<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GRAHAM-FIELD HEALTH PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 5047 11-2578230
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
400 RABRO DRIVE EAST
HAUPPAUGE, NEW YORK 11788
(516) 582-5900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD S. KOLODNY, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
400 RABRO DRIVE EAST
HAUPPAUGE, NEW YORK 11788
(516) 582-5900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
ROBERT S. REDER, ESQ.
MILBANK, TWEED, HADLEY & MCCLOY
1 CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10005
TELEPHONE (212) 530-5680
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 3/4% Senior Subordinated Notes due
2007, Series A..................... $100,000,000 100% $100,000,000 $29,500
- -----------------------------------------------------------------------------------------------------
Guarantees of 9 3/4% Senior
Subordinated Notes due 2007, Series
A.................................. (2) (2) (2) (2)
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</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for the purposes of calculating the
registration fee.
(2) Pursuant to Rule 457(n), no registration fee is required with respect to the
Guarantees of the Senior Subordinated Notes registered hereby.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY
ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY
STANDARD
INDUSTRIAL
EXACT NAME OF GUARANTOR REGISTRANT JURISDICTION OF I.R.S. EMPLOYER CLASSIFICATION
AS SPECIFIED IN ITS CHARTER ORGANIZATION IDENTIFICATION NO. CODE NO.
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aqua Therm Corp. ....................... New Jersey -- 50
Bristoline Inc. ........................ New York 131959984 50
Everest & Jennings Canadian Ltd. ....... Canada 101702415RC 38
Everest & Jennings de Mexico S.A. de
C.V. ................................ Mexico EJM-801110-QF8 38
Everest & Jennings, Inc. ............... California 95-1495697 N/A
Everest & Jennings International
Ltd. ................................ Delaware 95-2536185 N/A
Everest & Jennings Lifestyles........... California 94-4169853 N/A
Exnewt, Inc. ........................... New York 11-3235753 N/A
Freeway Investment Corp. ............... California 95-2762378 N/A
G.F.E. Healthcare Products Corp. ....... Delaware 13-3641064 N/A
Graham-Field Bandage, Inc. ............. Rhode Island 05-0468193 38
Graham-Field Distribution, Inc. ........ Missouri 43-1623022 50
Graham-Field European Distribution Ireland Corp. --
Corporation Limited.................. Ireland No U.S. ID # N/A
Graham-Field Express, Inc. ............. Delaware 11-2657067 50
Graham-Field Express (Dallas), Inc. .... Delaware -- 50
Graham-Field Express (Puerto Rico),
Inc. ................................ Delaware 22-3463530 50
Graham-Field, Inc. ..................... New York 11-1820299 38
Graham-Field Temco, Inc. ............... New Jersey 11-3096965 38
Health and Medical Techniques, Inc. .... Connecticut 06-1184697 50
Healthteam, Inc. ....................... Delaware -- 50
International Medical Equipment
Corp. ............................... California 95-3329692 N/A
The Jennings Investment Company......... California 95-2490599 N/A
Kuschall of America, Inc. .............. California 77-0109620 38
LaBac Systems, Inc. .................... Colorado 84-0917890 38
Labtron Scientific Corp. ............... New York 11-2193092 50
M.E. Team, Inc. ........................ New Jersey 22-2242497 50
MCT Acquisition Corp. .................. Missouri Shell N/A
Medisco, Inc. .......................... Delaware 13-3149921 N/A
Metal Products Corp. ................... California 95-1559775 N/A
Patient Technology, Inc. ............... New York -- 50
Professional Securities Corp. .......... Missouri 44-0600913 N/A
Rabson Medical Sales, Ltd. ............. New York 11-2777162 50
Smith & Davis Manufacturing Company..... Missouri 43-0977612 38
Thompson Blair, Inc. ................... Missouri 43-1202919 N/A
Ventilator Corp. ....................... New York 11-3235752 N/A
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1997
PRELIMINARY PROSPECTUS
GRAHAM-FIELD HEALTH PRODUCTS, INC.
OFFER TO EXCHANGE
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
($100,000,000 PRINCIPAL AMOUNT)
FOR
ALL OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1998, UNLESS EXTENDED
------------------------
Graham-Field Health Products, Inc., a Delaware corporation (the "Company"
or "Graham-Field"), hereby offers, upon the terms and subject to conditions set
forth in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal"; together with the Prospectus, the
"Exchange Offer"), to exchange up to an aggregate principal amount of $100
million of its 9 3/4% Senior Subordinated Notes due 2007, Series A (the "New
Notes") for up to an aggregate principal amount of $100 million of its
outstanding 9 3/4% Senior Subordinated Notes due 2007 (the "Old Notes"). The
terms of the New Notes are identical in all material respects to those of the
Old Notes, except for certain transfer restrictions and registration rights
relating to the Old Notes. The New Notes will be issued pursuant to, and
entitled to the benefits of, the Indenture (as defined herein) governing the Old
Notes. The New Notes and the Old Notes are sometimes referred to collectively as
the "Notes."
The New Notes will bear interest at the rate of 9 3/4% per annum, payable
semi-annually on February 15 and August 15, commencing February 15, 1998.
Holders of the New Notes will receive interest on February 15, 1998 from the
date of initial issuance of the New Notes, plus an amount equal to the accrued
interest on the Old Notes from the date of initial issuance thereof to the date
of exchange thereof pursuant to the Exchange Offer. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the New Notes in
exchange therefor.
The New Notes are redeemable for cash at any time on or after August 15,
2002, at the option of the Company, in whole or in part, at the redemption
prices set forth herein, plus accrued and unpaid interest to the date of
redemption. In addition, on or before August 15, 2000, the Company may redeem up
to $25 million aggregate principal amount of the Notes with the net proceeds
from one or more public offerings of common stock of the Company at the
redemption price set forth herein plus accrued and unpaid interest to the date
of redemption; provided that at least $75 million aggregate principal amount of
the Notes would remain outstanding after giving effect to any such redemption.
Upon a Change of Control (as defined herein), the holders of the Notes will have
the right to require the Company to repurchase their Notes, in whole or in part,
at a purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest to the repurchase date. See "Description of New Notes."
The New Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Company, including indebtedness under the Credit Facility
(as defined herein). The New Notes will be guaranteed (the "Subsidiary
Guarantees"), jointly and severally, on a senior subordinated basis by all
existing and future Restricted Subsidiaries (as defined herein) of the Company
(the "Guaranteeing Subsidiaries"). The Subsidiary Guarantees will be
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. As of
September 30, 1997, the Company had no Senior Debt outstanding and the
Guaranteeing Subsidiaries had $10.5 million of Senior Debt outstanding. In
addition, the Company had approximately $71.8 million available for borrowing
under the Credit Facility.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF THE OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December , 1997
<PAGE> 4
(Continued from Cover)
The Company will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on , 1998, unless extended by the Company in its sole discretion
(the "Expiration Date"). The Expiration Date will not in any event be extended
to a date later than , 1998. Tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. In the event the Company terminates the Exchange Offer, and does not
accept for exchange any Old Notes with respect to the Exchange Offer, the
Company will promptly return the Old Notes to the holders thereof. The Exchange
Offer is not conditioned upon any minimum principal amount of Old Notes being
tendered for exchange, but is otherwise subject to certain customary conditions.
The Old Notes may be tendered only in integral multiples of $1,000.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Guaranteeing Subsidiaries contained in the
Registration Rights Agreement dated August 4, 1997 (the "Registration Rights
Agreement") by and among the Company, the Guaranteeing Subsidiaries and Smith
Barney Inc., as the initial purchaser (the "Initial Purchaser") with respect to
the Initial Offering.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by the respective holders thereof (other than any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act")), without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that the New Notes are acquired in the ordinary course of such holder's
business and such holder has no arrangement with any person to participate in
the distribution of such New Notes and is not engaged in and does not intend to
engage in a distribution of the New Notes. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of the New Notes received in exchange for Old Notes
if such New Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the New
Notes. There can be no assurance as to the liquidity of any markets that may
develop for the New Notes, the ability of holders to sell the New Notes, or the
price at which holders would be able to sell the New Notes. Future trading
prices of the New Notes will depend on many factors, including among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Historically, the market for securities similar
to the New Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the New Notes, if such
market develops, will not be subject to similar disruptions. The Initial
Purchaser has advised the Company that it currently intends to make a market in
the New Notes offered hereby. However, the Initial Purchaser is not obligated to
do so and any market making may be discontinued at any time without notice.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses incident to the Exchange Offer.
2
<PAGE> 5
AVAILABLE INFORMATION
The Company and the Guaranteeing Subsidiaries have filed with the
Commission a Registration Statement on Form S-4 under the Securities Act for the
registration of the New Notes offered hereby (the "Registration Statement").
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company or the New Notes
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto, which may be inspected without charge at the public reference
facility maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of which may be obtained from the Commission at
prescribed rates. Statements made in this Prospectus concerning the contents of
any document referred to herein are not necessarily complete. With respect to
each such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Commission. Such reports
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at its regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, on payment of prescribed charges. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information filed by the Company with the
Commission through its Electronic Data Gathering Analysis and Retrieval (EDGAR)
System. Such reports, proxy statements and other information concerning the
Company can also be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
For so long as any Notes remain outstanding, the Company is obligated under
the Indenture to remain subject to the reporting requirements of Section 13 or
Section 15(d) of the Exchange Act and to continue to file with the Commission
such information, documents and other reports which are specified in such
sections of the Exchange Act. The Company is obligated to file with the Trustee
(as defined herein) and cause to be provided to the holders of the Notes copies
of such annual reports and of the information, documents and other reports which
the Company is required to file with the Commission.
INCORPORATION BY REFERENCE
The information in the following documents filed by the Company with the
Commission pursuant to the Exchange Act is incorporated by reference in this
Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, as amended by Form 10-K/A dated December 23, 1997;
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997, as amended by Form 10-Q/A dated July 9, 1997;
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997;
4. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997;
5. The Company's Current Report on Form 8-K dated as of March 12,
1997, as amended by Form 8-K/A dated May 12, 1997 (Date of Event: February
28, 1997);
6. The Company's Current Report on Form 8-K dated as of March 20,
1997, as amended by Form 8-K/A dated May 19, 1997 (Date of Event: March 7,
1997);
3
<PAGE> 6
7. The Company's Current Report on Form 8-K dated as of May 14, 1997
(Date of Event: May 1, 1997);
8. The Company's Current Report on Form 8-K dated as of June 25, 1997
(Date of Event: June 25, 1997);
9. The Company's Current Report on Form 8-K dated as of July 17, 1997
(Date of Event: July 17, 1997);
10. The Company's Current Report on Form 8-K dated as of September 2,
1997 (Date of Event: August 28, 1997); and
11. The Company's Current Report on Form 8-K dated as of September 11,
1997 (Date of Event: September 5, 1997).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Expiration Date shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of the
filing of such documents. Any statement contained in this Prospectus or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained herein, or in any subsequently filed document that also is
or is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified and superseded, to constitute a part of this Prospectus.
The Company will furnish, without charge, to any person to whom this
Prospectus is delivered, upon such person's written or oral request, a copy of
any and all of the information filed by the Company that has been incorporated
herein by reference (not including exhibits to the information that is
incorporated by reference herein unless such exhibits are specifically
incorporated by reference in such information). Requests for such copies should
be directed to the Company at 400 Rabro Drive East, Hauppauge, New York 11788,
Attention: Corporate Secretary (telephone number (516) 582-5900).
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the related notes thereto, appearing elsewhere in this Prospectus or
incorporated by reference herein. Unless otherwise indicated or where the
context otherwise requires, all references herein to "Graham-Field" or the
"Company" refer to Graham-Field Health Products, Inc. and its consolidated
subsidiaries.
THE COMPANY
Graham-Field Health Products, Inc. ("Graham-Field" or the "Company")
manufactures, markets and distributes medical, surgical and a broad range of
other healthcare products targeting the home healthcare and medical/surgical
markets through a network of approximately 18,500 dealers and other customers in
North America. The Company also markets and distributes products throughout
Europe, Central and South America, and Asia. In November 1996, the Company
completed the acquisition of Everest & Jennings International Ltd. ("Everest &
Jennings"), a major manufacturer and distributor of a broad line of wheelchairs
and a distributor of homecare beds. In addition, as more fully described under
"Recent Developments", on September 5, 1997, the Company entered into an
agreement to acquire Fuqua Enterprises, Inc. ("Fuqua"), one of the leading
manufacturers of durable medical equipment and furnishings in the United States.
The Company's strategic business objective is to become the leading
provider of medical products to the rapidly growing home healthcare and
medical/surgical markets by offering a comprehensive product line, single-source
purchasing and technologically advanced, cost-effective delivery systems. The
cornerstone of the Company's sales and marketing strategy is the Company's
Consolidation Advantage Program ("C.A.P."). Through C.A.P., the Company strives
to become the most efficient and reliable low-cost provider of medical products
by offering the Company's customers the ability to reduce their operating costs
significantly by consolidating the purchase of multiple product lines through a
single source. The Company's sales and marketing representatives consult with
the Company's customers to identify the cost efficiencies and savings that can
be derived from purchasing all of their product needs through the Company. By
consolidating the purchase of multiple products through a single source, the
Company's customers significantly reduce their operating costs associated with
the purchasing process, including the reduction of delivery expenses,
administrative costs and other expenses. The Company believes that its C.A.P.
program significantly improves the level of service to its customers by
streamlining the purchasing process, decreasing order turnaround time, reducing
delivery expenses, and providing inventory on demand.
The Company markets and distributes approximately 30,000 products under its
own brand names and under suppliers' names throughout the world. The Company
maintains manufacturing and distribution facilities in the United States,
Canada, Mexico and Puerto Rico. The Company continuously seeks to expand its
product lines by increasing the number of distributorship agreements with
suppliers, forming strategic alliances and acquiring other companies and product
lines. The Company's products are marketed to approximately 18,500 customers,
principally hospital, nursing home, physician and home healthcare dealers, and
healthcare product wholesalers and retailers, including drug stores, catalog
companies, pharmacies and home-shopping related businesses.
The Company's principal products and product lines include durable medical
equipment (such as wheelchairs, homecare beds, ambulatory aids, bathroom and
safety equipment, and power wheelchair seating systems), sphygmomanometers
(blood pressure measuring devices), stethoscopes, ECG instruments, electronic
thermometers, infrared heat treatment devices, adult incontinence products,
nutritional supplements, specialty cushions and mattresses for the treatment and
prevention of pressure sores, medicated and rubber elastic bandages, respiratory
equipment and supplies, urologicals, ostomy products, wound care products,
infection control products, first aid supplies, laboratory supplies,
antiseptics, topical anesthetics and sterile disposable medical products. By
offering a wide range of products from a single source, the Company enables its
customers to reduce purchasing costs, including transaction, freight and
inventory expenses.
5
<PAGE> 8
THE EXCHANGE OFFER
The New Notes.............. The forms and terms of the New Notes are identical
in all material respects to the terms of the Old
Notes for which they may be exchanged pursuant to
the Exchange Offer, except for certain transfer
restrictions and registration rights relating to
the Old Notes described under "-- Terms of New
Notes."
The Exchange Offer......... The Company is offering to exchange up to $100
million aggregate principal amount of 9 3/4% Senior
Subordinated Notes due 2007, Series A (the "New
Notes") for up to $100 million aggregate principal
amount of its outstanding 9 3/4% Senior
Subordinated Notes due 2007 (the "Old Notes"). Old
Notes may be exchanged only in integral multiples
of $1,000.
Expiration Date; Withdrawal
of Tender................ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, or such
later date and time to which it is extended by the
Company (the "Expiration Date"). The tender of the
Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
Any Old Notes not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
Certain Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Certain Conditions to the
Exchange Offer."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Old Notes and any other required
documentation to the Exchange Agent (as defined) at
the address set forth herein. By executing the
Letter of Transmittal, each holder will represent
to the Company that, among other things, (i) any
New Notes to be received by it will be acquired in
the ordinary course of its business, (ii) it has no
arrangement or understanding with any person to
participate in the distribution of the New Notes
and (iii) it is not an "affiliate", as defined in
Rule 405 of the Securities Act, of the Company or,
if it is an affiliate, it will comply with the
registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
Interest on New Notes...... The New Notes will bear interest at the rate of
9 3/4% per annum, payable semi-annually on February
15 and August 15 of each year, commencing February
15, 1998. Holders of the New Notes will receive
interest on February 15, 1998 from the date of
initial issuance of the New Notes, plus an amount
equal to the accrued interest on the Old Notes from
the date of initial issuance of the Old Notes to
the date of exchange thereof pursuant to the
Exchange Offer. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of
the New Notes in exchange therefor.
6
<PAGE> 9
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender such Old Notes in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the
Letter of Transmittal and delivering his or her Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from
the registered holder. The transfer of registered
ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent, prior to the Expiration Date, must
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Registration
Requirements............... The Company has agreed to use its best efforts to
(i) cause the registration statement of which this
Prospectus constitutes a part to become effective
and (ii) to consummate, no later than 30 days
following the date on which such registration
statement becomes effective, the registered
Exchange Offer pursuant to which holders of the Old
Notes will be offered an opportunity to exchange
their Old Notes for the New Notes which will be
issued without legends restricting the transfer
thereof. In the event the applicable
interpretations of the staff of the Commission do
not permit the Company to effect the Exchange Offer
or in certain other circumstances, the Company has
agreed to file a Shelf Registration Statement (as
defined under "Old Notes; Registration Rights")
covering resales of the Old Notes and to use its
best efforts to cause such Shelf Registration
Statement to be declared effective under the
Securities Act and, subject to certain exceptions,
keep such Shelf Registration Statement effective
until two years after the effective date thereof.
Certain Federal Income Tax
Considerations........... For a discussion of certain Federal income tax
considerations relating to the exchange of the New
Notes for the Old Notes, see "Certain Federal
Income Tax Considerations Relating to the Exchange
Offer."
Exchange Agent............. American Stock Transfer & Trust Company is the
Exchange Agent. The address and telephone number of
the Exchange Agent are set forth in "The Exchange
Offer -- Exchange Agent."
TERMS OF NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that the New Notes are registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof. See
"Description of New Notes."
7
<PAGE> 10
New Notes.................. $100,000,000 aggregate principal amount of 9 3/4%
Senior Subordinated Notes due 2007, Series A.
Maturity Date.............. August 15, 2007.
Interest Payment Dates..... February 15 and August 15 of each year, commencing
February 15, 1998.
Subordination.............. The New Notes will be 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 New Notes will be guaranteed (the "Subsidiary
Guarantees"), jointly and severally, on a senior
subordinated basis by all existing and future
Restricted Subsidiaries of the Company (the
"Guaranteeing Subsidiaries"). The Subsidiary
Guarantees will be 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. As of
September 30, 1997, the Company had no Senior Debt
outstanding and the Guaranteeing Subsidiaries had
$10.5 million of Senior Debt outstanding (excluding
guarantees by the Guaranteeing Subsidiaries of the
Company's obligations under the Credit Facility).
In addition, the Company had approximately $71.8
million available for borrowing under the Credit
Facility. See "Description of Credit Facility."
Optional Redemption........ Except as provided below, the New Notes are not
redeemable at the Company's option prior to August
15, 2002. Thereafter, the New Notes will be
redeemable, in whole or in part, at the option of
the Company, at the redemption prices set forth
herein 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 million aggregate principal amount of the Notes
with the net proceeds from one or more public
offerings of common stock of the Company at the
redemption price set forth herein plus accrued and
unpaid interest to the date of redemption; provided
that at least $75 million aggregate principal
amount of the Notes would remain outstanding after
giving effect to any such redemption. See
"Description of New Notes -- Optional Redemption."
Change of Control.......... In the event of a Change of Control, each holder of
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. In the event a Change of
Control were to occur, there can be no assurance
that the Company will have available funds
sufficient to repurchase all of the Notes that
holders elect to tender. In addition, the Credit
Facility prohibits the Company from repurchasing
Notes without the consent of the lenders. See
"Description of New Notes -- Repurchase at the
Option of Holders -- Change of Control."
Offer to Purchase.......... The Company will be required in certain
circumstances to make an offer to purchase Notes
and certain other indebtedness, at a purchase price
equal to 100% of the principal amount thereof plus
accrued and unpaid interest to the date of
purchase, with the net cash proceeds of certain
asset sales. The Credit Facility, however,
prohibits the Company from
8
<PAGE> 11
repurchasing Notes without the consent of the
lenders. See "Description of New
Notes -- Repurchase at the Option of
Holders -- Asset Sales."
Restrictive Covenants...... The indenture under which the Old Notes were issued
and the New Notes will be issued (the "Indenture")
contains covenants including, but not limited to,
covenants with respect to limitations on the
following matters: (i) the incurrence of additional
indebtedness, (ii) the creation of liens, (iii)
restricted payments, (iv) sales of assets, (v)
mergers and consolidations, (vi) payment
restrictions affecting subsidiaries and (vii)
transactions with affiliates. See "Description of
New Notes -- Certain Covenants."
Use of Proceeds............ There will be no cash proceeds to the Company from
the Exchange Offer. See "Use of Proceeds of New
Notes."
RISK FACTORS
Holders of Old Notes should carefully consider matters set forth under the
caption "Risk Factors" prior to making a decision with respect to the Exchange
Offer. See "Risk Factors."
9
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31, --------------------------------
--------------------------------------------------- PRO FORMA PRO FORMA
AS AS
ACTUAL COMBINED(1) ACTUAL COMBINED(1)
1992 1993 1994 1995 1996 1996 1996 1997 1997
------- -------- -------- -------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues:
Medical equipment and
supplies............... $91,626 $101,526 $105,951 $112,113 $143,083 $328,390 $100,674 $189,515 $279,910
Interest and other
income..................... 771 81 75 301 559 2,369 537 759 946
------- ------- ------- -------- -------- -------- -------- --------
92,397 101,607 106,026 112,414 143,642 330,759 101,211 190,274 280,856
Costs and expenses:
Cost of revenues......... 61,334 72,537 74,079 78,525 99,641 232,574 69,203 128,100 186,891
Selling, general and
administrative............. 24,799 31,078 31,964 29,428 34,578 104,644 25,678 43,976 72,566
Interest expense......... 1,727 2,447 2,697 2,720 2,578 15,923 1,962 4,557 10,370
Purchased in process
research & development
costs(2)................... -- -- -- -- 12,800 12,800 -- -- --
Merger related
charges(2)................. -- -- -- -- 3,000 3,000 -- -- --
Reorganization charge(3)... 1,640 -- -- -- -- -- -- -- --
------- ------- ------- -------- -------- -------- -------- --------
89,500 106,062 108,740 110,673 152,597 368,941 96,843 176,633 269,827
------- ------- ------- -------- -------- -------- -------- --------
Income (loss) before income
taxes (benefit),
extraordinary item and
cumulative effect of
change in accounting
principle................ 2,897 (4,455) (2,714) 1,741 (8,955) (38,182) 4,368 13,641 11,029
Income taxes (benefit)..... 1,092 (1,418) (735) 694 2,918 (6,689) 1,943 5,395 4,837
------- ------- ------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle................ 1,805 (3,037) (1,979) 1,047 (11,873) (31,493) 2,425 8,246 6,192
Extraordinary loss on early
retirement of debt (net
of tax benefit of
$383)(4)................. -- -- -- -- (736) (736) -- -- --
Cumulative effect of change
in accounting
principle................ -- 530 -- -- -- -- -- -- --
------- ------- ------- -------- -------- -------- -------- --------
Net income (loss).......... 1,805 (2,507) (1,979) 1,047 (12,609) (32,229) 2,425 8,246 6,192
Preferred stock
dividends................ -- -- -- -- -- 1,065 -- 799 799
------- ------- ------- -------- -------- -------- -------- --------
Net income (loss) available
to common stockholders... $ 1,805 $ (2,507) $ (1,979) $ 1,047 $(12,609) $(33,294) $ 2,425 $ 7,447 $ 5,393
======= ======= ======= ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Gross margin(5)............ 33.1% 28.6% 30.1% 29.9% 30.4% 29.2% 31.3% 32.4% 33.2%
Depreciation and
amortization............. $ 2,327 $ 3,136 $ 3,531 $ 3,347 $ 3,539 $ 12,622 $ 2,487 $ 4,700 $ 9,102
EBITDA(6).................. $ 7,820 $ 1,047 $ 3,439 $ 7,507 $ 12,403 $ 3,794 $ 8,280 $ 22,139 $ 29,555
Adjusted EBITDA(6)(7)...... -- -- -- -- -- $ 12,143 -- -- --
Capital expenditures....... $ 1,821 $ 762 $ 1,123 $ 709 $ 1,085 -- 762 3,637 --
Ratio of EBITDA to interest
expense(6)............... 4.5x 0.4x 1.3x 2.8x 4.8x 0.2x 4.2x 4.9x 2.9x
Ratio of adjusted EBITDA to
interest expense(6)(7)... -- -- -- -- -- 0.8x -- -- --
Ratio of earnings to fixed
charges(8)............... 3.2x N/A N/A 1.6x 3.3x N/A 3.0x 3.8x 2.0x
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
-------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................................. $ 5,682 $ 7,650
Working capital........................................................................................ 115,172 112,463
Total assets........................................................................................... 293,048 558,576
Long-term debt (including capital leases due after one year)........................................... 108,440 161,906
Stockholders' equity................................................................................... 136,258 300,948
</TABLE>
10
<PAGE> 13
- ---------------
(1) Gives effect to (a) the acquisitions (including the proposed acquisition of
Fuqua) described in the Pro Forma Combined Condensed Financial Information
appearing elsewhere in this Prospectus and (b) the sale of the Old Notes and
the application of the net proceeds therefrom, as if such transactions had
occurred on January 1, 1996 for the purpose of the Statement of Operations
Data, and as if those transactions that were completed subsequent to
September 30, 1997 had occurred at that date for the purpose of the Balance
Sheet Data. Does not give effect to interest income derived from the net
proceeds from the Offering, after giving effect to the repayment of certain
indebtedness as described in "Use of Proceeds of Old Notes." See "Pro Forma
Combined Condensed Financial Information."
(2) During 1996, the Company recorded charges of $15,800,000 related to the
acquisition of Everest & Jennings. The charges included $12,800,000
associated with the write-off of purchased in-process research and
development costs and $3,000,000 of merger-related expenses. See Note 2 of
Notes to Consolidated Financial Statements of the Company included elsewhere
in this Prospectus.
(3) The results of operations for 1992 include a reorganization charge relating
primarily to the implementation and opening of the Company's St. Louis
Facility (as defined herein).
(4) The extraordinary item is related to the early retirement of the
indebtedness underlying the John Hancock Mutual Life Insurance Note and
Warrant Agreement dated as of March 12, 1992, as amended (the "John Hancock
Indebtedness"), and represents a "make-whole" payment and the write-off of
unamortized deferred financing costs associated with this indebtedness. See
Note 8 of Notes to Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
(5) Represents (i) net revenue from medical equipment and supplies minus cost of
revenues as a percentage of (ii) net revenue from medical equipment and
supplies.
(6) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, non-recurring charges, interest and other
income and extraordinary items. EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring a
company's ability to service its debt; however, EBITDA does not represent
cash flow from operations, as defined by generally accepted accounting
principles, and should not be considered as a substitute for net earnings as
an indicator of the Company's operating performance or for cash flow as a
measure of liquidity.
(7) Adjusted EBITDA represents 1996 EBITDA, on a pro forma basis as adjusted,
after giving effect to certain cost savings related to the acquisition of
Everest & Jennings, including (i) payroll and other savings related to the
reduction in the Everest & Jennings headcount, (ii) elimination of corporate
offices of Everest & Jennings, (iii) closing of the outside warehouses of
Everest & Jennings, (iv) renegotiation of the telephone contracts of Everest
& Jennings, (v) elimination of the MIS consultants of Everest & Jennings,
and (vi) outsourcing the manufacture of homecare wheelchairs of Everest &
Jennings, in each case as if these cost savings had been realized as of
January 1, 1996.
<TABLE>
<CAPTION>
ADJUSTED
EBITDA
--------------
(IN THOUSANDS)
<S> <C>
EBITDA pro forma as adjusted.......................... $ 3,794
Payroll and other savings related to reduction in
Everest & Jennings headcount........................ 6,309
Elimination of corporate offices of Everest &
Jennings............................................ 177
Closing of outside warehouses of Everest & Jennings... 145
Renegotiation of telephone contracts.................. 108
Elimination of MIS consultants of Everest &
Jennings............................................ 300
Outsourcing the manufacture of homecare wheelchairs of
Everest & Jennings.................................. 1,310
-------
Adjusted EBITDA....................................... $ 12,143
=======
</TABLE>
(8) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from operations before income taxes, non-recurring items and
extraordinary items plus fixed charges. Fixed charges include interest
expense, amortization of debt issuance costs and the estimated interest
component of rent expense. The ratio of earnings to fixed charges for the
year ended December 31, 1996 on a pro forma as adjusted basis after giving
further pro forma effect to the cost savings referred to in Note 7 above
would have been .83x. Earnings did not cover fixed charges during the
following periods by the following amounts: 1993 -- $4,455,000;
1994 -- $2,714,000; and 1996 pro forma as adjusted -- $22,382,000.
11
<PAGE> 14
THE COMPANY
The Company was organized under the laws of the State of Delaware on April
6, 1981 under the name, Patient Technology, Inc. On May 27, 1988, the Company
changed its name to Graham-Field Health Products, Inc. Except where the context
otherwise requires, the word "Company" or "Graham-Field" as used herein includes
all of its subsidiaries. The Company's executive offices are located at 400
Rabro Drive East, Hauppauge, New York 11788, and its telephone number is (516)
582-5900.
RISK FACTORS
Holders of Old Notes should carefully consider the specific factors set
forth below as well as the other information included in this Prospectus before
deciding to accept the Exchange Offer. The risk factors set forth below are
generally applicable to the Old Notes as well as the New Notes.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
The Company has indebtedness which is substantial in relation to its
stockholders' equity, as well as interest and debt service requirements which
are significant compared to its cash flow from operations. As of September 30,
1997, the Company had approximately $108.4 million of long-term debt
outstanding, net of the current portion, including the Old Notes, which
represents 44% of total capitalization. See "Capitalization." In addition, as of
September 30, 1997, the Company had available approximately $71.8 million under
the Company's credit facility (the "Credit Facility") with IBJ Schroder Business
Credit Corp. ("IBJ"). See "Description of Credit Facility."
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to the
following: (i) a substantial portion of the Company's cash flow from operations
must be dedicated to debt service and will not be available for operations and
other purposes; (ii) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; and (iii) certain of the Company's
borrowings are and will continue to be at variable rates of interest, which
exposes the Company to the risk of increased interest rates.
The Company's ability to pay interest on the Notes and to satisfy its other
obligations will depend upon the Company's future operating performance, which
will be affected by prevailing economic conditions and financial, business and
other factors, many of which are beyond the Company's control. Although the
Company's cash flow from operations has been sufficient to meet its debt service
obligations in the past, there can be no assurance that the Company's operating
results will continue to be sufficient for the Company to meet its obligations.
The Company may be required to refinance the Notes at maturity. No assurance can
be given that, if required, the Company will be able to refinance the Notes on
terms acceptable to it, if at all. If the Company is unable to service its
indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness or seeking additional
equity capital. There can be no assurance that any of these strategies could be
effected on terms acceptable to the Company, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
LIMITATIONS IMPOSED BY CERTAIN INDEBTEDNESS
The Indenture contains certain restrictive covenants which will affect, and
in many respects significantly limit or prohibit, among other things, the
ability of the Company to incur indebtedness, make prepayments of certain
indebtedness, make investments, engage in transactions with affiliates, create
liens, sell assets and engage in mergers and consolidations. The Credit Facility
contains similar and more restrictive covenants, including a restriction on the
repayment and prepayment of principal on the Notes, and also requires the
Company to meet certain financial ratios and tests. These covenants may
significantly limit the operating and financial flexibility of the Company and
may limit its ability to respond to changes in its business or competitive
activities. The ability of the Company to comply with such provisions may be
affected by events
12
<PAGE> 15
beyond its control. In the event of any default under the Credit Facility or the
Notes, the Credit Facility lenders could elect to declare all amounts borrowed
under the Credit Facility, together with accrued interest, to be due and
payable. If the Company were unable to repay such borrowings, the lenders
thereunder could proceed against the collateral securing the Credit Facility,
which consists of substantially all of the property and assets of the Company.
If the indebtedness under the Credit Facility were to be accelerated, there can
be no assurance that the assets of the Company would be sufficient to repay such
indebtedness and the Notes (which are subordinated in right of payment to such
indebtedness) in full. See "Description of Credit Facility."
SUBORDINATION
The payment of principal, premium, if any, interest and Liquidated Damages
(as defined under "Old Notes; Registration Rights"), if any, on the Notes will
be subordinated to the prior payment in full of all existing and future Senior
Debt of the Company, including indebtedness under the Credit Facility, and,
therefore, in the event of the bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will not be available to pay obligations
under the Notes until all such Senior Debt has been paid in full. Furthermore,
any payment with respect to a Subsidiary Guarantee also will be subordinated to
the payment of Senior Debt of that Guaranteeing Subsidiary, including the
Guaranteeing Subsidiary's guarantee of the Company's obligations under the
Credit Facility. As a result, there may not be sufficient assets remaining after
such bankruptcy, liquidation or reorganization to pay amounts due on the Notes.
As of September 30, 1997, the Company had no Senior Debt outstanding and the
Guaranteeing Subsidiaries had $10.5 million of Senior Debt outstanding
(excluding guarantees by the Guaranteeing Subsidiaries of the Company's
obligations under the Credit Facility). In addition, as of September 30, 1997,
the Company had approximately $71.8 million available for borrowings. The
Indenture permits the Company to incur additional Senior Debt from time to time,
subject to certain limitations.
The subordination provisions of the Indenture provide that no payment may
be made by the Company with respect to the Notes upon the occurrence of a
default in the payment of principal, premium, if any, or interest on certain
Designated Senior Debt (as defined herein). In addition, upon the occurrence of
any other event entitling the holders of such Designated Senior Debt to
accelerate the maturity thereof and receipt by the Trustee (as defined herein)
of written notice of such occurrence, the holders of such Designated Senior Debt
will be able to block payment on the Notes for specified periods of time. If the
Company fails to make any payment on the Notes when due or within any applicable
grace period, whether or not on account of the payment blockage provisions
referred to above, such failure would nonetheless constitute an event of default
under the Indenture and would entitle the holders of the Notes to accelerate the
maturity thereof. See "Description of New Notes -- Subordination."
BIL OWNERSHIP
As of September 30, 1997, BIL (Far East Holdings) Limited ("BIL"), a Hong
Kong corporation and the former majority stockholder of Everest & Jennings, and
its affiliate, BIL Securities (Offshore) Limited, a New Zealand corporation
(collectively, "BIL") controlled approximately 34% of the voting power of the
Company's capital stock. Pursuant to an amendment dated as of May 1, 1997 to the
Amended and Restated Stockholder Agreement dated as of September 3, 1996, as
amended on September 19, 1996 (the "BIL Stockholder Agreement"), among the
Company, BIL and Irwin Selinger, the Chairman of the Board and Chief Executive
Officer of the Company, BIL may purchase in the open market an aggregate of up
to 49% of the voting power of the Company's capital stock. This could make it
difficult for a third party to acquire control of the Company without the
consent of BIL and, therefore, may discourage third parties from making an
acquisition proposal or seeking to acquire the Company. A third party would be
likely to negotiate any such transaction with BIL and the interests of BIL may
be different from the Company's other stockholders. In addition, BIL is entitled
pursuant to the terms of the BIL Stockholder Agreement to nominate two directors
to the Company's Board of Directors. The BIL Stockholder Agreement also requires
the Company, prior to issuing securities in certain transactions, to offer BIL
the right to participate proportionally in such issuance. However, the BIL
Stockholder Agreement places certain restrictions on BIL's ability to purchase
or sell
13
<PAGE> 16
shares of the Company's capital stock. Such restrictions limit BIL's ability to
acquire the Company or to facilitate the acquisition of the Company by a third
party. See "Certain Transactions -- BIL Stockholder Agreement."
RISKS ASSOCIATED WITH ACQUISITIONS AND JOINT VENTURES
The Company has historically pursued, and intends to continue to pursue, a
strategy of growth through acquisitions and joint ventures. From January 1, 1996
through September 30, 1997, the Company completed seven acquisitions. See "Pro
Forma Combined Condensed Financial Information." In addition, on September 5,
1997, the Company entered into an agreement to acquire Fuqua. See "Recent
Developments." Acquisitions and joint ventures involve numerous risks, including
the risks associated with entering into new geographic or product markets,
assuming undisclosed liabilities and incurring additional debt and amortization
expense related to goodwill and other intangible assets, any of which could have
an adverse effect on the Company's operating results.
The process of integrating management, services, administrative
organizations, facilities, management information systems and other operational
aspects of acquired businesses or product lines can be time consuming and costly
and may distract management from day-to-day operations. The difficulties of
integration may be increased by challenges in coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. If the Company is to
realize the anticipated benefits of past and future acquisitions, the operations
of the acquired entities must be combined and integrated successfully and
efficiently. There can be no assurance that the Company's integration processes
will be successful or that the anticipated benefits of any past or future
acquisitions will be realized. Furthermore, there can be no assurance that there
will not be substantial unanticipated costs or other material adverse effects
associated with past or future acquisitions and integration activities conducted
by the Company. See "Pro Forma Combined Condensed Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION
The medical supply industry is characterized by intense competition. Many
of the Company's competitors have substantially greater financial and other
resources than the Company and may succeed at utilizing these resources to
obtain a temporary or permanent competitive advantage over the Company. Many of
the products distributed by the Company are available from several sources, and
many of the Company's customers tend to have relationships with several
distributors. Price reductions by the Company's competitors could result in
similar price reductions by the Company. The Company purchases certain products
from its competitors and sells certain of its products to its competitors. In
addition, competitors of the Company could obtain exclusive rights from
manufacturers to market particular products not currently subject to the
Company's exclusive distribution arrangements. Manufacturers could also increase
their efforts to sell directly to healthcare providers, and thereby eliminate
the role of distributors, such as the Company.
The changing United States healthcare environment in recent years has led
increasingly to intense competition among medical, surgical and healthcare
distributors and to industry consolidation among healthcare providers and
medical/surgical supply distributors. The acquisition of any of the Company's
significant customers could result in the loss of such customers by the Company,
thereby negatively impacting its business and operating results. In addition,
barriers to entry in each of the Company's markets are relatively low, and the
risk of new competitors entering any market, including the risk of any of the
Company's existing competitors expanding into new markets, particularly on a
local level, is high. There can be no assurance that competitors of the Company
will not succeed in developing or marketing products which are more effective or
efficient than those marketed by the Company. Such developments may render the
Company's products obsolete or noncompetitive. Accordingly, the Company's
success is dependent in part upon its ability to respond to both medical and
technological changes through the development, introduction, sourcing and
distribution of new products. Given that product development involves a high
degree of risk, there can be no assurance that the Company's new product
development efforts will result in commercially successful products. In each of
the Company's markets, any of the foregoing competitive pressures, as well as
further
14
<PAGE> 17
consolidation of medical/surgical supply distributors and of healthcare
providers generally, may inhibit the Company's ability to achieve price
increases or may result in price decreases and consequently may negatively
impact revenues and margins. There can be no assurance that the Company will be
able to compete effectively in its industry.
DEPENDENCE ON KEY SUPPLY CONTRACTS
Everest & Jennings' business is heavily dependent on its maintenance of two
key supply contracts. Everest & Jennings obtains the majority of its commodity
wheelchairs and wheelchair components pursuant to an exclusive supply agreement
(the "Wheelchair Supply Agreement") with P.T. Dharma Polimetal ("P.T. Dharma"),
an Indonesian manufacturer. The term of this agreement extends until June 30,
2000, and on each July 1 thereafter will be automatically extended for one
additional year unless Everest & Jennings elects not to extend or Everest &
Jennings has failed to order at least 50% of the contractually specified
minimums and P.T. Dharma elects to terminate. If the Wheelchair Supply Agreement
is terminated, there can be no assurance that Everest & Jennings will be able to
enter into a suitable wheelchair supply agreement with another manufacturer. The
failure by the Company to secure alternative sources of supply would result in a
material adverse effect on the Company's business and financial condition.
Everest & Jennings obtains homecare beds for distribution solely pursuant
to a supply agreement with Maxwell Products, Inc. (the "Bed Supply Agreement").
The Bed Supply Agreement contains an initial term of two years expiring in
August 1999, and provides for the supply of a minimum and maximum number of
homecare beds during the term of the agreement. If the Bed Supply Agreement is
terminated, there can be no assurance that Everest & Jennings will be able to
enter into a suitable supply agreement with another manufacturer. The failure by
the Company to secure alternative sources of supply would result in a material
adverse effect on the Company's business and financial condition.
CHANGES IN HEALTHCARE INDUSTRY
In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs, including efforts at national
healthcare reform, trends toward managed care, cuts in Medicare, consolidation
of healthcare distribution companies and collective purchasing arrangements by
office-based healthcare practitioners. The Company's inability to react
effectively to these and other changes in the healthcare industry could
adversely affect its operating results. The Company cannot predict whether any
healthcare reform efforts will be enacted and what effect any such reforms may
have on the Company or its customers and suppliers.
While the growth of the healthcare industry continues to be strong, the
impact of third-party pricing pressures and low barriers to entry have
dramatically reduced profit margins for suppliers. Continued growth in managed
care and capitated plans have pressured independent home medical equipment
suppliers to find ways of becoming more cost competitive with national
providers. This has also led to consolidations among manufacturers and
distributors as smaller companies with limited product lines seek out partners
with potential for significant synergies. In addition, certain healthcare
product suppliers are consolidating in order to promote better utilization of
resources and improve service to customers, thereby maintaining margin and
market share. The Company's inability to react effectively to these and other
changes in the healthcare industry could adversely affect its operating results.
GOVERNMENTAL REGULATION
The Company and its customers and suppliers are subject to extensive
Federal and state regulation in the United States, as well as regulation by
foreign governments, and the Company cannot predict the extent to which future
legislative and regulatory developments concerning its practices and products
for the healthcare industry may affect the Company. Certain of the Company's
products are subject to government regulation in the United States and other
countries. In the United States, the Food, Drug, and Cosmetic Act, as amended
(the "FDC Act"), and other statutes and regulations govern or influence the
testing, manufacture, safety, labeling, storage, record keeping, marketing,
advertising and promotion of such products. Failure to comply
15
<PAGE> 18
with applicable requirements can result in fines, recall or seizure of products,
total or partial suspension of production, withdrawal of existing product
approvals or clearances, refusal to approve or clear new applications or notices
and criminal prosecution. Under the FDC Act, the Company, as a marketer,
distributor and manufacturer of healthcare products, is required to obtain the
approval of Federal and foreign governmental agencies, including the Food and
Drug Administration ("FDA"), prior to marketing, distributing and manufacturing
certain of those products. Delays in receipt of or failure to receive required
approvals or clearances, the loss of previously received approvals or
clearances, or failures to comply with existing or future regulatory
requirements in the United States or in foreign countries could have a material
adverse effect on the Company's business. Foreign sales are subject to similar
pre-marketing requirements.
The Company is required to comply with the FDA's "Good Manufacturing
Practices for Medical Devices" ("GMP") regulations which sets forth requirements
for, among other things, the Company's manufacturing process and associated
record creation and maintenance, including tests and sterility. Further, the
Company's plants and operations are subject to review and inspection by local,
state, Federal and foreign governmental entities. The FDA also has the authority
to issue performance standards for devices manufactured by the Company, which it
has not done to date. In the event that such performance standards were issued,
the Company's products would be required to conform, which could result in
significant additional expenditures for the Company. The impact of FDA
regulation on the Company has increased in recent years as the Company has
increased its manufacturing operations. The Company's suppliers are also subject
to similar governmental requirements. There can be no assurance that changes to
current regulations or additional regulations imposed by the FDA will not have
an adverse impact on the Company's business and financial condition in the
future.
In addition, the Company is subject to a variety of other federal and state
regulations, including, but not limited to, those administered by the U.S.
Department of Labor and the U.S. Occupational Safety and Health Administration.
See "Business -- Governmental Regulation."
REIMBURSEMENT OF HEALTHCARE COSTS
In certain cases, the ability of the Company's customers to pay for the
products supplied by the Company depends upon governmental and private insurer
reimbursement policies. Consequently, those policies have an impact on the level
of the Company's sales and its ability to collect receivables on a timely basis.
Continuing governmental and private third-party payor cost-cutting efforts have
led and may continue to lead to significant reduction in reimbursement levels.
Furthermore, governmental reimbursement programs, such as the Medicare and
Medicaid programs, are subject to substantial regulation by Federal and state
governments, which are continually reviewing and revising the programs and their
regulations. For example, the Balanced Budget Act of 1997 provides for a
five-year freeze through 2002 on updates to the Medicare fee reimbursement
schedules for durable medical equipment. Although the Company does not believe
that this freeze would have a material adverse effect on the Company, there can
be no assurance that this or any other change to reimbursement levels will not
have a material adverse effect on the Company.
RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company's profitability depends in part on its ability to establish and
maintain patent protection of its proprietary technologies, products and
processes, and the preservation of its trade secrets. In addition, the Company
must operate without infringing upon the proprietary rights of other parties.
There can be no assurance that any United States or international patents issued
or licensed to the Company will not be successfully challenged, invalidated or
circumvented or will provide commercially significant protection to the Company,
or that patents will be issued in respect of patent applications to which the
Company currently holds rights. In addition, there can be no assurance that
others will not independently develop substantially equivalent proprietary
information not covered by patents to which the Company owns rights or obtain
access to the Company's know-how or that others will not be issued patents which
may prevent the sale of one or more of the Company's products or require
licensing and the payment of significant fees by the Company in order to enable
the Company to conduct its business. The Company is involved in the ordinary
course of business in patent-related lawsuits or other actions, none of which
the Company believes is material. However,
16
<PAGE> 19
defense and prosecution of patent claims is costly and time consuming,
regardless of an outcome favorable to the Company, and can result in the
diversion of substantial financial and managerial resources from the Company's
primary business activities. Additionally, adverse outcomes of such claims could
have a material adverse effect on the Company's business and financial
condition.
RISK OF PRODUCT LIABILITY CLAIMS AND INSURANCE
The sale, manufacture and distribution of healthcare products involve an
inherent risk of product liability claims and related adverse publicity. There
can be no assurance that the Company will not become subject to a significant
number of such claims or incur significant liabilities due to such claims.
Although the Company maintains product liability insurance coverage and has
certain rights to indemnification from third parties, there can be no assurance
that claims outside of or exceeding such coverage will not be made, that the
Company will be able to continue to obtain insurance coverage at commercially
reasonable costs or at all or that the Company will be successful in obtaining
indemnification from such third parties. Potential losses from liability claims
and the effect which product liability litigation may have on the reputation and
marketability of the Company's products could have a material adverse effect on
the Company's business and financial condition.
COST OF SHIPPING
Shipping is a significant expense in the operation of the Company's
business. The Company ships its products to customers generally by United Parcel
Service and other delivery services and typically bears certain costs of
shipment. Accordingly, any significant increase in shipping rates could have an
adverse effect on the Company's operating results. Similarly, strikes or other
service interruptions by such shippers could adversely affect the Company's
ability to deliver products on a timely basis, which could have an adverse
effect on the Company's relationships with its customers.
DEPENDENCE ON AND NEED FOR KEY PERSONNEL
Due to the specialized nature of its business, the Company is dependent
upon the continued services and management of its Chairman of the Board and
Chief Executive Officer, Irwin Selinger, and the other executive officers listed
in the table under "Management." Although the Company believes it has incentive
and compensation programs designed to retain key executives, the Company
generally does not have contracts with its executive officers other than Mr.
Selinger. In July 1981, Mr. Selinger entered into a ten-year employment
agreement with the Company, which was extended in June 1991 for a five-year
period ending July 8, 1996, and on May 3, 1996 for an additional five-year
period ending July 8, 2001. The employment agreement provides, among other
things, that if Mr. Selinger's employment is terminated for any reason (other
than dishonesty or disability), the Company shall pay (i) to Mr. Selinger if he
is then living, (ii) to his surviving widow if the employment agreement
terminates by reason of death, or (iii) to Mr. Selinger's legal representative
if Mr. Selinger leaves no surviving widow, or if Mr. Selinger's surviving widow
dies prior to the fulfillment of the Company's obligations, as the case may be,
an amount equal to Mr. Selinger's annual salary payable in the year of
termination multiplied by the number, including any fraction, of years from the
date of termination to the end of the employment term. In addition, Mr.
Selinger's employment agreement provides that during the employment term and for
a period of one year following termination of employment, if termination occurs
as a result of a breach of the employment agreement by Mr. Selinger, Mr.
Selinger will not directly or indirectly engage in any business or invest in any
privately held company or own more than one percent of the outstanding
securities of any publicly owned corporation which competes with any business of
the Company. The Company also does not maintain key-man insurance with respect
to any of its executive officers. If Mr. Selinger or any of such other executive
officers were to leave the Company, operating results could be adversely
affected. In addition, the Company's continued growth is dependent upon its
ability to attract and retain skilled employees. There can be no assurance that
the Company will be successful in recruiting and retaining personnel of the
requisite calibre or quantity to enable the Company to conduct its business as
planned.
17
<PAGE> 20
CURRENCY FLUCTUATIONS; RISKS RELATING TO INTERNATIONAL OPERATIONS
A portion of the Company's operations are conducted outside the United
States. As a result of its international operations, the Company is subject to
risks associated with operating in foreign countries, including devaluations and
fluctuations in currency exchange rates, imposition of limitations on
conversions of foreign currencies into dollars or remittance of dividends and
other payments by foreign subsidiaries, imposition or increase of withholding
and other taxes on remittances and other payments by foreign subsidiaries, trade
barriers, political risks, including political instability, hyperinflation in
certain foreign countries and imposition or increase of investment and other
restrictions by foreign governments. There can be no assurance that such risks
will not have a material adverse effect on the Company's business and operating
results.
POTENTIAL INABILITY TO EFFECT A CHANGE OF CONTROL OFFER OR AN ASSET SALE OFFER
A Change of Control would require the Company to refinance substantial
amounts of indebtedness. Upon a Change of Control, the holders of the Notes
would be entitled to require the Company to repurchase their Notes at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the repurchase date. In addition,
certain asset sales by the Company will require the Company to make an offer to
repurchase Notes with the proceeds of such asset sales at a purchase price equal
to 100% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, to the repurchase date. However, the Credit Facility
prohibits the purchase of the Notes by the Company unless and until the
indebtedness under the Credit Facility is repaid in full and the Credit Facility
has been terminated. The Company's failure to purchase the Notes would result in
a default under the Indenture and the Credit Facility. The inability to repay
the indebtedness under the Credit Facility, if accelerated, would also
constitute an event of default under the Indenture, which could have adverse
consequences to the Company and the holders of the Notes. In such event, there
can be no assurance that the Company would have sufficient assets to satisfy all
of its obligations under the Credit Facility and the Notes. See "Description of
Notes -- Repurchase at the Option of Holders."
FRAUDULENT CONVEYANCE; PREFERENTIAL TRANSFER
If the court in a lawsuit brought by an unpaid creditor or representative
of creditors, such as a trustee in bankruptcy or the Company or a Guaranteeing
Subsidiary, as the case may be, as a debtor-in-possession, were to find under
relevant Federal or state fraudulent conveyance statutes that the Company or
Guaranteeing Subsidiary, as the case may be, did not receive fair consideration
or reasonably equivalent value for incurring the indebtedness represented by the
Notes or the Subsidiary Guarantees and that, at the time of such incurrence, the
Company or such Guaranteeing Subsidiary (i) was insolvent, (ii) was rendered
insolvent by reason of such incurrence, (iii) was engaged in a business or
transaction for which the assets remaining with the Company or such Guaranteeing
Subsidiary constituted unreasonably small capital or (iv) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, such court, subject to applicable statutes of limitation, could avoid
the Company's obligations under the Notes or such Guaranteeing Subsidiary's
obligations under its Subsidiary Guarantee, subordinate the Notes or such
Subsidiary Guarantee to other indebtedness of the Company or such Guaranteeing
Subsidiary or take other action detrimental to the holders of the Notes.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than all that company's property at a fair valuation, or if the present
fair salable value of that company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured. Moreover, regardless of solvency, a court could avoid an
incurrence of indebtedness, including the Notes or a Subsidiary Guarantee, if it
determined that such transaction was made with intent to hinder, delay or
defraud creditors, or a court could subordinate the indebtedness, including the
Notes or a Subsidiary Guarantee, to the claims of all existing and future
creditors on similar grounds. Based upon financial and other information
currently available to it, management believes the Company and each Guaranteeing
Subsidiary is solvent. However, there can be no assurance as to what
18
<PAGE> 21
standard a court would apply in order to determine whether the Company or a
Guaranteeing Subsidiary was "insolvent" upon consummation of the sale of the
Notes and the granting of the Subsidiary Guarantees.
Additionally, under Federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings were initiated by or against the
Company or a Guaranteeing Subsidiary within 90 days after any payment by the
Company with respect to the Notes or any payment by a Guaranteeing Subsidiary
with respect to its Subsidiary Guarantee or if the Company or a Guaranteeing
Subsidiary anticipated becoming insolvent at the time of such payment, all or a
portion of such payment could be avoided as a preferential transfer and the
recipient of such payment could be required to return such payment.
UNSPECIFIED USE OF PROCEEDS
In addition to repayment of certain indebtedness under the Credit Facility
and the repayment in full of the BIL Senior Loan (as defined herein), the
Company intends to use the net proceeds from the Initial Offering for general
corporate purposes, including the possible acquisition of one or more
businesses, the opening of additional Graham-Field Express facilities and
strategic alliances. However, a final determination of the use of such proceeds
has not been made. See "Use of Proceeds of Old Notes." Thus, management and the
Board of Directors of the Company will be able to determine the specific uses
for such proceeds without first seeking approval from the Company's
stockholders, unless such approval is required by law.
ABSENCE OF PUBLIC MARKET; TRANSFER RESTRICTIONS
There is no existing market for the New Notes and, although the Notes have
been designated for trading in the PORTAL Market upon issuance to "qualified
institutional buyers" (as defined in Rule 144A), there can be no assurance as to
the liquidity of any markets that may develop for the Notes, the ability of
holders to sell the Notes or the price at which holders would be able to sell
the Notes. Future trading prices of the New Notes will depend on many factors,
including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. Historically, the
market for securities similar to the New Notes, including non-investment grade
debt, has been subject to disruptions that have caused substantial volatility in
the prices of such securities. There can be no assurance that any market for the
New Notes, if such market develops, will not be subject to similar disruptions.
The Initial Purchaser has advised the Company that it currently intends to make
a market in the New Notes. However, the Initial Purchaser is not obligated to do
so and any market making may be discontinued at any time without notice.
Notwithstanding the registration of the New Notes in the Exchange Offer, holders
who are "affiliates" (as defined under Rule 405 of the Securities Act) of the
Company may publicly offer for sale or resell the New Notes only in compliance
with the provisions of Rule 144 under the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET
FOR OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Notes as set forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old Notes may not be offered
or sold unless registered under the Securities Act and applicable state laws, or
pursuant to an exemption therefrom. Subject to the obligation by the Company to
file a Shelf Registration Statement covering resales of Old Notes in certain
circumstances, the Company does not intend to register the Old Notes under the
Securities Act and, after consummation of the Exchange Offer, will not be
obligated to do so. In addition, any holder of Old Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Additionally, as a
result of the Exchange Offer, it is expected that a substantial decrease in the
aggregate principal amount of Old Notes outstanding will occur. As a result, it
is unlikely that a liquid trading market will exist for the Old Notes at any
time. This lack of liquidity will make transactions more difficult and may
reduce the trading price of the Old Notes. See "The Exchange Offer" and "Old
Notes; Registration Rights."
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<PAGE> 22
USE OF PROCEEDS OF NEW NOTES
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the New Notes offered hereby. In consideration
for issuing the New Notes as contemplated in this Prospectus, the Company will
receive, in exchange, Old Notes in like principal amount. The form and terms of
the New Notes are identical in all material respects to the form and terms of
the Old Notes, except as otherwise described herein under "The Exchange
Offer -- Terms of the Exchange Offer." The Old Notes surrendered in exchange for
the New Notes will be retired and cancelled and cannot be reissued. Accordingly,
issuance of the New Notes will not result in any increase in the outstanding
debt of the Company.
USE OF PROCEEDS OF OLD NOTES
The net proceeds to the Company from the sale of the Old Notes, after
deducting fees and expenses payable by the Company in connection with the
Initial Offering, were approximately $95.5 million. The Company has used
approximately $52.7 million of the net proceeds from the Initial Offering to
repay a portion of the outstanding indebtedness under the Credit Facility and
$5.0 million of the net proceeds from the Initial Offering to repay in full the
BIL Senior Loan. See "Description of Credit Facility" and "Certain
Transactions -- BIL Loans" for a description of the terms of the Credit Facility
and the BIL Senior Loan. The Company used the remaining proceeds of
approximately $37.8 million for general corporate purposes, including funding
for acquisitions, the opening of additional Graham-Field Express facilities and
strategic alliances.
RECENT DEVELOPMENTS
On September 5, 1997, the Company entered into an Agreement and Plan of
Merger (the "Fuqua Merger Agreement") to acquire Fuqua. Fuqua, through its
subsidiaries, is a manufacturer of a variety of medical products for the acute,
long-term and home healthcare markets (the "Medical Products Operations"). The
Medical Products Operations were formed through the acquisition of three
businesses: Basic American Medical Products, Inc., a leading manufacturer and
supplier of beds and patient room furnishings to the long-term care industry;
the medical products operations of Lumex Medical Products, Inc., a leading
manufacturer and supplier of patient aids, specialty seating products, bathroom
safety products and durable medical products to the home healthcare industry;
and Prism Enterprises, Inc., which produces heat and cold packs as well as
obstetrical vacuum pumps. Fuqua also produces a broad line of leathers that are
sold to manufacturers of shoes, handbags, personal leather goods and furniture
in both the United States and foreign markets (the "Leather Operations").
Although the Company considers the Leather Operations an asset, it intends to
dispose of the Leather Operations as soon as reasonably practicable following
consummation of the Merger (as defined below). See "Pro Forma Combined Condensed
Financial Information".
Pursuant to the Fuqua Merger Agreement, a wholly-owned subsidiary of the
Company will be merged with and into Fuqua with Fuqua to continue as the
surviving corporation wholly owned by the Company (the "Merger"). In the Merger,
stockholders of Fuqua will receive 2.1 shares (the "Exchange Ratio") of the
Company's common stock, par value $.025 per share ("Common Stock") in a tax-free
exchange for each share of common stock of Fuqua ("Fuqua Common Stock"). The
Exchange Ratio is subject to downward adjustment in the event that the average
daily closing price of Graham-Field common stock for the 10 consecutive New York
Stock Exchange trading days immediately preceding the date of Merger (the
"Average Stock Price") exceeds $17.6190 and to upward adjustment in the event
that such Average Stock Price falls below $13.5714. In the event that the
Average Stock Price of the Common Stock exceeds $17.1690, the number of shares
of Common Stock to be issued in exchange for each share of Fuqua Common Stock
will be reduced from 2.1 to a number of shares which, when multiplied by the
Average Stock Price, equals $37.00. Similarly, in the event the Average Stock
Price of Common Stock is less than $13.5714, the number of shares of Fuqua
Common Stock will be increased from 2.1 to a number of shares which, when
multiplied by the Average Stock Price, equals $28.50. Accordingly, Fuqua
stockholders are assured of receiving Common Stock valued at not less than
$28.50 nor more than $37.00 in exchange for each share of Fuqua Common Stock.
20
<PAGE> 23
There are currently 4,482,709 shares of common stock of Fuqua outstanding. The
Company will also assume approximately $55 million of debt in the Merger. The
Company will account for the transaction as a purchase. See "Pro Forma Combined
Condensed Financial Information" and "Index to Financial Statements -- Fuqua
Enterprises, Inc."
The closing of the transaction, which is currently anticipated for December
1997, is subject to customary conditions, including approval by the stockholders
of both the Company and Fuqua and the receipt of all necessary governmental and
regulatory approvals. The principal stockholders of Fuqua, including members of
the Fuqua family, owning approximately 46% of the outstanding shares have
entered into voting agreements with the Company pursuant to which they have
agreed to vote their shares in favor of the Merger. Company stockholders owning
shares representing approximately 37% of the outstanding voting power of the
Company's capital stock have entered into similar voting agreements with Fuqua.
With respect to the Medical Products Operations, the Company intends to
integrate and consolidate certain of the combined entity's manufacturing
operations. Fuqua's Prism Enterprises, Inc. and Basic American Medical Products,
Inc. operations will continue to operate as stand-alone entities. The home
healthcare and medical/surgical business units of Fuqua will become
fully-integrated with the Company's business units, and the long-term care
medical products business will continue to operate at a separate business unit
through Fuqua's Basic operations. It is anticipated that each of the
manufacturing facilities of the combined entity will operate through the
Company's distribution network. Following the Merger, Fuqua's name will be
changed to "Lumex/Basic American Holdings, Inc."
The Company believes that the Merger will position the Company as one of
the leading suppliers of durable medical products in the healthcare industry.
The Company's distribution network and advanced technology systems will provide
significant growth opportunities for Fuqua's proven manufacturing capabilities
and well-established product lines. With a long history of providing customers
with quality healthcare products, the Basic American, Lumex and Prism names are
established brands representing leading names to long-term, home health and
acute care customers. Fuqua is among the leading suppliers of many of its
product lines, including long-term care medical beds, specialty seating
products, bathroom safety products, vacuum pumps and heat and cold packs. Basic
American is one of the leading single source providers of patient room
furnishings in the United States. Integration and cross-selling opportunities
between the companies will present significant growth opportunities for the
Company. Moreover, the Company will be able to use existing relationships of
Fuqua to cross-sell products to nursing home care customers, a virtually
untapped marketplace for the Company.
Fuqua is subject to the informational requirements of the Exchange Act and
in accordance therewith, files reports and other information with the
Commission. Such reports and other information can be inspected and copied or
obtained at the addresses of the Commission set forth under "Available
Information" above.
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<PAGE> 24
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company at September 30, 1997, and as adjusted to give effect to the
Merger. This table should be read in conjunction with the Company's consolidated
financial statements and the notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
PRO FORMA
ACTUAL COMBINED(1)
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents............................................. $ 5,682 $ 7,650
======== ========
Short-term debt:
Current maturities of long-term debt................................ 2,054 2,434
Total short-term debt....................................... $ 2,054 $ 2,434
======== ========
Long-term debt, less current maturities:
Long-term debt...................................................... $ 8,440 $ 61,906
Senior Subordinated Notes........................................... 100,000 100,000
-------- --------
Total long-term debt........................................ $108,440 $ 161,906
======== ========
Stockholders' equity:
Series A preferred stock, par value $.01 per share: authorized
shares 300,000, none issued...................................... $ -- $ --
Series B preferred stock, par value $.01 per share: authorized
shares 6,100, issued and outstanding 6,100....................... 28,200 28,200
Series C preferred stock, par value $.01 per share: authorized
shares 1,000, issued and outstanding 1,000....................... 3,400 3,400
Common stock, par value $.025 per share: authorized shares
60,000,000, issued and outstanding 21,155,691 and 30,569,380..... 530 777
Additional paid-in capital.......................................... 115,702 280,145
(Deficit)........................................................... (11,548) (11,548)
Unrealized gain on marketable securities............................ 72 72
Cumulative translation adjustment................................... 61 61
-------- --------
Subtotal............................................................ 136,417 301,107
Notes receivable from sale of shares................................ (159) (159)
-------- --------
Total stockholders' equity....................................... 136,258 300,948
-------- --------
Total capitalization........................................ $244,698 $ 462,854
======== ========
</TABLE>
- ---------------
(1) See "Unaudited Pro Forma Combined Condensed Financial Information -- Pro
Forma Combined Condensed Balance Sheet."
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<PAGE> 25
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
As a condition to the purchase of the Old Notes by the Initial Purchaser,
the Company entered into the Registration Rights Agreement with the Initial
Purchaser pursuant to which the Company agreed (i) to file, no later than
October 3, 1997, a registration statement (the "Exchange Offer Registration
Statement") with respect to an offer to exchange the Old Notes for New Notes of
the Company with terms substantially identical to the Old Notes, (ii) to use
best efforts to cause the Exchange Offer Registration Statement to become
effective under the Securities Act no later than December 2, 1997 and (iii) to
consummate the Exchange Offer no later than 30 days following the date on which
the Exchange Offer Registration Statement becomes effective. In the event that
applicable law or interpretations of the staff of the Commission do not permit
the Company to file the registration statement containing this Prospectus or to
effect the Exchange Offer, or if certain holders of the Old Notes notify the
Company that they are not permitted to participate in, or would not receive
freely tradeable New Notes pursuant to, the Exchange Offer, the Company will use
its best efforts to cause to become effective a Shelf Registration Statement
with respect to the resale of the Old Notes and to keep the Shelf Registration
Statement effective until two years after the effective date thereof. The Old
Notes are subject to the payment of Liquidated Damages (as defined herein) under
certain circumstances if the Company is not in compliance with its obligations
under the Registration Rights Agreement. As of the date of this Prospectus, the
Company had incurred Liquidated Damages in an aggregate amount equal to
$ due to its failure to file the Exchange Offer Registration Statement
by October 3, 1997 and to have it declared effective by December 2, 1997. See
"Old Notes; Registration Rights."
Each holder of the Old Notes who wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in the distribution of the New Notes and (iii) it is
not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company
or, if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable. See "Old
Notes; Registration Rights."
RESALE OF NEW NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that, except as
described below, New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by any
holder thereof (other than a holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder does not intend to participate and has no
arrangement or understanding with any person to participate in the distribution
of such New Notes. Any holder who tenders in the Exchange Offer with the
intention or for the purpose of participating in a distribution of the New Notes
cannot rely on such interpretation by the staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Unless an
exemption from registration is otherwise available, any such resale transaction
should be covered by an effective registration statement containing the selling
security holders information required by Item 507 of Regulation S-K under the
Securities Act. This Prospectus may be used for an offer to resell, resale or
other retransfer of New Notes only as specifically set forth herein. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Old Notes properly tendered and not withdrawn prior to
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<PAGE> 26
5:00 p.m., New York City time, on the Expiration Date. The Company will issue
$1,000 principal amount of New Notes in exchange for each $1,000 principal
amount of outstanding Old Notes surrendered pursuant to the Exchange Offer. Old
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except the New Notes will be registered under the Securities
Act and hence will not bear legends restricting the transfer thereof. The New
Notes will evidence the same debt as the Old Notes. The New Notes will be issued
under and entitled to the benefits of the Indenture, which also authorized the
issuance of the Old Notes, such that both series will be treated as a single
class of debt securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this Prospectus, $100 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Old Notes. There will be
no fixed record date for determining registered holders of Old Notes entitled to
participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Old Notes which are not tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and will be entitled to the rights
and benefits such holders have under the Indenture and the Registration Rights
Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Old Notes when, as and if the Company shall have given oral or written notice
thereof to the Exchange Agent and complied with the provisions of Section 2 of
the Registration Rights Agreement. The Exchange Agent will act as agent for the
tendering holders for the purposes of receiving the New Notes from the Company.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions specified below under
"-- Certain Conditions to the Exchange Offer."
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under
"-- Certain Conditions to the Exchange Offer" shall not have been satisfied, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of Old Notes. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and the Company will extend the
Exchange Offer, depending upon the
24
<PAGE> 27
significance of the amendment and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such period.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at a rate of 9 3/4% per annum, payable
semi-annually, on each February 15 and August 15, commencing February 15, 1998.
Holders of New Notes will receive interest on February 15, 1998 from the date of
initial issuance of the New Notes, plus an amount equal to the accrued interest
on the Old Notes from the date of initial issuance thereof to the date of
exchange thereof for New Notes. Interest on the Old Notes accepted for exchange
will cease to accrue upon issuance of the New Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any New Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of any Old Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's sole judgment, might materially impair the ability
of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's sole judgment, might
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Exchange Agent. During any such
extensions, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Old Notes
not accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified above. The Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the Old Notes as
promptly as practicable, such notice in the case of any extension to be issued
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time or
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time or from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "TIA").
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or facsimile thereof, have the signature thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such
25
<PAGE> 28
Letter of Transmittal or such facsimile to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. In addition, either (i) Old
Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at the Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below must be received by the Exchange Agent on or prior to the Expiration Date,
or (iii) the holder must comply with the guaranteed delivery procedures
described below. To be tendered effectively, the Letter of Transmittal and other
required documents must be received by the Exchange Agent at the address set
forth below under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on
the Expiration Date.
The tender by a holder which is not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Old Notes to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder of Old Notes. The transfer of registered
ownership may take considerable time and may not be able to be completed prior
to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case be, must be guaranteed by an Eligible Institution (as defined
below) unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter Transmittal or a notice of withdrawal, as the case may be, are required
to be guaranteed, such guarantor must be a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act which is a member of one of the recognized
signature guarantee programs identified in the Letter of Transmittal (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
26
<PAGE> 29
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Although the Company intends to notify holders of defects or irregularities with
respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of Old Notes or a timely Book-Entry Confirmation of such
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility,
a properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Old Notes are not accepted for exchange for
any reason set forth in the terms and conditions of the Exchange offer or if Old
Notes are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, such non-exchanged Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of the Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at the address
set forth below under " -- Exchange Agent" on or prior to 5:00 p.m., New York
City time, on the Expiration Date or, if the guaranteed delivery procedures
described below are to be complied with, within the time period provided under
such procedures. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and
27
<PAGE> 30
guaranteeing that, within three (3) New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the Old Notes or a Book-Entry Confirmation, as the case may
be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three (3) New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except an otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
" -- Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes were registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the BookEntry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility for the Old Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described under "-- Procedures for Tendering" above at any
time on or prior to the Expiration Date.
EXCHANGE AGENT
American Stock Transfer & Trust Company has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter
28
<PAGE> 31
of Transmittal and requests for Notice of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile By Hand:
American Stock Transfer Transmission: American Stock Transfer
& Trust Company (718)234-5001 & Trust Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, New York 10005 New York, New York 10005
To Confirm Receipt of
Facsimile and For General
Information:
(212) 936-5100
(718) 921-8200
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telephone or in person by officers and regular employees of the
Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Old Notes for principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of Notes tendered, or if tendered Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws.
29
<PAGE> 32
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
The following selected consolidated financial information with respect to
the Company's financial position as of December 31, 1995 and 1996, and its
results of operations for the years ended December 31, 1994, 1995 and 1996, has
been derived from the audited consolidated financial statements of the Company
appearing elsewhere in this Prospectus. The selected consolidated financial
information with respect to the Company's financial position as of December 31,
1992, 1993 and 1994 and with respect to the Company's results of operations for
the years ended December 31, 1992 and 1993, has been derived from audited
consolidated financial statements of the Company that are not included in this
Prospectus. The selected financial information for the nine months ended
September 30, 1996 and 1997 has been derived from the unaudited condensed
consolidated financial statements of the Company appearing elsewhere in this
Prospectus, which in the opinion of management, include all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
information set forth therein. The results for the nine months ended September
30, 1997 are not necessarily indicative of results that may be expected for the
full year. The selected consolidated financial information presented below
should be read in conjunction with "Management's Discussions and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Medical equipment and supplies.... $91,626 $101,526 $105,951 $112,113 $143,083 $100,674 $189,515
Interest and other income......... 771 81 75 301 559 537 759
------- ------- ------- -------- -------- ------- --------
92,397 101,607 106,026 112,414 143,642 101,211 190,274
Costs and expenses:
Cost of revenues.................. 61,334 72,537 74,079 78,525 99,641 69,203 128,100
Selling, general and
administrative.................. 24,799 31,078 31,964 29,428 34,578 25,678 43,976
Interest expense.................. 1,727 2,447 2,697 2,720 2,578 1,962 4,557
Purchased in-process research &
development costs(1)............ -- -- -- -- 12,800 -- --
Merger related charges(1)......... -- -- -- -- 3,000 -- --
Reorganization charge(2).......... 1,640 -- -- -- -- -- --
------- ------- ------- -------- -------- ------- --------
89,500 106,062 108,740 110,673 152,597 96,843 176,633
------- ------- ------- -------- -------- ------- --------
Income (loss) before income taxes
(benefit), extraordinary item and
cumulative effect of change in
accounting principle.............. 2,897 (4,455) (2,714) 1,741 (8,955) 4,368 13,641
Income taxes (benefit).............. 1,092 (1,418) (735) 694 2,918 1,943 5,395
------- ------- ------- -------- -------- ------- --------
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle.... 1,805 (3,037) (1,979) 1,047 (11,873) 2,425 8,246
Extraordinary loss on early
retirement of debt (net of tax
benefit of $383)(3)............... -- -- -- -- (736) -- --
Cumulative effect of change in
accounting principle.............. -- 530 -- -- -- -- --
------- ------- ------- -------- -------- ------- --------
Net income (loss)................... 1,805 (2,507) (1,979) 1,047 (12,609) 2,425 8,246
Preferred stock dividends........... -- -- -- -- -- -- 799
------- ------- ------- -------- -------- ------- --------
Net income (loss) available to
common stockholders............... $ 1,805 $ (2,507) $ (1,979) $ 1,047 $(12,609) $ 2,425 $ 7,447
======= ======= ======= ======== ======== ======= ========
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Gross margin(4)..................... 33.1% 28.6% 30.1% 29.9% 30.4% 31.3% 32.4%
Depreciation and amortization....... $ 2,327 $ 3,136 $ 3,531 $ 3,347 $ 3,539 $ 2,487 $ 4,700
EBITDA(5)........................... $ 7,820 $ 1,047 $ 3,439 $ 7,507 $ 12,403 $ 8,280 $ 22,139
Capital expenditures................ $ 1,821 $ 762 $ 1,123 $ 709 $ 1,085 $ 762 $ 3,637
Ratio of EBITDA to interest
expense(5)........................ 4.5x .4x 1.3x 2.8x 4.8x 4.2x 4.9x
Ratio of earnings to fixed
charges(6)........................ 3.2x N/A N/A 1.6x 3.3x 3.0x 3.8x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 2,777 $ 388 $ 104 $ 226 $ 1,241 $ 596 $ 5,682
Working capital..................... 33,988 29,997 29,389 35,061 14,064 36,600 115,172
Total assets........................ 100,043 99,891 102,454 103,011 207,194 112,694 293,048
Long-term debt (including capital
leases due after one year)........ 21,950 22,719 22,107 20,462 6,535 18,067 108,440
Stockholders' equity................ 59,636 57,697 56,152 60,970 114,503 62,431 136,258
</TABLE>
- ---------------
(1) During 1996, the Company recorded charges of $15,800,000 related to the
acquisition of Everest & Jennings. The charges included $12,800,000
associated with the write-off of purchased in-process research and
development costs and $3,000,000 of merger expenses. See Note 2 of Notes to
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
(2) The results of operations for 1992 include a reorganization charge relating
primarily to the implementation and opening of the Company's distribution
center located in St. Louis, Missouri (the "St. Louis Facility").
(3) The extraordinary item is related to the early retirement of the John
Hancock Indebtedness and represents a "make-whole" payment and the write-off
of unamortized deferred financing costs associated with this indebtedness.
See Note 8 of Notes to Consolidated Financial Statements of the Company
included elsewhere in this Prospectus.
(4) Represents (i) net revenue from medical equipment and supplies net revenue
minus cost of revenues as a percentage of (ii) net revenue from medical
equipment and supplies net revenue.
(5) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, non-recurring charges, interest and other
income and extraordinary items. EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring a
company's ability to service its debt; however, EBITDA does not represent
cash flow from operations, as defined by generally accepted accounting
principles, and should not be considered as a substitute for net earnings as
an indicator of the Company's operating performance or cash flow as a
measure of liquidity.
(6) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from operations before income taxes, non-recurring items and
extraordinary items plus fixed charges. Fixed charges include interest
expense, amortization of debt issuance costs and the estimated interest
component of rent expense. Earnings did not cover fixed charges during the
following periods by the following amounts: 1993 -- $4,455,000 and
1994 -- $2,714,000.
31
<PAGE> 34
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF
GRAHAM-FIELD HEALTH PRODUCTS, INC.
