Everest & Jennings, Everest & Jennings Acquisition Corp., a
wholly-owned subsidiary of the Company and BIL, the majority stockholder of
Everest & Jennings. The acquisition of Everest & Jennings has been accounted for
under the purchase method of accounting and, accordingly, assets and liabilities
were recorded at fair value at the date of acquisition and the operating results
of Everest & Jennings have been included in the Company's consolidated financial
statements since the date of acquisition. The excess of the aggregate purchase
price over the estimated fair market value of the net assets acquired is
approximately $65.6 million, as adjusted.
On September 4, 1996, the Company acquired substantially all of the
assets of V.C. Medical Distributors Inc. ("V.C. Medical"), a wholesale
distributor of medical products in Puerto Rico, for a purchase price consisting
of $1,703,829 in cash, and the issuance of 32,787 shares of Company Common
Page 12
<PAGE> 13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
Stock, valued at $7.625 per share representing the closing market price of the
Company Common Stock on the last trading day immediately prior to the
closing. In addition, the Company assumed certain liabilities of V.C. Medical in
the amount of $296,721. Under the terms of the transaction, in the event the
pre-tax income of the acquired business equals or exceeds $1,000,000 during the
twelve (12) months following the closing date, an additional $500,000 will be
paid to V.C. Medical. The shares will be held in escrow until February 4, 1998,
subject to any claims for indemnification in favor of the Company. The
acquisition was accounted for as a purchase and accordingly, assets and
liabilities were recorded at fair value at the date of acquisition and the
results of operations are included subsequent to that date. The excess of cost
over the net assets acquired amounted to approximately $939,000.
The following summary presents unaudited pro forma consolidated results
of operations for the nine months ended September 30, 1997 and 1996 as if the
acquisitions accounted for under the purchase method of accounting occurred at
the beginning of each of 1997 and 1996. This information gives effect to the
adjustment of interest expense, income tax provisions, and to the assumed
amortization of fair value adjustments, including the excess of cost over net
assets acquired. The 1996 pro forma information does not include the write-off
of certain purchased in-process research and development costs of $12,800,000,
merger related expenses of $3,000,000 associated with the acquisition of
Everest & Jennings, and an extraordinary item relating to the early retirement
of indebtedness under the John Hancock Note and Warrant Agreement, as amended.
The pro forma net loss per common share for 1996 has been calculated assuming
the payment of a dividend of 1.5% on both the Series B Preferred Stock and
Series C Preferred Stock in the aggregate amount of $799,000 for the nine
months ended September 30, 1997. Conversion of the preferred stock was not
assumed since the result would have been antidilutive.
<TABLE>
<CAPTION>
Pro forma
---------
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net Revenues $ 201,532,000 $ 170,376,000
============= =============
Income (Loss) Before Income Taxes $ 14,163,000 $ (1,791,000)
Income Taxes 5,665,000 578,000
------------- -------------
Net Income (Loss) $ 8,498,000 $ (2,369,000)
============= =============
Net Income (Loss) per Share $ .32 $ (.15)
============= =============
Weighted Average Number of Common
and Dilutive Common Equivalent Shares
Outstanding 26,454,000 21,024,000
============= =============
</TABLE>
Page 13
<PAGE> 14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
6. OTHER MATTERS
On August 4, 1997, the Company issued $100 million of its 9.75% Senior
Subordinated Notes due 2007 (the "Notes") under Rule 144A of the Securities Act
of 1933, as amended (the "Securities Act"). The Notes are general unsecured
obligations of the Company, subordinated in right of payment to all existing
and future senior debt of the Company, including indebtedness under the
Credit Facility (the "Credit Facility") arranged by IBJ Schroder Business
Credit Corp., as agent ("IBJ"). The Notes are guaranteed (the "Subsidiary
Guarantees"), jointly and severally, on a senior subordinated basis by all
existing and future restricted subsidiaries of the Company, other than foreign
subsidiaries (the "Guaranteeing Subsidiaries"). The Subsidiary Guarantees are
subordinated in right of payment to all existing and future senior debt of the
Guaranteeing Subsidiaries including any guarantees by the Guaranteeing
Subsidiaries of the Company's obligations under the Credit Facility.
The net proceeds from the offering of the Notes were used to repay
$60.3 million of indebtedness under the Credit Facility and $5 million of
indebtedness due to BIL. The balance of the proceeds will be used for general
corporate purposes, including the funding for acquisitions, the opening of
additional Graham-Field Express facilities and strategic alliances.
Under the terms of the indenture governing the Notes (the "Indenture"),
the Notes are not redeemable at the Company's option prior to August 15, 2002.
Thereafter, the Notes are redeemable, in whole or in part, at the option of the
Company, at certain redemption prices plus accrued and unpaid interest to the
date of redemption. In addition, prior to August 15, 2000, the Company may, at
its option, redeem up to 25% of the aggregate principal amount of Notes
originally issued with the net proceeds from one or more public offerings of
Company Common Stock at a redemption price of 109.75% of the principal amount,
plus accrued and unpaid interest to the date of redemption; provided that at
least 75% of the aggregate principal amount of Notes originally issued remain
outstanding after giving effect to any such redemption.
The Indenture contains customary covenants including, but not limited
to, covenants relating to limitations on the incurrence of additional
indebtedness, the creation of liens, restricted payments, the sales of assets,
mergers and consolidations, payment restrictions affecting subsidiaries, and
transactions with affiliates. In addition, in the event of a change of control
of the Company as defined in the Indenture, each holder of the Notes will have
the right to require the Company to repurchase such holder's Notes, in whole or
in part, at a purchase price of 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase.
The Company and the Guaranteeing Subsidiaries have agreed, pursuant to
a registration rights agreement (the "Registration Rights Agreement") with the
initial purchaser of the Notes, to file with the Securities and Exchange
Commission a registration statement (the "Exchange Offer Registration
Statement") registering an issue of notes identical in all material respects to
the Notes (the "Exchange Notes") and to offer to the holders of the Notes the
opportunity to exchange their Notes for Exchange Notes (the "Exchange Offer").
If the Company is not permitted to file the Exchange Offer Registration
Statement or if certain holders of the Notes are not permitted to participate
in, or would not receive freely tradeable Exchange Notes pursuant to, the
Exchange Offer, the Company has agreed to file a shelf
Page 14
<PAGE> 15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
registration statement (the "Shelf Registration Statement") with respect to
resales of the Notes. The Notes are subject to the payment of liquidated damages
under certain circumstances if the Company and the Guaranteeing Subsidiaries are
not in compliance with their obligations under the Registration Rights
Agreement.
7. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to 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.
Page 15
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statement
This report on Form 10-Q contains forward-looking statements as defined
by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include plans and objectives of management for future operations,
including plans and objectives relating to the future economic performance and
financial results of the Company. The forward-looking statements relate to (i)
the expansion of the Company's market share, (ii) the Company's growth into new
markets, (iii) the development of new products and product lines to appeal to
the needs of the Company's customers, (iv) the opening of new distribution and
warehouse facilities, including the expansion of the Graham-Field Express
program, (v) obtaining regulatory and governmental approvals, (vi) the upgrading
of the Company's technological resources and systems and (vii) the retention of
the Company's earnings for use in the operation and expansion of the Company's
business.
Important factors and risks that could cause actual results to differ
materially from those referred to in the forward-looking statements include, but
are not limited to, the effect of economic and market conditions, the impact of
the consolidation of healthcare practitioners, the impact of healthcare reform,
opportunities for acquisitions and the Company's ability to effectively
integrate acquired companies, the termination of the Company's exclusive
homecare bed supply agreement, the termination of the Company's exclusive
wheelchair supply agreement, the ability of the Company to maintain its gross
profit margins, the ability to obtain additional financing to expand the
Company's business, the failure of the Company to successfully compete with the
Company's competitors that have greater financial resources, the loss of key
management personnel or the inability of the Company to attract and retain
qualified personnel, adverse litigation results, the acceptance and quality of
new software and hardware products which will enable the Company to expand its
business, the acceptance and ability to manage the Company's operations in
foreign markets, possible disruptions in the Company's computer systems or
distribution technology systems, possible increases in shipping rates or
interruptions in shipping service, the level and volatility of interest rates
and currency values, the impact of current or pending legislation and
regulation, as well as the risks described from time to time in the Company's
filings with the Securities and Exchange Commission, which include this report
on Form 10-Q, the Company's annual report on Form 10-K for the year ended
December 31, 1996, and the section entitled "Risk Factors" in the Company's
Registration Statement on Form S-4 dated as of October 18, 1996.
The forward-looking statements are based on current expectations and
involve a number of known and unknown risks and uncertainties that could cause
the actual results, performance and/or achievements of the Company to differ
materially from any future results, performance or achievements, express or
implied, by the forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, and that in light of the
significant uncertainties inherent in forward-looking statements, the inclusion
of such statements should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
Page 16
<PAGE> 17
Operating Revenues
Operating revenues for the quarter and nine month period ended
September 30, 1997 were $70,745,000 and $189,515,000, respectively, representing
an increase of 94% and 88%, respectively, from the same periods in the prior
year. Operating revenues for the quarter, without revenues of Everest &
Jennings, increased in excess of 50% from the same period in the prior year. The
increase in operating revenues, excluding the revenues attributable to Everest &
Jennings, was primarily attributable to the continued roll-out of the Company's
innovative "Graham-Field Express" program, the expansion of the Company's
Consolidation Advantage Program ("CAP"), the roll-out of the Company's seamless
distribution program, the acquisitions of LaBac Systems, Inc. on June 28, 1997
and Medi-Source, Inc. on August 21, 1997, and the incremental revenue growth of
Medapex over the 1996 period.
In March 1996, the Company introduced its Graham-Field Express program
which offers "same-day" and "next-day" service to home healthcare dealers of
certain strategic home healthcare products, including Temco patient aids, adult
incontinence products, Everest & Jennings wheelchairs, Smith & Davis homecare
beds, nutritional supplements and other freight and time sensitive products. As
of September 30, 1997, the Company had opened five (5) Graham-Field Express
facilities operating in the Bronx, New York; Puerto Rico; Dallas, Texas;
Baltimore, Maryland and Cleveland, Ohio. Revenues attributable to Graham-Field
Express were approximately $35,510,000 and $9,679,000 for the nine months ended
September 30, 1997 and 1996, respectively. The Company is actively pursuing
additional sites for its Graham-Field Express program, which will serve all of
the major U.S. markets.
Interest and Other Income
Interest and other income for the three and nine month periods ended
September 30, 1997 was $363,000 and $759,000 respectively, as compared to
$31,000 and $537,000 respectively, for the same periods in the prior year. The
increase is primarily due to interest earned on the unused proceeds from the
Company's sale of its Notes on August 4, 1997 and interest earned on customer
financing programs.
Cost of Revenues
Cost of revenues as a percentage of operating revenues decreased to
66.7% from 68.5% for the three months ended September 30, 1997, as compared to
the same period in the prior year.
Cost of revenues as a percentage of operating revenues decreased to
67.6% for the nine months ended September 30, 1997, as compared to 68.7% for the
same period in the prior year. The decrease is primarily attributable to
improved operational efficiencies associated with the manufacture and
distribution of the Company's product lines and improved purchasing activities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of
operating revenues for the three and nine month periods ended September 30, 1997
was 22.6% and 23.2% respectively, as compared to 24.8% and 25.5% respectively,
in the same periods in the prior year. The decrease is attributable to a
number of factors, including the expansion of the Graham-Field Express program
in 1997, which contributes revenue with a lower percentage of selling, general
and administrative expenses, as well as continued efficiencies generated by
the Company's distribution network.
Page 17
<PAGE> 18
Interest Expense
Interest expense for the three and nine month periods ended September
30, 1997 increased to $2,394,000 and $4,557,000 respectively, as compared to
$672,000 and $1,962,000 respectively, for the same periods in the prior year.
The increase is primarily due to increased borrowings attributable to the
Company's growth and expansion of the Graham-Field Express program, and the
sale of the Company's Notes on August 4, 1997.
Net Income
Income before income taxes for the three months ended September 30,
1997 was $5,537,000, as compared to $1,832,000 for the same period in the prior
year, an increase of $3,705,000 or 202%.
Income before income taxes for the nine months ended September 30, 1997
was $13,641,000, as compared to $4,368,000 for the same period in the prior
year, an increase of $9,273,000, or 212%. The increase is primarily due to the
increase in revenues, the increase in the gross profit margin, and the decrease
in selling, general and administrative expenses as a percentage of operating
revenue, offset by the increase in interest expense.
Net income for the three months ended September 30, 1997 was
$3,350,000, as compared to $1,021,000 for the same period last year, an increase
of $2,329,000 or 228%.
Net income for the nine months ended September 30, 1997 was $8,246,000,
as compared to $2,425,000 for the same period last year, an increase of
$5,821,000 or 240%. The Company recorded income tax expense of $5,395,000 for
the nine months ended September 30, 1997, as compared to $1,943,000 for the same
period last year. The effective tax rate for the nine months ended September 30,
1997 was 39.5% as compared to 44.5% for the same period last year. The decrease
is primarily attributable to the percentage of income earned by foreign entities
which are taxed at a lower rate and the relative decrease in permanent
differences in relation to pre-tax income. Deferred taxes have not been provided
on the undistributed earnings of the foreign entities as it is management's
intention to invest such earnings in the entities indefinitely. As of September
30, 1997, the Company had net deferred tax assets primarily comprised of net
operating loss carryforwards acquired in connection with an acquisition. A full
valuation allowance has been recognized to offset the net deferred asset related
to the acquired tax attributes. If realized, the tax benefit for those items
will be recorded as a reduction of goodwill.
The Company's business has not been materially affected by inflation.
Liquidity and Capital Resources
The Company had working capital of $115,172,000 at September 30, 1997,
as compared to $14,064,000 at December 31, 1996. The increase in working capital
is primarily attributable to the cash provided by the Company's net income of
$8,246,000, which reflects $4,700,000 of depreciation and amortization expense,
the net current assets acquired in connection with the Company's acquisitions
during the nine months ended September 30, 1997 and the sale of the Company's
Notes on August 4, 1997.
Cash used in operations for the nine months ended September 30, 1997
was $29,013,000, as compared to cash provided by operations of $1,433,000 in the
same period in the prior year. The principal reasons for the decrease in cash
provided by operations were the increase in accounts receivable and inventory
levels related to increased revenues and the reduction in accrued expenses,
partially offset by net income of $8,246,000 and depreciation and amortization
expense of $4,700,000 for the period.
Page 18
<PAGE> 19
The Company anticipates that its cash flow from operations, together
with its current cash balance, and the proceeds from its Credit Facility and
Notes will be sufficient to meet its working capital requirements.
Financing
On August 4, 1997, the Company issued $100 million of its Notes under
Rule 144A of the Securities Act. The Notes are general
unsecured obligations of the Company, subordinated in right of payment to all
existing and future senior debt of the Company, including indebtedness under
the Credit Facility. The Notes are guaranteed jointly and severally, on a
senior subordinated basis by all Guaranteeing Subsidiaries, other than foreign
subsidiaries. The Subsidiary Guarantees are subordinated in right of payment to
all existing and future senior debt of the Guaranteeing Subsidiaries including
any guarantees by the Guaranteeing Subsidiaries of the Company's obligations
under the Credit Facility.
The net proceeds from the offering of the Notes were used to repay
$60.3 million of indebtedness under the Credit Facility and $5 million of
indebtedness due to BIL. The balance of the proceeds will be used for general
corporate purposes, including the funding for acquisitions, the opening of
additional Graham-Field Express facilities and strategic alliances.
Under the terms of the Indenture, the Notes are not redeemable at the
Company's option prior to August 15, 2002. Thereafter, the Notes are
redeemable, in whole or in part, at the option of the Company, at certain
redemption prices, plus accrued and unpaid interest to the date of redemption.
In addition, prior to August 15, 2000, the Company may, at its option, redeem
up to 25% of the aggregate principal amount of Notes originally issued with the
net proceeds from one or more public offerings of common stock of the Company
at a certain redemption price of 109.75% of the principal amount, plus accrued
and unpaid interest to the date of redemption; provided that at least 75% of
the aggregate principal amount of Notes originally issued remain outstanding
after giving effect to any such redemption.
The Indenture contains covenants including, but not limited to,
covenants relating to limitations on the incurrence of additional indebtedness,
the creation of liens, restricted payments, the sales of assets, mergers and
consolidations, payment restrictions affecting subsidiaries, and transactions
with affiliates. In addition, in the event of a change of control of the Company
as defined in the Indenture, each holder of the Notes will have the right to
require the Company to repurchase such holder's Notes, in whole or in part, at a
purchase price of 101% of the principal amount thereof plus accrued and unpaid
interest to the date of repurchase.
The Company and the Guaranteeing Subsidiaries have agreed, pursuant to
the Registration Rights Agreement with the initial purchaser of the Notes, to
file with the Securities and Exchange Commission the Exchange Offer Registration
Statement registering the Exchange Notes and to offer to the holders of the
Notes the opportunity to exchange their Notes for Exchange Notes in the Exchange
Offer. If the Company is not permitted to file the Exchange Offer Registration
Statement or if certain holders of the Notes are not permitted to participate
in, or would not receive freely tradeable Exchange Notes pursuant to, the
Exchange Offer, the Company has agreed to file the Shelf Registration Statement
with respect to resales of the Notes. The Notes are subject to the payment of
liquidated damages under certain circumstances if the Company and the
Page 19
<PAGE> 20
Guaranteeing Subsidiaries are not in compliance with their obligations under the
Registration Rights Agreement.
On December 10, 1996, the Company entered into the Credit Facility for
up to $55 million of borrowings, including letters of credit and banker's
acceptances. The proceeds from the Credit Facility were used to (i) refinance
certain existing indebtedness of the Company, including the indebtedness (a)
under the John Hancock Note and Warrant Agreement, as amended and (b) to The
Chase Manhattan Bank and (ii) to provide for working capital needs of the
Company. Under the terms of the Credit Facility, borrowings bear interest, at
the option of the Company at the bank's prime rate (8.5% at June 30, 1997) or
2.25% above LIBOR, or 1.5% above the bank's bankers' acceptance rate. The
Credit Facility is secured by the Company's receivables, inventory and
proceeds thereof.
On June 25, 1997, the Company amended the Credit Facility to provide
the Company with a term loan of $2 million (the "IBJ Term Loan"), which was
subsequently repaid on July 9, 1997 through an increase in available borrowings
under the Credit Facility.
On July 9, 1997, the Company entered into an amendment to the Credit
Facility increasing the amount available for borrowings to $75 million. In
connection with the amendment to the Credit Facility, the Company pledged to IBJ
all of the assets of the Company not previously pledged and repaid the IBJ Term
Loan.
The Credit Facility contains certain customary terms and provisions,
including limitations with respect to the incurrence of additional debt, liens,
transactions with affiliates, consolidations, mergers and acquisitions, sales of
assets, dividends and other distributions (other than the payment of dividends
to BIL) in accordance with the terms of the Series B and Series C Preferred
Stock. In addition, the Credit Facility contains certain financial covenants,
which became effective as of the end of the fiscal quarter ending June 30,
1997, including a cash flow coverage and leverage ratio, and an earnings before
interest and taxes covenant. The Company was in compliance with such covenants
at September 30, 1997.
Under the terms of the Credit Facility, the Company is prohibited from
declaring, paying or making any dividend or distribution on any shares of the
common stock or preferred stock of the Company (other than dividends or
distributions payable in its stock, or split-ups or reclassifications of its
stock) or apply any of its funds, property or assets to the purchase, redemption
or other retirement of any common or preferred stock, or of any options to
purchase or acquire any such shares of common or preferred stock of the Company.
Notwithstanding the foregoing restrictions, the Company is permitted to pay cash
dividends in any fiscal year in an amount not to exceed the greater of (i) the
amount of dividends due BIL under the terms of the Series B and Series C
Preferred Stock in any fiscal year, or (ii) 12.5% of the net income of the
Company on a consolidated basis, provided that no event of default shall have
occurred and be continuing or would exist after giving effect to the payment of
the dividends.
On July 18, 1996, an affiliate of BIL provided the Company with a loan
in the amount of $4 million, at an effective interest rate of 8.8%. The loan was
used to fund the acquisition of V.C. Medical and for general corporate purposes.
On December 10, 1996, the loan was converted into a note, which matures on
April 1, 2001, with interest payable quarterly at an effective rate of 7.7% per
year.
On May 9, 1997, an affiliate of BIL loaned $5 million to the Company at
an interest rate of 8.5% per annum, which was repaid with the proceeds from its
offering of Notes completed on August 4, 1997.
Page 20
<PAGE> 21
Part II. Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to 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.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
1. International Distributorship Agreement dated as of September 30, 1997,
by and between Graham- Field Health Products, Inc. and Thuasne.
2. Asset Purchase Agreement dated as of August 21, 1997, by and among
Graham-Field Health Products, Inc., Graham-Field, Inc., Medi-Source,
Inc., Peter Galambos and Irene Galambos.
3. Purchase Agreement dated as of October 7, 1997, by and among
Graham-Field Health Products, Inc., VGM & Associates, Inc. and U.S.
Rehab, Inc.
4. Vendor Agreement dated as of September 12, 1997 by and among
Graham-Field Health Products, Inc. and Equipnet, Inc.
Reports on Form 8-K:
1. The Company's Current Report on Form 8-K dated as of July 17, 1997
(Date of Event: July 17, 1997).
2. The Company's Current Report on Form 8-K dated as of September 4, 1997
(Date of Event: August 28, 1997).
3. The Company's Current Report on Form 8-K dated as of September 11, 1997
(Date of Event: September 5, 1997).
Page 21
<PAGE> 22
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
(Registrant)
Date: November 13, 1997 /s/Irwin Selinger
________________________________
Irwin Selinger
Chairman of the Board and
Chief Executive Officer
Date: November 13, 1997 /s/Gary M. Jacobs
________________________________
Gary M. Jacobs
Vice President - Finance
Chief Financial and Accounting Officer
Page 22
<PAGE> 1
INTERNATIONAL DISTRIBUTORSHIP AGREEMENT
by and between
GRAHAM-FIELD HEALTH PRODUCTS, INC.
and
THUASNE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.1 Affiliates .................................................. 1
1.2 Agreement ................................................... 1
1.3 Confidential Information .................................... 1
1.4 Cost ........................................................ 2
1.5 Customer .................................................... 2
1.6 Distributed Products ........................................ 2
1.7 Graham-Field Products ....................................... 2
1.8 Gross Profit ................................................ 2
1.9 Import Supplier ............................................. 2
1.10 Manufactured Products ....................................... 2
1.11 Minimum Annual Purchases .................................... 3
1.12 Products .................................................... 3
1.13 Purchaser ................................................... 3
1.14 Seller ...................................................... 3
1.15 Thuasne Products ............................................ 3
1.16 Territories ................................................. 3
ARTICLE II
APPOINTMENT AND SCOPE
2.1 Appointment ................................................. 3
2.2 Exclusivity ................................................. 3
2.3 Distribution Outside Territory .............................. 4
2.4 Agents and Subdistributors .................................. 4
2.5 Independent Purchaser Status ................................ 4
2.6 Operations and Expenses ..................................... 4
2.7 Appointment of Product Manager for Thuasne
Products .................................................... 5
2.8 Advertising Costs for Thuasne Products ...................... 5
ARTICLE III
TERMS AND CONDITIONS OF SALE FOR MANUFACTURED
PRODUCTS AND THUASNE PRODUCTS
3.1 Firm Purchase Orders for Manufactured Products and
Thuasne Products ............................................ 5
3.2 Prices ...................................................... 6
3.3 Payment ..................................................... 6
3.4 Risk of Loss ................................................ 6
3.5 Warranty .................................................... 7
3.6 No Other Warranties ......................................... 8
3.7 Claims Procedures ........................................... 8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV
TERMS AND CONDITIONS OF SALE OF THE DISTRIBUTED PRODUCTS
4.1 Firm Purchase Orders for the Distributed Products .......... 8
4.2 Prices ..................................................... 9
4.3 Payment .................................................... 9
4.4 Risk of Loss ............................................... 9
4.5 Warranty ................................................... 9
4.6 No Warranties .............................................. 9
4.7 Claims Procedures .......................................... 10
ARTICLE V
OBLIGATIONS OF THE PURCHASER
5.1 Sales Promotion ............................................ 10
5.2 Maintenance of Inventory ................................... 11
5.3 Facilities and Personnel ................................... 11
5.4 Promotional Materials; Trade Shows ......................... 11
5.5 Minimum Annual Purchases ................................... 12
5.6 Aftermarket Support ........................................ 13
5.7 Import and Export Licenses, Exchange Controls, and
Other Governmental Approvals, Compliance ................... 14
5.8 Local Law .................................................. 14
5.9 Health, Safety, and Environmental Standards;
Labeling ................................................... 14
5.10 Alteration ................................................. 15
5.11 Indemnification ............................................ 15
5.12 Insurance .................................................. 15
ARTICLE VI
OBLIGATIONS OF THE SELLER
6.1 Sales Support .............................................. 15
6.2 Advertising Programs ....................................... 15
6.3 Notification of Changes .................................... 16
6.4 Assistance ................................................. 16
6.5 Regulatory Agencies and Governmental Approvals ............. 16
ARTICLE VII
AUDIT
ARTICLE VIII
PATENT INFRINGEMENT
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE IX
CONFIDENTIALITY AND PROPRIETARY RIGHTS
9.1 Confidential Information ................................... 18
9.2 Use of Confidential Information ............................ 18
9.3 Trademarks, Internet Domain Names and Trade Names .......... 18
9.4 Protection of Proprietary Rights ........................... 19
ARTICLE X
TERM AND TERMINATION
10.1 Term ....................................................... 19
10.2 Termination ................................................ 19
10.3 Rights of Parties on Termination ........................... 20
10.4 Orders After Termination ................................... 21
10.5 Limitation of Remedies ..................................... 21
ARTICLE XI
RESOLUTION BY NEGOTIATION; ARBITRATION
11.1 Resolution by Negotiation .................................. 21
11.2 Settlement by Arbitration .................................. 22
ARTICLE XII
FORCE MAJEURE
12.1 Force Majeure Conditions and Allocation .................... 22
12.2 Purchaser's Obligations .................................... 22
12.3 Notification and Remedy .................................... 22
ARTICLE XIII
SEVERABILITY
13.1 Compliance with EC Regulation .............................. 23
13.2 Remedy ..................................................... 23
ARTICLE XIV
GENERAL PROVISIONS
14.1 Entire Agreement ........................................... 23
14.2 Notices .................................................... 23
14.3 Nonassignment .............................................. 24
14.4 Language ................................................... 24
14.5 Applicable Law ............................................. 24
14.6 Waiver ..................................................... 24
14.7 Headings ................................................... 25
14.8 Counterparts ............................................... 25
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
LIST OF EXHIBITS
----------------
<S> <C> <C>
Exhibit A - Distributed Products
Exhibit B - Manufactured Products
Exhibit C - Thuasne Products
Exhibit D - Countries
Exhibit E - Standard Warranty Policy
Annex I - Graham-Field Accounts
</TABLE>
<PAGE> 6
THIS AGREEMENT is made as of this ____ day of September, 1997, by
and among Graham-Field Health Products, Inc. ("Graham-Field"), a Delaware
corporation, and Thuasne, a _________ corporation.