The following unaudited pro forma combined condensed financial information
reflects financial information with respect to (1) the proposed merger of the
wholly owned subsidiary of Graham-Field with and into Fuqua (the "Merger"), (2)
Graham-Field's acquisitions of (i) Everest & Jennings International, Ltd.
("Everest & Jennings") on November 27, 1996 (the "Everest & Jennings
Acquisition"), (ii) V.C. Medical Distributors, Inc. ("V.C. Medical") on
September 4, 1996 (the "V.C. Medical Acquisition"), (iii) Motion 2000 Inc.
("Motion 2000") and Motion 2000 Quebec Inc. ("Motion Quebec" and, together with
Motion 2000, the "Motion 2000 Companies") on February 28, 1997, (iv) Kuschall of
America, Inc. ("Kuschall") on March 7, 1997, (v) LaBac Systems, Inc. ("LaBac")
on June 25, 1997, and (vi) Medi-Source, Inc. ("Medi-Source") on August 21, 1997
(the acquisitions, other than the Everest & Jennings Acquisition and the V.C.
Medical Acquisition, in this clause (2) are collectively referred to as the
"Other Recent 1997 Acquisitions"; the Other Recent 1997 Acquisitions and the
V.C. Medical Acquisition are collectively referred to as the "Other Recent
Acquisitions"; and the Other Recent Acquisitions, the Merger and the Everest &
Jennings Acquisition are collectively referred to as the "Acquisitions"), and
(3) the sale by Graham-Field of its Senior Subordinated Note's due 2007 (the
"Old Notes") completed on August 4, 1997 and application of the net proceeds
therefrom. See "-- Unaudited Pro Forma Combined Condensed Financial Information
of Fuqua Enterprises, Inc." for financial information with respect to recent
acquisitions completed by Fuqua.
The unaudited pro forma combined condensed financial information gives
effect to the adjustments described in the notes attached thereto. The
accompanying unaudited pro forma combined condensed balance sheet combines the
historical consolidated balance sheet of Graham-Field as of September 30, 1997
and the historical consolidated balance sheet of Fuqua, as if the Merger had
occurred on September 30, 1997. The accompanying unaudited pro forma combined
condensed statement of operations for the nine months ended September 30, 1997
combines the historical consolidated statements of operations of Graham-Field on
a pro forma basis with those of the Motion 2000 Companies, Kuschall, LaBac,
Medi-Source and Fuqua as if the Other Recent 1997 Acquisitions and the Merger
had occurred at January 1, 1997. The accompanying unaudited pro forma combined
condensed statement of operations for the year ended December 31, 1996 combines
the historical consolidated statements of operations of Graham-Field on a pro
forma basis with those of V.C. Medical, Everest & Jennings, the Motion 2000
Companies, Kuschall, LaBac, Medi-Source and Fuqua as if the Acquisitions had
occurred at January 1, 1996. The historical consolidated statements of
operations of Graham-Field have been restated to reflect the acquisition of
Medical Supplies of America, Inc. ("Medapex") on August 28, 1997, which was
accounted for as a pooling of interests. The unaudited pro forma combined
condensed financial information, as adjusted, also gives effect to the
completion of the sale of the Old Notes and the use of proceeds therefrom.
As a result of the Merger, the management of Graham-Field anticipates that
the combined entity will achieve significant cost savings and economies of
scale. Graham-Field has plans to eliminate certain duplicate distribution and
manufacturing centers and make reductions in general and administrative expenses
where duplicate functions are being performed. In addition, Graham-Field
anticipates that certain enhancements will be achieved as a result of the
Merger, including an improvement in the gross profit margin associated with the
combined entities' sale of patient aids and bathroom accessories, and
cross-selling opportunities between the companies which may present growth
opportunities for Graham-Field. Furthermore, the management of Graham-Field
believes that it will be able to eliminate a significant amount of the
indebtedness of Fuqua through cash available to Graham-Field and the proceeds to
be derived from the contemplated disposition of the Leather Operations.
The unaudited pro forma combined condensed statements of operations do not
reflect potential (i) cost savings associated with Fuqua's on-going
rationalization of its production and distribution facilities, (ii) synergistic
benefits and enhancements relating to the elimination of duplicate distribution
and manufacturing centers, (iii) reduction of general and administrative
expenses of the combined entity anticipated by
32
<PAGE> 35
Graham-Field's management, (iv) enhancements including an improvement in the
gross profit margin associated with the combined entities' sale of patient aids
and bathroom accessories, (iv) cross-selling opportunities between the companies
which may present growth opportunities for Graham-Field, and (v) interest
savings from the elimination of a significant amount of Fuqua indebtedness
through cash available to Graham-Field and proceeds to be derived from the
contemplated disposition of the Leather Operations. In addition, the unaudited
pro forma combined condensed statement of operations for the year ended December
31, 1996 does not reflect any cost savings, synergistic benefits and
enhancements realized by (i) Graham-Field in connection with the Everest &
Jennings Acquisition for the period prior to November 27, 1996 and (ii) Fuqua in
connection with its acquisition of the Lumex Division for the period prior to
its acquisition on April 3, 1996.
The unaudited pro forma combined condensed financial information is not
necessarily indicative of Graham-Field's financial position or the results of
operations that actually would have occurred if the transactions described above
had occurred on the dates indicated or for any future period or date. The
unaudited pro forma adjustments give effect to available information and
assumptions that Graham-Field believes are reasonable. The unaudited pro forma
combined condensed financial information should be read in conjunction with
Graham-Field's and Fuqua's historical consolidated financial statements and the
notes thereto appearing elsewhere herein. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Index to
Financial Statements."
33
<PAGE> 36
GRAHAM-FIELD HEALTH PRODUCTS, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------- PRO FORMA PRO FORMA
GRAHAM-FIELD FUQUA ADJUSTMENTS COMBINED
------------ -------- ----------- ---------
(NOTE 1) (NOTE 2)
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents.............. $ 5,682 $ 2,072 $ (104)[a] $ 7,650
Marketable securities.................. 12,832 -- -- 12,832
Accounts receivable -- net............. 74,770 42,419 (24,766)[a] 92,423
Inventories............................ 60,314 46,433 (29,558)[a] 77,189
Other current assets................... 8,146 3,594 (689)[a] 11,051
Recoverable and prepaid income taxes... 256 -- -- 256
Deferred tax asset..................... -- 4,802 460[a] 5,262
-------- -------- -------- --------
Total Current Assets................ 162,000 99,320 (54,657) 206,663
Property, plant and equipment -- net... 14,801 34,164 (12,831)[a] 36,134
Excess of cost over net assets
acquired -- net..................... 103,232 37,655 86,026[b] 226,913
Other Assets........................... 13,015 1,746 (1,547)[a] 13,214
Discontinued operations................ -- 3,637 (3,637)[a] --
Assets held for sale................... -- -- 75,652[a] 75,652
-------- -------- -------- --------
Total Assets................... $293,048 $176,522 $ 89,006 $ 558,576
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt... $ 2,054 $ 589 $ (209)[a] $ 2,434
Accounts payable....................... 22,945 26,905 (7,913)[a] 41,937
Accrued expenses....................... 21,829 -- 28,000[c] 49,829
-------- -------- -------- --------
Total Current Liabilities........... 46,828 27,494 19,878 94,200
Long-term debt......................... 8,440 54,444 (978)[a] 61,906
Senior subordinated notes.............. 100,000 -- -- 100,000
Other long-term liabilities............ 1,522 -- -- 1,522
-------- -------- -------- --------
Total Liabilities.............. 156,790 81,938 18,900 257,628
STOCKHOLDERS' EQUITY
Series A preferred stock............... -- -- -- --
Series B preferred stock............... 28,200 -- -- 28,200
Series C preferred stock............... 3,400 -- -- 3,400
Common stock........................... 530 11,322 (11,075)[d] 777
Additional paid-in capital............. 115,702 24,902 139,541[d] 280,145
(Deficit) retained earnings............ (11,548) 59,233 (59,233)[d] (11,548)
Unrealized gain on marketable
securities.......................... 72 -- -- 72
Cumulative translation adjustment...... 61 -- -- 61
-------- -------- -------- --------
Subtotal............................... 136,417 95,457 69,233 301,107
Treasury stock......................... -- (873) 873[d] --
Notes receivable from sale of shares... (159) -- -- (159)
-------- -------- -------- --------
Total Stockholders' Equity..... 136,258 94,584 70,106 300,948
-------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $293,048 $176,522 $ 89,006 $ 558,576
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
34
<PAGE> 37
NOTE 1: PURCHASE PRICE SUMMARY AND RELATED ALLOCATION OF MERGER
A summary of the estimated purchase price and related allocation, which
reflects the estimated proceeds from the disposal of the Leather Operations is
set forth below (amounts in thousands):
<TABLE>
<S> <C>
Estimated Purchase Price:
Issuance of 2.1 shares of Common Stock for each share of Fuqua Common
Stock(a)................................................................ $164,690
Estimated fees and expenses related to the Merger......................... 8,000
--------
Total Estimated Purchase Price............................................ $172,690
========
</TABLE>
<TABLE>
<CAPTION>
SALE OF
TOTAL LEATHER NET
FUQUA(C) OPERATIONS(B) ALLOCATION(D)
-------- ------------- -------------
<S> <C> <C> <C>
Allocation (based on estimated fair values):
Cash................................................. $ 2,072 $ (104) $ 1,968
Accounts and notes receivable, net................... 42,419 (24,766) 17,653
Inventory............................................ 46,433 (29,558) 16,875
Property, Plant & Equipment, net..................... 34,164 (12,831) 21,333
Previous excess of cost over net assets acquired..... 37,655 -- 37,655
Discontinued operations.............................. 3,637 (3,637) --
Other assets......................................... 10,142 (1,776) 8,366
Debt and capital leases.............................. 55,033 (1,187) 53,846
Accounts payable and accrued expenses................ 46,905 (7,913) 38,992
Excess of Purchase Price over net assets acquired.... 98,106 (12,080) 86,026
-------- -------- -------
$172,690 $ 75,652 $97,038
======== ======== =======
</TABLE>
- ---------------
a. As of September 30, 1997, there were 4,482,709 shares of Fuqua Common Stock
outstanding (not including shares underlying vested stock options), which
are to be exchanged into shares of Common Stock at the Exchange Ratio
(subject to adjustment as provided in the Fuqua Merger Agreement; see
"Recent Developments") or a total of approximately 9,413,689 shares of
Common Stock. In addition, as of September 30, 1997, there were 521,400
vested stock options (the "Fuqua Stock Options") outstanding to purchase
shares of Fuqua Common Stock. In accordance with the terms of the Fuqua
Merger Agreement, shares of Common Stock will be issued in substitution for
shares of Fuqua Common Stock upon the exercise of the Fuqua Stock Options.
The equivalent number of shares of Common Stock to be issued, after giving
effect to the option price of the Fuqua Stock Options as adjusted for the
Exchange Ratio (assumed to be 2.1) in accordance with the Fuqua Merger
Agreement, is approximately 454,000 shares of Common Stock. For purposes of
calculating the purchase price, the Common Stock is valued at $16.69 per
share, which represents the average closing sales price of the Common Stock
for the period three business days immediately prior to and three business
days immediately after the announcement on September 8, 1997 of the
execution of the Fuqua Merger Agreement. In the event the Average Stock
Price was $12.000, Graham-Field would be required to issue 2.375 shares for
each share of Fuqua Common Stock, or a total of 10,646,433 shares (excluding
the issuance of shares of Common Stock in substitution for shares of Fuqua
Common Stock upon the exercise of the Fuqua Stock Options). Alternatively,
in the event the Average Stock Price was $19.00, Graham-Field would be
required to issue 1.95 shares for each share of Fuqua Common Stock, or a
total of 8,741,283 shares (excluding the issuance of shares of Common Stock
in substitution for shares of Fuqua Common Stock upon the exercise of the
Fuqua Stock Options).
35
<PAGE> 38
b. It is Graham-Field's intention to dispose of the Leather Operations as soon
as reasonably practicable following the consummation of the Merger.
Accordingly, the net assets of the Leather Operations have been reflected as
"Assets Held for Sale" in the unaudited pro forma balance sheet. The net
asset value of the Leather Operations includes a portion of the excess of
the purchase price over the net assets acquired in connection with the
Merger, based upon the net proceeds of $73,000,000 expected to be realized
from the sale of the Leather Operations and the estimated net after tax
income of $2,652,000 expected to be earned by the Leather Operations for the
period between the consummation of the Merger and the anticipated date of
the disposal of the Leather Operations.
It is the expectation of the management of Graham-Field that the Leather
Operations will be disposed of within six months following the consummation
of the Merger. This expectation is based upon the advice of Graham-Field's
financial advisors. In calculating the portion of the excess of the purchase
price over the net assets acquired in connection with the Merger
attributable to the Leather Operations, management estimated the net
proceeds to be received on the sale, based on a range of sale prices
provided by Graham-Field's financial advisors. The after tax income expected
to be earned by the Leather Operations for the six months following the
consummation of the Merger is based on internal budgets of Fuqua.
c. Includes an accrual of $20,000,000 for the estimated income tax liability
related to the anticipated sale of the Leather Operations.
d. The net allocation is preliminary and does not reflect the fair value
adjustments to the Fuqua assets and liabilities, the potential charges for
the write-off of purchased in-process research and development costs and
merger-related costs, since such amounts are not able to be estimated at
this time. Graham-Field will determine the fair value of Fuqua's assets and
liabilities following the Effective Time of the Merger through independent
appraisals, which will include appraisals of real estate, patents and
trademarks and research and development projects of Fuqua. Graham-Field
intends to complete the valuation process prior to the filing of its Annual
Report on Form 10-K for the year ended December 31, 1997. These adjustments
could result in a material variation from the preliminary net allocation
presented in these pro forma financial statements.
NOTE 2: PRO FORMA ADJUSTMENTS
a. Adjustment to eliminate the assets of the Leather Operations and reflect the
operations as "Assets Held for Sale." See Note 1 to the pro forma combined
condensed balance sheet.
b. Adjustment to record the excess of the estimated purchase price over the net
assets acquired in connection with the Merger of $86,026,000, after the
elimination of the net assets of the Leather Operations.
c. Adjustment for accrued costs, including, but not limited to, investment
banking fees, legal fees, accounting and tax fees, due diligence expenses
and severance arrangements of approximately $8,000,000 related to the
Merger. Adjustment for the estimated income tax liability of approximately
$20,000,000 related to the sale of the Leather Operations by Graham-Field.
d. Adjustment to record the elimination of the equity of Fuqua of $94,584,000.
Adjustment to record the issuance of shares of Common Stock in connection
with the Merger valued at $164,690,000.
36
<PAGE> 39
GRAHAM-FIELD HEALTH PRODUCTS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (NOTE 3)
-------------------------- --------------------------------------------------------------------------
OTHER RECENT FUQUA
GRAHAM- 1997 PRO FORMA GRAHAM-FIELD FUQUA PRO FORMA PRO FORMA
FIELD ACQUISITIONS ADJUSTMENTS PRO FORMA PRO FORMA ADJUSTMENTS COMBINED
-------- -------------- ----------- ------------ --------- ----------- ---------
(NOTE 4) (NOTE 1) (NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Medical equipment and
supplies and product
revenue............. $189,515 $ 11,258 $ -- $200,773 $180,575 $(101,438)(a) $279,910
Interest and other
income.............. 759 -- -- 759 187 -- 946
-------- ------- ------- -------- -------- --------- --------
190,274 11,258 -- 201,532 180,762 (101,438) 280,856
-------- ------- ------- -------- -------- --------- --------
Costs and expenses:
Cost of revenues...... 128,100 6,124 -- 134,224 142,433 (89,766)(a) 186,891
Selling, general and
administrative...... 43,976 5,124 (264)(b,c,f) 48,836 27,702 (3,972)(a,b) 72,566
Interest expense...... 4,557 119 3,067(d,f) 7,743 2,627 10,370
-------- ------- ------- -------- -------- --------- --------
176,633 11,367 2,803 190,803 172,762 (93,738) 269,827
-------- ------- ------- -------- -------- --------- --------
Income (loss) from
continuing
operations before
income taxes........ 13,641 (109) (2,803) 10,729 8,000 (7,700) 11,029
Income taxes
(benefit)........... 5,395 -- (1,121)(e) 4,274 2,722 (2,159)(c) 4,837
-------- ------- ------- -------- -------- --------- --------
Income (loss) from
continuing
operations.......... 8,246 (109) (1,682) 6,455 5,278 (5,541) 6,192
Preferred stock
dividends........... 799 -- -- 799 -- -- 799
-------- ------- ------- -------- -------- --------- --------
Income (loss) from
continuing
operations available
to common
stockholders........ $ 7,447 $ (109) $(1,682) $ 5,656 $ 5,278 $ (5,541) $ 5,393
======== ======= ======= ======== ======== ========= ========
Per share data:
Income from continuing
operations per
common share
outstanding (Note
4g)................. $ .32 $ .24 $ 1.17 $ .17
======== ======== ======== ========
Weighted average
number of common and
common equivalent
shares
outstanding......... 25,888 566 26,454 4,530 5,338 36,322
======== ======= ======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
37
<PAGE> 40
GRAHAM-FIELD HEALTH PRODUCTS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (NOTE 3)
---------------------------------- --------------------------------------------------------------
OTHER FUQUA
GRAHAM- EVEREST & RECENT PRO FORMA GRAHAM-FIELD FUQUA PRO FORMA PRO FORMA
FIELD JENNINGS ACQUISITIONS ADJUSTMENTS PRO FORMA PRO FORMA ADJUSTMENTS COMBINED
-------- --------- ------------ ----------- ------------ --------- ----------- ---------
(NOTE 2) (NOTE 4) (NOTE 1) (NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Medical equipment and
supplies and product
revenue..................... $143,083 $ 61,403 $ 29,063 $(5,579)(a) $227,970 $208,252 $(107,832)(a) $328,390
Interest and other income.... 559 -- -- -- 559 1,815 (5)(a) 2,369
-------- ------- ------- ------- -------- -------- --------- --------
143,642 61,403 29,063 (5,579) 228,529 210,067 (107,837) 330,759
-------- ------- ------- ------- -------- -------- --------- --------
Costs and expenses:
Cost of revenues............. 99,641 51,992 17,837 (5,379)(a) 164,091 157,575 (89,092)(a) 232,574
Selling, general and
administrative.............. 34,578 19,879 10,463 1,621(b c,f) 66,541 43,066 (4,963) a,b) 104,644
Interest expense............. 2,578 4,250 281 3,848(d,f) 10,957 4,966 -- 15,923
Purchased in-process research
and development costs....... 12,800 -- -- -- 12,800 -- -- 12,800
Merger related charges....... 3,000 -- -- -- 3,000 -- -- 3,000
-------- ------- ------- ------- -------- -------- --------- --------
152,597 76,121 28,581 90 257,389 205,607 (94,055) 368,941
-------- ------- ------- ------- -------- -------- --------- --------
Income (loss) from continuing
operations before income
taxes (benefit)............. (8,955) (14,718) 482 (5,669) (28,860) 4,460 (13,782) (38,182)
Income taxes (benefit)....... 2,918 26 410 (6,221)(e) (2,867) 1,484 (5,306)(c) (6,689)
-------- ------- ------- ------- -------- -------- --------- --------
Income (loss) from continuing
operations.................. (11,873) (14,744) 72 552 (25,993) 2,976 (8,476) (31,493)
Preferred stock dividends.... -- -- -- 1,065 1,065 -- -- 1,065
-------- ------- ------- ------- -------- -------- --------- --------
Income (loss) from continuing
operations available to
common stockholders......... $(11,873) $(14,744) $ 72 $ (513) (27,058) $ 2,976 $ (8,476) $(32,558)
======== ======= ======= ======= ======== ======== ========= ========
Per share data:
Income (loss) from continuing
operations per common share
outstanding (Note 4g)....... $ (.76) $ (1.31) $ .65 $ (1.07)
======== ======== ======== ========
Weighted average number of
common and common equivalent
shares outstanding.......... 15,557 5,134 20,691 4,554 5,314 30,559
======== ======= ======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
38
<PAGE> 41
NOTE 1: PRIOR ACQUISITIONS OF FUQUA
See the unaudited pro forma combined condensed statements of operations of
Fuqua reflecting the acquisitions of the Lumex Division and Prism under
"-- Unaudited Pro Forma Combined Condensed Financial Information of Fuqua
Enterprises, Inc."
On February 26, 1997, Fuqua acquired 100% of the common stock and warrants
of Prism Enterprises, Inc. ("Prism") for approximately $19,500,000. The
acquisition was accounted for as a purchase and accordingly, the results of
operations are included subsequent to that date. The unaudited pro forma
combined condensed statement of operations reflect the results of Prism prior to
the date of acquisition as if the acquisition occurred on January 1, 1996.
On April 3, 1996, Fuqua acquired the medical products operations of Lumex,
Inc. (the "Lumex Division") for approximately $40,750,000. The purchase price
relating to the acquisition of the Lumex Division is subject to a final
adjustment, the amount of which is in dispute and is being resolved by
arbitration. The acquisition was accounted for as a purchase and accordingly,
the results of operations are included subsequent to that date. The 1996
unaudited pro forma combined condensed statement of operations reflects the
results of the Lumex Division prior to the date of acquisition as if the
acquisition occurred on January 1, 1996 and includes $6,300,000 of non-recurring
charges, primarily related to the adoption of FAS 121 and the recoverability of
lease receivables. The 1996 unaudited pro forma combined condensed statement of
operations for the year ended December 31, 1996 has not been adjusted to
eliminate the effect of these charges.
NOTE 2: ACQUISITION OF EVEREST & JENNINGS
On November 27, 1996, Graham-Field acquired Everest & Jennings in a merger
transaction pursuant to which Graham-Field issued 2,522,691 shares of Common
Stock in exchange for the common stock of Everest & Jennings. Simultaneously
with the Everest & Jennings Acquisition, (i) BIL was issued 1,922,242 shares of
Common Stock in consideration of the repayment of indebtedness owing by Everest
& Jennings in the amount of $24,989,151, (ii) Graham-Field issued $61 million
stated value of Graham-Field Series B Cumulative Convertible Preferred Stock
(the "Series B Preferred Stock") to BIL in exchange for certain indebtedness of
Everest & Jennings owing to BIL and shares of Everest & Jennings preferred stock
owned by BIL, (iii) BIL was issued $10 million stated value of Graham-Field
Series C Cumulative Convertible Preferred Stock (the "Series C Preferred Stock")
and (iv) certain indebtedness in the amount of $4,000,000 owing by Graham-Field
to BIL was exchanged for an equal amount of unsecured subordinated indebtedness
of Graham-Field.
Prior to the Everest & Jennings Acquisition, Everest & Jennings's 1996
revenues and operating results were negatively impacted by ongoing price
competition. Long lead times and shipping delays due to start-up inefficiencies
in manufacturing operations adversely impacted customer confidence. The
unaudited pro forma combined condensed statement of operations for the year
ended December 31, 1996 does not reflect any cost savings, synergistic benefits
and enhancements realized by Graham-Field in connection with the Everest &
Jennings Acquisition for the period prior to November 27, 1996. The historical
financial statements of Everest & Jennings for the year ended December 31, 1996
include approximately $5.7 million of additional reserves relating to the
accounts receivable and inventory of Everest & Jennings. The reserves were
increased primarily due to the impairment of such assets during the later part
of 1996 following the execution of the Everest & Jennings merger agreement.
NOTE 3: SYNERGIES AND ENHANCEMENTS RELATED TO THE MERGER
As a result of the Merger, the management of Graham-Field anticipates that
the combined entity will achieve significant cost savings and economies of
scale. Graham-Field has plans to eliminate certain duplicate distribution and
manufacturing centers and make reductions in general and administrative expenses
where duplicate functions are being performed. In addition, Graham-Field
anticipates that certain enhancements will be achieved as a result of the
Merger, including an improvement in the gross profit margin associated with the
sale of patient aids and bathroom accessories, and cross-selling opportunities
between the companies which may present growth opportunities for Graham-Field.
Furthermore, the management of Graham-Field believes
39
<PAGE> 42
that it will be able to eliminate a significant amount of the indebtedness of
Fuqua through cash available to Graham-Field and proceeds to be derived from the
contemplated disposition of the Leather Operations. The unaudited pro forma
combined condensed statements of operations does not give effect to any
potential synergistic benefits and enhancements relating to the elimination of
duplicate distribution and manufacturing centers and the reduction of general
and administrative expenses of the combined entity anticipated by Graham-Field
management. There is no assurance that such cost savings and enhancements will
be achieved and, accordingly, such costs savings and enhancements are not
included in the pro forma statements of operations for the nine months ended
September 30, 1997 and year ended December 31, 1996.
NOTE 4: PRO FORMA ADJUSTMENTS
(a) Adjustment to reflect the elimination of intercompany sales by Everest &
Jennings and Kuschall of $5,579,000, and cost of revenue of $5,379,000 in
1996.
(b) Adjustment to record additional amortization (assuming a 30 year life) of
the excess of the cost over net assets acquired in connection with the
following acquisitions:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ------------
<S> <C> <C>
Everest & Jennings(i)................................. $ -- $1,613,000
LaBac................................................. 84,000 167,000
Motion 2000........................................... 8,000 49,000
V.C. Medical.......................................... -- 16,000
Medi-Source........................................... 62,000 107,000
-------- ----------
$ 154,000 $1,952,000
======== ==========
</TABLE>
Amortization of the excess of cost over net assets acquired included in the
historical consolidated statements of operations of Graham-Field, without
giving effect to the above adjustments, is $2,440,000 and $1,029,000 for the
nine months ended September 30, 1997 and the twelve months ended December
31, 1996, respectively.
--------------------
(i) Net of a reduction in goodwill previously recorded by Everest &
Jennings, which was eliminated.
(c) Adjustment to reflect the elimination of certain expenses, partially offset
by additional consulting and non-competition fees related to the following
acquisitions. These adjustments are expected to have a continuing impact on
the statements of operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ------------
<S> <C> <C>
LaBac:
Elimination of expenses associated with an operation
of LaBac that was disposed of immediately preceding
the acquisition..................................... $(654,000) $ (995,000)
Additional fees related to a three (3) year consulting
agreement entered into as part of the acquisition... 138,000 275,000
Medi-Source:
Elimination of executive salaries directly related to
the acquisition..................................... (71,000) (121,000)
Additional fees related to a five (5) year
non-competition agreement entered into as part of
the acquisition..................................... 35,000 60,000
Motion 2000:
Elimination of expenses directly related to the
acquisition......................................... (171,000) --
--------- ---------
$(723,000) $ (781,000)
========= =========
</TABLE>
40
<PAGE> 43
(d) Adjustment to (i) reduce interest expense relating to the indebtedness
eliminated in connection with the Everest & Jennings Acquisition and
acquisition of Medi-Source, and (ii) reflect the incurrence of interest
expense to fund the cash purchase price of $1,704,000 with an assumed
interest rate of 8% for the acquisition of V.C. Medical, as set forth below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ------------
<S> <C> <C>
Everest & Jennings.................................... -- $ (3,452,000)
Medi-Source........................................... $ (62,000) (96,000)
V.C. Medical.......................................... -- 34,000
-------- -----------
$ (62,000) $ (3,514,000)
======== ===========
</TABLE>
In connection with the acquisition of Everest & Jennings, BIL purchased
1,922,242 shares of Common Stock for $24,989,151, representing an amount
equal to the outstanding principal and interest on Everest & Jennings'
indebtedness to Hong Kong and Shanghai Banking Corporation Limited, which
indebtedness (the "HSBC Indebtedness") was guaranteed by BIL. The proceeds
of such stock purchase were contributed by Graham-Field to Everest &
Jennings immediately following the acquisition and was used to retire the
HSBC Indebtedness. In addition, Graham-Field issued $61 million stated
value of Series B Preferred Stock to BIL in exchange for indebtedness of
Everest & Jennings owing to BIL in the amount of $21,100,000, bearing
interest at the rate of 8%.
With respect to the acquisition of Medi-Source, Graham-Field did not assume
the indebtedness of $1,393,000 (bearing interest at the rate of 6%) owing
to the former principal stockholder. All interest expense associated with
this debt was eliminated.
(e) Adjustment to reflect the income tax provision that would be more
appropriate and required based upon the pro forma results of the combined
entity. This takes into consideration Graham-Field's significant permanent
differences which would have an effect on the effective tax rate based on
the amount of pre-tax income.
(f) Adjusted to give effect to the sale on August 4, 1997 of the Old Notes
(bearing interest at the rate of 9.75% per annum) and the application of the
estimated net proceeds to eliminate certain Graham-Field indebtedness to its
bank (bearing interest at the bank's prime rate or LIBOR plus 2.25% or 1.5%
above the bank's bankers' acceptance rate, at the option of Graham-Field)
and long-term debt to BIL (bearing interest at the rate of 8.5% per annum),
as if the sale of the Old Notes was completed on January 1, 1996. The
aggregate average outstanding indebtedness eliminated was $42,271,000 and
$30,161,000 for the nine months ended September 30, 1997 and the twelve
months ended December 31, 1996, respectively. The aggregate average
outstanding indebtedness eliminated was calculated on a month-by-month basis
during each of the applicable periods. The following summarizes the
adjustments to reflect the amortization of the issuance costs and the
additional net interest expense of the Old Notes:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ------------
<S> <C> <C>
Amortization of Notes issuance cost................... $ 305,000 $ 450,000
========== ==========
Additional interest on the Notes...................... 5,768,000 9,750,000
Elimination of interest on indebtedness replaced...... (2,639,000) (2,388,000)
---------- ----------
$ 3,129,000 $ 7,362,000
========== ==========
</TABLE>
(g) The pro forma net income (loss) per share of Common Stock for the nine
months ended September 30, 1997 and the year ended December 31, 1996 has
been calculated assuming the Exchange Ratio of 2.1 shares of Common Stock
for each share of Fuqua Common Stock. The number of shares of Common Stock
to be issued in the Merger will increase without limit if and to the extent
that the Average Stock
41
<PAGE> 44
Price falls below $13.5714 and will decrease without limit if and to the
extent that the Average Stock Price rises above $17.6190.
The pro forma net income per share of Common Stock for the nine months
ended September 30, 1997 was calculated assuming the conversion of the
Series B and Series C Preferred Stock into an aggregate of 4,435,484 shares
of Common Stock and the elimination of a dividend of 1.5% on the Series B
and Series C Preferred Stock in the aggregate amount of $799,000 for the
nine month period ended September 30, 1997.
The pro forma net loss per share in 1996 has been calculated assuming the
payment of a cash dividend of 1.5% on the Series B and Series C Preferred
Stock in the aggregate amount of $1,065,000 for the twelve month period
ended December 31, 1996. Conversion of the preferred stock was not assumed
since the result would have been antidilutive.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Weighted average number of Graham-Field common and common
equivalent shares, excluding preferred stock............... 22,019 20,691
Series B and Series C Preferred Stock assumed to be
dilutive................................................... 4,435 --
------ ------
26,454 20,691
Fuqua shares to be issued.................................... 9,868 9,868
------ ------
36,322 30,559
====== ======
</TABLE>
NOTE 5. FUQUA PRO FORMA ADJUSTMENTS
(a) It is the intention of the management of Graham-Field to dispose of the
Leather Operations within six months following the consummation of the
Merger. Accordingly, the results of operations of the Leather Operations
have been eliminated from the historical results of operations as set forth
below:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Revenues:
Product revenue........................................... $ 101,438,000 $107,832,000
Interest and other income................................. -- 5,000
---------- ----------
101,438,000 107,837,000
Cost and expenses:
Cost of Revenue........................................... 89,766,000 89,092,000
Selling, general & administrative......................... 6,123,000 7,831,000
---------- ----------
95,889,000 96,923,000
---------- ----------
Income before income taxes................................ 5,549,000 10,914,000
Income taxes.............................................. 2,159,000 4,344,000
---------- ----------
Net income................................................ $ 3,390,000 $ 6,570,000
========== ==========
</TABLE>
Income tax expense for the Leather Operations is based on Fuqua's corporate
tax policy whereby the Leather Operations calculates its federal and state
tax provision at the statutory rates as if the Leather Operations were on a
stand-alone basis and remits such amounts to Fuqua for Fuqua to use in
paying its consolidated Federal and state income taxes.
(b) Adjustment to record additional amortization (assuming a 30 year life) of
the excess of the cost over net assets acquired in connection with the
Merger of $2,151,000 and $2,868,000 for the nine months ended September 30,
1997 and the twelve months ended December 31, 1996, respectively.
42
<PAGE> 45
(c) Adjustment to reflect the income tax provision that would be more
appropriate and required based upon the pro forma results of the combined
entity. This takes into consideration Graham-Field's significant permanent
differences which would have an effect on the effective tax rate based on
the amount of pre-tax income.
43
<PAGE> 46
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION
OF
FUQUA ENTERPRISES, INC.
The following unaudited pro forma combined condensed financial statements
of operations of Fuqua reflect (1) the historical financial information of Fuqua
and (2) Fuqua's acquisition of (i) the Lumex Division on April 3, 1996 and (ii)
Prism on February 26, 1997.
The unaudited pro forma combined condensed financial statements of
operations give effect to the adjustments described in the notes attached
thereto.
The accompanying unaudited pro forma combined condensed statement of
operations for the nine months ended September 30, 1997 combine the historical
consolidated statement of operations of Fuqua on a pro forma basis as if the
Prism acquisition had occurred at January 1, 1997. The accompanying unaudited
pro forma combined condensed financial statement of operations for the year
ended December 31, 1996 combines the historical consolidated financial statement
of operations of Fuqua on a pro forma basis as if the Lumex Division and Prism
acquisitions had occurred at January 1, 1996.
The unaudited pro forma combined condensed statement of operations for the
year ended December 31, 1996 does not reflect any cost savings, synergistic
benefits and enhancements realized by Fuqua in connection with its acquisition
of the Lumex Division for the period prior to the consummation of the
acquisition on April 3, 1996. In addition, the unaudited pro forma combined
condensed financial statement of operations for the year ended December 31, 1996
has not been adjusted to eliminate $6,300,000 of non-recurring charges primarily
related to the adoption of FAS 121 and the recoverability of lease receivables.
The unaudited pro forma combined condensed statements of operations are not
necessarily indicative of Fuqua's results of operations that actually would have
occurred if the transactions described above had occurred on the dates indicated
or for any future period or date. The unaudited pro forma adjustments give
effect to available information and assumptions that Fuqua believes are
reasonable. The unaudited pro forma combined condensed statements of operations
should be read in conjunction with Fuqua's historical consolidated financial
statements and the notes thereto included herein. See "Index to Financial
Statements."
44
<PAGE> 47
FUQUA ENTERPRISES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------- PRO FORMA PRO FORM
FUQUA(1) PRISM(1) ADJUSTMENTS COMBINED
-------- ------ ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Net sales........................................ $178,701 $1,874 $ -- $180,575
Investment income................................ 187 -- -- 187
-------- ------ ----- --------
178,888 1,874 -- 180,762
-------- ------ ----- --------
Costs and expenses:
Cost of revenues................................. 141,655 778 -- 142,433
Selling, general and administrative.............. 26,982 760 (40)(2) 27,702
Interest expense................................. 2,307 116 204(3) 2,627
-------- ------ ----- --------
170,944 1,654 164 172,762
-------- ------ ----- --------
Income (loss) before income taxes................ 7,944 220 (164) 8,000
Income taxes (benefit)........................... 2,682 115 (75)(4) 2,722
-------- ------ ----- --------
Net income (loss)................................ $ 5,262 $ 105 $ (89) $ 5,278
======== ====== ===== ========
Net income per share............................. $ 1.16 $ 1.17
======== ========
Weighted average number of common and common
equivalent shares.............................. 4,530 4,530
======== ========
</TABLE>
- ---------------
1. The historical amounts for Prism include the results for the period January
1, 1997 to February 24, 1997 (the date Prism was acquired by Fuqua) and the
historical amounts for Fuqua include the operations of Prism for the period
from February 24, 1997 through September 30, 1997.
2. Adjustment represents the reduction in amortization of intangibles arising
principally from Fuqua assigning no value to certain intangibles that were
amortized over shorter periods of less than five years in the historical
financial statements of Prism. The adjustment reflects a substitution of
Prism's historical intangibles amortization of $191,000 with revised pro
forma goodwill amortization over a period of 30 years of $151,000.
3. Adjustment represents interest on $19,500,000 of debt used to purchase Prism.
The interest rate used to calculate this interest expense is the rate that
would have been in effect had the transaction occurred at the beginning of
the periods presented.
4. Adjustment represents income taxes related to the pro forma adjustments. The
pro forma income tax expense adjustment is based on applying the applicable
statutory income tax rates to the taxable or deductible pro forma
adjustments.
45
<PAGE> 48
FUQUA ENTERPRISES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO
--------------------------------------- PRO FORMA FORMA
FUQUA(1) LUMEX DIVISION(1) PRISM(1) ADJUSTMENTS COMBINED
-------- ------------------ ------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales......................... $181,543 $ 13,570 $13,139 $ -- $208,252
Investment income................. 1,939 -- -- (124)(2) 1,815
-------- ------- ------- -------- --------
183,482 13,570 13,139 (124) 210,067
-------- ------- ------- -------- --------
Costs and expenses:
Cost of revenues.................. 140,773 11,207 5,595 -- 157,575
Selling, general and
administrative.................. 28,757 9,987 4,697 (375)(3) 43,066
Interest expense.................. 2,470 -- 821 1,675(4) 4,966
-------- ------- ------- -------- --------
172,000 21,194 11,113 1,300 205,607
-------- ------- ------- -------- --------
Income (loss) before income
taxes........................... 11,482 (7,624) 2,026 (1,424) 4,460
Income taxes (benefit)............ 4,209 (3,049) 926 (602)(5) 1,484
-------- ------- ------- -------- --------
Net (loss) income................. $ 7,273 $ (4,575) $ 1,100 $ (822) $ 2,976
======== ======= ======= ======== ========
Net income per share.............. $ 1.60 $ .65
======== ========
Weighted average number of common
and common equivalent shares.... 4,554 4,554
======== ========
</TABLE>
- ---------------
1. The historical results for the Lumex Division are for the period January 1,
1996 to April 3, 1996 (the date the Lumex Division was acquired by Fuqua) and
the historical results for Prism are for the year ended December 31, 1996.
The historical results for Fuqua include the operations for the Lumex
Division for the period April 3, 1996 to December 31, 1996.
2. Adjustment represents the reduction in investment income arising from the use
of $8,750,000 cash related to the purchase price of the Lumex Division.
3. Adjustment represents the reduction in amortization arising from intangibles
which are being amortized over 30 years. Such reduction arises as a result of
(i) ascribing no value to certain intangibles which were amortized over
shorter periods of less than 5 years in the financial statements for the
Lumex Division (resulted in historical amortization of $301,000 being
replaced with pro forma amortization of $128,000) and (ii) substituting
Prism's intangibles amortization previously recorded of $790,000 with revised
pro forma intangibles amortization of $588,000.
4. Adjustment represents interest at Fuqua's borrowing rate with respect to (i)
$33,000,000 of borrowings related to Fuqua's acquisition of the Lumex
Division and (ii) $19,500,000 of borrowings related to Fuqua's acquisition of
Prism, as if both acquisitions occurred on January 1, 1996. The interest rate
used to calculate this interest expense is the rate that would have been in
effect had the transaction occurred at the beginning of the periods
presented.
5. Adjustment represents income taxes related to the pro forma adjustments. The
pro forma income tax adjustment is based on applying the applicable statutory
income tax rates to the taxable or deductible pro forma adjustments.
46
<PAGE> 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of Graham-Field's consolidated
financial condition and consolidated results of operations should be read in
conjunction with Graham-Field's consolidated financial statements and notes
thereto included elsewhere in this Prospectus. On August 25, 1997, Graham-Field
acquired all of the issued and outstanding shares of Medapex in exchange for
983,147 shares of Common Stock. In conjunction with the acquisition,
Graham-Field acquired Medapex's principal corporate headquarters and
distribution facility. This transaction was accounted for as a pooling of
interests and the historical financial statement and information of Graham-Field
included elsewhere in this Prospectus have been restated to reflect this
transaction.
GENERAL
Graham-Field manufactures, markets and distributes medical, surgical and a
broad range of other healthcare products targeting the home healthcare and
medical/surgical markets through a network of approximately 18,500 dealers and
other customers in North America. Graham-Field also markets and distributes its
products throughout Europe, Central and South America, and Asia.
From 1989 to the date of its acquisition by Graham-Field, Everest &
Jennings incurred significant financial and operating losses in a continuing
effort to restructure its operations with the objective of improving its
competitive position within the durable medical equipment industry.
Restructuring activities included asset sales, significant reductions in
headcount, plant closures and consolidations, product line rationalization, debt
to equity conversion and outsourcing of manufacturing operations.
Since the acquisition, Graham-Field has reduced the interest expense of
Everest & Jennings by approximately $3,500,000 on an annualized basis,
eliminated overlapping distribution and manufacturing facilities and the
corporate headquarters of Everest & Jennings, combined sales and marketing
efforts of both companies and reduced selling, general and administrative
expenses of Everest & Jennings by approximately $7,200,000 on an annualized
basis. In addition, Graham-Field has continued the rationalization and
streamlining of Everest & Jennings' manufacturing facilities in the United
States, Canada and Mexico by shifting certain manufacturing operations of
Everest & Jennings overseas. As a result of the acquisition of Everest &
Jennings, Graham-Field has realized additional cost savings and economies of
scale which include the elimination of certain personnel functions and an
improvement in Graham-Field's gross profit margin associated with the
manufacture and sale of the Everest & Jennings wheelchair product line.
RESULTS OF OPERATIONS
Operating Revenues
Third quarter 1997 compared to third quarter 1996. Operating revenues were
$189,515,000 for the nine months ended September 30, 1997, representing an
increase of 88% from the same period in the prior year. Operating revenues,
without 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 Graham-Field's innovative "Graham-Field Express" program, the
expansion of the C.A.P. program, the "roll-out" of Graham-Field's seamless
distribution program, the acquisitions of LaBac on June 28, 1997 and Medi-Source
on August 21, 1997, and the incremental revenue growth of Medapex over the 1996
period.
In March 1996, Graham-Field Express was introduced to offer "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, Graham-Field had opened five Graham-Field Express facilities operating in
the Bronx, New York; Puerto Rico; Dallas, Texas; Baltimore, Maryland and
Cleveland, Ohio. Graham-Field is actively pursuing additional sites for its
Graham-Field Express Program. On September 4, 1996, Graham-Field acquired V.C.
Medical, a regional home healthcare
47
<PAGE> 50
wholesaler located in Puerto Rico. V.C. Medical currently operates as
Graham-Field Express (Puerto Rico). 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. On January 29, 1997, Graham-Field
acquired Bobeck Medical Distributors ("Bobeck Medical"), a wholesale distributor
of medical products. Bobeck Medical currently operates as Graham-Field Express
(Dallas). Revenue attributable to Graham-Field Express (Dallas) was
approximately $1,393,000 for the nine months ended September 30, 1997.
1996 compared to 1995. Operating revenues were $143,083,000 for the year
ended December 31, 1996, or 28% higher than the year ended December 31, 1995.
The increase in operating revenues was primarily attributable to Graham-Field's
expansion of its C.A.P. program, the introduction of the Graham-Field Express
program, the addition of new product lines and the acquisition of Everest &
Jennings on November 27, 1996.
Revenues attributable to Graham-Field Express were approximately
$14,431,000 for the year ended December 31, 1996. Revenues attributable to
Graham-Field Express (Puerto Rico) were approximately $1,766,000 for the year
ended December 31, 1996. Revenues attributable to Everest & Jennings for the
period from the date of acquisition to December 31, 1996 were approximately
$3,634,000.
The increase in operating revenues was achieved despite the decline in
sales to Apria Healthcare Group, Inc. ("Apria") of approximately $5,905,000 for
the year ended December 31, 1996 as compared to the prior year. Graham-Field's
supply agreement with Apria expired on December 31, 1995.
1995 compared to 1994. Operating revenues were $112,113,000 for the year
ended December 31, 1995, or 6% higher than the year ended December 31, 1994. The
increase in operating revenues was primarily attributable to improved service
levels, including improved turn-around time to customers and fewer back orders,
improvements in Graham-Field's distribution network, the development of new
sales and marketing programs and the expansion of Graham-Field's product lines.
During 1995, Graham-Field introduced over 100 new products including the Temco
deluxe four-wheel walkabout, the John Bunn Nebulite II medication compressor and
the Labtron automatic wrist blood pressure monitor. In addition, 1995 revenues
also included approximately $935,000, net of elimination of intercompany sales,
attributable to the acquisition of National Medical Excess Corp., effective as
of July 1, 1995.
The revenue increase was achieved despite the decline in sales to Apria of
21% for the year ended December 31, 1995 as compared to the prior year. During
1995 and 1994, Graham-Field's product sales to Apria were approximately
$8,100,000 and $10,300,000, respectively, which represented approximately 8% and
11%, respectively, of Graham-Field's product sales. Graham-Field's sales to
Apria generated gross profit margins of approximately 20%, which is
significantly lower than Graham-Field's sales to its other customers which
generated gross profit margins of over 30%.
Interest and Other Income
Third quarter 1997 compared to third quarter 1996. Interest and other
income for the nine months ended September 30, 1997 was $759,000, as compared to
$537,000 for the same period in the prior year. The increase is primarily due to
interest earned on the unused proceeds from Graham-Field's sale of the Old Notes
on August 4, 1997 and interest earned on customer financing programs.
1996 compared to 1995. Interest and other income increased from $301,000
in 1995 to $559,000 in 1996. The increase is primarily due to the gain
recognized by Graham-Field and royalties received by Graham-Field in connection
with the sale of the Gentle Expressions(R) breast pump product line, and
interest income on certain notes receivable.
1995 compared to 1994. Interest and other income increased from $75,000 in
1994 to $301,000 in 1995. The increase is primarily due to the receipt of
approximately $200,000 relating to an insurance recovery and a favorable
settlement of a contractual dispute.
48
<PAGE> 51
Cost of Revenues
Third quarter 1997 compared to third quarter 1996. Cost of revenues as a
percentage of operating revenues decreased for the nine months ended September
30, 1997 to 67.6%, as compared to 68.7% for the same period in the prior year.
The decrease is primarily attributable to the improved operational efficiencies
associated with the manufacture and distribution of Graham-Field's product lines
and improved purchasing activities.
1996 compared to 1995. Cost of revenues as a percentage of operating
revenue for 1996 remained relatively unchanged from the prior year, at 70%. Due
to manufacturing efficiencies and improved purchasing activities, Graham-Field
maintained its gross profit margin despite increased competition.
1995 compared to 1994. Cost of revenues as a percentage of operating
revenue for 1995 remained relatively unchanged from the prior year, at 70%. Due
to manufacturing efficiencies and improved purchasing activities, Graham-Field
maintained its gross profit margin despite increased competition.
Selling, General and Administrative Expenses
Third quarter 1997 compared to third quarter 1996. Selling, general and
administrative expenses as a percentage of operating revenues for the nine
months ended September 30, 1997 decreased to 23.2%, as compared to 25.5% in the
same period 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
Graham-Field's distribution network.
Graham-Field is currently in the process of evaluating its computer
software and databases to ensure that any modifications required to be year 2000
compliant are made in a timely manner. Management does not expect the financial
impact of such modifications to be material to Graham-Field's financial position
or results of operations in any given year.
1996 compared to 1995. Selling, general and administrative expenses as a
percentage of operating revenues decreased to 24% in 1996 from 26% in 1995. The
decrease is attributable to a number of factors, including the expansion of the
Graham-Field Express program in 1996, which contributes revenue with a lower
percentage of selling, general and administrative expenses, as well as continued
efficiencies generated by Graham-Field's distribution network.
1995 compared to 1994. Selling, general and administrative expenses as a
percentage of operating revenues decreased to 26% in 1995 from 30% in 1994. The
decrease was primarily due to cost reduction programs, the continued
efficiencies generated by Graham-Field's distribution network, investments in
new business systems, and the non-recurring expense of approximately $1,321,000
recorded in the fourth quarter of 1994 associated with the opening of the St.
Louis Facility.
Interest Expense
Third quarter 1997 compared to third quarter 1996. Interest expense for
the nine months ended September 30, 1997 increased to $4,557,000 as compared to
$1,962,000 for the same period in the prior year. The increase is primarily due
to increased borrowings attributable to Graham-Field's growth and expansion of
the Graham-Field Express program and from Graham-Field's sale of the Old Notes
on August 4, 1997.
1996 compared to 1995. Interest expense for 1996 decreased by $142,000 or
5% as compared to 1995. The decrease is primarily due to lower interest rates
combined with reduced average borrowings.
1995 compared to 1994. Interest expense for 1995 increased by $23,000 or
1%, principally due to an increase in interest rates from the prior year.
Interest expense for the last six months of 1995 decreased compared to the same
period in the prior year due to a decrease in borrowings during the period.
Graham-Field reduced its borrowings as a result of increased earnings, and the
net proceeds of $3,471,000 realized from an offshore private placement of
1,071,655 shares of Common Stock, completed in September 1995.
49
<PAGE> 52
Merger and Other Related Charges
1996 compared to 1995. During the fourth quarter of 1996, Graham-Field
recorded charges of $15,800,000 related to the acquisition of Everest &
Jennings. The charges included $12,800,000 associated with the write-off of
purchased in-process research and development costs and $3,000,000 of merger
expenses related to severance payments, the write-off of certain unamortized
catalog and software costs with no future value, the accrual of costs to vacate
certain of Graham-Field's facilities, and the cost of certain insurance
policies.
Net Income or Loss
Third quarter 1997 compared to third quarter 1996. 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.
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%. Graham-Field 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, Graham-Field 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.
1996 compared to 1995. Loss before income taxes and extraordinary item was
$8,955,000 for 1996, as compared to income before income taxes of $1,741,000 for
the prior year. The loss before income taxes and extraordinary item for 1996
includes certain charges of $15,800,000 relating to the acquisition of Everest &
Jennings. The charges include $12,800,000 associated with the write-off of
purchased in-process research and development costs and $3,000,000 related to
merger expenses.
Net loss after the charge for the extraordinary item related to the early
retirement of the John Hancock Indebtedness was $12,609,000 in 1996, as compared
to net income of $1,047,000 for 1995. The extraordinary item of $736,000 (net of
tax benefit of $383,000) relates to the "make-whole" payment and write-off of
unamortized deferred financing costs associated with the early retirement of the
John Hancock Indebtedness.
Graham-Field recorded income tax expense of $2,918,000 for the year ended
December 31, 1996, as compared to $694,000 for the prior year. As of December
31, 1996, Graham-Field had a deferred tax asset of $938,000, primarily comprised
of net operating loss carryforwards (including those acquired in connection with
an acquisition) and investment, research and development, jobs tax and
alternative minimum tax credits.
1995 compared to 1994. Income before income taxes was $1,741,000 for 1995,
as compared to a loss before income taxes of $2,714,000 for the prior year. The
increase in income before income taxes is primarily due to the increase in
revenues and the decrease in selling, general and administrative expenses.
Net income was $1,047,000 for 1995, as compared to a net loss of $1,979,000
for the prior year. Graham-Field recorded income tax expense of $694,000 for the
year ended December 31, 1995, as compared to an income tax benefit of $735,000
for the prior year. As of December 31, 1995, Graham-Field had recorded a
50
<PAGE> 53
deferred tax asset of $3,084,000, primarily comprised of net operating loss
carryforwards and investment, research and development, jobs tax and alternative
minimum tax credits.
Graham-Field's business has not been materially affected by inflation.
Liquidity and Capital Resources
Graham-Field 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 Graham-Field's net income of
$8,246,000, which reflects $4,700,000 of depreciation and amortization expense
and the net current assets acquired in connection with Graham-Field's
acquisitions during the nine months ended September 30, 1997 and from
Graham-Field's sale of the Old 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 of the prior year. The principal reasons for the decrease in cash
provided by operations were increases 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.
Graham-Field 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 in the foreseeable
future. See "Description of Credit Facility" and "Description of New Notes."
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BUSINESS
GENERAL
Graham-Field manufactures, markets and distributes medical, surgical and a
broad range of other healthcare products targeting the home healthcare and
medical/surgical markets through a network of approximately 18,500 dealers and
other customers in North America. Graham-Field also markets and distributes
products throughout Europe, Central and South America, and Asia.
Graham-Field markets and distributes approximately 30,000 products under
its own brand names and under suppliers' names throughout the world.
Graham-Field maintains manufacturing and distribution facilities in the United
States, Canada, Mexico and Puerto Rico. Graham-Field continuously seeks to
expand its product lines by increasing the number of distributorship agreements
with suppliers, forming strategic alliances and acquiring other companies and
product lines. Graham-Field's products are marketed to approximately 18,500
customers, principally hospital, nursing home, physician and home healthcare
dealers, healthcare product wholesalers and retailers, including drug stores,
catalog companies and pharmacies, and home-shopping related businesses.
Graham-Field's principal products and product lines include durable medical
equipment (such as wheelchairs, homecare beds, ambulatory aids, bathroom and
safety equipment, and power wheelchair seating systems), sphygmomanometers
(blood pressure measuring devices), stethoscopes, ECG instruments, electronic
thermometers, infrared heat treatment devices, adult incontinence products,
nutritional supplements, specialty cushions and mattresses for the treatment and
prevention of pressure sores, medicated and rubber elastic bandages, respiratory
equipment and supplies, urologicals, ostomy products, wound care products,
infection control products, first aid supplies, laboratory supplies,
antiseptics, topical anesthetics and sterile disposable medical products. By
offering a wide range of products from a single source, Graham-Field enables its
customers to reduce purchasing costs associated with the purchasing process,
including transaction, freight and inventory expenses.
INDUSTRY OVERVIEW
Graham-Field distributes its medical, surgical and other healthcare
products into the home healthcare and medical/surgical markets.
Home Healthcare. Graham-Field believes that the home healthcare market is
growing rapidly due to the shift in the provision of healthcare away from more
expensive acute care settings into lower cost home care settings. The rising
cost of healthcare has caused many payors of healthcare expenses to look for
ways to contain costs. Healthcare payors have, in many cases, altered their
reimbursement patterns to encourage home healthcare whenever appropriate.
The over 65 age group represents the vast majority of home healthcare
patients and continues to grow. In 1993, the U.S. Census Bureau estimated that
by the year 2000 approximately 35 million people, or 13% of the population in
the United States, will be over 65. Graham-Field believes that growth of the
home healthcare market will exceed that of institutional care, as many medical
professionals and patients prefer home healthcare because it allows greater
patient independence, increased patient responsibility and improved
responsiveness to treatment due to the enhanced psychological benefits of
receiving treatment in comfortable and familiar surroundings. Home healthcare is
more cost effective than facility-based care and, in many cases, more desirable
to the patient.
Medical/Surgical. Graham-Field believes that rapid growth in the
medical/surgical supply distribution industry has resulted primarily from
medical/surgical supply and equipment manufacturers increasing the number and
volume of products sold through distributors and an overall increase in the
volume of medical/ surgical supplies being consumed. This overall increase in
consumption is due primarily to the aging of the U.S. population and the
development of new medical procedures which have necessitated an increase in the
number and volume of medical supplies consumed each year.
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Historically, the medical/surgical supply distribution industry has been
highly fragmented. During the past ten years, the overall healthcare market has
been characterized by the consolidation of healthcare providers into larger and
more sophisticated entities which are seeking to lower their total costs. These
providers have been increasingly seeking lower total product costs and
incremental services from their medical/surgical supply distributors. These
trends have led to a significant and ongoing consolidation of the distribution
industry and the formation of a small number of industry participants with
national capabilities.
Graham-Field believes that the major healthcare industry trends impacting
the home healthcare and medical/surgical supply industry are as follows:
Consolidation Within the Industry. Continued growth in managed care and
capitated plans have pressured independent home medical equipment suppliers to
find ways of becoming more cost competitive with national providers. This has
also led to consolidations among manufacturers and distributors as smaller
companies with limited product lines seek out partners with potential for
significant synergies. In addition, certain healthcare product suppliers are
consolidating in order to promote better utilization of resources and improve
service to customers, thereby maintaining margin and market share. Graham-Field
believes most successful healthcare supply companies use size and economies of
scale to their advantage.
In recent years, concern over the rising cost of healthcare has sparked a
marked shift toward lower priced products and services in the industry. This
shift has resulted in the substitution of simpler and more generic products, as
well as price concessions to payors from healthcare providers. As healthcare
moves from largely fee-for-service reimbursement to prepaid and capitated
payment systems, this trend is expected to intensify. Graham-Field believes that
high-volume, full-line providers will have a competitive advantage over those
servicing only niche markets. These trends are causing significant consolidation
of healthcare providers. Graham-Field believes that future sales growth will be
driven predominantly by unit volume growth, product innovation, contract sales
to increasingly larger customers and buying groups, and by international
expansion.
Increasing Emphasis on Value-Added Services Oriented Towards Total Cost
Reduction. Graham-Field believes that the administrative costs associated with
purchasing, tracking and carrying inventory and distributing medical products
are often greater than the cost of the supplies. As a result, customers are
increasingly evaluating distributors not only on the basis of product cost and
timely and accurate delivery, but also on their ability to provide value-added
services that lower the administrative and other overhead costs associated with
medical and surgical supplies. For example, customers increasingly seek
distributors that can deliver inventory on a "just-in-time" basis. In addition,
certain customers are seeking distributors that can provide programs to assist
in inventory management.
Shift of Healthcare Delivery to Home Healthcare Markets. Graham-Field
believes that the delivery of healthcare is shifting from acute care settings to
alternate sites, such as physician offices and extended care facilities, due to
cost containment pressures from government and private reimbursement sources.
The growth of managed care has resulted in (i) more procedures being performed
in outpatient settings, (ii) the length of stay for inpatient procedures
continuing to fall and (iii) hospitals sharing financial risk as they take on
capitated contracts from managed care entities. These trends have led to a
general increase in the level of care required by alternate-site patients as
well as the emergence of specialized long-term care facilities, leading to
increased demand for home healthcare products. As a result of the foregoing,
industry sources believe that demand for home healthcare and medical and
surgical supplies in the alternate-site markets will increase at a faster rate
than the overall industry.
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RECENT ACQUISITIONS
Graham-Field pursues acquisitions on an opportunistic basis in order to
increase its market share, expand its product offerings, consolidate
manufacturing and distribution facilities and enter new markets. Graham-Field
has recently completed the following acquisitions:
<TABLE>
<CAPTION>
DATE COMPANY LINE OF BUSINESS
- ----------------------- --------------------------------- ---------------------------------
<S> <C> <C>
September 1996......... V.C. Medical Distributors, Inc. Medical products distributor in
Puerto Rico.
November 1996.......... Everest & Jennings International Manufacturer & distributor of
Ltd. wheelchairs and home care beds.
February 1997.......... Motion 2000 Inc. and Motion 2000 Independent wholesalers of
Quebec Inc. rehabilitation medical products
in Canada.
March 1997............. Kuschall of America, Inc. Manufacturer of pediatric
wheelchairs, high performance
adult wheelchairs and other
rehabilitation products.
June 1997.............. LaBac Systems, Inc. Manufacturer of custom power
wheelchair seating systems and
manual wheelchairs.
August 1997............ Medi-Source, Inc. Wholesaler of medical sundry
products.
August 1997............ Medical Supplies of America, Inc. Distributor of home healthcare
products.
</TABLE>
V.C. Medical. In September 1996, Graham-Field acquired substantially all
of the assets of V.C. Medical, a wholesale distributor of medical products in
Puerto Rico, for $1,953,830 in stock and cash, and assumed certain liabilities
of V.C. Medical in the amount of $296,721. V.C. Medical currently operates under
the name "GF Express (Puerto Rico)," and provides "same-day" and "next-day"
service to home healthcare dealers of certain strategic home healthcare
products, including Temco patient aids, Everest & Jennings wheelchairs and
homecare beds, adult incontinence products and nutritional supplements. Through
GF Express (Puerto Rico), Graham-Field has significantly increased its presence
in Puerto Rico.
Everest & Jennings. In November 1996, Graham-Field acquired Everest &
Jennings in a transaction pursuant to which Graham-Field issued 2,522,691 shares
of Common Stock in exchange for the common stock of Everest & Jennings.
Simultaneously with the acquisition, (i) BIL was issued 1,922,242 shares of
Common Stock in consideration of the repayment of indebtedness owing by Everest
& Jennings in the amount of $24,989,151, (ii) Graham-Field issued $61 million
stated value of Series B Preferred Stock to BIL in exchange for certain
indebtedness of Everest & Jennings owing to BIL and shares of Everest & Jennings
preferred stock owned by BIL, (iii) BIL was issued $10 million stated value of
Series C Preferred Stock and (iv) certain indebtedness in the amount of
$4,000,000 owing by Graham-Field to BIL was exchanged for an equal amount of
unsecured subordinated indebtedness of Graham-Field.
Through its subsidiaries, Everest & Jennings manufactures a broad line of
wheelchairs and distributes homecare beds. Everest & Jennings' principal
manufacturing and distribution facilities are located in Earth City, Missouri,
Toronto, Canada and Guadalajara, Mexico.
Motion 2000 and Motion Quebec. In February 1997, Graham-Field acquired
substantially all of the assets and certain liabilities of Motion 2000 and its
wholly-owned subsidiary, Motion Quebec, for approximately $2,150,000 in shares
of Common Stock. Motion 2000 and Motion Quebec currently operate under the name
Graham-Field (Canada), as a division of Everest & Jennings Canadian Limited, a
wholly-owned subsidiary of the Company ("Everest & Jennings Canada"). Graham
Field (Canada) distributes a line of rehabilitation products, including walkers,
rollators, cushion products and pediatric wheelchair products, and manufactures
seating products, and has become the primary distribution company for the
Company and Everest & Jennings in Canada. Graham-Field believes that the
strategic combination of Graham-Field (Canada) with Everest & Jennings'
operations, along with Graham-Field's broad product lines, will position
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Graham-Field as one of the suppliers of the broadest range of products available
from a single source in Canada, and as a leading supplier of rehabilitation
products, including high performance adult and pediatric wheelchairs, home care
wheelchairs, patient aids and other wheelchair products. In addition, the
business combination has enabled Graham-Field to expand its C.A.P. program in
the Canadian marketplace. Graham-Field believes that the acquisition will enable
Graham-Field to increase significantly its revenue base in the Canadian
marketplace.
Kuschall. In March 1997, Graham-Field acquired Kuschall, a manufacturer of
pediatric wheelchairs, high-performance adult wheelchairs and other
rehabilitation products, for $1,510,000, which was paid in shares of Common
Stock. The acquisition of Kuschall has provided Graham-Field with additional
manufacturing capabilities and has expanded Graham-Field's presence in the
rehabilitation and pediatric wheelchair market. The pediatric wheelchair product
line of Kuschall has broadened Everest & Jennings' rehabilitation product lines.
In addition, Graham-Field's acquisition of Kuschall has provided Graham-Field
with the ability to market and distribute its products into Japan, New Zealand
and Australia through Kuschall's established distributor relationships.
Graham-Field believes that the combination will enable Graham-Field to
strengthen its manufacturing operations on a company-wide basis and enhance its
C.A.P. program.
LaBac. In June 1997, Graham-Field acquired LaBac, a manufacturer and
distributor of custom power wheelchair seating systems and manual wheelchairs,
for $9,103,000, which was paid in shares of Common Stock. Graham-Field believes
that the acquisition of LaBac will provide Graham-Field with the premier custom
power wheelchair seating product line in the healthcare industry, expand the
Everest & Jennings power wheelchair product line and enhance the manufacturing
and research and development capabilities of Graham-Field. The LaBac products,
which have a reputation for excellence and quality, will broaden the Everest &
Jennings and Kuschall product lines and provide additional support and expertise
to Graham-Field in the rehabilitation market.
Medi-Source. In August 1997, Graham-Field acquired substantially all of
the assets and certain liabilities of Medi-Source, a wholesale distributor of
medical sundry products to the medical/surgical market for $4,500,000. The
acquisition of Medi-Source has expanded Graham-Field's presence in the medical/
surgical market.
Medapex. In August 1997, Graham-Field acquired Medapex, a wholesale
distributor of home healthcare products, for $12,900,000, which was paid in
shares of Common Stock. Graham-Field believes that Medapex will provide
Graham-Field with additional distribution capabilities in the Southeast region
of the United States, and enable Graham-Field to take advantage of Medapex's
telemarketing operations, which will provide increased customer service to the
combined customer base.
PRODUCTS
Graham-Field markets and distributes approximately 30,000 healthcare
products under its own brand names and under suppliers' names. Graham-Field's
products are marketed to approximately 18,500 dealers and other customers,
principally hospital, nursing home, physician and home healthcare dealers,
healthcare product wholesalers and retailers, including drug stores, catalog
companies, pharmacies and home-shopping related businesses.
Product lines marketed by Graham-Field include durable medical equipment
(such as wheelchairs, homecare beds, ambulatory aids, bathroom and safety
equipment and power wheelchair seating systems), sphygmomanometers (blood
pressure measuring devices), stethoscopes, ECG instruments, electronic
thermometers, infrared heat treatment devices, adult incontinence products,
nutritional supplements, specialty cushions and mattresses for the treatment and
prevention of pressure sores, medicated and rubber elastic bandages, respiratory
equipment and supplies, urologicals, ostomy products, wound care products,
infection control products, first aid supplies, laboratory supplies,
antiseptics, topical anesthetics and sterile disposable medical products.
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Graham-Field's principal manufactured and proprietary products include the
following:
<TABLE>
<CAPTION>
PRODUCT LINE PRIMARY PRODUCTS
------------------ --------------------------------------
<S> <C>
Everest & Jennings Wheelchairs
Smith & Davis Homecare beds
Labtron Blood pressure and diagnostic products
Temco Patient aids and bathroom accessories
John Bunn Respiratory products
Medicopaste Medicated bandages
Survalent Thermometry systems
Grafco Various sundries
Diamond Incontinence products
Kuschall Pediatric wheelchairs
LaBac Power wheelchair seating systems
</TABLE>
Sales of Graham-Field's line of sphygmomanometers accounted for 14%, 11%
and 7% of Graham-Field's annual revenues during the years ended December 31,
1994, 1995 and 1996, respectively. Graham-Field's lines of incontinence
products; wound care and ostomy products; bathroom safety equipment;
wheelchairs; and ambulatory aids accounted for approximately 8%, 7%, 6%, 6% and
5%, respectively, of Graham-Field's annual revenues in 1996. No other product
line or product accounted for more than 5% of annual revenues in 1994, 1995 or
1996. During the nine month period ended September 30, 1997, sales of
Graham-Field's wheelchairs; incontinence products; ambulatory aids; medical
disposables; wound care and ostomy products; nutritionals; bathroom safety
equipment; and sphygmomanometers accounted for approximately 29%, 13%, 11%, 10%,
9%, 7%, 6% and 6%, respectively, of Graham-Field's revenues in such period.
Approximately 4% of all products offered by Graham-Field during each of the
years ended December 31, 1994, 1995 and 1996, respectively, accounted for
approximately 80% of annual revenues in each such year. The number of products
marketed by Graham-Field has increased from approximately 19,000 in 1991 to
approximately 30,000 in 1997.
During the year ended December 31, 1996, approximately 28% of
Graham-Field's revenues were derived from products manufactured by Graham-Field,
approximately 18% were derived from imported products, and approximately 54%
were derived from products purchased from domestic sources, which includes
products purchased from Everest & Jennings prior to the acquisition. As a result
of recent acquisitions, including the acquisition of Everest & Jennings, the
revenues of Graham-Field derived from self-manufactured products accounted for
approximately 24% of all revenues for the nine months ended September 30, 1997.
VALUE-ADDED SERVICES
Consolidation Advantage Program (C.A.P.). The C.A.P. program is the
cornerstone of Graham-Field's sales and marketing strategy. Through C.A.P.,
Graham-Field strives to become the most efficient and reliable low-cost provider
of medical products. Graham-Field's sales and marketing representatives consult
with Graham-Field's customers to identify the purchasing efficiencies and cost
savings that can be derived from consolidating their purchases of medical
products with Graham-Field. By consolidating the purchase of multiple product
lines through a single source, Graham-Field's customers can significantly reduce
their operating costs. Graham-Field believes that C.A.P. significantly improves
the level of service to Graham-Field customers by streamlining the purchasing
process, decreasing order turnaround time, reducing delivery expenses, and
providing inventory on demand.
Graham-Field Express. As part of Graham-Field's commitment to providing
superior customer service, in 1996 Graham-Field introduced its Graham-Field
Express Program in the Bronx, New York. This program enables Graham-Field to
provide "same-day" and "next-day" service to home healthcare dealers of
strategic home healthcare products, including Temco patient aids, adult
incontinence products, Everest & Jennings wheelchairs, Smith & Davis homecare
beds, nutritional supplements, and other freight intensive and time sensitive
products through its Graham-Field Express satellite facilities. The Graham-Field
Express Program differs from Graham-Field's standard distribution model in that
the Graham-Field Express Program focuses on "same-day" and "next-day" service to
home healthcare dealers of a limited number of strategic home
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<PAGE> 59
healthcare products. Graham-Field's principal distribution centers offer
approximately 30,000 SKU's to all Graham-Field customers, including, but not
limited, to home healthcare and medical/surgical dealers. As of September 30,
1997, Graham-Field had opened five Graham-Field Express facilities operating in
the Bronx, New York; Puerto Rico; Dallas, Texas; Baltimore, Maryland and
Cleveland, Ohio.
Seamless Distribution Program. Graham-Field has recently developed a
seamless distribution program which enables Graham-Field to ship orders directly
from its distribution facilities to home healthcare end-users on behalf of
Graham-Field's customers. The Seamless Distribution Program enables customers to
realize significant reductions in their operating costs by eliminating costs
associated with receiving, shipping and inventory management, while reducing the
product delivery time to end-users. This program currently operates from the St.
Louis Facility. Graham-Field intends to continue to expand the Seamless
Distribution Program.
SALES AND MARKETING
Graham-Field markets its products to approximately 18,500 customers,
principally medical/surgical supply dealers and home healthcare retailers and
wholesalers, which include drug store chains and home-shopping related
businesses. Graham-Field's products are marketed and distributed throughout the
world.
Graham-Field's sales and marketing sales force is directed by a sales
management team consisting of an Executive Vice President of Sales and
Marketing, a Vice President of the Medical/Surgical business unit, a Vice
President of the Home Healthcare business unit, a Corporate Vice President of
Graham-Field Express, a Vice President of Sales of Everest & Jennings, a Vice
President of International Sales, and a President of Graham-Field (Canada), a
newly-formed division of Everest & Jennings Canada. The Vice Presidents of the
Home Healthcare and Medical/Surgical business units direct the sales and
marketing strategy of the business units and oversee Graham-Field's five
regional sales Vice Presidents. Graham-Field's five regional sales Vice
Presidents oversee the day-to-day operations of the domestic sales force. The
Corporate Vice President of Graham-Field Express oversees the sales and
marketing strategy of each Graham-Field Express satellite facility.
Graham-Field's domestic sales and marketing strategies are developed on a
market-by-market basis through two primary business units: Home Healthcare and
Medical/Surgical. While Graham-Field's sales and marketing strategies are
developed and conducted on a business unit basis, the sale of Graham-Field's
products overlap all business units. The domestic sales force consists of
approximately 15 direct, full-time sales employees and 50 independent
manufacturers representatives. Graham-Field's specialty rehabilitation sales
force, consisting of approximately 40 sales persons, is directed by the Vice
President of Sales of Everest & Jennings. Everest & Jennings' specialty
rehabilitation sales force conducts training activities for the benefit of
dealers and their personnel, physical and occupational therapists, and other
healthcare professionals. This training is primarily concerned with the features
and benefits of Everest & Jennings' rehabilitation products and also covers the
proper fitting and use of wheelchairs and related equipment. The full-time sales
employees receive both salary and commission, while the independent
manufacturers representatives work solely on commission.
The international sales group consists of several in-house sales employees,
as well as one representative in Taiwan. Graham-Field's Canadian sales and
marketing activities are directed by the President of Graham-Field (Canada), who
oversees three regional sales managers, 14 direct, full-time sales employees and
two independent manufacturers representatives.
Graham-Field markets its products using a variety of programs and materials
including print advertising, product brochures, an extensive library of product
line video tapes, cooperative advertising programs and sales promotions to
reinforce Graham-Field's ongoing commitment to satisfying the needs of its
customers. A CD-ROM version of Graham-Field's catalog and an Internet
interactive website are currently being developed.
In April 1997, Graham-Field entered into two-year distributorship
agreements with each of Baxter Healthcare Corporation and Allegiance Healthcare
Corporation. Under these arrangements, Graham-Field
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has become a wholesale distributor in the home healthcare market of Baxter and
Allegiance urological, respiratory, glove and intravenous solution products.
In September 1997, Graham-Field entered into a five-year European
distribution agreement for a wide range of its products with Thuasne, a
manufacturer and supplier of medical products in Western and Eastern Europe.
CUSTOMERS
Graham-Field's products are marketed principally to hospital, nursing home,
physician and home healthcare dealers, healthcare product wholesalers and
retailers, including drug stores, catalog companies and pharmacies and home
shopping related businesses. No single customer or buying group accounted for
more than 10% of Graham-Field's revenues in 1996. Since January 1, 1997,
Graham-Field has new supply arrangements with a number of customers, including
General Medical (a subsidiary of McKesson), Owens & Minor, Healthcare Partners,
Inc. and Homecare & Hospital Management, The Med Group, Homecare Providers
Co-Op, Physician Sales and Services, Med-Quick, Sysco Corporation, Option Care,
U.S. Rehab., Henry Schein, Inc, Equipnet, Inc., and VGM of Associates, Inc.
The Home Healthcare business unit markets and sells its products to
approximately 14,500 customers, which consist of durable medical equipment
suppliers, home healthcare equipment suppliers, respiratory supply dealers,
specialty retailers and independent pharmacies. Graham-Field believes that it
transacts business with substantially all significant home healthcare dealers in
the United States. The Home Healthcare business unit also markets and sells its
products to the consumer market consisting of drug store chains, mass
merchandisers, department stores and home shopping related businesses. Consumers
who purchase from such customers of Graham-Field usually do so upon the advice
of physicians, hospital discharge planners, nurses or other professionals.
Graham-Field's Medical/Surgical business unit markets and sells its products to
approximately 4,000 medical and surgical supply dealers. Graham-Field believes
that it sells to substantially all significant medical and surgical supply
dealers in the United States. The dealers in turn sell Graham-Field's products
principally to physicians, hospitals, nursing homes and other healthcare
facilities. In general, the dealers, wholesalers and retailers to whom
Graham-Field markets its products also sell other medical products, some of
which compete with Graham-Field's products.
DISTRIBUTION NETWORK
Graham-Field provides same-day and next-day services to its customers
through its distribution network. Graham-Field believes that its ability to
continue to grow its revenue base depends in part upon its ability to provide
its customers with efficient and reliable service. As a means of providing such
service, Graham-Field distributes its products through primary points of
distribution located in Hauppauge, New York; St. Louis, Missouri; Jacksonville,
Florida; Santa Fe Springs, California; Toronto, Canada; and Guadalajara, Mexico.
Secondary points of distribution include Graham-Field Express satellite
facilities located in the Bronx, New York; Dallas, Texas; San Juan, Puerto Rico;
Baltimore, Maryland; and Cleveland, Ohio. Graham-Field also distributes its
products from distribution centers located in Atlanta, Georgia and Bowling
Green, Kentucky, as well as from its manufacturing facilities located in
Passaic, New Jersey; Earth City, Missouri; Clay Falls, Rhode Island;
Guadalajara, Mexico; Camarillo, California; Denver, Colorado; and Toronto,
Canada.
Graham-Field utilizes emerging technology to improve its product delivery
systems. In 1993, Graham-Field opened the St. Louis Facility, which was designed
with IBM to include "state-of-the-art" technology in order to improve
delivery-cycles, inventory turnover and distribution efficiency.
MANUFACTURING AND PRODUCT SOURCING
During the nine months ended September 30, 1997, approximately 24% of
Graham-Field's revenues was derived from the sale of products manufactured by
Graham-Field, with the balance relating to products sourced from third parties.
Principal manufactured and proprietary products (designed by Graham-Field and
manufactured to its specifications) include EVEREST & JENNINGS(R) wheelchairs,
SMITH & DAVIS(R) homecare beds, LABTRON(R) stethoscopes and blood pressure
instruments, JOHN BUNN(R) respiratory aid
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products, MEDICOPASTE(R) medicated bandages, rubber elastic bandages,
SURVALENT(R) electronic thermometry systems, silver nitrate applicators,
examination lamps and sterile packages under the MSP(R) label, GRAFCO(R) medical
supplies, including silver nitrate applicators and examination lamps, the
TEMCO(R) product line of patient aids, bathroom safety equipment and patient
room equipment, and Aquatherm specialty cushions and mattresses for the
treatment and prevention of pressure sores. Graham-Field's primary manufacturing
facilities are located in Passaic, New Jersey; Earth City, Missouri; Clay Falls,
Rhode Island; Guadalajara, Mexico; Camarillo, California; Denver, Colorado; and
Toronto, Canada.
Graham-Field purchases products from approximately 1,200 domestic and
foreign suppliers. Graham-Field has entered into exclusive and non-exclusive
distribution agreements with a number of its domestic and foreign suppliers.
Under such agreements, suppliers may designate the markets into which
Graham-Field can sell the products and may stipulate minimum annual sales
volumes which are to be achieved by Graham-Field. Most of the distribution
agreements are cancelable by either party upon one to six months' notice. Except
as is described in the following paragraph, Graham-Field does not believe that
cancellation of any such agreements would have a material adverse effect on
Graham-Field, because comparable products are obtainable from alternative
sources upon acceptable terms.
Graham-Field is heavily dependent on its maintenance of two key supply
contracts. Everest & Jennings obtains the majority of its homecare wheelchairs
and wheelchair components under the Wheelchair Supply Agreement with P.T.
Dharma. If the Wheelchair Supply Agreement is terminated, there can be no
assurance that Everest & Jennings will be able to enter into a suitable supply
agreement with another manufacturer. The termination of this agreement in
combination with the failure to secure an alternative source of supply on
acceptable terms would result in a material adverse effect on Graham-Field's
business and financial condition. Everest & Jennings obtains homecare beds for
distribution solely pursuant to a supply agreement with a third-party supplier,
which expires on October 15, 1997 without provision for renewal. To source
homecare beds from an alternative supplier, in April 1997 Everest & Jennings
entered into the Bed Supply Agreement. Under the terms of the Bed Supply
Agreement, the supplier commenced supplying homecare beds to Everest & Jennings
on August 1, 1997. The agreement contains an initial term of two years, and
provides for the supply of a minimum and maximum number of homecare beds during
the term of the agreement. If the Bed Supply Agreement is terminated, there can
be no assurance that Everest & Jennings will be able to enter into a suitable
supply agreement with another manufacturer. The termination of this agreement in
combination with the failure to secure an alternative source of supply on
acceptable terms would result in a material adverse effect on Graham-Field's
business and financial condition. See "Risk Factors -- Dependence on Key Supply
Contracts."
Graham-Field currently purchases a substantial portion of its
sphygmomanometers and stethoscopes from a limited number of suppliers in the Far
East. In addition, Graham-Field sources component parts for sphygmomanometers
and stethoscopes and assembles such products in its facility located in
Hauppauge, New York.
PATENTS AND TRADEMARKS
Graham-Field believes that its business is dependent in part on its ability
to establish and maintain patent protection for its proprietary technologies,
products and processes, and the preservation of its trade secrets. Graham-Field
currently holds a number of United States patents relating to the EVEREST &
JENNINGS(R) and TEMCO(R) product lines. In addition, Graham-Field holds certain
international patents relating to the components of its SURVALENT(R) electronic
thermometry system. Other companies may provide similar products which may not
be covered by Graham-Field's issued patents. Graham-Field must operate without
infringing upon the proprietary rights of other parties. There can be no
assurance that any United States or international patents issued or licensed to
Graham-Field will provide any significant competitive advantages to Graham-Field
or will not be successfully challenged, invalidated or circumvented or that
patents will be issued in respect of patent applications to which Graham-Field
currently holds rights. In addition, Graham-Field distributes certain patented
products pursuant to licensing arrangements. In the event a licensing
arrangement is terminated, Graham-Field may not be able to continue to
distribute the patented product.
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Graham-Field is involved in the ordinary course of business in
patent-related lawsuits or other actions, none of which Graham-Field believes is
material. However, defense and prosecution of patent claims is costly and time
consuming, regardless of an outcome favorable to Graham-Field, and can result in
the diversion of substantial financial and managerial resources from
Graham-Field's primary business activities. Additionally, adverse outcomes of
such claims could have a material adverse effect on Graham-Field's business and
financial condition. See "Risk Factors Relating to Graham-Field -- Reliance on
Patents and Proprietary Technology."
Graham-Field has registered a significant number of trademarks in the
United States, including "GRAHAM-FIELD," "EVEREST & JENNINGS," "SMITH & DAVIS,"
"JOHN BUNN," "BRISTOLINE," "SURVALENT," "MEDICOPASTE," "BANDAGE," "HEALTHTEAM,"
"LABTRON," "GRAFCO," "TEMCO" and "TENDERCLOUD". The registered trademarks are
significant to Graham-Field because they provide Graham-Field with name and
market recognition for its products and distinguish Graham-Field's proprietary
products from its competitors' products.
PRODUCT LIABILITY
The sale, manufacture and distribution of healthcare products involve an
inherent risk of product liability claims and related adverse publicity.
Although Graham-Field maintains product liability insurance, there can be no
assurance that such coverage will be adequate to protect Graham-Field from
liabilities it may incur. Product liability insurance is expensive, and there
can be no assurance that Graham-Field will be able to continue to obtain and
maintain insurance at acceptable rates. Potential losses from liability claims
and the effect which product liability litigation may have on the reputation and
marketability of Graham-Field's products could have a material adverse effect on
Graham-Field's business and financial condition.
GOVERNMENTAL REGULATION
The healthcare industry is affected by extensive government regulation at
the Federal and state levels. In addition, through the Medicare, Medicaid and
other programs the federal and state governments are responsible for the payment
of a substantial portion of U.S. healthcare expenditures. Changes in regulations
and healthcare policy occur frequently and may impact the current results of,
the growth potential for and the profitability of products sold by Graham-Field
in each market. Although Graham-Field is not a direct provider under Medicare
and Medicaid, many of Graham-Field's customers are providers under these
programs and depend upon Medicare and/or Medicaid reimbursement for a portion of
their revenue. Changes in Medicare and Medicaid regulations may adversely impact
Graham-Field's revenues and collections indirectly by reducing the reimbursement
rate received by Graham-Field's customers and consequently placing downward
pressure on prices charged for Graham-Field's products. Graham-Field's C.A.P.
program is designed in part to enable customers to respond to the reduction in
reimbursement rates by consolidating the purchase of multiple product lines
through Graham-Field. There can be no assurance, however, that this program will
offset any such reduction in reimbursement rates.
The Federal Food, Drug and Cosmetic Act, the Safe Medical Devices Act and
regulations issued or proposed thereunder provide for regulation by the FDA of
the marketing, manufacturing, labeling, packaging and distribution of medical
devices and drugs, including Graham-Field's products. Among these regulations
are requirements that medical device manufacturers register with the FDA, list
devices manufactured by them and file various kinds of reports. Graham-Field is
also required to comply with the FDA's GMP regulations, which set forth
requirements for, among other things, Graham-Field's manufacturing process and
associated record creation and maintenance, including tests and sterility.
Graham-Field uses the services of an unaffiliated outside firm to sterilize
its GRAFCO(R) tampons and MSP(R) product line, and sterility testing is
conducted by an unaffiliated laboratory. Records of sterilization and related
tests are kept by Graham-Field. Graham-Field has also engaged the services of an
outside consulting firm to monitor the quality control program in force to
ensure that all manufactured products and supplier products comply with FDA
requirements. Graham-Field's outside consultants are in the process of imple-
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<PAGE> 63
menting ISO 9001 certification on a company-wide basis, which will enhance
Graham-Field's overall standard quality systems and enable Graham-Field to
comply with European regulatory requirements.
Certain requirements must be met prior to the initial marketing of medical
devices. These range from a minimum obligation of waiting to receive a
determination of substantial equivalence from the FDA before the introduction of
a medical device which Graham-Field has determined is substantially similar to
devices already on the market, to a maximum obligation of complying with the
potentially expensive and time-consuming testing process necessary to obtain FDA
approval prior to the commercial marketing of new medical devices. In addition,
the FDA has the authority to issue performance standards for devices
manufactured by Graham-Field. Should such standards be issued, Graham-Field's
products would be required to conform to them. Unscheduled FDA inspections of
Graham-Field's facilities may occur from time to time to determine compliance
with FDA regulations.
The impact of FDA regulation on Graham-Field has increased in recent years
as Graham-Field has increased its manufacturing operations. To date,
Graham-Field has not experienced any significant difficulty in complying with
the requirements imposed on it by the FDA or other government agencies.
Graham-Field believes that the manufacturing and quality control procedures it
employs conform to requirements of the GMP regulation and does not anticipate
having to make any material expenditures as a result of these requirements. See
"Risk Factors -- Government Regulation."
COMPETITION
Graham-Field competes with many other manufacturers and distributors who
offer one or more products competitive with Graham-Field's products; however,
Graham-Field believes that no single competitor serving the Graham-Field's
markets offers as broad a product range as Graham-Field. Graham-Field's
principal means of competition are the breadth of its product range, quality,
price and speed of delivery. The C.A.P. program enables Graham-Field to compete
by offering customers reduced operating costs associated with purchasing by
consolidating purchases of multiple products. With respect to Graham-Field's
wheelchairs and homecare beds, Graham-Field's primary competitors include
Invacare Corporation, Sunrise Medical Corporation and Fuqua Enterprises.
Competition for the sale of wheelchairs and homecare beds is intense and is
based on a number of factors, including quality, reliability, price, financing
programs, delivery and service. Graham-Field believes that the quality,
reputation and technological advances relating to its Everest & Jennings
wheelchairs and Smith & Davis homecare beds are favorable factors in competing
with other manufacturers. Graham-Field purchases certain products from its
competitors and supplies certain of its products to its competitors. Many of
Graham-Field's competitors have substantially greater financial and other
resources than Graham-Field. There can be no assurance that Graham-Field will be
able to compete effectively in its industry or that competitive pressures will
not adversely affect Graham-Field's financial position or results of operations.
See "Risk Factors -- Competition."
EMPLOYEES
As of September 30, 1997, Graham-Field had 1,529 employees, of which eight
were executive officers, 355 were administrative and clerical personnel (of
which 11 were part-time employees), 235 were sales, marketing and customer
service personnel (of which two were part-time employees) and 891 were
manufacturing and warehousing personnel (of which 27 were part-time employees).
Graham-Field is a party to five collective bargaining agreements covering
Graham-Field's facilities located in Hauppauge, New York; Passaic, New Jersey;
Earth City, Missouri; Ontario, Canada; and Guadalajara, Mexico. The collective
bargaining agreements cover approximately 618 employees. The collective
bargaining agreements for Hauppauge, New York; Passaic, New Jersey; Earth City,
Missouri; Ontario, Canada; and Guadalajara, Mexico are scheduled to expire on
October 18, 2000, July 27, 1999, September 13, 1999, July 24, 1998 and December
31, 1997, respectively.
Graham-Field has never experienced an interruption or curtailment of
operations due to labor controversy that had a material adverse effect on
Graham-Field's operations. Graham-Field considers its employee relations to be
satisfactory.
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<PAGE> 64
PROPERTIES
The Company's principal executive offices are located in Hauppauge, New
York.
The Company's primary domestic distribution centers are located in
Hauppauge, New York; St. Louis, Missouri; Santa Fe Springs, California; and
Jacksonville, Florida. Additional points of distribution include Graham-Field
Express satellite locations in the Bronx, New York; Dallas, Texas; Baltimore,
Maryland; Cleveland, Ohio; and San Juan, Puerto Rico. The Company also
distributes its products from distribution centers located in Atlanta, Georgia
and Bowling Green, Kentucky, as well as from its primary manufacturing
facilities which are located in Passaic, New Jersey; Earth City, Missouri; Clay
Falls, Rhode Island; Guadalajara, Mexico; Camarillo, California; Denver,
Colorado; and Toronto, Canada. The manufacturing facilities located in Toronto,
Canada and Guadalajara, Mexico are owned by the Company.
The Company believes that its facilities are in good repair and provide
adequate capacity for the near term growth of the Company's business.
LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to lawsuits and other
proceedings, 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 or cash flows of the
Company. See Note 13 of Notes to the Consolidated Financial Statements of
Graham-Field and Note 7 of Notes to the Condensed Consolidated Financial
Statements of Graham-Field included elsewhere in this Prospectus.
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<PAGE> 65
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of Graham-Field.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------------------- ---- -----------------------------------------------
<S> <C> <C>
Chairman of the Board and Chief Executive
Irwin Selinger(1).................. 56 Officer
Vice President -- Finance and Chief Financial
Gary M. Jacobs..................... 40 Officer
Richard S. Kolodny................. 38 Vice President, General Counsel, and Secretary
Peter Winocur...................... 42 Executive Vice President of Sales and Marketing
Jeffrey Schwartz................... 36 Corporate Vice President, Graham-Field Express
Ralph Liguori...................... 52 Executive Vice President of Operations
Beatrice Scherer................... 58 Vice President -- Administration
Donald D. Cantwell................. 48 Vice President of Information Systems
David P. Delaney, Jr.(2)(3)........ 45 Director
Andrew A. Giordano(1)(2)........... 65 Director
Peter Handal(4).................... 55 Director
Bevil J. Hogg...................... 49 Director
Dr. Harold Lazarus(3).............. 70 Director
Steven D. Levkoff(3)(4)............ 49 Director
Louis A. Lubrano(4)................ 64 Director
Donald Press(2).................... 64 Director
Rodney F. Price(1)................. 53 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
(4) Member of the Audit Committee
Mr. Selinger, a founder of Graham-Field, has been the Chairman of the Board
and Chief Executive Officer of Graham-Field since April 1981. Mr. Selinger was a
founder and the Chief Executive Officer of Surgicot, Inc., a manufacturer of
sterilization indicators, and its predecessor from 1968 to April 1980. In 1979,
Surgicot, Inc. was acquired by E.R. Squibb & Sons, Inc., a subsidiary of Squibb
Corporation. From April 1980 to June 1984, Mr. Selinger was a consultant to E.R.
Squibb & Sons, Inc.
Mr. Jacobs has been Vice President -- Finance and the Chief Financial
Officer of Graham-Field since August 1992. From 1979 to 1992, Mr. Jacobs was
employed by the accounting firm of Ernst & Young LLP.
Mr. Kolodny has been Vice President, General Counsel and Secretary of
Graham-Field since August 1993. From 1990 to 1993, Mr. Kolodny was associated
with the law firm of Carro, Spanbock, Kaster & Cuiffo. Prior to such time, Mr.
Kolodny was associated with the law firm of Shea & Gould.
Mr. Winocur has held various positions with Graham-Field since May 1992,
and has been the Executive Vice President of Sales and Marketing of Graham-Field
since January 1996. Prior to 1992, Mr. Winocur was the founder and President of
National Health Care Equipment, Inc., which was acquired by Graham-Field in May
1992.
Mr. Schwartz has been Vice President of Graham-Field Express since March
1996. Effective June 18, 1997, Mr. Schwartz became the Corporate Vice
President -- Graham-Field Express. From 1994 to 1996, Mr. Schwartz was the
President of a home healthcare distribution company based in the metropolitan
New York area. From 1992 to 1994, Mr. Schwartz held various sales positions with
Graham-Field.
63
<PAGE> 66
Mr. Liguori has been the Executive Vice President of Operations of
Graham-Field since July 1995. From 1990 to 1995, Mr. Liguori was the Group Vice
President of Operations of Del Laboratories, Inc. Prior to such time, Mr.
Liguori was the Senior Vice President of U.S. Operations of Coleco Industries,
Inc.
Ms. Scherer has been Vice President -- Administration of Graham-Field since
1985. From 1981 to 1985, Ms. Scherer was Vice -- President -- Finance for
Graham-Field.
Mr. Cantwell has been the Vice President of Information Systems of
Graham-Field since May 1996, and became an executive officer of Graham-Field as
of January 1, 1997. From 1995 to 1996, Mr. Cantwell was the Chief Information
Officer of Dial-A-Mattress, Inc. Prior to such time, Mr. Cantwell held various
management positions with Grumman Corporation for over ten years.
Mr. Delaney has been the President and Chief Executive Officer of Lancer
Financial Group and its principal operating subsidiary, Lancer Insurance
Company, since 1985. Mr. Delaney founded the Lancer Financial Group, which
currently provides insurance coverage and specialized services to the United
States passenger transportation industry. In addition, Mr. Delaney has served as
the Chairman of the Long Island Chapter of the Young President's Organization,
and serves as the Chairperson of the Community Campaign at Mercy Medical Center
and is a member of the Advisory Board of the Alliance of American Insurers.
Mr. Giordano has been a principal of The Giordano Group, Limited, a
diversified consulting firm, since its founding in February 1993. From May 1987
to February 1993, Mr. Giordano was Executive Vice President of Lamonts Apparel,
Inc. Mr. Giordano also currently serves as a director of Cherry & Webb Inc., a
ladies specialty apparel company, Joseph A. Bank Clothiers, Inc., a manufacturer
and retailer of men's clothing, and Nomos Corporation, a conformal radiation
therapy provider. In 1984, Mr. Giordano retired from his position as CEO, Naval
Supply Systems Command and Chief of the Supply Corps., with the rank of Rear
Admiral.
Mr. Handal has been the President of COWI International Group, a management
consulting firm which provides strategic planning and other consulting services
for companies located in the United States and Eastern Europe, since 1990. In
addition, Mr. Handal is the President of J4P Associates, a real estate concern
in Baltimore, and the President of Fillmore Leasing Company, Inc., which leases
automobiles, computers and warehouse equipment. Mr. Handal serves on the Board
of Directors of Cole National Corporation, Joseph A. Bank Clothiers, Inc., Perry
Ellis International and Family Bargain Corp.
Mr. Hogg was the President and Chief Executive Officer of Everest &
Jennings from January 1994 to March 31, 1997. From December 1992 to January
1994, Mr. Hogg was the Chief Executive Officer of Medical Composite Technology,
Inc., a wheelchair designer and manufacturer. Prior to such time, Mr. Hogg was
the Chief Executive Officer of Cycle Composite, Inc., a bicycle manufacturer,
from 1986 to December 1992. Mr. Hogg currently serves as a consultant to
Graham-Field.
Dr. Lazarus was the Dean of the School of Business at Hofstra University
for seven years, and is now its Mel Weitz Distinguished Professor of Business.
Currently, Dr. Lazarus serves on the Boards of Directors of Stage II Apparel
Corporation and Facelifters Home Systems, Incorporated. He served as president
of the North American Management Council, the Eastern Academy of Management, the
Middle Atlantic Association of Colleges of Business Administration, and on the
Boards of Directors of Ideal Toy Corporation, Superior Surgical Manufacturing
Company, the Academy of Management, and the World Management Council.
Mr. Levkoff has been the Chief Executive Officer and President of Standard
Folding Cartons, Inc., a manufacturer of paperboard packaging for the private
label, over-the-counter and food industries, since 1982. Mr. Levkoff is also a
member of the National Industry Association and the Paperboard Packaging
Council.
Mr. Lubrano has been an investment banker with Herzog, Heine, Geduld Inc.,
members of the New York Stock Exchange, since December 1996. From 1991 to 1996,
Mr. Lubrano was a managing director of Stires & Company, Inc., an investment
banking firm. From March 1990 to February 1991, Mr. Lubrano was a director of
the Nasdaq Forum. Prior to such time, Mr. Lubrano was a managing director of
Home Group Capital Markets, Inc., an investment banking firm. From April 1986 to
March 1989, he was President of
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<PAGE> 67
Gabelli & Company, Inc., an investment banking firm. He is also a director of
Andersen Group, Inc., a diversified manufacturing company.
Mr. Press is an attorney and has been a principal of Donald Press, P.C., a
law firm located in New York, New York, since 1979. Mr. Press has served as an
Executive Vice President of Broadway Management Co., Inc., an owner and manager
of commercial office buildings since 1981, and serves as a director of The
Cooper Companies, Inc., Component Specialties, Inc. and Branford Savings Bank.
Mr. Price was the Chairman of the Board of Everest & Jennings from May 23,
1994 to November 27, 1996. Mr. Price has been a Director of Brierley Investments
Limited, a New Zealand investment holding company since, 1993. Mr. Price has
been the Chairman of the Board of Thistle Hotels Plc since October 1996. From
1990 to 1993, Mr. Price was the Managing Director and Chief Executive Officer of
Pioneer International Ltd., a producer of building construction materials. Prior
to such time, Mr. Price was a Managing Director and the Chief Executive Officer
of Industrial Equity Limited (IEL) from 1986 to 1989.
Each member of Graham-Field's Board of Directors holds office for the term
for which he was elected and until his successor shall have been elected and
qualified, or until the earlier of his resignation, removal from office or
death. Graham-Field's Board of Directors is composed of three classes consisting
of the following members: Class I Directors with a term expiring in
2000 -- Irwin Selinger, Donald Press, and Peter Handal; Class II Directors with
a term expiring in 1998 -- Andrew A. Giordano, David P. Delaney, Jr., and Bevil
J. Hogg; and Class III Directors with a term expiring in 1999 -- Louis A.
Lubrano, Dr. Harold Lazarus, Steven D. Levkoff, and Rodney F. Price.
65
<PAGE> 68
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock, Series B Preferred Stock and Series C Preferred Stock
with respect to the persons who, to the knowledge of the Company, owned
beneficially more than five percent of each class of stock as of October 31,
1997.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
SHARES OF SERIES B SERIES C
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED(1) OWNED(5) OWNED(6)
--------------------- ------------------ ------------------
NUMBER NUMBER NUMBER
NAME AND ADDRESS OF OF OF OF
BENEFICIAL OWNER SHARES PERCENT SHARES PERCENT SHARES PERCENT
- ----------------------------------- --------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Irwin Selinger(2).................. 1,124,884 5.2% -0- -0- -0- -0-
c/o Graham-Field
Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Shufro, Rose & Ehrman(3)........... 1,302,350 6.2% -0- -0- -0- -0-
745 Fifth Avenue
New York, New York
10151-2600
BIL................................ 4,061,578(4) 19.2% 6,100 100% 1,000 100%
c/o Brierley Investments Ltd.
3rd Floor
10 Eastcheap
London EC3M1AJ
United Kingdom
</TABLE>
- ---------------
(1) All shares are beneficially owned and the sole voting and investment power
is held by the person or entities named, except as otherwise specified
herein.
(2) Includes 127,444 shares currently issuable upon the exercise of stock
options issued pursuant to the Company's Incentive Program, 5,500 shares
owned by Mr. Selinger's wife as to which shares Mr. Selinger disclaims any
beneficial interest and 50,000 shares underlying stock options which are
exercisable within 60 days of October 31, 1997.
(3) According to information contained in a Schedule 13G filing dated as of
February 14, 1997, Shufro, Rose & Ehrman, a registered investment advisor
and broker-dealer, beneficially owns 1,302,350 shares, and has the sole
power to vote or to direct the vote of 91,850 shares.
(4) Does not include 6,100 shares of Series B Preferred Stock and 1,000 shares
of Series C Preferred Stock owned by BIL (see Notes (5) and (6) below). The
shares of Common Stock, Series B Preferred Stock and Series C Preferred
Stock beneficially owned by BIL represent in the aggregate approximately 34%
of the voting power of the Company's outstanding capital stock as of August
31, 1997.
(5) The Series B Preferred Stock is convertible into shares of Common Stock (x)
at the option of BIL, at a conversion price of $20 per share (or, in the
case of certain dividend payment defaults, at a conversion price of $15.50
per share), (y) at the option of the Company, at a conversion price equal to
current trading prices (subject to a minimum conversion price of $15.50 and
a maximum conversion price of $20 per share) and (z) automatically on
November 27, 2001 at a conversion price of $15.50 per share. The conversion
prices are subject to customary antidilution adjustments. The shares of the
Series B Preferred Stock are entitled to 3,935,483 votes, and vote as a
single class with the Common Stock and the Series C Preferred Stock.
(6) The Series C Preferred Stock is subject to a redemption as a whole at the
option of Graham-Field on the fifth anniversary of the date of issuance at a
stated value plus accrued and unpaid dividends and, if not redeemed will be
convertible into shares of the Common Stock automatically at a conversion
price of $20 per share, subject to customary antidilution adjustments. The
shares of the Series C Preferred Stock are entitled to 500,000 votes, and
vote as a single class with the Common Stock and the Series B Preferred
Stock.
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<PAGE> 69
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock, Series B Preferred Stock and Series C Preferred Stock
with respect to the Company's directors and the Company's "named executive
officers" within the meaning of Item 402(a)(3) of Regulation S-K promulgated by
the Commission, and by all of the Company's directors and executive officers as
a group as of October 31, 1997:
<TABLE>
<CAPTION>
SHARES OF SHARES OF
SHARES OF SERIES B SERIES C
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED(1) OWNED(11) OWNED(12)
------------------- ------------------- -------------------
NUMBER NUMBER NUMBER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES PERCENT OF SHARES PERCENT OF SHARES PERCENT
- ------------------------------------------- ---------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS
Irwin Selinger(2).......................... 1,124,884 5.2% -0 - -0 - -0 - -0 -
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East Hauppauge, New York
11788
Louis A. Lubrano(3)........................ 56,200 * -0 - -0 - -0 - -0 -
Herzog, Heine, Geduld, Inc. 26 Broadway
New York, New York 10004
Dr. Harold Lazarus(4)...................... 20,194 * -0 - -0 - -0 - -0 -
c/o Hofstra University Management
Department Weller Hall 228 Hempstead, New
York 11550
Andrew A. Giordano(5)...................... 23,500 * -0 - -0 - -0 - -0 -
c/o The Giordano Group, Limited 1811
South 24th Street Arlington, Virginia
22202-1534
Donald Press(6)............................ 25,400 * - 0 - - 0 - - 0 - - 0 -
c/o Donald Press, P.C. 39 Broadway New
York, New York 10006
David P. Delaney, Jr.(7)................... 14,000 * - 0 - - 0 - - 0 - -0 -
c/o Lancer Financial Group, Inc. 370 West
Park Avenue Long Beach, New York 11561
Steven D. Levkoff(8)....................... 11,000 * -0 - -0 - -0 - -0 -
c/o Standard Folding Cartons, Inc. 85th &
24th Avenue Jackson Heights, New York
11370
Bevil J. Hogg(9)........................... 31,911 * -0 - -0 - -0 - -0 -
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East Hauppauge, New York
11788
Rodney F. Price(10)........................ 4,061,578 19.2% 6,100 100% 1,000 100%
c/o Brierley Investments Ltd. 3rd Floor
10 Eastcheap London EC3M1AJ United
Kingdom
</TABLE>
67
<PAGE> 70
<TABLE>
<CAPTION>
SHARES OF SHARES OF
SHARES OF SERIES B SERIES C
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED(1) OWNED(11) OWNED(12)
------------------- ------------------- -------------------
NUMBER NUMBER NUMBER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES PERCENT OF SHARES PERCENT OF SHARES PERCENT
- ------------------------------------------- ---------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Peter Handal............................... 2,000 * -0 - -0 - -0 - -0 -
c/o COWI International Group 280 Park
Avenue 5th Floor-East Building New York,
New York 10017
NAMED EXECUTIVE OFFICERS:
Irwin Selinger(2).......................... 1,124,884 5.2% -0 - -0 - -0 - -0 -
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East Hauppauge, New York
11788
Peter Winocur(13).......................... 91,050 * -0 - -0 - -0 - -0 -
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East Hauppauge, New York
11788
Gary M. Jacobs(14)......................... 68,500 * -0 - -0 - -0 - -0 -
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East Hauppauge, New York
11788
Richard S. Kolodny(15)..................... 79,000 * -0 - -0 - -0 - -0 -
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East Hauppauge, New York
11788
Ralph Liguori(16).......................... 48,500 * -0 - -0 - -0 - -0 -
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East Hauppauge, New York
11788
Jeffrey Schwartz(17)....................... 9,500 * -0 - -0 - -0 - -0 -
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East Hauppauge, New York
11788
Beatrice Scherer(18)....................... 56,177 * -0 - -0 - -0 - -0 -
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East Hauppauge, New York
11788
Donald D. Cantwell(19)..................... 7,500 * -0 - -0 - -0 - -0 -
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
All directors and executive officers as a
group (17 persons)(20)................... 5,730,894 26.5% 6,100 100% 1,000 100%
</TABLE>
- ---------------
* Less than 1%
(1) All shares are beneficially owned and the sole voting power and investment
power is held by the persons named, except as otherwise specified herein.
(2) See Note (2) under the heading "Principal Stockholders."
(3) Includes 200 shares owned by the Virginia Lubrano Trust, and 55,000 shares
currently issuable upon the exercise of directors' stock options issued
pursuant to the Incentive Program.
(4) Includes 20,000 shares currently issuable upon the exercise of directors'
stock options issued pursuant to the Incentive Program.
68
<PAGE> 71
(5) Includes 20,000 shares currently issuable upon the exercise of directors'
stock options issued pursuant to the Incentive Program.
(6) Includes 3,000 shares owned by Donald Press, P.C. Profit Sharing Plan and
1,000 shares owned by Donald Press, P.C. Employees Pension Plan. Also
includes 10,000 shares currently issuable upon the exercise of directors'
stock options issued pursuant to the Incentive Program.
(7) Includes 10,000 shares currently issuable upon the exercise of directors'
stock options issued pursuant to the Incentive Program.
(8) Includes 1,000 shares owned by Mr. Levkoff's daughter, 10,000 shares
currently issuable upon the exercise of director's stock options issued
pursuant to the Incentive Program.
(9) Includes 17,500 shares underlying stock options which are exercisable
within 60 days of October 31, 1997.
(10) Consists of shares of Common Stock owned by BIL, which Mr. Price, one of
BIL's nominees on the Graham-Field Board, may be deemed to own beneficially
in his capacity as a director of BIL. Does not include up to 3,935,483
shares of Common Stock issuable upon the conversion of the shares of Series
B Preferred Stock owned by BIL and up to 500,000 shares of Common Stock
issuable upon the conversion of the shares of Series C Preferred Stock
owned by BIL.
(11) See Note (5) under the heading "Principal Stockholders."
(12) See Note (6) under the heading "Principal Stockholders."
(13) Includes 43,500 currently issuable upon the exercise of stock options
issued pursuant to the Incentive Program and 37,500 shares underlying stock
options which are exercisable within 60 days of October 31, 1997.
(14) Includes 75,000 shares currently issuable upon the exercise of stock
options issued pursuant to the Incentive Program and 7,500 shares
underlying stock options which are exercisable within 60 days of October
31, 1997.
(15) Includes 50,267 shares currently issuable upon the exercise of stock
options issued pursuant to the Incentive Program and 7,500 shares
underlying stock options which are exercisable within 60 days of October
31, 1997.
(16) Includes 18,215 shares currently issuable upon the exercise of stock
options issued pursuant to the Incentive Program and 7,500 shares
underlying stock options which are exercisable within 60 days of October
31, 1997.
(17) Represents 9,500 shares currently issuable upon the exercise of stock
options issued pursuant to the Incentive Program.
(18) Includes 35,466 shares currently issuable upon the exercise of stock
options issued pursuant to the Incentive Program and 5,000 shares
underlying stock options which are exercisable within 60 days of October
31, 1997.
(19) Represents 7,500 shares currently issuable upon the exercise of stock
options issued pursuant to the Incentive Program.
(20) Includes 333,492 shares currently issuable upon the exercise of stock
options issued pursuant to the Incentive Program and 132,500 shares
underlying stock options which are exercisable within 60 days of October
31, 1997.
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CERTAIN TRANSACTIONS
BIL STOCKHOLDER AGREEMENT
Simultaneous with the execution of the E&J Merger Agreement, the Company,
BIL and Irwin Selinger, the Chairman of the Board and Chief Executive Officer of
the Company, entered into the BIL Stockholder Agreement.
Board Representation. Pursuant to the BIL Stockholder Agreement, BIL has
the right to designate two members of the Company's Board of Directors (subject
to reduction if BIL reduces its ownership of Common Stock below specified
levels). For so long as BIL has one director on the Company's Board of
Directors, one BIL director shall be designated as a member of the Executive
Committee of the Company's Board of Directors.
Right of First Refusal. So long as BIL and its affiliates own securities
representing at least 5% of the voting power of the outstanding capital stock of
the Company, BIL has agreed to grant the Company a right of first refusal with
respect to sales of any Company securities other than: (i) a transfer of any
Company securities to any BIL affiliate who simultaneously with such transfer
agrees in writing to be bound by the provisions of the BIL Stockholder Agreement
as though an original signatory thereto, (ii) a sale through an underwritten
public offering registered under the Securities Act effected in accordance with
the provisions of the BIL Registration Rights Agreement (as defined below),
(iii) a sale pursuant to Rule 144(f) promulgated under the Securities Act
provided that, until such time as BIL beneficially owns voting securities of the
Company representing less than 5% of the voting power of all voting securities
of the Company, any Rule 144(f) sales shall be subject to the volume limitations
set forth in Rule 144(e) (regardless of whether such volume limitations are
applicable to such sale), (iv) pursuant to a merger or consolidation of the
Company or a recapitalization of any Company securities, (v) pursuant to a
self-tender or exchange offer by the Company or a third-party tender offer
recommended by the Company's Board of Directors, or (vi) a cash sale effected in
accordance with the Company's right of first refusal; provided that in the case
of and as a condition to any cash sale to a person who, after giving effect to
such purchase, would own at least 5% of the voting power of the outstanding
capital stock of the Company, such person shall simultaneously with such
purchase and sale agree in writing to be bound by the right of first refusal,
the limitations on acquisitions of Company securities and the standstill
provisions described below contained in the BIL Stockholder Agreement. The
Company may not assign its right of first refusal without the consent of BIL,
which consent shall not be unreasonably withheld or delayed; provided that any
such assignees agree in writing to purchase any of the offered securities not
being purchased by the Company in accordance with its right of first refusal.
Limitation on Right to Purchase Additional Company Securities. So long as
BIL and its affiliates own securities representing at least 5% of the voting
power of the outstanding capital stock of the Company, BIL has agreed that
neither BIL nor any of its affiliates will acquire additional shares of Common
Stock which, together with the Common Stock, Series B Preferred and Series C
Preferred Stock then owned by BIL and its affiliates, represent more than 49% of
the voting power of the outstanding capital stock of the Company, except
pursuant to (i) stock dividends on the Series B Preferred Stock and the Series C
Preferred Stock, or (ii) plans established by the Company for members of the
Board of Directors of the Company.
Preemptive Right. So long as BIL and its affiliates own securities
representing at least 15% of the voting power of the outstanding capital stock
of the Company, the Company has agreed not to issue any equity securities before
offering BIL the right to participate proportionately in such issuance.
Notwithstanding the foregoing, BIL's preemptive right set forth above shall not
apply to any securities issued (i) pursuant to the Warrant, dated as of March
12, 1992, as amended, by and between the Company and John Hancock Mutual Life
Insurance Company, (ii) in connection with a merger, acquisition or other
business combination transaction approved by the Board of Directors of the
Company, (iii) in connection with any stock option or other employee benefit
plans and programs of the Company approved by the Board of Directors of the
Company, or (iv) in connection with any private debt financing in which
securities to be issued represent less than 2% of the voting power of the
outstanding capital stock of the Company.
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Standstill Provisions. BIL has agreed that following the Effective Time
and thereafter until such time as BIL and its affiliates own securities
representing less than 5% of the voting power of the outstanding capital stock
of the Company, neither BIL nor any of its affiliates will directly or
indirectly seek to acquire ownership of the Company, engage in any solicitation
of proxies with respect to the Company or otherwise seek or propose to acquire
control of the Board of Directors of the Company.
Termination. The BIL Stockholder Agreement will automatically terminate
upon a change of control of the Board of Directors of the Company.
Amendment. Pursuant to the BIL Stockholder Agreement, in the event that
(i) any person becomes the owner of securities representing more than 15% but
less than 100% of the voting power of the outstanding capital stock of the
Company with the approval of the Board of Directors of the Company and (ii) the
restrictions imposed by the Company on the activities of such person are less
onerous than those imposed on BIL and its affiliates under the BIL Stockholder
Agreement, then the BIL Stockholder Agreement will be revised to provide
comparable restrictions which are identical to the restrictions imposed on such
person.
Registration Rights Agreement. Simultaneous with the execution of the E&J
Merger Agreement, the Company entered into a registration rights agreement with
BIL (the "BIL Registration Rights Agreement") pursuant to which BIL and certain
of its transferees have the right, under certain circumstances, to require the
Company to register under the Securities Act certain shares of Common Stock held
by them.
BIL LOANS
In July 1996, an affiliate of BIL provided the Company with a loan in the
amount of $4,000,000, 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. In
December 1996, the loan was converted into a subordinated loan (the "BIL
Subordinated Loan"), maturing on April 1, 2001 and bearing interest payable
quarterly at an effective rate of 7.7% per year. Under the terms of the BIL
Subordinated Loan, the Company has the right to set off the principal amount
against punitive damages awarded against the Company or any of its subsidiaries
relating to any product liability claims of Everest & Jennings and/or its
subsidiaries existing on the date of acquisition and involving a death prior to
September 3, 1996. The BIL Subordinated Loan is subordinated to the Notes.
In May 1997, an affiliate of BIL provided the Company with a loan in the
amount of $5,000,000 at an effective interest rate of 8.5% (the "BIL Senior
Loan"). The proceeds of the BIL Senior Loan were used for general corporate
purposes. The Company repaid the BIL Senior Loan in full from the proceeds of
the Initial Offering.
DESCRIPTION OF CREDIT FACILITY
The Credit Facility provides for up to $75 million of borrowings on a
revolving credit basis, including letters of credit and banker's acceptances,
arranged by IBJ, as agent. The revolving credit facility terminates on December
10, 1999. The proceeds from the Credit Facility were used to (i) refinance
certain existing indebtedness of the Company, including (a) the John Hancock
Indebtedness and (b) indebtedness owed 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 or 2.25% above LIBOR, or 1.5% above IBJ's bankers' acceptance rate.
The Credit Facility is secured by a pledge of all of Graham-Field's assets. As
of September 30, 1997, the Company had unused availability of approximately
$71.8 million of direct borrowings outstanding under the Credit Facility.
Graham-Field has received a commitment from IBJ to amend the Credit
Facility to increase available borrowings from $75,000,000 to $100,000,000.
Under the terms of the proposed amendment, borrowings will bear interest, at
Graham-Field's option, at IBJ's prime rate or 1.625% above LIBOR. It is expected
that the amendment to the Credit Facility will be entered into simultaneously
with the closing of the Merger. The increase in the Credit Facility will be used
to refinance certain indebtedness of Fuqua, for the nationwide roll-out of the
Graham-Field Express program and for ongoing working capital needs. The Credit
Facility will
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continue to be secured by the assets of Graham-Field, as well as by the assets
of the Medical Product Operations.
The Credit Facility contains certain customary terms and provisions,
including limitations with respect to the repayment or prepayment of principal
on subordinated debt, including the Notes, the incurrence of additional debt,
liens, transactions with affiliates, consolidations, mergers and acquisitions
and sales of assets. In addition, the Company is prohibited from declaring,
paying any dividend or making any distribution on any shares of 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 applying 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 Stock 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.
Finally, the Credit Facility contains certain financial covenants which became
effective July 1, 1997, including a cash flow coverage and leverage ratio, and
an earnings before interest and taxes covenant, as well as the requirement that
the Company reduce outstanding borrowings with the net cash proceeds of certain
asset sales.
DESCRIPTION OF NEW NOTES
The New Notes will be issued, and the Old Notes were issued, pursuant to
the Indenture (the "Indenture") dated as of August 4, 1997 between the Company,
the Guaranteeing Subsidiaries and American Stock Transfer & Trust Company, as
trustee (the "Trustee"). For purposes of the following summary, the Old Notes
and the New Notes shall be collectively referred to as the "Notes". The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the TIA. The Notes are subject to all such terms, and
Holders of Notes are referred to the Indenture and the TIA for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below.
Capitalized terms that are used but not otherwise defined below under the
caption "Certain Definitions" have the meaning assigned to them in the Indenture
and such definitions are incorporated herein by reference. A copy of the
Indenture is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, and is available as set forth under "Additional
Information." The definitions of certain terms used in the following summary are
set forth below under "Certain Definitions."
GENERAL
The Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt of the
Company. See "Subordination." The Notes will be guaranteed, jointly and
severally, on a senior subordinated basis by the Guaranteeing Subsidiaries. The
Subsidiary Guarantees will be subordinated in right of payment to all existing
and future Senior Debt of the Guaranteeing Subsidiaries, including the
obligations of the Guaranteeing Subsidiaries under the Credit Facility. See
"Subsidiary Guarantees." As of September 30, 1997, on a pro forma basis after
giving effect to the Initial Offering and the application of the net proceeds
therefrom, the Company had no Senior Debt outstanding and the Guaranteeing
Subsidiaries had approximately $10.5 million of Senior Debt outstanding
(excluding guarantees by the Guaranteeing Subsidiaries of the Company's
obligations under the Credit Facility).
Restrictions in the Indenture on the ability of the Company and its
Restricted Subsidiaries to incur additional Indebtedness, to make Asset Sales,
to enter into transactions with Affiliates and to enter into mergers,
consolidations or sales of all or substantially all of its assets, may make more
difficult or discourage a takeover of the Company, whether favored or opposed by
the management of the Company. Although such
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restrictions cover a wide variety of arrangements which traditionally have been
used to effect highly leveraged transactions, the Indenture may not afford
holders of Notes protection in all circumstances from the adverse aspects of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
As of the date of the Indenture, all of the Company's Subsidiaries were
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100 million and
will mature on August 15, 2007. Interest on the Notes will accrue at the rate of
3/4% per annum and will be payable semi-annually in arrears on February 15 and
August 15, commencing on February 15, 1998, to Holders of record on the
immediately preceding February 1 and August 1. Holders of the New Notes will
receive interest on February 15, 1998 from the date of initial issuance of the
New Notes, plus an amount equal to the accrued interest on the Old Notes from
the date of initial issuance thereof to the date of exchange thereof pursuant to
the Exchange Offer. Interest on the Old Notes accepted for exchange will cease
to accrue upon issuance of New Notes in exchange therefor. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest and Liquidated Damages (as defined
in "Old Notes; Registration Rights"), if any, on the Notes will be payable at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest may
be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be issued
in denominations of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed (the "Subsidiary Guarantees") by the Guaranteeing
Subsidiaries. The Subsidiary Guarantee of each Guaranteeing Subsidiary will be
subordinated to the prior payment in full of all existing and future Senior Debt
of such Guaranteeing Subsidiary on substantially the same terms as the Notes are
subordinated to the Senior Debt of the Company. The obligations of each
Guaranteeing Subsidiary under its Subsidiary Guarantee will provide that they
will be limited so as not to constitute a fraudulent conveyance under applicable
law. See "Risk Factors -- Fraudulent Conveyance; Preferential Transfer."
The Indenture provides that no Guaranteeing Subsidiary may consolidate with
or merge with or into (whether or not such Guaranteeing Subsidiary is the
surviving Person), another corporation, Person or entity, whether or not
affiliated with such Guaranteeing Subsidiary, or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets to another
corporation, Person or entity, unless: (i) subject to the provisions of the
following paragraph, the Person formed by or surviving any such consolidation or
merger (if other than such Guaranteeing Subsidiary) assumes all the obligations
of such Guaranteeing Subsidiary under the Notes and the Indenture pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee; (ii) immediately after giving effect to such transaction, no Default or
Event of Default exists; (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
the Consolidated Net Worth of the Guaranteeing Subsidiary or the surviving
entity, as the case may be, is at least equal to the Consolidated Net Worth of
the Guaranteeing Subsidiary immediately before such transaction or series of
transactions; and (iv) the Company would be permitted by virtue of the Company's
pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio set forth in the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock." The foregoing will not prohibit a
merger between a Guaranteeing Subsidiary and another Guaranteeing Subsidiary or
a merger between a Guaranteeing Subsidiary and the Company.
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The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Guaranteeing Subsidiary, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of the
Capital Stock of any Guaranteeing Subsidiary, then such Guaranteeing Subsidiary
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the Capital Stock of such Guaranteeing
Subsidiary) or the corporation acquiring the property (in the event of a sale or
other disposition of all of the assets of such Guaranteeing Subsidiary) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "Asset Sales."
SUBORDINATION
The payment of all Obligations on the Notes will be subordinated in right
of payment, as set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company, or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash or Cash Equivalents of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not
such interest is in an allowed claim under applicable law) before the Holders of
Notes will be entitled to receive any payment with respect to the Notes, and
until all Obligations with respect to Senior Debt are paid in full in cash or
Cash Equivalents, any distribution to which the Holders of Notes would be
entitled shall be made to the holders of Senior Debt (except that Holders of
Notes may receive (i) Permitted Junior Securities and any other Permitted Junior
Securities issued in exchange for any Permitted Junior Securities and (ii)
payments made from the trust described under "Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in such Permitted Junior Securities, Permitted Junior Securities issued
in exchange for such Permitted Junior Securities or from the trust described
under "Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Debt occurs and is continuing or (ii) any other default occurs and is continuing
with respect to Designated Senior Debt that permits holders of the Designated
Senior Debt as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
holders of any Designated Senior Debt. Payments on the Notes may and shall be
resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a nonpayment default, the earlier
of the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received
unless the maturity of any Designated Senior Debt has been accelerated. No new
period of payment blockage may be commenced unless and until (i) 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage Notice
and (ii) all scheduled payments of principal of, premium, if any, and interest
on the Notes that have come due have been paid in full in cash. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of the Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. See "Risk
Factors -- Subordination."
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Notes will not be redeemable
at the Company's option prior to August 15, 2002. Thereafter, the Notes will be
subject to redemption at the option of the Company, in
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whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, together with accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on August 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------- ----------
<S> <C>
2002.............................................. 104.875%
2003.............................................. 103.250%
2004.............................................. 101.625%
2005 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to August 15, 2000, the
Company on one or more occasions may redeem up to $25 million aggregate
principal amount of the Notes with the net proceeds of one or more public
offerings of common stock of the Company at a redemption price of 109.75% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable date of redemption; provided that at
least $75 million aggregate principal amount of the Notes remains outstanding
immediately after the occurrence of each such redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make any mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes pursuant to the procedures required by the Indenture and described in such
notice. The Company intends to comply with the requirements of Rule 14e-l under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture provides that,
prior to being required to comply with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of Notes required by this covenant. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
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The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar restructuring.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as whole. There is no
precisely established definition of the phrase "substantially all" under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group is uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by the Board of Directors of the Company and
set forth in an Officers' Certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of and (ii) at least 75%
of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of cash or Cash Equivalents; provided that the amount
of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes or, in the case of liabilities of a Restricted Subsidiary, the Subsidiary
Guarantee of such Subsidiary) that are assumed by the transferee of any such
assets and (y) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash (to the extent
of the cash received) within 180 days after receipt shall be deemed to be cash
for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay Senior Debt
or Pari Passu Indebtedness (provided that if the Company shall so reduce Pari
Passu Indebtedness, it will equally and ratably make an Asset Sale Offer (in
accordance with the procedures set forth below for an Asset Sale Offer) to all
Holders) and/or (b) to an investment in another business, the making of a
capital expenditure or the acquisition of other tangible assets, product
distribution rights or intellectual property or rights thereto, in each case, in
a line of business permitted by the covenant described in "Line of Business."
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce borrowings under the Credit Facility or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Indenture
provides that the Company will (i) make an offer to all Holders of Notes to
purchase and (ii) prepay, purchase or redeem (or make an offer to do so) any
other Pari Passu Indebtedness of the Company in accordance with provisions
requiring the Company to prepay, purchase or redeem such Indebtedness with the
proceeds from any asset sales (or offer to do so), the maximum principal amount
of Notes and of such indebtedness that may be purchased out of the Excess
Proceeds, pro rata in proportion to the respective principal amounts (or
accreted value, as applicable) of the Notes and such other Indebtedness required
to be prepaid, purchased or redeemed or tendered for pursuant to such offer (an
"Asset Sale Offer"), at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any to the date of purchase, in accordance with the procedures set
forth in the Indenture.
Restriction on Repurchase of the Notes
The Credit Facility prohibits the Company from purchasing any Notes and
also provides that certain change of control events with respect to the Company
and certain asset sales will constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
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becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs or the Company is required to make an Asset Sale Offer
at a time when the Company is prohibited from purchasing Notes, the Company
could seek the consent of its lenders to the purchase of Notes or could attempt
to refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the Indenture
which would, in turn, constitute a default under the Credit Facility. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of the Notes. See "Risk Factors --
Subordination."
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such other method as the Trustee deems fair and appropriate; provided that
no Notes with a principal amount of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any distribution (including in connection with any merger
or consolidation) on account of any Equity Interests of the Company or any of
its Restricted Subsidiaries (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or dividends or
distributions payable to the Company or any Wholly Owned Restricted Subsidiary
of the Company); (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company, any of its Restricted Subsidiaries or any
other Affiliate of the Company (other than any such Equity Interests owned by
the Company or any Wholly Owned Restricted Subsidiary of the Company); (iii)
make any principal payment on, or purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness that is subordinated in right of payment to
the Notes or a Subsidiary Guarantee, except at the original final maturity
thereof or in accordance with the scheduled mandatory redemption or repayment
provisions set forth in the original documentation governing such Indebtedness
(but not pursuant to any mandatory offer to repurchase upon the occurrence of
any event); or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would be able to incur at least $1.00 of additional
Indebtedness under the Fixed Charge Coverage Ratio in the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (v), (vi) and (viii) of the next succeeding
paragraph), is less than the sum of (1) 50% of the Consolidated Net Income
of the Company for the period (taken as one accounting period) beginning on
April 1, 1997 to the end of the Company's most recently ended fiscal
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quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, minus 100% of such deficit), plus (2) 100% of the
aggregate net cash proceeds received by the Company from contributions of
capital or the issue or sale since the date of the Indenture of Equity
Interests of the Company or of debt securities of the Company that have
been converted into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (3) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any), provided
that no cash proceeds received by the Company from the issue or sale of any
Equity Interests issued by the Company will be counted in determining the
amount available for Restricted Payments under this clause (c) to the
extent such proceeds were used to redeem, repurchase, retire or acquire any
Equity Interests of the Company pursuant to clause (ii) of the next
succeeding paragraph, to defease, redeem or repurchase any subordinated
Indebtedness pursuant to clause (iii) of the next succeeding paragraph or
to repurchase, redeem or acquire any Equity Interests of the Company
pursuant to clause (iv) of the next succeeding paragraph.
The foregoing provisions will not prohibit any or all of the following
(each and all of which: (1) constitutes an independent exception to the
foregoing provisions and (2) may occur in addition to any action permitted to
occur under any other exception): (i) the payment of any dividend within 60 days
after the date of declaration thereof, if at such date of declaration such
payment would have complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of the Company in exchange for, or out of the net proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause (c)(2)
of the preceding paragraph; (iii) the defeasance, redemption or repurchase of
subordinated Indebtedness with the net proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(2) of the preceding paragraph;
(iv) the funding of loans (but not including the forgiveness of any such loan)
to executive officers, directors or shareholders for relocation loans, bonus
advances and other purposes consistent with past practices or the purchase,
redemption or other acquisition for value of shares of Capital Stock of the
Company (other than Disqualified Stock) or options on such shares held by the
Company's or the Restricted Subsidiaries' officers or employees or former
officers or employees (or their estates or trusts or beneficiaries under their
estates or trusts for the benefit of such beneficiaries) upon the death,
disability, retirement or termination of employment of such current or former
officers or employees pursuant to the terms of an employee benefit plan or any
other agreement pursuant to which such shares of Capital Stock or options were
issued or pursuant to a severance, buy-sell or right of first refusal agreement
with such current or former officers or employees provided that the aggregate
amount of any such loans funded and cash consideration paid, or distributions
made, pursuant to this clause (iv) does not in any one fiscal year exceed $1.0
million; (v) the payment of dividends by a Restricted Subsidiary on any class of
common stock of such Restricted Subsidiary if such dividend is paid pro rata to
all holders of such class of common stock; (vi) the repurchase of any class of
common stock of a Restricted Subsidiary if such repurchase is made pro rata with
respect to such class of common stock; (vii) any other Restricted Payment (other
than (A) a dividend or other distribution on account of any Equity Interests of
the Company or any of its Restricted Subsidiaries and (B) a purchase, redemption
or other acquisition of any Equity Interests of the Company, any of its
Restricted Subsidiaries or any Affiliate of the Company) if the amounts thereof,
together with all other Restricted Payments made pursuant to this clause since
the date of the Indenture shall not exceed $5.0 million and (viii) the
redemption, repurchase or other acquisition of Notes.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary; provided, however, that (i) no Default or Event of
Default shall have occurred and be continuing or would
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arise therefrom, (ii) such designation, when considered as an Investment as
described in the next sentence, is at that time permitted under the covenant
described under "Restricted Payments" and (iii) immediately after giving effect
to such designation, the Company would be able to incur at least $1.00 of
additional Indebtedness under the Fixed Charge Coverage Ratio in the "Incurrence
of Indebtedness and Issuance of Preferred Stock" covenant. All such outstanding
Investments will be deemed to constitute Restricted Investments in an amount
equal to the greater of (i) the net book value of such Investments at the time
of such designation and (ii) the fair market value of such Investments at the
time of such designation. Such designation will only be permitted if under the
terms of the Indenture such Restricted Investment would be permitted at such
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which calculations
shall be based upon the Company's latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Guaranteeing Subsidiaries to, directly or indirectly, Incur, contingently
or otherwise, any Indebtedness (including Acquired Debt) and that the Company
will not issue any Disqualified Stock and will not permit any of its
Guaranteeing Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company and its Guaranteeing Subsidiaries may incur
Indebtedness (including Acquired Debt) and the Company may issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available (or where such incurrence or issuance occurs on or prior to March
31, 1998, the Fixed Charge Coverage Ratio shall be determined for the period
beginning on January 1, 1997 through the most recently ended fiscal quarter for
which internal financial statements are available) immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock issued would have been at least (x) 2.0 to 1 if such incurrence or
issuance occurs on or before June 30, 1999, or (y) 2.25 to 1 if such incurrence
or issuance occurs at any time thereafter, in each case, determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Indebtedness had been incurred, or the Disqualified Stock
had been issued, as the case may be, at the beginning of such four-quarter
period; provided that, if such incurrence or issuance occurred on or prior to
March 31, 1998, the aforementioned pro forma calculations shall be made assuming
such incurrence or issuance occurred on January 1, 1997 rather than at the
beginning of such four-quarter period.
The foregoing provisions will not apply to any of the following (each and
all of which: (1) may be issued or incurred, (2) constitutes an independent
exception to the foregoing provisions and (3) may be incurred in addition to any
other Indebtedness permitted to be incurred under any other exception): (i) the
incurrence by the Company or any Guaranteeing Subsidiary of Indebtedness and
letters of credit pursuant to any Credit Facility (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability of
the Company or the relevant Guaranteeing Subsidiary thereunder) in an aggregate
principal amount outstanding at any one time not to exceed $75 million (A)(1)
less the aggregate amount of all mandatory repayments (a "Mandatory Repayment")
of the principal of any term Indebtedness under the Credit Facility that have
been made since the date of the Indenture pursuant to the amortization schedule
of any Credit Facility (other than any Mandatory Repayment made concurrently
with refinancing or refunding of the Credit Facility) and (2) plus the Excess
Amount and (B) less the aggregate amount of all Net Proceeds of Asset Sales
applied pursuant to clause (a) of the first sentence of the second paragraph
under the covenant entitled "Asset Sales" to permanently reduce Indebtedness
(and, in the case of revolving Indebtedness, the commitments) under the Credit
Facility or to cash collateralize letters of credit and permanently reduce
commitments with respect to revolving Indebtedness under the Credit Facility;
provided that the amount of Indebtedness permitted to be incurred pursuant to
the Credit Facility in accordance with this clause (i) shall be in addition to
any Indebtedness permitted to be incurred pursuant to the Credit Facility or
otherwise in reliance on, and in accordance with, clause (ix) below; (ii) the
incurrence by the Company and any Guaranteeing Subsidiary of Indebtedness
represented by the Notes and any Subsidiary Guarantee; (iii) the
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incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness
represented by Capital Lease Obligations, mortgage financings, purchase money
obligations or sale and leaseback transactions, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property used in the business of the Company or
such Restricted Subsidiary, in an aggregate principal amount not to exceed $15.0
million at any time outstanding; provided that in no event shall the aggregate
principal amount of Indebtedness incurred in connection with sale and leaseback
transactions pursuant to this clause exceed $7.5 million at any time
outstanding; (iv) Existing Indebtedness; (v) the incurrence by the Company or
any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in
exchange for, or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund, Indebtedness that was permitted by the Indenture;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Restricted
Subsidiaries; provided, however, that (a) any subsequent issuance or transfer
(other than for security purposes) of Equity Interests and (b) any subsequent
sale or other transfer (including for security purposes other than to secure
Indebtedness permitted to be incurred pursuant to clause (i) of this paragraph)
of such Indebtedness, in each case, that results in any such Indebtedness being
held by a Person other than the Company or any of its Restricted Subsidiaries
shall be deemed to constitute an incurrence of such Indebtedness by the Company
or such Restricted Subsidiary, as the case may be; (vii) the incurrence by the
Company or any of its Restricted Subsidiaries of Hedging Obligations that are
incurred for the purpose of fixing or hedging (a) interest rate risk with
respect to any floating rate Indebtedness of such Person so long as such
floating rate Indebtedness is permitted by the terms of the Indenture to be
outstanding or (b) exchange rate risk with respect to agreements or indebtedness
of such Person payable or denominated in a currency other than U.S. dollars;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse
Debt; provided, however, that if any such Indebtedness ceases to be Non-Recourse
Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of the Company; (ix) the
incurrence by the Company and any Guaranteeing Subsidiary of Indebtedness in an
aggregate principal amount at any time outstanding not to exceed $10.0 million;
(x) the incurrence by any Foreign Subsidiary of Indebtedness and letters of
credit to fund working capital and capital expenditures requirements (with
letters of credit being deemed to have a principal amount equal to maximum
potential liability of such Foreign Subsidiary thereunder) in an aggregate
maximum principal amount outstanding at any one time not to exceed $5.0 million;
(xi) Obligations in respect of performance and surety bonds provided by the
Company or any Guaranteeing Subsidiary in the ordinary course of business and
(xii) the incurrence or issuance by any Restricted Subsidiary of the Company of
Indebtedness (in addition to Indebtedness that may be incurred or issued
pursuant to any other clause of this paragraph) in an aggregate principal amount
not to exceed $1.0 million.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company and any Guaranteeing Subsidiary may enter
into a sale and leaseback transaction if (i) the Company or such Guaranteeing
Subsidiary could have incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
(a) the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant "Incurrence of Indebtedness and Issuance of Preferred Stock" and/or (b)
clause (iii) of the second paragraph of the covenant "Incurrence of Indebtedness
and Issuance of Preferred Stock" (as limited by the proviso to such clause),
(ii) the Lien to secure such Indebtedness does not extend to or cover any assets
of the Company or such Guaranteeing Subsidiary other than the assets which are
the subject of the sale and leaseback transaction, (iii) the gross cash proceeds
of such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by the Board of Directors of the Company and
set forth in an Officers' Certificate delivered to the Trustee) of the property
that is the subject of such sale and leaseback transaction and (iv) the transfer
of assets in such sale and leaseback transaction is permitted by, and the
proceeds of such transaction are applied in compliance with, the covenant "Asset
Sales."
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Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien (other than Permitted Liens) securing any
Obligations on any property or asset now owned or hereafter acquired, or on any
income or profits therefrom or assign or convey any right to receive income
therefrom, unless the Notes, and the Subsidiary Guarantees, as applicable, are
either (i) secured by a Lien on such property, assets, income or profits that is
senior in priority to the Lien securing such other Obligations, if such other
Obligations are subordinated in right of payment to the Notes and/or the
Subsidiary Guarantees or (ii) equally and ratably secured by a Lien on such
property, assets, income or profits with the Lien securing such other
Obligations, if such other Obligations are pari passu in right of payment to the
Notes and/or the Subsidiary Guarantees.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to: (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries on its Capital Stock or (b) pay any Indebtedness owed to the
Company or any of its Restricted Subsidiaries; (ii) make loans or advances to
the Company or any of its Restricted Subsidiaries; or (iii) transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness, as in effect on the date of the Indenture; (b) the Credit
Facility and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof; provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive in the aggregate
than those contained in the Credit Facility, as in effect on the date of the
Indenture; (c) the Indenture and the Notes; (d) applicable law; (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries, as in effect at the time of
acquisition (except to the extent such Indebtedness was incurred in connection
with, or in contemplation of, such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired; provided that in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred; (f) customary
non-assignment provisions in leases and other agreements entered into in the
ordinary course of business and consistent with past practices; (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired; (h) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive in the aggregate than those contained in
the agreements governing the Indebtedness being refinanced; (i) an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Equity Interests or property or assets of a Restricted Subsidiary;
provided that such restrictions are limited to the Restricted Subsidiary that is
the subject of such agreement; or (j) restrictions applicable to any Foreign
Subsidiary pursuant to Indebtedness permitted to be incurred pursuant to clause
(x) of the second paragraph of the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock;" provided that such restrictions shall be
limited to customary net worth, leverage, cash flow and other financial ratios
applicable to such Foreign Subsidiary, customary restrictions on mergers and
consolidations involving such Foreign Subsidiary, customary restrictions on
transactions with affiliates of such Foreign Subsidiary and customary provisions
subordinating the payment of intercompany Indebtedness owed by such Foreign
Subsidiary to the Company or any of its Restricted Subsidiaries upon the
occurrence of a default in respect of Indebtedness of such Foreign Subsidiary or
its Subsidiaries and/or events of insolvency with respect to such Foreign
Subsidiary or its Subsidiaries; and provided further, that in no event shall any
Indebtedness incurred by a Foreign Subsidiary prohibit such Foreign Subsidiary
from making any dividend or other distribution to the Company or its Restricted
Subsidiaries or from otherwise making any loan to the Company or its Restricted
Subsidiaries in the absence of a breach by such Foreign Subsidiary of the
covenants contained in such Indebtedness.
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Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another Person
unless (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such transaction
or series of transactions), the Consolidated Net Worth of the Company or the
surviving entity, as the case may be, is at least equal to the Consolidated Net
Worth of the Company immediately before such transaction or series of
transactions; (iii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been made assumes all
the obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in form reasonably satisfactory to the Trustee; (iv)
immediately after such transaction, no Default or Event of Default exists; and
(v) the Company or the Person formed by or surviving any such consolidation or
merger, or to which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made will, at the time of such transaction after
giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock." The foregoing will not prohibit a
consolidation or merger between the Company and a Wholly Owned Restricted
Subsidiary, the transfer of all or substantially all of the properties or assets
of the Company to a Wholly Owned Restricted Subsidiary or the transfer of all or
substantially all of the properties or assets of a Wholly Owned Restricted
Subsidiary to the Company; provided that if the Company is not the surviving
entity of such transaction or the Person to which such transfer is made, the
surviving entity or the Person to which such transfer is made shall comply with
clause (iii) of this paragraph.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
could have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person, (ii) if such Affiliate
Transaction involves aggregate consideration in excess of $2.0 million, the
Company delivers to the Trustee a resolution of the Board of Directors of the
Company set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and such Affiliate Transaction is
approved by a majority of the disinterested members of the Board of Directors of
the Company and (iii) if such Affiliate Transaction involves aggregate
consideration in excess of $5.0 million, the Company delivers to the Trustee an
opinion as to the fairness of such Affiliate Transaction from a financial
point-of-view issued by an investment bank or accounting firm of national
standing, provided, however, that (a) any employment, consulting or similar
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business of the Company or such Restricted Subsidiary,
(b) transactions between or among the Company and/or its Restricted
Subsidiaries, (c) payment of employee benefits, including wages, salary,
bonuses, retirement plans and stock options, and director fees in the ordinary
course of business and (d) Restricted Payments permitted by the provisions of
the Indenture described above under clauses (i), (iv), (v), (vi), (vii), (viii)
of the second paragraph of the covenant entitled "Restricted Payments," in each
case, shall not be deemed Affiliate Transactions.
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Anti-Layering
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee, or otherwise become liable for any Indebtedness that is both
(a) subordinate or junior in right of payment to any Senior Debt and (b) senior
in any respect in right of payment to the Notes and (ii) no Guaranteeing
Subsidiary will incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is both (a) subordinate or junior in right of
payment to its Senior Debt and (b) senior in any respect in right of payment to
its Subsidiary Guarantee.
Line of Business
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, engage to any
substantial extent in any line or lines of business activity other than that
which, in the reasonable good faith judgment of the Board of Directors of the
Company, is a Related Business; provided that the Company shall not be deemed to
be in violation of this covenant if the Company acquires a business which
derives substantial revenues from a Related Business, regardless of whether such
acquired business includes a line or lines of business that are not a Related
Business.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its Restricted Subsidiaries and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, from and after the consummation of the Exchange Offer or the
effectiveness of the Shelf Registration Statement, the Company will file a copy
of all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company and the Guaranteeing Subsidiaries have agreed that, for so
long as any Notes remain outstanding, they will furnish to Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) default for 30 days in the payment when due of interest or
Liquidated Damages, if any, with respect to the Notes (whether or not
prohibited by the subordination provisions of the Indenture);
(ii) default in payment when due of principal or premium, if any, on
the Notes at maturity, upon redemption or otherwise (whether or not
prohibited by the subordination provisions of the Indenture);
(iii) failure by the Company or any Guaranteeing Subsidiary for 30
days after receipt of notice from the Trustee or Holders of at least 25% in
principal amount of the Notes then outstanding to comply with the
provisions described under the covenants entitled "Change of Control,"
"Asset Sales," "Sale and Leaseback Transactions," "Restricted Payments,"
"Incurrence of Indebtedness and Issuance of Preferred Stock" or "Merger,
Consolidation or Sale of Assets;"
(iv) failure by the Company or any Guaranteeing Subsidiary for 60 days
after notice from the Trustee or the Holders of at least 25% in principal
amount of the Notes then outstanding to comply with its other agreements in
the Indenture or the Notes;
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(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now
exists, or is created after the date of the Indenture, which default (A)(i)
is caused by a failure to pay when due at final stated maturity (giving
effect to any grace period related thereto) principal of such Indebtedness
(a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and (B) in each case, the
principal amount of such Indebtedness, together with the principal amount
of any other such Indebtedness under which there has been a Payment Default
or the maturity of which has been accelerated as a result of any matter
contemplated in clause (v)(A)(i) or (v)(A)(ii), aggregates $7.5 million or
more;
(vi) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments (to the extent not covered by insurance or as to which
the insurer has not acknowledged coverage in writing) aggregating in excess
of $7.5 million, which judgments are not paid, fully bonded, discharged or
stayed within 60 days after their entry;
(vii) certain events of bankruptcy or insolvency with respect to the
Company or any Restricted Subsidiary of the Company that is a Significant
Subsidiary or group of Restricted Subsidiaries of the Company that
together, would constitute a Significant Subsidiary; and
(viii) the termination of the Subsidiary Guarantee(s) of either a
Guaranteeing Subsidiary that is a Significant Subsidiary or group of
Guaranteeing Subsidiaries that together constitute a Significant Subsidiary
for any reason not permitted by the Indenture, or the denial of any Person
acting on behalf of any such Guaranteeing Subsidiary or group of
Guaranteeing Subsidiaries of its Obligations under any such Subsidiary
Guarantee(s).
To the extent that the last day of the period referred to in clauses (i),
(iii), (iv) or (vi) of the immediately preceding paragraph is not a Business
Day, then the first Business Day following such day shall be deemed to be the
last day of the period referred to in such clauses. Any "day" will be deemed to
end as of 11:59 p.m., New York City time.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable by notice in writing to the Company
and the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Credit Facility, shall become immediately due and payable upon the
first to occur of an acceleration under the Credit Facility or five Business
Days after receipt by the Company and the Representative under the Credit
Facility of such Acceleration Notice but only if such Event of Default is then
continuing. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest or premium on, or principal of, the Notes. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in such
Holders' interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guaranteeing Subsidiary, as such, shall have any liability for any
obligations of the Company under the Notes, any Subsidiary Guarantee or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Subsidiary. Such waiver may not
be effective to waive liabilities under the federal securities laws and it is
the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all
obligations of the Company and the Guaranteeing Subsidiaries discharged with
respect to the outstanding Notes and the Subsidiary Guarantees ("legal
defeasance"). Such legal defeasance means that the Company will be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for (a) the rights of Holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the Notes when such payments are due, or on the
redemption date, as the case may be, (b) the Company's obligations with respect
to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (c) the
rights, powers, trust, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (d) the legal defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and the Guaranteeing Subsidiaries
released with respect to certain covenants that are described in the Indenture
("covenant defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event covenant defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default and Remedies" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either legal defeasance or covenant defeasance, the
Company must, among other things, irrevocably deposit with the Trustee, in trust
for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants selected by the Trustee, to pay the principal of, premium, if any,
and interest on the outstanding Notes on the stated maturity or on the
applicable optional redemption date, as the case may be.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes or the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange offer for Notes), and any existing default or compliance with any
provision of the Indenture, the Notes or the Subsidiary Guarantees may be waived
with the consent of the Holders of a majority in principal
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amount of the then outstanding Notes (including consents obtained in connection
with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, however, an amendment or
waiver may not (with respect to any Note held by a non-consenting Holder): (i)
reduce the principal amount of Notes; (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes or any Change of Control Offer; (iii) reduce the rate of
or change the time for payment of interest or Liquidated Damages on any Notes;
(iv) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest or Liquidated Damages, if any, on the Notes (except
a rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration); (v) make any Note payable in money other
than that stated in the Notes; (vi) waive a redemption or repurchase payment
with respect to any Note; or (vii) make any change in the foregoing amendment
and waiver provisions. Notwithstanding the foregoing, the provisions with
respect to Asset Sales may be amended or supplemented with the consent of the
Holders of at least two-thirds in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the Notes). In addition, any amendment to the provisions of Article 10 or
Article 12 of the Indenture (which relate to subordination) will require the
consent of the Holders of at least 75% in aggregate amount of Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Notes. Without obtaining any necessary consents under the Credit Facility, the
Company may not amend or supplement the subordination provisions with respect to
the Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guaranteeing Subsidiaries and the Trustee may amend or
supplement the Indenture, the Subsidiary Guarantees or the Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
the Company's or a Guaranteeing Subsidiary's obligations to Holders of the Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA or to allow any Guaranteeing
Subsidiary to guarantee the Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee, in its individual or any other
capacity, may become the owner of Notes and may otherwise deal with the Company,
the Guaranteeing Subsidiaries or any Affiliate of the Company with the same
rights it would have if it were not Trustee; however, if the Trustee acquires
any conflicting interest, it must eliminate such conflict within 90 days, apply
to the Commission for permission to continue as Trustee or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to the Company, 400
Rabro Drive East, Hauppauge, NY 11788, Attn: Richard S. Kolodny.
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BOOK-ENTRY, DELIVERY AND FORM
Except as described in the next paragraph, the New Notes initially will be
represented by a single permanent global certificate in definitive, fully
registered form (the "Global Note"). The Global Note will be deposited on the
date of the issuance thereof with, or on behalf of, The Depository Trust
Company, New York, New York ("DTC") and registered in the name of a nominee of
DTC.
Notes (i) transferred to any Person who is not a "qualified institutional
buyer" as defined in Rule 144A promulgated under the Securities Act (a "QIB") or
(ii) held by QIBs who elect to take physical delivery of their certificates
instead of holding their interests through the Global Note (and which are thus
ineligible to trade through DTC) (collectively referred to herein as the
"Non-Global Purchasers") will be issued in registered form (the "Certificated
Security"). Upon the transfer to a QIB of any Certificated Security initially
issued to a Non-Global Purchaser, such Certificated Security will, unless the
transferee requests otherwise or the Global Note has previously been exchanged
in whole for Certificated Securities, be exchanged for an interest in the Global
Note.
The Global Note. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Note, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Note to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Note will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchaser and ownership of beneficial interests in the Global Note will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. QIBs may hold their interests in the Global
Note directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
New Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the New Notes represented by such Global Note for all
purposes under the Indenture. No beneficial owner of an interest in the Global
Note will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
Payments of the principal of, premium (if any), and interest (including
Liquidated Damages) on, the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal of, premium, if any, and interest (including Liquidated Damages) on
the Global Note, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Note as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Note held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a Holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such Holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
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DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Notes (including the presentation of New Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the Global Note are credited and only in
respect of such portion of the aggregate principal amount of New Notes as to
which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will exchange
the Global Note for Certificated Securities, which it will distribute to its
participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act, DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided. For
purposes of making any determination of any amount under any single definition
set forth below, such determination shall be made without double counting of any
item; provided that, with respect to the definition of "Fixed Charge Coverage
Ratio" it shall not be deemed to be double counting if an item is included in
the calculation of each of "Consolidated EBITDA" and "Fixed Charges."
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) the sale, lease, conveyance, or other disposition by
the Company or any of its Restricted Subsidiaries of any assets (including,
without limitation, by way of a sale and leaseback transaction) other than in
the ordinary course of business, and (ii) the issue or sale by the Company or
any of its Restricted Subsidiaries of Equity Interests of any of the Company's
Restricted Subsidiaries, in the case of clauses (i) and (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $3.0 million or (b) for net proceeds in excess of $3.0
million. Notwithstanding the
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foregoing: (i) a transfer of assets by the Company to a Restricted Subsidiary or
by a Restricted Subsidiary to the Company or to another Restricted Subsidiary,
(ii) an issuance of Equity Interests by a Restricted Subsidiary to the Company
or to another Restricted Subsidiary, (iii) a Restricted Payment that is
permitted by the covenant described above under the covenant entitled
"Restricted Payments," and (iv) the sale and leaseback of any assets within 90
days of the acquisition of such assets will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means, (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited).
"Cash Equivalents" means (i) U.S. dollars, (ii) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than one year from the
date of acquisition, (iii) certificates of deposit and eurodollar time deposits
with maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case with any commercial bank or trust company having capital and
surplus in excess of $300 million, (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution meeting
the qualifications specified in clause (iii) above, (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies,
Inc. ("S&P") and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness with a rating of "A" or
higher from S&P or "A2" or higher from Moody's.
"Change of Control" means the occurrence of any of the following: (i) any
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as defined in Section 13(d) of the Exchange Act) or
"group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other
than a Permitted Holder; (ii) the adoption of a plan for the liquidation or
dissolution of the Company; (iii) the Company consolidates with, or merges with
or into, another "person" (as defined above) or "group" (as defined above) other
than a Permitted Holder, in a transaction or series of related transactions in
which the Voting Stock of the Company is converted into or exchanged for cash,
securities or other property, other than any transaction where (A) the
outstanding Voting Stock of the Company is converted into or exchanged for
Voting Stock (other than Disqualified Stock) of the surviving or transferee
corporation and (B) either (1) the "beneficial owners" (as defined in Rule 13d-3
under the Exchange Act) of the outstanding Voting Stock of the Company
immediately prior to such transaction own beneficially, directly or indirectly
through one or more Subsidiaries, not less than a majority of the total
outstanding Voting Stock of the surviving or transferee corporation immediately
after such transaction or (2) if, immediately prior to such transaction the
Company is a direct or indirect Subsidiary of any other Person (each such other
Person, the "Holding Company"), the "beneficial owners" (as defined above) of
the outstanding Voting Stock of such Holding Company immediately prior to such
transaction own beneficially, directly or indirectly through one or more
Subsidiaries, not less than a majority of the outstanding Voting Stock of the
surviving or transferee corporation immediately after such transaction; (iv) the
consummation of
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any transaction or series of any related transactions (including, without
limitation, by way of merger or consolidation) the result of which is that any
"person" (as defined above) or "group" (as defined above) other than a Permitted
Holder, becomes the "beneficial owner" (as defined above) of more than 50% of
the voting power of the Voting Stock of the Company; or (v) during any
consecutive two-year period, the first day on which a majority of the members of
the Board of Directors of the Company who were members of the Board of Directors
at the beginning of such period are not Continuing Directors.