RECITALS
WHEREAS, Graham-Field is engaged in the business of manufacturing
and assembling certain products (the "Manufactured Products"), and marketing and
selling certain distributed products (the "Distributed Products");
WHEREAS, the Manufactured Products and the Distributed
Products are collectively referred to hereinafter as the "Graham-
Field Products";
WHEREAS, Thuasne is engaged in the business of manufacturing,
marketing, and selling certain products (the "Thuasne Products");
WHEREAS, Graham-Field desires to market and distribute the Thuasne
Products, and Thuasne desires to market the Graham-Field Products, on an
exclusive basis in the respective Territories (as hereinafter defined);
WHEREAS, Graham-Field desires to appoint Thuasne as the exclusive
distributor of the Graham-Field Products, and Thuasne desires to appoint
Graham-Field as the exclusive distributor of the Thuasne Products in the
respective Territories;
NOW, THEREFORE, in consideration of their mutual covenants and
agreements contained herein, and the mutual benefits to be derived herefrom, the
parties, intending to be legally bound, hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS
1.1 AFFILIATES. The term "Affiliates" shall have the meaning
ascribed to such term in Rule 405 of the Securities Act of 1933, as amended.
1.2 AGREEMENT. The term "Agreement" when used herein means this
document and any annex, exhibit, attachment, schedule, addendum, or modification
hereto, unless the context otherwise indicates.
1.3 CONFIDENTIAL INFORMATION. The term "Confidential Information"
when used herein means all communications or data, including, but not limited
to, all know-how, designs, drawings, hardware, software, specifications,
catalogs, data sheets, sales and technical bulletins, lists and information
pertaining to
<PAGE> 7
customers and sources of supply, cost, pricing and marketing information,
service manuals, mechanical diagrams, any translations, compilations or other
derivative materials, and all other information, whether or not reduced to
writing, relating to the design, manufacture, use, service and marketing of the
Products, as well as technical information and data, inventories, strategies,
trade secrets and any other information relating to Graham-Field or Thuasne or
to their respective Affiliates, as the case may be, that may be divulged to or
learned by Graham-Field or Thuasne, as the case may be, in the course of its
performance of this Agreement and that is not generally known in the trade.
1.4 COST. The term "Cost" means the "fully-burdened" manufacturing
cost of the Manufactured Products, as determined in accordance with U.S.
generally accepted accounting principles; with respect to the Distributed
Products, Graham-Field's "fully-landed" cost of the Distributed Products
(excluding freight, transportation and other similar charges related to the
purchase of such products which are shipped directly from Import Suppliers);
and, with respect to the Thuasne Products, Thuasne's "fully-landed" or
"fully-burdened" manufacturing cost, as the case may be, of Thuasne's Products,
as determined in accordance with U.S. generally accepted accounting principles.
Notwithstanding anything to the contrary contained herein, Graham-Field shall
use its best efforts to attempt to reduce the Cost of the Graham-Field Products
during the term of this Agreement; provided, however, the failure by
Graham-Field to reduce the Cost of the Graham-Field Products shall not
constitute a breach of the terms and provisions of this Agreement.
1.5 CUSTOMER. The term "Customer(s)" when used herein means any
customer of Thuasne or Graham-Field, as the case may be.
1.6 DISTRIBUTED PRODUCTS. The term "Distributed Products" includes
only those products identified on Exhibit A attached hereto, as supplemented or
modified from time to time by the parties.
1.7 GRAHAM-FIELD PRODUCTS. The term "Graham-Field Products" means
collectively only the Manufactured Products and the Distributed Products of
Graham-Field.
1.8 GROSS PROFIT. The term "Gross Profit" shall mean the excess of
the price paid by Thuasne to purchase the Graham-Field Products over the Cost of
the Graham-Field Products.
1.9 IMPORT SUPPLIER. The term "Import Supplier" shall have the
meaning ascribed to it in Section 4.1 of this Agreement.
1.10 MANUFACTURED PRODUCTS. The term "Manufactured Products"
includes only those products identified on Exhibit B
2
<PAGE> 8
attached hereto, as supplemented or modified from time to time by the parties.
1.11 MINIMUM ANNUAL PURCHASES. The term "Minimum Annual Purchases"
has the meaning ascribed to it in Section 5.5 of this Agreement.
1.12 PRODUCTS. The term "Products" when used herein means the
Graham-Field Products with respect to which Thuasne is acting as the exclusive
distributor and the Thuasne Products with respect to which Graham-Field is
acting as the exclusive distributor, as provided herein.
1.13 PURCHASER. The term "Purchaser" shall mean either Graham-Field
or Thuasne in their respective roles as exclusive distributor of the other
party's products as provided herein.
1.14 SELLER. The term "Seller" shall mean either Graham-Field or
Thuasne in their respective roles as supplier of its Products, as defined in
this Agreement, to the other party.
1.15 THUASNE PRODUCTS. The term "Thuasne Products" means
collectively only those products identified on Exhibit C attached hereto, as
supplemented or modified from time to time by the parties.
1.16 TERRITORIES. The term the "Territories" when used herein means
the United States of America (including territories and possessions) and Canada
with respect to the exclusive distribution by Graham-Field of the Thuasne
Products and Eastern Europe, Western Europe and the countries set forth on
Exhibit D with respect to the exclusive distribution by Thuasne of the
Graham-Field Products.
ARTICLE II
APPOINTMENT AND SCOPE
2.1 APPOINTMENT. Graham-Field hereby appoints Thuasne as the
exclusive independent distributor of the Graham-Field Products, and Thuasne
hereby appoints Graham-Field as the exclusive independent distributor of the
Thuasne Products, in the respective Territories. The parties hereby accept their
appointment and agree to diligently devote their best efforts to the performance
of such duties.
2.2 EXCLUSIVITY. For purposes of Section 2.1 hereof, the term
"exclusive" means that as long as each party is in full compliance with its
obligations hereunder, (a) each party shall not appoint any other agent,
representative or distributor for the promotion or sale of its Products in the
respective Territories and shall further refrain from selling the Products
3
<PAGE> 9
in the respective Territories directly other than through the other party, and
(b) the parties shall not represent, lease or sell in the respective Territories
any products comparable to, competitive with, equivalent to, intended to be used
with or that are part of, the Products, and shall further refrain from
purchasing any such Products from any other entity or person for sale, lease or
representation in the respective Territories. The parties shall not be
responsible for transgression of the other's exclusive rights hereunder by third
parties not controlled by the parties.
2.3 DISTRIBUTION OUTSIDE TERRITORY. Neither party nor any of its
Affiliates (collectively, the "Affiliates") shall offer, sell, distribute,
market or otherwise introduce the other party's Products into territories
outside the respective applicable Territories, and each party shall use such
efforts as it considers commercially reasonable to ensure that no Products of
the other party are offered, sold, distributed, marketed or otherwise introduced
outside the respective applicable Territories of each party as provided herein.
2.4 AGENTS AND SUBDISTRIBUTORS. The parties have authority to
appoint any subagent, subdistributor, or other similar person to promote the
sale of the Products in the respective Territories or to otherwise perform any
of their obligations hereunder.
2.5 INDEPENDENT PURCHASER STATUS. The parties are to be independent
purchasers and sellers respectively of the Products. The parties shall not be
considered agents or legal representatives of the other for any purpose, and
none of the Affiliates shall be, or be considered, an agent or employee of the
other party. The Affiliates are not being granted and shall not exercise the
right or authority or assume or create any obligation or responsibility,
including without limitation contractual obligations and obligations based on
warranties or guarantees, on behalf of or in the name of the other party.
2.6 OPERATIONS AND EXPENSES. Each party under this Agreement will
have sole control and management of its operations. Except as otherwise provided
herein, each party shall be responsible for, and shall hold the other harmless
from and against, all of its own expenses and employees. Subject to the terms
and conditions contained in this Agreement, each party shall provide, at its own
expense, such office space and facilities, and hire and train such personnel, as
may be required to carry out its obligations under this Agreement. The parties
agree that they shall incur no expense chargeable to the other, except as may be
specifically authorized in advance in writing in each case by the other.
4
<PAGE> 10
2.7 APPOINTMENT OF PRODUCT MANAGER FOR THUASNE PRODUCTS. The parties
shall mutually appoint and hire within thirty (30) days of the date hereof a
Product Manager to be employed on the books and records of Graham-Field as a
Product Manager primarily responsible for Graham-Field's sale, marketing and
distribution of the Thuasne Products in the applicable Territory. The
responsibilities of the Product Manager will be mutually developed between the
parties. Notwithstanding the foregoing, all costs associated with the employment
by Graham-Field of the Product Manager, including, but not limited to, all
salary, perquisites, benefits, medical and insurance and other benefits
(collectively, the "Compensation Benefits") shall be shared equally between the
parties; provided, however, all costs, expenses and Compensation Benefits
associated with the (i) training of the Product Manager with respect to the
Thuasne Products and (ii) travel to and from France and all living expenses of
the Product Manager in France during such training, shall be borne solely and
exclusively by Thuasne.
2.8 ADVERTISING COSTS FOR THUASNE PRODUCTS. All costs and expenses
associated with advertising, promotional, catalogs and other marketing materials
related to the Thuasne Products shall be shared equally between the parties;
provided, however, in no event shall such costs and expenses exceed $25,000
(U.S. dollars) on an annual basis.
ARTICLE III
TERMS AND CONDITIONS OF SALE FOR MANUFACTURED
PRODUCTS AND THUASNE PRODUCTS
3.1 FIRM PURCHASE ORDERS FOR MANUFACTURED PRODUCTS AND THUASNE
PRODUCTS. All orders for the Manufactured Products and Thuasne Products shall be
evidenced by the parties' firm purchase orders and shall be subject to all of
the provisions set forth in this Article III and in the parties' then current
terms and conditions of sale. Simultaneously with the signing of this Agreement,
Thuasne shall deliver to Graham-Field firm orders for the purchase of
Manufactured Products, and Graham-Field shall deliver to Thuasne firm orders for
the purchase of the Thuasne Products, during the first two (2) calendar months
of the term of this Agreement (with requested ship dates of not less than
forty-five (45) days after the other's receipt of the orders) and an estimate of
the purchase requirements for the Manufactured Products and Thuasne Products
during the following three (3) calendar months of the term of this Agreement. On
or prior to the last business day of the first and each following calendar month
of the term of this Agreement, the parties will place firm orders for the
purchase of the Manufactured Products and Thuasne Products during the next
calendar month of the term of this Agreement (with requested ship dates of not
less than forty-five (45) days after the other's receipt of orders) and provide
an
5
<PAGE> 11
estimate of purchase requirements for the Manufactured Products and Thuasne
Products for the next three (3) calendar months of the term of this Agreement.
By placing each order hereunder, the party confirms its agreement with and
acceptance of all such terms and conditions. The time period for delivery of any
order of Manufactured Products and Thuasne Products shall be in accordance with
the delivery schedule agreed upon at the time of the party's acceptance of such
order. No order for the Manufactured Products and Thuasne Products shall be
binding on a party unless, and until, accepted by that party. Acceptance shall
be evidenced in writing, signed by duly authorized personnel of the party.
3.2 PRICES. Thuasne shall purchase the Graham-Field Products
identified on Exhibit B for a purchase price (F.O.B. shipping point) equal to
one hundred ten percent (110%) of Cost, and with respect to the Graham-Field
Products marketed under the names "LaBac" or "Cain & Able" (or any derivations
thereof) for a purchase price (F.O.B. shipping point) equal to one hundred
twenty percent (120%) of Cost. Graham-Field shall purchase the Thuasne Products
for a purchase price (F.O.B. Shipping point) equal to one hundred ten percent
(110%) of Cost. All prices and amounts payable under this Section 3.2 and under
any other section of this Agreement are expressed and shall be payable in U.S.
dollars. The Purchaser shall bear and pay for all export and shipping charges
including, but not limited to, export packing and packaging charges, freight,
shipping costs, warehousing, demurrage, lighterage, insurance, consular fees,
and customs duties.
3.3 PAYMENT. Unless otherwise agreed to by the parties in writing,
the payment for the purchase price of the Products shall be by wire transfer of
immediately available funds within forty-five (45) days after delivery F.O.B.
shipping point, or by an irrevocable documentary letter of credit issued in
favor of the Seller, the terms and conditions of which shall be as agreed upon
by the parties, confirmed by a major commercial bank with a worldwide reputation
reasonably acceptable to the parties, payable upon presentation of required
documentation at sight, forty five (45) days after delivery F.O.B. shipping
point. Notwithstanding the foregoing payment terms, payment for the purchase
price of the Products may be made within one hundred and five (105) days after
delivery F.O.B. shipping point, provided interest on the outstanding unpaid
balance of the purchase price is paid to the Seller at the rate of one (1)
percent per thirty (30) day period commencing on the forty-fifth (45th) day
following delivery F.O.B. shipping point; provided, however, in no event shall
such payment be made later than one hundred and five (105) days following
delivery F.O.B. shipping point.
3.4 RISK OF LOSS. Risk of loss of or damage to the Products shall
pass to the Purchaser when such products are
6
<PAGE> 12
delivered F.O.B. shipping point, and the Purchaser shall arrange insurance
accordingly. At the request and expense and on behalf of the Purchaser, the
Seller shall undertake to deliver or cause to be delivered the Products F.O.B.
shipping point to an appropriate port of exit in the U.S. or in France, as the
case may be, in accordance with the Purchaser's written instructions. The
Seller's actions in that regard shall be for and on behalf of the Purchaser and
at no time after delivery of the Products F.O.B. shipping point as provided
above shall the risk of loss thereof and/or damage thereto be vested in the
Seller. However, at the express written request, direction and cost of the
Purchaser, the Seller shall cause to be provided an all-risks
warehouse-to-warehouse policy of marine insurance, or such other insurance as is
appropriate to cover loss of or damage to the Products in transit.
At its own expense, the Purchaser shall cooperate fully with the
Seller in effecting the shipment from the port of exit of the Products to be
delivered pursuant to this Agreement. The Seller shall use its best efforts to
provide the Purchaser with all necessary documents and information reasonably
requested by the Purchaser in connection with its performance under this
Section.
3.5 WARRANTY. The Products delivered by the Seller to the Purchaser
pursuant to this Agreement shall be warranted by the Seller to be free from
defect in materials and workmanship in accordance with the Seller's standard
warranty terms in effect at the time of shipment. A copy of each Seller's
standard warranty terms in effect for the Products as of the date of this
Agreement is attached hereto as Exhibit E. The Seller shall provide the
Purchaser with copies of any changes or modifications thereto during the life of
this Agreement. Any claim for breach of warranty must be submitted within the
specified warranty period. During said warranty period, the Seller shall, at the
Seller's option, either replace or authorize repair of any of the Products (or
parts of such Products), that are found to be defective. Any dispute that arises
regarding the nature or existence of a defect shall be settled through the use
of a third party inspection service that is mutually agreeable to the parties.
The Purchaser shall promptly return or dispose of defective Products or parts as
the Seller shall direct. In no event shall the Seller's liability for breach of
warranty exceed the replacement cost of any defective product or part.
The Purchaser may not extend the Seller's warranty to Customers in
connection with the sale of the Products. The Purchaser shall not in any way
alter the Products (nor the parts or components thereof) without the prior
written authorization of the Seller, nor extend any warranty nor make any
representation regarding the Products other than those contained in the Seller's
then current warranty. Any warranty given by the Purchaser with
7
<PAGE> 13
respect to the Products that have been altered without prior written
authorization or any such additional warranty or representation shall not be
binding on the Seller. Claims by the Purchaser in regard to any defect in the
Products shall be made pursuant to claim procedures set forth in Section 3.7.
3.6 NO OTHER WARRANTIES. THE FOREGOING WARRANTIES ARE EXCLUSIVE AND
IN LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES WHATSOEVER, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PARTICULAR
PURPOSE. UNDER NO CIRCUMSTANCES SHALL THE SELLER BE SUBJECT TO ANY
CONSEQUENTIAL, INCIDENTAL, INDIRECT, OR CONTINGENT DAMAGES WHATSOEVER WITH
RESPECT TO CLAIMS MADE HEREUNDER OR BY ANY PURCHASER OR USER OF THE PRODUCTS.
3.7 CLAIMS PROCEDURES. Any claim against the Seller for shortages in
or damages to the Products shipped to the Purchaser shall be made in accordance
with the Seller's damaged cargo procedures and other written instructions
conveyed to the Purchaser by the Seller from time to time. Any other claims
against the Seller arising out of the Products sold to the Purchaser shall be
made within thirty (30) calendar days after the Purchaser first knows or has
reason to know of such claim. All such claims shall be submitted to the Seller
in writing and shall set forth in sufficient detail for the Seller to ascertain
the basis and amount of such claim against the Seller. Failure by the Purchaser
to provide proper documentation to support an insurance claim resulting in total
or partial denial of coverage shall render the Purchaser liable to the Seller
for amounts unpaid. Any dispute that arises regarding the nature or existence of
any shortage or damage shall be settled through the use of a third party
inspection service that is mutually agreeable to the parties.
ARTICLE IV
TERMS AND CONDITIONS OF SALE OF THE DISTRIBUTED PRODUCTS
4.1 FIRM PURCHASE ORDERS FOR THE DISTRIBUTED PRODUCTS. Graham-Field
shall provide Thuasne with access to Graham-Field's suppliers of the Distributed
Products (the "Import Suppliers"), and Graham-Field will use its best efforts to
enable Thuasne to purchase the Distributed Products directly from the Import
Suppliers; provided, however, in the event Thuasne is unable for any reason to
purchase such Distributed Products from the Import Suppliers, Graham-Field will
purchase such products on behalf of Thuasne and directly supply such products to
Thuasne. All orders for the Distributed Products shall be evidenced by firm
purchase orders, which shall be placed directly with the Import Suppliers or
Graham-Field, as the case may be. The time period for delivery of any order of
the Distributed Products shall be in
8
<PAGE> 14
accordance with the delivery schedule agreed upon between the Import Supplier
and Thuasne or between Graham-Field and Thuasne, as the case may be.
4.2 PRICES. Thuasne shall purchase the Distributed Products for a
purchase price equal to Graham-Field's Cost of the Distributed Products. Thuasne
shall bear and pay for all export and shipping charges including, but not
limited to, export packing and packaging charges, freight, shipping costs,
warehousing, demurrage, lighterage, insurance, consular fees, and customs
duties.
4.3 PAYMENT. Unless otherwise agreed to by the Import Supplier and
Thuasne, the payment for the purchase of the Distributed Products shall be upon
the terms and conditions as provided by the Import Supplier to Graham-Field, as
modified from time to time, or upon the terms and conditions as provided in
Section 3.3 in the event Graham-Field directly supplies the Imported Products to
Thuasne. Simultaneously with payment by Thuasne of the purchase price for the
Distributed Products (whether to Graham-Field or Import Suppliers), Thuasne
shall pay Graham-Field an administrative fee in an amount equal to the product
of (i) four (4) percent and (ii) the Cost of the Distributed Products.
4.4 RISK OF LOSS. Risk of loss of or damage to the Distributed
Products shall pass to Thuasne upon terms and conditions mutually agreed upon
between Thuasne and the Import Supplier, or upon the terms and conditions as
provided in Section 3.4 in the event Graham-Field directly supplies the Imported
Products to Thuasne. At its own expense, Thuasne shall cooperate fully with the
Import Supplier or Graham-Field, as the case may be, in effecting the shipment
of the Distributed Products to be delivered to Thuasne.
4.5 WARRANTY. All Distributed Products delivered to Thuasne pursuant
to this Agreement shall be warranted solely and exclusively by the Import
Supplier to be free from defect in materials and workmanship in accordance with
the Import Supplier's standard warranty terms in effect at the time of shipment.
Any claim for breach of warranty must be submitted solely and exclusively to the
Import Supplier within the specified warranty period, with a copy of such claim
to Graham-Field. Thuasne agrees that Graham-Field shall have no liability with
respect to any dispute that arises regarding the nature or existence of any
defect relating to the Distributed Products. Graham-Field shall use reasonable
efforts to cause the Import Suppliers to provide Thuasne with the same warranty
conditions as those granted to Graham-Field by such Import Suppliers.
4.6 NO WARRANTIES. GRAHAM-FIELD PROVIDES NO WARRANTIES, EXPRESS OR
IMPLIED, WHATSOEVER, INCLUDING BUT NOT
9
<PAGE> 15
LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PARTICULAR
PURPOSE, FOR THE DISTRIBUTED PRODUCTS. UNDER NO CIRCUMSTANCES SHALL GRAHAM-FIELD
BE SUBJECT TO ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, OR CONTINGENT DAMAGES
WHATSOEVER WITH RESPECT TO CLAIMS MADE HEREUNDER OR BY ANY PURCHASER OR USER OF
THE DISTRIBUTED PRODUCTS.
4.7 CLAIMS PROCEDURES. Any claim for shortages in or damages to the
Distributed Products shall be made solely and exclusively with the Import
Supplier. Any dispute that arises regarding the nature or existence of any
shortage or damage relating to the Distributed Products shall be settled upon
and terms and conditions to be mutually agreed upon between Thuasne and the
Import Supplier.
ARTICLE V
OBLIGATIONS OF THE PURCHASER
5.1 SALES PROMOTION. The Purchaser shall diligently devote its best
efforts to distribute, sell, market, promote, service, support and maintain the
Products within the respective Territories and shall develop the largest
possible market for the sale of the Products in the respective Territories,
entirely at its own expense. For that purpose, the Purchaser hereby undertakes
to conduct the following activities:
A. Marketing Analysis: The Purchaser shall, on each June 30th and
January 1st during the term of this Agreement, provide the Seller with a
written analysis of the business and marketing conditions within the
respective Territory with respect to the sale of the Products in the
respective Territories. The Purchaser's analysis shall include information
on all pertinent market conditions and developments as well as an
assessment of the Purchaser's position relative to the Purchaser's
competitors.
B. Marketing Reporting Requirements: The Purchaser shall submit to
the Seller a marketing plan and shall also furnish sales forecasts to the
Seller on each June 30th and January 1st during the term of this
Agreement. The Purchaser shall also submit written reports to the Seller
summarizing the Purchaser's activities relative to marketing, service and
general product support for the Products in such form, and containing such
information with respect thereto, as the Seller may reasonably request
from time to time. The first such report shall be submitted to the Seller
six (6) months after the date of this Agreement and periodically
thereafter as the Seller may reasonably request from time to time.