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person and its Restricted Subsidiaries for such
period, plus, to the extent deducted in computing Consolidated Net Income, (i)
provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, (ii) Consolidated Interest Expense of such Person
for such period, (iii) depreciation and amortization (including amortization of
goodwill and other intangibles) and all other non-cash charges (excluding any
such non-cash charge to the extent that it represents an accrual of or reserve
for cash charges in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Restricted Subsidiaries
for such period and (iv) any extraordinary or non-recurring loss and any net
loss realized in connection with either any Asset Sale or the extinguishment of
Indebtedness, in each case, on a consolidated basis determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of a Person shall be added to Consolidated
Net Income to compute Consolidated EBITDA only to the extent (and in the same
proportion) that the Net Income of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the interest expense of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP
(including amortization of original issue discount and deferred financing costs
(except as set forth in the proviso to this definition), non-cash interest
payments, the interest component of all payments associated with Capital Lease
Obligations, net payments, if any, pursuant to Hedging Obligations and imputed
interest with respect to Attributable Debt; provided, however, that in no event
shall any amortization of deferred financing costs incurred on or prior to the
date of the Indenture in connection with the Credit Facility or any amortization
of deferred financing costs incurred in connection with the issuance of the
Notes be included in Consolidated Interest Expense).
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid to the referent Person or a Restricted Subsidiary thereof in
cash, (ii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
included, (iii) the cumulative effect of a change in accounting principles shall
be excluded, (iv) the portion of net income of the Company and its Consolidated
Subsidiaries allocable to investments in unconsolidated Persons to the extent
that cash dividends or distributions have not actually been received by the
Company or one of its Consolidated Subsidiaries shall be excluded and (v) the
Net Income of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of Net Income is not, at the date of determination, permitted without
any prior governmental approval (which has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary.
"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated stockholders' equity of such Person less the amount of such
stockholders' equity attributable to Redeemable Capital Stock of such Person and
its Subsidiaries, as determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the relevant Person who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was
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nominated for election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were members of such Board of
Directors at the time of such nomination or election.
"Credit Facility" means that certain revolving credit and security
agreement, providing for up to $75 million aggregate principal amount of
borrowings, dated as of December 10, 1996 and as amended through the date of the
Indenture, by and among the Company, certain Subsidiaries and IBJ Schroder Bank
& Trust Company as lender and agent, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time (together with any amendment, modification,
renewal, refunding, replacement or refinancing to or of any of the foregoing
(collectively, a "Modification") or to any Modification, ad infinitum,
including, without limitation, any agreement modifying the maturity or
amortization schedule of or refinancing or refunding all or any portion of the
Indebtedness thereunder or increasing the amount that may be borrowed under such
agreement or any successor agreement, whether or not among the same parties.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) so long as any Indebtedness is
outstanding under the Credit Facility, such Indebtedness, and (ii) any other
Senior Debt permitted under the Indenture the principal amount of which is $10.0
million or more and that has been designated by the Company as "Designated
Senior Debt."
"Disqualified Stock" means that portion of any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event (other than an event
which would constitute a Change of Control), matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof (except, in each case, upon the
occurrence of a Change of Control) on or prior to the final maturity date of the
Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Excess Amount" means, with respect to any Credit Facility, the amount by
which aggregate payments of principal thereunder exceed the aggregate payments
of principal required to be made through the date of determination, in respect
of any term indebtedness, under the amortization schedule of such Credit
Facility.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Credit Facility) in
existence on the date of the Indenture until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the Consolidated Interest Expense of such Person for such period and (ii)
any interest expense on Indebtedness of another Person that is (A) Guaranteed by
the referent Person or one of its Restricted Subsidiaries (whether or not such
Guarantee is called upon) or (B) secured by a Lien on assets of such Person or
one of its Restricted Subsidiaries (whether or not such Lien is called upon);
provided that with respect to clause (ii)(B), the amount of Indebtedness (and
attributable interest expense) shall be equal to the lesser of (I) the principal
amount of the Indebtedness secured by the assets of such Person or one of its
Restricted Subsidiaries and (II) the fair market value (as determined by the
Board of Directors of such Person and set forth in an Officers' Certificate
delivered to the Trustee) of the assets securing such Indebtedness and (iii) the
product of (a) all cash dividend payments (and non-cash dividend payments in the
case of a Person that is a Subsidiary) on any series of preferred stock of such
Person, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges of such Person and its
Restricted Subsidiaries for such period. In the event that the Company or any of
its
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Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness
(other than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but on or prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable reference period. For
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the applicable reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the applicable reference period and shall give pro
forma effect to the Indebtedness and the Consolidated EBITDA of the Person which
is the subject of any such acquisition and (ii) the Consolidated EBITDA
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, the Securities and Exchange Commission
or in such other statements by such other entity as may be approved by a
significant segment of the accounting profession of the United States, which are
in effect from time to time; provided, however, that all reports and other
financial information provided by the Company to the Holders, the Trustee and/or
the Commission shall be prepared in accordance with GAAP, as in effect on the
date of such report or other financial information.
"Government Securities" means direct obligations of, or obligations
guaranteed by the United States of America for the payment of which guarantee or
obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect hereof), of all or any part of any
Indebtedness.
"Guaranteeing Subsidiary" means each of (i) the Subsidiaries of the Company
in existence on the date of the Indenture and (ii) any future Restricted
Subsidiary and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates and (iii) indemnity agreements and arrangements
entered into in connection with the agreements and arrangements described in
clauses (i) and (ii).
"Incur or incur" means, with respect to any Indebtedness (including
Acquired Debt), to create, incur, issue, assume, guaranty or otherwise become
directly or indirectly liable for or with respect to, or become responsible for,
the payment of such Indebtedness (including Acquired Debt); provided that (i)
neither the accrual of interest nor the accretion of original issue discount
shall be considered an incurrence of Indebtedness and (ii) the assumption of
Indebtedness by the surviving entity of a transaction permitted by the last
sentence of the second paragraph under "Subsidiary Guarantees" or the last
sentence of the covenant entitled "Merger, Consolidation, or Sale of Assets" in
existence at the time of such transaction shall not be deemed to be an
incurrence of Indebtedness. The term "incurrence" has corresponding meaning.
"Indebtedness" means, with respect to any Person without duplication, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or representing
Capital Lease Obligations or the deferred and unpaid balance of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, or representing any Hedging Obligations if and to the
extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would
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appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, as well as all indebtedness of others secured by a Lien on any asset
of such Person (whether or not such indebtedness is assumed by such Person), the
maximum fixed repurchase price of Disqualified Stock issued by such Person and
the liquidation preference of preferred stock issued by such Person, in each
case if held by any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company, and, to the extent not otherwise included, the
Guarantee by such Person of any such indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of the Company, or any
Restricted Subsidiary of the Company issues Equity Interests, such that, after
giving effect to any such sale or disposition, such Person is no longer a
Restricted Subsidiary of the Company, the Company shall be deemed to have made
an investment on the date of any such sale, disposition or issuance equal to the
fair market value of the Equity Interests of such Person held by the Company or
such Restricted Subsidiary immediately following any such sale, disposition or
issuance.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions or
(b) the extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, amounts
required to be applied to the repayment of Indebtedness (other than long-term
Indebtedness of a Restricted Subsidiary of such Person and Indebtedness under
the Credit Facility) secured by a Lien on the asset or assets that are the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and (ii) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided in the documentation with respect thereto, whether or not such
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interest is an allowed claim under applicable law), penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means Indebtedness of the Company which ranks
pari passu in right of payment with the Notes.
"Permitted Holder" means BIL and its current, former and future employees,
members, stockholders, affiliates, directors and officers.
"Permitted Investments" means (i) Investments in the Company or in a
Restricted Subsidiary of the Company (including, without limitation, Guarantees
of the Indebtedness and/or other Obligations of the Company and/or any
Restricted Subsidiary of the Company, so long as such Indebtedness and/or other
Obligations are permitted under the Indenture), (ii) Investments in Cash
Equivalents, (iii) Investments by the Company or any Restricted Subsidiary of
the Company in, or the purchase of the securities of, a Person if, as a result
of such Investment, (a) such person becomes a Restricted Subsidiary of the
Company or (b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Restricted Subsidiary of the Company, (iv) Investments in
accounts and notes receivable acquired in the ordinary course of business, (v)
any non-cash consideration received in connection with an Asset Sale that
complies with the covenant entitled "Asset Sales," (vi) Investments in
connection with Hedging Obligations permitted to be incurred under the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock."
"Permitted Junior Securities" means Equity Interests or debt securities of
the Company that are unsecured and subordinated at least to the same extent as
the Notes to Senior Debt of the Company and guarantees of any such debt by any
Guaranteeing Subsidiary that are unsecured and subordinated at least to the same
extent as the Subsidiary Guarantee of such Guaranteeing Subsidiary to the Senior
Debt of such Guaranteeing Subsidiary, as the case may be, and has a final
maturity date at least as late as the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Notes.
"Permitted Liens" means (i) Liens on property of the Company and any
Guaranteeing Subsidiary securing (a) Senior Debt and/or (b) Hedging Obligations
permitted to be incurred under the Indenture; (ii) Liens in favor of the Company
or any of its Restricted Subsidiaries; (iii) Liens on property of a Person
existing at the time such Person is merged with or into or consolidated with the
Company or any Restricted Subsidiary of the Company; provided, that such Liens
were not incurred in connection with, or in contemplation of, such merger or
consolidation and do not extend to any assets of the Company or any Restricted
Subsidiary of the Company other than the assets acquired in such merger or
consolidation; (iv) Liens on property of a Person existing at the time such
Person becomes a Restricted Subsidiary of the Company; provided that such Liens
were not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary and do not extend to any assets of the Company
or any other Restricted Subsidiary of the Company; (v) Liens on property
existing at the time of acquisition thereof by the Company or any Restricted
Subsidiary of the Company; provided that such Liens were not incurred in
connection with, or in contemplation of, such acquisition and do not extend to
any assets of the Company or any of its Restricted Subsidiaries other than the
property so acquired; (vi) Liens to secure the performance of statutory
obligations, surety or appeal bonds or performance bonds, or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's, or other like
Liens, in any case incurred in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as is
required by GAAP shall have been made therefor; (vii) Liens existing on the date
of the Indenture; (viii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (ix) Liens to secure (A)
Indebtedness (including Capital Lease Obligations) permitted by clause (iii) of
the second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness or the assets which are the subject of the sale and leaseback
transaction, as the case may be
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and (B) Indebtedness of any Restricted Subsidiary (other than a Guaranteeing
Subsidiary) permitted to be incurred by such Restricted Subsidiary pursuant to
the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock;" (x) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations not
constituting Indebtedness for borrowed money that do not exceed $10.0 million in
the aggregate at any one time outstanding; (xi) Liens securing Indebtedness
incurred to refinance Indebtedness that has been secured by a Lien permitted
under the Indenture; provided that (a) any such Lien shall not extend to or
cover any assets or property not securing the Indebtedness so refinanced and (b)
the refinancing Indebtedness secured by such Lien shall have been permitted to
be incurred under the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Stock;" (xii) Liens in favor of the lessee on instruments which are
the subject of leases entered into in the ordinary course of business; provided
that any such Lien shall not extend to or cover any assets or property of the
Company and its Restricted Subsidiaries that is not the subject of any such
lease; and (xiii) Liens to secure Attributable Debt and/or that is permitted to
be incurred pursuant to the covenant entitled "Sale and Leaseback Transactions;"
provided that any such Lien shall not extend to or cover any assets of the
Company or any Guaranteeing Subsidiary other than the assets which are the
subject of the sale leaseback transaction in which the Attributable Debt is
incurred.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date at least as late as the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased, or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded and (iv) such Indebtedness is incurred by the Company or by
the Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be required to be
redeemed prior to the Stated Maturity with respect to the principal of any Note
or is redeemable at the option of the holder thereof at any time prior to any
such Stated Maturity, or is convertible into or exchangeable for debt securities
at any time prior to any such Stated Maturity.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the date of the Indenture
and any and all businesses that in the good faith judgment of the Board of
Directors of the Company are materially related businesses.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the referent Person that is
not an Unrestricted Subsidiary.
"Senior Debt" means (a) with respect to the Company, (i) all Obligations
permitted to be incurred pursuant to the Indenture under or in respect of the
Credit Facility and (ii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Indenture and any Hedging Obligation permitted to
be
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incurred under the terms of the Indenture, unless the instrument under which the
foregoing is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes and (b) with respect to any
Guaranteeing Subsidiary, (i) all Obligations permitted to be incurred pursuant
to the Indenture under or in respect of the Credit Facility and (ii) any other
Indebtedness permitted to be incurred by such Guaranteeing Subsidiary under the
terms of the Indenture and any Hedging Obligation permitted to be incurred under
the terms of the Indenture, unless the instrument under which the foregoing is
incurred expressly provided that such Indebtedness is on parity with or
subordinated in right of payment to the Subsidiary Guarantee of such
Guaranteeing Subsidiary. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (w) any liability for federal, state,
local or other taxes; (x) any Indebtedness of the Company or any Guaranteeing
Subsidiary to the Company or any Subsidiary of the Company or any of their
respective Affiliates, (y) any trade payables or (z) any Indebtedness that is
incurred in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary: (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (iii) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (iv) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the covenant entitled "Restricted Payments." If,
at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant from the date of such incurrence). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant entitled
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"Incurrence of Indebtedness and Issuance of Preferred Stock" and (ii) no Default
or Event of Default would be in existence following such designation.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the total of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
OLD NOTES; REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company and the
Guaranteeing Subsidiaries agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the New Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the Holders of Transfer
Restricted Securities (as defined below) who are able to make certain
representations the opportunity to exchange their Transfer Restricted Securities
for New Notes. If (i) the Company is not permitted to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any Holder of Transfer Restricted Securities notifies
the Company within the specified time period that (A) it is prohibited by law or
Commission policy from participating in the Exchange Offer, (B) that it may not
resell the New Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales or (C)
that it is a broker-dealer and owns Old Notes acquired directly from the Company
or an affiliate of the Company, the Company will file with the Commission a
registration statement to cover resales of the Transfer Restricted Securities by
the Holders thereof who satisfy certain conditions relating to the provision of
information in connection with such registration statement (the "Shelf
Registration Statement"). The Company will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer Restricted
Securities" means each Old Note until the earlier of (i) the date on which such
Note has been exchanged by a person other than a broker-dealer for a New Note in
the Exchange Offer, (ii) following the exchange by a broker-dealer in the
Exchange Offer of an Old Note for a New Note, the date on which such New Note is
sold to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Old Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Old Note is
distributed to the public pursuant to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to
October 3, 1997, (ii) the Company will use its best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission on or prior to
December 2, 1997, (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Company will commence the Exchange
Offer and use its best efforts to issue on or prior to 30 days after the date on
which the Exchange Offer Registration Statement was declared effective by the
Commission, New Notes in exchange for all Old Notes tendered prior thereto in
the Exchange Offer, (iv) if obligated to file
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the Shelf Registration Statement, the Company will file the Shelf Registration
Statement with the Commission on or prior to 45 days after such filing
obligation arises and use its best efforts to cause the Shelf Registration to be
declared effective by the Commission on or prior to 120 days after such
obligation arises and (v)(A) in certain circumstances, cause the Exchange Offer
Registration Statement to remain effective and usable for a period of 180 days
following the initial effectiveness thereof and (B) cause the Shelf Registration
Statement to remain effective and usable for a period of two years following the
initial effectiveness thereof or such shorter period ending when all the Old
Notes available for sale thereunder have been sold. If (a) the Company fails to
file any of the registration statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b) any of such
registration statements is not declared effective by the Commission on or prior
to the date specified for such effectiveness, (c) the Company fails to
consummate the Exchange Offer within 30 days after the date on which the
Exchange Offer Registration Statement is declared effective, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above as a "Registration Default"), then the Company will pay
liquidated damages to each Holder of Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default, in an amount equal to $.05 per week per $1,000 principal
amount of Transfer Restricted Securities held by such Holder ("Liquidated
Damages"). The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Transfer Restricted Securities with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $.50 per week per
$1,000 principal amount of Transfer Restricted Securities. All accrued
Liquidated Damages will be paid by the Company on each Damages Payment Date (as
defined in the Registration Rights Agreement) to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to Holders
of Certificated Securities by wire transfer to the accounts specified by them or
by mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Old Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the same periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above. Any Holder of Transfer Restricted Securities
who elects not to participate in the Exchange Offer could be deemed to be less
liquid than if such Holder participated in the Exchange Offer.
98
<PAGE> 101
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
RELATING TO THE EXCHANGE OFFER
The following is a summary of the principal U.S. federal income tax
consequences resulting from the exchange of the Old Notes for New Notes in the
Exchange Offer. This summary does not purport to consider all the possible U.S.
federal tax consequences of the purchase, ownership or disposition of the Notes
and is not intended to reflect the particular tax position of any beneficial
owner. It deals only with Old Notes and New Notes held as capital assets.
Moreover, except as expressly indicated, it does not address beneficial owners
that may be subject to special tax rules, such as banks, insurance companies,
dealers in securities or currencies, purchasers that hold Old Notes or New Notes
as a hedge against currency risks or as part of a straddle with other
investments or as part of a "synthetic security" or other integrated investment
(including a "conversion transaction") comprised of a Note and one or more other
investments, or purchasers that have a "functional currency" other than the U.S.
dollar. Except to the extent discussed below under "Non-U.S. Holders", this
summary is not applicable to persons other than "U.S. Holders" (defined below).
This summary is based upon the U.S. federal tax laws and regulations as now in
effect and as currently interpreted and does not take into account possible
changes in such tax laws or such interpretations, any of which may be applied
retroactively. It does not include any description of the tax laws of any state,
local or foreign government that may be applicable to the Notes or holders
thereof. Persons considering the exchange of their Old Notes for New Notes
should consult their own tax advisors concerning the application of the U.S.
federal tax laws to their particular situations as well as any consequences to
them under the laws of any other taxing jurisdiction.
U.S. HOLDERS
Payments of Interest. In general, interest on a New Note will be taxable
to a beneficial owner who or which is (i) an individual who is a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized under the laws of the United States or any state thereof
(including the District of Columbia), (iii) an estate or trust subject to United
States federal income taxation on its income without regard to its source or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more persons who
otherwise would be a U.S. Holder has the authority to control all substantial
decision of the trust (a "U.S. Holder") as ordinary income at the time it is
received or accrued, depending on the holder's method of accounting for tax
purposes.
Exchange Offer. The exchange of Old Notes for New Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. As a result, there will be no federal income
tax consequences to holders exchanging the Old Notes pursuant to the Exchange
Offer.
NON-U.S. HOLDERS
Under present United States federal income and estate tax law and subject
to the discussion of backup withholding below:
(a) payments of principal and interest on the New Notes by the Company
or any agent of the Company to any Holder that is not a U.S. Holder (a
"Non-U.S. Holder") will not be subject to United States federal withholding
tax, provided that (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (ii) the Non-U.S. Holder
is not a controlled foreign corporation that is related to the Company
(directly or indirectly) through stock ownership and (iii) either (A) the
beneficial owner of the Old Notes or the New Notes certifies to the Company
or its agent, under penalties of perjury, that he is not a "United States
person" (as defined in the Code) and provides his name and address, or (B)
a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution") and holds the Notes on behalf of the
beneficial owner certifies to the Company or its agent under penalties of
perjury that such statement has been received from the beneficial owner by
it or by a financial institution between it and the beneficial owner and
furnishes the payor with a copy thereof;
99
<PAGE> 102
(b) a Non-U.S. Holder will not be subject to United States federal
withholding tax on gain realized on the sale, exchange or redemption of New
Note; and
(c) a New Note held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to United
States federal estate tax as a result of such individual's death if, at the
time of such death, the individual did not actually or constructively own
10% or more of the total combined voting power of all classes of stock of
the Company entitled to vote and the income on the New Notes would not have
been effectively connected with the conduct of a trade or business by the
individual in the United States.
Regulations proposed by the Internal Revenue Service, if finalized in their
current form, would modify the certification requirements described in
clause(a)(iii) above with respect to certain payments made after such
regulations become effective.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and interest on the New Note is effectively connected with the conduct of such
trade or business, the Non-U.S. Holder, although exempt from the withholding tax
discussed in the preceding paragraph (provided that such holder properly claims
such exemption by furnishing a properly executed IRS Form 4224 on or before any
payment due), may be subject to U.S. federal income tax on such interest and
gain on the sale, exchange or redemption of the New Note in the same manner as
if it were a U.S. Holder.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the New Notes are outstanding, the Company
is required to provide the IRS with certain information, including the Holder's
name, address and taxpayer identification number, the aggregate amount of
principal and interest paid to that Holder during the calendar year and the
amount of tax withheld, if any. This obligation, however, does not apply with
respect to certain U.S. Holders, including corporations, tax-exempt
organizations, qualified pension and profit sharing trust and individual
retirement accounts.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, the
Company, its agent or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest and principal (and
premium, if any) on the New Notes. This backup withholding is not an additional
tax and may be credited against the U.S. Holder's U.S. federal income tax
liability, provided that the required information is furnished to the IRS.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-U.S. Holder of a New Note if such holder has
provided the required certification that it is not a United States person as set
forth in clause (iii) in the first paragraph under "-- Non-U.S. Holders", or has
otherwise established an exemption (provided that neither the Company not its
agent has actual knowledge that the holder is a United States person or that the
conditions of any exemption are not in fact satisfied).
Payment of the proceeds from the sale of a New Note to or through a foreign
office of a broker generally will not be subject to information reporting or
backup withholding, except that information reporting may apply to such payments
if the broker is a United States person, a controlled foreign corporation for
United States tax purposes or a foreign person 50% or more of whose gross income
from all sources for the three-year period ending with the close of its taxable
year preceding the payment was effectively connected with a U.S. trade or
business. Payment of the proceeds from a sale of an Old Note or New Note to or
through the U.S. office of a broker is subject to information reporting and
backup withholding unless the holder or beneficial owner certifies as to its
taxpayer identification number of otherwise establishes an exemption from
information reporting and backup withholding. The proposed Treasury Regulations,
noted above, if adopted in their current form, would also provide alternative
certification requirements and means for obtaining the exemption from
withholding tax.
100
<PAGE> 103
PLAN OF DISTRIBUTION
Each broker-dealer (a "Participating Broker-Dealer") that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of such New
Notes received in exchange for Old Notes where such Old Notes are acquired as a
result of market-making activities or other trading activities. The Company and
the Guaranteeing Subsidiaries have agreed that for a period of 180 days after
the Expiration Date, they will make this Prospectus, as it may be amended or
supplemented from time to time, available to any Participating Broker-Dealer for
use in connection with any such resale. In addition, until , 1998,
all dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
Participating Broker-Dealers. New Notes received by Participating Broker-Dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such Participating Broker-Dealer and/or the purchasers of any such New
Notes. Any Participating Broker-Dealer that resells New Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such New Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver a
prospectus, and by delivering a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date, the Company and the
Guaranteeing Subsidiaries promptly will send additional copies of this
Prospectus, as it may be amended or supplemented from time to time, to any
Participating Broker-Dealer upon request. The Company and the Guaranteeing
Subsidiaries have agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act, as set
forth in the Registration Rights Agreement.
LEGAL MATTERS
Certain legal matters with respect to the New Notes offered hereby and the
federal income tax consequences of the Exchange Offer are being passed upon for
the Company by Milbank, Tweed, Hadley & McCloy, New York, New York.
EXPERTS
The consolidated financial statements and schedule of Graham-Field Health
Products, Inc. and subsidiaries at December 31, 1996 and 1995, and for each of
the three years in the period ended December 31, 1996 included in this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of Everest & Jennings at December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been audited by Price Waterhouse LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and is included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
101
<PAGE> 104
The consolidated financial statements and schedule of Fuqua Enterprises,
Inc. at December 31, 1996 and 1995, and for each of the three years in the
period ended December 31, 1996, included in this Prospectus have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and is included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of the Lumex Division of Lumex, Inc.
at December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995 included in this Prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and is included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
102
<PAGE> 105
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
GRAHAM-FIELD HEALTH PRODUCTS, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors.................................................... F-4
Consolidated balance sheets -- December 31, 1996 and 1995......................... F-5
Consolidated statements of operations -- December 31, 1996, 1995 and 1994......... F-6
Consolidated statements of stockholders' equity -- December 31, 1996, 1995 and
1994............................................................................ F-7
Consolidated statements of cash flows -- December 31, 1996, 1995 and 1994......... F-8
Notes to consolidated financial statements -- December 31, 1996................... F-9
Schedule II -- Valuation and qualifying accounts.................................. F-32
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed consolidated balance sheet -- September 30, 1997 and December 31,
1996............................................................................ F-33
Condensed consolidated statements of operations -- for the three and nine months
ended September 30, 1997 and 1996............................................... F-34
Condensed consolidated statements of cash flows -- for the nine months ended
September 30, 1997 and 1996..................................................... F-35
Notes to condensed consolidated financial statements -- September 30, 1997........ F-36
EVEREST & JENNINGS INTERNATIONAL LTD
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants................................................. F-44
Consolidated statements of operations -- December 31, 1995, 1994 and 1993......... F-45
Consolidated balance sheets -- December 31, 1995 and 1994......................... F-46
Consolidated statements of stockholders' deficit -- December 31, 1995, 1994 and
1993............................................................................ F-47
Consolidated statement of cash flows -- December 31, 1995, 1994 and 1993.......... F-50
Notes to consolidated financial statements........................................ F-52
Schedule II -- Valuation and qualifying accounts.................................. F-69
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated statements of operations -- for the nine months ended September 30,
1996 and 1995................................................................... F-70
Consolidated balance sheets -- September 30, 1996 and December 31, 1995........... F-71
Consolidated statement of stockholders' deficit -- for the nine months ended
September 30, 1996.............................................................. F-72
Consolidated statements of cash flows -- for the nine months ended September 30,
1996 and 1995................................................................... F-73
Notes to unaudited consolidated financial statements.............................. F-74
FUQUA ENTERPRISES, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors.................................................... F-81
Consolidated balance sheets -- December 31, 1996 and 1995......................... F-82
Consolidated statements of income -- December 31, 1996, 1995 and 1994............. F-83
Consolidated statements of cash flows -- December 31, 1996, 1995 and 1994......... F-84
Consolidated statements of stockholders' equity -- December 31, 1996, 1995 and
1994............................................................................ F-85
Notes to consolidated financial statements........................................ F-86
Summary of quarterly data (unaudited)............................................. F-100
Schedule II -- Valuation and qualifying accounts.................................. F-101
</TABLE>
F-1
<PAGE> 106
<TABLE>
<CAPTION>
<S> <C>
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed consolidated balance sheets -- September 30, 1997 and December 31,
1996............................................................................ F-102
Condensed consolidated statements of income -- for three months and nine months
ended September 30, 1997 and September 30, 1996................................. F-103
Condensed consolidated statements of cash flows -- for three months and nine
months ended September 30, 1997 and September 30, 1996.......................... F-104
Notes to unaudited consolidated financial statements.............................. F-105
LUMEX DIVISION OF LUMEX, INC.
Report of Independent Auditors.................................................... F-108
Balance sheets -- March 31, 1996, December 31, 1995 and 1994...................... F-109
Statements of operations -- three months ended March 31, 1996 and years ended
December 31, 1995, 1994 and 1993................................................ F-110
Statements of cash flows -- three months ended March 31, 1996 and years ended
December 31, 1995, 1994 and 1993................................................ F-111
Notes to financial statements -- three months ended March 31, 1996 and years ended
December 31, 1995, 1994 and 1993................................................ F-112
</TABLE>
F-2
<PAGE> 107
CONSOLIDATED FINANCIAL STATEMENTS OF
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
F-3
<PAGE> 108
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Graham-Field Health Products, Inc.
We have audited the accompanying consolidated balance sheets of
Graham-Field Health Products, Inc. and subsidiaries (the "Company") as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index to Financial Statements on page F-1.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Graham-Field Health Products, Inc. and subsidiaries at December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Melville, New York
March 10, 1997, except for
Note 2 paragraph 5, as to
which the date is August 28, 1997
F-4
<PAGE> 109
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 1,241,000 $ 226,000
Accounts receivable, less allowance for doubtful accounts of $7,243,000
and $1,811,000, respectively............................................ 45,703,000 23,112,000
Inventories............................................................... 48,245,000 31,239,000
Other current assets...................................................... 3,023,000 1,809,000
Recoverable and prepaid income taxes...................................... 256,000 254,000
------------ -----------
TOTAL CURRENT ASSETS............................................... 98,468,000 56,640,000
Property, plant and equipment, net.......................................... 11,264,000 8,599,000
Excess of cost over net assets acquired, net of accumulated amortization of
$8,185,000 and $7,212,000, respectively................................... 91,412,000 29,291,000
Investment in leveraged lease............................................... -- 487,000
Deferred tax assets......................................................... 938,000 3,084,000
Other assets................................................................ 5,112,000 4,910,000
------------ -----------
TOTAL ASSETS....................................................... $207,194,000 $103,011,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank...................................................... $ 13,985,000 $ 2,100,000
Current maturities of long-term debt and Guaranteed Senior Notes.......... 2,016,000 1,621,000
Accounts payable.......................................................... 22,995,000 9,828,000
Acceptances payable....................................................... 19,800,000 5,000,000
Accrued expenses.......................................................... 25,608,000 3,030,000
------------ -----------
TOTAL CURRENT LIABILITIES.......................................... 84,404,000 21,579,000
Long-term debt.............................................................. 6,535,000 1,462,000
Other long-term liabilities................................................. 1,752,000 --
Guaranteed Senior Notes..................................................... -- 19,000,000
------------ -----------
TOTAL LIABILITIES.................................................. 92,691,000 42,041,000
STOCKHOLDERS' EQUITY
Series A preferred stock, par value $.01 per share:
authorized shares 300,000 none issued..................................... -- --
Series B preferred stock, par value $.01 per share:
authorized shares 6,100, issued and outstanding 6,100..................... 28,200,000 --
Series C preferred stock, par value $.01 per share:
authorized shares 1,000, issued and outstanding 1,000..................... 3,400,000 --
Common stock, par value $.025 per share:
authorized shares 60,000,000, issued and outstanding
19,650,744 and 15,065,286, respectively................................... 492,000 377,000
Additional paid-in capital.................................................. 101,573,000 66,891,000
(Deficit)................................................................... (18,995,000) (6,298,000)
Cumulative translation adjustment........................................... (12,000) --
------------ -----------
Subtotal.................................................................... 114,658,000 60,970,000
Notes receivable from sale of shares........................................ (155,000) --
------------ -----------
TOTAL STOCKHOLDERS' EQUITY.............................................. 114,503,000 60,970,000
Commitments and contingencies
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................... $207,194,000 $103,011,000
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 110
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues:
Medical equipment and supplies................. $143,083,000 $112,113,000 $105,951,000
Interest and other income...................... 559,000 301,000 75,000
------------ ------------ -----------
143,642,000 112,414,000 106,026,000
------------ ------------ -----------
Costs and expenses:
Cost of revenues............................... 99,641,000 78,525,000 74,079,000
Selling, general and administrative............ 34,578,000 29,428,000 31,964,000
Interest expense............................... 2,578,000 2,720,000 2,697,000
Purchased in-process research & development
costs....................................... 12,800,000 -- --
Merger related charges......................... 3,000,000 -- --
------------ ------------ -----------
152,597,000 110,673,000 108,740,000
------------ ------------ -----------
(Loss) income before income taxes (benefit) and
extraordinary item............................. (8,955,000) 1,741,000 (2,714,000)
Income taxes (benefit)........................... 2,918,000 694,000 (735,000)
------------ ------------ -----------
(Loss) income before extraordinary item.......... (11,873,000) 1,047,000 (1,979,000)
Extraordinary loss on early retirement of debt
(net of tax benefit of $383,000)............... (736,000) -- --
------------ ------------ -----------
NET (LOSS) INCOME...................... $(12,609,000) $ 1,047,000 $ (1,979,000)
============ ============ ===========
Net (loss) income per common share:
(Loss) income before extraordinary item.......... $ (.76) $ .07 $ (.14)
Extraordinary loss on early retirement of debt... (.05) -- --
------------ ------------ -----------
Net (loss) income per common share............... $ (.81) $ .07 $ (.14)
============ ============ ===========
Weighted average number of common and common
equivalent shares.............................. 15,557,000 14,315,000 13,862,000
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 111
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES B SERIES C COMMON STOCK ADDITIONAL
PREFERRED PREFERRED --------------------- PAID-IN
TOTAL STOCK STOCK SHARES AMOUNT CAPITAL
------------ ----------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993.............. $ 57,897,000 -- -- 13,801,342 $345,000 $ 62,918,000
Issuance of common stock on exercise
of stock options.................... 192,000 -- -- 149,250 4,000 314,000
Tax benefit from exercise of stock
options............................. 42,000 -- -- -- -- 42,000
Retirement of Treasury Stock.......... -- -- -- (28,943) (1,000) (125,000)
Net loss.............................. (1,979,000) -- -- -- -- --
------------ ----------- ---------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1994.............. 56,152,000 -- -- 13,921,649 348,000 63,149,000
Issuance of common stock on exercise
of stock options.................... 172,000 -- -- 86,500 2,000 220,000
Regulation S offering, net............ 3,471,000 -- -- 1,071,655 27,000 3,444,000
Tax benefit from exercise of stock
options............................. 38,000 -- -- -- -- 38,000
Retirement of Treasury Stock.......... -- -- -- (14,518) -- (50,000)
Warrants issued in connection with
debt................................ 90,000...... -- -- -- -- 90,000
Net income............................ 1,047,000 -- -- -- -- --
------------ ----------- ---------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1995.............. 60,970,000 -- -- 15,065,286 377,000 66,891,000
Issuance of common stock on exercise
of stock options.................... 550,000 -- -- 153,255 4,000 711,000
Issuance of stock in connection with
acquisitions........................ 65,809,000 $28,200,000 $3,400,000 4,477,720 112,000 34,097,000
Tax benefit from exercise of stock
options............................. 38,000 -- -- -- -- 38,000
Retirement of Treasury Stock.......... -- -- -- (45,517) (1,000) (164,000)
Dividend accrued on Preferred Stock... (88,000) -- -- -- -- --
Translation adjustment................ (12,000) -- -- -- -- --
Notes receivable from officers for
sale of shares...................... (155,000) -- -- -- -- --
Net loss.............................. (12,609,000) -- -- -- -- --
------------ ----------- ---------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1996.............. $114,503,000 $28,200,000 $3,400,000 19,650,744 $492,000 $101,573,000
============ =========== ========== ========== ======== ============
<CAPTION>
NOTES
RECEIVABLE
TREASURY STOCK CUMULATIVE FROM
------------------- TRANSLATION SALE OF
(DEFICIT) SHARES AMOUNT ADJUSTMENT SHARES
------------ ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993.............. $ (5,366,000) -- -- -- --
Issuance of common stock on exercise
of stock options.................... -- (28,943) $(126,000) -- --
Tax benefit from exercise of stock
options............................. -- -- -- -- --
Retirement of Treasury Stock.......... -- 28,943 126,000 -- --
Net loss.............................. (1,979,000) -- -- -- --
------------ ------- -------- -------- ---------
BALANCE, DECEMBER 31, 1994.............. (7,345,000) -- -- -- --
Issuance of common stock on exercise
of stock options.................... -- (14,518) (50,000) -- --
Regulation S offering, net............ -- -- -- -- --
Tax benefit from exercise of stock
options............................. -- -- -- -- --
Retirement of Treasury Stock.......... -- 14,518 50,000 -- --
Warrants issued in connection with
debt................................ -- -- -- -- --
Net income............................ 1,047,000 -- -- -- --
------------ ------- -------- -------- ---------
BALANCE, DECEMBER 31, 1995.............. (6,298,000) -- -- -- --
Issuance of common stock on exercise
of stock options.................... -- (45,517) (165,000) -- --
Issuance of stock in connection with
acquisitions........................ -- -- -- -- --
Tax benefit from exercise of stock
options............................. -- -- -- -- --
Retirement of Treasury Stock.......... -- 45,517 165,000 -- --
Dividend accrued on Preferred Stock... (88,000) -- -- -- --
Translation adjustment................ -- -- -- $(12,000) --
Notes receivable from officers for
sale of shares...................... -- -- -- -- $(155,000)
Net loss.............................. (12,609,000) -- -- -- --
------------ ------- -------- -------- ---------
BALANCE, DECEMBER 31, 1996.............. $(18,995,000) 0 $ 0 $(12,000) $(155,000)
============ ======= ======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 112
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.................................................. $(12,609,000) $ 1,047,000 $(1,979,000)
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................... 3,539,000 3,347,000 3,531,000
Leveraged lease valuation adjustment............................. -- -- 500,000
Deferred income taxes............................................ 2,139,000 475,000 (936,000)
Provisions for losses on accounts receivable..................... 606,000 451,000 595,000
Gain on sale of product line..................................... (360,000) -- --
Loss on disposal of property, plant and equipment................ -- 3,000 12,000
Purchased in-process research and development cost............... 12,800,000 -- --
Non-cash amounts included in merger related charges.............. 1,191,000 -- --
Non-cash amounts included in extraordinary loss.................. 476,000 -- --
Other............................................................ -- -- 7,000
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable............................................ (11,279,000) (3,117,000) (4,147,000)
Inventories, other current assets and recoverable and prepaid
income taxes................................................. (5,269,000) (1,000) (3,053,000)
Accounts and acceptances payable and accrued expenses.......... 12,536,000 (5,312,000) 4,183,000
------------ ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES................ 3,770,000 (3,107,000) (1,287,000)
INVESTING ACTIVITIES
Purchase of short-term investments................................. -- -- 1,998,000
Purchase of property, plant and equipment.......................... (1,085,000) (709,000) (1,123,000)
Acquisitions, net of cash acquired................................. (4,558,000) (668,000) --
Proceeds from the sale of property, plant, and equipment........... -- 19,000 --
Proceeds from sale of product line................................. 500,000 -- --
Proceeds from sale of assets under leveraged lease................. 487,000 -- --
Start up cost related to the St. Louis Distribution Center......... -- -- (171,000)
Notes receivable from officers..................................... (155,000) -- --
Net (increase) decrease in other assets............................ (228,000) 116,000 (30,000)
------------ ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES................ (5,039,000) (1,242,000) 674,000
FINANCING ACTIVITIES
Proceeds from notes payable to bank and long-term debt............. 27,310,000 2,054,000 1,673,000
Principal payments on long-term debt and notes payable............. (35,576,000) (1,226,000) (1,536,000)
Proceeds on exercise of stock options.............................. 550,000 172,000 192,000
Proceeds from issuance of common stock, net........................ -- 3,471,000 --
Proceeds from issuance of preferred stock in connection with an
acquisition...................................................... 10,000,000 -- --
------------ ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......................... 2,284,000 4,471,000 329,000
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... 1,015,000 122,000 (284,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..................... 226,000 104,000 388,000
------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................... $ 1,241,000 $ 226,000 $ 104,000
============ =========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid.................................................... $ 2,975,000 $ 2,522,000 $ 2,767,000
============ =========== ===========
Income taxes paid................................................ $ 187,000 $ 266,000 $ 260,000
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 113
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Graham-Field Health Products, Inc. and its
wholly-owned subsidiaries (the "Company") manufacture, market and distribute
medical, surgical and a broad range of other healthcare products into the home
healthcare and medical/surgical markets through a vast dealer network,
consisting of approximately 18,500 customers, principally hospital, nursing
home, physician and home health care dealers, health care product wholesalers
and retailers, including drug stores, catalog companies, pharmacies, and
home-shopping related businesses in North America. In addition, the Company has
increased its presence in Central and South America, Canada, Mexico, Europe and
Asia. The Company markets and distributes approximately 23,000 products under
its own brand names and under suppliers' names. For the year ended December 31,
1996, approximately 28% of the Company's revenues were derived from products
manufactured by the Company, approximately 18% of the Company's revenues were
derived from imported products and approximately 54% were derived from products
purchased from domestic sources, which includes products purchased from Everest
& Jennings prior to the acquisition.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries, each of which is wholly-owned.
All material intercompany accounts and transactions have been eliminated in
consolidation. Certain amounts in the Financial Statements of 1996 and all
earlier periods have been restated to reflect the Company's acquisition of
Medical Supplies of America, Inc. and Subsidiaries. This acquisition took place
on August 28, 1997 and was recorded on the Company's Financial Statements as a
"Pooling of Interests."
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are valued at the lower of cost or market value.
Cost is determined principally on the standard cost method for manufactured
goods and on the average cost method for other inventories, each of which
approximates actual cost on the first-in, first-out method.
Property, Plant and Equipment: Property, plant and equipment is recorded
at cost, less accumulated depreciation and amortization. Depreciation and
amortization is computed on the straight-line method over the lesser of the
estimated useful lives of the related assets or the lease term, where
appropriate.
Excess of Cost Over Net Assets Acquired: Excess of cost over net assets
acquired is generally amortized on a straightline basis over 30 to 40 years. The
carrying value of such costs are reviewed by management as to whether the facts
and circumstances indicate that an impairment may have occurred. If this review
indicates that such costs or a portion thereof will not be recoverable, as
determined based on the undiscounted cash flows of the entities acquired over
the remaining amortization period, the carrying value of these costs will be
measured by comparing the fair value of the group of assets acquired to the
carrying value. If fair values are unavailable, the carrying value will be
measured by comparing the carrying values to the discounted cash flows.
Impairment of Long-Lived Assets: Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This standard establishes the accounting for the impairment of
long-lived assets, certain identifiable intangibles and the excess of cost over
net assets acquired, related to
F-9
<PAGE> 114
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
those assets to be held and used in operations, whereby impairment losses are
required to be recorded when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets and certain identifiable intangibles that are expected to be
disposed of. The adoption of SFAS No. 121 did not have a material effect on the
results of operations or financial condition of the Company.
Revenue Recognition Policy: The Company recognizes revenue when products
are shipped, with appropriate provisions for uncollectible accounts and credits
for returns.
Buy-Back Program: During the first quarter of 1996, the Company's
inventory buy-back program was introduced to provide an outlet for its customers
to eliminate their excess inventory. Under the program, the Company purchases
certain excess inventory from its customers, who in turn place additional
purchase orders with the Company exceeding the value of the excess inventory
purchased. The Company is able to utilize its vast customer base and
distribution network to market and distribute the excess inventory through its
division, National Medical Excess Corp. Substantially all of the medical
products purchased by the Company as part of the inventory buy-back program are
items not generally offered for sale by the Company. Items repurchased by the
Company which are identified as items previously sold by the Company to a
customer have been de minimus based on the Company's experience, and have been
recorded in accordance with the Company's normal revenue recognition policy.
Income Taxes: The Company and its subsidiaries file a consolidated Federal
income tax return. The Company uses the liability method in accounting for
income taxes in accordance with SFAS No. 109. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities, and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Net Loss/Income Per Common Share Information: Net loss per common share
for 1996 was computed using the weighted average number of common shares
outstanding and by assuming the accrual of a dividend of 1.5% on both the Series
B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") and
Series C Cumulative Convertible Preferred Stock (the "Series C Preferred Stock")
in the aggregate amount of $88,000. Conversion of the preferred stock and common
equivalent shares was not assumed since the result would have been antidilutive.
Net income per common share for 1995 was computed using the weighted average
number of common shares and dilutive common equivalent shares outstanding during
the period. Net loss per common share for 1994 was computed using the weighted
average number of common shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." This standard changes the method of calculating
earnings per share and will be effective for periods ending after December 15,
1997. Earlier application is not permitted; however, when adopted all prior
period earnings per share data presented will be required to be restated to
conform with the new standard.
Employee Stock Options: The Company has a stock option program which is
more fully described in Note 9. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Under the Company's stock option program, options are granted with an exercise
price equal to the market price of the underlying common stock of the Company on
the date of grant. Accordingly, no compensation expense is recognized in
connection with the grant of stock options.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The new standard defines a fair
value method of accounting for the issuance of stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to SFAS No. 123,
companies are encouraged, but are not required, to adopt the fair value method
of accounting for employee stock-based transactions. Companies are also
permitted to continue
F-10
<PAGE> 115
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to account for such transactions under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," but are required to disclose in
the financial statement footnotes, proforma net income and per share amounts as
if the Company had applied the new method of accounting for all grants made
during 1995 and 1996. SFAS No. 123 also requires increased disclosures for
stock-based compensation arrangements. Effective January 1, 1996, the Company
adopted the disclosure requirements of SFAS No. 123.
Concentration of Credit Risk: The Company manufactures, markets and
distributes medical, surgical and a broad range of other healthcare products
into the home healthcare and medical/surgical markets through a vast dealer
network consisting of approximately 18,500 customers, principally hospital,
nursing home, physician and home healthcare dealers, healthcare product
wholesaler and retailers, including drug stores, catalog companies, pharmacies
and home-shopping related business in North America. As a result of the
acquisition of Everest & Jennings International Ltd. ("Everest & Jennings") (see
Note 2), third party reimbursement through private or governmental insurance
programs and managed care programs impacts the Company's customers, which
affects a portion of the Company's business. Such impact is not material for
1996. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables
generally are due within 30 to 120 days. Credit losses relating to customers
have been consistently within management's expectations.
Concentration of Sources of Supply: Everest & Jennings' business is
heavily dependent on its maintenance of two key supply contracts. Everest &
Jennings obtains the majority of its homecare wheelchairs and wheelchair
components pursuant to an exclusive supply agreement (the "Exclusive Wheelchair
Supply Agreement") with P.T. Dharma Polimetal ("P.T. Dharma"). The term of this
agreement extends until December 31, 1999, and on each January 1 thereafter
shall be automatically extended for one additional year unless Everest &
Jennings elects not to extend or Everest & Jennings has failed to order at least
50% of the contractually specified minimums and the manufacturer elects to
terminate. If the Exclusive Wheelchair Supply Agreement with P.T. Dharma is
terminated, there can be no assurance that Everest & Jennings will be able to
enter into a suitable supply agreement with another manufacturer. In addition,
Everest & Jennings obtains homecare beds for distribution pursuant to a supply
agreement with Healthtech Products, Inc., a wholly-owned subsidiary of Invacare
Corporation (which is a major competitor of Everest & Jennings), which is
scheduled to expire on October 15, 1997. Although the Company is in the process
of securing alternative sources of supply with other manufacturers, there can be
no assurance that arrangements as favorable as the current supply contract will
be obtainable.
Foreign Currency Translation: The financial statements of the Company's
foreign subsidiaries are translated into U.S. dollars in accordance with the
provisions of SFAS No. 52, "Foreign Currency Translation." Assets and
liabilities are translated at year-end exchange rates. Revenues and expenses are
translated at the average exchange rate for each year. The resulting translation
adjustments for each year are recorded as a separate component of stockholders'
equity. All foreign currency transaction gains and losses are included in the
determination of income and are not significant.
2. ACQUISITIONS OF BUSINESSES AND DISPOSAL OF PRODUCT LINE
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 (the
"Merger Agreement"), by and among the Company, Everest & Jennings, Everest &
Jennings Acquisition Corp., a wholly-owned subsidiary of the Company ("Sub"),
and BIL (Far East Holdings) Limited, a Hong Kong corporation and the majority
stockholder of Everest & Jennings ("BIL"). Under the terms of the Merger
Agreement, Sub was merged with and into Everest & Jennings with Everest &
Jennings continuing as the surviving corporation wholly-owned by the Company
(the "Merger").
In the Merger, each share of Everest & Jennings' common stock, par value
$.10 per share (the "Everest & Jennings Common Stock"), other than shares of
Everest & Jennings Common Stock cancelled pursuant to
F-11
<PAGE> 116
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Merger Agreement, was converted into the right to receive .35 shares of
common stock, par value $.025 per share, of the Company. The Company's common
stock was valued at $7.64 per share, which represents the average closing market
price of the Company's common stock for the period three business days
immediately prior to and three business days immediately after the announcement
of the execution of the Merger Agreement. There were 7,207,689 shares of Everest
& Jennings common stock outstanding on November 26, 1996, which converted into
2,522,691 shares of the Company's common stock. In addition, in connection with,
and at the effective time of the Merger:
(i) BIL was issued 1,922,242 shares of common stock of the Company in
consideration of the repayment of indebtedness owing by Everest & Jennings
in the amount of $24,989,151 to Hong Kong and Shanghai Banking Corporation
Limited, which indebtedness (the "HSBC Indebtedness") was guaranteed by
BIL. The proceeds of such stock purchase were contributed by the Company to
Everest & Jennings immediately following the Merger and used to discharge
the HSBC Indebtedness. The Company's common stock was valued at $7.64 per
share, which represents the average closing market price of the Company's
common stock for the period three business days immediately prior to and
three business days immediately after the announcement of the execution of
the Merger Agreement.
(ii) The Company issued $61 million stated value of the Series B
Preferred Stock to BIL in exchange for certain indebtedness of Everest &
Jennings owing to BIL and shares of Everest & Jennings preferred stock
owned by BIL. The Series B Preferred Stock is entitled to a dividend of
1.5% per annum payable quarterly, votes on an as-converted basis as a
single class with the Company's common stock and the Series C Preferred
Stock (as defined below), is not subject to redemption and is convertible
into shares of the common stock of the Company (x) at the option of the
holder thereof, at a conversion price of $20 per share (or, in the case of
certain dividend payment defaults, at a conversion price of $15.50 per
share), (y) at the option of the Company, at a conversion price equal to
current trading prices (subject to a minimum conversion price of $15.50 and
a maximum conversion price of $20 per share) and (z) automatically on the
fifth anniversary of the date of issuance at a conversion price of $15.50
per share. Such conversion prices are subject to customary antidilution
adjustments. Based on an independent valuation, the fair value ascribed to
the Series B Preferred Stock is $28,200,000.
(iii) BIL was issued $10 million stated value of the Series C
Preferred Stock, the proceeds of which are available to the Company for
general corporate purposes. The Series C Preferred Stock is entitled to a
dividend of 1.5% per annum payable quarterly, votes on an as-converted
basis as a single class with the Company Common Stock and the Series B
Preferred Stock, is subject to redemption as a whole at the option of the
Company on the fifth anniversary of the date of issuance at stated value
and, if not so redeemed, will be convertible into shares of the common
stock of the Company automatically on the fifth anniversary of the date of
issuance at a conversion price of $20 per share, subject to customary
antidilution adjustments. Based on an independent valuation, the fair value
ascribed to the Series C Preferred Stock is $3,400,000.
(iv) Certain indebtedness in the amount of $4 million owing by the
Company to BIL was exchanged for an equal amount of unsecured subordinated
indebtedness of the Company maturing on April 1, 2001 and bearing interest
at the effective rate of 7.7% per annum (the "BIL Note").
The acquisition of Everest & Jennings has been accounted for under the
purchase method of accounting and, accordingly, the operating results of Everest
& Jennings have been included in the Company's consolidated financial statements
since the date of acquisition. The Company allocated $12,800,000 of the purchase
price to purchased in-process research and development projects which have not
reached technological feasibility and have no probable alternative future uses.
The Company expensed the purchased in-process and research development projects
at the date of acquisition. As a result of the acquisition, the Company incurred
$3.0 million of merger related expenses, principally for severance payments, the
write-off of certain
F-12
<PAGE> 117
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unamortized catalog and software costs with no future value, the accrual of
costs to vacate certain of the Company's facilities, and certain insurance
policies. The excess of the aggregate purchase price over the estimated fair
market value of the net assets acquired was approximately $62.2 million, which
is being amortized on a straight line basis over 30 years. The purchase price
allocations have been completed on a preliminary basis, subject to adjustment
should new or additional facts about the business become known. From the date of
acquisition, Everest & Jennings contributed approximately $3,634,000 of revenue
for the quarter and year ended December 31, 1996.
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 common stock of the Company,
valued at $7.625 per share representing the closing market price of the common
stock of the Company 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 were delivered into escrow, and will be held in escrow
until February 4, 1998, subject to any claims for indemnification for purchase
price adjustments 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 $988,000.
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 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. Since this acquisition, which took
place on August 28, 1997, is recorded in the Company's Financial Statements as a
"Pooling of Interests" all prior period statements have been restated to reflect
this transaction.
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 for periods prior to the combination have been restated to include
the results of Medapex for all periods presented.
F-13
<PAGE> 118
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues:
Graham-Field..................................... $127,245,000 $100,403,000 $ 94,501,000
Medapex.......................................... 16,397,000 12,011,000 11,525,000
------------ ------------ ------------
Combined......................................... $143,642,000 $112,414,000 $106,026,000
============ ============ ============
Extraordinary loss, net:
Graham-Field..................................... $ (736,000) $ -- $ --
Medapex.......................................... -- -- --
------------ ------------ ------------
Combined......................................... $ (736,000) $ -- $ --
============ ============ ============
Net (loss) income:
Graham-Field..................................... $(12,951,000) $ 738,000 $ (2,356,000)
Medapex.......................................... 342,000 309,000 377,000
------------ ------------ ------------
Combined......................................... $(12,609,000) $ 1,047,000 $ (1,979,000)
============ ============ ============
</TABLE>
The following summary presents unaudited pro forma consolidated results of
operations for the years ended December 31, 1996 and 1995 as if the acquisitions
described above occurred at the beginning of each of 1996 and 1995. 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. Both the 1996 and 1995 pro forma
information includes the write-off of certain purchased in-process research and
development costs of $12,800,000, merger related expenses of $3,000,000, and the
extraordinary item relating to the early retirement of indebtedness applicable
to the Guaranteed Senior Notes. The pro forma net loss per common share has been
calculated by 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
$1,065,000 for each of the years ended December 31, 1996 and 1995. Conversion of
the preferred stock was not assumed since the result would have been
antidilutive.
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net Revenues............................................ $203,919,000 $184,364,000
------------ ------------
Loss Before Extraordinary Item.......................... $(21,088,000) $(18,692,000)
------------ ------------
Net Loss................................................ $(21,824,000) $(19,428,000)
------------ ------------
Common Per Share Data:
Loss Before Extraordinary Item.......................... $ (1.13) $ (1.05)
------------ ------------
Net Loss................................................ $ (1.17) $ (1.09)
------------ ------------
Weighted Average Number of Common Shares Outstanding.... 19,632,000 18,755,000
------------ ------------
</TABLE>
On March 4, 1996, the Company sold its Gentle Expressions@ breast pump
product line for $1,000,000 of which $500,000 was paid in cash with the balance
in a secured subordinated promissory note in the aggregate principal amount of
$500,000, payable over 48 months with interest at the prime rate plus one
percent. The Company recorded a gain of $360,000, which is included in other
revenue in the accompanying condensed consolidated statements of operations.
F-14
<PAGE> 119
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective July 1, 1995, the Company acquired substantially all of the
assets and liabilities of National Medical Excess Corp. ("NME"), a distributor
of used and refurbished medical products, including respiratory and durable
medical equipment. The NME acquisition was accounted for under the purchase
method of accounting and accordingly, assets and liabilities were recorded at
fair values at the date of acquisition. Results of operations of NME are
included in the consolidated financial statements of the Company subsequent to
that date. The purchase price, including acquisition expenses, was approximately
$723,000 in cash, plus the assumption of certain liabilities. The excess of cost
over the net assets acquired amounted to approximately $677,000.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Raw materials....................................... $ 8,423,000 $ 2,871,000
Work-in-process..................................... 4,430,000 1,620,000
Finished goods...................................... 35,392,000 26,748,000
----------- -----------
$48,245,000 $31,239,000
=========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Land and buildings................................. $ 1,462,000 $ 333,000
Equipment.......................................... 17,490,000 14,833,000
Furniture and fixtures............................. 1,629,000 1,600,000
Leasehold improvements............................. 2,222,000 1,958,000
----------- -----------
22,803,000 18,724,000
Accumulated depreciation and amortization.......... (11,539,000) (10,125,000)
----------- -----------
$ 11,264,000 $ 8,599,000
=========== ===========
</TABLE>
The Company recorded depreciation and amortization expense on the assets
included in property, plant and equipment of $1,778,000, $1,704,000 and
$1,762,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
5. INVESTMENT IN LEVERAGED LEASE
The Company was the lessor in a leveraged lease agreement entered into in
December 1983, under which helicopters, having an estimated economic life of at
least 22 years, were leased for a term of 16 years. The Company's equity
investment represented 9% of the purchase price; the remaining 91% was furnished
by third-party financing in the form of long-term debt that provided for no
recourse against the Company and was secured by a first lien on the property. At
the end of the lease term, the equipment was to be returned to the Company. The
residual value was estimated to be 57% of the cost. As a result of certain
market conditions and technological advancements, the Company recorded a charge
in the fourth quarter of 1994 of approximately $500,000, which was included in
selling, general and administrative expenses, to reflect the estimated
impairment of the residual value of the helicopters.
F-15
<PAGE> 120
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1996, the Company liquidated its investment in the leveraged lease
agreement. The cash proceeds of $487,000 approximated the recorded net
investment in the lease at December 31, 1995.
6. NOTES AND ACCEPTANCES PAYABLE
On December 10, 1996, the Company entered into a syndicated three-year
senior secured revolving credit facility (the "Credit Facility") for up to $55
million of borrowings, including letters of credit and banker's acceptances,
arranged by IBJ Schroder Bank & Trust Company ("IBJ Schroder"), as agent. The
proceeds from the Credit Facility were used to (i) refinance certain existing
indebtedness of the Company, including the indebtedness (a) under the terms of
the Note and Warrant Agreement dated as of March 12, 1992, as amended (the "John
Hancock Note and Warrant Agreement"), with John Hancock Mutual Life Insurance
Company ("John Hancock") (see Note 8), and (b) to The Chase Manhattan Bank,
under the line of credit, (see below); 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 IBJ Schroder's prime rate (8.25% at
December 31, 1996) or 2.25% above LIBOR, or 1.5% above the IBJ Schroder's
bankers' acceptance rate. The Credit Facility is secured by the Company's
inventory and proceeds thereof.
The Credit Agreement 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 become effective as of the end of the fiscal quarter ending June 30, 1997,
and include a cash flow coverage and leverage ratio, and require specified
levels of earnings before interest and taxes.
Pursuant to 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 net income of the Company
on a consolidated basis, provided, that no event of default or default shall
have occurred and be continuing or would exist after giving effect to the
payment of the dividends.
At December 31, 1995, the Company had an unsecured line of credit with The
Chase Manhattan Bank available for letters of credit, acceptances and direct
borrowings. The total amount available under the line of credit was $15,000,000.
The line was available for direct borrowings in the amount of up to $5,000,000
and provided for commercial letter of credit and bankers acceptances. This line
of credit expired on December 31, 1996; however, amounts outstanding at that
date for bankers acceptances and letters of credit mature through March 31,
1997.
At December 31, 1996, the Company had aggregate direct borrowings under
both banks' facilities of $13,985,000 and acceptances payable of $19,800,000.
The weighted average interest rate on the amounts outstanding as of December 31,
1996 was 7.65%. Open letters of credit at December 31, 1996 were $1,568,000
relating to trade credit and $6.0 million for other requirements.
At December 31, 1995, the Company had direct borrowings of $2,100,000 and
$5,000,000 utilized under acceptances payable. The weighted average interest
rate on the amounts outstanding as of December 31, 1995 was 8.6%.
F-16
<PAGE> 121
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Note payable to BIL(a)................................ $4,000,000 --
Notes payable to International Business Machines Corp.
("IBM")(b).......................................... 1,019,000 $1,550,000
Capital lease obligations(c).......................... 1,344,000 --
Other(d).............................................. 2,188,000 490,000
---------- ----------
8,551,000 2,040,000
Less current maturities............................... 2,016,000 578,000
---------- ----------
$6,535,000 $1,462,000
========== ==========
</TABLE>
- ---------------
(a) On July 18, 1996, an affiliate of BIL provided the Company with a loan in
the amount of $4,000,000, 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. In connection with the acquisition of Everest & Jennings, the
indebtedness owing by the Company to BIL was exchanged for the BIL Note.
Under the terms of the BIL Note, the Company has the right to reduce the
principal amount of the BIL Note in the event punitive damages are awarded
against the Company or any of its subsidiaries which relate to any existing
product liability claims of Everest & Jennings and/or its subsidiaries
involving a death prior to September 3, 1996.
(b) In connection with the development of the Company's St. Louis Distribution
Center, the Company entered into an agreement with IBM to provide the
computer hardware and software, and all necessary warehousing machinery and
equipment including installation thereof. This project was primarily
financed through IBM by the issuance of the Company's unsecured notes which
corresponded to various components of the project. The unsecured notes
mature through October 2000, with interest rates ranging from 7.68% to
11.53%.
(c) At December 31, 1996, the Company is obligated under certain lease
agreements for equipment which have been accounted for as capital leases.
The capital leases were acquired in connection with the acquisition of
Everest & Jennings. Future minimum payments in the aggregate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
------------------------------------------------- ----------
<S> <C>
1997............................................. $ 954,000
1998............................................. 476,000
1999............................................. 13,000
----------
Total............................................ 1,443,000
Less amounts representing interest............... 99,000
----------
Present value of future minimum lease payments... $1,344,000
==========
</TABLE>
The net book value of assets held under capital lease obligations amounted
to $424,000 at December 31, 1996.
(d) Other long-term debt consists primarily of a mortgage payable in the amount
of $1,100,000 due in monthly installments of $22,906 through November 1998,
with a final payment of approximately $570,000 due on November 30, 1998, and
bearing interest at prime plus one-half percent. In addition, the Company
has a credit facility for its Mexican subsidiary, of which $500,000 was
outstanding as of December 31, 1996. Borrowings under the credit facility
bear interest at approximately 13%. The Mexican borrowings are secured by
the assets of the Mexican subsidiary. The borrowings are payable in
F-17
<PAGE> 122
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
semi-annual installments of $100,000 through 1999. Also, the Company assumed
debt in the amount of $478,000 pursuant to its acquisition of Medapex's
principal headquarters in Atlanta. This debt is in the form of a note
payable (the "Note") to the local bank with a remaining term of
approximately 7 years. The Note, which is collateralized by the principal
headquarters, requires the payment of interest at 72% of the current prime
rate (8.5% as of the date which the Company assumed the Note). Since this
acquisition, which took place on August 28, 1997, is recorded in the
Company's Financial Statements as a "Pooling of Interests" all prior period
statements have been restated to reflect this transaction.
The scheduled maturities of the long-term debt obligations, excluding the
present value of minimum payments on capital lease obligations, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
------------------------------------------------- ----------
<S> <C>
1997............................................. $1,166,000
1998............................................. 1,484,000
1999............................................. 192,000
2000............................................. 86,000
2001 and beyond.................................. 4,279,000
----------
$7,207,000
==========
</TABLE>
8. GUARANTEED SENIOR NOTES
On March 12, 1992, under the John Hancock Note and Warrant Agreement, the
Company privately sold at par to John Hancock its 8.28% Guaranteed Senior Notes
due February 29, 2000 (the "Guaranteed Senior Notes"), in the aggregate
principal amount of $20,000,000 (the "John Hancock Indebtedness"), and five-year
warrants to purchase 125,000 shares of the common stock of the Company at an
exercise price of $12 per share. During 1993, the John Hancock Note and Warrant
Agreement was amended to modify the terms of certain financial covenants and the
terms of the warrants issued to John Hancock. The amendment to the John Hancock
Note and Warrant Agreement provided for, among other things, an increase in the
number of shares available for issuance under the warrants from 125,000 shares
to 250,000 shares of the common stock of the Company (the "Initial Warrants"), a
reduction in the exercise price of the warrants from $12.00 to $5.50 per share,
and an extension of the expiration date of the warrants to February 29, 2000.
The Initial Warrants, which were revalued as of the date of amendment, have been
valued at $365,000, and are being amortized as additional interest over the
remaining term of the debt. At December 30, 1994, the John Hancock Note and
Warrant Agreement was amended to modify the terms of certain financial
covenants. In connection with the amendment, the Company issued to John Hancock
additional warrants to purchase 90,000 shares of the common stock of the Company
(the "Additional Warrants") at an exercise price of $5.25 per share, with an
expiration date of February 29, 2000. The Additional Warrants were valued at
$90,000 and were amortized as additional interest over the remaining term of the
debt. As a result of the Company's offshore private placement of 1,071,655
shares of common stock completed in September 1995, additional warrants to
purchase 5,336 shares of the common stock of the Company were issued to John
Hancock. In connection with the Company's offshore private placement, the
exercise prices of the warrants were adjusted from $5.50 per share to $5.42 per
share with respect to the Initial Warrants and from $5.25 per share to $5.17 per
share with respect to the Additional Warrants.
In connection with the issuance and amendments to the Guaranteed Senior
Notes, issuance costs of approximately $506,000, net of accumulated amortization
of $331,000, were included in other assets at December 31, 1995. Such costs were
amortized over the term of the Guaranteed Senior Notes.
During December 1996, the Company retired the John Hancock Indebtedness
with proceeds from the Company's Credit Facility with IBJ Schroder. In
connection with the early retirement of the John Hancock
F-18
<PAGE> 123
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Indebtedness, the Company incurred charges relating to the "make-whole" payment
and the write-off of all unamortized financing costs associated with the John
Hancock Note and Warrant Agreement. The charges amounted to $736,000 (net of a
tax benefit of $383,000), and are reported as an extraordinary item in the
accompanying consolidated statements of operations.
9. STOCKHOLDERS' EQUITY
On March 23, 1989, the Company declared, and on July 21, 1989 the
stockholders approved, a dividend distribution to stockholders of record on July
21, 1989 of one right for each outstanding share of the Company's common stock
pursuant to a Rights Agreement dated as of July 21, 1989, between the Company
and American Stock Transfer & Trust Company, as Rights Agent (the "1989 Rights
Agreement").
On September 3, 1996, immediately prior to the execution of the Merger
Agreement, the Company entered into an amendment to the 1989 Rights Agreement,
with the effect of exempting the events and transactions contemplated by the
Merger Agreement and the Amended and Restated Stockholder Agreement dated as of
September 3, 1996, as amended on September 19, 1996, by and among the Company
and Irwin Selinger (the "Stockholder Agreement"), from the 1989 Rights
Agreement. In addition, on that date the rights previously issued under the 1989
Rights Agreement were called for redemption on September 17, 1996.
On September 3, 1996, the Company also entered into a new Rights Agreement
with American Stock Transfer & Trust Company, as Rights Agent (the "1996 Rights
Agreement"). As contemplated by the 1996 Rights Agreement, the Company's Board
of Directors declared a dividend of one new preferred share purchase right (a
"Right") for each outstanding share of the common stock of the Company
outstanding on September 17, 1996. Each Right entitles the holder thereof to
purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company (the
"Preferred Shares") at a price of $35.00 per one one-hundredth of a Preferred
Share, subject to adjustment as provided in the 1996 Rights Agreement.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons have acquired (an
"Acquiring Person") beneficial ownership of 15% or more of the outstanding
shares of capital stock of the Company entitled generally to vote in the
election of directors ("Voting Shares") or (ii) 10 business days (or such later
date as may be determined by action of the Board of Directors prior to such time
as any person or group of affiliated persons becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in a person or
group becoming an Acquiring Person (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
common stock certificates outstanding as of the record date, by such common
stock certificate. Notwithstanding the foregoing, BIL will not be an Acquiring
Person by virtue of its ownership of any Voting Shares acquired in accordance
with the Merger Agreement or the Stockholder Agreement (the "BIL Voting
Shares"), but BIL will become an Acquiring Person if it acquires any Voting
Shares other than BIL Voting Shares or shares distributed generally to the
holders of any series or class of capital stock of the Company. In addition, the
1996 Rights Agreement contains provisions exempting the Merger and the other
events and transactions contemplated by the Merger Agreement and the Stockholder
Agreement from the 1996 Rights Agreement.
The 1996 Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the common stock of the Company. The Rights are not
exercisable until the Distribution Date. The Rights will expire on September 3,
2006.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an
F-19
<PAGE> 124
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
aggregate dividend of 100 times the dividend declared per share of common stock
of the Company. In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of $100 per share
but will be entitled to an aggregate payment of 100 times the payment made per
share of common stock. Each Preferred Share will have 100 votes, voting together
with the shares of common stock of the Company. In the event of any merger,
consolidation or other transaction in which the common stock of the Company is
exchanged, each Preferred Share will be entitled to receive 100 times the amount
received per share of common stock of the Company. The Rights are protected by
customary antidilution provisions. Because of the nature of the Preferred
Shares' dividend, liquidation and voting rights, the value of the one
one-hundredth interest in a Preferred Share purchasable upon exercise of each
Right should approximate the value of one share of common stock of the Company.
In the event the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, the 1996 Rights Agreement provides that proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive (subject to adjustment) upon exercise that
number of shares of common stock of the Company having a market value of two
times the exercise price of the Right. At any time after any person or group
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding Voting Shares, the Board of Directors of the
Company may exchange the Rights (other than Rights owned by such person or
group, which will have become void), in whole or in part, at an exchange ratio
of one share of common stock, or one one-hundredth of a Preferred Share (or of a
share of a class or series of the Company's preferred stock having equivalent
rights, preferences and privileges), per Right (subject to adjustment).
At any time prior to a person or group of affiliated or associated persons
becoming an Acquiring Person, the Board of Directors of the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"). The redemption of the Rights may be made effective at such
time on such basis with such conditions as the Board of Directors in its sole
discretion may establish. Immediately upon any redemption of the Rights in
accordance with this paragraph, the right to exercise the Rights will terminate
and the only right of the holder of the Rights will be to receive the Redemption
Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to (a) lower certain thresholds described above to not less than the greater of
(i) any percentage greater than the largest percentage of the outstanding Voting
Shares then known to the Company to be beneficially owned by any person or group
of affiliated or associated persons and (ii) 10%, (b) fix a Final Expiration
Date later than September 3, 2006, or (c) reduce the Redemption Price, (d)
increase the Purchase Price, except that from and after such time as any person
or group of affiliated or associated persons becomes an Acquiring Person no such
amendment may adversely affect the interests of the holders of the Rights (other
than the Acquiring Person and its affiliates and associates).
As long as the Rights are attached to the common stock of the Company, the
Company will issue one Right with each new share of common stock so that all
such shares will have Rights attached. The Company's Board of Directors has
reserved for issuance 300,000 Preferred Shares upon exercise of the Rights.
F-20
<PAGE> 125
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 27, 1996, in connection with the acquisition of Everest &
Jennings (see Note 2), the Company issued $61 million stated value of Series B
Preferred Stock and $10 million stated value of Series C Preferred Stock to BIL,
and issued an aggregate of 4,444,933 shares of the Company's common stock. The
Series B Preferred Stock is entitled to a dividend of 1.5% per annum payable
quarterly, votes on an as-converted basis as a single class with the common
stock of the Company and the Series C Preferred Stock, is not subject to
redemption and is convertible into shares of the common stock of the Company (x)
at the option of the holder thereof, at a conversion price of $20 per share (or,
in the case of certain dividend payment defaults, at a conversion price of
$15.50 per share), (y) at the option of the Company, at a conversion price equal
to current trading prices (subject to a minimum conversion price of $15.50 and a
maximum conversion price of $20 per share) and (z) automatically on the fifth
anniversary of the date of issuance at a conversion price of $15.50 per share.
Such conversion prices are subject to customary antidilution adjustments.
The Series C Preferred Stock is entitled to a dividend of 1.5% per annum
payable quarterly, votes on an as-converted basis as a single class with the
common stock of Company and the Series B Preferred Stock, is subject to
redemption as a whole at the option of the Company on the fifth anniversary of
the date of issuance at stated value and, if not so redeemed, will be
convertible into shares of the common stock of the Company automatically on the
fifth anniversary of the date of issuance at a conversion price of $20 per
share, subject to customary antidilution adjustments.
In September 1995, the Company completed an offshore private placement of
1,071,655 shares of the common stock of the Company with various European
institutional investors. The net proceeds of $3,471,000 realized from the
offering were used for general corporate purposes.
On November 27, 1996, the Company amended its certificate of incorporation
to provide for, among other things, an increase in the number of authorized
shares of common stock from 40,000,000 to 60,000,000 shares.
On September 4, 1996, the Company acquired substantially all of the assets
of V.C. Medical, in consideration of the issuance of 32,787 shares of the common
stock.
Under the Company's stock option program, the Company is authorized to
grant incentive stock options, non-qualified stock options, stock appreciation
rights, restricted stock grants and restored options. Incentive stock options
may be granted at not less than 100% (110% for owners of more than 10% of the
Company's outstanding common stock) of the fair market value of the Company's
common stock at the date of grant. Stock options outstanding under the program
generally vest and are exercisable at a rate of 50% per annum. Effective as of
December 21, 1995, directors' options to purchase 10,000 shares of the common
stock of the Company are granted to eligible directors each January 2, at an
exercise price equal to the fair market value of the common stock at the date of
grant. Directors' options are exercisable one-third each year for three years,
and have a term of ten years. Incentive and non-qualified options expire five
years from the date of grant.
In 1992, the Company amended its stock option program to increase the
maximum number of shares available under the program from 900,000 to 1,500,000.
In 1995, the Company amended its stock option program to increase the maximum
number of shares available under the program from 1,500,000 to 2,100,000. In
1996, the plan was further amended to increase the maximum number of shares
available from 2,100,000 to 3,000,000.
During 1996, 1995 and 1994, officers of the Company surrendered 45,517,
14,518 and 28,943 shares, respectively, of the Company's common stock with a
fair market value of $165,000, $50,000 and $126,000, respectively, in
satisfaction of the exercise price of stock options to purchase 50,000, 25,000
and 58,187 shares, respectively, of common stock of the Company. The shares
received in satisfaction of the exercise price of stock options were recorded as
treasury stock and were retired on a quarterly basis as authorized by the Board
of Directors. Accordingly all such shares have been restored as authorized and
unissued shares of common stock.
F-21
<PAGE> 126
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has elected to comply with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternate fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models which were not developed for use in valuing employee stock options. Under
APB 25, no compensation expense is recognized in connection with the grant of
stock options under the Company's stock option program.
In accordance with FASB Statement No. 123, pro-forma information regarding
net loss and loss per common share has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995, respectively: risk-free interest rate of 6.5%;
dividend yields on the preferred stock of 1.5%, volatility factors of the
expected market price of the Company's common stock of .41 and .42; and a
weighted-average expected life of the option of 3.2 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. In management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options due to changes in subjective input assumptions which may materially
affect the fair value estimate, and because the Company's employee stock options
have characteristics significantly different from those of traded options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro-forma information is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ --------
<S> <C> <C>
Pro forma net (loss) income........................ $(13,098,000) $953,000
Pro forma net (loss) income per share.............. $ (.85) $ .07
</TABLE>
FASB Statement No. 123 is applicable only to options granted subsequent to
December 31, 1994. Accordingly, the pro forma effect will not be fully reflected
until 1997.
F-22
<PAGE> 127
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information with respect to options during the years ended December 31,
1996 and 1995 under FASB Statement No. 123 and for the year ended December 31,
1994 under APB 25 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- ------------------- -------------------------
WEIGHTED WEIGHTED OPTION
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding -- beginning
of year....................... 912,645 $ 5.49 818,379 $ 6.10 824,886 $ 2.00-$11.75
Options granted:
Incentive options............. 699,121 6.45 257,432 3.47 144,278 $4.125-$5.913
Directors' options............ 90,000 3.25 91,852 3.65 50,000 $ 4.75-$5.375
Non-qualified options......... 91,764 6.02 -- 29,165 $4.125-$5.913
Options exercised............... (103,255) (3.83) (86,500) (2.58) (149,250) $ 2.00-$ 3.00
Options cancelled and expired... (47,100) (4.87) (168,518) (5.79) (80,700) $ 2.00-$11.75
---------- ------ --------- ------ --------
Options outstanding -- end of
year.......................... 1,643,175 $ 5.77 912,645 $ 5.49 818,379 $ 2.00-$11.75
========== ====== ========= ====== ========
Options exercisable at end of
year.......................... 582,244 $ 5.45 483,929 $ 4.95 507,686
========== ====== ========= ====== ========
Weighted average fair value of
options granted during the
year.......................... $ 2.10 $ 1.20
========== =========
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS RANGE OF EXERCISE PRICES
-------------------------------------------------------- ------------------------
<S> <C>
20,000............................................... $2.00-$2.99
409,535................................................ 3.00- 3.99
198,922................................................ 4.00- 4.99
194,400................................................ 5.00- 5.99
44,000............................................... 6.00- 6.99
725,050................................................ 7.00- 7.99
51,268............................................... Over 8.00
----------
1,643,175
==========
</TABLE>
The weighted average remaining contractual life of those options is 5
years.
Shares of common stock reserved for future issuance as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
Stock options................................................ 2,240,163
Warrants issued to John Hancock.............................. 345,336
Series B Preferred Stock..................................... 3,935,483
Series C Preferred Stock..................................... 500,000
---------
7,020,982
=========
</TABLE>
The exercise of non-qualified stock options and disqualifying dispositions
of incentive stock options resulted in Federal and state income tax benefits to
the Company equal to the difference between the market price at the date of
exercise or sale of stock and the exercise price of the option. Accordingly,
during 1996, 1995 and 1994, approximately $38,000, $38,000 and $42,000,
respectively, was credited to additional paid in capital.
F-23
<PAGE> 128
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
At December 31, 1996, the Company had aggregate net operating loss
carryforwards of approximately $22,745,000 for income tax purposes which expire
at various dates from 2008 to 2010, of which approximately $20,480,000 were
acquired in connection with the Everest & Jennings acquisition and expire
primarily in 2010 and are limited as to use in any particular year. In addition,
at December 31, 1996, the Company had approximately $890,000 (net of a 35%
reduction of investment tax credits as a result of the Tax Reform Act of 1986)
of investment, research and development, jobs tax and AMT credits, for income
tax purposes which expire primarily in 1999, and which includes alternative
minimum tax credits of $500,000 which have no expiration date. The Company has
provided a valuation allowance in the fourth quarter of 1996 amounting to
approximately $400,000, since the credits are available only through the
expiration dates, and only after the utilization of available net operating loss
carryforwards. In 1995, the Company recorded deferred State tax benefits
previously not recognized as a component of the net operating loss
carryforwards.
For financial reporting purposes, due to prior years losses of Everest &
Jennings, and SRLY limitations, a full valuation allowance of approximately
$14,494,000 has been recognized in the purchase of Everest & Jennings to offset
the net deferred tax assets related to the acquired tax attributes. If realized,
the tax benefit for those items will be recorded as a reduction to the excess
cost over net assets acquired. In addition, the Company has provided an
additional valuation allowance of $600,000 against a portion of its remaining
net deferred tax asset at December 31, 1996 due to the recent acquisition of
Everest & Jennings. The amount of the remaining deferred tax asset considered
realizable could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards........................ $ 7,893,000 $3,043,000
Tax credits............................................. 890,000 744,000
Accounts receivable allowances.......................... 2,600,000 723,000
Inventory related....................................... 2,575,000 1,226,000
Deferred rent........................................... 382,000 403,000
Other reserves and accrued items........................ 4,765,000 77,000
------------ ----------
19,105,000 6,216,000
Valuation allowance for deferred assets................. (15,549,000) (55,000)
------------ ----------
Total deferred tax assets................................. 3,556,000 6,161,000
============ ==========
Deferred Tax Liabilities:
Tax in excess of book depreciation...................... 1,696,000 1,713,000
Leveraged lease......................................... -- 506,000
Prepaid expenses........................................ 254,000 250,000
Amortization of intangibles............................. 668,000 477,000
Other................................................... -- 131,000
------------ ----------
Total deferred tax liabilities............................ 2,618,000 3,077,000
------------ ----------
Net deferred tax assets................................... $ 938,000 $3,084,000
============ ==========
</TABLE>
F-24
<PAGE> 129
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- ---------
<S> <C> <C> <C>
Current:
Federal........................................ $ 328,000 $129,000 $ 177,000
State and local................................ 86,000 71,000 44,000
Foreign........................................ 9,000 -- --
---------- -------- ---------
423,000 200,000 221,000
Deferred Federal and state....................... 2,495,000 494,000 (956,000)
---------- -------- ---------
$2,918,000 $694,000 $(735,000)
========== ======== =========
</TABLE>
The following is a reconciliation of income tax computed at the Federal
statutory rate to the provision for taxes:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ------------------ ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ------- -------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax expense (benefit) computed at statutory
rate..................................... $(3,045,000) (34)% $592,000 34% $ (923,000) (34)%
Expenses not deductible for income tax
purposes:
Amortization of excess of cost over net
assets acquired........................ 276,000 3% 286,000 16% 239,000 9%
In-process R&D costs..................... 4,352,000 49% -- -- -- --
Other.................................... 32,000 -- 7,000 1% 43,000 1%
State tax expense (benefit), net of Federal
benefit.................................. 303,000 3% 121,000 7% (94,000) (3)%
Previously unrecognized State tax
benefits................................. -- -- (312,000) (18)% -- --
Valuation allowance on net deferred tax
assets................................... 1,000,000 11% -- -- -- --
---------- --- --------- --- ------------ ---
$ 2,918,000 32% $694,000 40% $ (735,000) (27)%
========== === ========= === ============ ===
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
employees of its subsidiary, Everest & Jennings Inc. and two non-contributory
defined benefit pension plans for the non-bargaining unit salaried employees
("Salaried Plan") and employees subject to collective bargaining agreements
("Hourly Plan") at its Smith & Davis subsidiary. Effective May 1, 1991, benefits
accruing under the Everest & Jennings, Inc. Pension Plan were frozen. During
1991, Everest & Jennings froze the Hourly Plan and purchased participating
annuity contracts to provide for accumulated and projected benefit obligations.
Everest & Jennings also froze the Salaried Plan effective as of January 1, 1993.
Accordingly, no pension cost has been reflected in the accompanying statement of
operations.
F-25
<PAGE> 130
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the status of these plans and the amounts
recognized in the Company's consolidated financial statements.
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................................. $17,567,000
-----------
Accumulated benefit obligation........................................ $17,567,000
-----------
Projected benefit obligation for services rendered to date.............. $17,567,000
Plan assets at fair value, primarily listed stocks, bonds, investment
funds and annuity contracts........................................... 14,746,000
-----------
Projected benefit obligation in excess of plan assets................... 2,821,000
Unrecognized transition amount.......................................... --
Unrecognized loss from change in discount rate.......................... --
-----------
Pension liability (current portion of $1,069,000)....................... $ 2,821,000
===========
</TABLE>
The following assumptions were used to determine the projected benefit
obligations and plan assets:
<TABLE>
<CAPTION>
EVEREST & JENNINGS, SMITH & DAVIS
INC. PLAN PLANS
------------------- -------------
1996 1996
------------------- -------------
<S> <C> <C>
Weighted-average discount rate........................ 7.5% 7.5%
Expected long-term rate of return on assets........... 9.0% 9.0%
</TABLE>
No long-term rate for compensation increases were assumed as all
participants are inactive and the plans are frozen.
The Company also sponsors three 401(k) Savings and Investment Plans. One
plan covers all full-time employees of the Company's wholly-owned subsidiary,
Everest & Jennings, the other plan covers all full-time employees of the
Company's wholly-owned subsidiary, Medapex, and the last plan covers the
remaining employees of the Company. The Company does not contribute to its plan
and the Everest & Jennings' plan. The Medapex plan matches 25% of the employees
contribution up to a maximum contribution of 6% of the employee's salary.
Amounts expensed for the Medapex plan for the fiscal years 1996 and 1995 were
immaterial.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments as of December 31, 1996 and 1995, for
which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amounts reported in the
accompanying balance sheets approximate fair value.
Notes and acceptances payable: The carrying amounts of the Company's
borrowings under its credit facility approximate their fair value.
Long-term debt: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's
incremental borrowing rates for similar types of borrowing arrangements. At
December 31, 1996 and 1995, the carrying amount reported approximates fair
value.
Investment in leveraged lease: The carrying amounts reported in the
accompanying balance sheet for 1995 approximate fair value. Fair value is
determined based on the current value of the underlying assets.
F-26
<PAGE> 131
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Guaranteed Senior Notes: The fair value of the Company's Guaranteed Senior
Notes is estimated using a discounted cash flow analysis based on current rates
offered to the Company for debt of the same remaining maturity. At December 31,
1995, the fair value of such debt was approximately $19,200,000.
13. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is a party to a number of noncancellable lease agreements for
warehouse space, office space and machinery and equipment rental. As of December
31, 1996 the agreements extend for various periods ranging from 1 to 11 years
and certain leases contain renewal options. Certain leases provide for payment
of real estate taxes and include escalation clauses.
For those leases which have escalation clauses, the Company has recorded
rent expense on a straight-line basis. At December 31, 1996 and 1995, $933,000
and $984,000, respectively, of rent expense was accrued in excess of rental
payments made by the Company.
As of December 31, 1996, minimal annual rental payments under all
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
------------------------------------------------
<S> <C>
1997............................................ $ 3,174,000
1998............................................ 3,132,000
1999............................................ 3,007,000
2000............................................ 2,806,000
2001............................................ 2,788,000
Thereafter...................................... 11,230,000
-----------
$26,137,000
===========
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994
approximated $2,805,000, $2,400,000, and $2,549,000, respectively.
Legal Proceedings
On June 19, 1996, a class action lawsuit was filed on behalf of all
stockholders of Everest & Jennings (other than the named defendants) in the
Delaware Court of Chancery, following announcement on June 17, 1996 of the
original agreement in principle between Everest & Jennings and the Company. The
class action names as defendants the Company, Everest & Jennings, Everest &
Jennings' directors, and BIL. The class action challenges the transactions
contemplated by the original agreement in principle, alleging, among other
things, that (i) such transactions were an attempt to eliminate the public
stockholders of Everest & Jennings at an unfair price, (ii) BIL will receive
more value for its holdings in Everest & Jennings than its minority
stockholders, (iii) the public stockholders will not be adequately compensated
for the potential earnings of Everest & Jennings, (iv) BIL and the directors of
Everest & Jennings breached or aided and abetted the breach of fiduciary duties
owed to the stockholders (other than the defendants) by not exercising
independent business judgment and having conflicts of interest, and (v) the
Company aided and abetted and induced breaches of fiduciary duties by other
defendants by offering incentives to members of management, either in the form
of continued employment or monetary compensation and perquisites, in exchange
for their approval of the merger. The class action seeks to rescind the merger
or an award of rescissionary damages if it cannot be set aside, and also prays
for an award of compensatory damages. The Company believes that it has valid
defenses to the complaint's allegations of wrongdoing, and intends to vigorously
defend the lawsuit.
F-27
<PAGE> 132
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On May 21, 1996, the Company was sued by Minnesota Mining & Manufacturing
Company ("3M") in a claim purportedly arising under federal, state and common
law trademark, false advertising, and unfair competition laws, as well as for
breach of, and interference with, contracts. 3M alleges that the Company is
selling 3M products in violation of federal and state law, and seeks monetary
damages in an unspecified amount, as well as injunctive relief against the
Company's continued sale of 3M products. The claim was filed in the Southern
District of New York. The Company vigorously denies the allegations of 3M's
complaint, and has filed an answer denying the allegations of wrongdoing and
asserting affirmative defenses. In addition, the Company has asserted
counterclaims against 3M under federal antitrust laws, as well as an unfair
competition claim. On October 16, 1996, 3M moved to dismiss the Company's
antitrust counterclaims. Briefing of the motion has been completed and the
parties are awaiting a decision. 3M has proposed a settlement of all claims
pursuant to which the Company would, among other things, agree to restrict its
purchases of 3M products to certain authorized 3M dealers, and make a payment of
no more than $400,000. Although settlement discussions are ongoing, it is not
possible to predict the outcome of such discussions.
Everest & Jennings and its subsidiaries are parties to certain lawsuits and
proceedings as described below (the "Everest & Jennings Proceedings"). Under the
terms of the Stockholder Agreement, BIL has agreed to indemnify the Company and
its subsidiaries against the Everest & Jennings Proceedings in the event the
amount of losses, claims, demands, liabilities, damages and all related costs
and expenses (including attorney's fees and disbursements) in respect of the
Everest & Jennings Proceedings exceeds in the aggregate the applicable amounts
reserved for such proceedings on the books and records of Everest & Jennings as
of September 3, 1996. In view of BIL's obligation to indemnify the Company and
its subsidiaries with respect to such proceedings, management does not expect
that the ultimate liabilities, if any, with respect to such proceedings, will
have a material adverse effect on the consolidated financial position or results
of operations of the Company.
On July 17, 1990, a class action suit was filed in the United States
District Court for the Central District of California by a stockholder of
Everest & Jennings against Everest & Jennings and certain of its present and
former directors and officers. The suit seeks unspecified damages for alleged
non-disclosure and misrepresentation concerning Everest & Jennings in violation
of federal securities laws. The district court dismissed the complaint on March
26, 1991, and plaintiff filed his first amended complaint on May 8, 1991. The
district court again granted a motion to dismiss the entire action on November
26, 1991. Plaintiff then took an appeal to the Ninth Circuit, which reversed the
district court's dismissal of the first amended complaint and remanded the case
to the district court for further proceedings. On March 25, 1996, the district
court granted Plaintiff's motion to certify a class composed of purchasers of
the Everest & Jennings' common stock during the period from March 31, 1989 to
June 12, 1990. Plaintiff's counsel has not as yet submitted to the court any
proposed notice of class certification and, consequently, the members of the
class have not been notified that the court has certified the case to proceed as
a class action. Everest & Jennings has received and filed responses and
objections to a document request, but further action has been deferred to allow
the parties to discuss possible settlement. Everest & Jennings has ordered the
parties to file and plaintiff's counsel has filed monthly reports on the status
of settlement discussions since September 1996. There are numerous defenses
which Everest & Jennings intends to assert to the allegations in the first
amended complaint if settlement cannot be reached on acceptable terms. Under
Everest & Jennings' directors and officers insurance policy, Everest & Jennings
has coverage against liabilities incurred by its directors and officers, subject
to a self-insured retention of $150,000 (which has been exceeded by defense
costs incurred to date). The carrier has contended that fifty percent of the
liability and expenses in the case must be allocated to Everest & Jennings,
which is not an insured defendant, and fifty percent to the insured former
director and officer defendants. This proceeding constitutes an Everest &
Jennings Proceeding, which is covered under BIL's indemnification obligations
pursuant to the terms and provisions of the Stockholder Agreement.
Die Cast Products, Inc., a former subsidiary of Everest & Jennings, was
named as a defendant in a lawsuit filed by the State of California pursuant to
the Comprehensive Environmental Response, Compensa-
F-28
<PAGE> 133
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tion and Liability Act 42 U.S.C.sec.sec.9601 et seq. Everest & Jennings was
originally notified of this action on December 10, 1992. A settlement was
reached at an October 5, 1995 Mandatory Settlement Conference before Judge Rea
in the Federal District Court of the Central District of California. The state
of California has agreed to accept the sum of $2.6 million as settlement for all
past costs and future remedial work. Everest & Jennings' share of the settlement
with the state of California has amounted to $41,292.30, which sum was paid on
January 3, 1997. No further claims or assessments with respect to this matter
are anticipated at this time. This proceeding constitutes an Everest & Jennings
Proceeding, which is covered under BIL's indemnification obligations pursuant to
the terms and provisions of the Stockholder Agreement.
In March, 1993, Everest & Jennings received a notice from the U.S.
Environmental Protection Agency ("EPA") regarding an organizational meeting of
generators with respect to the Casmalia Resources Hazardous Waste Management
Facility ("Casmalia Site") in Santa Barbara County, CA. The EPA alleges that the
Casmalia Site is an inactive hazardous waste treatment, storage and disposal
facility which accepted large volumes of commercial and industrial wastes from
1973 until 1989. In late 1991, the Casmalia Site owner/operator abandoned
efforts to actively pursue site permitting and closure and is currently
conducting only minimal maintenance activities. An agreement in principle now
has been reached between the Casmalia Steering Committee ("CSC") and the EPA for
a settlement of the majority of the Casmalia site liability. The Steering
Committee represents approximately 50 of the largest volume generators at the
Casmalia site. It is anticipated that the agreement will be formalized and
embodied in a Consent Decree in the summer and fall of 1997. Pursuant to the
settlement, the CSC members are committing to perform and fund Phase I work at
the site. It is estimated that the Phase I work being committed to will cost
approximately $30 to $35 million dollars and will take three to five years to
complete. This cost will be allocated to Steering Committee members based upon
their volume of waste sent to the site. Everest & Jennings accounts for 0.8% of
the waste. Thus, by participating in the Phase I settlement, Everest & Jennings
has committed to payments of approximately $280,000 to be spread over a three to
five year period. Pursuant to the settlement, Everest & Jennings will be
released from further obligation for thirty (30) years. In addition, the
Steering Committee companies are seeking to recover from the owner and operator
of the site. Any such recovery will diminish Everest & Jennings's payout
pursuant to the settlement. This proceeding constitutes an Everest & Jennings
Proceeding, which is covered under BIL's indemnification obligations pursuant to
the terms and provisions of the Stockholder Agreement.
In 1989, a patent infringement case was initiated against Everest &
Jennings and other defendants in the U.S. District Court, Central District of
California. Everest & Jennings prevailed at trial with a directed verdict of
patent invalidity and non-infringement. The plaintiff filed an appeal with the
U.S. Court of Appeals for the Federal Circuit. On March 31, 1993, the Court of
Appeals vacated the District Court's decision and remanded the case for trial.
Impacting the retrial of this litigation was a re-examination proceeding before
the Board of Patent Appeals with respect to the subject patent. A ruling was
rendered November 23, 1993 sustaining the claim of the patent which Everest &
Jennings Inc. has been charged with infringing. Upon the issuance of a patent
re-examination certificate by the U.S. Patent Office, the plaintiff presented a
motion to the District Court requesting a retrial of the case. Everest &
Jennings presented a Motion for Summary Judgment of Noninfringement based in
part upon the November 23, 1993 decision of the Board of Patent Appeals. The
Motion was granted in follow-up conferences and an official Judgment was entered
November 17, 1994. Following the appeal by the plaintiffs, the case has been
remanded to the U.S. District Court, Central District of California, for further
consideration. Everest & Jennings believes that this case is without merit and
intends to contest it vigorously. The ultimate liability of Everest & Jennings,
if any, cannot be determined at this time. This proceeding constitutes an
Everest & Jennings Proceeding, which is covered under BIL's indemnification
obligations pursuant to the terms and provisions of the Stockholder Agreement.
Following a jury trial on July 15, 1996, a verdict was rendered in the
District Court of the First Judicial District of the State of New Mexico in a
civil product liability law suit (Chris Trew et al. vs. Smith and Davis
Manufacturing Company, Inc., No. SF95-354) against Smith & Davis Manufacturing
Company, a wholly-
F-29
<PAGE> 134
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
owned subsidiary of Everest & Jennings ("Smith & Davis"), in the amount of
$635,698.12 actual damages, prejudgment interest and costs, plus $4 million
punitive damages. The suit was instituted on February 25, 1995 by the children
and surviving heirs and personal representatives of a nursing home patient in
Carlsbad, New Mexico who died on September 28, 1993 after her head became pinned
between a bed rail allegedly manufactured by Smith & Davis and her bed. The suit
alleged that the bed rail in question was defective and unsafe for its intended
purpose, that Smith & Davis was negligent in designing, manufacturing, testing
and marketing such bed rails, and that the negligence of the nursing home in
question was the proximate cause of decedent's injuries and death. The nursing
home reached a settlement with Plaintiffs prior to trial. Judgment was entered
on the jury verdict, which bears interest at the rate of 15% from August 30,
1996 until paid. On October 15, 1996, Plaintiffs filed a related case in the
Circuit Court of the County of St. Louis, Missouri (Chris Trew, et. al. v.
Everest & Jennings, et al., Cause No. 96CC-000456, Division 39), which seeks a
declaratory judgment against Everest & Jennings and BIL to pierce their
respective corporate veils and holding them jointly and severally liable for the
full amount of the New Mexico judgment. On February 26, 1997, the parties agreed
in principle to a proposed settlement in which the Plaintiffs would receive $3
million, of which Everest & Jennings estimates that approximately $1.5 million
will be paid by Everest & Jennings' insurance carriers, however, Everest &
Jennings may seek additional recovery from the insurance carriers. The amounts
required to be paid in the proposed settlement in excess of any insurance
recoveries will be borne, in whole or in part, by BIL under the indemnification
terms and provisions contained in the Stockholder Agreement and/or through the
Company's right of offset under the BIL Note.
While the results of the lawsuits and other proceedings referred to above
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, results of operation or cash flows of the Company.
The Company and its subsidiaries are parties to other lawsuits and other
proceedings arising out of the conduct of its ordinary course of business,
including those relating to product liability and the sale and distribution of
its products. While the results of such lawsuits and other proceedings cannot be
predicted with certainty, management does not expect that the ultimate
liabilities, if any, will have a material adverse effect on the consolidated
financial position, results of operations or cash flows of the Company.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to five (5) collective bargaining agreements
covering the Company's facilities located in Hauppauge, New York; Passaic, New
Jersey; Earth City, Missouri; Ontario, Canada; and Guadalajara, Mexico. The
collective bargaining agreements cover approximately 620 employees. The
collective bargaining agreements for Hauppauge, New York; Passaic, New Jersey;
Earth City, Missouri; Ontario, Canada; and Guadalajara, Mexico are scheduled to
expire on September 30, 1997, July 27, 1999, September 13, 1999, July 24, 1998
and December 31, 1997, respectively.
The Company has never experienced an interruption or curtailment of
operations due to labor controversy, except for a three-day period during the
summer of 1993 in which the Company experienced a strike at its Passaic, New
Jersey facility, which did not have a material adverse effect on the Company's
operations. The Company considers its employee relations to be satisfactory.
14. OTHER MATTERS
During the fourth quarter of 1996, the Company recorded charges of
$15,800,000 related to the acquisition of Everest & Jennings. The charges
included $12,800,000 related to the write-off of purchased in-process research
and development costs (see Note 2) and $3,000,000 for other merger related
charges (see Note 2).
F-30
<PAGE> 135
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company recorded an extraordinary item of $736,000 (net of
tax benefit of $383,000) related to the early extinguishment of the John Hancock
Indebtedness in the fourth quarter of 1996 (see Note 8).
During the fourth quarter of 1994, the Company recorded non-recurring
expenses of approximately $1,321,000 which were included in selling, general and
administrative expenses at December 31, 1994, of which approximately $612,000
was included in accrued expenses. These non-recurring expenses were related to
the estimated impairment of the residual value related to the Company's
investment in leveraged lease (see Note 5), an accrual for severance and other
employee costs related to employees terminated during the fourth quarter of 1994
and first quarter of 1995, an accrual for sales and franchise taxes related to
in process audits being conducted by multiple states for the periods of 1988
through 1992, and costs related to a terminated acquisition attempt and a lease
arbitration proceeding with respect to the Company's principal manufacturing
facility.
15. MAJOR CUSTOMERS
In 1994, the Company derived approximately 10% of its revenues from Apria
Healthcare Group, Inc. (formerly Abbey Home Healthcare, which merged with
Homedco in June 1995). On September 1, 1995, the Company announced that its
current supply agreement with Apria would not be renewed in 1996, and will
expire by its terms on December 31, 1995. During fiscal year 1995 and 1994, the
Company's product sales to Apria were approximately $8.1 million and $10.3
million, respectively, which represented approximately 7% and 10%, respectively,
of the Company's product sales. The Company's sales to Apria generate gross
profit margins of approximately 20%, which is significantly lower than the
Company's sales to its other customers which generate gross profit margins of
approximately 33%. During 1996, no single customer or buying group accounted for
more than 10% of the Company's revenues.
16. SUBSEQUENT EVENTS
On February 28, 1997, Everest & Jennings Canada 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 common stock of the Company valued
at $11.437 per share, of which 28,095 shares were delivered into escrow. The
purchase price is subject to adjustment if the final determination of the
closing date net book value of the assets acquired by Everest & Jennings Canada
is equal to or less than Cdn. $450,000 (Canadian Dollars) (approximately
$333,000). All of the escrowed shares will be held in escrow until the earlier
to occur (the "Initial Release Date") of June 28, 1997, or the final resolution
of the purchase price. On the Initial Release Date, a portion of the escrowed
shares will be released in an amount equal to the difference between (i) 28,095
shares and (ii) the sum of the number of (x) any escrowed shares subject to any
indemnification claims, (y) any escrowed shares used to satisfy any adjustment
to the purchase price, and (z) 18,729 shares. The balance of the escrowed shares
will be released on December 31, 1997, subject to any claims for
indemnification.
On March 7, 1997, Everest & Jennings acquired Kuschall of America, Inc., a
manufacturer of pediatric wheelchairs, high-performance adult wheelchairs and
other rehabilitation products, for a purchase price of $1,510,000, representing
the net book value of Kuschall. The purchase price was paid by the issuance of
116,154 shares of the common stock of the Company 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.
F-31
<PAGE> 136
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
COL. C
------------
ADDITIONS
------------
COL. B 1 COL. D COL. E
------------ ADDITIONS ------------------- -------------
COL. A BALANCE AT CHARGED 2 OTHER CHARGES BALANCE AT
- ----------------------------------------- BEGINNING OF TO COSTS CHARGED TO OTHER ADD (DEDUCT) END OF
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS -- DESCRIBE -- DESCRIBE PERIOD
- ----------------------------------------- ------------ ------------ ------------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996........... $1,811,000 $ 606,000 $ 5,077,000(2) $ (251,000)(1) $ 7,243,000
Year ended December 31, 1995........... 1,987,000 451,000 10,000(2) (637,000)(1) 1,811,000
Year ended December 31, 1994........... 2,564,000 595,000 -- (1,172,000)(1) 1,987,000
Valuation allowance for net deferred tax
assets:
Year ended December 31, 1996........... $ 55,000 $1,000,000 $14,494,000(2) -- $15,549,000
Year ended December 31, 1995........... 55,000 -- -- -- 55,000
Year ended December 31, 1994........... 55,000 -- -- -- 55,000
</TABLE>
- ---------------
(1) Net write-off of accounts receivable.
(2) Represents an allocation of the purchase price of the Everest & Jennings and
V.C. Medical acquisitions.
F-32
<PAGE> 137
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER
30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
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.
F-33
<PAGE> 138
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(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.
F-34
<PAGE> 139
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(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 ACTIVITIES................. (28,019,000) (2,323,000)
------------ -----------
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.
F-35
<PAGE> 140
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
In the opinion of Graham-Field, 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 Graham-Field 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
Graham-Field'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, Graham-Field 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 Graham-Field'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 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>
F-36
<PAGE> 141
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
As of September 30, 1997, Graham-Field 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 Graham-Field'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, Graham-Field 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 Graham-Field ("Sub"), and Graham-Field
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 Graham-Field (the "Merger"). Graham-Field has received the
written opinion of Smith Barney Inc. to the effect that the consideration
payable by Graham-Field pursuant to the Merger Agreement is fair from a
financial point of view to Graham-Field.
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 Graham-Field (the "Graham-Field Common Stock"); provided that the
Conversion Number is subject to upward adjustment in the event Graham-Field's
average stock price for the 10-day 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 Graham-Field 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, Graham-Field 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 Graham-Field Common Stock voting at a special meeting of the stockholders of
Graham-Field, 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 Graham-Field and Sub to enter into the Merger Agreement,
Graham-Field 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
Graham-Field, 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
F-37
<PAGE> 142
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"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 Graham-Field 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 Graham-Field), have agreed to vote their shares of Graham-Field 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 Graham-Field
stockholders.
The Fuqua Stockholders have agreed in the Stockholders Agreement not to
acquire additional shares of Graham-Field Common Stock, seek to acquire
ownership of Graham-Field, engage in any solicitation of proxies with respect to
Graham-Field, or otherwise seek or propose to acquire control of Graham-Field
Board provided the Fuqua Stockholders own securities representing at least 5% of
the voting power of the outstanding capital stock of Graham-Field. 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 Graham-Field,
the Fuqua Stockholders will have the right to designate one member of the Board
of Directors of Graham-Field (the "Graham-Field Board"). The Fuqua Stockholders
also agreed to certain restrictions in their transfer of shares of Graham-Field
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 Graham-Field or upon a change of
control of Graham-Field Board.
In addition, on September 5, 1997, Graham-Field 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 Graham-Field to be acquired
by the Fuqua Stockholders pursuant to the Merger Agreement. Graham-Field 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. Graham-Field has also agreed to provide certain registration
rights to Mr. Minotto.
Graham-Field believes that it has obtained all material regulatory
approvals, other than clearance of the proxy materials by the Securities and
Exchange Commission. Graham-Field 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, Graham-Field 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 Graham-
F-38
<PAGE> 143
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Field, 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 Graham-Field and the Medapex Selling
Stockholders received in the aggregate 960,000 shares of Graham-Field 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 Graham-Field and
BBD&M, a Georgia limited partnership and an affiliate of Medapex, Graham-Field
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 Graham-Field Common Stock and (y) in cash in
the amount of $311,167, and (ii) the assumption of debt in the amount of
$477,664. In connection with the transaction, Graham-Field also entered into a
registration rights agreement dated as of August 28, 1997, pursuant to which
Graham-Field agreed to register for resale the shares of Graham-Field 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 Graham-Field.
The acquisition of Medapex qualifies as a tax-free reorganization and was
accounted for as a "pooling of interests." Accordingly, Graham-Field'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, Graham-Field acquired substantially all of the assets
and certain liabilities of MediSource, Inc. ("Medi-Source"), a privately-owned
distributor of medical supplies, for $4,500,000 in cash. Graham-Field 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 (5) 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, Graham-Field 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
Graham-Field, LaBac Acquisition Corp., a wholly-owned subsidiary of
Graham-Field, 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 Graham-Field, and the LaBac Selling Stockholders
received in the aggregate 772,557 shares of Graham-Field 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 Graham-Field Common
Stock were placed in escrow for a period of one (1) year following the Effective
Date of the Merger for payment of indemnity claims to Graham-Field or purchase
price adjustments in favor of Graham-Field.
F-39
<PAGE> 144
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Graham-Field also entered into a three (3) year consulting agreement with the
LaBac Selling Stockholders and an entity controlled by the LaBac Selling
Stockholders, and noncompetition 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
Graham-Field, 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 Graham-Field 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
Graham-Field 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 Graham-Field, 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 Graham-Field 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, Graham-Field 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 Graham-Field, Everest & Jennings, Everest & Jennings Acquisition Corp., a
wholly-owned subsidiary of Graham-Field 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 Graham-Field'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, Graham-Field 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 Graham-Field Common Stock valued
at $7.625 per share representing the closing market price of Graham-Field Common
Stock on the last trading day immediately prior to the closing. In addition,
Graham-Field 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 Graham-Field. 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
F-40
<PAGE> 145
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
6. OTHER MATTERS
On August 4, 1997, Graham-Field 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 Graham-Field, subordinated in right of payment to all existing
and future senior debt of Graham-Field, 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 Graham-Field, 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
Graham-Field'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 Graham-Field's option prior to August 15, 2002.
Thereafter, the Notes are redeemable, in whole or in part, at the option of
Graham-Field, at certain redemption prices plus accrued and unpaid interest to
the date of redemption. In addition, prior to August 15, 2000, Graham-Field 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
Graham-Field 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.
F-41
<PAGE> 146
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
Graham-Field as defined in the Indenture, each holder of the Notes will have the
right to require Graham-Field 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.
Graham-Field 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 Graham-Field 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, Graham-Field has agreed to file a shelf 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 Graham-Field and the Guaranteeing Subsidiaries are not in
compliance with their obligations under the Registration Rights Agreement.
7. LEGAL PROCEEDINGS
Graham-Field 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, results of operations or cash flow of Graham-Field.
F-42
<PAGE> 147
CONSOLIDATED FINANCIAL STATEMENTS OF
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
F-43
<PAGE> 148
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders
of Everest & Jennings International Ltd.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
Everest & Jennings International Ltd. and its subsidiaries at December 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These consolidated financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion expressed above.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations and has a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
PRICE WATERHOUSE LLP
St. Louis, Missouri
March 15, 1996, except as to the tenth
paragraph of Note 3, which
is as of June 4, 1996
F-44
<PAGE> 149
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Revenues................................................ $ 74,627 $ 79,438 $ 94,459
Cost of sales........................................... 58,597 65,888 83,825
---------- ---------- --------
Gross profit.................................. 16,030 13,550 10,634
---------- ---------- --------
Selling expenses........................................ 11,006 12,448 18,777
General and administrative expenses..................... 5,527 6,519 16,441
Research & development expenses (Note 5)................ 1,123 1,885 10,764
Restructuring expenses (Note 2)......................... -- -- 15,104
---------- ---------- --------
Total operating expenses...................... 17,656 20,852 61,086
---------- ---------- --------
Loss from operations.......................... (1,626) (7,302) (50,452)
---------- ---------- --------
Other expense:
Interest expense, BIL (Note 7)........................ (1,669) (897) (2,585)
Interest expense, other............................... (2,061) (1,722) (2,487)
---------- ---------- --------
Other expense, net...................................... (3,730) (2,619) (5,072)
---------- ---------- --------
Loss from operations before income taxes.............. (5,356) (9,921) (55,524)
Income tax provision (benefit) (Note 8)................. 96 (162) 173
---------- ---------- --------
Net loss...................................... $ (5,452) $ (9,759) $(55,697)
========== ========== ========
Loss per share.......................................... $ (0.75) $ (1.35) $ (59.61)
========== ========== ========
Weighted average number of Common Shares outstanding.... 7,227,281 7,220,121 934,387
========== ========== ========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-45
<PAGE> 150
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 117 $ 513
Accounts receivable, less allowance for doubtful accounts of $1,847
and $2,088, respectively (Note 4)................................ 16,952 18,894
Inventories (Notes 4 and 9)......................................... 19,570 20,449
Assets held for sale (Notes 1 and 4)................................ -- 11,289
Other current assets................................................ 1,299 1,444
-------- --------
Total current assets........................................ 37,938 52,589
-------- --------
PROPERTY, PLANT AND EQUIPMENT (Note 4):
Land................................................................ 261 237
Buildings and improvements.......................................... 4,500 4,056
Machinery and equipment............................................. 15,380 14,636
-------- --------
20,141 18,929
Less accumulated depreciation and amortization...................... (12,992) (10,994)
-------- --------
Property, plant and equipment, net.......................... 7,149 7,935
NOTES RECEIVABLE (Note 4)............................................. 2,524 --
INTANGIBLE ASSETS, NET (Note 3)....................................... 402 710
OTHER ASSETS.......................................................... 217 335
-------- --------
TOTAL ASSETS................................................ $ 48,230 $ 61,569
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings and current installments of long-term debt of
$1,089 and $2,600, respectively (Note 7)......................... $ 4,473 $ 11,155
Short-term borrowings from BIL (Note 7)............................. -- 6,503
Accounts payable.................................................... 8,361 11,958
Accrued payroll costs............................................... 6,327 7,900
Accrued interest, BIL (Note 7)...................................... 2,629 960
Accrued expenses.................................................... 5,310 9,612
Accrued restructuring expenses (Notes 1, 2 and 4)................... 659 4,476
-------- --------
Total current liabilities................................... 27,759 52,564
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION (Note 7)....................... 22,370 12,968
LONG-TERM BORROWINGS FROM BIL (Note 7)................................ 21,103 12,000
OTHER LONG-TERM LIABILITIES........................................... 130 218
COMMITMENTS AND CONTINGENCIES (Notes 12 and 13) STOCKHOLDERS' DEFICIT
(Notes 6 and 10):
Series A Convertible Preferred Stock................................ 13,175 12,087
Series B Convertible Preferred Stock................................ 1,317 1,317
Series C Convertible Preferred Stock................................ 20,000 20,000
Single Class Common Stock, par value: $.10; authorized 12,000,000
shares........................................................... 722 722
Additional paid-in capital.......................................... 105,608 105,595
Accumulated deficit................................................. (159,793) (153,228)
Minimum pension liability adjustment................................ (3,264) (1,812)
Cumulative translation adjustments.................................. (897) (862)
-------- --------
Total stockholders' deficit................................. (23,132) (16,181)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT................. $ 48,230 $ 61,569
======== ========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-46
<PAGE> 151
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE SERIES C CONVERTIBLE CLASS A* CLASS B*
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK
------------------- ---------------- -------------------- ------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- ------- ------ ---------- ------- --------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1992.......... 6,075,419 $10,174 786,357 $1,317 -- $ -- 679,285 $ 68 2,353,427 $ 24
Common Stock
Issued............ -- -- -- -- -- -- 5,333 -- -- --
Reclassification of
Common Stock*..... -- -- -- -- -- -- 235,342 24 (2,353,427) (24)
Preferred Stock
Issued -- Debt
Conversion........ -- -- -- -- 20,000,000 20,000 -- -- --
Common Stock Issued
-- Debt
Conversion........ -- -- -- -- -- -- 5,500,000 550 -- --
Stock Issuance Costs
-- Debt
Conversion........ -- -- -- -- -- -- -- -- --
Common Stock Issued
-- MCT
Acquisition....... -- -- -- -- -- -- 800,000 80 --
Pay-in-kind
dividends on
Series A
Convertible
Preferred Stock... 546,787 915 -- -- -- -- -- -- -- --
Net loss............ -- -- -- -- -- -- -- -- -- --
Adjustment for
Pension
Liability......... -- -- -- -- -- -- -- -- -- --
Translation
adjustments....... -- -- -- -- -- -- -- -- -- --
--------- ------- ------- ------ ---------- ------- --------- ---- --------- ----
Balance at December
31, 1993.......... 6,622,206 $11,089 786,357 $1,317 20,000,000 $20,000 7,219,961 $722 -0- $-0-
========= ======= ======= ====== ========== ======= ========= ==== ========= ====
<CAPTION>
MINIMUM
ADDITIONAL ACCUMU- PENSION CUMULATIVE
PAID-IN LATED LIABILITY TRANSLATION
CAPITAL DEFICIT ADJUSTMENT ADJUSTMENTS TOTAL
---------- --------- ----------- ----------- --------
<S> <<C> <C> <C> <C> <C>
Balance at December
31, 1992.......... $ 43,708 $ (85,585) $ -- $(504) $(30,798)
Common Stock
Issued............ -- -- -- -- --
Reclassification of
Common Stock*..... -- -- -- -- --
Preferred Stock
Issued -- Debt
Conversion........ -- -- -- -- 20,000
Common Stock Issued
-- Debt
Conversion........ 54,450 -- -- -- 55,000
Stock Issuance Costs
-- Debt
Conversion........ (500) -- -- -- (500)
Common Stock Issued
-- MCT
Acquisition....... 7,920 -- -- -- 8,000
Pay-in-kind
dividends on
Series A
Convertible
Preferred Stock... -- (1,167) -- -- (252)
Net loss............ -- (55,697) -- -- (55,697)
Adjustment for
Pension
Liability......... -- -- (2,606) -- (2,606)
Translation
adjustments....... -- -- -- (155) (155)
-------- --------- ------- ----- --------
Balance at December
31, 1993.......... $105,578 $(142,449) $(2,606) $(659) $ (7,008)
======== ========= ======= ===== ========
</TABLE>
- ---------------
* Effective November 18, 1993, Class A Common Stock and Class B Common Stock
were combined into a single class Common Stock.
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-47
<PAGE> 152
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ---------------- -------------------- ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------- ------- ------ ---------- ------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.... 6,622,206 $11,089 786,357 $1,317 20,000,000 $20,000 7,219,961 $722 $105,578
Common Stock issued for
Exercised Stock Options....... -- -- -- -- -- -- 5,820 -- 17
Pay-in-kind dividends on Series
A Convertible Preferred
Stock......................... 595,998 998 -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- -- -- --
Adjustment for Pension
Liability..................... -- -- -- -- -- -- -- -- --
Translation adjustments......... -- -- -- -- -- -- -- -- --
--------- ------- ------- ------ ---------- ------- --------- --- --------
Balance at December 31, 1994.... 7,218,204 $12,087 786,357 $1,317 20,000,000 $20,000 7,225,781 $722 $105,595
========= ======= ======= ====== ========== ======= ========= === ========
<CAPTION>
MINIMUM
PENSION CUMULATIVE
ACCUMULATED LIABILITY TRANSLATION
DEFICIT ADJUSTMENT ADJUSTMENTS TOTAL
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1993.... $(142,449) $ (2,606) $(659) $ (7,008)
Common Stock issued for
Exercised Stock Options....... -- -- -- 17
Pay-in-kind dividends on Series
A Convertible Preferred
Stock......................... (1,020) -- -- (22)
Net loss........................ (9,759) -- -- (9,759)
Adjustment for Pension
Liability..................... -- 794 -- 794
Translation adjustments......... -- -- (203) (203)
---------- -------- ------ ------
Balance at December 31, 1994.... $(153,228) $ (1,812) $(862) $(16,181)
========== ======== ====== ======
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-48
<PAGE> 153
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ---------------- -------------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ------- ------- ------ ---------- ------- --------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1994.......... 7,218,204 $12,087 786,357 $1,317 20,000,000 $20,000 7,225,781 $722 $105,595 $(153,228)
Common Stock issued
for Exercised
Stock Options..... -- -- -- -- -- -- 2,283 -- 13 --
Pay-in-kind
dividends on
Series A
Convertible
Preferred Stock... 649,638 1,088 -- -- -- -- -- -- -- (1,113)
Net loss............ -- -- -- -- -- -- -- -- -- (5,452)
Adjustment for
Pension
Liability......... -- -- -- -- -- -- -- -- -- --
Translation
adjustments....... -- -- -- -- -- -- -- -- -- --
--------- ------- ------- ------ ---------- ------- --------- ---- -------- ---------
Balance at December
31, 1995.......... 7,867,842 $13,175 786,357 $1,317 20,000,000 $20,000 7,228,064 $722 $105,608 $(159,793)
========= ======= ======= ====== ========== ======= ========= ==== ======== =========
<CAPTION>
MINIMUM
PENSION CUMULATIVE
LIABILITY TRANSLATION
ADJUSTMENT ADJUSTMENTS TOTAL
---------- ----------- --------
<S> <C> <C> <C>
Balance at December
31, 1994.......... $ (1,812) $(862) $(16,181)
Common Stock issued
for Exercised
Stock Options..... -- -- 13
Pay-in-kind
dividends on
Series A
Convertible
Preferred Stock... -- -- (25)
Net loss............ -- -- (5,452)
Adjustment for
Pension
Liability......... (1,452) -- (1,452)
Translation
adjustments....... -- (35) (35)
------- ----- --------
Balance at December
31, 1995.......... $ (3,264) $(897) $(23,132)
======= ===== ========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-49
<PAGE> 154
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $(5,452) $(9,759) $(55,697)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization........................... 2,153 1,978 2,637
Charge for in-process R&D on MCT acquisition............ -- -- 9,764
Restructuring expenses (Note 2):
Reserve on disposition of Smith & Davis institutional
business.............................................. -- -- 13,000
Net increase (decrease) in certain accrued expenses..... (3,817) (2,262) 245
Changes in operating assets and liabilities, net of effects
of the 1993 MCT acquisition (Note 5):
Accounts receivable..................................... 3,069 (1,800) (1,652)
Inventories............................................. (107) (2,329) 2,336
Accounts payable........................................ (1,357) 3,699 (9,268)
Accrued interest, BIL................................... 1,669 775 2,409
Accrued expenses........................................ (6,138) (2,277) 1,421
Other, net.............................................. 319 (140) 817
------- ------- --------
Cash used in operating activities.......................... (9,661) (12,115) (33,988)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net.................................. (772) (1,463) (955)
MCT acquisition, net of cash acquired...................... -- -- (1,833)
Proceeds from sale of assets held for sale................. 4,518 -- --
Receipt of principal of notes receivable................... 309 -- --
------- ------- --------
Cash provided by (used in) investing activities............ 4,055 (1,463) (2,788)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from BIL (Note 7)................................. 5,600 13,701 45,795
Repayments to BIL (Note 7)................................. (3,000) -- --
Increase (decrease) in short-term and long-term borrowings,
net..................................................... 2,720 (1,371) (6,326)
Costs pertaining to equity conversion...................... -- -- (500)
Exercise of Common Stock Option............................ 13 17 --
Changes in other long-term liabilities..................... (88) -- (311)
------- ------- --------
Cash provided by financing activities...................... 5,245 12,347 38,658
------- ------- --------
Effect of exchange rate changes on cash flows................ (35) (128) (155)
------- ------- --------
Increase (decrease) in cash balance.......................... (396) (1,359) 1,727
Cash and cash equivalents at beginning of year............... 513 1,872 145
------- ------- --------
Cash and cash equivalents at end of year..................... $ 117 $ 513 $ 1,872
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest..................................... $ 2,111 $ 1,675 $ 2,611
Cash paid for income taxes................................. 216 142 164
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-50
<PAGE> 155
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL INFORMATION FOR NONCASH FINANCING AND INVESTING ACTIVITIES:
During 1995, the Company sold the Smith & Davis Institutional Business for
proceeds that included approximately $4.5 million in cash (which was used to
repay debt), $2.7 million in assumption of liabilities, and notes valued at
approximately $2.1 million.
Effective as of December 31, 1993, a Common Stock Note in the principal
amount of $55,000 was converted into 5,500,000 shares of Common Stock and a
Preferred Stock Note in the principal amount of $20,000 was converted into
20,000,000 shares of Series C Convertible Preferred Stock.
In accordance with SFAS No. 87, the Company recorded an additional minimum
pension liability for underfunded plans of $2,606 at December 31, 1993 (Note
11). This amount was adjusted to $1,812 at December 31, 1994. As of December 31,
1995 this amount was increased to $3,264 due to a decrease in the discount rate
utilized to determine the liability.
During 1993, the Company entered into new capital lease agreements of
$2,465 for a new computer and phone system.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-51
<PAGE> 156
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 1 -- CORPORATE RESTRUCTURING
Everest & Jennings International Ltd. ("E&J" or the "Company") through its
subsidiaries manufactures wheelchairs and distributes homecare beds. Effective
in the fourth quarter of 1993, the Company adopted a plan to dispose of Smith &
Davis' hospital and nursing home bed and institutional casegoods businesses (the
"Institutional Business") and recorded a reserve of $13 million to write down
the assets of the Institutional Business to their estimated net realizable
values and for the estimated operating losses during the phase out period and
the estimated costs of disposition. See Note 2 -- Restructuring Expenses and
Note 4 -- Assets Held for Sale. Pursuant to an Asset Purchase Agreement dated
February 15, 1995, the Company sold the Institutional Business effective April
4, 1995. The proceeds consisted of approximately $4.5 million in cash (which was
used to repay debt), $2.7 million in assumption of liabilities, and notes valued
at approximately $2.1 million. The reduction in accrued restructuring expense
since December 31, 1994 primarily reflects changes in estimates, adjustments and
the payment of disposal costs related to the sale.
Since 1989 the Company has incurred substantial financial losses in a
continuing effort to restructure its operations with the objective of improving
its competitive position within the durable medical equipment industry.
Restructuring activities to date have included asset sales, significant
reductions in headcount, salaries and fringe benefits, plant closures and
consolidations, product line rationalization, debt to equity conversion and
outsourcing of manufacturing operations. In 1992 the Company relocated its
corporate headquarters and principal wheelchair manufacturing operations from
California to Missouri. The relocation facilitated the consolidation of
corporate offices and other key administrative, sales/marketing, and technical
functions with existing Company operations in the St. Louis area. In October,
1993, the Company transferred its data processing operations from California to
Missouri, which represented the final step in the Company's relocation.
Additionally, the Company continues to analyze its cost structure and operating
efficiencies for potential savings.
On September 30, 1992, the Company finalized a $20 million revolving credit
facility with The Hongkong and Shanghai Banking Corporation Limited -- Chicago
Branch ("HSBC"). The repayment of the HSBC facility has been guaranteed by
Brierley Investments Limited, an affiliate of BIL (Far East Holdings) Limited
("BIL"), currently the Company's majority shareholder. From the proceeds of the
HSBC facility, $11 million was utilized to repay advances previously made by
BIL. The remaining proceeds were used to fund restructuring expenses, to replace
existing letters of credit and for working capital purposes. In December 1995,
the revolving credit facility was amended to allow borrowings of up to $25
million. See Note 7 -- Debt.
Through September 30, 1993, BIL provided the Company with $43.3 of
additional funding beyond the amounts available under the HSBC credit line. As
of September 30, 1993, the Company and BIL entered into a Debt Conversion
Agreement, which provided, in part, for the conversion of $75,000,000 of
short-term indebtedness and accrued interest into equity. See Note 6 -- Debt
Restructuring and Conversion. From October 1, 1993 to December 31, 1995, BIL
advanced $27.4 million to the Company to fund operating losses and previously
accrued restructuring charges. See Note 7 -- Debt for details as to the
Company's indebtedness to BIL and other lenders. At December 31, 1995, the total
amount of outstanding advances from BIL was $21.1.
The Company's 1995 and 1994 revenues and operating results were negatively
impacted by ongoing price competition. Long lead times and shipping delays due
to start-up inefficiencies in manufacturing operations adversely impacted
customer confidence. Management continues to address the Company's problems with
manufacturing and shipment delays. Additionally, the Company continues to
address the rationalization of its production facilities in the US, Canada and
Mexico and the increased outsourcing of products and product components, which
the Company expects will lower its production costs. Order rates, margins and
market share must increase, production and operating costs must be further
reduced and customer confidence must
F-52
<PAGE> 157
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 1 -- CORPORATE RESTRUCTURING -- (CONTINUED)
continue to be restored if the Company is to generate the cash flow necessary to
fund its debt service and \operations on a continuing basis and to achieve
profitability. Although the Company has programs in place which are designed to
address these issues, there is no assurance that such programs will achieve
their objectives.
The accompanying consolidated financial statements have been prepared under
the going concern concept. The going concern concept anticipates an entity will
continue in its present form and, accordingly, uses the historical cost basis to
prepare financial statements. The Company has incurred substantial restructuring
expenses and recurring operating losses and has a net capital deficiency at
December 31, 1995. No assurance can be made that the Company will successfully
emerge from or complete its restructuring activities.
NOTE 2 -- RESTRUCTURING EXPENSES
As disclosed in Note 1, the Company sold the Institutional Business of its
Smith & Davis subsidiary effective April 4, 1995. At December 31, 1993 the
Company had prepared estimates of the net realizable value of related assets to
be sold (see Note 4--Assets Held for Sale) and other costs directly associated
with the decision to dispose of such business along with operating losses
expected to be incurred until the business was sold. No additional provision was
required to the amount discussed below which was recorded in 1993 relative to
the disposal of the Institutional Business. The proceeds from the sale of the
Institutional Business were used primarily to reduce debt.
During the fourth quarter of 1993, the Company recorded $15.1 million of
restructuring expenses in connection with the consolidation of manufacturing and
distribution facilities in the United States and Canada ($2.1 million) and the
sale of the Smith & Davis Institutional Business ($13 million). The charge with
respect to the manufacturing and distribution facilities primarily relates to
the termination of various facilities leases. The amount recorded for the sale
of the Institutional Business was as follows:
<TABLE>
<S> <C>
Reduction of assets to estimated net realizable values....... $10.0 million
Estimated operating losses during phase-out period........... 1.3 million
Disposal costs, including transaction costs.................. 1.7 million
-------------
$13.0 million
=============
</TABLE>
The reduction of assets to estimated net realizable value is mainly
attributable to intangible assets and property, plant and equipment.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries. The Company's principal
subsidiaries include Everest & Jennings, Inc. located in St. Louis, Missouri;
Everest & Jennings Canadian Limited located in Toronto, Canada; Everest &
Jennings de Mexico, S.A. de C.V. located in Guadalajara, Mexico; and Smith &
Davis Manufacturing Company, also located in St. Louis, Missouri. Net assets of
the foreign subsidiaries totalled $3,154 as of December 31, 1995. All
significant intercompany accounts and transactions have been eliminated.
F-53
<PAGE> 158
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Cash and Cash Equivalents: The Company considers all highly liquid
short-term investments with original maturities of three months or less to be
cash equivalents and, therefore, includes such investments as cash and cash
equivalents in its consolidated financial statements.
Valuation of Inventories: Inventories are stated at the lower of cost,
determined by the first-in, first-out (FIFO) method, or market. Inventory costs
consist of material cost, labor cost and manufacturing overhead.
Property, Plant and Equipment: Property, plant and equipment are carried at
cost except for certain assets held for sale which were written down in value in
anticipation of their being sold (see Note 2 -- Restructuring Expenses and Note
4 -- Assets Held for Sale). Provisions for depreciation and amortization are
determined using the straight-line method based upon the estimated useful life
of the asset, with asset lives ranging from one to forty years. Leasehold
improvements are amortized over the life of the related lease.
Investment in Joint Venture: On August 15, 1990, the Company entered into a
joint venture agreement with an Indonesian company. The Company contributed
fixed assets valued at $300 to the joint venture in exchange for 30% of the
joint venture's outstanding common stock. Due to continued losses experienced by
the joint venture, the Company wrote off this investment in 1993 and sold its
remaining interest in 1996, resulting in an immaterial impact on the
Consolidated Financial Statements.
Excess of Investment over Net Assets Acquired: Intangible assets, net,
includes primarily the excess of cost over net assets acquired (goodwill) of
Medical Composite Technology, Inc. of $900, which is being amortized using the
straight-line method over a period of three years. See Note 5 -- Acquisition.
Income Taxes: The Company utilizes an asset and liability approach in
accounting for income taxes and requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in the Company's consolidated financial statements or tax
returns. Since it is unlikely that the Company will realize the future tax
benefits of the net deferred tax asset due to its substantial net operating
losses, a valuation allowance has been established for the full amount.
Loss Per Share: Loss per share for each of the years in the three-year
period ended December 31, 1995 is calculated based on the weighted average
number of the combined shares of both Class A and Class B Common Stock
outstanding during the periods, and the weighted average number of shares of
single class Common Stock outstanding after November 18, 1993.
On June 4, 1996, the Company's shareholders approved a one-for-ten reverse
stock split, effective June 6, 1996. The stated par value of one share of common
stock was changed from $.01 to $.10 as a result of the stock split. All
references in the consolidated financial statements to average number of shares
outstanding and related prices, per share amounts and stock option plan data
have been restated to reflect the reverse stock split.
Concentration of Credit Risk: The Company sells its products to customers
in the healthcare industry, primarily in North America. Third party
reimbursement through private or governmental insurance programs and managed
care programs impacts a significant component of the Company's business.
Concentration of credit risk with respect to trade receivables is limited due to
the size of the customer base and its dispersion. The Company performs on-going
credit evaluations of its customers and generally does not require collateral.
The Company maintains reserves for potential credit losses and such losses have
been within management's expectations.
F-54
<PAGE> 159
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Net sales by product line for each year of the three year period ended
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net sales, durable medical products:
Wheelchairs................................... $59,762 $63,819 $61,750
Beds and Accessories.......................... 10,265 9,098 29,266
Other......................................... 4,600 6,521 3,443
------- ------- -------
$74,627 $79,438 $94,459
======= ======= =======
</TABLE>
Export sales to unaffiliated customers by domestic operations in the United
States are not significant. No single customer accounts for 10% or more of the
consolidated revenues.
The Company currently buys ready-to-assemble wheelchair kits, an important
component of its products, from one supplier. A change in suppliers could cause
a delay in manufacturing and a possible loss of sales, which would affect
operating results adversely. However, the Company believes that numerous
alternative supply sources are available for these materials.
Foreign Currency Translation: The financial statements of the Company's
foreign subsidiaries are translated into U.S. dollars in accordance with the
provisions of SFAS No. 52, "Foreign Currency Translation." Assets and
liabilities are translated at year-end exchange rates. Revenues and expenses are
translated at the average exchange rate for each year. The resulting translation
adjustments for each year are recorded as a separate component of stockholders'
equity. All foreign currency transaction gains and losses are included in the
determination of income and are not significant.
Recently Issued Accounting Pronouncement: In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), which addresses
accounting for stock option, purchase and award plans. The Company will adopt
SFAS 123 in 1996 and will then have the option of valuing stock compensation
using either the "fair value based method" or the "intrinsic value based
method". The Company anticipates that, when adopted, SFAS 123 will have no
material effect on its financial position or results of operations.
Reclassification: Certain reclassifications (beginning in 1994) including
the reclassification of shipping and distribution costs from operating expenses
to cost of sales have been made to prior period consolidated financial
statements to conform with current period presentation. The reclassifications
have no effect on loss from operations and net loss as previously reported.
NOTE 4 -- ASSETS HELD FOR SALE
Pursuant to an Asset Purchase Agreement dated February 15, 1995, the
Company sold the Smith & Davis Institutional Business effective April 4, 1995.
The proceeds consisted of approximately $4.5 million in cash (which was used to
repay debt), $2.7 million in assumption of liabilities, and notes valued at
approximately $2.1 million; $0.2 million of such notes were repaid in 1995 with
the remainder expected to be repaid in 1996.
F-55
<PAGE> 160
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 4 -- ASSETS HELD FOR SALE -- (CONTINUED)
Net assets held for sale of the Institutional Business consisted of the
items in the following table as of December 31, 1994 (stated at estimated net
realizable values). The value of these assets approximated the net proceeds from
the sale of the Institutional Business on the sale date of April 4, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
<S> <C>
Accounts receivable...................................... $ 4,099
Inventories.............................................. 4,298
Land and buildings....................................... 1,350
Machinery & equipment.................................... 1,200
Other assets............................................. 342
-------
Total assets held for sale..................... $11,289
=======
</TABLE>
Revenues of the Institutional Business and related costs were included in
the consolidated results of the Company in years prior to 1994. The 1993
restructuring provision included an estimate of losses to be incurred during the
phase-out period. During the phase out period commencing January 1, 1994 through
the disposal date (April 4, 1995), the results of the Smith & Davis
Institutional Business were included as a component of accrued restructuring
expenses on the consolidated balance sheet. The reduction in accrued
restructuring expense since December 31, 1994 primarily reflects changes in
estimates, adjustments and the payment of disposal costs related to the sale.
Revenues and net income (loss) from operations (unaudited) for the Institutional
Business were as follows:
<TABLE>
<CAPTION>
FOR YEAR ENDED
JANUARY 1, 1995 DECEMBER 31,
THROUGH --------------------
APRIL 4, 1995 1994 1993
--------------- ------- --------
<S> <C> <C> <C>
Revenues.............................. $ 5,508 $21,220 $ 17,335
Net income (loss)..................... $ 129 $(1,400) $(17,310)
</TABLE>
Pursuant to an Asset Purchase Agreement dated July 24, 1995, the Company
sold the Smith & Davis Oxycon line of oxygen concentrator products. This
transaction was finalized effective August 9, 1995. The proceeds from the sale
consisted of a note valued at $0.6 million. This transaction did not result in a
material gain or loss.
NOTE 5 -- ACQUISITION
In January 1994, the Company completed the acquisition (the "Acquisition")
of Medical Composite Technology, Inc. ("MCT"). The $10.6 million purchase price
consisted of the issuance of 800,000 shares of Common Stock, $2 million in the
form of pre-closing cash advances, and the assumption of $0.6 million of net
liabilities. Additionally, the Company assumed 10,761 unvested and 30,042 vested
stock options; such options are for the purchase of the Company's Common Stock.
MCT develops and designs state-of-the-art durable medical equipment, including
wheelchairs and other medical mobility products.
The Acquisition was accounted for as a purchase. Of the $10.6 million
purchase price, $9.7 million of the purchase price is attributable to in-process
research and development which was expensed in the fourth quarter of 1993. The
balance of the purchase price over the fair value of assets acquired, $0.9
million, was allocated to goodwill and is being amortized over a period of three
years.
For purposes of consolidated financial statement presentation, the
Acquisition was effective on December 31, 1993. Accordingly, the Company's
consolidated balance sheet as of December 31, 1995, 1994 and 1993
F-56
<PAGE> 161
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 5 -- ACQUISITION -- (CONTINUED)
include the assets and liabilities of MCT. MCT's results of operations are
included in the consolidated financial statements from the date of acquisition.
Pro forma combined results of operations (unaudited) of the Company and MCT
for the year ended December 31, 1993 are presented below. Pro forma results of
operations are not necessarily indicative of the results of operations if the
companies had constituted a single entity during the period combined (dollars in
millions except per share data).
<TABLE>
<S> <C>
Net sales.......................................................... $ 95.4
Net loss from continuing operations................................ (60.1)
Net loss per share (1,734,387 shares).............................. (34.70)
</TABLE>
NOTE 6 -- DEBT RESTRUCTURING AND CONVERSION
As of September 30, 1993, the Company, Everest & Jennings, Inc. ("E&J
Inc."), Jennings Investment Co. and BIL entered into a Debt Conversion Agreement
to provide for the conversion (the "Debt Conversion Transaction") of
approximately $75 million in principal and accrued, unpaid interest (the
"Converted BIL Debt"), owed by the Company and E&J Inc. to BIL. Pursuant to the
Debt Conversion Transaction, the Company and E&J Inc. issued to BIL a
Convertible Promissory Note Common Stock (the "Common Stock Note") in the
initial principal amount of $45 million and a Convertible Promissory Note
Preferred Stock (the "Preferred Stock Note") in the original principal amount of
$20 million. The Common Stock Note was subsequently increased to $55 million via
a transfer of $10 million from the Revolving Promissory Note to the Common Stock
Note. The Common Stock Note was converted into 5.5 million shares of Common
stock and the Preferred Stock Note was converted into 20 million shares of
Series C Convertible Preferred Stock on January 12, 1994 upon the satisfaction
of certain preestablished conditions.
The Company held a Special Meeting of Stockholders on December 31, 1993, to
ratify and approve the Debt Conversion Transaction. Concurrent with ratification
and approval of the Debt Conversion Transaction, the Company's stockholders
approved and adopted amendments to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 2,500,000 to
12,000,000 and to increase the number of authorized shares of Preferred Stock
from 11,000,000 to 31,000,000 (the "Recapitalization Proposals").
The effects of the conversions of both the Common Stock Note and the
Preferred Stock Note have been reflected in the consolidated financial
statements as of December 31, 1995, 1994 and 1993. No gain or loss was
recognized as a result of the Debt Conversion Transaction.
F-57
<PAGE> 162
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 7 -- DEBT
The Company's debt as of December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Revolving Promissory Note to BIL....................... -0- $ 6,503
Loans payable to HSBC.................................. 18,700 10,000
Other domestic debt.................................... 2,622 8,913
Foreign debt........................................... 5,521 5,210
Long-term loan payable to BIL.......................... 21,103 12,000
------- -------
Total debt................................... 47,946 42,626
Less short-term debt and current installments of
long-term debt....................................... 4,473 17,658
------- -------
Long-term debt, net of current installments,
including Revolving Promissory Note to BIL
in 1994.................................... $43,473 $24,968
======= =======
</TABLE>
Aggregate long-term debt maturities during each of the next five fiscal
years is as follows:
<TABLE>
<S> <C>
1996............................................. $ 4,473
1997............................................. 41,333
1998............................................. 965
1999............................................. 375
2000............................................. 275
Thereafter....................................... 525
-------
$47,946
=======
</TABLE>
The weighted average interest rate at December 31, 1995 on outstanding
short-term borrowings of $4,473 was approximately 9%. The short-term borrowings
at December 31, 1995 are as follows:
<TABLE>
<S> <C>
Foreign Debt...................................... $3,396
Other Short-term Debt............................. 1,077
------
$4,473
======
</TABLE>
In order to facilitate the relocation process by the Company from
California to Missouri, in February, 1992, BIL acquired all of Security Pacific
National Bank's rights (the "Bank Interest") in the First Amended and Restated
Credit Agreement that had been executed in 1991 ("Bank Loan"). The acquisition
of the Bank Loan by BIL resulted in BIL acquiring the Series B Convertible
Preferred Stock (786,000 shares). As a condition of the HSBC Revolving Credit
Agreement, BIL subordinated the repayment of the Bank Loan and the Amended 10.5%
Note (as defined below) to the repayment of the HSBC debt. As of September 30,
1993, the Bank Loan was restructured as part of the Debt Conversion Transaction.
As of September 30, 1993, the Company entered into the Debt Conversion
Agreement with BIL whereby $75 million of the indebtedness due BIL was
restructured by the issuance of the Common Stock Note and the Preferred Stock
Note (see Note 6). The balance of the indebtedness owed BIL ($6.8 million) which
was not converted into the Common Stock Note and the Preferred Stock Note was
treated as advances under the Revolving Promissory Note.
In December 1995, HSBC and E&J Inc. agreed to amend the Revolving Credit
Agreement originally entered into on September 30, 1992 and extend its term
through September, 1997. The HSBC facility, as amended, provides up to $6
million of letter of credit availability and cash advances of up to $25 million
to
F-58
<PAGE> 163
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 7 -- DEBT -- (CONTINUED)
E&J Inc. Advances under the Revolving Credit Agreement bear interest at the
prime rate plus 0.25%, as announced by Marine Midland Bank N.A. from time to
time (8.5% at December 31, 1995), and are guaranteed by Brierley Investments
Limited, an affiliate of BIL. Repayment of existing debt with BIL is
subordinated to the HSBC debt, and Brierley Investments Limited, an affiliate of
BIL, guaranteed its repayment.
On December 21, 1995, $3 million of the increased credit facility was
utilized to repay an advance from BIL made earlier in 1995. As of December 31,
1995, $18.7 million of the $25 million available for cash advances had been
utilized.
As part of the Debt Conversion Transaction, BIL agreed to provide to the
Company and E&J Inc. a revolving credit facility of up to $12.5 million, as
evidenced by the Revolving Promissory Note. At December 31, 1995, this facility
was completely utilized. BIL has advanced the Company an additional $8.6 million
under the Revolving Promissory Note, bringing the total outstanding advances
from BIL to the Company at December 31, 1995 to $21.1 million. The Revolving
Promissory Note and other advances mature on September 30, 1997, bear interest
at the rate of 8% per annum, and are secured by a lien on and security interest
in all assets of the Company and E&J Inc. The Revolving Promissory Note is
subordinated to all debt borrowed by the Company or E&J Inc. from, or the
payment of which has been guaranteed by the Company or E&J Inc. to HSBC, the
Pension Benefit Guaranty Corporation and any other financial institution
constituting a principal lender to the Company and/or E&J Inc. As of December
31, 1995, $2.6 million of accrued, unpaid interest is due BIL under the
Revolving Promissory Note.
In July 1991, the Company obtained a three-year secured credit facility in
the amount of up to $13 million at an interest rate of prime plus 3% for its
Smith & Davis subsidiary. The facility was secured by substantially all of the
assets of Smith & Davis. In February 1993, this credit line was amended to
increase the availability of funding to the Company, reduce the borrowing cost
to prime plus 2% and extend the term to December 31, 1995. The proceeds from the
sale of the Institutional Business were used to reduce this debt, and in
December 1995 the balance under this credit line was fully repaid utilizing
funds advanced from BIL. Additionally, Smith & Davis had other borrowings
primarily consisting of amounts owed under an industrial revenue bond totaling
$0.1 million at December 31, 1995, with an interest rate approximating 6%. The
remaining balance is due in March 1996.
During May 1992, the Company's Canadian subsidiary renewed existing credit
facilities in the aggregate of $4.7 million, which was fully utilized as of
December 31, 1995 at interest rates ranging from prime plus 1% to prime plus
1 1/4%. The loans are secured by the assets of the Canadian subsidiary.
During June 1994, the Company's Mexican subsidiary obtained a credit
facility in the aggregate of $1.0 million, of which $0.7 million was borrowed as
of December 31, 1995 at interest rates approximating 13%. The loans are secured
by the assets of the Mexican subsidiary and are due in annual installments
through 1999.
At December 31, 1995, the Company was contingently liable under existing
letters of credit in the aggregate amount of approximately $5.75 million.
At December 31, 1995 the Company owed $24.7 million to banks and other
commercial lenders, $2.1 million under capitalized lease obligations, and $21.1
million to BIL.
F-59
<PAGE> 164
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 8 -- INCOME TAXES
The components of the income tax provision (benefit) from operations for
each of the years in the three year period ended December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ----- ----
<S> <C> <C> <C>
Current:
Federal............................................ $ -- $ -- $ --
Foreign............................................ 160 97 197
State.............................................. -- -- --
Deferred:
Federal............................................ $ -- $ -- $ --
Foreign............................................ (64) (259) (24)
State.............................................. -- -- --
---- ----- ----
$ 96 $(162) $173
==== ===== ====
</TABLE>
A reconciliation of the provision (benefit) for taxes on loss from
operations and the amount computed using the statutory federal income tax rate
of 34% for each of the years in the three year period ended December 31, 1995 is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit.............. $(l,821) $(3,373) $(18,878)
Increases (reductions) due to:
State taxes, net of federal benefit........ -- -- --
Foreign subsidiaries with different tax
rates................................... (80) 52 319
Domestic losses with no tax benefit........ 1,997 3,159 18,732
------- ------- --------
$ 96 $ (162) $ 173
======= ======= ========
</TABLE>
The Company and certain subsidiaries file consolidated federal income and
combined state tax returns. For federal income tax purposes, as of December 31,
1995, the Company has net operating loss (NOL) carryforwards of approximately
$143 million and tax credit carryforwards of approximately $1 million that
expire in 1997 through 2010. In accordance with the Internal Revenue Code, when
certain changes in company ownership occur, utilization of NOL carryforwards is
limited. The Company has determined that there has been a change in ownership
due to the various debt and equity transactions consummated with BIL as
described in Note 6 -- Debt Restructuring and Conversion and Note 7 -- Debt. As
a result, approximately $88.5 million of the Company's NOL carryforwards are
subject to an annual limitation of approximately $3 million. If the full amount
of that limitation is not used in any year, the amount not used increases the
allowable limit in the subsequent year.
In addition, there are approximately $7 million and $6 million,
respectively, of preacquisition NOL carryforwards generated by Smith & Davis and
MCT with expiration dates through 2004. Annual utilization of these NOLs is
limited to $0.6 million for Smith & Davis and $0.5 million for MCT to reduce
that entity's future contribution to consolidated taxable income.
The Company's foreign source income is not material.
F-60
<PAGE> 165
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 9 -- INVENTORIES
Inventories at December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Raw materials............................................ $10,365 $10,249
Work-in-process.......................................... 4,593 5,585
Finished goods........................................... 4,612 4,615
------- -------
$19,570 $20,449
======= =======
</TABLE>
NOTE 10 -- COMMON AND PREFERRED STOCK
At the March 17, 1992 meeting, the stockholders approved a resolution to
authorize a new class of preferred stock. Thereafter, approximately 5.9 million
shares of 9% Series A Convertible Preferred Stock were issued for conversion of
BIL debt and accrued interest as discussed in Note 7. Such preferred shares are
redeemable into one-tenth of one share of common stock at the Company's option
until the second anniversary of conversion of the debt, and thereafter at the
holder's option until the seventh anniversary of conversion of the debt except
for any in-kind dividends which would be redeemable at 15% of the market price
at the time of conversion. The preferred shares are also redeemable for cash at
the Company's option at a price of $1.67458437 per share until the second
anniversary of conversion of the debt and thereafter the seventh anniversary of
the conversion to cash at a price of $1.67458437 per share except for in-kind
dividends which would be redeemable at an amount equal to 15% of market price of
the common stock as of the redemption date. Upon notice of redemption, the
holder(s) of the preferred shares can convert such shares into one-tenth of one
share of common stock. Also as discussed in Note 7, a second series of preferred
stock (Series B, consisting of 786,000 shares) was issued to BIL, which is
redeemable at the Company's option into one-tenth of one share of Common Stock
(except for any unpaid interest owed) at any time prior to the seventh
anniversary of the issuance date of said preferred shares.
On March 17, 1992, the stockholders of the Company approved a Plan of
Reclassification. Under the Plan of Reclassification, the Certificate of
Incorporation of the Company was amended to replace the Company's authorized
Class A Common Stock and Class B Common Stock with a new single class of Common
Stock having 2,500,000 authorized shares, and reclassified each outstanding
Class A Common share and each outstanding Class B Common share into one share of
such new single class of Common Stock. The Plan of Reclassification became
effective as of the close of business on November 18, 1993.
On December 31, 1993, the Company's stockholders approved the Debt
Conversion Transaction (see Note 6), which resulted in the issuance of 5.5
million shares of Common Stock and 20 million shares of 7% Series C Convertible
Preferred Stock upon conversion of the Common Stock Note and the Preferred Stock
Note, respectively. Each share of Series A, B and C preferred shares is
convertible into one-tenth of one share of common stock and is entitled to vote
with the common stock on an as-converted basis. The Series A and B preferred
shares are callable at a price of $1.67458437. Such call option has been waived
by BIL through September 30, 1997. The Debt Conversion Transaction resulted in
an increase in the total shares outstanding, on a fully diluted basis, to 9.96
million (including shares issued for the MCT acquisition), and increased the
percentage ownership of the Company by BIL and its affiliates from approximately
60% at December 31, 1992 to approximately 85% at December 31, 1993.
The Company has three employee stock option plans that provide for the
grant to eligible employees of stock options to purchase shares of Common Stock.
The Everest & Jennings International Ltd. 1981 Employees Stock Option Plan
expired in 1991. Options are exercisable over a ten-year period. Stock options
were granted at prices which represent the fair market value of the Common Stock
on the date of grant. The
F-61
<PAGE> 166
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 10 -- COMMON AND PREFERRED STOCK -- (CONTINUED)
changes in this stock option plan in each of the years in the three year period
ended December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Outstanding, beginning of year.................. 5,645 10,245 23,437
Granted......................................... -- -- --
Exercised....................................... -- -- --
Cancelled....................................... (1,405) (4,600) (13,192)
------ ------ -------
Outstanding, end of year........................ 4,240 5,645 10,245
====== ====== =======
Exercisable, end of year........................ 4,240 5,645 10,245
====== ====== =======
</TABLE>
Options outstanding as of December 31, 1995 were granted at prices ranging
from $18.80 to $127.50 per share. As of December 31, 1995, 4,240 shares were
exercisable in the price range of $18.80 to $127.50 per share.
The Company also has an Omnibus Incentive Plan, which was adopted by the
Board of Directors during 1990. Options are exercisable over a ten-year period,
and were granted at prices which represent the fair market value of the Common
Stock on the date of grant. The changes in the Omnibus Incentive Plan in each of
the years in the three year period ended December 31, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Outstanding, beginning of year................ 21,969 54,906 72,500
Granted....................................... -- -- 21,900
Exercised..................................... -- -- --
Cancelled..................................... (12,869) (32,937) (39,494)
------- ------- -------
Outstanding, end of year...................... 9,100 21,969 54,906
======= ======= =======
Exercisable, end of year...................... 8,400 20,091 30,794
======= ======= =======
</TABLE>
At December 31, 1995, 80,000 shares have been reserved for issuance
pursuant to this plan, and 9,100 options were outstanding which were granted at
prices ranging from $12.50 to $23.80.
Effective April 25, 1994, the Company adopted the 1994 Everest & Jennings
Stock Option Plan (the "1994 Plan"), providing for the granting of nonqualified
stock options to purchase up to 440,000 shares of the Company's Common Stock to
selected full time employees of the Company. Under the 1994 Plan, options become
exercisable in 50% increments when the Company achieves certain performance
goals and are automatically exercisable five years after the grant date,
assuming continuous employment with the Company. Option activity in the 1994
Plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Outstanding, beginning of year........................... 315,200 368,200
Granted.................................................. 100,900 --
Exercised................................................ -- --
Cancelled................................................ (96,800) (53,000)
------- -------
Outstanding, end of year................................. 319,300 315,200
======= =======
</TABLE>
F-62
<PAGE> 167
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 10 -- COMMON AND PREFERRED STOCK -- (CONTINUED)
Options outstanding as of December 31, 1995 were granted at $8.50, which
approximates the fair market value of the Company's common stock at the date of
grant. No options were exercisable at December 31, 1995 pursuant to this Plan.
At December 31, 1995, 120,700 shares were available for the granting of
additional options.