10
<PAGE> 16
5.2 MAINTENANCE OF INVENTORY. Within ninety (90) days following the
date of this Agreement and continuing thereafter until the termination hereof,
the Purchaser shall maintain an adequate stock of the Products for resale within
the respective Territories as agreed upon between the Purchaser and the Seller
from time to time, along with an adequate stock of spare parts as will permit
the Purchaser to provide proper maintenance and service for the Products in the
respective Territories as provided in Section 5.6 hereof.
5.3 FACILITIES AND PERSONNEL. The Purchaser shall maintain, at its
own expense, such office space and facilities as may be required to carry out
its obligations under this Agreement. The Purchaser represents that it will
continue to have at all times throughout the term of this Agreement, an adequate
number of trained and competent sales and service personnel to fully perform its
obligations hereunder. The Seller may, in its discretion, provide at its own
expense sales and/or service training courses to assist employees of the
Purchaser in their sale and/or service of the Products. If the Seller provides
such training courses, the Purchaser shall require its personnel performing
functions covered by any training course to attend said courses. All costs or
expenses incurred by the Purchaser in attending or participating in such
training courses shall be for the account of the Purchaser. The Seller shall not
be liable to reimburse the Purchaser or its employees for transportation or any
other expenses incurred in attending such training courses.
5.4 PROMOTIONAL MATERIALS; TRADE SHOWS. The Purchaser shall maintain
an adequate inventory of the Seller's current sales material and samples and
shall use such materials and samples in an efficient and effective manner so as
to promote the sale and maintain the image and goodwill of the Products in the
respective Territories. The Purchaser shall not use any advertising or
promotional materials to promote the other party's Products that have not been
provided by the Seller unless the Purchaser shall have first obtained from the
Seller its prior written approval of such materials. The Seller shall, at its
sole cost and expense, prepare translations of the Seller's sales literature
into the languages utilized in the respective Territories and submit such
translation to the Purchaser for its prior approval. The Purchaser shall, at its
sole cost and expense, attend such trade shows in its respective Territory as to
diligently develop the largest possible market for the sale of the other party's
Products; provided, however, to the extent Graham-Field has, prior to the
execution of this Agreement, prepaid the costs of future trade shows in the
territory pursuant to which Thuasne will market the Graham-Field Products as
provided herein, Thuasne shall be required to reimburse Graham-Field for all
prepaid costs of Graham-Field associated with such trade shows.
11
<PAGE> 17
5.5 MINIMUM ANNUAL PURCHASES.
A. During each calendar year of the term of this Agreement
commencing on January 1, 1998, Thuasne shall be required to purchase the
following minimum quantities of Graham-Field Products (the "Minimum Annual
Purchases") as set forth below:
<TABLE>
<CAPTION>
MINIMUM ANNUAL
PURCHASES
CALENDAR YEAR (U.S. DOLLARS)
------------- --------------
<S> <C>
January 1, 1998 - December 31, 1998 $ 2,600,000*
January 1, 1999 - December 31, 1999 $ 7,000,000
January 1, 2000 - December 31, 2000 $ 8,400,000
January 1, 2001 - December 31, 2001 $10,080,000
January 1, 2002 - December 31, 2002 $12,096,000
</TABLE>
i. Notwithstanding the foregoing, if Thuasne's actual purchases (the
"Actual Purchases") during any calendar year of the term of this Agreement
ending after December 31, 1998 exceed the Minimum Annual Purchases for such
year, the Minimum Annual Purchases for the immediately succeeding calendar year
(an "Initial Adjusted Year") shall be adjusted to equal the product of (a) one
hundred twenty (120) percent and (b) the Actual Purchases during such preceding
calendar year, and the Minimum Annual Purchases for each succeeding calendar
year following an Initial Adjusted Year shall be adjusted to equal the greater
of (i) one hundred twenty (120) percent of the Minimum Annual Purchases (as
adjusted as provided herein for an Initial Adjusted Year) for the most recently
ended calendar year or (ii) one hundred twenty (120%) percent of the Actual
Purchases for the most recently ended calendar year. For example, if in the
calendar year ending December 31, 1999, the Actual Purchases are eight million
dollars ($8,000,000) (in excess of the Minimum Annual Purchases for the calendar
year ending December 31, 1999), then the Minimum Annual Purchases for the
calendar years ending December 31, 2000, 2001, and 2002 would be $9,600,000
(1.20 x $8,000,000), $11,520,000 (1.20 x $9,600,000), and $13,824,000 (1.20 x
$11,520,000), respectively.
ii. In the event Thuasne purchases less than ninety (90) percent of
the Minimum Annual Purchases, as modified as provided herein, in any calendar
year during the term of this Agreement, Graham-Field may, at its sole and
exclusive option,
- --------
* The Minimum Annual Purchases for the calendar year ending December 31,
1998 shall include the Graham-Field accounts set forth on Annex I attached
hereto, which shall be transferred to Thuasne as of the date hereof,
subject to the terms and conditions of this Agreement.
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<PAGE> 18
(a) modify Thuasne's appointment to a non-exclusive arrangement or (b) terminate
this Agreement effective immediately upon notice to Thuasne pursuant to Section
10.2E.
iii. In the event Thuasne purchases ninety (90) percent or more of
the Minimum Annual Purchases in any calendar year, as adjusted as provided
herein, but less than one hundred (100) percent of such Minimum Annual
Purchases, Thuasne shall be required to pay Graham-Field within thirty (30) days
following such calendar year an amount equal to the product of (a) ten (10)
percent and (b) the difference between (x) the Minimum Annual Purchases for such
year, as modified as provided herein, and (y) Actual Purchases for such year.
B. Within three (3) months of the date hereof, the parties shall use
their reasonable efforts to establish minimum annual purchase requirements
pursuant to which Graham-Field shall be required to purchase certain minimum
quantities of Thuasne Products during each calendar year of the term of this
Agreement.
5.6 AFTERMARKET SUPPORT. Subject to the provisions of this Agreement
the Purchaser shall provide full and complete service incident to the sale of
the Products in the respective Territories, including (i) maintaining offices in
the respective Territories with telex or telefax facilities that shall be
staffed by the necessary managerial, secretarial, and technical personnel and
shall otherwise be suitable for the receipt, repair, and return of defective
Products; (ii) hiring and retaining skilled technical personnel with adequate
experience in the maintenance and repair of the Products and, when requested by
the Seller, sending a representative of such technical personnel, at the
Purchaser's sole expense, to the Seller's facilities for any required training
or development, (iii) purchasing from the Seller and maintaining an adequate
supply of spare and replacement parts for the Products as provided in Section
5.2 hereof, (iv) purchasing and maintaining any special tools or machinery
necessary for the repair of the Products, and (v) administering and processing
warranty claims. The Purchaser will perform warranty repair services on the
Products sold in the respective Territories in accordance with the Seller's
standard service and repair price policies from time to time prescribed. The
Purchaser shall be responsible for all warranty repair services, and will
indemnify and hold the Seller harmless from and against all claims, losses,
expenses, and liabilities relating to or arising out of the rendering of such
services. The Purchaser may charge back the cost thereof to the Seller in
accordance with the Seller's warranty policies, and the Seller will pay the
Purchaser the amount of such chargeback within thirty (30) days following the
date of issuance of the Purchaser's invoices therefor.
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5.7 IMPORT AND EXPORT LICENSES, EXCHANGE CONTROLS, AND OTHER
GOVERNMENTAL APPROVALS, COMPLIANCE. The Purchaser shall, at its expense, obtain
and maintain any and all import and export licenses and governmental approvals
that may be necessary to permit the sale by the Seller and the purchase by the
Purchaser of the Products hereunder, comply with all registration requirements
in the respective Territories, obtain such approvals from the banking and other
governmental authorities of the respective Territories as may be necessary to
guarantee payment of all amounts due hereunder to the Seller in U.S. Dollars,
and comply with any and all governmental laws, regulations, and orders that may
be applicable to the Purchaser by reason of its execution of this Agreement
including any requirement to be registered as the Seller's exclusive distributor
with any governmental authority, and including any and all laws, regulations, or
orders that govern or affect the Products, including the ordering, export,
shipment, import, sale (including government procurement), delivery, or
redelivery of the Products in the respective Territories. The Purchaser shall
furnish the Seller with such documentation as the Seller may request to confirm
the Purchaser's compliance with this Section 5.7 and agrees that it shall not
engage in any course of conduct that, in the Seller's reasonable belief, would
cause the Seller to be in violation of the laws, regulations or orders of any
jurisdiction. Notwithstanding the foregoing, the Seller shall be solely
responsible for (i) the application and registration of all Intellectual
Property and (ii) the recordal of this Agreement, the License Agreement, and the
Purchaser as an authorized user of the Intellectual Property and (iii) the
deposit of any intellectual property registration with Customs authorities, both
in the respective Territories and outside the respective Territories. Purchaser
shall not undertake any of the foregoing without the prior written consent of
the Seller.
5.8 LOCAL LAW. The Purchaser shall notify the Seller of the
existence and content of any mandatory provision of law in the respective
Territories or any other applicable law that conflicts with any provision of
this Agreement at the time of its execution or thereafter.
5.9 HEALTH, SAFETY, AND ENVIRONMENTAL STANDARDS; LABELING. The
Purchaser agrees to advise the Seller fully with respect to all health, safety,
environmental, and other standards, specifications, and other requirements
imposed by law, regulation, or order in the respective Territories and
applicable to the Products. The Purchaser shall also advise the Seller of all
instructions, warnings, and labels applicable to the Products that are necessary
or desirable under laws, regulations, or industry standards or practices in the
respective Territories. The Seller shall be entitled to increase the prices
charged to the Purchaser immediately by the amount of any increase in the Cost
attributable to compliance with any such safety standards,
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<PAGE> 20
specifications, labels or other requirements.
5.10 ALTERATION. The Purchaser agrees not to alter or modify the
Products, trademark packaging, manuals, promotional and advertising materials,
in whole or in part, whether to comply with applicable local standards or
otherwise, without first obtaining the express written consent to and approval
of each such alteration or modification from the Seller.
5.11 INDEMNIFICATION. The Purchaser agrees to indemnify and hold the
Seller, its officers, directors, employees, successors, and assigns harmless
from and against all losses, damages, or expenses of whatever form or nature,
including attorneys' fees and other costs of legal defense, whether direct or
indirect, that they, or any of them, may sustain or incur as a result of any
acts or omissions of the Purchaser or any of its directors, officers, employees,
or agents, including, but not limited to, (i) breach of any of the provisions of
this Agreement, (ii) negligence or other tortious conduct, (iii) representations
or statements not specifically authorized by the Seller herein or otherwise in
writing, or (iv) violation by the Purchaser (or any of its directors, officers,
employees or agents) of any applicable law, regulation or order.
5.12 INSURANCE. The Purchaser shall maintain in effect during the
term hereof and for a period of no less than five (5) years thereafter
appropriate liability insurance policies with an internationally recognized
carrier providing coverage of not less than U.S. five (5) million dollars. Such
policies shall include the Seller as an additional named insured, provide for a
waiver of subrogation rights against the Seller, contain no cross-liability
exclusion, and require the Seller to receive not less than sixty (60) days'
notice of any modification or termination of coverage.
ARTICLE VI
OBLIGATIONS OF THE SELLER
6.1 SALES SUPPORT. The Seller shall, at its sole cost and expense,
provide the Purchaser with sales and marketing information applicable to the
Products and shall furnish such catalogs, specifications, promotional
literature, and other materials pertaining to the Products as are available from
time to time.
6.2 ADVERTISING PROGRAMS. The Purchaser shall be entitled to
participate in such advertising programs, allowances, and other arrangements as
the Seller makes generally available to its distributors during the term hereof.
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<PAGE> 21
6.3 NOTIFICATION OF CHANGES. With three (3) months prior notice, the
Seller shall notify the Purchaser of any changes in or affecting the Products or
prices, terms and conditions of sale, sales policies, projected delivery dates,
schedule changes, and other matters that the Seller determines may affect the
business of the Purchaser.
6.4 ASSISTANCE. The Seller shall provide the Purchaser with
reasonable access to and assistance of its technical, sales, and service
personnel as the Seller deems appropriate. Such assistance shall be without
charge to the Purchaser except as may be otherwise mutually agreed.
6.5 REGULATORY AGENCIES AND GOVERNMENTAL APPROVALS. The Seller shall
prepare and submit all documents required by applicable regulatory agencies for
approval to market the Products in the respective Territories. Purchaser shall
cooperate fully with Seller and such regulatory agencies in the effort to obtain
approval to market the Products, including without limitation providing such
information and other cooperation as may be required or necessary for such
approvals. The parties recognize that approval may be delayed or postponed by a
regulatory agency through no fault of the parties, and it is agreed that any
such delay or postponement shall not constitute a default under this Agreement.
Graham-Field, at its sole cost and expense, will use commercially
reasonable efforts to obtain such certification (by a recognized certification
organization) and be in compliance with all "CE" marking requirements on or
before June 30, 1998, as reasonably necessary to enable Thuasne to market the
Products in its respective Territory. Thuasne shall provide such support and
assistance requested by Graham-Field as Thuasne is able, including consulting
services by Thuasne's employees with prior experience in obtaining such
certifications at no cost or charge to Graham-Field. Once any such certification
is obtained, Graham-Field shall maintain such certification throughout the term
of this Agreement.
The Seller and/or Purchaser, as the case may be, shall advise the
other from time to time of the status of regulatory review of any submitted
documents by either party in connection with such party's fulfilling its
obligations to obtain regulatory approvals, as provided herein, and any
consequential revision of any expected approval date.
Each party shall obtain and maintain in full force and effect all
appropriate regulatory filings, authorizations, approvals and consents and shall
maintain all documents and records relating to its responsibilities with respect
to the Products. Each party shall promptly forward to the other party all
notices of adverse findings with respect to Products that it
16
<PAGE> 22
receives, and shall cooperate fully with the other party in investigating each
such incident.
ARTICLE VII
AUDIT
During the term of this Agreement, the Seller and the Purchaser
hereby agree to maintain separate books and records relating to the transactions
contemplated by this Agreement, and that each party shall have the right once a
year and upon ninety (90) days' prior written notice to inspect the books and
records of the other party as such books and records solely relate to the
transactions contemplated by this Agreement. All information relating to the
cost of the Products will be kept confidential to the parties.
ARTICLE VIII
PATENT INFRINGEMENT
The Seller makes no warranty or representation that the sale and/or
customary use of the Products will not infringe enforceable letters patent
issued to other persons or valid trade secrets, proprietary information,
trademark, copyright or patent rights of other persons, but the Seller is
unaware of any claim or threat of any claim that the sale and/or customary use
of the Products would so infringe such rights of any other person. Provided that
the Purchaser (i) uses the Products in accordance with the terms of this
Agreement and (ii) notifies the Seller immediately in writing of any claim or
threatened claim by any third party that the Purchaser's or its Customer's use
of any of the Products infringes the rights of such third party and (iii) gives
the Seller sole authority to defend or settle such claim and provides all
necessary assistance and information with respect thereto, the Seller shall
indemnify and hold the Purchaser harmless from and against any and all damages
arising out of such claim awarded against the Purchaser by a court of competent
jurisdiction by a final order that is not subject to further appeal. The Seller
shall not be responsible for any settlement or compromise made without its
consent. The Seller shall have no liability to the Purchaser under any provision
of this Section if any infringement or claim thereof is based upon the use of
any Products in connection or combination with any product not supplied by the
Seller or upon a modification or alteration of such Products by the Purchaser or
its Customer. If the sale and/or use of the Products pursuant to this Agreement
becomes (or in the opinion of the Seller is likely to become) the subject of an
infringement claim, the Seller may, at its option, (i) secure a right to sell
pursuant to this Agreement, (ii) make modifications that would render the sale
or use hereunder non-
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<PAGE> 23
infringing, or (iii) remove the infringing product from the Products covered by
this Agreement upon notice to the Purchaser. In no event shall the Seller be
liable hereunder for any indirect or consequential damages of any nature
whatsoever, including without limitation for lost profits.
ARTICLE IX
CONFIDENTIALITY AND PROPRIETARY RIGHTS
9.1 CONFIDENTIAL INFORMATION. The Purchaser acknowledges that the
Confidential Information comprises valuable trade secrets and is proprietary to
the Seller. The Purchaser shall hold in strict confidence the Confidential
Information and shall not disclose the same to any other person, firm, or
corporation. The foregoing obligation shall not extend to information that is or
must be divulged according to statutory, regulatory or other governmental
requirements.
9.2 USE OF CONFIDENTIAL INFORMATION. The Purchaser shall not use for
any purpose other than implementation of this Agreement any portion of the
Confidential Information or any patent, trademark, copyright or other
Intellectual Property right of the Seller nor copy or imitate any of the
Seller's designs of any of the Products. Acknowledging that the damages
sustainable by the Seller as a consequence of any breach of the Purchaser's
obligations under this Section 9.2 may be difficult to measure in monetary
terms, the Purchaser hereby agrees that the Seller shall be entitled (i) to have
the continuation of any such breach permanently enjoined and (ii) to an award of
exemplary damages in an appropriate amount determined by arbitration as provided
in Section 11.2.
9.3 TRADEMARKS, INTERNET DOMAIN NAMES AND TRADE NAMES. All Products
sold by the Purchaser shall bear the Seller's trademarks and trade names as
indicated on Exhibit H hereto. Such trademarks, trade names and internet domain
names shall be affixed to the Products and the packaging, labels, displays and
sales and promotional literature associated therewith by the Seller, and the
Purchaser shall not remove, alter or deface such trademarks, trade names and
internet domain names. Any and all use of such trademarks and trade names shall
inure solely to the benefit of the Seller. The Seller agrees that the Purchaser
may affix to the Products the Purchaser's trade names, at the sole cost of the
Purchaser. The Purchaser shall not directly or indirectly use or register any of
the Seller's trademarks, trade names or internet domain names or any part
thereof, or any mark or name confusingly similar thereto, as part of its
corporate or business name or in any other manner, except that (i) the Purchaser
may identify itself as an authorized distributor of the Seller and (ii) the
Purchaser may use the Seller's trademarks, trade names and internet domain names
relating to the Products
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<PAGE> 24
for display purposes in connection with the solicitation of orders for the
Products from Customers in the Territory and in any other manner previously
approved by the Seller in writing. In addition, the Purchaser shall not
register, record or deposit any of the Seller's trademarks, trade names or
internet domain names or any mark or name similar thereto.
9.4 PROTECTION OF PROPRIETARY RIGHTS. The Purchaser agrees to
cooperate with and assist the Seller, at the Seller's request and expense, in
the protection of trademarks, trade names, trade dress, internet domain names,
patents, and copyrights owned by or licensed to the Seller and shall inform the
Seller immediately of any infringements or other improper action with respect
thereto, or of any related claims or allegations, that shall come to the
attention of the Purchaser.
ARTICLE X
TERM AND TERMINATION
10.1 TERM. Unless terminated as provided in Section 10.2 below or by
mutual written consent, the term of this Agreement shall commence on the date
hereof and shall continue in full force and effect for an initial term expiring
on December 31, 2002 and thereafter shall be automatically renewed for
successive one-year terms unless terminated by either party by written notice to
the other at least six (6) months prior to the expiration of the initial or any
renewal term hereof.
10.2 TERMINATION. This Agreement may be terminated prior to
expiration of the initial or any renewal term hereof by written notice to the
other party as follows:
A. By either party, in the event the other party should fail to
perform any of its material obligations hereunder and should fail to
remedy such nonperformance within thirty (30) calendar days after
receiving written demand therefor, unless such party is diligently
pursuing the cure for such failure within such applicable time period;
B. By either party, effective immediately, if the other party should
become the subject of any voluntary or involuntary bankruptcy,
receivership, or other insolvency proceedings or make an assignment or
other arrangement for the benefit of its creditors, or if such other party
should be nationalized or have any of its material assets expropriated;
C. By the Seller, effective immediately, if the Purchaser should
attempt to sell, assign, delegate, or transfer any of its rights and
obligations under this
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<PAGE> 25
Agreement without having obtained the Seller's prior written consent
thereto (other than pursuant to the terms and provisions of Section 2.4);
D. By Graham-Field, effective immediately pursuant to Section 5.5;
E. By the Seller, effective immediately, if the Purchaser knowingly
makes any false or untrue statements or representations to the Seller
herein or in the performance of its obligations hereunder; and
F. By either party in accordance with the terms contained in Section
12.3.
G. By the Seller, in the event that Purchaser breaches any of its
obligations hereunder with respect to the Confidential Information or the
Seller's rights in and to the Intellectual Property.
10.3 RIGHTS OF PARTIES ON TERMINATION. The following provisions
shall apply on the termination or expiration of this Agreement.
A. The Purchaser shall return to the Seller and immediately cease
all use of Confidential Information previously furnished by the Seller and
then in the Purchaser's possession or, if the Seller so requests, dispose
of such Confidential Information and provide the Seller with written
confirmation thereof. The Purchaser shall take such action as is necessary
to terminate the Purchaser's registration as the Seller's sales
representative with any governmental authority.
B. All indebtedness of the Purchaser to the Seller shall become
immediately due and payable without further notice or demand, which is
hereby expressly waived, and the Seller shall be entitled to reimbursement
for any reasonable attorneys' fees that it may incur in collecting or
enforcing payment of such obligations.
C. In the event of the nonrenewal or cancellation of this Agreement
by the Seller, the Seller will, at its sole and exclusive option, either
(i) repurchase from the Purchaser, at the net prices paid by the Purchaser
any or all inventory of the Products originally purchased by the Purchaser
from the Seller and remaining unsold by the Purchaser which are new,
salable and in unopened, undamaged cartons or (ii) permit the Purchaser to
sell the remaining unsold inventory of Seller.
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D. The Purchaser shall not be entitled to any payments in the nature
of termination indemnities upon the nonrenewal or cancellation of this
Agreement for any reason whatsoever, except as provided in Section 10.5
below. The Purchaser hereby expressly waives any special, additional, or
statutory compensation or claim for damages, indemnities, or penalties to
which it may be entitled under the laws of the Territory or any
subdivision thereof, as a result of the nonrenewal or cancellation of this
Agreement, with or without cause.
E. The obligations of the Purchaser under Sections 5.12 and 5.13 and
Article VIII and IX shall survive the nonrenewal or cancellation of this
Agreement for any reason. The nonrenewal or cancellation of this Agreement
shall be without prejudice to the rights and obligations of the parties
which have accrued up to and including the date of termination.
10.4 ORDERS AFTER TERMINATION. On and after the effective date of
any nonrenewal or cancellation of this Agreement or the appointment granted
herein, the Seller shall be obligated to deliver and the Purchaser shall be
obligated to accept, only such quantities of the Products as may be needed to
fulfill the Purchaser's orders outstanding at the effective date of termination.
10.5 LIMITATION OF REMEDIES. Under no circumstances shall either
party be liable to the other party by reason of termination or non-renewal of
this Agreement for compensation, reimbursement, or damages for:
A. Loss of prospective compensation; or
B. Goodwill or loss thereof.
Notwithstanding the foregoing, pursuant to the terms and provisions
contained in Article XI, either party may seek recovery of reasonable
expenditures incurred in reliance on this Agreement by reason of termination or
non-renewal of this Agreement.
ARTICLE XI
RESOLUTION BY NEGOTIATION; ARBITRATION
11.1 RESOLUTION BY NEGOTIATION. Except in the event of any
litigation or proceeding commenced by any third party against either party in
which the other party is an indispensable party or potential third party
defendant, and except for enforcement of any interim or preliminary remedy (to
the extent such remedy is sought before an arbitration panel is duly appointed
and
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convened), any dispute or controversy between the parties involving the
interpretation, construction or application of any terms, covenants or
conditions of this Agreement, or transactions under it, or any claim arising out
of or relating to this Agreement, or transactions under it, shall, upon the
request of one party served on the other, be submitted for resolution by senior
executives designated by each party, who shall attempt to resolve such dispute
or controversy in good faith and, in the event such resolution is not achieved
within fifteen (15) U.S. working days of such request, shall be submitted to
arbitration in accordance with provisions of Section 11.2.
11.2 SETTLEMENT BY ARBITRATION. This Agreement, all transactions
contemplated and executed hereunder and any legal relations between the parties
relating to this Agreement shall be finally settled under the Rules of
Conciliation and Arbitration of the International Chamber of Commerce by one or
more arbitrators appointed in accordance with the said Rules. The place of
arbitration shall be Paris. The language to be used in the arbitration
proceedings shall be the English language.
ARTICLE XII
FORCE MAJEURE
12.1 FORCE MAJEURE CONDITIONS AND ALLOCATION. Neither party shall be
liable for failure to perform any obligation under this Agreement if the failure
is caused by war, insurrection, riot, fire, explosion, flood, strike, lock-out,
injunction, inability to obtain fuel, power, raw materials, labor, containers or
transportation, accident, malfunction of machinery or apparatus, national
defense requirements, acts or regulations of national or local governments,
denial of export or import licenses, or act of God, or any other cause beyond
the control of the Parties. If, because of any such cause, the Seller is unable
to supply the total demand for its Products, the Seller may, in its sole
discretion, allocate its available supply among itself and all of its customers,
including those not under contract.
12.2 PURCHASER'S OBLIGATIONS. Notwithstanding the foregoing, the
occurrence of a force majeure condition described in Section 12.1 above shall
not relieve the Purchaser in any manner whatsoever from its obligations to pay
to the Seller any amounts then due and owing to the Seller pursuant to the terms
of this Agreement.
12.3 NOTIFICATION AND REMEDY. The party claiming relief pursuant to
Section 12.1 shall promptly notify the other party in writing of the facts
indicating the existence of force majeure conditions and the relief claimed. The
parties agree to use their best efforts to overcome such conditions. Section
12.1 shall not relieve any party of its obligations to perform its
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part of this Agreement at such time and to such extent as maybe possible
subsequent to the occurrence of the conditions described in Section 12.1 and
within reasonable time thereafter. Should such conditions continue unabated,
despite the parties' best efforts to overcome them from three (3) months from
the date of notice given pursuant hereto, then the party receiving such notice
shall have the option to terminate this Agreement without liability to the other
party for the consequences of such termination.
ARTICLE XIII
SEVERABILITY
13.1 COMPLIANCE WITH EC REGULATION. This Agreement has been drafted
to comply with EC Regulation 1983/83. If any portion of this Agreement is found
to infringe Article 85(1) of the Treaty Establishing the European Economic
Community, then such portion shall be severed from those remaining provisions
such that the benefit of the block exemptions shall continue to apply.
13.2 REMEDY. Without prejudice to Section 13.1, if any portion of
this Agreement including the Exhibits hereto and made a part hereof, is held to
violate, or to be invalid or unenforceable under, the laws of any government or
subdivision thereof, the portion declared to be in violation of or invalid or
enforceable under any such law shall be treated as being of no force or effect,
and this Agreement shall be construed as though such portion had not been
inserted herein, and the remainder of this Agreement shall remain in full force
and effect to the fullest extent legally permitted.
ARTICLE XIV
GENERAL PROVISIONS
14.1 ENTIRE AGREEMENT. This Agreement, including the Exhibits
hereto, represents the entire agreement between the parties on the subject
matter hereof and supersedes all prior discussions, agreements, and
understandings of every kind and nature between them. No modification of this
Agreement will be effective unless in writing and signed by both parties.
14.2 NOTICES. All notices, communications, demands, and payments
under this Agreement shall be in English and shall be made in writing by hand
delivery, telefax, courier, cable, registered airmail or by any other means of
delivery which enables the sending party to verify receipt thereof. Such notice
shall conclusively be presumed to be given or made: (i) at the time it is
personally given or made in the case of personal delivery or transmission by
telefax (with receipt confirmed);
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(ii) at the time of receipt of the addressee's answerback on the sender's
machine in the case of transmission by telex; or (iii) ten (10) days after
mailing sufficient postage or cost prepaid in the case of registered airmail,
delivery by courier or cable. All notices sent by means other than those made by
hand delivery or registered airmail shall be promptly confirmed by registered
airmail. Any notices shall be addressed as follows:
If to Graham-Field: Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, NY 11788
Attention: Mr. Irwin Selinger, Chairman
of the Board and Chief
Executive Officer
Telecopier No.: (516) 582-5608
If to Thuasne: Thuasne
6, rue des Marronniers
BP 243-92307 Levallois-Perret Cedex
France
Attention: Elisabeth Ducottet, President
and Chief Executive Officer
Telecopier No.: 011-33-1-47-59-0473
or to such other person or address as either party may, by like notice, specify
to the other.
14.3 NONASSIGNMENT. This Agreement shall be binding on and inure to
the benefit of the successors and assigns of the parties; provided, however,
neither party shall sell, assign, delegate, or otherwise transfer any of its
rights or obligations hereunder without the prior written consent of the other
party, which shall not be unreasonably withheld.
14.4 LANGUAGE. The English language version of this Agreement shall
govern and control any translations of the Agreement into any other language.
14.5 APPLICABLE LAW. This Agreement, all transactions contemplated
and executed hereunder and the legal relations between the parties shall be
construed and interpreted in accordance with and shall be governed by French
law. The parties expressly exclude the applicability of the United Nations
Convention for the International sale of Goods.
14.6 WAIVER. Each party agrees that the failure of any party at any
time to require performance by the other party of any of the provisions herein
shall not operate as a waiver of such party to request strict performance of the
same or like provisions, or any other provisions hereof, at a later time.
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14.7 HEADINGS. Any headings used herein are for convenience in
reference only and are not a part of this Agreement, nor shall they in any way
affect the interpretation hereof.
14.8 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which shall be deemed to be an original but which
together shall constitute one and the same instrument.
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<PAGE> 31
IN WITNESS WHEREOF, Graham-Field and Thuasne have caused this
instrument to be executed by their duly authorized representatives, as of
September __, 1997.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By:_______________________________________
Name:
Title:
THUASNE
By:_______________________________________
Name:
Title:
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<PAGE> 32
EXHIBIT A
DISTRIBUTED PRODUCTS
As used herein, the term "Distributed Products" shall include
products imported by Graham-Field, which are (i) fully-manufactured and
assembled into a finished product, designed, and controlled by an Import
Supplier (other than an Affiliate of Graham-Field) and (ii) marketed under the
names "Temco," "Labtron," "John Bunn," "Cain & Able," "Everest & Jennings" and
any derivations thereof; provided, however, all wheelchair products and
accessories manufactured and/or assembled by an Import Supplier (including, but
not limited to P.T. Dharma Polimetal or any of its Affiliates) under the
"Everest & Jennings" name or any derivation thereof shall constitute
"Manufactured Products".
<PAGE> 33
EXHIBIT B
MANUFACTURED PRODUCTS
As used herein, the term "Manufactured Products" shall include
products (i) (x) manufactured and/or assembled by Graham-Field or any of its
Affiliates and (y) marketed under the names "Temco," "Labtron," "LaBac," "John
Bunn," "Cain & Able" and any derivations thereof, and (ii) all wheelchair
products and accessories manufactured under the name "Everest & Jennings" and
any derivations thereof by (x) Graham-Field or any of its Affiliates, or (y) any
Import Supplier (including, but not limited to, P.T. Dharma Polimetal or any of
its Affiliates).
<PAGE> 34
EXHIBIT C
THUASNE PRODUCTS
[To be provided]
2
<PAGE> 35
EXHIBIT D
COUNTRIES
Morocco
Tunisia
Algeria
Tania
Male
Niger
Tchad (Chad)
Senegal
Gambie
Guinee-Bissau
Guinee
Burkina Faso
Cote D'Ivoire
Guinea Equat
Cameroun
Congo
Gabon
Republique Centrailicaine
Zaire
Rwanda
Djibouti
Seychelles
Comores
Madagascar
Reunion
Libya
Egypt
<PAGE> 36
EXHIBIT E
STANDARD WARRANTY POLICY
[To be provided]
<PAGE> 37
ANNEX I
GRAHAM-FIELD ACCOUNTS
2
<PAGE> 1
ASSET PURCHASE AGREEMENT
dated as of August 21, 1997
by and among
GRAHAM-FIELD HEALTH PRODUCTS, INC.,
GRAHAM-FIELD, INC.,
MEDI-SOURCE, INC.,
PETER GALAMBOS
and
IRENE GALAMBOS
<PAGE> 2
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience only.
<TABLE>
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No.
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ARTICLE I
SALE OF ASSETS AND CLOSING
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1.01 Assets........................................................................................... 1
1.02 Liabilities...................................................................................... 5
1.03 Purchase Price; Net Book Value Certificate; Allocation........................................... 6
1.04 Closing.......................................................................................... 6
1.05 Accounts Receivable Payment...................................................................... 7
1.06 Prorations....................................................................................... 8
1.07 Further Assurances; Post-Closing Cooperation..................................................... 9
1.08 Transfer Taxes................................................................................... 10
1.09 Third-Party Consents............................................................................. 10
1.10 Product Liability Insurance...................................................................... 11
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS
2.01 Organization of Seller........................................................................... 11
2.02 Authority........................................................................................ 11
2.03 No Conflicts..................................................................................... 12
2.04 Governmental Approvals and Filings............................................................... 12
2.05 Books and Records................................................................................ 13
2.06 Financial Statements............................................................................. 13
2.07 Absence of Changes............................................................................... 13
2.08 No Undisclosed Liabilities....................................................................... 15
2.09 Taxes............................................................................................ 15
2.10 Legal Proceedings................................................................................ 16
2.11 Compliance With Laws and Orders.................................................................. 17
2.12 Benefit Plans; ERISA............................................................................. 17
2.13 Real Property.................................................................................... 20
2.14 Tangible Personal Property; Investment Assets.................................................... 21
2.15 Intellectual Property Rights..................................................................... 21
2.16 Contracts........................................................................................ 22
2.17 Licenses......................................................................................... 24
2.18 Warranty Claims.................................................................................. 24
2.19 Product Liability Claims......................................................................... 25
2.20 Insurance........................................................................................ 25
</TABLE>
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2.21 Affiliate Transactions........................................................................... 25
2.22 Employees; Labor Relations....................................................................... 25
2.23 Environmental Matters............................................................................ 26
2.24 Substantial Customers and Suppliers.............................................................. 27
2.25 Accounts Receivable.............................................................................. 28
2.26 Inventory........................................................................................ 29
2.27 No Guarantees.................................................................................... 29
2.28 Entire Business.................................................................................. 29
2.29 Brokers.......................................................................................... 29
2.30 Disclosure....................................................................................... 30
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
3.01 Organization..................................................................................... 30
3.02 Authority........................................................................................ 30
3.03 No Conflicts..................................................................................... 30
3.04 Governmental Approvals and Filings............................................................... 31
3.05 Legal Proceedings................................................................................ 31
3.06 Brokers.......................................................................................... 31
ARTICLE IV
COVENANTS OF SELLER
4.01 Books and Records, etc.; Removal of Property..................................................... 32
4.02 Use of "Medi-Source" Name........................................................................ 32
4.03 Change of Corporate Name......................................................................... 32
4.04 Delivery of Financial Statements................................................................. 32
ARTICLE V
EMPLOYEE MATTERS
5.01 Employment....................................................................................... 33
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.01 Survival of Representations, Warranties, Covenants and Agreements................................ 33
6.02 Indemnification.................................................................................. 34
</TABLE>
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ARTICLE VII
DEFINITIONS
7.01 Definitions...................................................................................... 37
ARTICLE VIII
MISCELLANEOUS
8.01 Notices.......................................................................................... 46
8.02 Bulk Sales Act................................................................................... 47
8.03 Entire Agreement................................................................................. 48
8.04 Expenses......................................................................................... 48
8.05 Public Announcements............................................................................. 48
8.06 Waiver........................................................................................... 48
8.07 Amendment........................................................................................ 48
8.08 No Third Party Beneficiary....................................................................... 48
8.09 No Assignment; Binding Effect.................................................................... 48
8.10 Headings......................................................................................... 49
8.11 Invalid Provisions............................................................................... 49
8.12 Governing Law.................................................................................... 49
8.13 Counterparts..................................................................................... 49
ANNEXES
ANNEX I Net Book Value Certificate
ANNEX II Purchase Price Allocation
EXHIBITS
EXHIBIT A Non-Competition Agreement - Peter Galambos
EXHIBIT B Non-Competition Agreement - Robert Ulan
EXHIBIT C Non-Competition Agreement - Andrew Galambos
EXHIBIT D Employment Agreement - Robert Ulan
</TABLE>
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<PAGE> 5
This ASSET PURCHASE AGREEMENT dated as of August 21, 1997, is
made and entered into by and among Graham-Field Health Products, Inc., a
Delaware corporation ("Parent"), Graham-Field, Inc., a New York corporation and
a wholly-owned subsidiary of Parent ("Purchaser"), Medi-Source, Inc., a New York
corporation ("Seller"), Peter Galambos ("Mr. Galambos") and Irene Galambos
("Mrs. Galambos" and, together with Mr. Galambos, "the Shareholders").
Capitalized terms not otherwise defined herein have the meanings set forth in
Section 7.01.
WHEREAS, Seller is engaged in the business of distributing
medical/surgical and home healthcare products (the "Business");
WHEREAS, the Shareholders are the owners of a majority of the
issued and outstanding capital stock of Seller; and
WHEREAS, Seller and the Shareholders desire that Seller sell,
transfer and assign to Purchaser, and Parent desires that Purchaser purchase and
acquire from Seller, substantially all of the assets of Seller relating to the
operation of the Business, and in connection therewith, Purchaser has agreed to
assume certain of the liabilities of Seller relating to the Business, all on the
terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
SALE OF ASSETS AND CLOSING
1.01 Assets. (a) Assets Transferred. On the terms and subject
to the conditions set forth in this Agreement, Seller hereby sells, transfers,
conveys, assigns and delivers to Purchaser, and Purchaser hereby purchases and
pays for, free and clear of all Liens other than Permitted Liens, all of
Seller's right, title and interest in, to and under the following Assets and
Properties of Seller used or held for use in connection with the Business,
except as otherwise provided in Section 1.01(b), as the same shall exist on the
Closing Date (collectively, the "Assets"):
(i) Real Property Leases. The leases and subleases of real
property described in Section 1.01(a)(i) of the Disclosure Schedule as
to which Seller is the lessee or sublessee, together with any options
to purchase the
<PAGE> 6
underlying property and leasehold improvements thereon, and in each
case all other rights, subleases, licenses, permits, deposits and
profits appurtenant to or related to such leases and subleases (the
"Real Property Leases");
(ii) Inventory. All inventories of raw materials,
work-in-process, parts, finished goods, products under research and
development, demonstration equipment, office and other supplies, parts
and operating supplies, packaging materials and other accessories
related thereto which are held at, or are in transit from or to, the
locations at which the Business is conducted, or located at customers'
premises on consignment, in each case, which are used or held for use
by Seller in the conduct of the Business, including any of the
foregoing purchased subject to any conditional sales or title retention
agreement in favor of any other Person, together with all rights of
Seller against suppliers of such inventories, including but not limited
to the items listed in Section 1.01(a)(ii) of the Disclosure Schedule
(the "Inventory");
(iii) Accounts Receivable. All trade accounts receivable and
all notes, bonds and other evidences of Indebtedness of and rights to
receive payments arising out of sales occurring in the conduct of the
Business, including but not limited to the accounts receivable listed
in Section 1.01(a)(iii) of the Disclosure Schedule, and the security
arrangements and collateral related thereto, including any rights of or
any other Actions or Proceedings which have been commenced in
connection therewith (the "Accounts Receivable");
(iv) Tangible Personal Property. All furniture (other than the
furniture referred to in Section 1.01(b)(iii)), fixtures, equipment,
machinery and other tangible personal property (other than Inventory
and Vehicles) used or held for use in the conduct of the Business at
the locations at which the Business is conducted or at customers'
premises on consignment, or otherwise used or held for use by Seller in
the conduct of the Business (including but not limited to the items
listed in Section 1.01(a)(iv) of the Disclosure Schedule), including
any of the foregoing purchased subject to any conditional sales or
title retention agreement in favor of any other Person (the "Tangible
Personal Property");
(v) Personal Property Leases. (A) The leases or subleases of
tangible personal property described in Section 1.01(a)(v)(A) of the
Disclosure Schedule as to which Seller is the lessor or sublessor and
(B) all leases related to computer equipment, rolling stock, telephone
equipment and
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<PAGE> 7
other office equipment used in connection with the Business, including
the leases of tangible personal property described in Section
1.01(a)(v)(B) of the Disclosure Schedule as to which Seller is the
lessee, together with any options to purchase the underlying property
(the leases and subleases described in subclauses (A) and (B), the
"Personal Property Leases");
(vi) Business Contracts. All Contracts (other than the Real
Property Leases, the Personal Property Leases and the Accounts
Receivable) to which Seller is a party and which are utilized in the
conduct of the Business, including without limitation Contracts
relating to customers, suppliers, sales representatives, distributors,
purchase orders, marketing arrangements and manufacturing arrangements,
including but not limited to the Contracts listed in Section
1.01(a)(vi) of the Disclosure Schedule (the "Business Contracts");
(vii) Prepaid Expenses. All prepaid expenses relating to the
Business, including but not limited to the items listed in Section
1.01(a)(vii) of the Disclosure Schedule (the "Prepaid Expenses");
(viii) Intangible Personal Property. All Intellectual Property
used or held for use in the conduct of the Business (including Seller's
goodwill therein) including the right to use the name "Medi-Source" and
all variations thereof, and all rights, privileges, claims, causes of
action and options relating or pertaining to the Business or the
Assets, including but not limited to the items listed in Section
1.01(a)(viii) of the Disclosure Schedule (the "Intangible Personal
Property");
(ix) Licenses. To the extent their transfer is permitted under
applicable Laws, all Licenses (including applications therefor)
utilized in the conduct of the Business, including but not limited to
the License with respect to silver nitrate applicators and the Licenses
listed in Section 1.01(a)(ix) of the Disclosure Schedule (the "Business
Licenses");
(x) Security Deposits. All security deposits deposited by or
on behalf of Seller as lessee or sublessee under the Real Property
Leases and Personal Property Leases, including but not limited to the
security deposits listed in Section 1.01(a)(x) of the Disclosure
Schedule (the "Tenant Security Deposits");
(xi) Books and Records. All Books and Records used or held for
use in the conduct of the Business or otherwise
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<PAGE> 8
relating to the Assets, other than the Excluded Books and Records (the
"Business Books and Records");
(xii) Artworks, etc. All artworks, mechanicals or stats
prepared in connection with marketing and advertising materials,
catalogs, brochures or similar items relating to the Business;
(xiii) Marketing Materials. All customer lists, dealer lists,
sales representative lists, distributor lists, toll free telephone
numbers, marketing and advertising materials, catalogs and brochures
used in or generated for the Business (the "Marketing Materials");
(xiv) Designs, Blueprints. All designs, products, drawings,
plans, blueprints, bills of material, flowsheets, specifications, plan
sheets, formulas, parts lists, instruction manuals, FDA Form 510K
product filings and registrations and device master records relating to
the Business, including but not limited to the items listed in Section
1.01(a)(xiv) of the Disclosure Schedule (the "Instruction Materials");
(xv) Catalog Numbers. All catalog numbers used in connection
with the Business;
(xvi) Cash. Cash, commercial paper, certificates of deposit
and other bank deposits, treasury bills and other cash equivalents,
including but not limited to the cash and other items listed in Section
1.01(a)(xvi) of the Disclosure Schedule;
(xvii) Goodwill. All goodwill of Seller relating to the
Business or the Assets; and
(xviii) Other Assets and Properties. All other Assets and
Properties of Seller used or held for use in connection with the
Business except as otherwise provided in Section 1.01(b) (the "Other
Assets").
(b) Excluded Assets. Notwithstanding anything in this
Agreement to the contrary, the following Assets and Properties of Seller (the
"Excluded Assets") shall be excluded from and shall not constitute Assets:
(i) Insurance. Life insurance policies of officers and other
employees of Seller and all other insurance policies relating to the
operation of the Business;
(ii) Employee Benefit Plans. All assets owned or held by any
Benefit Plans;
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<PAGE> 9
(iii) The personal office furniture of Mr. Galambos, to the
extent the same is not included as an asset on the June 30 Balance
Sheet (as defined in Section 1.03(b));
(iv) Excluded Books and Records. The minute books, stock
transfer books and corporate seal of Seller (the "Excluded Books and
Records");
(v) Vehicles. All motor vehicles owned or leased by Seller;
(vi) Excluded Obligations. The rights of Seller in, to and
under all Contracts of any nature, the obligations of Seller under
which expressly are not assumed by Purchaser pursuant to Section
1.02(b); and
(vii) Seller's rights under this Agreement.
1.02 Liabilities. (a) Assumed Liabilities. In connection with
the sale, transfer, conveyance, assignment and delivery of the Assets pursuant
to this Agreement, on the terms and subject to the conditions set forth in this
Agreement, Purchaser hereby assumes and agrees to pay, perform and discharge
when due the following obligations of Seller arising in connection with the
operation of the Business, as the same exist on the Closing Date (the "Assumed
Liabilities"), and no others:
(i) Balance Sheet Liabilities. The Liabilities of the Business
set forth on the June 30 Balance Sheet, and all Liabilities of the
Business arising thereafter consistent with past practices, but
excluding a loan in the principal amount of $1,400,749 payable to Mr.
Galambos;
(ii) Real Property Lease Obligations. All obligations of
Seller under the Real Property Leases arising and to be performed on or
after the Closing Date and excluding any such obligations arising or to
be performed prior to the Closing Date;
(iii) Personal Property Lease Obligations. All obligations of
Seller under the Personal Property Leases arising and to be performed
on or after the Closing Date, and excluding any such obligations
arising or to be performed prior to the Closing Date;
(iv) Obligations under Contracts and Licenses. All obligations
of Seller under the Business Contracts and Business Licenses arising
and to be performed on or after the Closing Date, and excluding any
such obligations arising or to be performed prior to the Closing Date;
and
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<PAGE> 10
(v) Returned Goods. All obligations of Seller for replacement
of, or refund for, damaged, defective or returned goods, to the extent
such goods are subject to full return privileges from the supplier
thereof.
(b) Retained Liabilities. Except for the Assumed Liabilities,
Purchaser shall not assume by virtue of this Agreement or the transactions
contemplated hereby, and shall have no liability for, any Liabilities of Seller
(including, without limitation, those related to the Business) of any kind,
character or description whatsoever (the "Retained Liabilities"). Seller shall
discharge in a timely manner or shall make adequate provision for all of the
Retained Liabilities, provided that Seller shall have the ability to contest, in
good faith, any such claim of liability asserted in respect thereof by any
Person other than Purchaser and its Affiliates. Nothing contained in that
certain letter agreement, dated as of August 21, 1997, between Purchaser and
Gordon Drive Corp. shall in any way alter allocation of liability between
Purchaser and Seller with respect to the lease referred to in such letter
agreement.
1.03 Purchase Price; Net Book Value Certificate; Allocation.
(a) Purchase Price. The aggregate purchase price (the "Purchase Price") for the
Assets is $4,500,000.
(b) Net Book Value Certificate. On the Closing Date, Seller is
delivering to Purchaser (A) an audited balance sheet of the Seller as of June
30, 1997 (the "June 30 Balance Sheet") prepared by Seller in accordance with
Seller's books and records and in accordance with GAAP consistently applied, and
(B) a certificate with respect to the Net Book Value of the Business, executed
in the name of and on behalf of Seller by its President, in the form of Annex I
hereto (the "Net Book Value Certificate").
(c) Allocation of Purchase Price. Purchaser and Seller agree
to allocate the consideration paid by Purchaser for the Assets in accordance
with Annex 1 hereto. Each party hereto agrees (i) that such allocation shall be
consistent with the requirements of Section 1060 of the Code and the regulations
thereunder, (ii) to complete jointly and to file separately Form 8594 with its
Federal income Tax Return consistent with such allocation for the tax year in
which the Closing Date occurs and (iii) not to take a position on any income,
transfer or gains Tax Return, before any Governmental or Regulatory Authority
charged with the collection of any such Tax or in any judicial proceeding, that
is in any manner inconsistent with the terms of any such allocation without the
consent of the other party.
1.04 Closing. (a) The Closing is taking place concurrently
with the execution and delivery of this Agreement at the offices of Milbank,
Tweed, Hadley & McCloy, One Chase
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Manhattan Plaza, New York, New York 10005, at 10:00 A.M., local time, on the
Closing Date. At the Closing, Purchaser is paying the Purchase Price by wire
transfer of immediately available funds to Seller's account listed in Section
8.01 in an amount equal to $4,500,000. Simultaneously, Seller is assigning and
transferring to Purchaser title in and to the Assets by delivery of such
instruments of conveyance, assignment and transfer, in form and substance
reasonably acceptable to Purchaser's counsel, as shall be effective to vest in
Purchaser good and valid title to the Assets (such instruments being
collectively referred to herein as "Assignment Instruments"), and (ii) Purchaser
is assuming from Seller the due payment, performance and discharge of the
Assumed Liabilities by delivery of such instruments of assumption, in form and
substance reasonably acceptable to Seller's counsel, as shall be effective to
cause Purchaser to assume the Assumed Liabilities as and to the extent provided
in Section 1.02 (such instruments being collectively referred to herein as the
"Assumption Instruments").