As part of the MCT acquisition, the Company assumed 10,761 unvested and
30,042 vested stock options at exercise prices ranging from $.60 to $2.80. These
options are for the acquisition of the Company's Common Stock. Option activity
in the MCT Plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
Options assumed............................................ -- 40,803
Outstanding, beginning of year............................. 31,683 --
Exercised.................................................. (2,283) (5,820)
Cancelled.................................................. -- (3,300)
------ ------
Outstanding, end of year................................... 29,400 31,683
====== ======
Exercisable, end of year................................... 28,419 28,419
====== ======
</TABLE>
NOTE 11 -- EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all employees of its primary domestic subsidiary, Everest &
Jennings, Inc. and two non-contributory defined benefit pension plans for the
non-bargaining unit salaried employees ("Salaried Plan") and employees subject
to collective bargaining agreements ("Hourly Plan") at its Smith & Davis
subsidiary. The total pension expense (income) under these plans was $364, $(15)
and $40 for 1995, 1994 and 1993, respectively.
F-63
<PAGE> 168
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 11 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The following table sets forth the status of these plans and the amounts
recognized in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $17,678 $15,612 $17,695
======= ======= =======
Accumulated benefit obligation.............................. $17,678 $15,621 $17,816
======= ======= =======
Projected benefit obligation for services rendered to
date...................................................... $17,678 $15,621 $17,816
Plan assets at fair value, primarily listed stocks, bonds
and investment funds...................................... 13,513 12,100 12,763
------- ------- -------
Projected benefit obligation in excess of plan assets....... (4,165) (3,521) (5,053)
Unrecognized transition amount.............................. (85) (98) (85)
Unrecognized loss from change in discount rate.............. 3,420 1,960 3,043
------- ------- -------
Pension liability included in Accrued payroll costs......... $ (830) $(l,659) $(2,095)
======= ======= =======
The pension cost relating to these plans is comprised of the
following:
Service cost--benefits earned during period................. $ -- $ -- $ --
Interest cost on projected benefit obligation............... 1,323 1,263 1,295
Actual return on plan assets................................ (2,396) (378) (872)
Net amortization and deferral............................... 1,437 (900) (223)
Curtailment gain............................................ -- -- (160)
------- ------- -------
Net periodic pension cost................................... $ 364 $ (15) $ 40
======= ======= =======
</TABLE>
Effective May 1, 1991, benefits accruing under the Everest & Jennings, Inc.
Pension Plan were frozen. Due to a reduction in its weighted-average discount
rate, and in accordance with the provisions of SFAS No. 87, "Employees'
Accounting for Pensions", an additional minimum funding liability, representing
the excess of accumulated plan benefits over plan assets and accrued pension
costs of S2,606 was recorded for the Everest & Jennings, Inc. Pension Plan as an
increase in stockholders' deficit for the year ended December 31, 1993. As of
December 31, 1994, stockholders' deficit was credited for $794 to reduce the
minimum liability to $1,812. As of December 31, 1995, stockholders' deficit was
increased by $1,452 to reflect an increase in the minimum liability as a result
of a decrease in the discount rate used to determine the minimum liability.
Additionally, during 1991 the Company froze the Smith & Davis Hourly Plan
and purchased participating annuity contracts to provide for accumulated and
projected benefit obligations. The Company has also frozen the Smith & Davis
Salaried Plan effective January 1, 1993. Participants in the plan are eligible
to participate in the Company's 401(k) Savings and Investment Plan, as discussed
below. There was no material impact on the consolidated financial statements as
a result of these changes.
The following assumptions were used to determine the projected benefit
obligations and plan assets:
<TABLE>
<CAPTION>
EVEREST & JENNINGS,
INC. SMITH & DAVIS
PLAN PLANS
---------------------- ----------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted-average discount rate.................... 7.5 % 8.5 % 7.5 % 8.0 % 8.5 % 7.5 %
Expected long-term rate of return on assets....... 9.0 % 9.0 % 9.0 % 9.0 % 9.0 % 8.5 %
Long-term rate for compensation increases......... -- -- -- -- -- --
</TABLE>
F-64
<PAGE> 169
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 11 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)
In 1995, 1994 and 1993, no long term rates for compensation increases were
assumed for the defined benefit plans, as all participants are inactive and the
plans are frozen.
The Company also sponsored a 401(k) Savings and Investment Plan (the
"401(k) plan") covering all full-time employees of Everest & Jennings, Inc.
Contributions made by the Company to the 401(k) plan are based on a specified
percentage of employee contributions up to 6% of base salary. As of March 1,
1994, the Company suspended its contribution to the 401(k) Plan for all
non-bargaining unit employees. Employees may contribute between 1% and 15% of
base salary. Expense recorded for the 401(k) plan totaled approximately $20 in
1995, $35 in 1994 and $134 in 1993.
NOTE 12 -- LEASE COMMITMENTS
The Company is a party to a number of noncancelable lease agreements
involving buildings and equipment. The leases extend for varying periods up to
eight years and generally provide for the payment of taxes, insurance and
maintenance by the lessee. Certain of these leases have purchase options at
varying rates.
The Company's property held under capital leases, included in property,
plant and equipment, at December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Machinery and equipment.............................. $ 2,827 $ 2,784
Less accumulated amortization........................ (1,769) (1,168)
------- -------
$ 1,058 $ 1,616
======= =======
</TABLE>
Minimum future lease obligations on long-term noncancelable leases in
effect at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1996....................................... $ 970 $ 707
1997....................................... 933 608
1998....................................... 469 595
1999....................................... -- 590
2000....................................... -- 589
Thereafter................................. -- 1,206
------ ------
Net minimum lease payments................. $ 2,372 $ 4,295
====== ======
Less amount representing interest.......... (262)
------
Present value of minimum lease payments.... 2,110
Less current portion....................... (804)
------
$ 1,306
======
</TABLE>
Rental expense for operating leases amounted to approximately $1,349,
$2,122 and $1,913 in 1995, 1994 and 1993, respectively.
F-65
<PAGE> 170
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE -- 13 CONTINGENT LIABILITIES
In July, 1990, a class action suit was filed in the United States District
Court for the Central District of California by a stockholder of the Company
against the Company and certain of its present and former directors and
officers. The suit seeks unspecified damages for alleged non-disclosure and
misrepresentation concerning the Company in violation of federal securities
laws. The Company twice moved to dismiss the complaint on various grounds. After
the first such motion was granted, plaintiff filed a first amended complaint,
which subsequently was dismissed by order filed on September 20, 1991. Plaintiff
then notified the court that it did not intend to further amend the complaint,
and an order dismissing the complaint was entered in November 1991. Plaintiff
filed a notice of appeal to the Court of Appeals for the Ninth Circuit on
December 23, 1991. The case was briefed and oral argument heard in June, 1993.
Because of the precedent set by a Ninth Circuit decision in another case which
was decided after the district court's order of dismissal but before the Ninth
Circuit decided plaintiff's appeal, the Ninth Circuit reversed the district
court's dismissal of the case and remanded the case to the district court for
further proceedings in an opinion handed down by the Ninth Circuit on August 24,
1995. The district court directed plaintiff to file a new motion for class
certification and the plaintiff did so on February 29, 1996. The Company opposes
that motion, and it is set for hearing on March 25, 1996. The ultimate
liability, if any, cannot be determined at this time.
In December, 1992 ICF Kaiser Engineers, Inc. ("ICF Kaiser") filed a Demand
for Arbitration (the "Demand") against the Company before the American
Arbitration Association in Los Angeles, California. ICF Kaiser in its demand
claims breach of contract between the parties for consulting and clean up work
by ICF Kaiser at E&J's former facilities located at 3233 East Mission Oaks
Boulevard, Camarillo, California. The Arbitration Demand was in the sum of $1.1
million. In January, 1993 an answer and counter-claim were filed on behalf of
the Company. The answer denied breach of the contract and disputed the monetary
claim asserted in the Demand. In the counterclaim, the Company asserted that ICF
Kaiser breached the contract, above referenced, by inter alia failing to perform
the services required under the Agreement in a reasonably cost effective manner
and in accordance with the terms and conditions of the Agreement. In February,
1993 E&J made a payment without prejudice to ICF Kaiser in the sum of
approximately $0.6 million. This payment, together with prior payments, brought
the total paid to date by the Company to ICF Kaiser to approximately $0.7
million. During June 1994 the Arbitrator ruled in favor of ICF Kaiser against
the Company in the amount of $1.3 million. This case was settled during the
fourth quarter of 1994 by payment to ICF Kaiser of $1.0 million, and such
payment was charged against existing Company reserves.
Die Cast Products, Inc. ("Die Cast Products"), a former subsidiary of the
Company, has been named as a defendant in a lawsuit filed by the State of
California pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act 42 U.S.C. sec.sec. 9601 et sec. The Company was originally
notified of this action on December 10, 1992. The lawsuit seeks to recover
response and remediation costs in connection with the release or threatened
release of hazardous substances at 5619-21 Randolph Street, in the City of
Commerce, California ("Randolph Street Site"). It is alleged that the Randolph
Street Site was used for the treatment, storage and disposal of hazardous
substances. The Company anticipates being named as a defendant as a result of
its former ownership of Die Cast Products, which allegedly disposed of hazardous
waste materials at the Randolph Street Site. A settlement in principle between
the State of California and the various potentially responsible parties was
reached in October 1995. It is anticipated that the Company's portion of the
settlement will be less than was originally anticipated. Accordingly, the
previously recorded reserve for this matter was reduced in 1995.
In March, 1993, E&J Inc. received a notice from the United States
Environmental Protection Agency ("EPA") regarding an organizational meeting of
generators with respect to the Casmalia Resources Hazardous Waste Management
Facility ("Casmalia Site") in Santa Barbara County, California. The EPA alleges
that the Casmalia Site is an inactive hazardous waste treatment, storage and
disposal facility which
F-66
<PAGE> 171
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE -- 13 CONTINGENT LIABILITIES -- (CONTINUED)
accepted large volumes of commercial and industrial wastes from 1973 until 1989.
In late 1991, the Casmalia Site owner/operator abandoned efforts to actively
pursue site permitting and closure and is currently conducting only minimal
maintenance activities. The EPA estimates that the Casmalia Site's closure trust
fund, approximately $10 million, is substantially insufficient to cover cleanup
and closure of the site. Since August, 1992, the EPA has undertaken certain
interim stabilization actions to control actual or threatened releases of
hazardous substances at the Casmalia Site. The EPA is seeking cooperation from
generators to assist in the cleaning up, and closing of, the Casmalia Site. E&J
Inc. and 64 other entities were invited to the organizational meeting. E&J Inc.
is a member of a manufacturers' group of potentially responsible parties which
has investigated the site and proposed a remediation plan to the EPA. To reflect
E&J Inc.'s estimated allocation of costs thereunder, a reserve of $1.0 million
was recorded, which was included in the Consolidated Statements of Operations
for 1993. During 1995 an agreement in principle was reached with the EPA for a
settlement of the majority of the Casmalia site liability. The settlement
provides for the work to be completed in three phases. Phase I work, which is
estimated to take three to five years to complete, will require the Company,
along with other responsible parties, to participate in funding the water
management, certain construction projects and completion of the site
investigation. Phase II work, consisting of the remaining remedial construction
activities and the first five years of operation and maintenance, will be funded
by other parties and is estimated to take ten years. Subsequent to Phase II,
additional operation and maintenance will be required for approximately 30
years. The estimated exposure of the Company under this agreement is less than
originally anticipated and the previously recorded reserve has been reduced
accordingly.
In 1989, a patent infringement case was initiated against E&J Inc. and
other defendants in the U.S. District Court, Central District of California. E&J
Inc. prevailed at trial with a directed verdict of patent invalidity and
non-infringement. The plaintiff filed an appeal with the U.S. Court of Appeals
for the Federal Circuit. On March 31, 1993, the Court of Appeals vacated the
District Court's decision and remanded the case for trial. Impacting the retrial
of this litigation was a re-examination proceeding before the Board of Patent
Appeals with respect to the subject patent. A ruling was rendered November 23,
1993 sustaining the claim of the patent which E&J Inc. has been charged with
infringing. Upon the issuance of a patent re-examination certificate by the U.S.
Patent Office, the plaintiff presented a motion to the District Court requesting
a retrial of the case. The Company presented a Motion for Summary Judgment of
Noninfringement based in part upon the November 23, 1993 decision of the Board
of Patent Appeals. The Motion was granted in follow-up conferences and an
official Judgment was entered November 17, 1994. The plaintiff filed a Notice of
Appeal on November 23, 1994, and a briefing schedule has been indicated by the
Appellate Court. A written opinion was filed March 21, 1995 and the appeal was
argued August 8, 1995. A decision has not yet been announced. E&J Inc. believes
that this case is without merit and intends to contest it vigorously. The
ultimate liability of E&J Inc., if any, cannot be determined at this time.
The Company and its subsidiaries are parties to other lawsuits and other
proceedings arising out of the conduct of its ordinary course of business,
including those relating to product liability and the sale and distribution of
its products. While the results of such lawsuits and other proceedings cannot be
predicted with certainty, management does not expect that the ultimate
liabilities, if any, will have a material adverse effect on the consolidated
financial position or results of operations of the Company.
F-67
<PAGE> 172
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED AND PER-SHARE DATA)
NOTE 14 -- QUARTERLY FINANCIAL INFORMATION
The following chart sets forth the highlights of the quarterly consolidated
results of operations in fiscal years 1995, 1994 and 1993:
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)(A)
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
--------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Fiscal year 1995
Revenues................. $18,513 $ 18,449 $19,346 $ 18,319 $ 74,627
Gross profit............. 4,207 4,404 4,126 3,293(d) 16,030
Net loss................. (1,170) (860) (924) (2,498)(d) (5,452)
Loss per share........... (.20) (.08) (.10) (.37) (.75)
Fiscal year 1994
Revenues................. $20,213 $ 20,146 $19,829 $ 19,250 $ 79,438
Gross profit............. 4,080 4,657 4,674 139(b) 13,550
Net loss................. (1,673) (940) (897) (6,249)(b) (9,759)
Loss per share........... (.20) (.10) (.10) (.95) (1.35)
Fiscal year 1993
Revenues................. $24,752 $ 23,524 $23,458 $ 22,725 $ 94,459
Gross profit............. 5,839 2,784 3,993 (1,982) 10,634
Net loss................. (2,977) (7,837) (5,236) (39,647)(c) (55,697)(c)
Loss per share........... (3.30) (8.61) (5.70) (42.00) (59.61)
</TABLE>
- ---------------
(a) In the fourth quarter of 1994, based on predominant industry practice, the
Company changed its method of classification of shipping and distribution
costs in the statement of operations. Such costs are now presented in cost
of sales versus operating expenses in prior years. For purposes of quarterly
financial information all gross profit amounts presented have been revised
to reflect such reclassification.
(b) Gross profit was adversely affected during the fourth quarter of 1994 by a
$3.0 million charge to reserves for product liability, workers' compensation
claims and inventory cost adjustments.
(c) Includes charges of $13 million for the Institutional Business disposition,
$2.1 million for the consolidation of manufacturing and distribution
facilities, and $9.7 million for MCT in-process R&D.
(d) Productivity at the Company's primary domestic manufacturing facility was
negatively impacted during the fourth quarter of 1995 as a result of a WARN
act notice issued pursuant to the layoff of 30% of the work force at that
facility. These layoffs, which were completed during the first quarter of
1996. were a result of the transfer of workload to lower-cost facilities and
the Company's continued manufacturing rationalization.
F-68
<PAGE> 173
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
FOR THE YEAR ENDED PERIOD EXPENSES DEDUCTIONS OF PERIOD
- -------------------------------------------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
December 31, 1995:
Allowance for doubtful accounts........... $2,088 $ 577 $ 818 $1,847
Accrued restructuring expenses............ 4,476 123 3,940 3,140
December 31, 1994:
Allowance for doubtful accounts........... $1,506 $1,630 $1,048 $2,088
Accrued restructuring expenses............ 6,292 -0- 1,816 4,476
December 31, 1993:
Allowance for doubtful accounts........... $3,505 $1,515 $3,514(a) $1,506
Accrued restructuring expenses............ 6,047 5,074(b)(c) 4,829 6,292
</TABLE>
- ---------------
(a) This includes amount related to the accounts of the Institutional Business
which have been reclassified as Assets Held for Sale.
(b) Accrued restructuring expenses include costs incurred in the process of
relocating the Company's primary domestic wheelchair manufacturing facility
from California to Missouri. $10,030 and $2,079 of restructuring expenses
were charged to other balance sheet accounts for 1993 and 1992,
respectively.
(c) Accrued restructuring expenses include costs related to the disposition of
the Institutional Business.
F-69
<PAGE> 174
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues.............................................................. $ 49,561 $ 56,308
Cost of sales......................................................... 40,861 43,571
--------- ---------
Gross profit.......................................................... 8,700 12,737
Selling expenses...................................................... 8,667 8,936
General and administrative expenses................................... 5,047 3,964
--------- ---------
Total operating expenses.............................................. 13,714 12,900
--------- ---------
Loss from operations.................................................. (5,014) (163)
Interest expense, BIL (Note 6)........................................ 1,280 1,179
Interest expense, other............................................... 2,160 1,539
--------- ---------
Loss before income taxes.............................................. (8,454) (2,881)
Income tax provisions................................................. 6 73
--------- ---------
Net loss.............................................................. $ (8,460) $ (2,954)
========= =========
Loss per share (Note 7)............................................... $ (1.17) $ (.41)
========= =========
Weighted average number of Common Shares outstanding.................. 7,214,565 7,226,556
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-70
<PAGE> 175
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
1995
SEPTEMBER -----------
30
1996
-----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 12 $ 117
Accounts receivable, less allowance for doubtful accounts of
$1,376 in 1996 and $1,847 in 1995.......................... 14,448 16,952
Notes receivable (Note 9)..................................... 2,559 252
Inventories (Note 8).......................................... 17,858 19,570
Other current assets.......................................... 629 1,047
-------- --------
Total current assets.................................. 35,506 37,938
PROPERTY, PLANT AND EQUIPMENT:
Land.......................................................... 370 261
Buildings and improvements.................................... 4,574 4,500
Machinery and equipment....................................... 16,093 15,380
-------- --------
21,037 20,141
Less accumulated depreciation and amortization................ (14,066) (12,992)
-------- --------
Property, plant and equipment, net............................ 6,971 7,149
NOTES RECEIVABLE (Note 9)....................................... 297 2,524
INTANGIBLE ASSETS, NET.......................................... 171 402
OTHER ASSETS.................................................... 345 217
-------- --------
TOTAL ASSETS.......................................... $ 43,290 $ 48,230
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings and current installments of long-term
debt of $1,552 in 1996 and $1,089 in 1995 (Note 6)......... $ 4,782 $ 4,473
Accounts payable.............................................. 7,109 8,361
Accrued payroll costs......................................... 5,032 6,327
Accrued interest, BIL (Note 6)................................ 3,909 2,629
Accrued expenses.............................................. 5,681 5,310
Accrued restructuring expenses (Note 1)....................... 339 659
-------- --------
Total current liabilities............................. 26,852 27,759
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION (Note 6)................. 27,516 22,370
LONG-TERM BORROWINGS FROM BIL (Note 6).......................... 21,103 21,103
OTHER LONG-TERM LIABILITIES..................................... 79 130
COMMITMENTS AND CONTINGENCIES (Notes 1 and 10)
STOCKHOLDERS' DEFICIT: (Note 1)
Series A Convertible Preferred Stock.......................... 13,175 13,175
Series B Convertible Preferred Stock.......................... 1,317 1,317
Series C Convertible Preferred Stock.......................... 20,000 20,000
Common Stock, par value: $.10; authorized 12,000,000 shares... 719 722
Additional paid-in capital.................................... 105,608 105,608
Accumulated deficit........................................... (169,143) (159,793)
Minimum pension liability adjustment.......................... (3,264) (3,264)
Cumulative translation adjustments............................ (672) (897)
-------- --------
Total stockholders' deficit................................ (32,260) (23,132)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT........... $ 43,290 $ 48,230
======== ========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-71
<PAGE> 176
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE SERIES C CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ---------------- -------------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------- ------- ------ ---------- ------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1995.......... 7,867,842 $13,175 786,357 $1,317 20,000,000 $20,000 72,280,646 $722 $105,608
Accrued Dividends on
Series A
Convertible
Preferred Stock... -- -- -- -- -- -- -- -- --
Net loss............ -- -- -- -- -- -- -- -- --
Adjustment for one-
for-ten Stock
Split............. -- -- -- -- -- -- (65,084,081) (3) --
Translation
Adjustments....... -- -- -- -- -- -- -- -- --
--------- ------- ------- ------ ---------- ------- ----------- ---- -------
Balance at September
30, 1996.......... 7,867,842 $13,175 786,357 $1,317 20,000,000 $20,000 7,196,565 $719 $105,608
========= ======= ======= ====== ========== ======= =========== ==== =======
<CAPTION>
MINIMUM
PENSION CUMULATIVE
ACCUMULATED LIABILITY TRANSLATION
DEFICIT ADJUSTMENT ADJUSTMENTS TOTAL
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Balance at December
31, 1995.......... $(159,793) $ (3,264) $(897) $(23,132)
Accrued Dividends on
Series A
Convertible
Preferred Stock... (890) -- -- (890)
Net loss............ (8,460) -- -- (8,460)
Adjustment for one-
for-ten Stock
Split............. -- -- -- (3)
Translation
Adjustments....... -- -- 225 225
-------- ------- ----- --------
Balance at September
30, 1996.......... $(169,143) $ (3,264) $(672) $(32,260)
======== ======= ===== ========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-72
<PAGE> 177
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-------------------
1996 1995
------- -------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................. $(8,460) $(2,954)
Adjustment to reconcile net loss to cash used in operating
activities:
Depreciation and amortization..................................... 1,305 1,812
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable.................................................. 2,183 1,991
Trade notes receivable............................................... (2,307) --
Inventories.......................................................... 1,712 2,247
Accounts payable..................................................... (1,252) (3,321)
Accrued interest, BIL................................................ 1,280 1,179
Accrued payroll costs, expenses and income taxes..................... (1,295) (2,916)
Accrued restructuring expenses....................................... (320) (3,727)
Other, net........................................................... 90 (126)
------- -------
Cash used in operating activities.................................... (7,064) (5,815)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................. (896) (1,003)
Proceeds from disposition of assets held for sale.................... -- 4,518
Cash received in payment of note receivable.......................... 2,227 --
------- -------
Cash provided by investing activities................................ 1,331 3,515
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from BIL.................................................... -- 5,100
Increase (decrease) in short-term and long-term borrowings, net...... 5,455 (3,157)
Proceeds from exercise of stock options.............................. 3 3
Changes in other long-term liabilities............................... (51) (73)
------- -------
Cash provided by financing activities................................ 5,401 1,873
Effect of exchange rate changes on cash flow......................... 227 150
Decrease in cash balance............................................. (105) (277)
Cash and cash equivalents balance at beginning of year............... 117 513
------- -------
CASH AND CASH EQUIVALENTS BALANCE AT END OF PERIOD..................... $ 12 $ 236
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest................................................. $ 1,857 $ 1,584
Cash paid for income taxes............................................. $ 203 $ 59
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-73
<PAGE> 178
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
NOTE 1 -- CORPORATE RESTRUCTURING
The Company has incurred substantial financial losses in a continuing
effort to restructure its operations with the objective of improving its
competitive position within the durable medical equipment industry.
Restructuring activities have included asset sales, significant reductions in
headcount, plant closures and consolidations, product line rationalization, debt
to equity conversion and outsourcing of manufacturing operations.
The Company's 1996 revenues and operating results have been negatively
impacted by ongoing price competition. Additionally, the Company continues to
address the rationalization of its production facilities in the US, Canada and
Mexico and the increased outsourcing of products and product components, the
effects of which are expected to lower the Company's production costs. On May
26, 1996 the Company issued a WARN Act Notice and announced a substantial
workforce reduction at its primary domestic wheelchair manufacturing facility.
Such reduction was substantially completed during the third quarter of 1996. US
operations are now limited to administration, distribution, certain custom
manufacturing and light assembly. A severance reserve of approximately $391 has
been included in the Company's results of operations for the three months ended
June 30, 1996 and an additional severance reserve of approximately $132 has been
included in the Company's results of operations for the three months ended
September 30, 1996 resulting in approximately $523 of severance expense being
included in the Company's results of operations for the months ended September
30, 1996. The Company anticipates incurring additional restructuring expenses
during the fourth quarter 1996 as workload transfers substantially complete.
The accompanying consolidated financial statements have been prepared under
the going concern concept, which anticipates an entity will continue in its
present form and, accordingly, uses the historical cost basis to prepare
financial statements. The Company has incurred substantial restructuring
expenses and recurring operating losses and has a net capital deficiency at
September 30, 1996. No assurance can be made that the Company will successfully
emerge from or complete its restructuring activities.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed for the three month and nine month
periods ended September 30, 1996 are the same as those disclosed in the Notes to
the Company's December 31, 1995 Consolidated Financial Statements, which were
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995. All dollar amounts in these Notes to Unaudited Consolidated
Financial Statements are in thousands except per-share data or as otherwise
specified. In the opinion of management, all adjustments, consisting of normal
recurring adjustments necessary for a fair presentation of (a) the consolidated
results of operations for the three month and nine month periods ended September
30, 1996 and 1995; (b) the consolidated financial position at September 30, 1996
and December 31, 1995; and (c) the consolidated cash flows for the nine month
periods ended September 30, 1996 and 1995 have been made. However, the
consolidated financial statements included herewith do not include any
adjustments that might result from the Company's inability to emerge from or
complete its ongoing restructuring activities and continue as a going
concern -- See Note 1 to the Unaudited Consolidated Financial Statements.
NOTE 3 -- OWNERSHIP
80% of the Company's common shares and all of the Company's Series A, B and
C Preferred shares are owned by a wholly-owned subsidiary of Brierley
Investments Ltd ("BIL"), a New Zealand investment firm.
F-74
<PAGE> 179
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
NOTE 4 -- PROPOSED MERGER WITH GRAHAM-FIELD HEALTH PRODUCTS, INC.
On September 3, 1996, the Company announced it had entered into a
definitive Agreement and Plan of Merger with Graham-Field Health Products, Inc.
providing for the previously announced acquisition of the Company by
Graham-Field. The Board of Directors of the Company received a fairness opinion
from Vector Securities International, Inc. to the effect that the consideration
to be received by the holders of the Company's Common Stock pursuant to the
Merger Agreement is fair to such stockholders from a financial point of view.
The terms of the acquisition are the same as those reflected in the parties'
previous announcement on August 14, 1996.
As a result of the merger, the Company will become a wholly-owned
subsidiary of Graham-Field. In the merger, the stockholders of the Company will
receive one share of Graham-Field common stock for each 2.857 shares of the
common stock of the Company. The merger ratio is subject to reduction so that
the value of the Graham-Field common stock to be received will not exceed $5.50
per share of the Company's common stock. There are currently 7,207,689 shares of
the Company's common stock outstanding.
In connection with the merger, BIL will purchase for cash up to 1.9 million
additional shares of Graham-Field common stock, valued at the greater of $13 per
share or the average market price of the common stock of Graham-Field for the 10
consecutive trading days prior to the merger closing date. Graham-Field will use
the proceeds to repay all debt of the Company in the approximate amount of $25
million to The Hongkong and Shanghai Banking Corporation Limited (see Note
6 -- Debt). In addition, Graham-Field will issue to BIL up to $61 million of a
new Series B Cumulative Convertible Preferred Stock in exchange for the
indebtedness of the Company owing to BIL (see Note 6 -- Debt) and shares of the
Company's preferred stock owned by BIL. Also as part of the transaction, BIL
will purchase for cash $10 million of a new Series C Cumulative Convertible
Preferred Stock of Graham-Field, the proceeds of which will be available to
Graham-Field for general corporate purposes. Finally, certain indebtedness in
the amount of $4 million owing by Graham-Field to BIL will be exchanged for a $4
million unsecured subordinated promissory note of Graham-Field which will mature
on April 1, 2001 and will bear interest at an effective rate of 7.7% per annum.
The Series B and Series C Preferred Stock to be issued by Graham-Field to
BIL will be entitled to a dividend at the rate of 1.5% per year, payable at the
option of Graham-Field either in cash or in shares of its common stock. In
addition, the shares of Graham-Field Series B and Series C Preferred Stock will
vote on an as-converted basis, as a single class together with the Graham-Field
common stock, on all matters submitted to a vote of the stockholders of
Graham-Field. The Series B Preferred Stock will not be redeemable and will be
convertible into shares of Graham-Field common stock (x) at the option of the
holder, at a conversion price of $20 per share, (y) at the option of
Graham-Field, at a conversion price equal to the then current trading price (but
not less than $15.50 or more than $20 per share), and (z) automatically on the
fifth anniversary of the date of issuance at a conversion price of $15.50 per
share, in each case subject to certain antidilution adjustments. The Series C
Preferred Stock will be subject to redemption as a whole at Graham-Field's
option on the fifth anniversary of the date of issuance at stated value and, if
not redeemed, will automatically convert on the fifth anniversary of the date of
issuance at a conversion price of $20 per share, subject to certain antidilution
adjustments.
As a result of the merger, BIL will own shares of common and preferred
stock of Graham-Field representing approximately 34% of the voting power of all
outstanding shares of Graham-Field stock. Simultaneous with the signing of the
Merger Agreement, Graham-Field and BIL entered into a Stockholder Agreement
pursuant to which BIL has agreed to vote all of its shares of the Company's
stock in favor of the merger. In the Stockholder Agreement, BIL also has agreed
to grant Graham-Field a right of first refusal with respect to certain sales of
its Graham-Field stock, to indemnify Graham-Field against certain existing
actions and proceedings to which the Company is a party and, so long as BIL owns
Graham-Field stock representing
F-75
<PAGE> 180
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
NOTE 4 -- PROPOSED MERGER WITH GRAHAM-FIELD HEALTH PRODUCTS, INC. -- (CONTINUED)
at least 5% of the voting power of the outstanding shares, not to acquire
additional shares without the consent of Graham-Field's Board of Directors
(which consent will not be unreasonably withheld), seek to acquire ownership of
Graham-Field, engage in any solicitation of proxies with respect to Graham-Field
or otherwise seek to propose to acquire control of the Graham-Field Board of
Directors. Pursuant to the Stockholder Agreement, BIL will have the right to
designate two members of Graham-Field's Board of Directors, subject to reduction
if BIL reduces its ownership of Graham-Field stock. BIL also will have the right
to participate on a pro rata basis in certain future stock issuances by
Graham-Field. The Stockholder Agreement will automatically terminate upon a
change of control of Graham-Field or its Board of Directors. In addition,
Graham-Field has granted certain registration rights to BIL with respect to its
Graham-Field shares.
The closing of the transaction is subject to customary conditions,
including approval by the stockholders of both Graham-Field and Everest &
Jennings. The closing is currently scheduled for November 27, 1996.
See Note 10 for a description of a class action complaint filed in Delaware
with respect to the proposed acquisition of the Company by Graham-Field.
NOTE 5 -- COMMON STOCK
On June 4, 1996 the Company's shareholders approved a one-for-ten reverse
stock split, effective June 6, 1996. The stated par value of one share of common
stock was changed from $.0l to $.10 as a result of the stock split. All
references in the consolidated financial statements to average number of shares
outstanding and related prices, per share amounts and stock option plan data
have been restated to reflect the reverse stock split.
NOTE 6 -- DEBT
The Company's debt as of September 30, 1996 and December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Loans payable to HSBC.............................. $ 25,000 $ 18,700
Other domestic debt................................ 1,770 2,622
Foreign debt....................................... 5,528 5,521
Long-term loan payable to BIL...................... 21,103 21,103
------- -------
Total debt......................................... 53,401 47,946
Less short-term borrowings and current installments
of long-term debt................................ 4,782 4,473
------- -------
Long-term debt, net of current portion, including
BIL Credit Facility.............................. $ 48,619 $ 43,473
======= =======
</TABLE>
On September 30, 1992 Everest & Jennings Inc., a wholly-owned subsidiary of
the Company, entered into a Revolving Credit Agreement with The Hongkong and
Shanghai Banking Corporation Limited ("HSBC"). This Agreement has been revised
and extended several times and currently expires September 30, 1997. Advances
under the Revolving Credit Agreement, as amended, bear interest at the prime
rate as announced by Marine Midland Bank, N.A. from time to time plus 0.25% per
annum. The HSBC facility, as amended, provides up to $6 million for letter of
credit availability and, additionally, cash advances of up to $25 million to
Everest & Jennings Inc. Repayment of existing debt with BIL is subordinated to
the HSBC debt, and an affiliate of BIL has guaranteed repayment of the HSBC
debt. As of September 30, 1996 this facility was fully utilized.
F-76
<PAGE> 181
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
NOTE 6 -- DEBT -- (CONTINUED)
BIL has provided the Company a credit facility which allows advances up to
$21.1 million. At September 30, 1996 and December 31, 1995 this facility has
been fully utilized. The BIL credit facility has been extended to September 30,
1997, bears interest at the rate of 8% per annum, and is secured by a lien on
and security interest in all assets of the Company and Everest & Jennings Inc.
As of September 30, 1996, $3.9 million of accrued, unpaid interest was due BIL
under the BIL credit facility.
The Company's Canadian subsidiary has credit facilities in the aggregate of
$5.5 million, of which $4.9 million was borrowed as of September 30, 1996 at
interest rates ranging from prime plus 1% to prime plus 1.25%. The loans are
secured by the assets of the Canadian subsidiary and certain Letters of Credit
supplied by HSBC and BIL.
The Company's Mexican subsidiary has a credit facility in the aggregate of
$1.0 million, of which $0.6 million was borrowed as of September 30, 1996 at
interest rates approximating 13%. The loan is secured by the assets of the
Mexican subsidiary.
At September 30, 1996, the Company was contingently liable to HSBC under
existing letters of credit in the aggregate amount of approximately $5.8
million.
NOTE 7 -- LOSS PER SHARE
Loss per share for the three month and nine month periods ended September
30, 1996 and 1995 is calculated based on the weighted average number of shares
of Common Stock outstanding during the periods, giving effect to the reverse
stock split as discussed in Note 5.
NOTE 8 -- INVENTORIES
Inventories at September 30, 1996 and December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER
30 DECEMBER 31
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Raw materials..................................... $ 9,789 $10,365
Work-in-process................................... 3,005 4,593
Finished goods.................................... 5,064 4,612
------- -------
$17,858 $19,570
======= =======
</TABLE>
NOTE 9 -- NOTES RECEIVABLE (LONG TERM)
The Company received notes of $2.1 million and $0.6 million upon the sale
of its institutional business and oxygen concentrator business, respectively, in
1995. The $2.1 million note was paid in full on April 2, 1996. The $0.6 million
note has been reduced to $0.3 million as of September 30, 1996 and was
substantially paid during October 1996. The remaining Notes receivable are
payable by customers, bear interest at various rates and mature in one to three
years. During October 1996 approximately $2.4 million of the outstanding Notes
Receivable were sold to BIL.
NOTE 10 -- CONTINGENT LIABILITIES
In July, 1990 a class action suit was filed in the United States District
Court for the Central District of California by a stockholder of the Company
against the Company and certain of its present and former directors and
officers. The suit seeks unspecified damages for alleged non-disclosure and
misrepresentation
F-77
<PAGE> 182
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
NOTE 10 -- CONTINGENT LIABILITIES -- (CONTINUED)
concerning the Company in violation of federal securities laws. The Company
twice moved to dismiss the complaint on various grounds. After the first such
motion was granted, plaintiff filed a first amended complaint, which
subsequently was dismissed by order filed on September 20, 1991. Plaintiff then
notified the court that it did not intend to further amend the complaint, and an
order dismissing the complaint was entered in November 1991. Plaintiff filed a
notice of appeal to the Court of Appeals for the Ninth Circuit on December 23,
1991. The case was briefed and oral argument heard in June, 1993. Because of the
precedent set by a Ninth Circuit decision in another case which was decided
after the district court's order of dismissal but before the Ninth Circuit
decided plaintiff's appeal, the Ninth Circuit reversed the district court's
dismissal of the case and remanded the case to the district court for further
proceedings in an opinion handed down by the Ninth Circuit on August 24, 1995.
On March 25, 1996, the district court granted plaintiffs motion to certify a
class composed of purchasers of the Company's Common Stock during the period
from March 31, 1989 to June 12, 1990. The ultimate liability, if any, cannot be
determined at this time.
Die Cast Products, Inc. ("Die Cast Products"), a former subsidiary of the
Company, has been named as a defendant in a lawsuit filed by the State of
California pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act 42 U.S.C. sec.sec. 9601 et sec. The Company was originally
notified of this action on December 10, 1992. The lawsuit sought to recover
response and remediation costs in connection with the release or threatened
release of hazardous substances at 5619-21 Randolph Street, in the City of
Commerce, CA ("Randolph Street Site"). It alleged that the Randolph Street Site
was used for the treatment, storage and disposal of hazardous substances. A
settlement in principle between the State of California and the various
potentially responsible parties was reached in October 1995. A consent decree
was signed in July 1996. The Company's portion of the settlement was less than
originally anticipated. Accordingly, the previously recorded reserve for this
matter was reduced in 1995 to the settlement amount.
In March, 1993 Everest & Jennings Inc. received a notice from the U.S.
Environmental Protection Agency ("EPA") regarding an organizational meeting of
generators with respect to the Casmalia Resources Hazardous Waste Management
Facility ("Casmalia Site") in Santa Barbara County, CA. The EPA alleges that the
Casmalia Site was an inactive hazardous waste treatment, storage and disposal
facility which accepted large volumes of commercial and industrial wastes from
1973 until 1989. In late 1991, the Casmalia Site owner/operator abandoned
efforts to actively pursue site permitting and closure and is currently
conducting only minimal maintenance activities. The EPA estimates that the
Casmalia Site's closure trust fund, approximately $10 million, was substantially
insufficient to cover cleanup and closure of the site. Since August, 1992, the
EPA has undertaken certain interim stabilization actions to control actual or
threatened releases of hazardous substances at the Casmalia Site. The EPA sought
cooperation from generators to assist in the clean up and closing of the
Casmalia Site. Everest & Jennings Inc. is a member of a manufacturers group of
potentially responsible parties which has investigated the site and proposed a
remediation plan to the EPA. To reflect Everest & Jennings Inc.'s estimated
allocation of costs thereunder, a reserve of $1.0 million was recorded, which
was included in the Consolidated Statements of Operations for 1993. During 1995
an agreement in principle was reached with the EPA for a settlement of the
majority of the Casmalia site liability. A consent decree was signed during July
1996. The settlement provides for the work to be completed in three phases.
Phase I work, which is estimated to take three to five years to complete, will
require the Company, along with other responsible parties, to participate in
funding the water management, certain construction projects and completion of
the site investigation. Phase II work, consisting of the remaining remedial
construction activities and the first five years of operation and maintenance,
will be funded by other parties and is estimated to take ten years. Subsequent
to Phase II, additional operation and maintenance will be required for
approximately 30 years. The estimated exposure of the Company under this
agreement is less than originally anticipated and the previously recorded
reserve has been reduced to the expected settlement amount.
F-78
<PAGE> 183
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
NOTE 10 -- CONTINGENT LIABILITIES -- (CONTINUED)
In 1989 a patent infringement case was initiated against Everest & Jennings
Inc. and other defendants in the U.S. District Court, Central District of
California. Everest & Jennings Inc. prevailed at trial with a directed verdict
of patent invalidity and non-infringement. The plaintiff filed an appeal with
the U.S. Court of Appeals for the Federal Circuit. On March 31, 1993, the Court
of Appeals vacated the District Court's decision and remanded the case for
trial. Impacting the retrial of this litigation was a re-examination proceeding
before the Board of Patent Appeals with respect to the subject patent. A ruling
was rendered November 23, 1993 sustaining the claim of the patent which Everest
& Jennings Inc. has been charged with infringing. Upon the issuance of a patent
re-examination certificate by the U.S. Patent Office, the plaintiff presented a
motion to the District Court requesting a retrial of the case. The Company
presented a Motion for Summary Judgment of Noninfringement based in part upon
the November 23, 1993 decision of the Board of Patent Appeals. The Motion was
granted in follow-up conferences and an official Judgment was entered November
17, 1994. Following the appeal by the plaintiffs, the case has been remanded to
the US District Court, Central District of California, for further
consideration. Everest & Jennings Inc. believes that this case is without merit
and intends to contest it vigorously. The ultimate liability of Everest &
Jennings Inc., if any, cannot be determined at this time.
Following a jury trial on July 15, 1996, a verdict was rendered in the
District Court of the First Judicial District of the State of New Mexico in a
civil product liability law suit (Chris Trew et al. vs. Smith and Davis
Manufacturing Company, Inc., No. SF95-354) against Smith & Davis Manufacturing
Company, a wholly-owned subsidiary of the Company ("Smith & Davis"), in the
amount of $550 actual damages and $4 million punitive damages. The suit was
instituted on February 25, 1995 by the children and surviving heirs and personal
representatives of a nursing home patient in Carlsbad, New Mexico who died on
September 28, 1993 after her head became pinned between a bed rail allegedly
manufactured by Smith & Davis and her bed. The suit alleged that the bed rail in
question was defective and unsafe for its intended purpose, that Smith & Davis
was negligent in designing, manufacturing, testing and marketing such bed rails
and that the negligence of the nursing home in question was the proximate cause
of the decedent's injuries and death. The nursing home reached a settlement with
plaintiffs prior to trial. Judgment has been entered on the jury verdict and
Smith & Davis plans to appeal the judgment.
On June 18, 1996 a Class Action Complaint captioned Ron Kauffman v. Rodney
F. Hogg, et al. was filed in the Court of Chancery in New Castle County,
Delaware with respect to the proposed acquisition of the Company by Graham-Field
(see Note 4), naming as defendants the Company, its directors, BIL and
Graham-Field. The suit alleges that, as a result of the proposed acquisition of
the Company by Graham-Field, minority shareholders will not receive their
proportionate share of the value of the Company's assets and will be prevented
from obtaining a fair price for their stock. Plaintiff alleges that the
acquisition offers minority shareholders value which is less than the Company's
trading price prior to the announcement of the acquisition, and that BIL will
receive more value for its holdings than minority shareholders. The plaintiff
alleges that the directors breached their fiduciary duties to minority
shareholders by not exercising independent business judgment and by acting for
their own personal benefit. The plaintiff seeks certification of a class
consisting of minority shareholders of the Company. Plaintiff requests that the
acquisition be enjoined or, alternatively, that damages be awarded to the class.
To date, no responsive pleading has been filed by any of the defendants and no
discovery has been taken.
The Company and its subsidiaries are parties to other lawsuits and other
proceedings arising out of the conduct of its ordinary course of business,
including those relating to product liability and the sale and distribution of
its products. While the results of such lawsuits and other proceedings cannot be
predicted with certainty, management does not expect that the ultimate
liabilities, if any, will have a material adverse effect on the consolidated
financial position or results of operations of the Company.
F-79
<PAGE> 184
CONSOLIDATED FINANCIAL STATEMENTS
OF FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
F-80
<PAGE> 185
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Fuqua Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Fuqua
Enterprises, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedule referred to in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fuqua Enterprises, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 1994,
the Company changed its method of accounting for certain investments in debt and
equity securities to comply with Statement of Financial Accounting Standards No.
115.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 20, 1997,
except for the last paragraph of
Note 2, as to which the date is
February 26, 1997
F-81
<PAGE> 186
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................................. $ 4,616 $ 29,000
Investments available for sale......................................... -- 12,550
Receivables
Trade accounts, less allowance of $250 (1995, $200).................. 33,871 19,102
Note receivable from sale of subsidiary.............................. -- 11,352
Lease receivables, less allowance of $350 (1995, $0)................. 1,147 --
Inventories............................................................ 42,059 21,695
Prepaid expenses and other assets...................................... 2,620 910
Deferred income taxes.................................................. 3,477 3,614
-------- --------
Total Current Assets.............................................. 87,790 98,223
-------- --------
Property, plant and equipment.......................................... 48,927 32,303
Less accumulated depreciation.......................................... (15,166) (10,841)
-------- --------
Net Property, Plant and Equipment................................. 33,761 21,462
-------- --------
Intangible assets, less accumulated amortization of $399 (1995, $25)... 20,014 5,013
Lease receivables...................................................... 3,503 --
Deferred income taxes.................................................. -- 1,066
Other assets........................................................... 1,408 95
-------- --------
Total Assets of Continuing Operations............................. 146,476 125,859
Total Assets of Discontinued Operations........................... 4,935 10,903
-------- --------
Total Assets................................................. $151,411 $136,762
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable.......................................................... $ -- $ 2,064
Accounts payable and accrued expenses.................................. 29,992 18,800
Long-term liabilities due within one year.............................. 1,453 11,668
-------- --------
Total Current Liabilities......................................... 31,445 32,532
Long-term debt obligations............................................. 30,686 22,041
-------- --------
Total Liabilities of Continuing Operations........................ 62,131 54,573
Total Liabilities of Discontinued Operations...................... -- 301
-------- --------
Total Liabilities............................................ 62,131 54,874
-------- --------
Stockholders' equity
Preference stock, $1 par value:
authorized 8,000,000 shares; none issued.......................... -- --
Common stock, $2.50 par value:
authorized 20,000,000 shares; issued 4,523,669 shares; (1995,
4,443,169 shares)................................................. 11,309 11,108
Additional paid-in capital............................................. 24,847 24,074
Retained earnings...................................................... 53,971 46,698
Unrealized gains (losses) on investments............................... -- 28
-------- --------
90,127 81,908
Treasury stock, at cost: 44,822 shares; (1995, 995 shares)............. (847) (20)
-------- --------
Total Stockholders' Equity................................... 89,280 81,888
-------- --------
Total Liabilities and Stockholders' Equity................... $151,411 $136,762
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-82
<PAGE> 187
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
REVENUES:
Net sales.............................................. $181,543 $117,128 $118,011
Investment income...................................... 1,939 828 541
-------- -------- --------
Total revenues......................................... 183,482 117,956 118,552
-------- -------- --------
COSTS AND EXPENSES:
Cost of sales.......................................... 140,773 98,356 100,446
Selling, general and administrative expenses........... 28,757 10,757 8,897
Interest expense....................................... 2,470 894 725
-------- -------- --------
Total costs and expenses............................... 172,000 110,007 110,068
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES.... 11,482 7,949 8,484
INCOME TAXES............................................. 4,209 2,699 2,662
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................ 7,273 5,250 5,822
-------- -------- --------
DISCONTINUED OPERATIONS:
Income from discontinued operations (Net of income
taxes (benefits) of 0, ($103) and $1,215,
respectively)....................................... -- 1,160 3,751
Loss on disposal of discontinued operations including
earnings net of taxes during the phase out period
(Net of income tax benefits of $2,753).............. -- (3,900) --
-------- -------- --------
-- (2,740) 3,751
-------- -------- --------
NET INCOME............................................... $ 7,273 $ 2,510 $ 9,573
======== ======== ========
PER SHARE:
Income from Continuing Operations...................... $ 1.60 $ 1.32 $ 1.51
======== ======== ========
Net Income............................................. $ 1.60 $ .63 $ 2.48
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-83
<PAGE> 188
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
-------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations............................... $ 7,273 $ 5,250 $ 5,822
Adjustments:
Depreciation and amortization................................. 4,196 1,931 1,603
Deferred income taxes......................................... 1,203 464 (88)
Loss on sales of available for sale investments............... 54 -- --
Changes in Assets and Liabilities:
Trade accounts receivables.................................... (4,485) 886 (716)
Lease receivables............................................. 1,551 -- --
Prepaid expenses.............................................. (1,134) -- --
Inventories................................................... (7,736) (130) (1,889)
Other assets.................................................. (1,078) (225) 39
Income taxes.................................................. -- (1,112) (724)
Payables, accrued expenses, and other liabilities............. (5,010) (1,624) (3,628)
-------- ------- --------
Net cash provided by (used in) continuing operations............ (5,166) 5,440 419
-------- ------- --------
Income from discontinued operations............................. -- 1,160 3,751
Loss on disposal of discontinued operations..................... -- (3,900) --
Net items providing cash from discontinued operations........... 4,160 (194) 583
-------- ------- --------
Net cash provided by (used in) discontinued operations.......... 4,160 (2,934) 4,334
-------- ------- --------
Net cash provided by (used in) all operations................... (1,006) 2,506 4,753
-------- ------- --------
INVESTING ACTIVITIES:
Proceeds from the sale of discontinued operations............... 11,352 22,648 --
Purchase of business, net of cash acquired...................... (7,743) (2,263) --
Sales of available for sale investments......................... 32,798 3,306 100
Purchases of available for sale investments..................... (20,302) (5,272) (6,630)
Sales of property, plant and equipment.......................... -- -- 31
Purchases of property, plant and equipment...................... (2,996) (1,509) (4,024)
Total from discontinued operations.............................. -- -- (4,525)
-------- ------- --------
Net cash provided by (used in) investing activities............. 13,109 16,910 (15,048)
-------- ------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in notes payable........................ (2,064) (11,750) 5,750
Payment of long-term liabilities................................ (34,570) (3,521) (1,273)
Additional long-term liabilities................................ -- 19,615 3,079
Exercise of stock options....................................... 974 1,009 248
Acquired shares for treasury.................................... (827) -- (190)
-------- ------- --------
Net cash provided by (used in) financing activities............. (36,487) 5,353 7,614
-------- ------- --------
Increase (Decrease) in Cash and Cash Equivalents................ (28,544) 24,769 (2,681)
Increase in Cash and Cash Equivalents from discontinued
operations.................................................... 4,160 -- 2,445
Cash and cash equivalents at beginning of year.................. 29,000 4,231 4,467
-------- ------- --------
Cash and cash equivalents at end of the year.................... $ 4,616 $29,000 $ 4,231
======== ======= ========
CASH PAID DURING THE YEAR FOR:
Interest........................................................ $ 2,975 $ 2,116 $ 1,185
Income taxes.................................................... 3,506 4,515 5,266
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Contingent payment related to meeting certain earn out
objectives (American Southern)................................ -- -- 1,000
Issuance of stock or debt in connection with acquisitions....... 33,000 11,550 --
Assumption of note receivable from sale of American Southern.... -- 11,352 --
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-84
<PAGE> 189
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL GAINS
COMMON PAID-IN RETAINED (LOSSES) ON TREASURY
STOCK CAPITAL EARNINGS INVESTMENTS STOCK TOTAL
------- ---------- -------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993............ $ 9,510 $ 14,075 $ 34,615 $ 218 $ (1,040) $57,378
Net income............................ -- -- 9,573 -- -- 9,573
Exercise of stock options............. 69 299 -- -- (120) 248
Acquired shares for treasury.......... -- -- -- -- (190) (190)
Adjustment to beginning balance for
change in accounting method, net of
tax................................. -- -- -- 1,238 -- 1,238
Unrealized losses on investments...... -- -- -- (3,925) -- (3,925)
------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1994............ 9,579 14,374 44,188 (2,469) (1,350) 64,322
Net income............................ -- -- 2,510 -- -- 2,510
Exercise of stock options............. 205 871 -- -- (67) 1,009
Issuance of stock in connection with
acquisition......................... 1,324 8,829 -- -- 1,397 11,550
Unrealized gains on investments....... -- -- -- 2,497 -- 2,497
------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1995............ 11,108 24,074 46,698 28 (20) 81,888
Net income............................ -- -- 7,273 -- -- 7,273
Exercise of stock options............. 201 773 -- -- -- 974
Acquired shares for treasury.......... -- -- -- -- (827) (827)
Unrealized losses on investments...... -- -- -- (28) -- (28)
------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1996............ $11,309 $ 24,847 $ 53,971 $ -- $ (847) $89,280
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-85
<PAGE> 190
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Business: Fuqua Enterprises, Inc. ("Fuqua") is a manufacturer of a variety
of products, including beds, patient aids, specialty seating, bathroom safety,
mobility products and therapeutic support systems for the acute, long-term and
home health care markets. Additionally, Fuqua produces a broad line of leathers
that are sold to manufacturers of shoes, handbags, personal leather goods and
furniture in both the United States and foreign markets.
Fuqua sold its insurance subsidiary, American Southern Insurance Company
("American Southern") during 1995 and, in January 1996, made the decision to
discontinue the operations of Kroy Tanning Company, Incorporated ("Kroy"), which
historically had been unprofitable. Additionally, Fuqua acquired Basic American
Medical Products, Inc. ("Basic") in November 1995 and the medical products
division of Lumex, Inc. (the "Lumex Division") in April 1996 (together, the
"Medical Products Operations").
Principles of Consolidation: The consolidated financial statements include
the accounts of Fuqua and all of its wholly and majority owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Accounting Changes: Effective January 1, 1996, Fuqua adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The adoption of SFAS 121 had no effect on
Fuqua's Consolidated Financial Statements.
Effective January 1, 1996, Fuqua adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which
encouraged companies to recognize expense for stock-based awards based on their
fair market values on the dates of grant. As an alternative provided for in SFAS
123, Fuqua has elected to account for its stock options in accordance with APB
Opinion No. 25 and related Interpretations ("APB 25"). The disclosures required
by SFAS 123 are included in Note 9 to the Consolidated Financial Statements.
Effective January 1, 1994, Fuqua adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). In accordance with SFAS 115, prior period financial
statements were not restated to reflect the change in accounting principle. The
cumulative effect on net income as of January 1, 1994 of adopting SFAS 115 for
investments which previously were classified as held to maturity and which were
then classified as trading securities was immaterial. The balance of
stockholders' equity as of January 1, 1994 was increased by $1,238,000, net of
income taxes, to reflect the net unrealized gains on investments previously
classified as held to maturity which were reclassified as available for sale.
Income Per Share: Income per share is based upon 4,554,276 shares in 1996,
3,962,876 in 1995 and 3,860,324 in 1994, representing the weighted-average
number of shares outstanding during the year, plus common stock equivalents.
Common stock equivalents include option shares granted under Fuqua's stock
option plans.
Financial Instruments: Financial instruments which potentially subject
Fuqua to concentrations of credit risk are primarily cash equivalents and
short-term investments in investment grade, short-term debt instruments and
preferred stocks. Concentrations of credit risk with respect to trade accounts
receivable and lease receivables are limited due to the large number of
customers in Fuqua's customer base and their dispersion across different
geographic areas. Fuqua maintains an allowance for doubtful accounts based upon
the expected collectibility of its trade accounts and lease receivables.
F-86
<PAGE> 191
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Costs: Fuqua, through its subsidiaries, expenses advertising
costs when incurred. The amounts of such costs were insignificant in 1996, 1995
and 1994.
Cash and Cash Equivalents: For purposes of the consolidated balance sheets
and statements of cash flows, Fuqua considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents
(1996 -- $4,616,000, 1995 -- $29,000,000). The cash proceeds of $22,648,000 from
the sale of American Southern on December 31, 1995 were invested in cash
equivalents collateralized by U.S. Treasury obligations. The carrying amounts
reported in the balance sheets for cash and cash equivalents approximate their
fair values.
Inventories: Inventories are stated at the lower of cost or market. Cost
is determined as follows: raw materials and supplies -- first-in, first-out;
work in process and finished goods -- average.
Property, Plant and Equipment: Property, plant and equipment to be used in
operations are stated at cost. Depreciation is provided principally by the
straight-line method over estimated useful lives which range as follows:
buildings and improvements: 10-40 years; machinery and office equipment: 5-15
years; and automobiles and trucks: 5-10 years.
Revenue Recognition: Sales are recorded when goods are shipped and the
customers are obligated to pay.
Research and Development: Research and development costs are expensed as
incurred and were $1,422,000, $802,000 and $800,000 in 1996, 1995 and 1994,
respectively.
Short-term Borrowings: The weighted average interest rate on short-term
borrowings was 7.4% and 6.8% during 1995 and 1994, respectively. There were no
short-term borrowings in 1996.
Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results inevitably will differ from
those estimates, and such differences may be material to the financial
statements.
2. ACQUISITIONS
On November 8, 1995, Fuqua acquired Basic. Basic, whose divisions include
Simmons Healthcare, Omni Manufacturing and SSC Medical, is a manufacturer and
distributor of medical equipment and furnishings for the acute, long-term and
home health care markets.
The purchase price consisted of $2,500,000 in cash and 600,000 shares of
Fuqua's common stock. The shares issued were not registered under the Securities
Act of 1933 and, accordingly, are restricted as to resale. Under the terms of
the acquisition, there are demand and "piggyback" registration rights with
respect to these shares. The transaction was accounted for using the purchase
method; accordingly, the assets and liabilities of Basic have been recorded at
their estimated fair values at the date of acquisition. The excess of purchase
price over the net assets acquired of $5,038,000 has been assigned to goodwill
and is being amortized on a straight-line basis over 30 years.
On April 3, 1996, Fuqua acquired the Lumex Division. The Lumex Division is
a manufacturer of medical equipment, including beds, specialty seating products,
patient aids, bathroom safety, mobility products and therapeutic support
surfaces for the acute, long-term and home health care markets.
The purchase price for the Lumex Division was $40,750,000, subject to a
final purchase price adjustment to be determined by comparing special purpose
balance sheets at December 31, 1995 and March 31, 1996. In the event that this
comparison resulted in an increase or decrease in net assets, such amounts were
to be added to or subtracted from the purchase price. The asset sale agreement
provides Fuqua the ability to challenge recorded amounts in the March 31, 1996
special purpose balance sheet and to the extent such adjustments can
F-87
<PAGE> 192
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
not be agreed to between Fuqua and the seller, the adjustments are to be settled
through arbitration. The final purchase price adjustment is in dispute and is
currently being resolved through arbitration. If the ultimate outcome in
arbitration of the purchase price adjustment is a change to the purchase price,
this will result in a change in the allocation thereof to the net assets
acquired.
The purchase price paid by Fuqua for the Lumex Division was financed with
internal funds and borrowings of $33,000,000 under Fuqua's Revolving Credit
Facility. The excess of purchase price over the net assets acquired of
$15,375,000 was assigned to goodwill and is being amortized on a straight-line
basis over 30 years. Included in the purchase price allocation were accruals of
$2,300,000 for exiting activities, consisting principally of future lease costs
for duplicate facilities.
The results of operations of Basic have been included in the Consolidated
Financial Statements for the two month period since the date of acquisition in
1995 and for the full year in 1996. The results of operations of the Lumex
Division have been included in the Consolidated Financial Statements for the
nine month period since the date of acquisition in 1996. The following unaudited
pro forma summary presents Fuqua's consolidated results from continuing
operations as if the acquisitions had occurred on the first day of the full year
preceding their respective acquisition dates. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisitions actually been made as of that date
or of results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Net sales...................................... $195,113 $198,365 $141,263
Income from continuing operations.............. 2,425 4,519 6,406
Per share:
Income from continuing operations............ $ .53 $ 1.14 $ 1.44
</TABLE>
In March 1996, Fuqua, through its Leather Operations, entered into an
agreement to acquire a 70% interest in a joint venture which acquired a 50%
interest in a tannery in the People's Republic of China. In November 1996, the
Leather Operations' interest in the joint venture was reduced to 60% as a result
of admitting a new venture partner. Investment and advances related to the joint
venture at December 31, 1996 were $1,967,000. The results of operations of the
joint venture, which are accounted for under the equity method, were not
significant to the 1996 Consolidated Financial Statements.
Subsequent Event -- Acquisition of Prism: On February 26, 1997, Fuqua
acquired 100% of the outstanding common stock and warrants of Prism Enterprises,
Inc. ("Prism"). Prism, whose 1996 net sales were $12,000,000, is a manufacturer
of therapeutic heat and cold packs for medical and consumer uses and vacuum
systems for obstetrical and other applications. Prism's operating facilities are
located in San Antonio, Texas and Rancho Cucamonga, California. The purchase
price was $19,500,000 and was financed with borrowings under Fuqua's Revolving
Credit Facility.
3. DISCONTINUED OPERATIONS
In December 1995, Fuqua sold its insurance subsidiary, American Southern,
for $34,000,000 to Atlantic American Corporation, an Atlanta, Georgia based
publicly traded insurance company. The proceeds from the sale included cash of
$22,648,000 and a note receivable from the purchaser of $11,352,000. The note
receivable accrued interest at prime, half of which was payable quarterly and
half of which was paid, together with the principal, in October 1996. The note
receivable had indemnification and certain offset rights which were similar to
the provisions of an $11,668,000 note payable issued to the seller when Fuqua
acquired American Southern in 1991. In October 1996, the proceeds from Atlantic
American's payment of the note receivable were used to repay this note payable.
The sale transaction resulted in a pretax loss on disposal of
F-88
<PAGE> 193
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3,553,000, less earnings (net of taxes) during the phase out period of the
fourth quarter of 1995 of $1,303,000 and less estimated tax benefits of
$1,350,000. During 1996, interest charges of $662,000 were incurred and offset
against the accrual established in 1995 to provide for the loss on disposal of
American Southern.
In January 1996, Fuqua made the decision to discontinue the operations of
Kroy, which historically had been unprofitable. In accordance with generally
accepted accounting principles (Emerging Issues Task Force No. 95-18), Kroy was
treated as a discontinued operation in 1995 and preceding years' Consolidated
Financial Statements.
The pretax loss on disposal of Kroy was $4,800,000, less estimated tax
benefits of $1,800,000. This accrual provided for reserves necessary to write
down assets (consisting principally of receivables, inventory and property,
plant and equipment) to their net realizable values and to pay for obligations,
including environmental costs, required in connection with the wind down of
operations. During 1996, $3,080,000 (before the benefit of income taxes) of such
costs were charged against this accrual. Operations at the East Wilton facility
ceased in the fourth quarter of 1996.
Discontinued operations include estimates of the amounts expected to be
realized from Kroy's assets and future obligations. While the amounts Fuqua will
ultimately realize or be obligated for could differ from the amounts assumed in
arriving at the loss on disposal of Kroy. Management believes that the reserves
established at December 31, 1995, continue to appear reasonable.
The results of operations of American Southern and its subsidiaries through
September 30, 1995 and for Kroy through December 31, 1995 have been classified
as income from discontinued operations as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Revenues................................................. $45,932 $49,406
Costs and expenses....................................... 44,875 44,440
------- -------
Income before income taxes............................... 1,057 4,966
Income tax (benefit) provision........................... (103) 1,215
------- -------
Income from discontinued operations...................... $ 1,160 $ 3,751
======= =======
</TABLE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Finished goods........................................... $16,238 $ 6,598
Work in process.......................................... 12,338 6,738
Raw materials and supplies............................... 13,483 8,359
------- -------
$42,059 $21,695
======= =======
</TABLE>
F-89
<PAGE> 194
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land and land improvements............................... $ 664 $ 257
Buildings and improvements............................... 18,753 12,803
Machinery and office equipment........................... 23,386 18,399
Automobiles and trucks................................... 1,044 844
Building held for sale................................... 5,080 --
------- -------
$48,927 $32,303
======= =======
</TABLE>
6. LEASE RECEIVABLES
The Lumex Division offered lease financing to distributors of its low air
loss bed systems under the terms of either a fixed payment lease or shared
revenue lease contract, both of which were accounted for as sales type leases.
Standard lease contracts contained fixed monthly payments and were generally for
36-48 months, at which time title passes to the lessee. Under shared revenue
lease contracts, the lessee paid the greater of: a fixed percentage of monthly
revenue collected from rentals of the equipment or a minimum monthly payment.
Shared revenue lease contracts were generally for 60 months, at which time title
does not pass to the lessee. Leases are secured by the equipment leased
including any revenues derived therefrom. Lease receivables were comprised of
the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Minimum lease payments receivable......................... $ 6,491
Less unearned interest income............................. (1,522)
Less allowance for uncollectible accounts................. (319)
Less current portion...................................... (1,147)
-------
Non-current portion....................................... $ 3,503
=======
</TABLE>
Minimum lease payments receivable are as follows:
<TABLE>
<S> <C>
Year ended December 31,
1997.................................................... $1,147
1998.................................................... 1,399
1999.................................................... 1,377
2000.................................................... 727
------
$4,650
======
</TABLE>
F-90
<PAGE> 195
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Accounts payable......................................... $10,916 $ 5,390
Accrued compensation..................................... 2,335 1,536
Accrued insurance........................................ 639 996
Accrued profit-sharing plan.............................. 511 381
Accrual for discontinued operations...................... 2,405 6,147
Other accrued expenses................................... 13,186 4,350
------- -------
$29,992 $18,800
======= =======
</TABLE>
8. LONG-TERM DEBT OBLIGATIONS
Long-term debt obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Revolving Credit Facility, interest at LIBOR + .5%, due in 1999.......... $28,000 $18,500
Industrial revenue obligations, secured by improvements, 4.5% to 6.9%,
due to 2004............................................................ 1,126 1,335
Step down revolver payable in monthly installments, interest at 8.75%
through April 1997 when balance is due................................. -- 745
Master draw note with interest payable at 7.5% through April 1997 when
balance is due......................................................... -- 937
Term loan, payable in monthly installments, interest at LIBOR +.55%,
remaining principal due January 2001................................... 1,535 --
Term note, payable in monthly installments, interest at 8.75% through May
2000................................................................... -- 120
Note payable in monthly installments, interest at 8% through June 2007,
callable at the option of the lender within a 90-day period beginning
July 1998, July 2001 or July 2002...................................... -- 360
Liability for future payments under employment contracts................. 25 44
------- -------
$30,686.. $22,041
======= =======
</TABLE>
On June 28, 1996, Fuqua amended its Revolving Credit Facility to expand the
maximum borrowing amount from $60,000,000 to $100,000,000 and to add an
additional bank to the facility. The Revolving Credit Facility has a three-year
term and is to be used for working capital and to provide funds for corporate
development activities. The interest rate under the Revolving Credit Facility is
based on matrix pricing which ranges from LIBOR plus 40 basis points to LIBOR
plus 100 basis points, plus a charge on the unused commitment of 12.5 basis
points to 25 basis points. The Revolving Credit Facility includes normal and
customary restrictive covenants regarding funded debt to capital, funded debt to
cash flow, interest coverage, and dividend payments. Management believes that,
at December 31, 1996, Fuqua is in compliance with the covenants of the Revolving
Credit Facility and with the covenants of other Fuqua debt agreements.
F-91
<PAGE> 196
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturity requirements for the next five years in respect to
the current and non-current portions of long-term debt obligations at December
31, 1996 are as follows (dollars in thousands): 1997 -- $1,453; 1998 -- $290;
1999 -- $28,292; 2000 -- $295; 2001 -- $1,357; and thereafter $452. The carrying
amounts of long-term liabilities approximate their fair values.
9. STOCK OPTIONS
On June 29, 1989, the Board of Directors approved a nonqualified stock
option plan for key employees (the "1989 Plan"), reserving 300,000 shares of
Common Stock for issuance under the 1989 Plan. The options are granted at prices
and under terms determined by the Stock Option Committee of the Board of
Directors. All options expired five years from the date of grant.
On January 21, 1992, the Board of Directors approved a stock option plan
(the "1992 Plan"), reserving 300,000 shares of Common Stock for issuance under
the 1992 Plan. The 1992 Plan, which was approved by the stockholders on May 16,
1992, provides for the granting of options to officers, directors, key
employees, consultants, advisors and others providing goods and services to
Fuqua. The options are granted at prices and under terms determined by the Stock
Option Committee of the Board of Directors. All options expire five to ten years
from the date of grant.
In November 1995, the Board of Directors approved the 1995 Long-Term
Incentive Plan (the "Incentive Plan"), reserving 300,000 shares of Common Stock
for issuance under the Incentive Plan. The Incentive Plan, which was approved by
the stockholders on June 1, 1996, provides for the granting of awards to
officers and key employees of Fuqua. The awards are granted at prices and under
terms determined by the Stock Option Committee of the Board of Directors. All
awards expire from five to ten years from the date of grant.
Also in November 1995, the Board of Directors approved the 1995 Stock
Option Plan for Outside Directors (the "Directors' Plan"), reserving 50,000
shares of Common Stock for issuance under the Directors' Plan. The options are
automatically granted to directors annually. The Directors' Plan was approved by
the stockholders on June 1, 1996.
At December 31, 1996 and 1995, there were 217,600 and 364,000 shares of
common stock, respectively, reserved for future grants in connection with
Fuqua's stock option plans.
A summary of stock option activity under the above-described plans is as
follows:
<TABLE>
<CAPTION>
WEIGHTED-
PRICE AVERAGE
SHARES RANGE PRICE
------- -------------- ---------
<S> <C> <C> <C>
Balance at December 31, 1993.................... 227,175 $ 8.50-$20.38
Granted....................................... 20,000 $20.38
Exercised..................................... (27,675) $8.50
Cancelled..................................... (2,000) $20.38
-------
Balance at December 31, 1994.................... 217,500 $ 8.50-$21.00 $ 11.47
Granted....................................... 254,000 $18.38-$20.50 $ 19.63
Exercised..................................... (82,000) $8.50 $ 8.50
Cancelled..................................... (5,000) $20.38 $ 20.38
-------
Balance at December 31, 1995.................... 384,500 $ 8.50-$21.00 $ 17.38
Granted....................................... 146,400 $21.25-$24.00 $ 21.72
Exercised..................................... (80,500) $ 8.50-$ 9.50 $ 9.01
-------
Balance at December 31, 1996.................... 450,400 $ 9.50-$24.00 $ 20.29
=======
</TABLE>
F-92
<PAGE> 197
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information concerning currently outstanding
and exercisable options at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------------------------------------
RANGE OF NUMBER OF WEIGHTED- WEIGHTED-
EXERCISE OPTIONS AVERAGE AVERAGE
PRICE OUTSTANDING REMAINING LIFE EXERCISE PRICE
----------------------------------- ----------- -------------- --------------
<S> <C> <C> <C>
$9.50.............................. 5,000 1 year $ 9.50
$18.38-$24.00...................... 445,400 5 years $20.41
-----------
450,400
=========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
------------------------------------------------------------------------------------
RANGE OF NUMBER OF WEIGHTED-
EXERCISE OPTIONS AVERAGE
PRICE EXERCISABLE EXERCISE PRICE
-------------------------------------------------- ----------- --------------
<S> <C> <C>
$9.50............................................. 5,000 $ 9.50
$18.38-$24.00..................................... 190,533 $20.09
-------
195,333
=======
</TABLE>
Fuqua elected to follow APB 25 in accounting for its stock options because,
as discussed below, the alternative fair value accounting provided for under
SFAS 123 requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
Fuqua's stock options equals or exceeds the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income is required by SFAS 123, which
also requires that the information be determined as if Fuqua has accounted for
its employee stock options granted subsequent to December 31, 1994 under the
fair value method. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions.
<TABLE>
<CAPTION>
ASSUMPTIONS 1996 1995
------------------------------------------------------------------ ------- -------
<S> <C> <C>
Risk free interest rates.......................................... 5.91% 6.13%
Dividend yield.................................................... None None
Market volatility factors......................................... .38 .37
Life of options................................................... 5 years 7 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair values of the
options are amortized to expense over the options' vesting periods. The
weighted-average fair values of options granted during 1996 and 1995 equaled
$9.93 and $9.25, respectively. Fuqua's pro forma net income information follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Pro Forma Net Income........................................ $6,942,000 $1,456,000
Pro Forma Net Income Per Share.............................. $ 1.52 $ .37
</TABLE>
Since SFAS 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect will not be fully reflected in Fuqua's historical
results until 2000, the date through which options vest.
F-93
<PAGE> 198
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SALES AND SEGMENT INFORMATION
Fuqua's foreign operations were not significant in 1996. Sales of the
Leather Operations and Medical Products Operations to customers outside the
United States, which have been classified by country where such amounts exceed
10% of net sales and otherwise geographically are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Hong Kong............................................. $22,281 $15,819 $16,457
North America......................................... 3,512 3,075 7,584
Europe................................................ 3,197 2,687 3,467
Asia, other than Hong Kong............................ 7,390 5,148 6,773
Other................................................. 1,914 3,933 235
------- ------- -------
$38,294 $30,662 $34,516
======= ======= =======
</TABLE>
In 1996, sales of leather to one customer amounted to $15,722,000 and to
another $15,506,000. In 1995, sales of leather to one customer amounted to
$23,662,000 and to another $15,938,000. In 1994, sales of leather to one
customer amounted to $20,007,000 and to another $17,426,000.
Beginning in 1990, the Leather Operations began buying hides, that had
already undergone the initial chrome tanning process, from one principal
supplier. Management believes that alternatives sources of supply at competitive
prices are available.
Fuqua's continuing operations are carried on through its subsidiaries which
operate in two distinct business segments, Leather Operations and Medical
Products Operations. The Medical Products Operations became part of Fuqua
through the acquisition of Basic in November 1995 and the Lumex Division in
April 1996.
F-94
<PAGE> 199
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating results and other financial data are presented as follows for
each business segment which, at December 31, 1996, remain as continuing
operations of Fuqua:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Leather Operations............................... $107,832 $111,930 $118,011
Medical Products Operations...................... 73,711 5,198 --
-------- -------- --------
Consolidated..................................... $181,543 $117,128 $118,011
======== ======== ========
Operating profit (loss):
Leather Operations............................... $ 10,914 $ 10,423 $ 10,985
Medical Products Operations...................... 4,720 401 --
Corporate........................................ (1,682) (1,981) (1,776)
-------- -------- --------
Consolidated..................................... $ 13,952 $ 8,843 $ 9,209
======== ======== ========
Identifiable assets:
Leather Operations............................... $ 57,163 $ 44,474 $ 44,724
Medical Products Operations...................... 80,491 26,719 --
Corporate........................................ 8,822 54,666 15,788
-------- -------- --------
Consolidated..................................... $146,476 $125,859 $ 60,512
======== ======== ========
Capital expenditures:
Leather Operations............................... $ 1,594 $ 1,509 $ 4,024
Medical Products Operations...................... 1,313 619 --
Corporate........................................ 89 -- --
-------- -------- --------
Consolidated..................................... $ 2,996 $ 2,128 $ 4,024
======== ======== ========
Depreciation and Amortization:
Leather Operations............................... $ 1,702 $ 1,582 $ 1,387
Medical Products Operations...................... 2,274 113 --
Corporate........................................ 220 236 216
-------- -------- --------
Consolidated..................................... $ 4,196 $ 1,931 $ 1,603
======== ======== ========
</TABLE>
There were no intersegment sales during 1996, 1995 or 1994.
Operating profit (loss) by segment represents net sales less direct
operating expenses. No allocation has been made for general corporate expenses,
interest income from corporate investments or any foreign or domestic taxes.
Identifiable assets are tangible and intangible assets used exclusively in the
operations of each business segment. Corporate assets represent cash,
investments and leasehold improvements, furniture and fixtures associated with
Fuqua's corporate office.
11. GENERAL AND ADMINISTRATIVE EXPENSES
In September 1994, Fuqua amended the Management Agreement ("Agreement")
with Fuqua Capital Corporation ("Capital"), a corporation wholly-owned by J. B.
Fuqua, Chairman of the Board, and J. Rex Fuqua, Vice Chairman of the Board.
Under the Agreement, Capital provides investment services and performs certain
managerial and administrative duties. The term of the Agreement is through June
1, 2000 and provides for a management fee of $360,000 for each year of the
noncancellable term.
F-95
<PAGE> 200
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1994, Fuqua amended its lease for corporate office space to
extend the term for five years. Concurrently, Fuqua entered into a new sublease
with a similar five year term with Capital for the portion of space which
Capital uses. The sublease provides that if Fuqua moves out of the space it
shares with Capital, or there is a change in control of Fuqua, Capital has the
option of taking over the area now occupied by Fuqua on terms favorable to
Capital.
12. RETIREMENT PLANS
Fuqua adopted a qualified defined contribution plan, effective January 1,
1993, covering all of the employees of the parent company and the leather
subsidiaries and incorporating the profit-sharing plans of the leather
subsidiaries. This plan provided a profit-sharing component with contributions
to each employee based on his or her compensation and with the total
contribution determined annually by the Board of Directors. The plan also
permitted employees to make tax-deferred contributions up to the maximum limits
allowed by the Internal Revenue Code, with Fuqua matching a portion of the
employee's contribution under a formula approved annually by the Board of
Directors.
In 1995, Basic had two defined contribution employee benefit plans for the
employees at its manufacturing facility in Fond du Lac, Wisconsin. One plan
allowed employees to make contributions by salary reduction pursuant to Section
401(k) of the Internal Revenue Code. The other plan was a money purchase plan
which provides for employer contributions equal to 4% of eligible employee
salaries. Employees became eligible to participate in the money purchase plan
after 12 months of service.
In 1995, employees at Basic's Georgia facilities participated in a profit
sharing plan. This plan provided for discretionary annual contributions by
Basic. Additionally, Basic adopted an employee benefit plan for its employees at
the Georgia facilities which allowed eligible employees to make contributions by
salary reduction pursuant to Section 401(k) of the Internal Revenue Code.