(b) Simultaneously with, and as a condition to, the deliveries
described in paragraph (a) above, (i) Parent is entering into a Non-Competition
Agreement (A) with Mr. Galambos in the form of Exhibit A hereto, (B) with Robert
Ulan in the form of Exhibit B hereto, and (C) with Andrew Galambos in the form
of Exhibit C hereto and (ii) Parent is entering into an Employment Agreement
with Robert Ulan in the form of Exhibit D hereto.
1.05 Accounts Receivable Payment.
(a) On the Closing Date, Seller is providing Purchaser with a
certificate, executed in the name of and on behalf of Seller by its
President, setting forth in detail (i) the face value of the Accounts
Receivable of the Business as of the close of business on the day prior
to the Closing Date (the "Closing Date Accounts Receivable") and (ii)
the amount of any bad debt reserves with respect to the Closing Date
Accounts Receivable. The face value of the Closing Date Accounts
Receivable less any amounts of such bad debt reserves is herein
referred to as the ("Net Receivables Amount").
(b) Purchaser shall, on and after the Closing Date, use its
best commercial efforts to collect the Closing Date Accounts
Receivable. Seller shall be entitled to participate with Purchaser in
such collection efforts. In exercising such efforts, Purchaser shall
have no obligation to use greater efforts than those used by Purchaser
in the collection of accounts receivable in the ordinary course of
Purchaser's business. Without limiting the foregoing, Purchaser shall
have no obligation of any sort to pursue collection through any form of
litigation, arbitration or
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<PAGE> 12
any other dispute mechanism or to withhold shipments to an obligor of
an unpaid Closing Date Accounts Receivable as part of the efforts to
collect such Closing Date Accounts Receivable. Purchaser hereby agrees
that it will not alter in any material respect the collection policy of
Seller as in effect prior to the Closing Date and will not afford more
generous terms in return for benefits to Purchaser.
(c) When an account debtor has more than one invoice
outstanding, amounts remitted by such account debtor shall be applied
first to the longest outstanding invoice.
(d) Not later than the fifth Business Day following the 180th
day after the Closing Date, Purchaser shall provide Seller with a
written notice (the "Receivables Notice") describing in reasonable
detail all uncollected Closing Date Accounts Receivable, if any, and
the total face amount thereof. To the extent that total collections in
respect of Closing Date Accounts Receivable are less than the Net
Receivable Amount (the difference between the Net Receivables Amount
and the amount so collected being herein referred to as the
"Receivables Deficiency"), then within three (3) Business Days
following its delivery of the Receivables Notice, Purchaser shall sell,
and Seller shall purchase, those uncollected Closing Date Accounts
Receivable specified by Purchaser having a total face value equal to
the excess of (x) the Receivables Deficiency over (y) $15,000, for an
aggregate purchase price equal to such excess, by wire transfer of
immediately available funds to Purchaser's account listed in Section
8.01. After such uncollected Closing Date Accounts Receivable are
purchased by Seller, Purchaser will continue to make the same efforts
to collect such Closing Date Accounts Receivable as are required of it
by paragraph (b) above, and any payments received thereon by Purchaser
will be remitted within five (5) Business Days to Seller after
deducting any expenses incurred in connection with such collection.
1.06 Prorations. The following prorations relating to the
Assets and the ownership and operation of the Business will be made as of the
Closing Date, with Seller liable to the extent such items relate to any time
period prior to the Closing Date and Purchaser liable to the extent such items
relate to periods beginning with and subsequent to the Closing Date:
(a) Rents, additional rents, taxes and other items payable by
Seller under the Real Property Leases.
(b) The amount of rents, taxes and charges for sewer, water,
telephone, electricity and other utilities relating to the real
property subject to the Real Property Leases.
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(c) All other items (excluding personal property taxes and
other Taxes) normally adjusted in connection with similar transactions.
Except as otherwise agreed by the parties, the net amount of all such prorations
will be settled and paid on the Closing Date.
1.07 Further Assurances; Post-Closing Cooperation. (a) At any
time or from time to time after the Closing, at Purchaser's request and without
further consideration, Seller shall execute and deliver to Purchaser such other
instruments of sale, transfer, conveyance, assignment and confirmation, provide
such materials and information and take such other actions as Purchaser may
reasonably deem necessary or desirable in order more effectively to transfer,
convey and assign to Purchaser, and to confirm Purchaser's title to, all of the
Assets, and, to the full extent permitted by Law, to put Purchaser in actual
possession and operating control of the Business and the Assets at the location
at which the Business is currently conducted and to assist Purchaser in
exercising all rights with respect thereto, and otherwise to cause Seller to
fulfill its obligations under this Agreement.
(b) Seller hereby constitutes and appoints Purchaser the true
and lawful attorney of Seller, with full power of substitution, in the name of
Seller or Purchaser, but on behalf of and for the benefit of Purchaser: (i) to
demand and receive from time to time any and all the Assets and to make
endorsements and give receipts and releases for and in respect of the same and
any part thereof (ii) to institute, prosecute, compromise and settle any and all
Actions or Proceedings that Purchaser may deem proper in order to collect,
assert or enforce any claim, right or title of any kind in or to the Assets,
(iii) to defend or compromise any or all Actions or Proceedings in respect of
any of the Assets; and (iv) to do all such acts and things in relation to the
matters set forth in the preceding clauses (i) through (iii) as Purchaser shall
deem reasonably necessary or desirable. Seller hereby acknowledges that the
appointment hereby made and the powers hereby granted are coupled with an
interest and are not and shall not be revocable by it in any manner or for any
reason. Seller shall deliver to Purchaser at Closing an acknowledged power of
attorney to the foregoing effect executed by Seller. The appointment hereby made
and the powers hereby granted are not intended to permit Purchaser to take any
action that could reasonably be expected to result in Seller being required to
indemnify Purchaser under Section 6.02. Purchaser shall indemnify and hold
harmless Seller from any and all Losses caused by or arising out of any breach
of Law by Purchaser in its exercise of such power of attorney.
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(c) Following the Closing, each party will afford the other
party, its counsel and its accountants, during normal business hours, reasonable
access to the Business Books and Records and other data relating to the Business
in its possession with respect to periods prior to the Closing and the right to
make copies and extracts therefrom, to the extent that such access may be
reasonably required by the requesting party in connection with (i) the
preparation of Tax Returns, (ii) the determination or enforcement of rights and
obligations under this Agreement, (iii) compliance with the requirements of any
Governmental or Regulatory Authority, (iv) the determination or enforcement of
the rights and obligations of any party to this Agreement or (v) in connection
with any actual or threatened Action or Proceeding. Further, each party agrees
for a period extending six (6) years after the Closing Date not to destroy or
otherwise dispose of any such books, records and other data unless such party
shall first offer in writing to surrender such books, records and other data to
the other party and such other party shall not agree in writing to take
possession thereof during the ten (10) day period after such offer is made.
(d) If, in order properly to prepare its Tax Returns, other
documents or reports required to be filed with Governmental or Regulatory
Authorities or its financial statements or to fulfill its obligations hereunder,
it is necessary that a party be furnished with additional information, documents
or records relating to the Business not referred to in paragraph (c) above, and
such information, documents or records are in the possession or control of the
other party, such other party shall use its best efforts to furnish or make
available such information, documents or records (or copies thereof) at the
recipient's request, cost and expense.
(e) Notwithstanding anything to the contrary contained in this
Section, if the parties are in an adversarial relationship in litigation or
arbitration, the furnishing of information, documents or records in accordance
with any provision of this Section shall be subject to applicable rules relating
to discovery.
1.08 Transfer Taxes. Purchaser shall file all Tax Returns and
pay all Taxes shown as due thereon with respect to the Transfer Taxes. Seller
agrees to cooperate with Purchaser in connection with the filing of such Tax
Returns and obtaining exemptions from Transfer Taxes.
1.09 Third-Party Consents. To the extent that any Business
Contract or Business License is not assignable without the consent of another
party, this Agreement shall not constitute an assignment or an attempted
assignment thereof if such assignment or attempted assignment would constitute a
breach
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<PAGE> 15
thereof. Seller and Purchaser shall use their best efforts to obtain the consent
of such other party to the assignment of any such Business Contract or Business
License to Purchaser in all cases in which such consent is or may be required
for such assignment. If any such consent shall not be obtained, Seller shall
cooperate with Purchaser in any reasonable arrangement designed to provide for
Purchaser the benefits intended to be assigned to Purchaser under the relevant
Business Contract or Business License, including enforcement at the cost and for
the account of Purchaser of any and all rights of Seller against the other party
thereto arising out of the breach or cancellation thereof by such other party or
otherwise. If and to the extent that such arrangement cannot be made, Purchaser
shall have no obligation pursuant to Section 1.02 or otherwise with respect to
any such Business Contract or Business License.
1.10 Product Liability Insurance. On or prior to the Closing
Date, Parent or Purchaser shall obtain product liability insurance sufficient to
cover any claims relating to products sold by Seller prior to the Closing Date,
or shall continue to maintain at its cost the existing insurance policy of
Seller with respect thereto. Each of Parent and Purchaser hereby acknowledge
that they shall have no right to be indemnified under Section 6.02 or otherwise
with respect to any such claims.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS
Seller and the Shareholders hereby jointly and severally
represent and warrant to each of Parent and Purchaser that, immediately prior to
the Closing:
2.01 Organization of Seller. (a) Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
New York, and has full corporate power and authority to conduct the Business as
and to the extent now conducted and to own, use and lease the Assets. Seller has
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby, including without limitation to sell and transfer (pursuant
to this Agreement) the Assets.
(b) Seller does not have any subsidiaries or own any equity
interest in any other Person.
2.02 Authority. The execution and delivery by Seller of this
Agreement and the performance by Seller of its obligations hereunder have been
duly and validly authorized by
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the Board of Directors and shareholders of Seller, no other corporate action on
the part of Seller or its shareholders being necessary. This Agreement has been
duly and validly executed and delivered by Seller and each Shareholder and
constitutes a legal, valid and binding obligation of each of them enforceable
against each of them in accordance with its terms.
2.03 No Conflicts. The execution and delivery by Seller and
each Shareholder of this Agreement do not, and the performance by Seller and
each Shareholder of their respective obligations under this Agreement and the
consummation of the transactions contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the certificate of incorporation or
by-laws (or other comparable corporate charter documents) of Seller;
(b) subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in Section 2.04 of the
Disclosure Schedule, conflict with or result in a violation or breach of any
term or provision of any Law or Order applicable to Seller or either Shareholder
or any of their respective Assets and Properties; or
(c) except as disclosed in Section 2.03 of the Disclosure
Schedule, (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require Seller or either Shareholder to obtain any consent, approval or
action of, make any filing with or give any notice to any Person as a result or
under the terms of, (iv) result in or give to any Person any right of
termination, cancellation, acceleration or modification in or with respect to,
(v) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under, or (vi) result
in the creation or imposition of any Lien upon Seller or either Shareholder or
any of their respective Assets and Properties under, any Contract or License to
which Seller or either Shareholder is a party or by which any of their
respective Assets and Properties is bound.
2.04 Governmental Approvals and Filings. Except as disclosed
in Section 2.04 of the Disclosure Schedule, no consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority on the part of
Seller or either Shareholder is required in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
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2.05 Books and Records. Except as set forth in Section 2.05 of
the Disclosure Schedule, none of the Business Books and Records is recorded,
stored, maintained, operated or otherwise wholly or partly dependent upon or
held by any means (including any electronic, mechanical or photographic process,
whether computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of Seller.
2.06 Financial Statements. Prior to the execution of this
Agreement, Seller has delivered to Purchaser true and complete copies of the
following financial statements:
(a) the audited balance sheet of Seller as of June 30, 1997,
and the related audited statements of operations and cash flows for the six
month period then ended, together with a true and correct copy of the report on
such audited information by Seller's independent public accountants ("Seller's
Accountants"); and
(b) the unaudited balance sheet of Seller as of July 31, 1997,
the related unaudited statement of operations and cash flows for the seven month
period then ended, and the unaudited balance sheet of Seller as of December 31,
1996, and the related unaudited statements of operations and cash flows for the
fiscal year then ended.
Except as set forth in the notes thereto or as disclosed in Section 2.06 of the
Disclosure Schedule, all the Financial Statements (i) were prepared in
accordance with GAAP, (ii) fairly present the financial condition and results of
operations of the Business as of the respective dates thereof and for the
respective periods covered thereby, and (iii) were compiled from Business Books
and Records regularly maintained by management and used to prepare the financial
statements of Seller in accordance with the principles stated therein. Seller
has maintained the Business Books and Records in a manner sufficient to permit
the preparation of financial statements in accordance with GAAP, the Business
Books and Records fairly reflect, in all material respects, the income,
expenses, assets and liabilities of the Business.
2.07 Absence of Changes. Except for the execution and delivery
of this Agreement and the transactions to take place pursuant hereto on or prior
to the Closing Date, since June 30, 1997 there has not been any material adverse
change, or any event or development which, individually or together with other
such events, could reasonably be expected to result in a material adverse
change, in the Condition of the Business, other than those changes occurring as
a result of general economic or financial conditions which are not unique to the
Business but
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also affect other Persons who are engaged in lines of business similar to the
Business. Without limiting the foregoing, except as disclosed in Section 2.07 of
the Disclosure Schedule, there has not occurred between June 30, 1997 and the
date hereof:
(i)(x) any increase in the salary, wages or other compensation
of any officer, Employee or consultant of Seller whose annual salary
is, or after giving effect to such change would be, $30,000 or more;
(y) any establishment or modification of (A) targets, goals, pools or
similar provisions in respect of any fiscal year under any Benefit
Plan, employment-related Contract or other employee compensation
arrangement or (B) salary ranges, increase guidelines or similar
provisions in respect of any Benefit Plan, employment-related Contract
or other employee compensation arrangement; or (z) any adoption,
entering into or becoming bound by any Benefit Plan, employment-related
Contract or collective bargaining agreement, or amendment, modification
or termination (partial or complete) of any Benefit Plan,
employment-related Contract or collective bargaining agreement, except
to the extent required by applicable Law and, in the event compliance
with legal requirements presented options, only to the extent the
option which Seller reasonably believed to be the least costly was
chosen;
(ii)(A) incurrences by Seller of Indebtedness in an aggregate
principal amount exceeding $15,000 (net of any amounts discharged
during such period), or (B) any voluntary purchase, cancellation,
prepayment or complete or partial discharge in advance of a scheduled
payment date with respect to, or waiver of any right of Seller under,
any Indebtedness of or owing to Seller with respect to the conduct of
the Business;
(iii) any physical damage, destruction or other casualty loss
(whether or not covered by insurance) affecting any of the plant, real
or personal property or equipment of Seller used or held for use in the
conduct of the Business in an aggregate amount exceeding $10,000;
(iv)(A) any acquisition or disposition of any Assets and
Properties used or held for use in the conduct of the Business, other
than Inventory in the ordinary course of business consistent with past
practice and other acquisitions or dispositions not exceeding in either
case $10,000 in the aggregate and other than dispositions of obsolete
assets which in the aggregate do not exceed $25,000; or (B) any
creation or incurrence of a Lien, other than a Permitted Lien, on any
Assets and Properties used or held for use in the conduct of the
Business;
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(v) any entering into, amendment, modification, termination
(partial or complete) or granting of a waiver under or giving any
consent with respect to (A) any Contract which is required (or had it
been in effect on the date hereof would have been required) to be
disclosed in the Disclosure Schedule pursuant to Section 2.16(a) or (B)
any License disclosed in Section 1.01(a)(ix) of the Disclosure
Schedule;
(vi) capital expenditures or commitments for additions to
property, plant or equipment used or held for use in the conduct of the
Business constituting capital assets in an aggregate amount exceeding
$25,000;
(vii) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of
Seller;
(viii) any transaction with any officer, director or Affiliate
of Seller (A) outside the ordinary course of business consistent with
past practice or (B) other than on an arm's-length basis;
(ix) any material adverse change in gross profit margins or
collection of Accounts Receivable;
(x) any entering into of a Contract to do or engage in any of
the foregoing after the date hereof; or
(xi) any other material transaction involving or development
affecting the Business or the Assets outside the ordinary course of
business consistent with past practice, other than those developments
occurring as a result of general economic or financial conditions which
are not unique to the Business but also affect other Persons who are
engaged in lines of business similar to the Business.
2.08 No Undisclosed Liabilities. Except as reflected or
reserved against in the June 30 Balance Sheet or in the notes thereto or as
disclosed in Section 2.08 of the Disclosure Schedule or any other Section of the
Disclosure Schedule, there are no Liabilities against, relating to or affecting
the Business or any of the Assets, other than Liabilities (i) incurred in the
ordinary course of business consistent with past practice since June 30, 1997,
(ii) incurred in connection with the transactions contemplated by this
Agreement, which Liabilities are the sole responsibility of Seller, or (iii)
which, individually or in the aggregate, are not material to the Condition of
the Business.
2.09 Taxes. Except as set forth on Section 2.09 of the
Disclosure Schedule, no claim for any Tax due from or
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assessed against Seller is being contested by Seller, none of Seller's Tax
Returns or reports have been audited by the IRS or any state or local Tax
authority, and Seller has not received any notice of deficiency or other
adjustment from the IRS or any state or local Tax authority. Except as described
on Section 2.09 of the Disclosure Schedule, there are no pending Tax
examinations of or Tax claims, including, but not limited to, withholding claims
asserted against Seller or any of its assets or properties, there are no Tax
liens on any of the assets or properties of Seller, there are no agreements,
waivers, or other arrangements providing an extension of time with respect to
the assessment of any Tax against Seller, nor are there any Tax proceedings now
pending or, to the best of Seller's Knowledge, threatened against Seller. There
is no basis for any additional assessment of any Taxes against Seller. Seller
has made all deposits required by law to be made with respect to employees'
withholding and other employment Taxes, including without limitation the portion
of such deposits relating to Taxes imposed upon Seller. In connection with any
audit of the Tax Returns of Seller, no issue has been raised by any Tax
officials which, by the application of similar principles, reasonably can be
expected to result in a deficiency for any other year not so examined.
2.10 Legal Proceedings. Except as disclosed in Section 2.10 of
the Disclosure Schedule (with paragraph references corresponding to those set
forth below):
(a) there are no Actions or Proceedings pending or, to the
Knowledge of Seller, threatened against Seller or either Shareholder with
respect to the Business or any of its Assets and Properties which (i) could
reasonably be expected to result in the issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or otherwise result in a
material diminution of the benefits contemplated by this Agreement to Purchaser,
or (ii) if determined adversely to Seller or either Shareholder, could
reasonably be expected to result in (x) any injunction or other equitable relief
against Seller that would interfere in any material respect with the Business or
(y) Losses by Seller, individually or in the aggregate with Losses in respect of
other such Actions or Proceedings, exceeding $10,000;
(b) there are no facts or circumstances Known to Seller that
could reasonably be expected to form the basis for any Action or Proceeding that
would be required to be disclosed pursuant to clause (a) above; and
(c) there are no Orders outstanding against Seller with
respect to the Business or any of the Assets.
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2.11 Compliance With Laws and Orders. Except as disclosed in
Section 2.11 of the Disclosure Schedule, Seller is not, nor has it at any time
within the last five (5) years been, nor has it received any notice that it is
or has at any time within the last five (5) years been, in violation of or in
default under, in any material respect, any Law or Order applicable to the
Business or the Assets.
2.12 Benefit Plans; ERISA.
(a) Section 2.12(a) of the Disclosure Schedule (i) contains a
true and complete list and description of each of the Benefit Plans, (ii)
identifies each of the Benefit Plans that is a Qualified Plan, (iii) identifies
each Benefit Plan which at any time during the five-year period preceding the
date of this Agreement was a Defined Benefit Plan and (iv) lists, describes and
identifies each other Plan maintained, established, sponsored or contributed to
by an ERISA Affiliate, or any predecessor thereof, which, during the five-year
period preceding the date of this Agreement, was at any time a Defined Benefit
Plan. Seller has not scheduled or agreed upon future increases of benefit levels
(or creations of new benefits) with respect to any Benefit 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.
(b) Seller does not maintain nor is it obligated to provide
benefits under any life, medical or health plan (other than as an incidental
benefit under a Qualified Plan) which provides benefits to retired or other
terminated employees other than benefit continuation rights under the
Consolidated Omnibus Budget Reconciliation of 1985, as amended.
(c) Except as set forth in Section 2.12(c) of the Disclosure
Schedule, each Benefit Plan covers only Employees (or former employees or
beneficiaries with respect to service with Seller in connection with the
Business), so that the transactions contemplated by this Agreement will require
no spin-off of assets and liabilities or other division or transfer of rights
with respect to any such plan.
(d) Neither Seller, any ERISA Affiliate nor any other
corporation or organization controlled by or under common control with any of
the foregoing within the meaning of Section 4001 of ERISA has at any time
contributed to any "multiemployer plan", as that term is defined in Section 4001
of ERISA.
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(e) Each of the Benefit Plans is, and its administration is
and has been since inception, in all material respects in compliance with, and
Seller has not received any claim or notice that any such Benefit Plan is not in
compliance with, all applicable Laws and Orders and prohibited transactions
exemptions, including the requirements of ERISA, the Code, the Age
Discrimination in Employment Act, the Equal Pay Act and Title VII of the Civil
Rights Act of 1964. Each Qualified Plan is qualified under Section 401(a) of the
Code and, if applicable, complies with the requirements of Section 401(k) of the
Code. Each Benefit Plan which is intended to provide for the deferral of income,
the reduction of salary or other compensation or to afford other Tax benefits
complies with the requirements of the applicable provisions of the Code or other
Laws required in order to provide such Tax benefits.
(f) Seller is not in default in performing any of its
contractual obligations under any of the Benefit Plans or any related trust
agreement or insurance contract. All contributions and other payments required
to be made by Seller to any Benefit Plan with respect to any period ending
before or at or including the Closing Date have been made or reserves adequate
for such contributions or other payments have been or will be set aside therefor
and have been or will be reflected in Financial Statements in accordance with
GAAP. There are no outstanding liabilities of any Benefit Plan other than
liabilities for benefits to be paid to participants in such Benefit Plan and
their beneficiaries in accordance with the terms of such Benefit Plan.
(g) No event has occurred, and there exists no condition or
set of circumstances in connection with any Benefit Plan, under which Seller,
directly or indirectly (through any indemnification agreement or otherwise),
could reasonably be expected to be subject to any risk of liability under
Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA or Section 4975
of the Code.
(h) No transaction contemplated by this Agreement will result
in liability to the PBGC under Section 302(c)(ii), 4062, 4063, 4064 or 4069 of
ERISA, or otherwise, with respect to Purchaser or any corporation or
organization controlled by or under common control with Purchaser within the
meaning of Section 4001 of ERISA, and no event or condition exists or has
existed which could reasonably be expected to result in any such liability with
respect to Purchaser or any such corporation or organization. No "reportable
event" within the meaning of Section 4043 of ERISA has occurred with respect to
any Defined Benefit Plan. No termination re-establishment or spin-off
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<PAGE> 23
re-establishment transaction has occurred with respect to any Subject Defined
Benefit Plan. No Subject Defined Benefit Plan has incurred any accumulated
funding deficiency whether or not waived. No filing has been made and no
proceeding has been commenced for the complete or partial termination of, or
withdrawal from, any Benefit Plan which is a Pension Benefit Plan.
(i) No benefit under any Benefit Plan, including, without
limitation, any severance or parachute payment plan or agreement, will be
established or become accelerated, vested, funded or payable by reason of any
transaction contemplated under this Agreement.
(j) To the Knowledge of Seller, there are no pending or
threatened claims by or on behalf of any Benefit Plan, by any Person covered
thereby, or otherwise, which allege violations of Law which could reasonably be
expected to result in liability on the part of Purchaser or any fiduciary of any
such Benefit Plan, nor is there any basis for such a claim.
(k) No employer securities, employer real property or other
employer property is included in the assets of any Benefit Plan.
(l) The fair market value of the assets of each Subject
Defined Benefit Plan, as determined as of the last day of the plan year of such
plan which coincides with or first precedes the date of this Agreement, was not
less than the present value of the projected benefit obligations under such plan
at such date as established on the basis of the actuarial assumptions applicable
under such Subject Defined Benefit Plan at said date and, to the Knowledge of
Seller, there have been no material changes in such values since said date.
(m) Complete and correct copies of the following documents
have been furnished to Purchaser prior to the execution of this Agreement:
(i) the Benefit Plans and any predecessor plans referred to
therein, any related trust agreements, and service provider agreements,
insurance contracts or agreements with investment managers, including
without limitation, all amendments thereto;
(ii) current summary Plan descriptions of each Benefit Plan
subject to ERISA, and any similar descriptions of all other Benefit
Plans;
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(iii) the most recent Form 5500 and Schedules thereto for each
Benefit Plan subject to ERISA reporting requirements;
(iv) the most recent determination of the IRS with respect to
the qualified status of each Qualified Plan;
(v) the most recent accountings with respect to any Benefit
Plan funded through a trust;
(vi) the most recent actuarial report of the qualified actuary
of any Subject Defined Benefit Plan or any other Benefit Plan with
respect to which actuarial valuations are conducted; and
(vii) all qualified domestic relations orders or other orders
governing payments from any Benefit Plan; and
(viii) an election under Section 1022(i) of ERISA, if any.
2.13 Real Property. (a) Seller owns no real property. Section
1.01(a)(i) of the Disclosure Schedule contains a true and correct list of each
parcel of real property leased by Seller as lessee and used or held for use in
connection with the Business.
(b) Seller has adequate rights of ingress and egress with
respect to the real property subject to the Real Property Leases. To the
Knowledge of Seller, none of such real property, or the improvements thereon, or
the use thereof, contravenes or violates any building, zoning, administrative,
occupational safety and health or other applicable Law in any material respect
(whether or not permitted on the basis of prior nonconforming use, waiver or
variance).
(c) Seller has a valid and subsisting leasehold estate in and
the right to quiet enjoyment of the real properties subject to the Real Property
Leases for the full term of the lease thereof. Each Real Property Lease is a
legal, valid and binding agreement, enforceable in accordance with its terms, of
Seller and of each other Person that is a party thereto, and except as set forth
in Section 2.13(c) of the Disclosure Schedule, there is no, nor has Seller
received any notice of any, default (or any condition or event which, after
notice or lapse of time or both, would constitute a default) thereunder. Seller
does not owe any brokerage commissions with respect to any such leased space.
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(d) Seller has delivered to Purchaser prior to the execution
of this Agreement true and complete copies of all Real Property Leases
(including any amendments and renewal letters).
(e) To the Knowledge of Seller, the improvements to the real
property subject to the Real Property Leases are in good operating condition and
in a state of good maintenance and repair, ordinary wear and tear excepted, are
adequate and suitable for the purposes for which they are presently being used
and, to the Knowledge of Seller, there are no condemnation or appropriation
proceedings pending or threatened against any of such real property or the
improvements thereon.
2.14 Tangible Personal Property; Investment Assets. (a) Seller
is in possession of and has good title to, or has valid leasehold interests in
or valid rights under Contract to use, all the Tangible Personal Property, which
includes all material tangible personal property reflected on the June 30
Balance Sheet and tangible personal property acquired since June 30, 1997 other
than property disposed of since such date in the ordinary course of business
consistent with past practice. All the Tangible Personal Property is free and
clear of all Liens, other than Permitted Liens and Liens disclosed in Section
2.14(a) of the Disclosure Schedule, and is in good working order and condition,
ordinary wear and tear excepted, and its use complies in all material respects
with all applicable Laws.
(b) Section 2.14(b) of the Disclosure Schedule describes each
Investment Asset included among the Assets on the date hereof. Except as
disclosed in Section 2.14(b) of the Disclosure Schedule, all such Investment
Assets are owned by Seller free and clear of all Liens other than Permitted
Liens.
2.15 Intellectual Property Rights. Seller has interests in or
uses only the Intellectual Property disclosed in Section 1.01(a)(ix) of the
Disclosure Schedule, each of which Seller either has all right, title and
interest in or a valid and binding rights under Contract to use. No other
Intellectual Property is used or necessary in the conduct of the Business.
Except as disclosed in Section 2.15 of the Disclosure Schedule , (i) Seller has
the exclusive right to use the Intellectual Property disclosed in Section
1.01(a)(viii) of the Disclosure Schedule, (ii) all registrations with and
applications to Governmental or Regulatory Authorities in respect of such
Intellectual Property are valid and in full force and effect and are not subject
to the payment of any Taxes or maintenance fees or the taking of any other
actions by Seller to maintain their validity or effectiveness, (iii) there are
no restrictions on the direct or indirect transfer of any Contract, or any
interest
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therein, held by Seller in respect of such Intellectual Property, (iv) Seller
has delivered to Purchaser prior to the execution of this Agreement
documentation with respect to any invention, process, design or computer program
included in such Intellectual Property, which documentation is accurate in all
material respects and reasonably sufficient in detail and content to identify
and explain such invention, process, design or computer program and to
facilitate its full and proper use without reliance on the special knowledge or
memory of any Person, (v) Seller has taken reasonable security measures to
protect the secrecy, confidentiality and value of their trade secrets, (vi)
Seller is not, nor has it received any notice that it is, in default (or with
the giving of notice or lapse of time or both, would be in default) under any
Contract to use such Intellectual Property and (vii) to the Knowledge of Seller,
no such Intellectual Property is being infringed by any other Person. Seller has
not received any notice that Seller is infringing any Intellectual Property of
any other Person, no claim is pending or, to the Knowledge of Seller, has been
made to such effect that has not been resolved and, to the Knowledge of Seller,
Seller is not infringing any Intellectual Property of any other Person.
2.16 Contracts. (a) Section 2.16(a) of the Disclosure Schedule
(with paragraph references corresponding to those set forth below) contains a
true and complete list of each of the following Contracts or other arrangements
(true and complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been delivered to Purchaser prior to the
execution of this Agreement), to which Seller is a party or by which any of the
Assets is bound:
(i) (A) all Contracts (excluding Benefit Plans) providing for
a commitment of employment or consultation services for a specified or
unspecified term or otherwise relating to employment or the termination
of employment of any Employee, the name, position and rate of
compensation of each Employee party to such a Contract and the
expiration date of each such Contract; and (B) any written or unwritten
representations, commitments, promises, communications or courses of
conduct (excluding Benefit Plans and any such Contracts referred to in
clause (A)) involving an obligation of Seller to make payments in any
year, other than with respect to salary or incentive compensation
payments in the ordinary course of business, to any Employee or former
employee;
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(ii) all Contracts with any Person containing any provision or
covenant prohibiting or limiting the ability of Seller to engage in any
business activity or compete with any Person in connection with the
Business or prohibiting or limiting the ability of any Person to
compete with Seller in connection with the Business;
(iii) all partnership, joint venture or other similar
Contracts with any Person in connection with the Business;
(iv) all Contracts with distributors, dealers, manufacturer's
representatives, sales agencies or franchisees with whom Seller deals
in connection with the Business;
(v) all Contracts relating to the future disposition or
acquisition of any Assets other than dispositions or acquisitions of
Inventory in the ordinary course of business consistent with past
practice;
(vi) all collective bargaining or similar labor Contracts
covering any Employee; and
(vii) all other Contracts (other than Benefit Plans, the Real
Property Leases and insurance policies listed in Section 2.18 of the
Disclosure Schedule) with respect to the Business that (A) involve the
payment or potential payment, pursuant to the terms of any such
Contract, by or to Seller of more than $10,000 annually and (B) cannot
be terminated within thirty (30) days after giving notice of
termination without resulting in any material cost or penalty to
Seller.
(b) Each Contract required to be disclosed in Section 2.16(a)
of the Disclosure Schedule is in full force and effect and constitutes a legal,
valid and binding agreement, enforceable in accordance with its terms, of each
party thereto; and except as disclosed in Section 2.16(b) of the Disclosure
Schedule neither Seller nor, to the Knowledge of Seller, any other party to such
Contract is, or has received notice that it is, in violation or breach of or
default under any such Contract (or with notice or lapse of time or both, would
be in violation or breach of or default under any such Contract) in any material
respect.
(c) Except as disclosed in Section 2.16(c) of the Disclosure
Schedule, (i) the execution, delivery and performance by Seller of this
Agreement, and the consummation of the transactions contemplated hereby, will
not (A) result in or give to any Person any right of termination, cancellation,
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acceleration or modification in or with respect to, (B) result in or give to any
Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (C) result in the creation or
imposition of any Lien upon Seller or any of its Assets and Properties under,
any Business Contract, and (ii) Seller is not a party to or bound by any
Business Contract that has been individually or in the aggregate with any other
Business Contracts, materially adverse to the Condition of the Business.
2.17 Licenses. Section 1.01(a)(ix) of the Disclosure Schedule
contains a true and complete list of all material Licenses used or held for use
in the Business (and all pending applications for any such Licenses), setting
forth the grantor, the grantee, the function and the expiration and renewal date
of each. Prior to the execution of this Agreement, Seller has delivered to
Purchaser true and complete copies of all such Licenses. Except as disclosed in
Section 2.17 of the Disclosure Schedule:
(i) Seller owns or validly holds all Licenses that are
material, individually or in the aggregate, to the Business;
(ii) each Business License is valid, binding and in full force
and effect;
(iii) Seller is not, nor has it received any notice that it
is, in default (or with the giving of notice or lapse of time or both,
would be in default) under any Business License;
(iv) the execution, delivery and performance by Seller of this
Agreement, and the consummation of the transactions contemplated
hereby, will not (A) result in or give to any Person any right of
termination, cancellation, acceleration or modification in or with
respect to, (B) result in or give to any Person any additional rights
or entitlement to increased, additional, accelerated or guaranteed
payments under, or (C) result in the creation or imposition of any Lien
upon Seller or any of its Assets and Properties under, any Business
License.
2.18 Warranty Claims. Except as set forth in Section 2.18 of
the Disclosure Schedule, there are no pending material claims against Seller
arising out of or relating to any products manufactured or sold in connection
with the Business under any warranties, whether express or implied, nor, to the
Knowledge of Seller, does there exist, or during the past five (5) years has
there existed, any reasonable basis therefor.
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2.19 Product Liability Claims. Except as set forth in Section
2.19 of the Disclosure Schedule, there are, and during the past five (5) years
there have been, no product liability claims with respect to any products now or
previously manufactured and/or sold by Seller in connection with the Business,
nor to the Knowledge of Seller, does there exist, or during the past five (5)
years has there existed, any reasonable basis therefor.
2.20 Insurance. (a) Section 2.20 of the Disclosure Schedule
contains a true and complete list (including the names and addresses of the
insurers, the names of the Persons to whom such policies have been issued, the
expiration dates thereof, the annual premiums and payment terms thereof, whether
it is a "claims made" or an "occurrence" policy and a brief description of the
interests insured thereby) of all liability, property, workers' compensation,
and other insurance policies currently in effect that insure the Business, the
Employees or the Assets. Each policy listed in Section 2.20 of the Disclosure
Schedule is valid and binding and in full force and effect, no premiums due
thereunder have not been paid and Seller has not received any notice of
cancellation or termination in respect of any such policy or is in default
thereunder. Neither Seller nor the Person to whom such policy has been issued
has received notice that any insurer under any policy referred to in this
Section is denying liability with respect to a claim thereunder or defending
under a reservation of rights clause.
(b) Seller has complied with and maintains in full force and
effect all applicable employment insurance required by law.
2.21 Affiliate Transactions. Except as disclosed in Section
2.21(a) of the Disclosure Schedule, (i) no officer, director or Affiliate of
Seller provides or causes to be provided any assets, services or facilities used
or held for use in connection with the Business, and (ii) the Business does not
provide or cause to be provided any assets, services or facilities to any such
officer, director or Affiliate. Except as disclosed in Section 2.21(b) of the
Disclosure Schedule, each of the transactions listed in Section 2.21(a) of the
Disclosure Schedule is engaged in on an arm's-length basis.
2.22 Employees; Labor Relations. (a) Section 2.22 of the
Disclosure Schedule contains a list of the name of each Employee at the date
hereof, together with such Employee's position or function, annual base salary
or wages and any incentive or bonus arrangement with respect to such Employee in
effect on such date.
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(b) Except as disclosed in Section 2.22 of the Disclosure
Schedule, (i) no Employee is presently a member of a collective bargaining unit
and, to the Knowledge of Seller, there are no threatened or contemplated
attempts to organize for collective bargaining purposes any of the Employees,
and (ii) no unfair labor practice complaint or sex, age, race or other
discrimination claim has been brought during the last ten (10) years against
Seller with respect to the conduct of the Business before the National Labor
Relations Board, the Equal Employment Opportunity Commission or any other
Governmental or Regulatory Authority. Since July 31, 1992, there has been no
work stoppage, strike or other concerted action by employees of Seller engaged
in the Business. During that period, Seller has complied in all material
respects with all applicable Laws relating to the employment of labor,
including, without limitation those relating to wages, hours and collective
bargaining.
2.23 Environmental Matters. Seller has obtained all Licenses
which are required under applicable Environmental Laws in connection with the
conduct of the Business or the Assets. Each of such Licenses is in full force
and effect. Seller has conducted the Business in compliance in all material
respects with the terms and conditions of all such Licenses and with any
applicable Environmental Law. In addition, except as set forth in Section 2.23
of the Disclosure Schedule (with paragraph references corresponding to those set
forth below):
(a) No Order has been issued, no Environmental Claim has been
filed, no penalty has been assessed and no investigation or review is pending
or, to the Knowledge of Seller, threatened by any Governmental or Regulatory
Authority with respect to any alleged failure by Seller to have any License
required under applicable Environmental Laws in connection with the conduct of
the Business or with respect to any generation, treatment, storage, recycling,
transportation, discharge, disposal or Release of any Hazardous Material in
connection with the Business, and to the Knowledge of Seller there are no facts
or circumstances in existence which could reasonably be expected to form the
basis for any such Order, Environmental Claim, penalty or investigation.
(b) Seller does not own, operate or lease a treatment, storage
or disposal facility on any of the real property subject to the Real Property
Leases requiring a permit under the Resource Conservation and Recovery Act, as
amended, or under any other comparable state or local Law; and, without limiting
the foregoing, (i) no polychlorinated biphenyl is or has been present, (ii) no
asbestos or asbestos-containing material is or has been present, (iii) there are
no underground storage tanks or
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surface impoundments for Hazardous Materials, active or abandoned, and (iv) no
Hazardous Material has been Released in a quantity reportable under, or in
violation of, any Environmental Law or otherwise Released, in the cases of
clauses (i) through (iv), at, on or under any such site or facility during any
period that Seller owned, operated or leased such property.
(c) Seller has not transported or arranged for the
transportation of any Hazardous Material in connection with the operation of the
Business to any location that is (i) listed on the NPL under CERCLA, (ii) listed
for possible inclusion on the NPL by the Environmental Protection Agency in
CERCLIS or on any similar state or local list or (iii) the subject of
enforcement actions by federal, state or local Governmental or Regulatory
Authorities that may lead to Environmental Claims against Seller or the
Business.
(d) No Hazardous Material generated in connection with the
operation of the Business has been recycled, treated, stored, disposed of or
Released by Seller at any location.
(e) No oral or written notification of a Release of a
Hazardous Material in connection with the operation of the Business has been
filed by or on behalf of Seller, and no site or facility now or previously
owned, operated or leased by Seller on any of the real property subject to the
Real Property Leases is listed or proposed for listing on the NPL, CERCLIS or
any similar state or local list of sites requiring investigation or clean-up.
(f) To the Knowledge of Seller, no Liens have arisen under or
pursuant to any Environmental Law on any site or facility owned, operated or
leased by Seller on any of the real property subject to the Real Property
Leases, and no federal, state or local Governmental or Regulatory Authority
action has been taken or, to the Knowledge of Seller, is in process that could
subject any such site or facility to such Liens.
(g) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or that are in the
possession of, Seller in relation to any site or facility now or previously
owned, operated or leased by Seller on any of the real property subject to the
Real Property Leases which have not been delivered to Purchaser prior to the
execution of this Agreement.
2.24 Substantial Customers and Suppliers.
(a) The revenues of the Business derived from sales of Parker
Laboratory products for the twelve month period ending
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December 31, 1996 and the six month period ending June 30, 1997 accounted for
4.9% and 5.2%, respectively, of all revenues of the Business for such periods.
The revenues of the Business derived from sales of silver nitrate products for
the twelve month period ending December 31, 1996 and the six month period ending
June 30, 1997 accounted for 3.5% and 4.0%, respectively, of all revenues of the
Business for such periods.
(b) Section 2.24(a) of the Disclosure Schedule lists the
revenues of the Business in respect of the ten (10) largest customers (by dollar
volume) of the Business, without reference to name, for the most
recently-completed fiscal year. Section 2.24(b) of the Disclosure Schedule lists
the amounts paid or payable by the Business to the ten (10) largest suppliers
(by dollar volume) of the Business, without reference to name, for the most
recently-completed fiscal year. Except as disclosed in Section 2.24(c) of the
Disclosure Schedule, no such customer or supplier has ceased or materially
reduced its purchases from, use of the services of, sales to or provision of
services to the Business since June 30, 1997, or to the Knowledge of Seller, has
threatened to cease or materially reduce such purchases, use, sales or provision
of services after the date hereof. Except as disclosed in Section 2.24(d) of the
Disclosure Schedule, to the Knowledge of Seller, no such customer or supplier is
subject to any bankruptcy or insolvency proceeding.
2.25 Accounts Receivable. Set forth in Section 2.25 of the
Disclosure Schedule is (a) the outstanding amount of the ten (10) largest
Accounts Receivable of the Business (by dollar volume) as of August 19, 1997 and
(b) an aging schedule with respect to such Accounts Receivable. Except as set
forth in Section 2.25 of the Disclosure Schedule, the Accounts Receivable (i)
arose from bona fide sales transactions in the ordinary course of business and
are payable on ordinary trade terms, (ii) are legal, valid and binding
obligations of the respective debtors enforceable in accordance with their
terms, (iii) are not subject to any valid set-off or counterclaim, (iv) do not
represent obligations for goods sold on consignment, on approval or on a
sale-or-return basis or subject to any other repurchase or return arrangement,
(v) are collectible in the ordinary course of business consistent with past
practice in the aggregate recorded amounts thereof, net of any applicable
reserve reflected in the June 30 Balance Sheet, and (vi) are not the subject of
any Actions or Proceedings brought by or on behalf of Seller. Section 2.25 of
the Disclosure Schedule sets forth a description of any security arrangements
and collateral securing the repayment or other satisfaction of the Accounts
Receivable (the "Security Agreements"). All steps necessary to render all such
security arrangements legal, valid, binding and enforceable, and
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to give and maintain for Seller a perfected security interest in the related
collateral, have been taken.
2.26 Inventory. All the Inventory consists of a quality and
quantity usable and salable in the ordinary course of business consistent with
past practice, subject to normal and customary allowances in the industry for
spoilage, damage and outdated items. All items included in the Inventory are the
property of Seller, free and clear of any Lien other than Permitted Liens, have
not been pledged as collateral, are not held by Seller on consignment from
others and conform in all material respects to all standards applicable to such
inventory or its use or sale imposed by Governmental or Regulatory Authorities.
2.27 No Guarantees. None of the Liabilities of the Business or
of Seller incurred in connection with the conduct of the Business is guaranteed
by or subject to a similar contingent obligation of any other Person, nor has
Seller guaranteed or become subject to a similar contingent obligation in
respect of the Liabilities of any customer, supplier or other Person to whom
Seller sells goods or provides services in the conduct of the Business or with
whom Seller otherwise has significant business relationships in the conduct of
the Business.
2.28 Entire Business. The sale of the Assets by Seller to
Purchaser pursuant to this Agreement will effectively convey to Purchaser the
entire Business and all of the tangible and intangible property used by Seller
(whether owned, leased or held under license by Seller, by any of Seller's
Affiliates or by others) in connection with the conduct of the Business as
heretofore conducted by Seller (except for the Excluded Assets) including,
without limitation, all tangible Assets and Properties of Seller reflected in
the June 30 Balance Sheet and Assets and Properties acquired since June 30, 1997
in the conduct of the Business, other than the Excluded Assets and Assets and
Properties disposed of since such date, consistent with Section 2.07(iv). Except
as disclosed in Section 2.29 of the Disclosure Schedule, there are no shared
facilities or services which are used in connection with any business or other
operations of Seller or any of Seller's Affiliates other than the Business.
2.29 Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by Seller directly
with Parent and Purchaser without the intervention of any Person on behalf of
Seller in such manner as to give rise to any valid claim by any Person against
Parent or Purchaser for a finder's fee, brokerage commission or similar payment.
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2.30 Disclosure. To the Knowledge of Seller, all material
facts relating to the Condition of the Business have been disclosed to Purchaser
in or in connection with this Agreement. No representation or warranty contained
in this Agreement, and no statement contained in the Disclosure Schedule or in
any certificate, list or other writing furnished to Purchaser pursuant to any
provision of this Agreement (including without limitation the Financial
Statements), contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements herein or therein, in
the light of the circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser hereby represents and warrants to
Seller that, immediately prior to the Closing:
3.01 Organization. Each of Parent and Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
Laws of its jurisdiction of incorporation. Each of Parent and Purchaser has full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby.
3.02 Authority. The execution and delivery by each of Parent
and Purchaser of this Agreement, and the performance by each of Parent and
Purchaser of its obligations hereunder, have been duly and validly authorized by
its Board of Directors, no other corporate action on the part of Parent or
Purchaser or their stockholders being necessary. This Agreement has been duly
and validly executed and delivered by Parent and Purchaser and constitutes, a
legal, valid and binding obligations of Parent and Purchaser enforceable against
Parent and Purchaser in accordance with its terms.
3.03 No Conflicts. The execution and delivery by Parent and
Purchaser of this Agreement do not, the performance by Parent and Purchaser of
their obligations under this Agreement and the consummation of the transactions
contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the certificate of incorporation or
by-laws (or other comparable corporate charter document) of Parent or Purchaser;
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(b) subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in Schedule 3.04 hereto,
conflict with or result in a violation or breach of any term or provision of any
Law or Order applicable to Parent or Purchaser or any of their respective Assets
and Properties; or
(c) except as disclosed in Schedule 3.03 hereto, (i) conflict
with or result in a violation or breach of, (ii) constitute (with or without
notice or lapse of time or both) a default under, (iii) require Parent or
Purchaser to obtain any consent, approval or action of, make any filing with or
give any notice to any Person as a result or under the terms of, or (iv) result
in the creation or imposition of any Lien upon Parent or Purchaser or any of
their respective Assets or Properties under, any Contract or License to which
Parent or Purchaser is a party or by which any of their respective Assets and
Properties are bound.
3.04 Governmental Approvals and Filings. Except as disclosed
in Schedule 3.04 hereto, no consent, approval or action of, filing with or
notice to any Governmental or Regulatory Authority on the part of Parent or
Purchaser is required in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby.
3.05 Legal Proceedings. There are no Actions or Proceedings
pending or, to the knowledge of Parent, threatened against, relating to or
affecting Parent or Purchaser or any of their respective Assets and Properties
which could reasonably be expected to result in the issuance of an Order
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement.
3.06 Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by Parent or
Purchaser directly with Seller without the intervention of any Person on behalf
of Parent or Purchaser in such manner as to give rise to any valid claim by any
Person against Seller for a finder's fee, brokerage commission or similar
payment.
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ARTICLE IV
COVENANTS OF SELLER
4.01 Books and Records, etc.; Removal of Property. On the
Closing Date, Seller will deliver or make available to Purchaser at the location
at which the Business is conducted all of the Business Books and Records and
such other Assets as are in Seller's possession at other locations, and if at
any time after the Closing Seller discovers in its possession or under its
control any other Business Books and Records or other Assets, it will forthwith
deliver such Business Books and Records or other Assets to Purchaser.
4.02 Use of "Medi-Source" Name. Immediately following the
Closing Date, Seller and its Affiliates will cease using the name "Medi-Source"
and any trade dress, designs or logos associated with such name, or any
confusingly similar variations thereof.
4.03 Change of Corporate Name. On the Closing Date, Seller
shall take all steps necessary to change its corporate name to a non-similar
name. After the Closing Date, Seller will not, nor will it permit any of its
Affiliates to, use the name Medi-Source, or any confusingly similar variations
thereof, in any business conducted by Seller or any such Affiliates.
4.04 Delivery of Financial Statements. Not later than August
29, 1997, the Shareholders shall deliver to Purchaser an audited balance sheet
of the Seller as of July 31, 1997 (the "July 31 Balance Sheet") and the related
statements of operations for the seven month period then ended (together with
the July 31 Balance Sheet, the "July 31 Financial Statements"), which shall (i)
be prepared in accordance with the Business Books and Records, (ii) present
fairly the financial position of the Business as of July 31, 1997 and the
results of its operations for the applicable period in accordance with GAAP
applied consistently with those accounting policies and practices used in the
preparation of the Audited Financial Statements, and (iii) be accompanied by a
true and correct copy of the unqualified report on such information by Seller's
Accountants.
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ARTICLE V
EMPLOYEE MATTERS
5.01 Employment. Purchaser has offered, or shall offer,
employment to those Persons who are employed by Seller in the Business
immediately prior to the Closing Date whom Purchaser wishes to hire, in
Purchaser's sole discretion (all Persons so employed, whether or not receiving
such offers, "Employees").