On April 3, 1996, Fuqua adopted the Fuqua Enterprises, Inc. Savings and
Retirement Plans and Trusts which provided for tax-qualified 401(k) plans for
all of Fuqua's union and non-union employees (the "New Fuqua Plans"). The
non-union employees of the Lumex Division became the first participants in the
New Fuqua Plans concurrent with the acquisition of the Lumex Division in April
1996. All other Fuqua employees became participants in the New Fuqua Plans on
July 1, 1996 or thereafter when the existing plans covering Basic, the Leather
Operations and Fuqua's corporate office were merged into the New Fuqua Plans or
when the union employees of the Lumex Division became eligible to participate.
The New Fuqua Plans contain a profit-sharing component allowed by Internal
Revenue Code Section 401(a), with tax-deferred contributions to each participant
based on his or her compensation and with the total contribution determined
annually by the Board of Directors. The New Fuqua Plans also permit employees to
make tax-deferred contributions up to the maximum limits allowed by Internal
Revenue Code Section 401(k), with Fuqua matching 50% of the first 4% of
participants' contributions to the New Fuqua Plans.
Total expense recognized under all of the above plans was 1996 -- $940,000,
1995 -- $309,000 and 1994 -- $372,000.
F-96
<PAGE> 201
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Fuqua's deferred income tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation...................................... $1,540 $1,851
------ ------
Deferred income tax liabilities.............................. $1,540 $1,851
====== ======
Deferred income tax assets:
Accrued liabilities............................................. $3,393 $3,243
Allowance for doubtful accounts................................. 485 80
Accrual for discontinued operations............................. 1,139 3,189
Unrealized investment losses.................................... -- 19
------ ------
Deferred income tax assets................................... 5,017 6,531
------ ------
Net deferred income tax assets.................................. $3,477 $4,680
====== ======
</TABLE>
Significant components of the provisions (benefits) for income taxes for
continuing and discontinued operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Continuing Operations:
Current:
Federal................................................. $2,316 $ 2,016 $2,205
State................................................... 395 457 583
------ ------ ------
$2,711 $ 2,473 $2,788
====== ====== ======
Deferred:
Federal................................................. $1,342 $ 184 $ (100)
State................................................... 156 42 (26)
------ ------ ------
$1,498 $ 226 $ (126)
====== ====== ======
Discontinued Operations:................................ $ -- $(2,856) $1,215
====== ====== ======
</TABLE>
In 1994, Fuqua made a favorable adjustment for amounts that were no longer
considered necessary for contingencies for income taxes resulting in a reduction
in income tax expense of $544,000 ($0.14 per share).
F-97
<PAGE> 202
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provisions for income taxes for continuing operations differ from the
amounts computed by applying the U.S. Federal income statutory tax rates as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate................................................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit................. 3.2 4.0 4.2
Business tax credits........................................... -- -- (.2)
Dividend credits............................................... (.1) (1.1) (1.0)
Tax-exempt interest............................................ -- (1.5) (.2)
Write-off of intangibles....................................... -- .2 --
Foreign sales corporation benefit.............................. (2.0) (1.7) --
Adjustment of estimated liabilities for prior years............ -- -- (6.4)
Other.......................................................... .6 (1.0) --
---- ---- ----
36.7% 33.9% 31.4%
==== ==== ====
</TABLE>
The provisions (benefits) for income taxes for discontinued operations
differ from those amounts computed by applying the U.S. Federal income statutory
tax rates due principally to tax-free interest income at American Southern.
14. INVESTMENTS
There were no investments at December 31, 1996. All investments at December
31, 1995 were classified as available for sale as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------
COST OR GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Corporate Debt Securities.............. $ 2,524 $ 7 $ (80) $ 2,451
Debt Securities issued by the U.S.
Treasury............................ 6,010 34 -- 6,044
Preferred Stocks....................... 3,964 119 (28) 4,055
------- ---- ----- -------
$12,498 $160 $ (108) $12,550
======= ==== ===== =======
</TABLE>
The proceeds from sales of available for sales securities were $32,798,000
in 1996. In 1996, gross realized gains were $155,000 and gross realized losses
were $209,000 on sales of available for sale securities. The proceeds from sales
of available for sale securities were $3,306,000 during 1995. In 1995, gross
realized gains were $53,000 and gross realized losses were $11,000 on available
for sale investments. The proceeds from sales of available for sale securities
were $100,000 for 1994. There were no gross realized gains or losses on sales of
available for sale securities in 1994. Cost is determined by specific
identification for purposes of calculating realized gains and losses. There were
no transfers of securities to or from the available for sale or trading
categories during 1996 and 1995. There were no sales of securities classified as
held to maturity during 1996 and 1995.
F-98
<PAGE> 203
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. ENVIRONMENTAL CONTINGENCY
In March 1994, the office of the District Attorney of Suffolk County, Long
Island, New York, in conjunction with the Suffolk County Department of Health
Services (collectively, the "Suffolk County Authorities"), initiated an
investigation to determine whether regulated substances had been discharged from
one of the Lumex Division's Bay Shore facilities in excess of permitted levels.
An environmental consulting firm was engaged by the Lumex Division to conduct a
more comprehensive site investigation, develop a remediation work plan and
provide a remediation cost estimate. These activities were performed to
determine the nature and extent of contaminants present on the site and to
evaluate their potential off-site extent.
In connection with Fuqua's April 1996 acquisition of the Lumex Division,
Fuqua assumed the obligations associated with this environmental matter. In late
1996, Fuqua conducted surficial soil remediation at the Bay Shore facility and
reported the results to the Suffolk County Authorities. A ground water work plan
was submitted concurrently with the soil remediation report and Fuqua is waiting
for the necessary approvals from the Suffolk County Authorities before
proceeding with execution of the ground water work plan. Fuqua is not currently
able to determine when any required remediation and monitoring efforts with
respect to the ground water contamination will be completed. At December 31,
1996, the Lumex Division had $1,713,000 in reserves for ground water remediation
costs, including additional investigation costs which will be required. Such
reserves are established when it is probable that a liability has been incurred
and such costs can be reasonably estimated. The Lumex Division's estimates of
these costs were based upon currently enacted laws and regulations and the
professional judgment of independent consultants and counsel. Where available
information was sufficient to estimate the amount of liability, that estimate
has been used. Where information was only sufficient to establish a range of
probable liability and no point within the range is more likely than another,
the lower end of the range has been used. The Lumex Division has not assumed
that any such costs would be recoverable from third parties nor has the Lumex
Division discounted any of its cost estimates, although a portion of the ground
water remediation work plan will be performed over a period of years.
The amounts of environmental liabilities are difficult to estimate due to
such factors as the extent to which remedial actions may be required, laws and
regulations change or the actual costs of remediation differ when the final work
plan is performed. The estimate of the costs, which are not probable but for
which there exists at least a reasonable possibility of occurrence, exceeds the
reserves recorded by the Lumex Division at December 31, 1996 by $1,600,000.
F-99
<PAGE> 204
SUMMARY OF QUARTERLY DATA
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30(2) SEPTEMBER 30(2) DECEMBER 31(2) FOR THE YEAR
--------- ---------- --------------- -------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1996
Net sales........................ $30,500 $ 46,898 $49,655 $ 54,490 $181,543
Income before interest and
taxes......................... 2,960 3,530 4,136 3,326 13,952
Income from continuing
operations.................... 1,600 1,838 2,087 1,748 7,273
Income from continuing operations
per share..................... 0.36 0.40 0.46 0.38 1.60
Net income per share............. 0.36 0.40 0.46 0.38 1.60
1995
Net sales........................ $24,050 $ 33,692 $27,923 $ 31,463 $117,128
Income before interest and
taxes......................... 1,293 2,496 2,227 2,827 8,843
Income from continuing
operations.................... 662 1,349 1,321 1,918 5,250
Income from continuing operations
per share..................... 0.17 0.35 0.34 0.45 1.32
Net income (loss) per share...... 0.37 0.47 0.17 (0.33) 0.63
</TABLE>
- ---------------
NOTES:
(1) No cash dividends were paid in either year. In 1996 and 1995, per share
amounts are calculated on a discrete quarterly basis and for the year are
based on the weighted-average shares for the four quarters of the year.
(2) Includes Basic for the two-month period ended December 31, 1995 and the
Lumex Division for the nine-month period ended December 31, 1996.
F-100
<PAGE> 205
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COL. C
-----------------------
ADDITIONS
COL. B ----------------------- COL. E
------------ (1) (2) ----------
COL. A BALANCE AT CHARGED CHARGED COL. D BALANCE AT
- -------------------------------------------------- BEGINNING OF TO COSTS TO OTHER ---------- CLOSE OF
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------------- ------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts:
Trade accounts receivable....................... $200,000 $ 98,005 -- $ 48,005(a) $250,000
Lease receivables............................... -- -- $350,000(b) -- $350,000
Year ended December 31, 1995:
Allowance for doubtful accounts:
Trade accounts receivable....................... $350,000 -- -- $150,000(a) $200,000
Year ended December 31, 1994:
Allowance for doubtful accounts:
Trade accounts receivable....................... $335,000 $ 74,483 -- $ 59,483(b) $350,000
</TABLE>
- ---------------
(a) Write-off of uncollectible accounts, net of recoveries.
(b) Recorded in the acquisition of the Lumex Division.
F-101
<PAGE> 206
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................... $ 2,072 $ 4,616
Receivables
Trade accounts, less allowance of $250 (1996, $250).............. 42,419 33,871
Lease receivables, less allowance of $350 (1996, $350)........... -- 1,147
Inventories........................................................ 46,433 42,059
Prepaid expenses and other assets.................................. 3,594 2,620
Deferred income taxes.............................................. 4,802 3,477
-------- --------
Total Current Assets.......................................... 99,320 87,790
Property, plant and equipment...................................... 52,710 48,927
Less accumulated depreciation...................................... (18,546) (15,166)
-------- --------
Net Property, Plant and Equipment............................. 34,164 33,761
-------- --------
Intangible assets, less accumulated amortization of $923 (1996,
$399)............................................................ 37,655 20,014
Lease receivables.................................................. -- 3,503
Other assets....................................................... 1,746 1,408
-------- --------
Total Assets of Continuing Operations......................... 172,885 146,476
Total Assets of Discontinued Operations....................... 3,637 4,935
-------- --------
Total Assets............................................. $ 176,522 $151,411
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses.............................. $ 26,905 $ 29,992
Current portion of debt............................................ 589 1,453
-------- --------
Total Current Liabilities..................................... 27,494 31,445
Long-term liabilities.............................................. 54,444 30,686
-------- --------
Total Liabilities............................................. 81,938 62,131
-------- --------
Stockholders' equity
Preference stock, $1 par value: authorized 8,000,000 shares; none
issued........................................................ --
Common stock, $2.50 par value: authorized 20,000,000 shares;
issued 4,528,669 (1996 -- 4,523,669) shares................... 11,322 11,309
Additional paid-in capital......................................... 24,902 24,847
Retained earnings.................................................. 59,233 53,971
-------- --------
95,457 90,127
Treasury stock, at cost: 45,960 (1996 -- 44,822) shares............ (873) (847)
-------- --------
Total Stockholders' Equity.................................... 94,584 89,280
-------- --------
Total Liabilities and Stockholders' Equity............... $ 176,522 $151,411
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-102
<PAGE> 207
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED; AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THREE MONTHS
ENDED FOR NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ---------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Net Sales....................................... $60,372 $49,655 $178,701 $127,053
Investment income............................... 104 572 187 1,839
------- ------- -------- -------
Total revenues.................................. 60,476 50,227 178,888 128,892
COSTS AND EXPENSES:
Cost of sales................................... 47,377 38,210 141,655 98,584
Selling, general and administrative expenses.... 8,968 7,881 26,982 19,682
Interest expense................................ 776 862 2,307 1,956
------- ------- -------- -------
Total costs and expenses........................ 57,121 46,953 170,944 120,222
------- ------- -------- -------
INCOME BEFORE INCOME TAXES........................ 3,355 3,274 7,944 8,670
INCOME TAXES...................................... 1,040 1,187 2,682 3,145
------- ------- -------- -------
NET INCOME........................................ $ 2,315 $ 2,087 $ 5,262 $ 5,525
======= ======= ======== =======
PER SHARE:
Net Income...................................... $ .51 $ .46 $ 1.16 $ 1.21
Common shares and equivalents..................... 4,563 4,565 4,530 4,556
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-103
<PAGE> 208
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash used in continuing operations................................ $(6,266) $ (6,584)
Net cash provided by discontinued operations.......................... 1,298 3,759
------- --------
Net Cash Used In All Operations............................... (4,968) (2,825)
------- --------
INVESTING ACTIVITIES
Purchase of business, net of cash acquired............................ 1,058 (41,300)
Sales of available for sale investments............................... -- 21,465
Purchases of available for sale investments........................... -- (20,341)
Purchase of property, plant and equipment............................. (2,070) (2,041)
Total from discontinued operations.................................... -- (165)
------- --------
Net Cash Used In Investing Activities......................... (1,012) (42,382)
------- --------
FINANCING ACTIVITIES
Net increase in notes payable......................................... -- 20,200
Payment of long-term liabilities...................................... (1,193) (2,064)
Additional long-term liabilities...................................... 4,587 --
Exercise of stock options............................................. 68 974
Acquired shares for treasury.......................................... (26) (827)
------- --------
Net Cash Provided By Financing Activities..................... 3,436 18,283
------- --------
Increase (Decrease) in Cash and Cash Equivalents
Continuing Operations................................................. (2,559) (30,518)
Discontinued Operations............................................... 15 3,594
Cash and Cash Equivalents, Beginning of Period.......................... 4,616 29,000
------- --------
Cash and Cash Equivalents, End of Period................................ $ 2,072 $ 2,076
======= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-104
<PAGE> 209
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CORPORATE DEVELOPMENT ACTIVITIES
Merger: On September 5, 1997, Fuqua Enterprises, Inc. ("Fuqua") entered
into an Agreement and Plan of Merger whereby Fuqua would be acquired by
Graham-Field Health Products, Inc. ("Graham-Field") in a tax free exchange of
2.1 shares of Graham-Field common stock for each share of Fuqua common stock
(the "Merger"). The exchange ratio is subject to upward adjustment in the event
that Graham-Field's average stock price for the 10-day period ending two days
prior to the Merger falls below $13.5714 and to downward adjustment in the event
that the average stock price exceeds $17.6190. Accordingly, Fuqua stockholders
are assured of receiving Graham-Field stock valued at not less than $28.50 nor
more than $37.00 in exchange for each Fuqua share.
The closing of the Merger, which currently is expected to occur in December
1997, is subject to customary conditions, including approval by the stockholders
of both Graham-Field and Fuqua and the receipt of all necessary governmental and
regulatory approvals. The principal stockholders of Fuqua, which own
approximately 46% of the outstanding shares (including the Fuqua family which
owns 32%), have entered into voting agreements with Graham-Field pursuant to
which they have agreed to vote their shares in favor of the Merger. Graham-Field
stockholders owning shares representing approximately 37% of the outstanding
voting power have entered into similar voting agreements. The waiting period
required by Hart-Scott-Rodino Antitrust Improvements Act expired October 25,
1997. The Merger is expected to close in December 1997.
Acquisitions: On April 3, 1996, Fuqua acquired the medical products
operations of Lumex, Inc. (the "Lumex Division") from Cybex International, Inc.
(formerly Lumex, Inc., the "Seller"). The purchase price for the Lumex Division
was $40.7 million subject to a final adjustment as provided in the asset sale
agreement. The final purchase price adjustment is in dispute and is being
resolved through arbitration. Fuqua submitted its initial position statement to
the arbitrator in March 1997, which claimed that net assets at the closing date
were overstated by $9.3 million. In March 1997, Fuqua gave notice to the Seller
to preserve Fuqua's indemnification rights provided in the asset sale agreement.
On April 18, 1997, the Seller obtained an interim stay of the arbitration
proceedings, pending a hearing on May 9, 1997. On May 9, 1997, the New York
County Supreme Court vacated its stay of the arbitration proceedings and
directed Fuqua and the Seller to proceed to arbitration forthwith. On June 10,
1997, the Seller filed a motion for a stay of arbitration pending the hearing
and determination of the Seller's appeal with the Appellate Division of the New
York County Supreme Court. On June 24, 1997, the Appellate Division denied the
Seller's motion to stay the arbitration proceedings pending appeal. Accordingly,
Fuqua and the Seller are continuing with the arbitration proceedings which are
expected to be completed by December 1997. On August 4, 1997, the Seller filed
its brief with the Appellate Division in connection with the Seller's appeal of
the May 9, 1997 Order of the New York County Supreme Court. The appeal is
scheduled to be considered by the Appellate Division in the December 1997 term
of court.
On February 26, 1997, Fuqua acquired 100% of the outstanding common stock
and warrants of Prism Enterprises, Inc. ("Prism"). Prism, whose 1996 net sales
were $12.0 million, is a manufacturer of therapeutic heat and cold packs for
medical and consumer uses and vacuum systems for obstetrical and other
applications. Prism's operating facilities are located in San Antonio, Texas and
Rancho Cucamonga, California. The purchase price was $19.5 million and was
financed with borrowings under Fuqua's Revolving Credit Facility. Based on the
preliminary allocation of purchase price, the excess purchase price over the net
assets acquired of $16.2 million was assigned to goodwill and is being amortized
on a straight-line basis over 30 years.
The results of operations of the Lumex Division are included in the
Condensed Consolidated Financial Statements for the three months and nine months
ended September 30, 1997. The results of operations of Prism are included in the
Condensed Consolidated Financial Statements for the period from acquisition
date, February 26, 1997, through September 30, 1997. The following pro forma
summary presents Fuqua's consolidated results from operations as if these
acquisitions had occurred on the first day of each of the respective three and
nine month periods for Prism and on January 1, 1996 for the Lumex Division.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what
F-105
<PAGE> 210
FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
would have occurred had the acquisitions actually been made as of those dates or
the results which may occur in the future.
<TABLE>
<CAPTION>
FOR THREE MONTHS FOR THREE MONTHS FOR NINE MONTHS FOR NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---------------- ---------------- --------------- ---------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............ $ 60,372 $ 52,959 $ 179,278 $ 149,810
Net income (loss).... 2,315 2,473 5,225 (1,260)
Net income (loss) per
share.............. .51 .54 1.15 (.28)
</TABLE>
2. PER SHARE CALCULATIONS
Per share calculations are based on the average number of shares
outstanding plus common stock equivalents, if dilutive. Common stock equivalents
include the effect of options granted to key employees under Fuqua's Stock
Option Plans. Fully diluted per share calculations are not significantly
different from those reported.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Finished goods.................................... $16,663 $ 16,238
Work in progress.................................. 11,238 12,338
Raw materials and supplies........................ 18,532 13,483
------- -------
$46,433 $ 42,059
======= =======
</TABLE>
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Interest payments....................................... $ 2,220 $ 2,179
======= =======
Income tax payments..................................... $ 1,364 $ 2,095
======= =======
Issuance of debt in connection with business
acquisition........................................... $ 19,500 $ 33,000
======= =======
</TABLE>
5. CAPITAL STOCK
During the three months ended September 30, 1997, options for 27,000 and
2,000 shares of common stock were granted at $21.188 and $24.50 per share,
respectively, no options were exercised and Fuqua acquired no shares of common
stock for the treasury. During the nine months ended September 30, 1996, options
for 25,000 shares of common stock were granted at $24.00 per share, no options
were exercised and Fuqua acquired no shares of common stock for its treasury.
------------------------
The unaudited condensed consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the results for the interim
periods. However, interim period results are not necessarily indicative of
results for the year, taken as a whole. It is suggested that these unaudited
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Proxy Statement/Consent Solicitation Statement/Prospectus.
F-106
<PAGE> 211
FINANCIAL STATEMENTS OF
THE LUMEX DIVISION OF LUMEX, INC.
F-107
<PAGE> 212
REPORT OF INDEPENDENT AUDITORS
Fuqua Enterprises, Inc.
We have audited the accompanying balance sheets of the Lumex Division of
Lumex, Inc. (the "Lumex Division") as of December 31, 1995 and 1994, and the
related statements of operations and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of, and all references to management in the accompanying
footnotes refer to, the management of Fuqua Enterprises, Inc. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Lumex Division at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
March 13, 1996, except for Note 1,
as to which the date is
March 13, 1997
F-108
<PAGE> 213
LUMEX DIVISION OF LUMEX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 7,182 $ 7,184 $ 4,927
Trade accounts receivable............................ 10,229,774 12,281,563 11,295,873
Inventories.......................................... 10,390,732 9,410,029 5,410,024
Net lease receivables................................ 2,878,099 3,298,111 1,603,271
Prepaid expenses and other current assets............ 576,113 532,522 1,219,479
----------- ----------- -----------
Total Current Assets....................... 24,081,900 25,529,409 19,533,574
Property, plant and equipment
Land............................................... 308,594 308,594 308,594
Buildings and improvements......................... 10,275,867 9,748,671 7,159,034
Machinery and equipment............................ 15,012,948 14,633,519 11,401,736
Construction in progress........................... -- 230,913 97,662
----------- ----------- -----------
25,597,409 24,921,697 18,967,026
Less accumulated depreciation...................... (12,627,735) (12,163,167) (10,427,990)
----------- ----------- -----------
Net property, plant and equipment.................... 12,969,674 12,758,530 8,539,036
Net lease receivables................................ 3,545,736 6,807,398 6,311,204
Intangible assets, less accumulated amortization of
$2,703,001, $2,630,174 and $1,777,750,
respectively....................................... 1,761,301 4,862,776 2,362,193
Other................................................ 235,181 232,522 52,517
----------- ----------- -----------
Total Assets............................... $ 42,593,792 $ 50,190,635 $ 36,798,524
=========== =========== ===========
LIABILITIES AND PARENT COMPANY'S EQUITY AND ADVANCES,
NET
Accounts payable..................................... $ 6,750,294 $ 8,277,504 $ 5,555,212
Accrued liabilities.................................. 4,866,176 5,053,803 4,153,257
----------- ----------- -----------
Total Current Liabilities.................. 11,616,470 13,331,307 9,708,469
Parent Company's Equity and Advances, Net............ 30,977,322 36,859,328 27,090,055
----------- ----------- -----------
Total Liabilities and Parent Company's
Equity and Advances, Net................. $ 42,593,792 $ 50,190,635 $ 36,798,524
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-109
<PAGE> 214
LUMEX DIVISION OF LUMEX, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ---------------------------------------
1996 1995 1994 1993
------------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.............................. $ 13,570,190 $60,590,972 $60,777,293 $54,188,695
Costs and Expenses:
Costs of sales....................... 11,207,393 41,902,102 40,203,960 34,907,042
Shipping............................. 843,874 3,420,064 3,259,905 2,937,482
Selling.............................. 1,428,520 6,921,030 6,439,939 5,746,782
Marketing............................ 564,716 2,942,021 3,058,884 2,728,101
Product development.................. 230,047 2,019,318 783,208 961,013
Administrative....................... 7,313,820 4,708,558 4,013,040 3,890,393
Other (income)....................... (394,460) (874,720) (510,300) (49,499)
Provision for environmental costs.... -- -- -- 2,000,000
----------- ----------- ----------- -----------
Total Costs and Expenses..... 21,193,910 61,038,373 57,248,636 53,121,314
----------- ----------- ----------- -----------
(Loss) Income Before Income Taxes...... (7,623,720) (447,401) 3,528,657 1,067,381
Income Tax (Provision) Benefit......... 3,049,488 178,960 (1,411,462) (426,952)
----------- ----------- ----------- -----------
Net (Loss) Income...................... $ (4,574,232) $ (268,441) $ 2,117,195 $ 640,429
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-110
<PAGE> 215
LUMEX DIVISION OF LUMEX, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ----------------------------------------
1996 1995 1994 1993
------------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income..................... $ (4,574,232) $ (268,441) $ 2,117,195 $ 640,429
Noncash items included in net (loss)
income:
Depreciation and amortization....... 766,005 2,590,748 1,568,912 1,256,338
Write-off of intangible assets...... 2,964,117 900,000 -- --
Write-off of lease receivables...... 3,397,382 3,359,868 -- --
Warranty provision.................. 543,000 107,000 -- --
Write-off of trade accounts
receivable....................... 222,500 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable................. 1,829,289 (985,690) (2,250,944) (716,202)
Inventories......................... (1,203,571) (4,000,005) (1,172,839) 845,387
Other current assets................ (43,591) 686,957 (1,580) (868,123)
Lease receivables................... 420,012 (1,694,840) (889,439) (713,832)
Accounts payable.................... (1,527,210) 2,722,292 254,405 1,734,149
Accrued liabilities................. (730,627) 793,546 (2,264,865) 3,869,059
----------- ------------ ----------- -----------
Net Cash (Used in) Provided By
Operating Activities................ 2,063,074 4,211,435 (2,639,155) 6,047,205
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and
equipment........................... (675,712) (5,957,818) (1,527,959) (1,485,175)
Increase in intangible assets......... (164,079) (4,253,007) (665,475) (114,132)
----------- ------------ ----------- -----------
Net Cash Used In Investing
Activities.......................... (839,791) (10,210,825) (2,193,434) (1,599,307)
----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Parent company advances, net.......... (1,307,774) 10,037,714 9,489,420 (2,756,087)
Increase in lease receivables......... 87,148 (3,856,062) (4,702,757) (1,608,447)
Other................................. (2,659) (180,005) 45,158 (84,325)
----------- ------------ ----------- -----------
Net Cash (Used in) Provided By
Financing Activities................ (1,223,285) 6,001,647 4,831,821 (4,448,859)
----------- ------------ ----------- -----------
Net (Decrease) Increase In Cash And
Cash Equivalents.................... (2) 2,257 (768) (961)
Cash And Cash Equivalents at Beginning
of Period........................... 7,184 4,927 5,695 6,656
----------- ------------ ----------- -----------
Cash And Cash Equivalents at End of
Period.............................. $ 7,182 $ 7,184 $ 4,927 $ 5,695
=========== ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-111
<PAGE> 216
LUMEX DIVISION OF LUMEX, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE FINANCIAL STATEMENTS AT MARCH 31, 1996
AND FOR THE PERIOD THEN ENDED IS UNAUDITED)
1. ACQUISITION AND BASIS OF PRESENTATION
On April 3, 1996, Fuqua Enterprises, Inc. ("Fuqua") acquired the Lumex
Division of Lumex, Inc. for approximately $40,700,000 in cash, subject to a
final purchase price adjustment as provided in the asset sale agreement.
The 1995 financial statements include charges totaling $3,045,000 which
relate to trade accounts and lease receivables ($1,904,000), warranty reserves
($107,000), intangible assets ($900,000) and inventory obsolescence ($134,000).
Subsequent to March 13, 1996, these charges were determined appropriate to be
included in the 1995 financial statements.
The accompanying financial statements reflect the financial position and
results of operations and cash flows of the Lumex Division of Cybex
International, Inc. (formerly Lumex Inc., the "Parent") and the lease
receivables related to low air loss bed systems sold by the Lumex Division and
financed by Cybex Financial Corp., an affiliated company (collectively, the
"Lumex Division") and have been prepared to meet the requirements of Regulation
S-X for the financial statements of a business acquired. These financial
statements do not reflect any adjustments related to the Fuqua allocation of the
purchase price which Fuqua paid for the Lumex Division.
2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
OTHER MATTERS
The Lumex Division develops and markets a wide range of health care
products including specialty seating, bath safety, mobility products, health
care beds and therapeutic support systems for the acute, long-term and home care
markets.
Cash and cash equivalents: All highly liquid investments with an original
maturity of three months or less when purchased are considered to be cash
equivalents.
Inventories: Inventories are stated at the lower of cost or market.
Inventory costs have been determined by the last-in first-out (LIFO) method.
Property, plant and equipment: Property, plant and equipment, including
expenditures for renewals and betterments, are recorded at cost. Depreciation is
computed using the straight-line method over the assets estimated useful lives
(buildings -- 40 years; building improvements -- 15 years; machinery and
equipment -- 3 to 10 years).
Intangibles: Intangibles consist principally of patents, excess cost over
assets acquired and trademarks which are recorded at cost and amortized over the
estimated useful lives by the straight-line method for periods ranging from 5 to
30 years. The amounts of recorded intangibles determined to be unrecoverable are
charged to results of operations in the period such determination is made (See
Note 7).
Advertising costs: The Lumex Division expenses advertising costs when
incurred. The amounts of such costs were insignificant in each of the periods
presented in these financial statements.
Revenue recognition: Sales are recorded when goods are shipped.
Product development: Product development costs are expensed as they are
incurred. During 1995, the Lumex Division expensed $900,000 of the amounts paid
to Airbed Corporation, representing purchased research and development costs.
Income taxes: The Lumex Division's deferred tax assets/liabilities are
recorded at the Parent Company level. The provision/benefit for income taxes has
been determined on a Lumex Division stand alone basis.
F-112
<PAGE> 217
LUMEX DIVISION OF LUMEX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Recent pronouncements: In March 1995, the Financial Accounting Standards
Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. SFAS
121 also addresses the accounting for long-lived assets that are expected to be
disposed of. The Lumex Division adopted SFAS 121 in the first quarter of 1996.
The adoption of SFAS 121 did not impact the financial results of the Lumex
Division. As described in Note 7, the $2,864,000 adjustment to certain
intangibles in the first quarter of 1996 was required by generally accepted
accounting principles which applied before the adoption of SFAS 121.
Allocation of corporate charges: The Lumex Division's financial statements
reflect operating expenses incurred by the Parent which have been allocated to
the Lumex Division for each of the periods presented. These allocated expenses
represent costs for executive management services and were determined based on
the proportion of the Lumex Division sales and staff levels to the total
incurred by Parent on a consolidated basis for 1993 and 1994. For the calendar
year 1995, the Parent modified the method of estimating the amount to be
allocated to reflect the expenses incurred by Parent that were directly related
and incremental to the Lumex Division. The amounts allocated to the Lumex
Division were $135,682, $781,143 and $820,730 for December 31, 1995, 1994 and
1993, respectively. Management believes that the resulting allocated expenses
are not materially different than what such expenses would have been on a stand
alone basis.
Parent Company's Equity and Advances, Net: The Parent Company's Equity and
Advances, Net, represents the Parent's accumulated equity in the Lumex Division
as well as the net payable/receivable balances due to/from the Parent resulting
from cash transfers and allocated expenses.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results inevitably will differ from
those estimates and such differences may be material to the financial
statements.
3. LEASES
As Lessor: The Lumex Division offers lease financing to distributors of
its low air loss bed systems under the terms of either a fixed payment lease or
shared revenue lease contract, both of which are accounted for as sales type
leases. Standard lease contracts contain fixed monthly payments and are
generally for 36-48 months at which time title transfers to the lessee. Under
shared revenue lease contracts the lessee pays the greater of a fixed percentage
of monthly revenue collected from rentals of the equipment or a minimum monthly
payment. Shared revenue lease contracts are generally for 60 months at which
time title does not pass to the lessee. Leases are secured by the equipment
leased including any revenues derived therefrom. Lease receivables at December
31, 1995 and 1994 and March 31, 1996 was comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Gross minimum lease payments receivable..... $16,615,724 $17,168,793 $10,830,660
Less unearned interest income............... (3,307,398) (3,576,172) (2,649,240)
Less reserve for returns.................... (6,034,382) (2,799,000) --
Less allowance for uncollectible accounts
and lease receivables..................... (850,109) (688,112) (266,945)
----------- ----------- -----------
6,423,835 10,105,509 7,914,475
Current portion............................. (2,878,099) (3,298,111) (1,603,271)
----------- ----------- -----------
Non-current portion......................... $ 3,545,736 $ 6,807,398 $ 6,311,204
=========== =========== ===========
</TABLE>
F-113
<PAGE> 218
LUMEX DIVISION OF LUMEX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Gross minimum lease payments receivable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, TOTAL
------------------------------------------------ -----------
<S> <C>
1996............................................ $ 4,241,969
1997............................................ 4,293,068
1998............................................ 4,189,388
1999............................................ 3,122,378
2000............................................ 1,252,162
Thereafter...................................... 69,828
----------
$17,168,793
==========
</TABLE>
As Lessee: The Lumex Division has lease commitments expiring at various
dates through 2000, principally for facilities and data processing equipment
under non-cancelable operating leases. Future minimum payments under these
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, TOTAL
------------------------------------------------ -----------
<S> <C>
1996............................................ $ 645,829
1997............................................ 506,675
1998............................................ 472,620
1999............................................ 471,072
2000............................................ 292,284
----------
$ 2,388,480
==========
</TABLE>
Rent expense under operating leases for the years 1995, 1994 and 1993 was
$458,406, $335,448 and $316,782, respectively, and for the three months ended
March 31, 1996 was $173,640.
4. OTHER INFORMATION
Receivables: Trade accounts receivable are stated net of allowances for
doubtful accounts of $195,983 at December 31, 1995 and $106,449 at December 31,
1994 and $440,344 at March 31, 1996. The provision for bad debts for the years
ended December 31, 1995, 1994 and 1993 was $158,822, $236,414 and $81,498,
respectively, and was $327,851 for the three months ended March 31, 1996.
Inventories: Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Finished goods.............................. $ 8,657,092 $ 5,487,990 $ 2,947,058
Work in process............................. 4,746,188 1,495,147 1,662,524
Raw materials............................... 359,046 5,798,486 3,920,527
LIFO reserve................................ (3,371,594) (3,371,594) (3,120,085)
----------- ----------- -----------
$10,390,732 $ 9,410,029 $ 5,410,024
=========== =========== ===========
</TABLE>
F-114
<PAGE> 219
LUMEX DIVISION OF LUMEX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accrued Liabilities: Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Salaries, bonuses and commissions.............. $ 222,359 $ 392,321 $ 427,250
Accrued vacation............................... 500,669 443,568 419,651
Retirement contributions....................... 282,526 282,529 212,550
Self insurance obligations..................... 1,026,600 1,026,600 1,256,213
Payable under Airbed Assets Purchase
Agreement.................................... 522,551 1,212,551 --
Environmental remediation...................... 1,308,994 1,331,546 1,663,000
Warranty Obligations........................... 794,200 204,000 --
Other.......................................... 208,277 160,688 174,593
---------- ---------- ----------
$4,866,176 $5,053,803 $4,153,257
========== ========== ==========
</TABLE>
5. ENVIRONMENTAL COSTS
In March 1994, the Office of the District Attorney Suffolk County, Long
Island, New York, in conjunction with the Suffolk County Department of Health
Services (collectively, the "Suffolk County Authorities"), initiated an
investigation to determine whether regulated substances had been discharged from
one of the Lumex Division's Bay Shore facilities in excess of permitted levels.
An environmental consulting firm was engaged by the Lumex Division to conduct a
more comprehensive site investigation, develop a remediation work plan and
provide a remediation cost estimate. These activities were performed to
determine the nature and extent of contaminants present on the site and to
evaluate their potential off-site extent.
At December 31, 1995, the Lumex Division had $1.3 million in reserves for
remediation costs, including additional investigation costs which are probable
of occurring. Reserves are established when it is probable that a liability has
been incurred and such costs can be reasonably estimated. The Lumex Division's
estimates of these costs were based upon currently enacted laws and regulations
and the professional judgement of consultants and counsel. Where the available
information was sufficient to estimate the amount of the liability, that
estimate has been used. Where the information was only sufficient to establish a
range of probable liability and no point within the range was more likely than
another, the lower end of the range has been used. The Lumex Division has not
assumed any such costs will be recoverable from third parties nor has the Lumex
Division discounted any of its cost estimates although a portion of the
remediation work plan would be performed over a period of years.
The amounts of these liabilities are difficult to estimate due to such
factors as the extent to which remedial actions may be required, laws and
regulations change or the actual costs of remediation differ when the final work
plan is performed. The estimate of the costs, which is not probable but for
which there exists at least a reasonable possibility of occurrence, exceeds the
current reserves by $2.2 million.
6. BENEFIT PLANS
The Lumex Division has a non-contributory defined contribution retirement
plan (the "Retirement Plan") covering substantially all employees. Contributions
to the Retirement Plan are based upon annual compensation for those persons
employed (as defined) at December 31 and are funded annually. The Retirement
Plan expense was $282,528, $259,755 and $237,116 for the years 1995, 1994 and
1993, respectively.
F-115
<PAGE> 220
LUMEX DIVISION OF LUMEX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INTERIM FINANCIAL INFORMATION -- INTANGIBLE ASSETS AND LEASE RECEIVABLES
The accompanying unaudited interim financial information of the Lumex
Division reflects all adjustments which are, in the opinion of Management,
necessary for a fair presentation of the financial position and results of
operations at and for the three months ended March 31, 1996. Such interim
results are not necessarily indicative of the results which may be expected for
the entire fiscal year. The accompanying unaudited interim financial information
does not include comparative information for the three months ended March 31,
1995 because sufficient data are not available to Management to enable it to
prepare the financial information for such interim period.
In February 1995, the Lumex Division acquired certain assets of Airbed
Corporation ("Airbed") ("Acquisition Agreement") including all the rights, title
and interest in the technology utilized in the Akrotech bed systems distributed
by the Lumex Division under existing distributor agreements. Concurrently, the
Lumex Division and Airbed entered into an exclusive Manufacturing Agreement
pursuant to which Airbed would continue to manufacture the air control unit of
the bed systems subject to certain conditions of product quality, delivery terms
and pricing. The purchase price for these assets was $2.25 million plus certain
contingent payments.
Contingent payments were payable based upon the occurrence of certain
events as described in the Acquisition Agreement. At December 31, 1995,
contingent payments totaling $150,000 had been paid. A dispute arose between the
Lumex Division and Airbed over the remaining contingent payments which was
resolved under the terms of a Settlement Agreement entered into on March 29,
1996. In accordance with the Settlement Agreement, the Lumex Division agreed to
make payments totaling $1,900,000, less amounts previously loaned to Airbed of
$497,449. The balance due was payable in weekly installments through April 29,
1996 totaling $1,160,000 with the balance due the earlier of three days after
closing of the sale of the Lumex Division or May 3, 1996. The payments made
pursuant to the Acquisition Agreement and Settlement Agreement, which were not
related to purchased research and development, were included in intangible
assets in the accompanying December 31, 1995 balance sheet.
Subsequent to December 31, 1995, Management determined that the
distributors through which Lumex sold the low air loss bed systems were
returning large numbers of the bed systems. As a result, Management evaluated
the recoverability of the intangible asset arising from the Acquisition and
Settlements Agreements and, in accordance with Accounting Principles Board
Opinion No. 17, wrote-off the remaining unamortized intangible asset balance of
approximately $2,864,000 in the first quarter of 1996. Additionally, Management
also determined that an intangible asset totaling $100,000, representing a
license paid for rights to incorporate certain technology into a product line,
was not feasible and was written off in the first quarter of 1996.
Additionally, subsequent to December 31, 1995, Management identified
distributors who were not going to be able to pay their lease obligations to the
Lumex Division or would be able to do so only after adjustment of the terms of
the lease or return of low air loss bed systems. As a result, an allowance for
doubtful accounts was established in the first quarter of 1996 to reserve for
net lease receivables ($3,397,382) and trade accounts receivable ($222,500)
which were outstanding at December 31, 1995.
F-116
<PAGE> 221
======================================================
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation by Reference............ 3
Prospectus Summary.................... 5
The Company........................... 12
Risk Factors.......................... 12
Use of Proceeds of New Notes.......... 20
Use of Proceeds of Old Notes.......... 20
Recent Developments................... 20
Capitalization........................ 22
The Exchange Offer.................... 23
Selected Consolidated Financial
Information and Operating Data...... 30
Pro Forma Combined Condensed Financial
Information......................... 32
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 47
Business.............................. 52
Management............................ 63
Principal Stockholders................ 66
Security Ownership of Management...... 67
Certain Transactions.................. 70
Description of Credit Facility........ 71
Description of New Notes.............. 72
Old Notes; Registration Rights........ 97
Certain Federal Income Tax
Considerations Relating to the
Exchange Offer...................... 99
Plan of Distribution.................. 101
Legal Matters......................... 101
Experts............................... 101
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
$100,000,000
[GFHP LOGO]
GRAHAM-FIELD HEALTH
PRODUCTS, INC.
9 3/4% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES A
------------------------
PROSPECTUS
December , 1997
------------------------
OFFER TO EXCHANGE
9 3/4% SENIOR SUBORDINATED
NOTES DUE 2007,
SERIES A
FOR
9 3/4% SENIOR SUBORDINATED
NOTES DUE 2007,
======================================================
<PAGE> 222
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"), a
corporation may indemnify any of its directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding (i) if such person acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii) in connection with any criminal action or proceeding if
such person had no reasonable cause to believe such conduct was unlawful. In
actions brought by or in the right of the corporation, however, Section 145
provides that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless, and only to the extent that, the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper. Article V of Graham-Field's bylaws requires that
Graham-Field indemnify its directors and officers for certain liabilities
incurred in the performance of their duties on behalf of Graham-Field to the
fullest extent permitted or required by the DGCL.
As permitted by Section 102(b)(7) of the DGCL, Graham-Field's certificate
of incorporation, as amended, provides that directors of Graham-Field shall not
be personally liable to Graham-Field or to its stockholders for monetary damages
for (i) any breach of the director's duty of loyalty to Graham-Field or its
stockholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) any act or omission
where the liability of the director is expressly provided for by certain
statutes listed therein or (iv) any transaction for which the director derived
an improper personal benefit.
Graham-Field has a directors and officers liability insurance policy in
effect which covers certain claims against any officer or director of
Graham-Field by reason of certain breaches of duty, neglect, errors or omissions
committed by such person in his capacity as an officer or director.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
The exhibits to this Registration Statement are listed in the accompanying
Exhibit Index and are filed (except where otherwise indicated) as part of this
Registration Statement.
(b) No financial statement schedules are required to be filed.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
II-1
<PAGE> 223
expenses incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE> 224
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Graham-Field
Health Products, Inc. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on December 23, 1997.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DAVID P. DELANEY, JR. Director December 23, 1997
- ------------------------------------------
David P. Delaney, Jr.
/s/ ANDREW A. GIORDANO Director December 23, 1997
- ------------------------------------------
Andrew A. Giordano
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-3
<PAGE> 225
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ STEVEN D. LEVKOFF Director December 23, 1997
- ------------------------------------------
Steven D. Levkoff
/s/ LOUIS A. LUBRANO Director December 23, 1997
- ------------------------------------------
Louis A. Lubrano
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ RODNEY PRICE Director December 23, 1997
- ------------------------------------------
Rodney Price
/s/ BEVIL J. HOGG Director December 23, 1997
- ------------------------------------------
Bevil J. Hogg
/s/ PETER HANDAL Director December 23, 1997
- ------------------------------------------
Peter Handal
</TABLE>
II-4
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Aqua Therm
Corp. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Hauppauge, New York, on December
23, 1997.
AQUA THERM CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-5
<PAGE> 227
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Bristoline Inc.
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Hauppauge, New York, on December 23,
1997.
BRISTOLINE INC.
By: /s/ IRVIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-6
<PAGE> 228
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Everest &
Jennings Canadian Ltd. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on December 23, 1997.
EVEREST & JENNINGS CANADIAN LTD.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DAVID MCCARTHY Director December 23, 1997
- ------------------------------------------
David McCarthy
</TABLE>
II-7
<PAGE> 229
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Everest &
Jennings de Mexico S.A. de C.V. has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Hauppauge, New York, on December 23, 1997.
EVEREST & JENNINGS DE MEXICO S.A. DE
C.V.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ ANTONIO R. GAITAU RAZURA Director December 23, 1997
- ------------------------------------------
Antonio R. Gaitau Razura
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-8
<PAGE> 230
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Everest &
Jennings, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on
December 23, 1997.
EVEREST & JENNINGS, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-9
<PAGE> 231
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Everest &
Jennings International Ltd. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Hauppauge, New York, on December 23, 1997.
EVEREST & JENNINGS INTERNATIONAL LTD.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-10
<PAGE> 232
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Everest &
Jennings Lifestyles has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on December 23, 1997.
EVEREST & JENNINGS LIFESTYLES
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-11
<PAGE> 233
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Exnewt, Inc.
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Hauppauge, New York, on December 23,
1997.
EXNEWT, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-12
<PAGE> 234
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Freeway
Investment Corp. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on
December 23, 1997.
FREEWAY INVESTMENT CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-13
<PAGE> 235
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, G.F.E.
Healthcare Products Corp. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Hauppauge, New York, on December 23, 1997.
G.F.E. HEALTHCARE PRODUCTS CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-14
<PAGE> 236
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, GFHP
Acquisition Corp. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on December 23, 1997.
GFHP ACQUISITION CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ ANDREW GIORDANO Director December 23, 1997
- ------------------------------------------
Andrew Giordano
/s/ DAVID P. DELANEY, JR. Director December 23, 1997
- ------------------------------------------
David P. Delaney, Jr.
</TABLE>
II-15
<PAGE> 237
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Graham-Field
Bandage, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on
December 23, 1997.
GRAHAM-FIELD BANDAGE, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-16
<PAGE> 238
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Graham-Field
Distribution, Inc. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on December 23, 1997.
GRAHAM-FIELD DISTRIBUTION, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-17
<PAGE> 239
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Graham-Field
European Distribution Corporation Limited has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Hauppauge, New York, on December 23, 1997.
GRAHAM-FIELD EUROPEAN DISTRIBUTION
CORPORATION LIMITED
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-18
<PAGE> 240
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Graham-Field
Express, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on
December 23, 1997.
GRAHAM-FIELD EXPRESS, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-19
<PAGE> 241
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Graham-Field
Express (Dallas), Inc. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on December 23, 1997.
GRAHAM-FIELD EXPRESS (DALLAS), INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-20
<PAGE> 242
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Graham-Field
Express (Puerto Rico), Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Hauppauge, New York, on December 23, 1997.
GRAHAM-FIELD EXPRESS (PUERTO RICO),
INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-21
<PAGE> 243
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Graham-Field,
Inc. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Hauppauge, New York, on December
23, 1997.
GRAHAM-FIELD, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-22
<PAGE> 244
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Graham-Field
Temco, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on
December 23, 1997.
GRAHAM-FIELD TEMCO, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-23
<PAGE> 245
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Health and
Medical Techniques, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Hauppauge, New York, on December 23, 1997.
HEALTH AND MEDICAL TECHNIQUES, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-24
<PAGE> 246
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Healthteam,
Inc. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Hauppauge, New York, on December
23, 1997.
HEALTHTEAM, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-25
<PAGE> 247
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, International
Medical Equipment Corp. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on December 23, 1997.
INTERNATIONAL MEDICAL EQUIPMENT
CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-26
<PAGE> 248
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, The Jennings
Investment Company has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on December 23, 1997.
THE JENNINGS INVESTMENT COMPANY
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-27
<PAGE> 249
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Kuschall of
America, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on
December 23, 1997.
KUSCHALL OF AMERICA, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-28
<PAGE> 250
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, LaBac Systems,
Inc. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Hauppauge, New York, on December
23, 1997.
LABAC SYSTEMS, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-29
<PAGE> 251
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Labtron
Scientific Corp. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on
December 23, 1997.
LABTRON SCIENTIFIC CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-30
<PAGE> 252
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, M.E. Team, Inc.
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Hauppauge, New York, on December 23,
1997.
M.E. TEAM, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-31
<PAGE> 253
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, MCT Acquisition
Corp. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Hauppauge, New York, on December
23, 1997.
MCT ACQUISITION CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-32
<PAGE> 254
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Medisco, Inc.
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Hauppauge, New York, on December 23,
1997.
MEDISCO, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-33
<PAGE> 255
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Metal Products,
Corp. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Hauppauge, New York, on December
23, 1997.
METAL PRODUCTS, CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December , 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-34
<PAGE> 256
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Patient
Technology, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on
December 23, 1997.
PATIENT TECHNOLOGY, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December , 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-35
<PAGE> 257
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Professional
Securities Corp. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on
December 23, 1997.
PROFESSIONAL SECURITIES CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-36
<PAGE> 258
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Rabson Medical
Sales, Ltd. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hauppauge, New York, on
December 23, 1997.
RABSON MEDICAL SALES, LTD.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-37
<PAGE> 259
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Smith & Davis
Manufacturing Company has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on December 23, 1997.
SMITH & DAVIS MANUFACTURING COMPANY
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-38
<PAGE> 260
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Thompson Blair,
Inc. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Hauppauge, New York, on December
23, 1997.
THOMPSON BLAIR, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-39
<PAGE> 261
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Ventilator
Corp. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Hauppauge, New York, on December
23, 1997.
VENTILATOR CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and December 23, 1997
- ------------------------------------------ Chief Executive Officer
Irwin Selinger and Director (Principal
Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and December 23, 1997
- ------------------------------------------ Chief Financial Officer
Gary M. Jacobs (Principal Financial and
Accounting Officer)
/s/ DONALD PRESS Director December 23, 1997
- ------------------------------------------
Donald Press
/s/ DR. HAROLD LAZARUS Director December 23, 1997
- ------------------------------------------
Dr. Harold Lazarus
</TABLE>
II-40
<PAGE> 262
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------- --------
<C> <S> <C>
1.1 Purchase Agreement, dated July 30, 1997, by and among Graham-Field Health
Products, Inc. (the "Company") and Smith Barney Inc.......................
2.1 Agreement and Plan of Merger, dated as of September 5, 1997, as amended as
of September 29, 1997, by and among the Company, GFHP Acquisition Corp.
and Fuqua Enterprises, Inc. (incorporated herein by reference to the
Company's Current Report on Form 8-K dated as of September 11, 1997 (Date
of Event: September 5, 1997)).............................................
4.1 Indenture, dated as of August 4, 1997, by and between the Company and
American Stock Transfer & Trust Company, as trustee.......................
4.2 Form of 9 3/4% Senior Subordinated Notes due 2007, Series A (included as
Exhibit to 4.1)...........................................................
4.3 Registration Rights Agreement, dated August 4, 1997, by and among the
Company, Smith Barney Inc. and the Subsidiary Guarantees..................
5.1 Opinion of Milbank, Tweed, Hadley & McCloy................................
8.1 Opinion of Milbank, Tweed, Hadley & McCloy (included in Exhibit 5.1)......
12.1 Statement re Computation of Ratios of Earnings to Fixed Charges...........
23.1 Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit 5.1)......
23.2 Consent of Ernst & Young LLP acting on behalf of Graham-Field Health
Products, Inc.............................................................
23.3 Consent of Ernst & Young LLP acting on behalf of Fuqua Enterprises,
Inc.......................................................................
23.4 Consent of Ernst & Young LLP acting on behalf of the Lumex Division of
Lumex, Inc................................................................
23.5 Consent of Price Waterhouse LLP...........................................
24.1 Powers of Attorney (included on signature pages of this Registration
Statement)................................................................
25.1 Form T-1, Statement of Eligibility under the Trust Indenture Act of 1939
of American Stock Transfer & Trust Company................................
99.1 Form of Letter of Transmittal and Consent.................................
99.2 Notice of Guaranteed Delivery.............................................
</TABLE>
II-41
<PAGE> 1
Exhibit 1.1
$100,000,000
GRAHAM-FIELD HEALTH PRODUCTS, INC.
9-3/4% Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
July 30, 1997
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Graham-Field Health Products, Inc., a Delaware corporation (the
"Company"), proposes, upon the terms and conditions set forth herein, to issue
and sell to you, as the initial purchaser (the "Initial Purchaser"),
$100,000,000 aggregate principal amount of its 9-3/4% Senior Subordinated Notes
due 2007 (the "Notes"). The Notes will be issued pursuant to the provisions of
an Indenture, to be dated as of August 4, 1997 (the "Indenture"), between the
Company, the Guaranteeing Subsidiaries described therein and American Stock
Transfer and Trust Company, as Trustee (the "Trustee"). The Notes are to be
guaranteed, jointly and severally, on a senior subordinated basis by the
Guaranteeing Subsidiaries in accordance with the terms of the Indenture. Such
guarantees are hereinafter referred to as the "Subsidiary Guarantees" and the
Notes and the Subsidiary Guarantees are hereinafter referred to as the "Offered
Securities".
The Company wishes to confirm as follows its agreement with the
Initial Purchaser in connection with the purchase and resale of the Offered
Securities.
1. Preliminary Offering Memorandum and Offering Memorandum. The
Offered Securities will be offered and sold to the Initial Purchaser without
registration under the Securities Act of 1933, as amended (the "Act"), in
reliance on an exemption pursuant to Section 4(2) under the Act. The Company has
prepared a preliminary offering memorandum, dated July 16, 1997 (the
"Preliminary Offering Memorandum"), and an offering memorandum, dated July 30,
1997 (the "Offering Memorandum"), setting forth information regarding the
Company and the Offered Securities. Any references herein to the Preliminary
Offering Memorandum and the Offering Memorandum shall be deemed to include all
amendments and supplements thereto and any documents filed under the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder (collectively,
the "Exchange Act") which are incorporated by reference therein. As used herein,
the term "Incorporated Documents" means the documents which at the time are
incorporated by reference in the Preliminary Offering Memorandum, the Offering
Memorandum or any amendment or supplement thereto. The Company hereby confirms
that it has authorized the use of the Preliminary Offering Memorandum and the
Offering Memorandum in connection with the offering and resale of the Offered
Securities by the Initial Purchaser.
The Company understands that the Initial Purchaser proposes to make
offers and sales (the "Exempt Resales") of the Offered Securities purchased by
the Initial Purchaser hereunder only on the terms and in the manner set forth in
the Offering Memorandum and Section 2 hereof, as soon as the Initial Purchaser
deems advisable after this Agreement has been executed and delivered to persons
whom the Initial Purchaser reasonably believes to be qualified institutional
buyers ("Qualified Institutional Buyers") as defined in Rule 144A under the Act,
as such rule may be amended from time to time ("Rule 144A"), in transactions
under Rule 144A (such persons being referred to herein as the "Eligible
Purchasers").
1
<PAGE> 2
It is understood and acknowledged that upon original issuance
thereof, and until such time as the same is no longer required under the
applicable requirements of the Act, the Notes (and all securities issued in
exchange therefor or in substitution thereof) shall bear the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION UNDER SUCH LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY) UNLESS SUCH OFFER, SALE OR OTHER TRANSFER IS
(A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHO
IS OR WHO THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (a)(1), (a)(2), (a)(3) OR (a)(7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR
THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH,
ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO
ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, AND IN EACH OF THE FOREGOING CASES SUCH OFFER, SALE OR
OTHER TRANSFER IS IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY
TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES PROVIDED THAT A
CERTIFICATE OF TRANSFER IN THE FORM PROVIDED FOR IN THE INDENTURE (A COPY
OF WHICH MAY BE OBTAINED FROM THE TRUSTEE) IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE THEN HOLDER OF THIS SECURITY AFTER THE RESALE RESTRICTION
TERMINATION DATE. ANY TRANSFEREE OF THIS SECURITY SHALL BE DEEMED TO HAVE
REPRESENTED EITHER (X) THAT IT IS NOT USING THE ASSETS OF AN EMPLOYEE
BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
("ERISA") OR THE INTERNAL REVENUE CODE (THE "CODE") TO PURCHASE THIS
SECURITY OR (Y) THAT ITS PURCHASE AND CONTINUED HOLDING OF THE SECURITY
WILL BE COVERED BY A U.S. DEPARTMENT OF LABOR CLASS EXEMPTION WITH RESPECT
TO PROHIBITED TRANSACTIONS UNDER SECTION 406(a) OF ERISA.
2
<PAGE> 3
It is also understood and acknowledged that holders (including
subsequent transferees) of the Offered Securities will have the registration
rights set forth in the registration rights agreement (the "Registration Rights
Agreement"), to be dated the date hereof, in substantially the form of Exhibit A
hereto. The registration statement to be filed under the Act pursuant to the
Registration Rights Agreement is hereinafter referred to as the "Registration
Statement." This Agreement, the Indenture and the Registration Rights Agreement
are hereinafter referred to collectively as the "Operative Documents".
Capitalized terms used herein without definition have the respective
meanings specified therefor in the Indenture or the Offering Memorandum.
2. Agreements to Sell, Purchase and Resell. (a) The Company hereby
agrees, subject to all the terms and conditions set forth herein, to issue and
sell to the Initial Purchaser and, upon the basis of the representations,
warranties and agreements of the Company herein contained and subject to all the
terms and conditions set forth herein, the Initial Purchaser agrees to purchase
from the Company, at a purchase price of 100% of the principal amount thereof,
$100,000,000 aggregate principal amount of Notes.
(b) The Initial Purchaser has advised the Company that it proposes
to offer the Offered Securities for sale upon the terms and conditions set forth
in this Agreement and in the Offering Memorandum. The Initial Purchaser hereby
represents and warrants to, and agrees with, the Company that the Initial
Purchaser (i) is purchasing the Offered Securities pursuant to a private sale
exempt from registration under the Act, (ii) will not solicit offers for, or
offer or sell, the Offered Securities by means of any form of general
solicitation or general advertising or in any manner involving a public offering
within the meaning of Section 4(2) of the Act, and (iii) will solicit offers for
the Offered Securities only from, and will offer, sell or deliver the Offered
Securities as part of its initial offering, only to persons whom the Initial
Purchaser reasonably believes to be Qualified Institutional Buyers, or if any
such person is buying for one or more institutional accounts for which such
person is acting as fiduciary or agent, only when such person has represented to
the Initial Purchaser that each such account is a Qualified Institutional Buyer,
to whom notice has been given that such sale or delivery is being made in
reliance on Rule 144A and in each case, in transactions under Rule 144A. The
Initial Purchaser has advised the Company that it will offer the Offered
Securities to Eligible Purchasers at a price initially equal to 100% of the
principal amount thereof, plus accrued interest, if any, from the date of
issuance of the Offered Securities. Such price may be changed by the Initial
Purchaser at any time thereafter without notice.
The Initial Purchaser understands that the Company and, for purposes
of the opinions to be delivered to the Initial Purchaser pursuant to Sections
7(c)(xiii) and 7(e) hereof, counsel to the Company and counsel to the Initial
Purchaser, will rely upon the accuracy and truth of the foregoing
representations and agreements and the Initial Purchaser hereby consents to such
reliance.
3. Delivery of the Offered Securities and Payment Therefor. Delivery
to the Initial Purchaser of and payment for the Offered Securities shall be made
at the office of Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at
10:00 A.M., New York City time, on August 4, 1997 (the "Closing Date"). The
place of closing for the Offered Securities and the Closing Date may be varied
by agreement between the Initial Purchaser and the Company.
The Offered Securities will be delivered to the Initial Purchaser
against payment of the purchase price therefor by wire transfer of federal or
other same day funds to an account or accounts designated by the Company. The
Notes will be evidenced by one or more global securities in definitive form (the
"Global Note") and will be registered in the name of Cede & Co. as nominee of
The Depository Trust Company ("DTC"). The Notes to be delivered to the Initial
Purchaser shall be made available to the Initial Purchaser in New York City for
inspection not later than 9:30 a.m., New York City time, on the business day
next preceding the Closing Date.
4. Agreements of the Company. The Company agrees with the Initial
Purchaser as follows:
3
<PAGE> 4
(a) The Company will advise the Initial Purchaser promptly and, if
requested by them, will confirm such advice in writing, within the period of
time referred to in paragraph (e) below, of any change in the Company's
financial condition, business, net worth or results of operations, or of the
happening of any event, which makes any statement made in the Offering
Memorandum (as then amended or supplemented) untrue in any material respect or
which requires the making of any additions to or changes in the Offering
Memorandum (as then amended or supplemented) in order to make the statements
therein not misleading in any material respect , or of the necessity to amend or
supplement the Offering Memorandum (as then amended or supplemented) to comply
with any law.
(b) The Company will furnish to the Initial Purchaser, without
charge, as of the date of the Offering Memorandum, such number of copies of the
Offering Memorandum as may then be amended or supplemented as it may reasonably
request.
(c) The Company will not make any amendment or supplement to the
Preliminary Offering Memorandum or to the Offering Memorandum of which the
Initial Purchaser shall not previously have been advised or to which it shall
reasonably object after being so advised or at any time prior to completion of
the distribution of the Offered Securities, file any document which upon filing
becomes an Incorporated Document, without delivering a copy of such document to
the Initial Purchaser, prior to or concurrently with such filing.
(d) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to the Initial Purchaser, without charge,
in such quantities as the Initial Purchaser shall have requested or may
hereafter reasonably request, copies of the Preliminary Offering Memorandum. The
Company consents to the use, in accordance with the securities or Blue Sky laws
of the jurisdictions in which the Offered Securities are offered by the Initial
Purchaser and by dealers, prior to the date of the Offering Memorandum, of each
Preliminary Offering Memorandum so furnished by the Company. The Company
consents to the use of the Offering Memorandum (and of any amendment or
supplement thereto) in accordance with the securities or Blue Sky laws of the
jurisdictions in which the Offered Securities are offered by the Initial
Purchaser and by all dealers to whom Offered Securities may be sold, in
connection with the offering and sale of the Offered Securities.
(e) If, at any time prior to completion of the distribution of the
Offered Securities by the Initial Purchaser to Eligible Purchasers, any event
shall occur that in the judgment of the Company or in the reasonable opinion of
counsel for the Initial Purchaser should be set forth in the Offering Memorandum
(as then amended or supplemented) in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading in any
material respect, or if it is necessary to supplement or amend the Offering
Memorandum, or to file under the Exchange Act any document which upon filing
becomes an Incorporated Document, to comply with any law, the Company will
forthwith prepare an appropriate supplement or amendment thereto or such
document, and will expeditiously furnish to the Initial Purchaser and dealers a
reasonable number of copies thereof. In the event that the Company and the
Initial Purchaser agree that the Offering Memorandum should be amended or
supplemented, or that a document should be filed under the Exchange Act which
upon filing becomes an Incorporated Document, the Company, if requested by the
Initial Purchaser, will promptly issue a press release announcing or disclosing
the matters to be covered by the proposed amendment or supplement or such
document.
(f) The Company will cooperate with the Initial Purchaser and with
their counsel in connection with the qualification of the Offered Securities for
offering and sale by the Initial Purchaser and by dealers under the securities
or Blue Sky laws of such jurisdictions as the Initial Purchaser may designate
and will file such consents to service of process or other documents necessary
or appropriate in order to effect such qualification; provided that in no event
shall the Company or any of the Guaranteeing Subsidiaries be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would either subject it to service of process in suits,
other than those arising out of the offering or sale of the Offered Securities,
in any jurisdiction where it is not now so subject or
4
<PAGE> 5
subject it to taxation in any such jurisdiction.
(g) So long as any of the Offered Securities are outstanding, the
Company will furnish to the Initial Purchaser (i) as soon as available, a copy
of each report of the Company mailed to stockholders or filed with the
Commission, and (ii) from time to time such other information concerning the
Company as the Initial Purchaser may reasonably request.
(h) If this Agreement shall terminate or shall be terminated after
execution and delivery pursuant to any provisions hereof (otherwise than by
notice given by the Initial Purchaser terminating this Agreement pursuant to
Section 10 hereof) or if this Agreement shall be terminated by the Initial
Purchaser because of any failure or refusal on the part of the Company to comply
with the terms or fulfill any of the conditions of this Agreement, the Company
agrees to reimburse the Initial Purchaser for all out-of-pocket expenses
(including fees and expenses of its counsel) reasonably incurred by it in
connection herewith, but without any further obligation on the part of the
Company for loss of profits or otherwise.
(i) The Company will apply the net proceeds from the sale of the
Offered Securities to be sold by it hereunder substantially in accordance with
the description set forth in the Offering Memorandum.
(j) Except as stated in this Agreement and in the Preliminary
Offering Memorandum and Offering Memorandum, the Company has not taken, nor will
it take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
the Offered Securities to facilitate the sale or resale of the Offered
Securities. Except as permitted by the Act, the Company will not distribute any
offering material in connection with the Exempt Resales.
(k) The Company will use its best efforts to cause the Offered
Securities to be eligible for trading on The PORTAL Market.
(l) From and after the Closing Date, so long as any of the Offered
Securities are outstanding and are "Restricted Securities" within the meaning of
the Rule 144(a)(3) under the Act or, if earlier, until two years after the
Closing Date, and during any period in which the Company is not subject to
Section 13 or 15(d) of the Exchange Act, the Company will furnish to holders of
the Offered Securities and prospective purchasers of Offered Securities
designated by such holders, upon request of such holders or such prospective
purchasers, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Act to permit compliance with Rule 144A in connection with resale of
the Offered Securities.
(m) The Company agrees not to sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Offered Securities in a manner
that would require the registration under the Act of the sale to the Initial
Purchaser or the Eligible Purchasers of the Offered Securities.
(n) The Company agrees to comply with all of the terms and
conditions of the Registration Rights Agreement, and all agreements set forth in
representation letters of the Company to DTC relating to the approval of the
Offered Securities by DTC for "book entry" transfer.
(o) The Company agrees that prior to any registration of the Offered
Securities pursuant to the Registration Rights Agreement, or at such earlier
time as may be so required, the Indenture shall be qualified under the Trust
Indenture Act of 1939 (the "1939 Act") and will cause to be entered into any
necessary supplemental indentures in connection therewith.
5. Representations and Warranties of the Company. The Company
represents and warrants to the Initial Purchaser that:
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<PAGE> 6
(a) The Preliminary Offering Memorandum and Offering Memorandum with
respect to the Offered Securities have been prepared by the Company for use by
the Initial Purchaser in connection with the Exempt Resales. No order or decree
preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum or any amendment or supplement thereto, or any order asserting that
the transactions contemplated by this Agreement are subject to the registration
requirements of the Act, has been issued and no proceeding for that purpose has
commenced or is pending or, to the knowledge of the Company, is contemplated.
(b) The Preliminary Offering Memorandum and the Offering Memorandum
as of their respective dates and the Offering Memorandum as of the Closing Date,
did not or will not at any time contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, except that this representation and
warranty does not apply to statements in or omissions from the Preliminary
Offering Memorandum and Offering Memorandum made in reliance upon and in
conformity with information relating to the Initial Purchaser furnished to the
Company in writing by or on behalf of the Initial Purchaser expressly for use
therein.
(c) The Incorporated Documents heretofore filed did not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and any further Incorporated Documents will, when so filed, not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
(d) The Indenture has been duly and validly authorized by the
Company and the Guaranteeing Subsidiaries and, upon its execution, delivery and
performance by the Company and the Guaranteeing Subsidiaries and assuming due
authorization, execution, delivery and performance by the Trustee, will be a
valid and binding agreement of the Company and the Guaranteeing Subsidiaries,
enforceable in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally, and conforms in all material respects to the description
thereof in the Offering Memorandum; and no qualification of the Indenture under
the 1939 Act is required in connection with the offer and sale of the Offered
Securities contemplated hereby or in connection with the Exempt Resales.
(e) The Notes and the Subsidiary Guarantees have been duly
authorized by the Company or the Guaranteeing Subsidiaries, as the case may be,
and, when executed by the Company or the Guaranteeing Subsidiaries, as the case
may be, in accordance with the Indenture and delivered to the Initial Purchaser
against payment therefor in accordance with the terms hereof, will have been
validly issued and delivered, and will constitute valid and binding obligations
of the Company or the Guaranteeing Subsidiaries, as the case may be, entitled to
the benefits of the Indenture and enforceable in accordance with their terms,
except as enforcement thereof may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally, and the
Notes and the Subsidiary Guarantees will conform in all material respects to the
description thereof in the Offering Memorandum.
(f) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have a material adverse effect on the financial
condition, business, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole (a "Material Adverse
Effect").
(g) All the Company's active subsidiaries are listed on Schedule I
hereto and are
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referred to herein individually as a "Subsidiary" and collectively as the
"Subsidiaries." Each Subsidiary is a corporation duly organized, validly
existing and in good standing in the jurisdiction of its incorporation, with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Offering Memorandum, and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify or be in good standing does not have a Material
Adverse Effect. All the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are wholly owned by the Company (with the exception of
Everest & Jennings de Mexico S.A. de C.V.) directly or indirectly through other
wholly-owned subsidiaries, free and clear of any lien, adverse claim, security
interest, equity or other encumbrance. None of the subsidiaries (as defined in
the Exchange Act) of the Company that are not listed on Schedule I hereto has,
individually or in the aggregate, any operations, business, property (tangible
or intangible), permits, licenses, rights or liabilities (contingent or
otherwise) that are material to the Company and the Subsidiaries, taken as a
whole.
(h) There are no legal or governmental proceedings pending or, to
the knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries or any of their
respective properties, is subject, that are not disclosed in the Offering
Memorandum and which could reasonably be expected to have a Material Adverse
Effect or materially adversely affect the issuance of the Offered Securities or
the consummation of the transactions contemplated by the Operative Documents.
There are no material agreements, contracts, indentures, leases or other
instruments that are required to be filed as an exhibit to any Incorporated
Document that are not so filed. Neither the Company nor any Subsidiary is
involved in any material strike, job action or labor dispute with any group of
employees, and, to the Company's knowledge, no such action or dispute is
threatened.
(i) Neither the Company nor any of the Subsidiaries is (i) in
violation of its certificate or articles of incorporation or by-laws or other
organizational documents, (ii) in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company or
any of the Subsidiaries or of any decree of any court or governmental agency or
body having jurisdiction over the Company or any of the Subsidiaries, or (iii)
in default in any respect in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any agreement, indenture, lease or other instrument to which
the Company or any of the Subsidiaries is a party or by which any of them or any
of their respective properties may be bound, except in the case of clause (ii)
or (iii) for such violations or defaults which, individually or in the
aggregate, could not be reasonably expected to have a Material Adverse Effect.
(j) Neither the issuance, offer, sale or delivery of the Offered
Securities, the execution, delivery or performance of this Agreement, the
Indenture or the Registration Rights Agreement by the Company or the
Guaranteeing Subsidiaries, as the case may be, nor the consummation by the
Company or the Guaranteeing Subsidiaries, as the case may be, of the
transactions contemplated hereby or thereby (i) requires any consent, approval,
authorization or other order of, or registration or filing with, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except such as may be required in connection with the registration
under the Act of the Offered Securities and/or the New Offered Securities in
accordance with the Registration Rights Agreement, the qualification of the
Indenture under the 1939 Act and except for compliance with the securities or
Blue Sky laws of various jurisdictions) or conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the certificate
or articles of incorporation or bylaws, or other organizational documents, of
the Company or any of the Subsidiaries or (ii) conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, any
indenture, bond, note, lease or other material agreement or material instrument
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties may be bound, or violates or will
violate any material statute, law, regulation or filing or any material
judgment, injunction, order or decree applicable to the Company or any of the
Subsidiaries or any of their respective properties, or will result in the
creation or imposition of any
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<PAGE> 8
material lien, charge or encumbrance upon any property or assets of the Company
or any of the Subsidiaries pursuant to the terms of any agreement or instrument
to which any of them is a party or by which any of them may be bound or to which
any of the property or assets of any of them is subject.
(k) The accountants, Ernst & Young LLP, who have certified or shall
certify the financial statements included as part of the Offering Memorandum (or
any amendment or supplement thereto), are independent certified public
accountants under Rule 101 of the AICPA's Code of Professional Conduct, and its
interpretation and rulings.
(l) The financial statements, together with the related schedules
and notes forming part of the Offering Memorandum (and any amendment or
supplement thereto), comply as to form with the requirements of the Exchange Act
and present fairly in all material respects the consolidated financial position,
results of operations and changes in stockholders' equity and cash flows of the
Company and the Subsidiaries on the basis stated in the Offering Memorandum at
the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Offering Memorandum (and any
amendment or supplement thereto) is accurately presented and is prepared on a
basis consistent with such financial statements and the books and records of the
Company. The pro forma financial statements and other pro forma financial
information included or incorporated by reference in the Offering Memorandum
have been prepared in accordance with the Commission's rules and regulations
with respect to pro forma financial information (including Article 11 of
Regulation S-X) and have been properly compiled on the basis described therein,
and the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are reasonably appropriate to give effect to the
transactions or circumstances referred to therein.
(m) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the
Registration Rights Agreement; the execution and delivery of, and the
performance by the Company of its obligations under, this Agreement and the
Registration Rights Agreement have been duly and validly authorized by the
Company, and this Agreement and the Registration Rights Agreement have been duly
executed and delivered by the Company and constitute the valid and legally
binding agreements of the Company, enforceable against the Company in accordance
with their terms, except as the enforcement hereof and thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to the applicability of general
principles of equity, and except as rights to indemnity and contribution
hereunder and thereunder may be limited by Federal or state securities laws or
principles of public policy.
(n) The Guaranteeing Subsidiaries have all requisite corporate power
and authority to execute, deliver and perform their obligations under the
Registration Rights Agreement; the execution and delivery of, and the
performance by the Guaranteeing Subsidiaries of their obligations under the
Registration Rights Agreement has been duly and validly authorized by the
Guaranteeing Subsidiaries and the Registration Rights Agreement has been duly
executed and delivered by the Guaranteeing Subsidiaries and constitutes the
valid and legally binding agreement of the Guaranteeing Subsidiaries,
enforceable against the Guaranteeing Subsidiaries in accordance with its terms,
except as the enforcement hereof and thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and subject to the applicability of general principles of equity, and
except as rights to indemnity and contribution hereunder and thereunder may be
limited by Federal or state securities laws or principles of public policy.
(o) Except as disclosed in the Offering Memorandum (or any amendment
or supplement thereto), subsequent to the date as of which such information is
given in the Offering Memorandum (or any amendment or supplement thereto),
neither the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction that is
material to the Company and the Subsidiaries taken as a whole, and there has not
been any
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<PAGE> 9
material change in the capital stock, or material increase in the consolidated
short-term or long-term debt, of the Company or any of the Subsidiaries, or any
material adverse change, or any development involving or which could reasonably
be expected to involve a prospective material adverse change, in the financial
condition, business, properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole.
(p) Each of the Company and the Subsidiaries has valid title to all
property (real and personal) described in the Offering Memorandum as being owned
by it, free and clear of all material liens, claims, security interests or other
encumbrances except such as are described in the Offering Memorandum or in an
Incorporated Document or exhibit thereto, and all the property described in the
Offering Memorandum as being held under lease by each of the Company and the
Subsidiaries is held by it under valid, subsisting and enforceable leases.
(q) Except as permitted by the Act, the Company has not distributed
and, prior to the later to occur of the Closing Date and completion of the
distribution of the Offered Securities, will not distribute any offering
material in connection with the offering and sale of the Offered Securities
other than the Preliminary Offering Memorandum and Offering Memorandum.
(r) Each of the Company and the Subsidiaries has such permits,
licenses, franchises, clearances, certificates and other approvals or
authorizations of governmental or regulatory authorities ("Permits") including,
without limitation, the Food and Drug Administration (the "FDA") of the U.S.
Department of Health and Human Services and/or any committee thereof, as are
necessary under applicable law to own their respective properties and to conduct
their respective business in the manner described in the Offering Memorandum
(including, without limitation, such Permits as are required under such federal,
state and other health care laws), except for such failures to have Permits
which, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect; the Company and each of the Subsidiaries have
fulfilled and performed all their respective material obligations with respect
to the Permits, and no event has occurred which allows, or after notice or lapse
of time would allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such Permit, subject in
each case to such qualification as may be set forth in the Offering Memorandum;
and, except as described in the Offering Memorandum, none of the Permits
contains any restriction that is materially burdensome to the Company or any of
the Subsidiaries.
(s) The business practices of the Company and each of its
Subsidiaries do not violate in any material respect any applicable provisions of
federal or state law governing Medicare or any state Medicaid program, including
without limitation, Sections 1320a-7a and 1320a-7b of Title 42 of the United
States Code, and no individual with an ownership or control interest, as defined
in 42 U.S.C. Section 1320a-3(a)(3), in the Company or any of its Subsidiaries,
or who is an officer, director, or managing employee, as defined in 42 U.S.C.
Section 1320a-5(b), of the Company or any of its Subsidiaries is a person
described in 42 U.S.C. Section 1320a-7(b)(8)(B), and the Company's and each of
its Subsidiaries' business practices do not violate in any material respect any
applicable provisions of federal or state law regarding physician ownership of,
or financial relationship with, or referral to entities providing health care
related goods or services, or laws requiring disclosure of financial interests
held by physicians in entities to which they may refer patients for the
provision of health care related goods or services.