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.01 Survival of Representations, Warranties, Covenants and
Agreements. Notwithstanding any right of Purchaser (whether or not exercised) to
investigate the Business or any right of any party (whether or not exercised) to
investigate the accuracy of the representations and warranties of the other
party contained in this Agreement, Seller and Purchaser have the right to rely
fully upon the representations and warranties of the other contained in this
Agreement. The representations, warranties, covenants and agreements contained
in this Agreement and the statements contained in the Disclosure Schedule or in
any certificate, list or other writing furnished to Parent or Purchaser pursuant
to any provision of this Agreement, will survive the Closing (a) indefinitely
with respect to (i) the representations and warranties contained in Sections
2.02, 2.29, 3.02, and 3.06 and (ii) the covenants and agreements contained in
Sections 1.07 and 8.04, (b) until sixty (60) days after the expiration of all
applicable statutes of limitation (including all periods of extension, whether
automatic or permissive) with respect to matters covered by Sections 2.09, 2.10,
2.12, 2.18, 2.19 and 2.23, (c) until August 21, 1999 in the case of all other
representations and warranties and any covenant or agreement to be performed in
whole or in part on or prior to the Closing or (d) with respect to each other
covenant and agreement contained in this Agreement, until sixty (60) days
following the last date on which such covenant or agreement is to be performed
or, if no such date is specified, indefinitely; provided that any
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with clause (b), (c) or (d) above will continue to survive if an
Indemnity Notice shall have been timely given in good faith under Section 6.02
on or prior to such termination date, until the related claim for
indemnification has been satisfied or otherwise resolved as provided in Section
6.02.
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6.02 Indemnification.
(a) Seller and each Shareholder shall jointly and severally
indemnify the Purchaser Indemnified Parties in respect of, and hold each of them
harmless from and against, any and all Losses suffered, incurred or sustained by
any of them or to which any of them becomes subject, resulting from, arising out
of or relating to (i) any breach of representation or warranty or nonfulfillment
of or failure to perform any covenant or agreement on the part of Seller or
either Shareholder contained in this Agreement or the Net Book Value
Certificate, (ii) any claim against Seller or Seller's directors, officers,
employees or agents based on any deficiency or noncompliance with the filing or
payment of, or the failure to properly file or pay, by Seller or an agent for
Seller, any Tax or Tax Return, (iii) any Action or Proceeding existing, or, to
the Knowledge of Seller, threatened, prior to the Closing Date against, relating
to or affecting the Business or the Assets, (iv) all obligations of Seller
relating to the return of goods sold prior to the Closing Date to the extent
such obligations exceed $25,000 in the aggregate (net of any credits received by
Purchaser for such returns) or (v) a Retained Liability.
(b) Seller and each Shareholder shall jointly and severally
indemnify the Purchaser Indemnified Parties to the extent that the Net Book
Value of the Business as of the Closing Date is less than $1,301,000.
(c) Purchaser shall indemnify the Seller Indemnified Parties
in respect of, and hold each of them harmless from and against, any and all
Losses suffered, incurred or sustained by any of them or to which any of them
becomes subject, resulting from, arising out of or relating to (i) any breach of
representation or warranty or nonfulfillment of or failure to perform any
covenant or agreement on the part of Purchaser contained in this Agreement or
(ii) an Assumed Liability.
(d) No amounts of indemnity shall be payable in the case of a
claim by a Purchaser Indemnified Party under Section 6.02(a)(i) unless until and
then only to the extent that the Purchaser Indemnified Parties have suffered,
incurred, sustained or become subject to Losses arising therefrom in excess of
$75,000 in the aggregate; provided that this paragraph (d) shall not apply to a
misrepresentation or breach of warranty contained in Section 2.02, 2.03, 2.04 or
2.29.
(e) In the event any claim or demand in respect of which an
Indemnified Party might seek indemnity under this Section 6.02 is asserted
against or sought to be collected from
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such Indemnified Party by a Person other than a party hereto or any of its
Affiliates (a "Third Party Claim"), then such Indemnified Party shall give
written notice (accompanied by a copy of all papers served, if any) to the
latter of such Third Party Claim, provided that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 6.02, 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 and control the defense
thereof, with counsel reasonably satisfactory to such Indemnified Party;
provided that in order to assume and control the defense of such action the
Indemnifying Party must first deliver to the Indemnified Party a notice of its
election so to assume and control the defense thereof and expressly agree in
such notice that as between the Indemnifying Party and the Indemnified Party,
the Indemnifying Party shall be solely obligated to satisfy and discharge any
Liability or Loss resulting from such Third Party Claim. After such notice is
received by the Indemnified Party, 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 of such Third Party Claim; 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 Third Party 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
reasonable fees and expenses of which shall be paid by the Indemnifying Party.
The Indemnifying Party will not consent to the entry of any judgment or enter
into any settlement which does not include a provision whereby the plaintiff or
claimant in the matter releases the Indemnified Party from all liability with
respect thereto, without the written 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.
(f) In the event of any claim or demand, including Third Party
Claims, in respect of which an Indemnified Party might seek indemnity under this
Section 6.02, the Indemnified
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Party shall deliver an Indemnity Notice with reasonable promptness to the
Indemnifying Party. The failure by any Indemnified Party to give the Indemnity
Notice shall not impair such party's rights hereunder except to the extent that
an Indemnifying Party demonstrates that it has been irreparably prejudiced
thereby. The Indemnifying Party will notify the Indemnified Party within the
thirty (30) day period following its receipt of such Indemnity Notice (the
"Dispute Period") as to whether the Indemnifying Party disputes its liability to
the Indemnified Party hereunder. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim described in such Indemnity
Notice, or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim described in such Indemnity
Notice, the Loss specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under this Section 6.02 and the Indemnifying
Party shall pay the amount of such Loss, when it has been finally determined, to
the Indemnified Party on demand. If the Indemnifying Party has timely disputed
its liability with respect to such claim, the Indemnifying Party and the
Indemnified Party will proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through negotiations within sixty (60) days
following the Indemnified Party's receipt of a written notice from the
Indemnifying Party disputing such claim, such dispute shall be finally settled
by arbitration in accordance with paragraph (f) of this Section 6.02.
(g) Any dispute submitted to arbitration pursuant to this
Section 6.02 shall be finally and conclusively settled by the decision of a
board of arbitration consisting of three (3) members (hereinafter sometimes
called the "Board of Arbitration") selected as hereinafter provided. Each of the
Indemnified Party and the Indemnifying Party shall select one (1) member and the
third member shall be selected by mutual agreement of the other members, or if
the other members fail to reach agreement on a third member within twenty (20)
days after their selection, such third member shall thereafter be selected by
the American Arbitration Association upon application made to it for a third
member possessing expertise or experience appropriate to the dispute jointly by
the Indemnified Party and the Indemnifying Party. The Board of Arbitration shall
meet in New York, New York or such other place as a majority of the members of
the Board of Arbitration determines more appropriate, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the Indemnifying Party is
required to pay to the Indemnified Party in respect of a claim filed by the
Indemnified Party. In connection with rendering its decisions, the Board of
Arbitration shall adopt and follow such rules and procedures as a majority of
the members of the Board of Arbitration deems necessary or appropriate. It is
the intent of the parties hereto that, barring extraordinary circumstances,
decisions of the Board of Arbitration shall be rendered no more than thirty (30)
days
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following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to the Indemnified
Party and the Indemnifying Party. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the Indemnified Party and the
Indemnifying Party and entitled to be enforced to the fullest extent permitted
by law and entered in any court of competent jurisdiction. Each party to any
arbitration shall bear its own expense in relation thereto, including but not
limited to such party's attorneys' fees, if any, and the expenses and fees of
the Board of Arbitration shall be divided between the Indemnifying Party and the
Indemnified Party in the same proportion as the portion of the related claim
determined by the Board of Arbitration to be payable to the Indemnified Party
bears to the portion of such claim determined not to be so payable.
(h) In connection with any amounts owing from time to time to
Parent or Purchaser under this Section 6.02, Parent shall, in addition to any
other rights and remedies it may possess hereunder at law or in equity, have the
right of set-off set forth in Section 1(g) of the Non-Competition Agreement with
Mr. Galambos. Parent's exercise of its right of set-off shall be without
prejudice to Seller's rights to dispute its liability to Parent or Purchaser
under this Section 6.02.
ARTICLE VII
DEFINITIONS
7.01 Definitions. (a) Defined Terms. As used in this
Agreement, the following defined terms have the meanings indicated below:
"Accounts Receivable" has the meaning ascribed to it in
Section 1.01(a)(iii).
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or audit.
"Affiliate" means any Person that directly, or indirectly
through one of more intermediaries, controls or is controlled by or is under
common control with the Person specified. For purposes of this definition,
control of a Person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such Person whether by Contract or
otherwise and, in any event and without limitation of the previous sentence, any
Person owning ten percent (10%) or more of the voting securities of another
Person shall be deemed to control that Person.
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"Agreement" means this Asset Purchase Agreement and the
Exhibits, the Disclosure Schedule and the Schedules hereto.
"Assets" has the meaning ascribed to it in Section 1.01(a).
"Assets and Properties" of any Person means all assets and
properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the goodwill
related thereto, operated, owned or leased by such Person, including without
limitation cash, cash equivalents, Investment Assets, accounts and notes
receivable, chattel paper, documents, instruments, general intangibles, real
estate, equipment, inventory, goods and Intellectual Property.
"Assignment Instruments" has the meaning ascribed to it in
Section 1.04.
"Assumed Liabilities" has the meaning ascribed to it in
Section 1.02(a).
"Assumption Instruments" has the meaning ascribed to it in
Section 1.04.
"Audited Financial Statements" means the Financial Statements
of Seller delivered to Purchaser pursuant to Section 2.06(a).
"Benefit Plan" means any Plan established by the Seller, or
any predecessor or Affiliate of Seller, existing at the Closing Date or prior
thereto, to which Seller contributes or has contributed on behalf of any
Employee, former employee or director, or under which any Employee, former
employee or director of Seller or any beneficiary thereof is covered, is
eligible for coverage or has benefit rights.
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records relating to the business, operations,
condition of (financial or otherwise), results of operations and Assets and
Properties of such Person, including without limitation financial statements,
Tax Returns and related work papers and letters from accountants, budgets,
pricing guidelines, ledgers, journals, deeds, title policies, minute books,
stock certificates and books, stock transfer ledgers, Contracts, Licenses,
customer lists, computer files and reports, computer programs, retrieval
programs, operating data and plans and environmental studies and plans.
"Business" has the meaning ascribed to it in the forepart of
this Agreement.
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<PAGE> 43
"Business Books and Records" has the meaning ascribed to it in
Section 1.01(a)(xi).
"Business Day" means a day other than Saturday, Sunday or any
day on which banks located in the State of New York are authorized or obligated
to close.
"Business Contracts" has the meaning ascribed to it in Section
1.01(a)(vi).
"Business Licenses" has the meaning ascribed to it in Section
1.01(a)(ix).
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the rules and
regulations promulgated thereunder.
"CERCLIS" means the Comprehensive Environmental Response and
Liability Information System, as provided for by 40 C.F.R. Section 300.5.
"Closing" means the closing of the transactions contemplated
by Section 1.03.
"Closing Date" means the date of this Agreement.
"Closing Date Accounts Receivable" has the meaning ascribed to
it in Section 1.05(a).
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
"Condition of the Business" means the business, condition
(financial or otherwise) and results of operations of the Business.
"Contract" means any agreement, lease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract, other
than purchase orders entered into in the ordinary course of business.
"Defined Benefit Plan" means each Benefit Plan which is
subject to Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of
ERISA.
"Disclosure Schedule" means the record delivered to Purchaser
by Seller herewith and dated as of the date hereof, containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein by Seller pursuant to this Agreement.
- 39 -
<PAGE> 44
"Dispute Period" has the meaning ascribed to it in Section
6.02(f).
"Employees" has the meaning ascribed to it in Section 5.01.
"Environmental Claim" means, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"claim") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, Governmental or Regulatory Authority
response costs, damages to natural resources or other property, personal
injuries, fines or penalties arising out of, based on or resulting from (a) the
presence, or Release into the environment, of any Hazardous Material at any
location, whether or not owned by such Person, or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law. The term
"Environmental Claim" shall include, without limitation, any claim by any
Governmental or Regulatory Authority for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and any claim by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence of Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Law" means any Law or Order relating to the
regulation or protection of human health, safety or the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
into the environment (including, without limitation, ambient air, soil, surface
water, ground water, wetlands, land or subsurface strata), or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any Person who is in the same
controlled group of corporations or who is under common control with Seller
(within the meaning of Section 414 of the Code).
"Excluded Assets" has the meaning ascribed to it in Section
1.01(b).
- 40 -
<PAGE> 45
"Excluded Books and Records" has the meaning ascribed to it in
Section 1.01(b).
"Financial Statements" means the financial statements of
Seller delivered to Purchaser pursuant to Section 2.06.
"GAAP" means generally accepted accounting principles,
consistently applied throughout the specified period and in the immediately
prior comparable period.
"Governmental or Regulatory Authority" means any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States or any state, county, city or other
political subdivision.
"Hazardous Material" means (A) any petroleum or petroleum
products, flammable explosives, radioactive materials, asbestos in any form that
is or could become friable, urea formaldehyde foam insulation and transformers
or other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (B) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import under any Environmental Law; and
(C) any other chemical or other material or substance, exposure to which is now
or hereafter prohibited, limited or regulated by any Governmental or Regulatory
Authority under any Environmental Law.
"Indebtedness" of any Person means all obligations of such
Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or
similar instruments, (iii) for the deferred purchase price of goods or services
(other than trade payables or accruals incurred in the ordinary course of
business), (iv) under capital leases and (v) in the nature of guarantees of the
obligations described in clauses (i) through (iv) above of any other Person.
"Indemnified Party" means any Person claiming indemnification
under any provision of Section 6.02, including without limitation a Person
asserting a claim pursuant to Section 6.02(e).
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Section 6.02, including
without limitation a Person against whom a claim is asserted pursuant to Section
6.02(e).
- 41 -
<PAGE> 46
"Indemnity Notice" means written notification pursuant to
Section 6.02(e) of a claim for indemnity under Section 6.02 by an Indemnified
Party, specifying the nature of and basis for such claim, together with the
amount or, if not then reasonably determinable, the estimated amount, determined
in good faith, of the Loss arising from such claim.
"Instruction Materials" has the meaning ascribed to it in
Section 1.01(a)(xiv).
"Intangible Personal Property" has the meaning ascribed to it
in Section 1.01(a)(viii).
"Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, trade secrets, processes, formulae, copyrights and copyright
rights, trade dress, business and product names, logos, slogans, trade secrets,
industrial models, processes, designs, methodologies, computer programs
(including all source codes) and related documentation, technical information,
manufacturing, engineering and technical drawings, know-how and all pending
applications for and registrations of patents, trademarks, service marks and
copyrights.
"Inventory" has the meaning ascribed to it in Section
1.01(a)(ii).
"Investment Assets" means all debentures, notes and other
evidences of Indebtedness, stocks, securities (including rights to purchase and
securities convertible into or exchangeable for other securities), interests in
joint ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by Seller (other
than trade receivables generated in the ordinary course of business of Seller).
"IRS" means the United States Internal Revenue Service.
"July 31 Balance Sheet" has the meaning ascribed to it in
Section 4.04.
"July 31 Financial Statements" has the meaning ascribed to it
in Section 4.04.
"June 30 Balance Sheet" has the meaning ascribed to it in
Section 1.03(b).
"Knowledge of Seller", "Known to Seller" or "to Seller's
Knowledge" means the knowledge of Mr. Galambos, Mrs.
- 42 -
<PAGE> 47
Galambos or any other officer, director or managerial employee of Seller.
"Laws" means all laws, statutes, rules, regulations,
ordinances and other pronouncements having the effect of law of the United
States or any state, county, city or other political subdivision or of any
Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other
liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).
"Licenses" means all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental or Regulatory Authority.
"Liens" means any mortgage, pledge, assessment, security
interest, lease, lien, adverse claim, levy, charge or other encumbrance of any
kind, or any conditional sale Contract, title retention Contract or other
Contract to give any of the foregoing.
"Loss" means any and all damages, fines, reasonable fees,
penalties, deficiencies, losses and reasonable expenses (including without
limitation interest, court costs, fees of attorneys, accountants and other
experts or other expenses of litigation or other proceedings or of any claim,
default or assessment).
"Marketing Materials" has the meaning ascribed to it in
Section 1.01(a)(xiii).
"Mr. Galambos" has the meaning ascribed to it in the forepart
of this Agreement.
"Mrs. Galambos" has the meaning ascribed to it in the forepart
of this Agreement.
"Net Book Value of the Business" means the total assets of the
Business (net of allowances for doubtful accounts and accumulated depreciation)
minus the Assumed Liabilities as shown on the applicable balance sheet of the
Seller, calculated in accordance with GAAP.
"NPL" means the National Priorities List under CERCLA.
"Order" means any writ, judgment, decree, injunction or
similar order of any Governmental or Regulatory Authority (in each such case
whether preliminary or final).
- 43 -
<PAGE> 48
"Other Assets" has the meaning ascribed to it in Section
1.01(a)(xviii).
"Parent" has the meaning ascribed to it in the forepart of
this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation
established under ERISA.
"Pension Benefit Plan" means each Benefit Plan which is a
pension benefit plan within the meaning of Section 3(2) of ERISA.
"Permitted Lien" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of Law
with respect to a Liability that is not yet due or delinquent and (iii) any
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens does not materially impair the value of the
property subject to such Lien or the use of such property in the conduct of the
Business.
"Person" means any natural person, corporation, general
partnership, limited partnership, proprietorship, other business organization,
trust, union, association or Governmental or Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, including, but not limited to,
any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Prepaid Expenses" has the meaning ascribed to it in Section
1.01(a)(vii).
"Purchase Price" has the meaning ascribed to it in Section
1.03.
"Purchaser" has the meaning ascribed to it in the forepart of
this Agreement.
"Purchaser Indemnified Parties" means Purchaser and its
officers, directors, employees, agents and Affiliates.
- 44 -
<PAGE> 49
"Qualified Plan" means each Benefit Plan which is intended to
qualify under Section 401 of the Code.
"Real Property Leases" has the meaning ascribed to it in
Section 1.01(a)(i).
"Receivables Deficiency" has the meaning ascribed to it in
Section 1.05(d).
"Receivables Notice" has the meaning ascribed to it in Section
1.05(d).
"Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without limitation,
the movement of Hazardous Materials through ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata.
"Resolution Period" means the period ending thirty (30) days
following receipt by an Indemnified Party of a written notice from an
Indemnifying Party stating that it disputes all or any portion of a claim set
forth in an Indemnity Notice.
"Retained Liabilities" has the meaning ascribed to it in
Section 1.02(b).
"SEC" means the Securities and Exchange Commission.
"Seller" has the meaning ascribed to it in the forepart of
this Agreement.
"Seller's Accountants" has the meaning ascribed to it in
Section 2.06(a).
"Seller Indemnified Parties" means Seller and its officers,
directors, employees, agents and Affiliates.
"Shareholders" has the meaning ascribed to it in the forepart
of this Agreement.
"Subject Defined Benefit Plan" means each Defined Benefit Plan
listed and described in Section 2.12(a) of the Disclosure Schedule.
"Tangible Personal Property" has the meaning ascribed to it in
Section 1.01(a)(iv).
"Taxes" means any Federal, state, county, local or foreign
income, profits, gross receipts, franchise, sales, use, occupancy, excise gains,
value added, withholding, employment,
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<PAGE> 50
payroll, social security, general property, personal property, intangible
property and all other taxes of any nature, fees, levies, duties, assessments,
deficiencies or charges imposed by any Governmental or Regulatory Authority, and
includes any interest and penalties (civil or criminal) on or additions to any
such taxes and any expenses incurred in connection with the determination,
settlement or litigation of any Tax Liability.
"Tax Returns" means a report, return or other information
(including any amendments) required to be supplied to a Governmental or
Regulatory Authority with respect to Taxes.
"Tenant Security Deposits" has the meaning ascribed to it in
Section 1.01(a)(x).
"Third Party Claim" has the meaning ascribed to it in
Section 6.02(d).
"Transfer Taxes" means all sales, use, transfer, real property
transfer, reporting, recording, gains, stock transfer and other similar taxes
and fees arising out of or in connection with the transactions effected pursuant
to this Agreement.
(b) Construction of Certain Terms and Phrases. Unless the
context of this Agreement otherwise requires, (i) words of any gender include
each other gender; (ii) words using the singular or plural number also include
the plural or singular number, respectively; (iii) the terms "hereof," "herein,"
"hereby" and derivative or similar words refer to this entire Agreement; (iv)
the terms "Article" or "Section" refer to the specified Article or Section of
this Agreement; and (v) the phrases "ordinary course of business" and "ordinary
course of business consistent with past practice" refer to the business and
practice of Seller in connection with the Business. Whenever this Agreement
refers to a number of days, such number shall refer to calendar days unless
Business Days are specified. All accounting terms used herein and not expressly
defined herein shall have the meanings given to them under GAAP.
ARTICLE VIII
MISCELLANEOUS
8.01 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Parent or Purchaser, to:
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<PAGE> 51
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, NY 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.
If to Seller, to:
Peter Galambos
56 Center Street
Roslyn Heights
New York, NY 11577
with a copy to:
Franklin, Weinrib, Rudell & Vassallo, P.C.
488 Madison Avenue
New York, NY 10022-5761
Facsimile No.: (212) 308-0642
Attn: Jonathan Director, 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 party hereto.
8.02 Bulk Sales Act. The parties hereby waive compliance with
the bulk sales act or comparable statutory provisions of each applicable
jurisdiction.
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<PAGE> 52
8.03 Entire Agreement. This 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.
8.04 Expenses. Except for the reasonable fees and expenses of
Seller's Accountants incurred in connection with their preparation and audit of
the July 31 Financial Statements, which Purchaser expressly agrees to pay, and
except as otherwise expressly provided in this Agreement, each party will pay
its own costs and expenses incurred in connection with the negotiation,
execution and closing of this Agreement and the transactions contemplated
hereby.
8.05 Public Announcements. Each party hereto will obtain the
other party's prior approval of any press release to be issued immediately
following the Closing announcing the consummation of the transactions
contemplated by this Agreement.
8.06 Waiver. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
by any party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. All remedies,
either under this Agreement or by Law or otherwise afforded, will be cumulative
and not alternative.
8.07 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
8.08 No Third Party Beneficiary. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and it is not the intention of
the parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Section 6.02.
8.09 No Assignment; Binding Effect. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except (a) for assignments and transfers by operation of Law
and (b) that Purchaser may assign any or all of its rights, interests and
obligations hereunder to a wholly-owned subsidiary, provided that any such
subsidiary agrees in writing to be bound by all of
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<PAGE> 53
the terms, conditions and provisions contained herein, but no such assignment
shall relieve Purchaser of its obligations hereunder. Subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
8.10 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
8.11 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
and (c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom.
8.12 Governing Law. 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.
8.13 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.
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<PAGE> 54
IN WITNESS WHEREOF, each party hereto has signed this
Agreement, or caused this Agreement to be signed by its officer thereunto duly
authorized, as of the date first above written.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By:___________________________
Name: Irwin Selinger
Title: Chairman of the Board
and Chief Executive Officer
GRAHAM-FIELD, INC.
By:___________________________
Name: Irwin Selinger
Title: Chairman of the Board
and Chief Executive Officer
MEDI-SOURCE, INC.
By:________________________________
Name:
Title:
_____________________________________________
Peter Galambos
_____________________________________________
Irene Galambos
- 50 -
<PAGE> 1
[GRAHAM-FIELD LETTERHEAD]
October 7, 1997
Mr. Tom Fitzgerald, President
Van G. Miller & Associates, Inc.
1111 W. Marnan Drive
Waterloo, IA 50701
Re: Purchasing Agreement
Dear Tom:
This letter hereby sets forth the terms and provisions of the purchasing
agreement, by and among Graham-Field Health Products, Inc. ("Graham-Field"), VGM
& Associates, Inc. ("VGM") and U.S. Rehab, Inc.(SM) ("U.S. Rehab").
1) Three year agreement starting November 1, 1997.
2) Agreement covers all Graham-Field and related company products either
distributed or manufactured.
3) Total indicated purchased volume by VGM and U.S. Rehab members over three
years will equal or exceed $52,000,000 or a 15% compounded sales increase
(whichever is higher).
4) VGM and U.S. Rehab will receive from Graham-Field a 2% marketing and
administrative fee (paid monthly) on all products sold to members by
Graham-Field and Graham-Field related companies subject only to the limitations
of paragraph 5 and 6 below. Graham-Field will supply complete sales reports by
dealer on all products purchased on a timely basis.
5) VGM agrees to cooperate with and assist Graham-Field in negotiations with
manufacturers to obtain additional discounts based upon this agreement (above
Graham-Field's current pricing). VGM may elect to opt out of any such
discussions with manufacturers it has direct relationships with.
6) Graham-Field may elect not to pay the marketing/administrative fee (2%) to
VGM on any items not manufactured by Graham-Field unless and until negotiations
(as referred to in paragraph 5) succeed in obtaining at least an additional 2%
of gross margin (i.e.: 2% lower cost to Graham-Field) on the products in
question. If said negotiations succeed the fee will commence within
<PAGE> 2
Mr. Tom Fitzgerald, President
Van G. Miller & Associates, Inc.
October 7, 1997
Page 2
30 days of any new pricing contract. Graham-Field may seek additional
discounts which will inure only to its benefit.
7) Pricing will be determined by Graham-Field but will generally be based on
group volume and prices are expected to be the lowest available for
similar volumes. Pricing may be tiered.
8) A public announcement that we have entered into an "Agreement" may be made
by Graham-Field upon acceptance by VGM.
9) VGM may designate certain product lines as either "VGM only", "U.S. Rehab
only" or both. Stated discounts shall only be allowed to members of the
applicable group.
Assuming you agree with the terms set-out herein, please sign a copy of this
agreement and return it to us as soon as possible.
Very truly yours,
Graham-Field Health Products, Inc.
By:/s/
______________________________________________________
Its 10/7/97
______________________________________________________
/s/ THOMAS G. FITZGERALD
_________________________________________________________
Agreed and accepted by Van G. Miller and Associates, Inc.
10-7-97
_________________________________________________________
Date
<PAGE> 1
VENDOR AGREEMENT
Agreement made this 12th day of September, 1997, between EQUIPNET,
INC.("EquipNet"), a Pennsylvania corporation and Graham-Field (Vendor), a New
York corporation.
BACKGROUND:
Equipnet is the originator and administrator of a national network (the
"Network") of providers of home health services and equipment. In addition,
EquipNet administers a group buying program (the "Buying Program") in which
Members participate (hereafter in the Program are referred to individually as a
"Participant" and collectively as the "Participants"). Vendor manufacturers or
distributes the products or services (the "Products") described in Exhibit A
attached hereto. EquipNet desires to have the Products offered through the
Buying Program and Vendor desires to participate in the Buying Program, all on
the terms and subject to the conditions set forth below:
NOW THEREFORE, the parties, intending to be legally bound hereby and for
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, agree as follows:
1. VENDOR UNDERTAKINGS. Vendor agrees to:
(a)--Offer a $125,000 enrollment fee which can be payable in merchandise,
excluding distributed products ordered by EquipNet and its locations within the
next 90 days.
(b)--Perform in-services with EquipNet case manager clients upon reasonable
notice at Vendor's cost including CEU programs.
(c)--Sponsor and help write four News, Clues and Reviews mailing a year
(newsletter to case managers)(approximate cost $1,500 per mailing).
(d)--Assemble its portion of an EquipNet Resource Manual for case managers
(Vendor to assemble their section and supply sufficient copies).
(e)--For clinical programs, assist in development and production of programs.
(f)--Develop comarketing material and Vendor catalogs identifying Vendor as
EquipNet Buying Program member.
(g)--Edit EquipNet Patient Education Booklet specific to Vendor's products and
pay for its pro rata share of the printing for exclusive territory providers.
<PAGE> 2
(h)-Maintain competitive pricing including finance/lease programs, competitive
products and satisfactory service including delivery, customer service and
warranty work.
2. EQUIPNET UNDERTAKINGS. EquipNet agrees to:
(a)-Negotiate diligently with its providers to award exclusive territories and
obligate its exclusive territories in the DME/supplies business to use Vendor's
products.
(b)-Diligently pursue managed care contracts to enhance EquipNet's abilities to
create exclusive territories.
(c)-Promote Vendor's Products where appropriate to payors including enabling
EquipNet to designate its formulary in servicing its contracts.
(d)-Purchase Vendor's Products at all owned locations.
(e)-Modify at Vendor's expense Patient Education booklets to include Vendor
specific training materials.
(f)-Include Vendor's specific products in marketing/educational materials such
as a Medicare Training Manual for HMOs or a Workers Comp Equipment Guide.
(g)-The agreements above to require exclusives and company owned locations to
use Vendor products are subject to (1) net price/terms/quality comparability
including switch-over costs, and (2) market conditions which may require name
brand products.
3. PRODUCT PRICE. Vendor and EquipNet agree that the price per Product to
be charged to the Participant, exclusive of any applicable taxes and shipping
charges, is as set forth in EXHIBIT A next to each Product. The pricing levels
are defined as follows:
(a) BETTER - All EquipNet members will be offered this pricing
(b) BEST - Any EquipNet member who commits to purchase $500,000 or more on
annual basis will be offered this pricing.
(c) BEST PLUS - Any EquipNet member who commits to purchase $1,000,000 or
more on an annual basis will be offered a custom contract, with pricing and
terms equal to if not better than Best.
Vendor agrees to communicate vendor pricing, discounts, special promotions and
the like to Participants through EquipNet. Vendor warrants that such pricing is
as competitive if not more competitive than pricing offered to any other
homecare buying program. Vendor will also negotiate volume and/or custom
contracts for Participants who warrant more aggressive pricing across the board
or in special areas and EquipNet will still receive credit for such purchases.
In circumstances where Graham Field must negotiate a special price to one of
EquipNet's members, that same pricing must be offered to Beckett Medical.
<PAGE> 3
4. PRODUCT ORDERING. EquipNet shall deliver a list of Participants to
Vendor, which list shall be updated periodically by EquipNet. Each Participant
shall be given an identification number. Participants will order Products
directly from the Vendor using their identification number. All Products
ordered by Participant from Vendor shall be deemed to be ordered pursuant to
the Buying Program. Where a Participant is in more than one buying program,
upon EquipNet's delivery to Vendor a commitment form identifying EquipNet as
the program of choice, Vendor shall honor all purchases through EquipNet.
5. PRODUCT PROMOTION. Both EquipNet and Vendor shall make Participants
aware of Vendor products and prices offered under this contract. EquipNet shall
notify its Participants through infofaxes, newsletters and other sources. With
prior approval vendor shall reimburse for all reasonable costs in connection
with mailings to EquipNet members for Vendor Products. Vendor agrees to notify
its sales force including any manufacturer representatives. Vendor agrees to
develop direct mailings with EquipNet detailing Products offered and their
discounts and to market to the Participants including exclusive EquipNet
pricing specials at least four times a year to contracted Participants. All CEU
programs offered by Vendor are listed on EXHIBIT B and Vendor shall work with
EquipNet in developing additional CEU programs.
6. FINANCING. Vendor will offer a finance program to dealers comparable to
Invacare's programs. This will include dating as well as leases. For example,
on large purchases, an EquipNet member will be offered 90 to 180 days dating
from original delivery date with leasing option.
7. PURCHASING PROGRAMS. Vendor will support and market as part of its
marketing of its relationship with EquipNet the other programs and products in
EquipNet's purchasing program such as insurance, travel, office products,
telephone, printing, etc.
8. DISTRIBUTION. Vendor will work with EquipNet to establish a nationwide
distribution program to EquipNet's clients. This includes catalog development,
warehouse expertise, bar coding, special racking etc. so that Vendor and
EquipNet can capture the majority of the disposables business from EquipNet's
clients. Vendor will also be on-line with EquipNet to enable EquipNet to drop
ship from Vendor products to patients and Vendor will include an EquipNet
brochure or flier, as designated by EquipNet, in such packages which will be in
the name of EquipNet.
9. CATALOGS. Vendor will, at its cost, develop catalogs appropriate for
EquipNet's clients including a general product overview, a wound
care/diabetic/med/surg and a patient aids catalog. Four pages--outside and
insider front and back covers--will be custom for EquipNet. Vendor will be
sponsored in this as EquipNet's distribution partner. The diabetic/wound
care/med-surg with basic DME will be available within 6 weeks of the date
above.
<PAGE> 4
10. ADMINISTRATION FEE / REPORTING REQUIREMENTS. As payment for EquipNet's
development and administration of the Buying Program, Graham Field / Everest &
Jennings agrees to the rebate the following:
<TABLE>
<CAPTION>
YEAR 1
<S> <C>
$2 million to $2,999,999 net sales 2.5% rebate
$3 million to $3,999,999 net sales 3.0% rebate
$4 million plus 4.0% rebate
YEAR 2
$4 million to $4,999,999 net sales 2.5% rebate
$5 million to $5,999,999 net sales 3.0% rebate
$6 million plus 4.0% rebate
</TABLE>
In order to qualify for rebate, EquipNet must meet eighty percent (80%) of its
volume requirement. Such fee shall be paid to EquipNet quarterly within 30 days
of the end of each calendar quarter in respect of all Vendor's sales or leases
of Products to Participants during the preceding quarter (i.e., payment shall
be made by April 15 for January through March sales). Within 30 days of the end
of each month, Vendor shall furnish to EquipNet a list of each Participant's
purchase or lease of Products during the prior month which list shall be
furnished on hard copy as well as on Lotus or Excel diskette. Vendor shall keep
true and accurate books and records of all Products shipped and invoices billed
to Participants and EquipNet and it's auditors shall be entitled to examine
Vendor's books and records on the same.
11. EQUIPNET MEMBER REBATES. All EquipNet members who commit to purchase
eighty (80) percent of their products from Graham Field where Graham Field's
pricing is as competitive if not better than their existing pricing, excluding
respiratory, distributed products and brand requests, will receive an
additional one (1) percent at year end based on minimum annual volume of
$200,000 or less, or a two (2) percent rebate at year end on $201,000 or more.
12. VOLUME COMMITMENTS. The prices and discounts listed in EXHIBIT A are
predicated upon EquipNet members agreeing to purchase, as a group, first year
$4.0 million ($1,00,000 quarterly); second year $6.0 million ($1,500,000
quarterly).
13. DELIVERY PERFORMANCE GUARANTEE. Vendor will guarantee delivery
performance. Failure to ship order within 72 hours of order confirmation of
delivery date will result in additional one percent (1%) discount to the
EquipNet member for that order, to be taken from the net invoice amount due.
14. WARRANTIES; RISK OF LOSS; INSURANCE. All of Vendor's (and the
manufacturer's if different from Vendor) product warranties shall be made to
the Participants, all risk of loss shall be on the Vendor until shipments are
received, and
<PAGE> 5
Vendor acknowledges and agrees that EquipNet is not liable in any way
whatsoever to Vendor, to Participant's or to the ultimate user for defects,
risk of loss, injuries, damages, etc. and Vendor releases, indemnifies and
holds harmless EquipNet from the same. Vendor shall list EquipNet as an
additional insured on its product liability insurance and shall furnish such
certificate to EquipNet on the date hereof.
15. Non-Solicitation. Vendor acknowledges that through this Agreement, it
will have access to EquipNet's contracted clients consisting of insurance
companies, case management companies, third party administrators, self-insured
payors and others and that Vendor will be introduced to these clients through
regularly scheduled training in-services and educational materials. Vendor
acknowledges that it would be unfair to use such information and relationships
in a manner competitive with EquipNet and Vendor agrees that during the term of
this Agreement and for a one year period following the expiration of this
Agreement, it and its subsidiaries and affiliates will not solicit directly or
indirectly, EquipNet's clients unless such clients publicly solicit general
bids for such business in which case Vendor shall be free to respond such bids
but it shall pay EquipNet a fee on all Products sold to such clients equal to
5% of sales payable quarterly.
16. Termination. This Agreement shall be effective on the date hereof and
shall continue in force for two (2) years from the date hereof and shall be
renewed thereafter for successive one (1) year periods unless either party gives
the other party written notice of its decision not to renew at least 60 days but
not more than 120 days prior to the end of the one year period. Either party may
terminate this agreement for cause upon 30 days notice if such default is not
remedied within such 30 day period. If Vendor terminates this Agreement without
cause or EquipNet terminates this Agreement for cause, Vendor shall continue to
pay the fee to EquipNet on sales to Participants for the following one hundred
and twenty (120) day period. Cause shall mean the willful and intentional
failure of the other party to perform its agreements and duties hereunder.
17. General. This Agreement shall be governed by the laws of Pennsylvania
and shall be binding upon each party and their successors and assigns, provided
that an assignment of the rights and remedies by a party hereto without the
other party's consent shall be prohibited, and any assignment in violation of
this provision shall allow the other party to terminate this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of
the date written above.
EQUIPNET, INC. VENDOR
By: /s/ 9/12/97 By: /s/ 9/12/97
------------------------- -------------------------
<PAGE> 6
EQUIPNET PRICING
OCTOBER 1, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
LENGTH OF AGREEMENT: 10/01/97 - 09/12/99
- --------------------------------------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------------------------------------
LEVEL VOLUME COMMITMENT
- --------------------------------------------------------------------------------------------------------------
1 $0 - $500,000 (BETTER)
- --------------------------------------------------------------------------------------------------------------
2 $500,001 - $1,000,000 (BEST)
- --------------------------------------------------------------------------------------------------------------
3 $1,000,001 + (BEST PLUS) REQUIRES INDIVIDUAL CONTRACT
- --------------------------------------------------------------------------------------------------------------
(DEALER MUST COMMIT TO RECEIVE BEST OR BEST PLUS PRICING)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
EVEREST & JENNINGS BETTER BEST
PRODUCT CATEGORY DISCOUNT DISCOUNT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
METRO POWER TRADE + 24% 26%
- --------------------------------------------------------------------------------------------------------------
ALL OTHER POWER TRADE + 27% 29%
- --------------------------------------------------------------------------------------------------------------
METRO TRADE + 44% 48%
- --------------------------------------------------------------------------------------------------------------
METRO LX TRADE + 33% 35%
- --------------------------------------------------------------------------------------------------------------
PREMIER, P2+, SPF II TRADE + 27% 29%
- --------------------------------------------------------------------------------------------------------------
BARRACUDA, NITRO
REACTOR TRADE + 13% 15%
- --------------------------------------------------------------------------------------------------------------
EPIC, RECORD TRADE + 21% 23%
- --------------------------------------------------------------------------------------------------------------
KUSCHALL/ACE TRADE + 9% 12%
- --------------------------------------------------------------------------------------------------------------
HOMECARE CHAIRS TRADE + 32% 34%
- --------------------------------------------------------------------------------------------------------------
SPECIAL/ULTRA BEDS TRADE + 4% 4%
- --------------------------------------------------------------------------------------------------------------
BED COMP/ACCESS TRADE + 32% 32%
- --------------------------------------------------------------------------------------------------------------
LABAC (LA) TRADE + 15% 15%
- --------------------------------------------------------------------------------------------------------------
ADVANTAGE PARTS (AA) TRADE + 8% 10%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
BETTER BEST
ITEM # PACK DESCRIPTION (EACH PRICE) (EACH PRICE)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EVEREST & JENNINGS & SMITH & DAVIS
- --------------------------------------------------------------------------------------------------------------
52004010/4110 1 VISTA W/C STD, FA & RFR 140.00 128.95
- --------------------------------------------------------------------------------------------------------------
52004420/4520 1 VISTA W/C STD. RDA & ELR 174.48 164.48
- --------------------------------------------------------------------------------------------------------------
51000480 1 TRAVELER W/C STD., 20" RDA/ELR 217.16 211.16
- --------------------------------------------------------------------------------------------------------------
1H000120/220 1 METRO W/C RDA/ELR 421.28 371.28
- --------------------------------------------------------------------------------------------------------------
51000495 1 TRAVELER 22" RDA/ELR 352.52 346.52
- --------------------------------------------------------------------------------------------------------------
1 PREM CLASSIC 24" RDA/ELR 346.52 398.00
- --------------------------------------------------------------------------------------------------------------
3A010420/420 1 LIGHTNING RDA/ELR 210.37 204.37
- --------------------------------------------------------------------------------------------------------------
51001420/1520 1 TRAVELER HEMI RDA/ELR 302.96 268.96
- --------------------------------------------------------------------------------------------------------------
51001480 1 TRAVELER HEMI 20" RDA/ELR 322.96 288.96
- --------------------------------------------------------------------------------------------------------------
51002420/2520 1 TRAVELER RECLN RDA/ELR 329.28 319.28
- --------------------------------------------------------------------------------------------------------------
768/5523-PKG 1 FULL ELEC BED PACKAGE 591.40 581.40
- --------------------------------------------------------------------------------------------------------------
768-5523 1 FULL ELEC BED ONLY 475.76 463.76
- --------------------------------------------------------------------------------------------------------------
GF6570-1 1 FULL LENGTH SIDE RAILS 51.00 43.00
- --------------------------------------------------------------------------------------------------------------
GF1500-180 1 MATTRESS 69.00 64.00
- --------------------------------------------------------------------------------------------------------------
COMMODES
- --------------------------------------------------------------------------------------------------------------
GF2075-2 2 3 N 1, ALUM, ADJUSTABLE HGT,
W/BUCKET 28.56 26.56
- --------------------------------------------------------------------------------------------------------------
GF2095-2 2 STANDARD ADJUSTABLE HGT, ALUM,
W/BUCKET 28.56 26.56
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
EQUIPNET PRICING
OCTOBER 1, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
BETTER BEST
ITEM # PACK DESCRIPTION (EACH PRICE) (EACH PRICE)
- ------ ---- ----------- ------------ ------------
GF1979-2 2 3 N 1, STEEL ADJUSTABLE HGT,
W/BUCKET & SPLASH GUARD 29.95 27.50
GF2090-2 2 X-WIDE, ADJUSTABLE HGT, W/BUCKET 65.43 64.21
GF2090-1 1 SAME AS ABOVE (1 PER CARTON) 72.00 69.00
GF1976-1 1 DROP ARM PADDED SEAT, STEEL,
W/BUCKET 78.85 75.85
GF1977-1 1 DROP ARM, STEEL, W/BUCKET 72.13 71.85
WALKERS 7/8" TUBING
GF1925-4 4 NON-FOLDING, ADJUSTABLE HGT. 27.00 24.00
GF1902-6 6 FOLDING 1 BUTTON ADULT 7/8" 24.08 23.50
GF1901-2 2 FOLDING 1 BUTTON JR. 7/8" 24.08 23.50
RP19020-1 1 4 1/2" WHEEL FOR 1902/1901 (1 PR.) 13.05 11.81
RP19060-1 1 3" SWIVEL WHEELS FOR 1902/1901 (1 PR.) 19.90 17.90
FOLDING 1" TUBING
GF1945-2 2 FOLDING ADJUSTABLE HGT. 1 BUTTON ADULT 28.25 25.50
GF1944-2 2 FOLDING ADJUSTABLE HGT. 1 BUTTON JR. 28.25 25.50
GF1946-2 2 FOLDING ADJUSTABLE HGT. 1 BUTTON
ADULT W/4 1/2" WHEELS 41.00 38.50
GF1905-2 2 FOLDING 2 BUTTON ADJUSTABLE HGT. 30.50 29.50
FOLDING 1" TUBING
GF1947-2 2 FOLDING ADJUSTABLE HGT. 1 BUTTON JR.
W/4 1/2" WHEELS 41.00 38.50
GF1909-2 2 DELUXE 2 BUTTON W/EXTRA WIDE FEATURE 36.00 35.00
RP19070-1 1PR 1 PAIR 4 1/2" WHEELS FOR 1" WALKERS 13.05 11.81
RP29090-1 1PR 1 PAIR 3" WHEELS FOR 1" WALKER 13.05 11.81
RP19090-1 1PR 1 PAIR 5" SWIVEL WHEELS "MAG HUB" FOR
1" WALKERS 41.50 39.50
RP19320 1PR 1 PAIR XTRA LONG-EXTENDS WALKER LEGS
4" AND ADJUSTS IN 1" INCREMENTS FOR
1" WALKERS 12.50 11.25
RP29050-1 1PR 1 PAIR 3" SWIVEL WHEELS FOR 1" WALKERS 19.25 17.90
CANES
GF5940-6 6 ADJUSTABLE, ALUM. OFFSET 7.12 6.02
GF5940-1 1 ADJUSTABLE, ALUM. OFFSET (1/CARTON) 8.20 7.25
GF5942-6 6 DELUXE, ADJUSTABLE, ALUM. OFFSET, BLACK 7.95 6.95
GF5981-4 4 QUAD CANE, CHROME, LARGE BASE 14.96 12.50
GF5986-4 4 QUAD CANE, CHROME, SMALL BASE 14.96 12.50
GF5946-2 2 PYRAMID CANE 28.50 27.50
BATH SAFETY
GF1992-2 2 BATH SEAT, W/O BACK, ADJUSTABLE,
ASSEMBLED 17.45 16.20
</TABLE>
<PAGE> 8
EQUIPNET PRICING
OCTOBER 1, 1997
<TABLE>
<CAPTION>
BETTER BEST
ITEM # PACK DESCRIPTION (EACH PRICE) (EACH PRICE)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GF1992KA-1 1 BATH SEAT, W/O BACK, ADJUSTABLE, KD 18.50 17.20
GF1993-2 2 BATH SEAT, W-BACK, ADJUSTABLE
ASSEMBLED 24.44 22.00
GF1993KA-1 1 BATH SEAT, W/BACK ADJUSTABLE, KD 24.75 23.00
GF6902-1 1 RAISED SEAT, BLOW MOLDED,
CONTOURED 14.10 12.50
GF6909-6 6 RAISED SEAT, BLOW MOLDED,
CONTOURED 9.20 8.00
GF6909-1 1 RAISED SEAT, BLOW MOLDED 1 PER
CARTON 10.00 8.95
GF6905-1 1 RAISED SEAT, BLOW MOLDED W/CLAMP 18.00 16.90
BATH SAFETY
GF6907-1 1 RAISED SEAT, W/CLAMP AND ARMS 30.00 28.50
GF6908-1 1 EXTRA-WIDE RAISED SEAT W/CLAMP AND
ARMS 34.50 32.50
GF1995-1 1 TRANSFER BENCH, ADJUSTABLE 38.50 35.50
GF6004-2 2 TOILET SAFETY FRAMES 1 PAIR 19.00 17.50
IV POLES
GF7012-1 1 IV POLE 21.25 20.25
OVERBED TABLES
GF8900-1 ECONO, NON-TILT, HGT. ADJUSTABLE 51.32 50.00
GF8901-1 NON-TILT, EASY TOUCH HGT. ADJUSTABLE 64.95 62.95
GF8905-1 TILT, EASY TOUCH, HGT ADJUSTABLE 82.00 79.00
PATIENT LIFT
GF6685-1 PATIENT LIFT W/CHAINS 494.80 482.00
GF112-C-LC CANVAS SLING 29.70 29.00
GF113-C-LC CANVAS SLING W/OPENING 32.67 32.67
GF113-N-LC NYLON SLING W/OPENING 22.90 22.90
TRAPEZE
GF6672-1 TRAPEZE BAR 74.00 71.00
GF6677-1 TRAPEZE BASE 92.00 89.90
APP
AQ2000 DELUXE APP PUMP & PAD 64.80 55.00
AQ2000-1 PAD ONLY W/TUBES 14.00 13.00
AQ1000 APP PUMP & PAD 49.50 48.00
ALA 5500 LOW AIR LOSS MATTRESS EO277 1470.00 1400.00
TENS UNIT
GF-3 TENS UNIT 2 LEAD 27.35 26.95
LIFT CHAIRS
PR-CAPRIFBC 2 POSITION RECLINER, FABRIC,
COPENHAGEN 304.90 304.90
PR-CAPRIFBM 2 POSITION RECLINER, FABRIC. MAUVE 304.90 304.90
PR-CAPRIFBT 2 POSITION RECLINER, FABRIC. TAUPE 304.90 304.90
</TABLE>
<PAGE> 9
EQUIPNET PRICING
OCTOBER 1, 1997
<TABLE>
<CAPTION>
BETTER BEST
ITEM # PACK DESCRIPTION (EACH PRICE) (EACH PRICE)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PR-355FBC 3 POSITION RECLINER, FABRIC,
COPENHAGEN 393.00 393.00
PR-355FBM 3 POSITION RECLINER, FABRIC, MAUVE 393.00 393.00
PR-355FBT 3 POSITION RECLINER, FABRIC, TAUPE 393.00 393.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1997 AS INCLUDED IN THE FORM 10Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,682
<SECURITIES> 12,832
<RECEIVABLES> 74,770
<ALLOWANCES> 0
<INVENTORY> 60,134
<CURRENT-ASSETS> 162,000
<PP&E> 14,801
<DEPRECIATION> 0
<TOTAL-ASSETS> 293,048
<CURRENT-LIABILITIES> 46,828
<BONDS> 109,962
0
31,600
<COMMON> 530
<OTHER-SE> 104,128
<TOTAL-LIABILITY-AND-EQUITY> 293,048
<SALES> 70,745
<TOTAL-REVENUES> 71,108
<CGS> 47,159
<TOTAL-COSTS> 47,159
<OTHER-EXPENSES> 16,018
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,394
<INCOME-PRETAX> 5,537
<INCOME-TAX> 2,187
<INCOME-CONTINUING> 3,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,350
<EPS-PRIMARY> .13
<EPS-DILUTED> .00
</TABLE>