(t) The property, assets and operations of the Company and the
Subsidiaries comply in all respects with all applicable federal, state and local
laws, rules, orders, decrees, judgments, injunctions, licenses, permits or
regulations relating to environmental matters (the "Environmental Laws"), except
for such failures to comply which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. To the Company's
knowledge, except as disclosed in the Incorporated Documents, none of the
Company's nor any of the Subsidiaries' property, assets or operations is the
subject of any federal, state or local investigation evaluating whether any
remedial action is needed to respond to a release of any substance regulated by
or form the basis of liability under any Environmental Laws (a "Hazardous
Material") into the environment or is in contravention of any federal, state,
local or foreign law, order or regulation. Neither the Company nor any of the
Subsidiaries
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has received any notice or claim, nor are there any pending or, to the Company's
knowledge, threatened or reasonably anticipated lawsuits or other proceedings
against it with respect to material violations of an Environmental Law or in
connection with the release of any Hazardous Material into the environment.
Neither the Company nor any of the Subsidiaries has any material contingent
liability in connection with any release of Hazardous Material into the
environment.
(u) Each of the Company and the Subsidiaries is insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are customary in the business in which it is engaged. All policies of
insurance insuring the Company and each of the Subsidiaries or their respective
business, assets, employees, officers and directors are in full force and
effect, and the Company and each of the Subsidiaries is in compliance with the
terms of such policies in all material respects. There are no claims by the
Company or any of the Subsidiaries under any such policy or instrument as to
which any insurance company is denying liability or defending under a
reservation of rights clause.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) Neither the Company nor any of the Subsidiaries nor, to the
Company's knowledge, any employee or agent of the Company or any Subsidiary (in
his or her capacity as such) has made any payment of funds of the Company or any
Subsidiary or received or retained any funds in violation of any law, rule or
regulation, except for such violations which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
(x) Each of the Company and the Subsidiaries has filed all federal,
state, local and foreign tax returns and tax forms required to be filed, such
returns and forms are complete and correct in all material respects, and all
taxes shown by such returns or otherwise assessed that are due or payable have
been paid, except such taxes as are being contested in good faith and as to
which adequate reserves have been provided. All payroll withholdings required to
be made by the Company or any of the Subsidiaries with respect to employees have
been made. The charges, accruals and reserves on the books of the Company and
the Subsidiaries in respect of any tax liability for any year not finally
determined are adequate to meet any assessments or reassessments for additional
taxes. There have been no tax deficiencies asserted and, to the knowledge of the
Company, no tax deficiency might be reasonably asserted or threatened against
the Company or any of the Subsidiaries that could, individually or in the
aggregate, have a Material Adverse Effect.
(y) Each of the Company and the Subsidiaries owns or has obtained
valid and enforceable licenses for the patents, patent applications, inventions,
technology, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, trade secrets and rights described in
the Offering Memorandum as being owned or used by or licensed to it or necessary
for the conduct of its business (collectively, the "intellectual property").
Except as set forth in the Offering Memorandum (i) there are no rights of third
parties to any such intellectual property which could reasonably be expected to
have a Material Adverse Effect; (ii) to the Company's knowledge there is no
infringement by third parties of any such intellectual property; (iii) there is
no pending or, to the Company's knowledge, threatened action, suit, proceeding
or claim by others challenging the Company's or any Subsidiaries' rights in or
to any such intellectual property which could reasonably be expected to have a
Material Adverse Effect, and the Company is unaware of any facts which would
form a reasonable basis for any such claim; (iv) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by others
challenging the validity or scope of any such intellectual property which could
reasonably be expected to have a Material Adverse Effect, and the Company is
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unaware of any facts which would form a reasonable basis for any such claim; (v)
there is no pending or, to the Company's knowledge, threatened action, suit,
proceeding or claim by others that the Company or any of the Subsidiaries
infringes or otherwise violates any patent, trademark, copyright, trade secret
or other proprietary rights of others which could reasonably be expected to have
a Material Adverse Effect, and the Company is unaware of any facts which would
form a reasonable basis for any such claim; (vi) to the Company's knowledge
there is no patent or patent application which contains claims that dominate or
may dominate any intellectual property described in the Offering Memorandum as
being owned by or licensed to the Company or any of the Subsidiaries or that is
necessary for the conduct of its business or that interferes with the issued or
pending claims of any such intellectual property; and (vii) there is no prior
art of which the Company is aware that may render any material patent held by
the Company or any of the subsidiaries invalid or any patent application held by
the Company or any of the subsidiaries unpatentable which has not been disclosed
to the U.S. Patent and Trademark Office.
(z) Neither the Company nor any of the Guaranteeing Subsidiaries is,
and, upon sale of the Offered Securities to be issued and sold thereby in
accordance herewith and the application of the net proceeds to the Company of
such sale as described in the Offering Memorandum under the caption "Use of
Proceeds," will not be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(aa) When the Offered Securities are issued and delivered pursuant
to this Agreement, such Offered Securities will not be of the same class (within
the meaning of Rule 144A(d)(3) under the Act) as any security of the Company
that is listed on a national securities exchange registered under Section 6 of
the Exchange Act or that is quoted in a United States automated interdealer
quotation system.
(bb) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D ("Regulation D") under the Act) of the Company has
directly, or through any agent (provided that no representation is made as to
the Initial Purchaser or any person acting on its behalf), (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Act) which is or will be integrated with the
offering and sale of the Offered Securities in a manner that would require the
registration of the Offered Securities under the Act or (ii) engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D) in connection with the offering of the Offered Securities.
(cc) The Company is not required to deliver the information
specified in Rule 144A(d)(4) in connection with the offering and resale of the
Offered Securities by the Initial Purchaser.
(dd) Assuming (i) that the representations and warranties in Section
2 hereof are true, (ii) the Initial Purchaser complies with the covenants set
forth in Section 2 hereof and (iii) that each person to whom the Initial
Purchaser offers, sells or delivers the Offered Securities is a Qualified
Institutional Buyer, the purchase and sale of the Offered Securities pursuant
hereto (including the Initial Purchaser's proposed offering of the Offered
Securities on the terms and in the manner set forth in the Offering Memorandum
and Section 2 hereof) is exempt from the registration requirements of the Act.
(ee) The execution and delivery of this Agreement, the other
Operative Documents and the sale of the Offered Securities to the Initial
Purchaser or by the Initial Purchaser to Eligible Purchasers will not involve
any prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code. The representation made by the Company in the preceding
sentence is made in reliance upon and subject to the accuracy of, and compliance
with, the representations and covenants made or deemed made by the Eligible
Purchasers as set forth in the Offering Memorandum under the section entitled
"Notice to Investors."
6. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless the Initial Purchaser and each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act from and against any and all losses,
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<PAGE> 12
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Offering
Memorandum or Offering Memorandum or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which has been made therein or
omitted therefrom in reliance upon and in conformity with the information
relating to the Initial Purchaser furnished in writing to the Company by or on
behalf of the Initial Purchaser expressly for use in connection therewith;
provided, however, that the indemnification contained in this paragraph (a) with
respect to the Preliminary Offering Memorandum shall not inure to the benefit of
the Initial Purchaser (or to the benefit of any person controlling the Initial
Purchaser) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Offered Securities by the Initial Purchaser to any
person if the untrue statement or alleged untrue statement or omission or
alleged omission of a material fact contained in the Preliminary Offering
Memorandum was corrected in the Offering Memorandum and the Initial Purchaser
sold Offered Securities to that person without sending or giving at or prior to
the written confirmation of such sale, a copy of the Offering Memorandum (as
then amended or supplemented) if the Company has previously furnished sufficient
copies thereof to the Initial Purchaser. The foregoing indemnity agreement shall
be in addition to any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against the
Initial Purchaser or any person controlling the Initial Purchaser in respect of
which indemnity may be sought against the Company, the Initial Purchaser or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. The Initial Purchaser or any such controlling person
shall have the right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of the Initial Purchaser or such
controlling person unless (i) the Company has agreed in writing to pay such fees
and expenses, (ii) the Company has failed to assume the defense and employ
counsel, or (iii) the named parties to any such action, suit or proceeding
(including any impleaded parties) include both the Initial Purchaser or the
controlling person and the Company and the Initial Purchaser or such controlling
person shall have been advised by its counsel that representation of such
indemnified party and the Company by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or potential
differing interests between them (in which case the Company shall not have the
right to assume the defense of such action, suit or proceeding on behalf of the
Initial Purchaser or such controlling person). It is understood, however, that
the Company shall, in connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
the Initial Purchaser and controlling persons not having actual or potential
differing interests with the Initial Purchaser or among themselves, which firm
shall be designated in writing by Smith Barney Inc., and that all such fees and
expenses shall be reimbursed as they are incurred. The Company shall not be
liable for any settlement of any such action, suit or proceeding effected
without its written consent, but if settled with such written consent, or if
there be a final judgment for the plaintiff in any such action, suit or
proceeding, the indemnifying parties agree to indemnify and hold harmless the
Initial Purchaser, to the extent provided in paragraph (a), and any such
controlling person from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
(c) The Initial Purchaser agrees to indemnify and hold harmless the
Company, its directors and officers and any person who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to the Initial
Purchaser set forth in paragraph (a) hereof, but only with respect to
information relating to the Initial Purchaser furnished in writing to the
Company by or on behalf of the Initial Purchaser expressly for use in the
Preliminary Offering Memorandum or Offering Memorandum or any amendment
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<PAGE> 13
or supplement thereto. If any action, suit or proceeding shall be brought
against the Company, any of its directors or officers, or any such controlling
person based on the Preliminary Offering Memorandum or Offering Memorandum, or
any amendment or supplement thereto, and in respect of which indemnity may be
sought against the Initial Purchaser pursuant to this paragraph (c), the Initial
Purchaser shall have the rights and duties given to the Company by paragraph (b)
above (except that if the Company shall have assumed the defense thereof the
Initial Purchaser shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the Initial Purchaser's expense), and the
Company, its directors and officers, and any such controlling person shall have
the rights and duties given to the Initial Purchaser by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which the
Initial Purchaser may otherwise have.
(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Initial Purchaser on the other hand from the
offering of the Offered Securities, or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the Initial
Purchaser on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Initial Purchaser on the other hand shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total discounts
and commissions received by the Initial Purchaser, in each case as set forth in
the table on the cover page of the Offering Memorandum. The relative fault of
the Company on the one hand and the Initial Purchaser on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or by the Initial Purchaser on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company and the Initial Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 6 were determined by
a pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 6, the Initial
Purchaser shall not be required to contribute any amount in excess of the amount
by which the total price of the Offered Securities purchased and resold by it as
contemplated hereby exceeds the amount of any damages which the Initial
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
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<PAGE> 14
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 6 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 6 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of the Initial Purchaser or any person
controlling the Initial Purchaser, the Company, its directors or officers or any
person controlling the Company, (ii) acceptance of any Offered Securities and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to the Initial Purchaser or any person controlling the Initial
Purchaser, or to the Company, its directors or officers or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 6.
7. Conditions of the Initial Purchaser's Obligations. The obligation
of the Initial Purchaser to purchase the Offered Securities hereunder are
subject to the following conditions:
(a) At the time of execution of this Agreement and on the Closing
Date, no order or decree preventing the use of the Offering Memorandum or any
amendment or supplement thereto, or any order asserting that the transactions
contemplated by this Agreement are subject to the registration requirements of
the Act shall have been issued and no proceedings for that purpose shall have
been commenced or shall be pending or, to the knowledge of the Company, be
contemplated. No stop order suspending the sale of the Offered Securities in any
jurisdiction designated by the Initial Purchaser shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending or,
to the knowledge of the Company, shall be contemplated.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the financial condition, business, net worth, or results
of operations of the Company or the Subsidiaries not contemplated by the
Offering Memorandum, which in the opinion of the Initial Purchaser, would
materially, adversely affect the market for the Offered Securities, or (ii) any
event or development relating to or involving the Company or any of the
Subsidiaries, or any officer or director of the Company or any of the
Subsidiaries, which makes any statement made in the Offering Memorandum untrue
in any material respect or which, in the opinion of the Company and its counsel
or the Initial Purchaser and its counsel, requires the making of any addition to
or change in the Offering Memorandum in order to state a material fact required
by any law to be stated therein or necessary in order to make the statements
therein not misleading, if amending or supplementing the Offering Memorandum to
reflect such event or development would, in the opinion of the Initial
Purchaser, materially, adversely affect the market for the Offered Securities.
(c) You shall have received on the Closing Date an opinion of
Milbank, Tweed, Hadley & McCloy, special counsel for the Company, dated the
Closing Date and addressed to you, that:
(i) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum (and any amendment
or supplement thereto);
(ii) Each Subsidiary is a corporation duly incorporated and
validly existing and in good standing under the laws of the jurisdiction of its
organization, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum (and any amendment or supplement thereto);
(iii) The authorized capital stock of the Company is as set
forth under the caption "Capitalization" in the Offering Memorandum;
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<PAGE> 15
(iv) The Company has the corporate power and authority to
enter into this Agreement and the Registration Rights Agreement and to issue,
sell and deliver the Offered Securities to be sold by it to the Initial
Purchaser as provided herein, and this Agreement and the Registration Rights
Agreement have been duly authorized, executed and delivered by the Company and
are valid, legal and binding agreements of the Company, enforceable against the
Company in accordance with their terms, except (A) as enforcement of rights to
indemnity and contribution hereunder and thereunder may be limited by Federal or
state securities laws or principles of public policy and (B) subject to the
qualification that the enforceability of the Company's obligations hereunder and
thereunder may be limited by bankruptcy, fraudulent conveyance or transfer,
insolvency, reorganization, moratorium, and other laws relating to or affecting
creditors' rights generally and by general equitable principles;
(v) The Guaranteeing Subsidiaries have all requisite corporate
power and authority to execute, deliver and perform their obligations under the
Registration Rights Agreement; the execution and delivery of, and the
performance by the Guaranteeing Subsidiaries of their obligations under the
Registration Rights Agreement has been duly and validly authorized by the
Guaranteeing Subsidiaries and the Registration Rights Agreement has been duly
executed and delivered by the Guaranteeing Subsidiaries and constitutes the
valid and legally binding agreement of the Guaranteeing Subsidiaries,
enforceable against the Guaranteeing Subsidiaries in accordance with its terms,
except as the enforcement hereof and thereof may be limited by bankruptcy,
fraudulent conveyance or transfer, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
subject to the applicability of general principles of equity, and except as
rights to indemnity and contribution thereunder may be limited by Federal or
state securities laws or principles of public policy.
(vi) The Indenture has been duly and validly authorized,
executed and delivered by the Company and the Guaranteeing Subsidiaries and,
assuming due authorization, execution and delivery by the Trustee, is a valid
and binding agreement of the Company and the Guaranteeing Subsidiaries,
enforceable in accordance with its terms, subject to the qualification that the
enforceability of the obligations of the Company or Guaranteeing Subsidiaries
thereunder may be limited by bankruptcy, fraudulent conveyance or transfer,
insolvency, reorganization, moratorium, and other laws relating to or affecting
creditors' rights generally and by general equitable principles; and no
qualification of the Indenture under the 1939 Act is required in connection with
the offer and sale of the Offered Securities contemplated hereby or in
connection with the Exempt Resales;
(vii) The Notes and the Subsidiary Guarantees have been duly
and validly authorized by the Company or the Guaranteeing Subsidiaries, as the
case may be, and when executed by the Company or the Guaranteeing Subsidiaries,
as the case may be, in accordance with the Indenture and assuming due
authentication of the Notes by the Trustee, upon delivery to the Initial
Purchaser against payment therefor in accordance with the terms hereof, will
have been validly issued and delivered, and will constitute valid and binding
obligations of the Company or the Guaranteeing subsidiaries, as the case may be,
entitled to the benefits of the Indenture and enforceable in accordance with
their terms, subject to the qualification that the enforceability of the
obligations of the Company and the Guaranteeing Subsidiaries thereunder may be
limited by bankruptcy, fraudulent conveyance or transfer, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights generally and by general equitable principles;
(viii) Neither the offer, sale or delivery of the Offered
Securities, the execution, delivery or performance by the Company of this
Agreement, the Registration Rights Agreement or the Indenture, compliance by the
Company with the provisions hereof or thereof nor consummation by the Company of
the transactions contemplated hereby or thereby constitutes or will constitute a
breach or violation of, or a default under the certificate or articles of
incorporation or bylaws or other organizational documents of the Company or any
Subsidiaries or any indenture, bond, note, lease or other agreement or
instrument to which the Company or any of the Subsidiaries is a party or by
which any of them or any of their respective properties is bound that is made an
exhibit to any Incorporated Document or is known to such counsel, or will result
in the creation or imposition of any
15
<PAGE> 16
lien, charge or encumbrance upon any property or assets of the Company or any of
the Subsidiaries under any such indenture bond, note, lease or other agreement
or instrument, nor will any such action result in any violation in any material
respect of any existing law, or any regulation, ruling (assuming compliance with
all applicable state securities and Blue Sky laws and, in the case of the
Registration Rights Agreement, the Act and the Exchange Act and the 1939 Act),
judgment, injunction, order or decree known to such counsel, applicable to the
Company or the Subsidiaries or any of their respective properties;
(ix) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency, or official is required on the part of the
Company or any of the Subsidiaries (except as have been obtained under the
Exchange Act, or such as may be required under state securities or Blue Sky laws
governing the purchase and distribution of the Offered Securities, or such as
may be required to qualify the Indenture under the 1939 Act, and such as may be
required in connection with the performance by the Company of its obligations
under the Registration Rights Agreement, as to which such counsel need not
express an opinion) for the valid issuance and sale of the Offered Securities to
the Initial Purchaser as contemplated by this Agreement;
(x) To the knowledge of such counsel, (A) there are no legal
or governmental proceedings pending or threatened against the Company or any of
the Subsidiaries, or to which the Company or any of the Subsidiaries, or any of
their property, are subject, which are not disclosed in the Offering Memorandum
and which could reasonably be expected to have a Material Adverse Effect and (B)
there are no agreements, contracts, indentures, leases or other instruments that
are required to be filed as an exhibit to any Incorporated Document that are not
filed as required;
(xi) The statements in the Offering Memorandum, insofar as
they are descriptions of contracts, agreements or other legal documents, or
refer to statements of law or legal conclusions, are accurate in all material
respects and present fairly the information shown;
(xii) When the Offered Securities are issued and delivered
pursuant to this Agreement, such Offered Securities will not be of the same
class (within the meaning of Rule 144A(d)(3) under the Act) as any security of
the Company that is listed on a national securities exchange registered under
Section 6 of the Exchange Act or that is quoted in a United States automated
interdealer quotation system;
(xiii) No registration of the Offered Securities under the Act
is required for the sale of the Offered Securities to the Initial Purchaser as
contemplated in this Agreement or for the Exempt Resales (assuming (A) that any
Eligible Purchaser who buys the Offered Securities in the Exempt Resales is a
Qualified Institutional Buyer and (B) the accuracy of the Initial Purchaser's
representations and those of the Company in this Agreement regarding the absence
of general solicitation in connection with the Exempt Resales); and
(xiv) The Company is not required to deliver the information
specified in Rule 144A(d)(4) in connection with the offering and resale of the
Offered Securities by the Initial Purchaser;
In addition, such counsel shall state that although such counsel has
not undertaken, except as otherwise indicated in their opinion, to determine
independently, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Offering Memorandum, such
counsel has participated in the preparation of the Offering Memorandum,
including review and discussion of the contents thereof, and has reviewed the
Incorporated Documents, and, nothing has come to the attention of such counsel
that has caused them to believe that the Offering Memorandum, as of its date and
as of the Closing Date contained an untrue
16
<PAGE> 17
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or that any amendment
or supplement to the Offering Memorandum, as of its respective date, and as of
the Closing Date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and the notes thereto and the
schedules and other financial, accounting and statistical data included or
incorporated by reference in the Offering Memorandum and information furnished
by or on behalf of the Initial Purchaser).
The opinion of such counsel shall be limited to the laws of the
United States, the State of New York and the General Corporation Law of the
State of Delaware.
(d) You shall have received on the Closing Date an opinion
of Richard S. Kolodny, Esq., General Counsel of the Company, dated the
Closing Date and addressed to you, that:
(i) The Company is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify would not have a Material Adverse Effect;
(ii) Each Subsidiary is duly registered and qualified to conduct its
business and is in good standing as a foreign corporation in each
jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify or to be in good standing would not have
a Material Adverse Effect; and all the outstanding shares of capital stock
of each of the Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and are owned of record by the Company
(with the exception of Everest & Jennings de Mexico S.A. de C.V.)
directly, or indirectly through one of the other Subsidiaries, free and
clear of any perfected security interest or, to such counsel's knowledge,
any other lien, adverse claim, equity or other encumbrance, except as
disclosed in the Offering Memorandum (or any amendment or supplement
thereto);
(iii) To the knowledge of such counsel, neither the Company nor any
of the Subsidiaries is in violation of its certificate of incorporation or
bylaws, or other organizational documents, or in default in the
performance of any material obligation, agreement or condition contained
in any bond, debenture, note or other evidence of indebtedness, or in any
agreement, indenture, lease or other instrument to which the Company or
any of the Subsidiaries is a party or by which any of them or any of their
respective properties may be bound, in each case that is made an exhibit
to any Incorporated Document or is known to such counsel;
(iv) To the knowledge of such counsel, neither the Company nor any
of the Subsidiaries is in violation of any law, ordinance, administrative
or governmental rule or regulation applicable to the Company or any of the
Subsidiaries, the violation of which could reasonably be expected to have
a Material Adverse Effect, or of any decree of any court or governmental
agency or body having jurisdiction over the Company or any of the
Subsidiaries; and to the knowledge of such counsel, each of the Company
and the Subsidiaries has all necessary Permits (except where the failure
to so have any such Permits, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect) to own its
properties and to conduct its business as now being conducted as described
in the Offering Memorandum;
The opinion of such counsel shall be limited to the laws of the United States,
the State of New York and the General Corporation Law of the State of Delaware.
(e) You shall have received on the Closing Date an opinion of Dewey
Ballantine, counsel for the Initial Purchaser, dated the Closing Date, and
addressed to you, with respect to the matters referred to in clauses (iv), (vi),
(vii), (xiii) and the penultimate paragraph of the foregoing paragraph (c) and
such other related matters as the Initial Purchaser may request.
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<PAGE> 18
(f) You shall have received letters addressed to the Initial
Purchaser, and dated the date hereof and the Closing Date from Ernst & Young
LLP, independent certified public accountants, substantially in the forms
heretofore approved by the Initial Purchaser.
(g)(i) There shall not have been any material change in the capital
stock of the Company nor any material increase in the short-term or long-term
debt of the Company and the Subsidiaries, taken as a whole, from that set forth
or contemplated in the Offering Memorandum (or any amendment or supplement
thereto); (ii) there shall not have been, since the respective dates as of which
information is given in the Offering Memorandum (or any amendment or supplement
thereto), except as may otherwise be stated in the Offering Memorandum (or any
amendment or supplement thereto), any material adverse change in the financial
condition, business, net worth or results of operations of the Company and the
Subsidiaries, taken as a whole; (iii) the Company and the Subsidiaries shall not
have any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Company and the
Subsidiaries, taken as a whole, other than those reflected in the Offering
Memorandum or the Incorporated Documents (or any amendment or supplement
thereto); and (iv) all the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
on and as of the date hereof and on and as of the Closing Date as if made on and
as of the Closing Date, and the Initial Purchaser shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief accounting officer of the Company (or such other officers as are
reasonably acceptable to the Initial Purchaser), to the effect set forth in this
Section 7(g) and in Section 7(h) hereof.
(h) The Company shall not have failed in any material respect at or
prior to the Closing Date to have performed or complied with any of its
agreements herein contained and required to be performed or complied with by it
hereunder at or prior to the Closing Date.
(i) The Initial Purchaser shall have received certificates dated the
date hereof and the Closing Date signed by the chief financial officer of the
Company substantially in the forms heretofore approved by the Initial Purchaser,
respecting the Company's compliance with the financial covenants set forth in
the Company's Credit Agreement with IBJ Schroder Bank & Trust Company.
(j) There shall not have been any announcement by any "nationally
recognized statistical rating organization," as defined for purposes of Rule
436(g) under the Act, that (i) it is downgrading its rating assigned to any
class of securities of the Company, or (ii) it is reviewing its ratings assigned
to any class of securities of the Company with a view to possible downgrading,
or with negative implications, or direction not determined.
(k) The Offered Securities shall have been approved for trading on
PORTAL.
(l) The Company and the Guaranteeing Subsidiaries shall have
executed and delivered the Indenture and the Registration Rights Agreement.
(m) The Company shall have furnished or caused to be furnished to
the Initial Purchaser such further certificates and documents as the Initial
Purchaser shall have reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Initial Purchaser and counsel for the
Initial Purchaser.
Any certificate or document signed by any officer of the Company and
delivered to the Initial Purchaser, or to counsel for the Initial Purchaser,
shall be deemed a representation and warranty by the Company to the Initial
Purchaser as to the statements made therein.
8. Expenses. The Company agrees to pay the following costs and
expenses and all
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<PAGE> 19
other costs and expenses incident to the performance by it of its obligations
hereunder: (i) the preparation, printing or reproduction of the Offering
Memorandum (including financial statements thereto), and each amendment or
supplement thereto; (ii) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and packaging) of such
copies of the Offering Memorandum, the Preliminary Offering Memorandum, the
Incorporated Documents, and all amendments or supplements to any of them as may
be reasonably requested for use in connection with the offering and sale of the
Offered Securities; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Offered Securities, including any stamp
taxes in connection with the original issuance and sale of the Offered
Securities; (iv) the printing (or reproduction) and delivery of this Agreement,
the Indenture, the Registration Rights Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Offered
Securities; (v) the application for quotation of the Offered Securities on
PORTAL; (vi) the qualification of the Offered Securities for offer and sale
under the securities or Blue Sky laws of the several states as provided in
Section 4(f) hereof (including the reasonable fees, expenses and disbursements
of counsel for the Initial Purchaser relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such qualification); (vii) the performance by the Company of its
obligations under the Registration Rights Agreement; (viii) the fees and
expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company; and (ix) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers of
the Offered Securities. The Company hereby agrees that it will pay in full on
the Closing Date the fees and expenses referred to in clause (vi) of this
Section 8 by delivering to counsel for the Initial Purchaser on such date a
check payable to such counsel in the requisite amount.
9. Effective Date of Agreement. This Agreement shall become
effective upon the execution and delivery hereof by all the parties hereto.
10. Termination of Agreement. This Agreement shall be subject to
termination in the absolute discretion of the Initial Purchaser, without
liability on the part of the Initial Purchaser to the Company, by notice to the
Company, if prior to the Closing Date (i) trading in securities generally on the
New York Stock Exchange, American Stock Exchange or the Nasdaq National Market
shall have been suspended or materially limited, (ii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or state authorities, or (iii) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis or
change in political, financial or economic conditions, the effect of which on
the financial markets of the United States is such as to make it, in the
judgment of the Initial Purchaser, impracticable or inadvisable to commence or
continue the offering of the Offered Securities on the terms set forth on the
cover page of the Offering Memorandum or to enforce contracts for the resale of
the Offered Securities by the Initial Purchaser. Notice of such termination may
be given to the Company by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
11. Information Furnished by the Initial Purchaser. The statements
set forth in the stabilization legend on the inside front cover, the last
paragraph on the cover page and in the second, third, sixth and seventh
paragraphs under the caption "Plan of Distribution" in the Preliminary Offering
Memorandum and Offering Memorandum, constitute the only information furnished by
or on behalf of the Initial Purchaser as such information is referred to in
Sections 5(b) and 6 hereof.
12. Miscellaneous. Except as otherwise provided in Sections 4 and 9
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 400 Rabro Drive East, Hauppage, New York 11788, Attention: General
Counsel, with a copy to Milbank, Tweed, Hadley & McCloy, One Chase Manhattan
Plaza, New York, New York 10005, Attention: Robert Reder, Esq. or (ii) if to the
Initial Purchaser, to Smith Barney Inc., 388 Greenwich Street, New York, NY
10013, Attention: Manager, Investment Banking Division, with a copy to Dewey
Ballantine, 1301 Avenue of the Americas, New York, NY 10019, Attention:
Frederick W. Kanner, Esq.
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<PAGE> 20
This Agreement has been and is made solely for the benefit of the
Initial Purchaser, the Company, its directors, its officers and the controlling
persons referred to in Section 6 hereof and their respective successors and
assigns, to the extent provided herein, and no other person shall acquire or
have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from the Initial Purchaser of any of the Offered
Securities in his status as such purchaser.
13. Applicable Law; Counterparts. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed within the State of New York without
giving effect to the choice of laws or conflict of laws principles thereof.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
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<PAGE> 21
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Initial Purchaser.
Very truly yours,
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By:________________________________________
Name:
Title:
Confirmed as of the date first
above mentioned.
SMITH BARNEY INC.
By:______________________________
Name:
Title:
21
<PAGE> 22
SCHEDULE I
ACTIVE SUBSIDIARIES
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
---- ----------------------
<S> <C>
Everest & Jennings Canadian Ltd. Canada
Everest & Jennings de Mexico S.A. de C.V. Mexico
Everest & Jennings, Inc. California
Graham-Field Bandage, Inc. Rhode Island
Graham-Field Distribution, Inc. Missouri
Graham-Field Express, Inc. Delaware
Graham-Field Express (Dallas), Inc. Delaware
Graham-Field Express (Puerto Rico), Inc. Delaware
Graham-Field, Inc. New York
Graham-Field Temco, Inc. New Jersey
Kuschall of America, Inc. California
LaBac Systems, Inc. Colorado
</TABLE>
22
<PAGE> 1
EXHIBIT 2.1
[COMPOSITE]
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GRAHAM-FIELD HEALTH PRODUCTS, INC.
GFHP ACQUISITION CORP.,
AND
FUQUA ENTERPRISES, INC.
DATED AS OF SEPTEMBER 5, 1997,
AS AMENDED AS OF
SEPTEMBER 29, 1997
<PAGE> 2
TABLE OF CONTENTS
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PARTIES............................................................................. A-5
PREAMBLE............................................................................ A-5
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger....................................................................... A-5
1.2 Time and Place of Closing.................................................... A-5
1.3 Effective Time............................................................... A-5
ARTICLE 2
TERMS OF MERGER
2.1 Charter...................................................................... A-6
2.2 Bylaws....................................................................... A-6
2.3 Directors and Officers....................................................... A-6
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares......................................................... A-6
3.2 Anti-Dilution Provisions..................................................... A-7
3.3 Shares Held by Target or Buyer............................................... A-7
3.4 Fractional Shares............................................................ A-7
3.5 Stock Options................................................................ A-8
ARTICLE 4
Exchange of Shares
4.1 Exchange Procedures.......................................................... A-8
4.2 Rights of Former Target Stockholders......................................... A-9
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF TARGET
5.1 Organization, Standing, and Power............................................ A-9
5.2 Authority of Target; No Breach By Agreement.................................. A-10
5.3 Capital Stock................................................................ A-10
5.4 Target Subsidiaries.......................................................... A-11
5.5 SEC Filings; Financial Statements............................................ A-11
5.6 Absence of Undisclosed Liabilities........................................... A-12
5.7 Absence of Certain Changes or Events......................................... A-12
5.8 Tax Matters.................................................................. A-12
5.9 Assets....................................................................... A-13
5.10 Intellectual Property........................................................ A-14
5.11 Environmental Matters........................................................ A-14
5.12 Compliance with Laws......................................................... A-15
5.13 Labor Relations.............................................................. A-15
5.14 Employee Benefit Plans....................................................... A-15
5.15 Material Contracts........................................................... A-17
5.16 Legal Proceedings............................................................ A-17
5.17 Reports...................................................................... A-17
5.18 Statements True and Correct.................................................. A-17
5.19 Tax and Regulatory Matters................................................... A-18
5.20 State Takeover Laws.......................................................... A-18
</TABLE>
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5.21 Charter Provisions........................................................... A-18
5.22 Opinion of Financial Advisor................................................. A-18
5.23 Affiliate Transactions....................................................... A-18
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
6.1 Organization, Standing, and Power............................................ A-19
6.2 Authority; No Breach By Agreement............................................ A-19
6.3 Capital Stock................................................................ A-19
6.4 Buyer Subsidiaries........................................................... A-20
6.5 SEC Filings; Financial Statements............................................ A-20
6.6 Absence of Undisclosed Liabilities........................................... A-21
6.7 Absence of Certain Changes or Events......................................... A-21
6.8 Tax Matters.................................................................. A-21
6.9 Assets....................................................................... A-22
6.10 Intellectual Property........................................................ A-22
6.11 Environmental Matters........................................................ A-23
6.12 Compliance With Laws......................................................... A-23
6.13 Labor Relations.............................................................. A-23
6.14 Employee Benefit Plans....................................................... A-23
6.15 Material Contracts........................................................... A-25
6.16 Legal Proceedings............................................................ A-25
6.17 Reports...................................................................... A-25
6.18 Statements True and Correct.................................................. A-25
6.19 Authority of Sub............................................................. A-26
6.20 Tax and Regulatory Matters................................................... A-26
6.21 Rights Agreement............................................................. A-26
6.22 Affiliate Transactions....................................................... A-26
6.23 Vote Required................................................................ A-27
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Target.............................................. A-27
7.2 Negative Covenants of Target................................................. A-27
7.3 Covenants of Buyer........................................................... A-28
7.4 Adverse Changes in Condition................................................. A-29
7.5 Reports...................................................................... A-30
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Stockholder Approval................ A-30
8.2 Exchange Listing............................................................. A-31
8.3 Applications; Antitrust Notification......................................... A-31
8.4 Filings with State Offices................................................... A-31
8.5 Agreement as to Efforts to Consummate........................................ A-31
8.6 Investigation and Confidentiality............................................ A-31
8.7 Press Releases............................................................... A-32
8.8 No Solicitations, etc........................................................ A-32
8.9 Tax Treatment................................................................ A-32
8.10 State Takeover Laws.......................................................... A-32
8.11 Agreement of Affiliates...................................................... A-32
8.12 Employee Benefits and Contracts.............................................. A-32
</TABLE>
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8.13 Indemnification.............................................................. A-33
8.14 Related Party Contracts and Transactions..................................... A-34
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party...................................... A-34
9.2 Conditions to Obligations of Buyer........................................... A-35
9.3 Conditions to Obligations of Target.......................................... A-35
ARTICLE 10
TERMINATION
10.1 Termination.................................................................. A-36
10.2 Effect of Termination........................................................ A-37
10.3 Non-Survival of Representations and Covenants................................ A-37
ARTICLE 11
MISCELLANEOUS
11.1 Definitions.................................................................. A-37
11.2 Expenses..................................................................... A-43
11.3 Brokers and Finders.......................................................... A-43
11.4 Entire Agreement............................................................. A-43
11.5 Amendments................................................................... A-43
11.6 Waivers...................................................................... A-43
11.7 Assignment................................................................... A-44
11.8 Notices...................................................................... A-44
11.9 Governing Law................................................................ A-45
11.10 Counterparts................................................................. A-45
11.11 Captions; Articles and Sections.............................................. A-45
11.12 Interpretations.............................................................. A-45
11.13 Severability................................................................. A-45
11.14 Enforcement of Agreement..................................................... A-45
SIGNATURES............................................................................. A-45
</TABLE>
4
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of September 5, 1997, as amended as of September 29, 1997, by and among
GRAHAM-FIELD HEALTH PRODUCTS, INC. ("Buyer"), a Delaware corporation; GFHP
ACQUISITION CORP. ("Sub"), a Delaware corporation; and FUQUA ENTERPRISES, INC.
("Target"), a Delaware corporation.
PREAMBLE
The respective Boards of Directors of Target, Sub and Buyer are of the
opinion that the transactions described herein are in the best interests of the
parties to this Agreement and their respective stockholders. This Agreement
provides for the acquisition of Target by Buyer pursuant to the merger of Sub
with and into Target. At the effective time of such merger, the outstanding
shares of the capital stock of Target shall be converted into the right to
receive shares of the common stock of Buyer (except as provided herein). As a
result, stockholders of Target shall become stockholders of Buyer and Target
shall continue immediately following such merger to conduct its business and
operations as a wholly owned subsidiary of Buyer. The transactions described in
this Agreement are subject to the approvals of the stockholders of Target, the
stockholders of Buyer, expiration of the required waiting period under the HSR
Act, and the satisfaction of certain other conditions described in this
Agreement. It is the intention of the parties to this Agreement that the Merger
for federal income tax purposes shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code.
In consideration of the transactions contemplated hereby and in order to
induce the parties to enter into this Agreement, BIL (Far East Holdings)
Limited, BIL Securities (Offshore) Ltd., Fuqua Holdings I, L.P., J. Rex Fuqua,
J.B. Fuqua, The J.B. Fuqua Foundation, Inc., The Jennifer Calhoun Fuqua Trust
and The Lauren Brooks Fuqua Trust have concurrently with the execution and
delivery of this Agreement executed and delivered to Buyer a Stockholders
Agreement in the form attached hereto as Annex-B. Additionally, in consideration
of the transactions contemplated hereby and in order to induce the parties to
enter into this Agreement, Gene J. Minotto has concurrently with the execution
and delivery of this Agreement executed and delivered to Buyer a Voting
Agreement in the form attached hereto as Annex C.
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties agree
as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, Sub shall be merged with and into Target in accordance with the
provisions of Section 251 of the DGCL and with the effect provided in Section
251 of the DGCL (the "Merger"). Target shall be the Surviving Corporation
resulting from the Merger and shall become a wholly owned Subsidiary of Buyer
and shall continue to be governed by the Laws of the State of Delaware. The
Merger shall be consummated pursuant to the terms of this Agreement, which has
been approved and adopted by the respective Boards of Directors of Target, Sub
and Buyer and by Buyer, as the sole stockholder of Sub.
1.2 Time and Place of Closing. The closing of the transactions
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties,
acting through their authorized officers, may mutually agree. The Closing shall
be held at such location as may be mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated by this
Agreement shall become effective on the date and at the time the Certificate of
Merger reflecting the Merger shall become effective
5
<PAGE> 6
with the Secretary of State of the State of Delaware (the "Effective Time").
Subject to the terms and conditions hereof, unless otherwise mutually agreed
upon in writing by the authorized officers of each Party, the Parties shall use
their reasonable efforts to cause the Effective Time to occur on the first
business day following the last to occur of (i) the effective date (including
expiration of any applicable waiting period) of the last required Consent of any
Regulatory Authority having authority over and approving or exempting the
Merger, and (ii) the date on which the stockholders of Target and Buyer approve
this Agreement to the extent such approval is required by applicable Law.
ARTICLE 2
TERMS OF MERGER
2.1 Charter. The Certificate of Incorporation of Target in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended or repealed;
provided that such Certificate of Incorporation shall be amended to reflect that
the name of the Surviving Corporation shall be "Lumex/Basic American Holdings,
Inc."
2.2 Bylaws. The Bylaws of Target in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until duly
amended or repealed.
2.3 Directors and Officers. The directors of Sub in office immediately
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the directors of the Surviving Corporation
from and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation. The officers of Sub in office immediately prior to the Effective
Time, together with such additional persons as may thereafter be elected, shall
serve as the officers of the Surviving Corporation from and after the Effective
Time in accordance with the Bylaws of the Surviving Corporation.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of Buyer, Target, Sub or the stockholders of any of the foregoing, the shares of
the constituent corporations shall be converted as follows:
(a) Each share of capital stock of Buyer issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of Sub Common Stock issued and outstanding immediately
prior to the Effective Time shall cease to be outstanding and shall be
converted into one share of Target Common Stock.
(c) Each share of Target Common Stock (excluding shares held by any
Target Entity or any Buyer Entity) issued and outstanding immediately prior
to the Effective Time shall cease to be outstanding and shall be converted
into and exchanged for the right to receive 2.1 shares of Buyer Common
Stock (the "Base Exchange Ratio" and, subject to the provisions of the
remainder of this sentence, the "Exchange Ratio"); provided, that, in the
event that the Average Closing Price shall be greater than $17.6190 (the
"Upper Threshold Price"), the Exchange Ratio shall equal that multiple of a
share of Buyer Common Stock (rounded to the nearest ten thousandth of a
share) obtained by dividing the product of the Base Exchange Ratio and the
Upper Threshold Price by the Average Closing Price; provided further, that
in the event that the Average Closing Price shall be less than $13.5714
(the "Lower Threshold Price"), the Exchange Ratio shall equal that multiple
of a share of Buyer Common Stock (rounded to the nearest ten thousandth of
a share) obtained by dividing the product of the Base Exchange Ratio and
the Lower Threshold Price by the Average Closing Price. For purposes of
this Agreement, "Average Closing Price" is defined to mean the average of
the daily closing prices for the shares of Buyer Common Stock for the ten
(10) consecutive trading days on which such shares are actually traded on
the NYSE (as reported by The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Buyer)
6
<PAGE> 7
ending at the close of trading on the second trading day immediately
preceding the Closing Date). Pursuant to the Buyer Rights Agreement, each
share of Buyer Common Stock issued in connection with the Merger upon
conversion of Target Common Stock shall be accompanied by a Buyer Right.
3.2 Anti-Dilution Provisions. In the event Buyer changes the number of
shares of Buyer Common Stock issued and outstanding prior to the Effective Time
as a result of a stock split, stock dividend, or similar recapitalization with
respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the Exchange Ratio shall be proportionately adjusted. In the
event Buyer changes the number of shares of Buyer Common Stock issued and
outstanding prior to the Effective Time as a result of a stock split, stock
dividend, or similar recapitalization with respect to such stock and the record
date therefor (in the case of a stock dividend) or the effective date thereof
(in the case of a stock split or similar recapitalization for which a record
date is not established) shall be after the Exchange Ratio has been determined
in accordance with Section 3.1(c) and prior to the Effective Time, the Exchange
Ratio shall be proportionately adjusted. In the event Buyer changes the number
of shares of Buyer Common Stock issued and outstanding prior to the Effective
Time as a result of a stock split, stock dividend, or similar recapitalization
with respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the date on which the Exchange Ratio is determined in accordance with Section
3.1(c), (i) the Average Closing Price Limitations shall be adjusted to
appropriately adjust the ratio under which shares of Target Common Stock will be
converted into shares of Buyer Common Stock pursuant to Section 3.1(c), and (ii)
if necessary, the anticipated Effective Time shall be postponed for an
appropriate period of time agreed upon by the parties in order for the Average
Closing Price to reflect the market effect of such stock split, stock dividend,
or similar recapitalization.
3.3 Shares Held by Target or Buyer. Each of the shares of Target Common
Stock held by any Target Entity or by any Buyer Entity shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
3.4 Fractional Shares. (a) No certificate or scrip representing fractional
shares of Buyer Common Stock to which holders of Target Common Stock would
otherwise be entitled pursuant to this Agreement will be issued in the Merger
upon the surrender for exchange of certificates representing shares of Target
Common Stock, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Buyer.
(b) As promptly as practicable following the Effective Time, the Exchange
Agent (as defined in Section 4.1) shall determine the aggregate number of whole
shares of Buyer Common Stock represented by fractional shares of Buyer Common
Stock to which holders of Target Common Stock would be entitled but for the
provisions of paragraph (a) of this Section 3.4 (such number of shares being
herein called the "Excess Shares"). As soon after the Effective Time as
practicable, the Exchange Agent, as agent for the holders of Target Common
Stock, shall sell the Excess Shares at then prevailing prices on the NYSE, all
in the manner provided in paragraph (c) of this Section 3.4.
(c) The sale of the Excess Shares by the Exchange Agent shall be executed
on the NYSE through a member firm of the NYSE and shall be executed in round
lots to the extent practicable. Until the net proceeds of such sale or sales
have been distributed to the holders of Target Common Stock, the Exchange Agent
will hold such proceeds in trust for the holders of Target Common Stock (the
"Common Stock Trust"). Buyer shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including the expenses and compensation of the
Exchange Agent , incurred in connection with such sale of the Excess Shares. In
addition, Buyer shall pay the Exchange Agent's compensation and expenses in
connection with such sale. The Exchange Agent shall determine the portion of the
Common Stock Trust to which each holder of Target Common Stock shall be
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Common Stock Trust by a fraction, the numerator of which is the
amount of the fractional share interest to which such holder of Target Common
Stock is entitled and the denominator of which is the aggregate amount of
fractional share interests to which all holders of Target Common Stock are
entitled.
7
<PAGE> 8
(d) As soon as practicable after the determination of the amount of cash to
be paid to holders of Target Common Stock in lieu of any fractional share
interests in accordance with the immediately preceding paragraph, the Exchange
Agent shall make available such amounts to such holders of Target Common Stock
in a manner consistent with paragraphs (b) and (c) of this Section 3.4
3.5 Stock Options. (a) At the Effective Time, each option or other right
to purchase shares of Target Common Stock pursuant to stock options ("Target
Options") granted by Target under the Target Stock Plans, which are outstanding
at the Effective Time, whether or not exercisable, shall be converted into and
become rights with respect to Buyer Common Stock, and Buyer shall assume each
Target Option, in accordance with the terms of the Target Stock Plan and stock
option agreement by which it is evidenced, except that from and after the
Effective Time, (i) Buyer and its Compensation Committee shall be substituted
for Target and the Committee of Target's Board of Directors (including, if
applicable, the entire Board of Directors of Target) administering such Target
Stock Plan, (ii) each Target Option assumed by Buyer may be exercised solely for
shares of Buyer Common Stock, (iii) the number of shares of Buyer Common Stock
subject to such Target Option shall be equal to the number of shares of Target
Common Stock subject to such Target Option immediately prior to the Effective
Time multiplied by the Exchange Ratio (as the same may have been adjusted in
accordance with Section 3.2) and (iv) the per share exercise price under each
such Target Option shall be adjusted by dividing the per share exercise price
under each such Target Option by the Exchange Ratio (as the same may have been
adjusted in accordance with Section 3.2) and rounding up to the nearest cent. In
addition, notwithstanding the provisions of clauses (iii) and (iv) of the first
sentence of this Section 3.5, with respect to each Target Option which is an
"incentive stock option" Buyer shall take no action that would constitute a
modification, extension, or renewal of the option, within the meaning of Section
424(h) of the Internal Revenue Code.
(b) As soon as practicable after the Effective Time, Buyer shall deliver to
the participants in each Target Stock Plan an appropriate notice setting forth
such participant's rights pursuant thereto and the grants pursuant to such
Target Stock Plan shall continue in effect on the same terms and conditions
(subject to the adjustments required by Section 3.5(a) after giving effect to
the Merger), and Buyer shall comply with the terms of each Target Stock Plan to
ensure, to the extent required by, and subject to the provisions of, such Target
Stock Plan, that Target Options which qualified as incentive stock options prior
to the Effective Time continue to qualify as incentive stock options after the
Effective Time. At or prior to the Effective Time, Buyer shall take all
corporate action necessary to reserve for issuance sufficient shares of Buyer
Common Stock for delivery upon exercise of Target Options assumed by it in
accordance with this Section 3.5. As soon as practicable after the Effective
Time, Buyer shall file a registration statement on Form S-8 (or any successor or
other appropriate form), with respect to the shares of Buyer Common Stock
subject to such options and shall use its reasonable efforts to maintain the
effectiveness of such registration statements (and maintain the current status
of the prospectus or prospectuses with respect thereto) for so long as such
options remain outstanding.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, Buyer and
Target shall cause the exchange agent selected by Buyer (the "Exchange Agent")
to mail to each holder of record of a certificate or certificates which
represented shares of Target Common Stock immediately prior to the Effective
Time (the "Certificates") appropriate transmittal materials and instructions
(which shall specify that delivery shall be effected, and risk of loss and title
to such Certificates shall pass, only upon proper delivery of such Certificates
to the Exchange Agent). The Certificate or Certificates of Target Common Stock
so delivered shall be duly endorsed as the Exchange Agent may require. In the
event of a transfer of ownership of shares of Target Common Stock represented by
Certificates that are not registered in the transfer records of Target, the
consideration provided in Section 3.1 may be issued to a transferee if the
Certificates representing such shares are delivered to the Exchange Agent,
accompanied by all documents required to evidence such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes have
been paid. If any
8
<PAGE> 9
Certificate shall have been lost, stolen, mislaid or destroyed, upon receipt of
(i) an affidavit of that fact from the holder claiming such Certificate to be
lost, mislaid, stolen or destroyed, (ii) such bond, security or indemnity as
Buyer and the Exchange Agent may reasonably require and (iii) any other
documents necessary to evidence and effect the bona fide exchange thereof, the
Exchange Agent shall issue to such holder the consideration into which the
shares represented by such lost, stolen, mislaid or destroyed Certificate shall
have been converted. The Exchange Agent may establish such other reasonable and
customary rules and procedures in connection with its duties as it may deem
appropriate. After the Effective Time, each holder of shares of Target Common
Stock (other than shares to be canceled pursuant to Section 3.3) issued and
outstanding at the Effective Time shall surrender the Certificate or
Certificates representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the consideration provided
in Section 3.1, together with all undelivered dividends or distributions in
respect of such shares (without interest thereon) pursuant to Section 4.2. Buyer
shall not be obligated to deliver the consideration to which any former holder
of Target Common Stock is entitled as a result of the Merger until such holder
surrenders such holder's Certificate or Certificates for exchange as provided in
this Section 4.1. Any other provision of this Agreement notwithstanding, neither
Buyer, the Surviving Corporation nor the Exchange Agent shall be liable to a
holder of Target Common Stock for any amounts paid or property delivered in good
faith to a public official pursuant to any applicable abandoned property,
escheat or similar Law. Adoption of this Agreement by the stockholders of Target
shall constitute ratification of the appointment of the Exchange Agent.
4.2 Rights of Former Target Stockholders. At the Effective Time, the stock
transfer books of Target shall be closed as to holders of Target Common Stock
immediately prior to the Effective Time and no transfer of Target Common Stock
by any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 4.1, each Certificate
theretofore representing shares of Target Common Stock (other than shares to be
canceled pursuant to Section 3.3) shall from and after the Effective Time
represent for all purposes only the right to receive the consideration provided
in Sections 3.1 and 3.4 in exchange therefor, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which have been declared or made
by Target in respect of such shares of Target Common Stock in accordance with
the terms of this Agreement and which remain unpaid at the Effective Time. To
the extent permitted by Law, former stockholders of record of Target shall be
entitled to vote after the Effective Time at any meeting of Buyer stockholders
the number of whole shares of Buyer Common Stock into which their respective
shares of Target Common Stock are converted, regardless of whether such holders
have exchanged their Certificates for certificates representing Buyer Common
Stock in accordance with the provisions of this Agreement. Whenever a dividend
or other distribution is declared by Buyer on the Buyer Common Stock, the record
date for which is at or after the Effective Time, the declaration shall include
dividends or other distributions on all shares of Buyer Common Stock issuable
pursuant to this Agreement, but beginning six months after the Effective Time no
dividend or other distribution payable to the holders of record of Buyer Common
Stock as of any time subsequent to the Effective Time shall be delivered to the
holder of any Certificate until such holder surrenders such Certificate for
exchange as provided in Section 4.1. However, upon surrender of such
Certificate, both the Buyer Common Stock certificate (together with all such
undelivered dividends or other distributions without interest) and any
undelivered dividends and cash payments payable hereunder (without interest)
shall be delivered and paid with respect to each share represented by such
Certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants to Buyer as follows:
5.1 Organization, Standing, and Power. Target is a corporation duly
incorporated, validly existing, and in good standing under the Laws of the State
of Delaware, and has the corporate power and authority to carry on its business
as now conducted and to own, lease and operate its material Assets. Target is
duly qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and
9
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foreign jurisdictions where the character of its Assets or the nature or conduct
of its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Target Material
Adverse Effect. The minute books and other organizational documents for Target
have been made available to Buyer for its review and, except as disclosed in
Section 5.1 of the Target Disclosure Memorandum, are true and complete in all
material respects as in effect as of the date of this Agreement and accurately
reflect in all material respects all amendments thereto and all proceedings of
the Board of Directors and stockholders thereof.
5.2 Authority of Target; No Breach by Agreement. (a) Target has the
corporate power and authority necessary to execute, deliver, and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated herein, including the Merger, have
been duly and validly authorized by all necessary corporate action in respect
thereof on the part of Target, subject to the adoption of this Agreement by the
holders of a majority of the outstanding shares of Target Common Stock, which is
the only stockholder vote required for approval of this Agreement and
consummation of the Merger by Target. This Agreement has been duly executed and
delivered by Target and, subject to such requisite stockholder approval, this
Agreement represents a legal, valid, and binding obligation of Target,
enforceable against Target in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
(b) Neither the execution and delivery of this Agreement by Target, nor the
consummation by Target of the transactions contemplated hereby, nor compliance
by Target with any of the provisions hereof, will (i) conflict with or result in
a breach of any provision of Target's Certificate of Incorporation or Bylaws or
the certificate or articles of incorporation or bylaws of any Target Subsidiary
or any resolution adopted by the board of directors or the stockholders of any
Target Entity, or (ii) except as disclosed in Section 5.2 of the Target
Disclosure Memorandum, constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any Asset of any
Target Entity under, any Contract or Permit of any Target Entity, where such
Default or Lien, or any failure to obtain such Consent, is reasonably likely to
have, individually or in the aggregate, a Target Material Adverse Effect, or,
(iii) subject to receipt of the requisite Consents referred to in Section
9.1(b), constitute or result in a Default under, or require any Consent pursuant
to, any Law or Order applicable to any Target Entity or any of their respective
Assets where such Default, or any failure to obtain such Consent is reasonably
likely to have, individually or in the aggregate, a Target Material Adverse
Effect.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NYSE, and other than Consents required from Regulatory Authorities as
described in Section 5.2 of the Target Disclosure Memorandum, and other than
notices to or filings with the Internal Revenue Service or the Pension Benefit
Guaranty Corporation with respect to any employee benefit plans, or under the
HSR Act, and other than Consents, filings, or notifications which, if not
obtained or made, are not reasonably likely to have, individually or in the
aggregate, a Target Material Adverse Effect, no notice to, filing with, or
Consent of, any public body or authority is necessary for the consummation by
Target of the Merger and the other transactions contemplated in this Agreement.
5.3 Capital Stock. (a) The authorized capital stock of Target consists of
(i) 20,000,000 shares of Target Common Stock, par value $2.50 per share, of
which 4,482,709 shares are issued and outstanding as of the date of this
Agreement and not more than 5,055,109 shares will be issued and outstanding at
the Effective Time, and (ii) 8,000,000 shares of preferred stock, par value
$1.00 per share, none of which are issued and outstanding. All of the issued and
outstanding shares of capital stock of Target are duly and validly issued and
outstanding and are fully paid and nonassessable under the DGCL. None of the
outstanding shares of capital stock of Target has been issued in violation of
any preemptive rights of the current or past stockholders of Target.
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(b) Except as set forth in Section 5.3(a), or as disclosed in Section 5.3
of the Target Disclosure Memorandum, there are no shares of capital stock or
other equity securities of Target outstanding and no outstanding Equity Rights
relating to the capital stock of Target, and all shares of Target Common Stock
issuable upon the exercise or conversion of such outstanding Equity Rights will,
when so issued, be duly and validly issued and outstanding and fully paid and
nonassessable under the DGCL.
5.4 Target Subsidiaries. Target has disclosed in Section 5.4 of the Target
Disclosure Memorandum all of the Target Subsidiaries that are corporations
(identifying its jurisdiction of incorporation, each jurisdiction in which it is
qualified and/or licensed to transact business, and the number of shares owned
and percentage ownership interest represented by such share ownership) and all
of the Target Subsidiaries that are general or limited partnerships, limited
liability companies, or other non-corporate entities (identifying the Law under
which such entity is organized, each jurisdiction in which it is qualified
and/or licensed to transact business, and the amount and nature of the ownership
interest therein). Except as disclosed in Section 5.4 of the Target Disclosure
Memorandum, Target or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock (or other equity interests) of each Target
Subsidiary. No capital stock (or other equity interest) of any Target Subsidiary
is or may become required to be issued (other than to another Target Entity) by
reason of any Equity Rights, and there are no Contracts by which any Target
Subsidiary is bound to issue (other than to another Target Entity) additional
shares of its capital stock (or other equity interests) or Equity Rights or by
which any Target Entity is or may be bound to transfer any shares of the capital
stock (or other equity interests) of any Target Subsidiary (other than to
another Target Entity). Except as disclosed in Section 5.4 of the Target
Disclosure Memorandum, there are no Contracts relating to the rights of any
Target Entity to vote or to dispose of any shares of the capital stock (or other
equity interests) of any Target Subsidiary. All of the shares of capital stock
(or other equity interests) of each Target Subsidiary held by a Target Entity
are fully paid and nonassessable under the applicable corporation Law of the
jurisdiction in which such Subsidiary is incorporated or organized and are owned
by the Target Entity free and clear of any Lien. Except as disclosed in Section
5.4 of the Target Disclosure Memorandum, each Target Subsidiary is a
corporation, and each such Subsidiary is duly incorporated, validly existing,
and (as to corporations) in good standing under the Laws of the jurisdiction in
which it is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease, and operate its Assets and to carry on its
business as now conducted. Each Target Subsidiary is duly qualified or licensed
to transact business as a foreign corporation in good standing in the States of
the United States and foreign jurisdictions where the character of its Assets or
the nature or conduct of its business requires it to be so qualified or
licensed, except for such jurisdictions in which the failure to be so qualified
or licensed is not reasonably likely to have, individually or in the aggregate,
a Target Material Adverse Effect. The minute books and other organizational
documents for each Target Subsidiary have been made available to Buyer for its
review, and, except as disclosed in Section 5.4 of the Target Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
stockholders thereof.
5.5 SEC Filings; Financial Statements. (a) Except as disclosed in Section
5.5 of the Target Disclosure Memorandum, Target has timely filed and made
available to Buyer all SEC Documents required to be filed by Target since
December 31, 1993 (the "Target SEC Reports"). The Target SEC Reports (i) at the
time filed, complied in all material respects with the applicable requirements
of the Securities Laws and other applicable Laws and (ii) did not, at the time
they were filed (or, if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated in such
Target SEC Reports or necessary in order to make the statements in such Target
SEC Reports, in light of the circumstances under which they were made, not
misleading; provided, that any pro forma financial statements contained in the
Target SEC Reports are not necessarily indicative of the consolidated financial
position of the Target Entities as of the respective dates thereof and the
consolidated results of operations and cash flows of the Target Entities for the
periods indicated. No Target Subsidiary is required to file any SEC Documents.
(b) Each of the Target Financial Statements (including, in each case, any
related notes) contained in the Target SEC Reports, including any Target SEC
Reports filed after the date of this Agreement until the
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Effective Time, complied as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited interim statements, as permitted by Form 10-Q of
the SEC), and fairly presented in all material respects the consolidated
financial position of Target and its Subsidiaries as at the respective dates and
the consolidated results of operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount or effect and that any pro forma financial statements
contained in the Target SEC Reports are not necessarily indicative of the
consolidated financial position of the Target Entities as of the respective
dates thereof and the consolidated results of operations and cash flows of the
Target Entities for the periods indicated.
5.6 Absence of Undisclosed Liabilities. Except as disclosed in Section 5.6
of the Target Disclosure Memorandum, no Target Entity has any Liabilities that
are reasonably likely to have, individually or in the aggregate, a Target
Material Adverse Effect, other than Liabilities or allowances which are
disclosed or accrued or reserved against in the consolidated balance sheets of
Target as of December 31, 1996 and June 30, 1997, included in the Target
Financial Statements delivered prior to the date of this Agreement or reflected
in the notes thereto. Except as disclosed in Section 5.6 of the Target
Disclosure Memorandum, no Target Entity has incurred or paid any Liability since
June 30, 1997, except for such Liabilities incurred or paid (i) in the ordinary
course of business consistent with past business practice and which are not
reasonably likely to have, individually or in the aggregate, a Target Material
Adverse Effect or (ii) in connection with the transactions contemplated by this
Agreement. Except as disclosed in Section 5.6 of the Target Disclosure
Memorandum, no Target Entity is directly or indirectly liable, by guarantee,
indemnity, or otherwise, upon or with respect to, or obligated, by discount or
repurchase agreement or in any other way, to provide funds in respect to, or
obligated to guarantee or assume any Liability of any Affiliate (other than
another Target Entity) for any amount, individually or in the aggregate, in
excess of $100,000.
5.7 Absence of Certain Changes or Events. Since June 30, 1997, except as
disclosed in the Target Financial Statements delivered prior to the date of this
Agreement or as disclosed in Section 5.7 of the Target Disclosure Memorandum,
(a) there have been no events, changes, or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Target Material
Adverse Effect, (b) the Target Entities have conducted their respective
businesses only in the ordinary course consistent with past practice and (c)
none of the Target Entities has taken any action which, if taken after the date
hereof, would constitute a breach of any provision of Section 7.2.
5.8 Tax Matters. (a) All Tax Returns required to be filed by or on behalf
of any of the Target Entities have been timely filed or requests for extensions
have been timely filed, granted, and have not expired for periods ended on or
before December 31, 1996, except to the extent that all such failures to file,
taken together, are not reasonably likely to have a Target Material Adverse
Effect, and all Tax Returns filed are complete and accurate in all material
respects, or except as disclosed in Section 5.8 of the Target Disclosure
Memorandum. All Taxes shown on filed Tax Returns have been paid. As of the date
of this Agreement, there is no audit examination, deficiency, or refund
Litigation with respect to any Taxes that is reasonably likely to result in a
determination that would have, individually or in the aggregate, a Target
Material Adverse Effect, except as reserved against in the Target Financial
Statements delivered prior to the date of this Agreement or as disclosed in
Section 5.8 of the Target Disclosure Memorandum. The applicable statutes of
limitations with respect to Target's federal income Tax Returns have expired
through December 31, 1992. All Taxes and other Liabilities due with respect to
completed and settled examinations or concluded Litigation have been paid. There
are no Liens with respect to Taxes upon any of the Assets of the Target
Entities, except for any such Liens which are not reasonably likely to have a
Target Material Adverse Effect.
(b) Except as disclosed in Section 5.8 of the Target Disclosure Memorandum,
none of the Target Entities has executed an extension or waiver of any statute
of limitations on the assessment or collection of any Tax due (excluding such
statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
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(c) The provision for any Taxes due or to become due for any of the Target
Entities for the period or periods through and including the date of the
respective Target Financial Statements that has been made and is reflected on
such Target Financial Statements is sufficient to cover all such Taxes.
(d) Deferred Taxes of the Target Entities have been provided for in
accordance with GAAP.
(e) Except as disclosed in Section 5.8 of the Target Disclosure Memorandum,
since March 27, 1989, and to the Knowledge of Target prior to March 27, 1989,
none of the Target Entities is a party to any Tax allocation or sharing
agreement and none of the Target Entities has been a member of an affiliated
group filing a consolidated federal income Tax Return (other than a group the
common parent of which was Target), has any Liability for Taxes of any Person
(other than Target and its Subsidiaries) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign Law) as a
transferee or successor or by Contract or otherwise.
(f) Except as disclosed in Section 5.8 of the Target Disclosure Memorandum,
each of the Target Entities is in compliance with, and its records contain all
information and documents (including properly completed IRS Forms W-9) necessary
to comply with, all applicable information reporting and Tax withholding
requirements under federal, state, and local Tax Laws, and such records identify
with specificity all accounts subject to backup withholding under Section 3406
of the Internal Revenue Code, except for such instances of noncompliance and
such omissions as are not reasonably likely to have, individually or in the
aggregate, a Target Material Adverse Effect.
(g) Except as disclosed in Section 5.8 of the Target Disclosure Memorandum,
none of the Target Entities has made any payments, is obligated to make any
payments, or is a party to any Contract that could obligate it to make any
payments that would be disallowed as a deduction under Section 280G or 162(m) of
the Internal Revenue Code.
(h) Except as disclosed in Section 5.8 of the Target Disclosure Memorandum,
there has not been an ownership change, as defined in Internal Revenue Code
Section 382(g), of the Target Entities that occurred during or after any Taxable
Period in which the Target Entities incurred a net operating loss that carries
over to any Taxable Period ending after December 31, 1996.
(i) Except as disclosed in Section 5.8 of the Target Disclosure Memorandum,
no Target Entity has or has had in any foreign country a permanent
establishment, as defined in any applicable tax treaty or convention between the
United States and such foreign country.
5.9 Assets. (a) Except as disclosed in Section 5.9 of the Target
Disclosure Memorandum or as disclosed or reserved against in the Target
Financial Statements delivered prior to the date of this Agreement, the Target
Entities have good and marketable title, free and clear of all Liens, to all of
their respective Assets, except for any such Liens or other defects of title
which are not reasonably likely to have a Target Material Adverse Effect.
(b) All items of inventory of the Target Entities reflected on the most
recent balance sheet included in the Target Financial Statements delivered prior
to the date of this Agreement and prior to the Effective Time, except as
reserved for in the Target Financial Statements, consisted and will consist, as
applicable, of items of a quality and quantity usable and saleable in the
ordinary course of business and conform to generally accepted standards in the
industry in which the Target Entities are a part.
(c) The accounts receivable of the Target Entities as set forth on the most
recent balance sheet included in the Target Financial Statements delivered prior
to the date of this Agreement or arising since the date thereof are valid and
genuine; have arisen solely out of bona fide sales and deliveries of goods,
performance of services and other business transactions in the ordinary course
of business consistent with past practice; are not subject to valid defenses,
set-offs or counterclaims; and are collectible at the full recorded amount
thereof less, in the case of accounts receivable appearing on the most recent
balance sheet included in the Target Financial Statements delivered prior to the
date of this Agreement, the recorded allowance for collection losses, returns
and allowances on such balance sheet. The allowance for collection losses on
such balance sheet has been determined in accordance with GAAP.
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(d) The Target Entities currently maintain insurance similar in amounts,
scope, and coverage as Target believes is adequate to conduct its business.
Except as disclosed in Section 5.9 of the Target Disclosure Memorandum, there
are presently no claims for amounts exceeding in any individual case $250,000
pending under such policies of insurance and no notices of claims in excess of
such amounts have been given by any Target Entity under such policies.
(e) The Assets of the Target Entities include all Assets required to
operate the businesses of the Target Entities as presently conducted.
5.10 Intellectual Property. Except as disclosed in Section 5.10 of the
Target Disclosure Memorandum, (i) each Target Entity owns or has a valid and
binding license to use all of the Intellectual Property used by such Target
Entity in the course of its business, (ii) each Target Entity is the owner of or
has a valid and binding license to any Intellectual Property sold or licensed to
a third party by such Target Entity in connection with such Target Entity's
business operations, and such Target Entity has the right to convey by sale or
license any Intellectual Property so conveyed and (iii) no Target Entity is in
Default under any of its Intellectual Property licenses and no proceedings have
been instituted, or are pending or to the Knowledge of Target threatened, which
challenge the rights of any Target Entity with respect to Intellectual Property
used, sold or licensed by such Target Entity in the course of its business, nor
to the Knowledge of Target has any person claimed or alleged any rights to such
Intellectual Property, except for any failure to own or license, Default or
proceeding which is not reasonably likely to have a Target Material Adverse
Effect. All Intellectual Property owned by a Target Entity is owned free and
clear of any Liens, and none of such Intellectual Property is subject to any
outstanding Order or Contract restricting the scope of the use thereof, and
there are no claims or demands of any other Person pertaining to Intellectual
Property owned or used by any Target Entity or any license with respect thereto,
and no actions or proceedings, judicial or administrative or otherwise, have
been instituted, are pending or, to the Knowledge of Target, are threatened
which challenge or affect the rights of any Target Entity in respect thereof,
except for any Liens, Orders, Contracts, claims, demands, actions or proceedings
which are not reasonably likely to have a Target Material Adverse Effect. Except
as disclosed in Section 5.10 of the Target Disclosure Memorandum, to the
Knowledge of Target, the conduct of the business of the Target Entities does not
infringe any Intellectual Property of any other person. Except as disclosed in
Section 5.10 of the Target Disclosure Memorandum, no Target Entity is obligated
to pay any recurring royalties to any Person with respect to any such
Intellectual Property.
5.11 Environmental Matters. (a) Each Target Entity and its Operating
Properties are, and have been, in compliance with all Environmental Laws, except
for violations which are not reasonably likely to have, individually or in the
aggregate, a Target Material Adverse Effect or except as disclosed in Section
5.11 of the Target Disclosure Memorandum.
(b) Except as disclosed in Section 5.11 of the Target Disclosure
Memorandum, there is no Litigation pending or, to the Knowledge of Target,
threatened before any court, governmental agency, or authority or other forum in
which any Target Entity or any of its Operating Properties (or Target in respect
of such Operating Property) has been or, with respect to threatened Litigation,
may be named as a defendant (nor to the Knowledge of Target are there any facts
or circumstances reasonably likely to give rise to any such Litigation) (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release, discharge, spillage, or disposal into the
environment of any Hazardous Material, whether or not occurring at, on, under,
adjacent to, or affecting (or potentially affecting) a site owned, leased, or
operated by any Target Entity or any of its Operating Properties, except for
such Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a Target Material Adverse Effect.
(c) Except as disclosed in Section 5.11 of the Target Disclosure
Memorandum, during the period of (i) any Target Entity's ownership or operation
of any of their respective current properties, (ii) any Target Entity's
participation in the management of a Participation Facility or (iii) any Target
Entity's holding of a security interest in an Operating Property there have been
no releases, discharges, spillages, or disposals of Hazardous Material in, on,
under, adjacent to, or affecting (or potentially affecting) any property owned
by a
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Target Entity, except such as are not reasonably likely to have, individually or
in the aggregate, a Target Material Adverse Effect.
(d) Each of the Target Entities has obtained all licenses, permits,
authorizations, approvals and consents from Regulatory Authorities which are
required under any applicable Environmental Law in respect of its business or
operations ("Environmental Permits") and each of such Environmental Permits is
in full force and effect, except for such failures to have Environmental Permits
which, individually or in the aggregate, could not reasonably be expected to
have a Target Material Adverse Effect and each of the Target Entities is in
compliance with the terms and conditions of all such Environmental Permits,
except for such failure to be in compliance which, individually or in the
aggregate, is not reasonably likely to have a Target Material Adverse Effect.
5.12 Compliance With Laws. Each Target Entity has in effect all Permits
necessary for it to own, lease, or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a Target Material
Adverse Effect, and there has occurred no Default under any such Permit, other
than Defaults which are not reasonably likely to have, individually or in the
aggregate, a Target Material Adverse Effect. Except as disclosed in Section 5.12
of the Target Disclosure Memorandum, none of the Target Entities:
(a) is in Default under any of the provisions of its Certificate of
Incorporation or Bylaws (or other governing instruments); or
(b) is in Default under any Laws, Orders, or Permits applicable to its
business or employees conducting its business, except for Defaults which
are not reasonably likely to have, individually or in the aggregate, a
Target Material Adverse Effect.
5.13 Labor Relations. Except as disclosed in Section 5.13 of the Target
Disclosure Memorandum, no Target Entity is the subject of any Litigation
asserting that it or any other Target Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other Target Entity to bargain with
any labor organization as to wages or conditions of employment, nor is any
Target Entity party to any collective bargaining agreement, nor is there any
strike involving any Target Entity, pending or threatened, or to the Knowledge
of Target, is there any activity involving any Target Entity's employees seeking
to certify a collective bargaining unit or engaging in any other organization
activity.
5.14 Employee Benefit Plans. (a) Target has disclosed in Section 5.14 of
the Target Disclosure Memorandum, and has delivered or made available to Buyer
prior to the execution of this Agreement copies in each case of, all pension,
retirement, profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus, or other incentive plan, all other
written employee programs, arrangements, or agreements, all medical, vision,
dental, or other health plans, all life insurance plans, and all other employee
benefit plans or fringe benefit plans, including "employee benefit plans" as
that term is defined in Section 3(3) of ERISA, and any related trust agreements,
service provider agreements, insurance contracts or agreements with investment
managers, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any Target Entity or ERISA Affiliate thereof for the benefit
of employees, retirees, dependents, spouses, directors, independent contractors,
or other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "Target Benefit Plans"). Any of the Target
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "Target ERISA
Plan." Each Target ERISA Plan which is also a "defined benefit plan" (as defined
in Section 414(j) of the Internal Revenue Code) is referred to herein as a
"Target Pension Plan." No Target Pension Plan is or has been a multi-employer
plan within the meaning of Section 3(37) of ERISA. Target has also delivered or
made available to Buyer prior to the execution of this Agreement, with respect
to each Target Benefit Plan maintained by any Target Entity, copies of (i) the
current summary plan description (and/or any similar description), (ii) the most
recent Form 5500 series filing and schedules thereto, if such plan is subject to
ERISA reporting requirements, (iii) the most recent determination of the
Internal Revenue Service with respect to the qualified status of such plan, if
Section 401(a) of the Internal Revenue Code applies to such
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plan, (iv) the most recent accounting with respect to such plan if funded
through a trust, and (v) the most recent actuarial report of the qualified
actuary of such plan if actuarial valuations are conducted in respect of such
plan.
(b) Except as disclosed in Section 5.14 of the Target Disclosure
Memorandum, all Target Benefit Plans are in compliance with the applicable terms
of ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a Target Material Adverse Effect. Each Target ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received or has filed for a favorable determination letter from the Internal
Revenue Service, and Target is not aware of any circumstances likely to result
in revocation or denial of any such favorable determination letter. To the
Knowledge of Target, no Target Entity has engaged in a transaction with respect
to any Target Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject any Target Entity to a Tax imposed
by either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA
in amounts which are reasonably likely to have, individually or in the
aggregate, a Target Material Adverse Effect.
(c) No Target Entity currently maintains a Target Pension Plan. Neither any
Target Pension Plan nor any "single-employer plan," within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any Target
Entity, or the single-employer plan of any entity which is considered one
employer with Target under Section 4001 of ERISA or Section 414 of the Internal
Revenue Code or Section 302 of ERISA (whether or not waived) (an "ERISA
Affiliate") has an "accumulated funding deficiency" within the meaning of
Section 412 of the Internal Revenue Code or Section 302 of ERISA, which is
reasonably likely to have a Target Material Adverse Effect. Except as disclosed
in Section 5.14 of the Target Disclosure Memorandum, other than routine claims
for benefits, there are no pending or, to the Knowledge of Target, threatened
claims by or on behalf of any Target Benefit Plan, by any person covered
thereby, or otherwise, which allege violations of Law which could reasonably be
expected to result in a Target Material Adverse Effect, nor are there any
ongoing Internal Revenue Service, U.S. Department of Labor or other agency
audits or investigations of any Target Benefit Plans.
(d) Within the six-year period preceding the Effective Time, no Liability
under Subtitle C or D of Title IV of ERISA has been or is expected to be
incurred by any Target Entity with respect to any ongoing, frozen, or terminated
single-employer plan or the single-employer plan of any ERISA Affiliate, which
Liability is reasonably likely to have a Target Material Adverse Effect.
(e) Except as disclosed in Section 5.14 of the Target Disclosure
Memorandum, no Target Entity has any Liability for retiree health and life
benefits under any of the Target Benefit Plans which Liability is reasonably
likely to have a Target Material Adverse Effect.
(f) Except as disclosed in Section 5.14 of the Target Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any Target Entity
from any Target Entity under any Target Benefit Plan or otherwise, (ii) increase
any benefits otherwise payable under any Target Benefit Plan, or (iii) result in
any acceleration of the time of payment or vesting of any such benefit, where
such payment, increase, or acceleration is reasonably likely to have,
individually or in the aggregate, a Target Material Adverse Effect.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any Target Entity and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the Target Financial Statements to the extent
required by and in accordance with GAAP. No Target Entity is in Default in
performing any of its contractual obligations under any Target Benefit Plan or
any related trust agreement or insurance contract or its obligations under an
agreement with any Regulatory Authority, except for such Defaults which are not
reasonably likely to have a Target Material Adverse Effect. Except as disclosed
in Section 5.14 of the Target Disclosure Memorandum,
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no employer securities, employer real property or other employer property is
included in the assets of any funded Target Benefit Plan.
5.15 Material Contracts. Except as disclosed in Section 5.15 of the Target
Disclosure Memorandum or as set forth in the Target SEC Reports, none of the
Target Entities, nor any of their respective Assets, businesses, or operations,
is a party to, or is bound or affected by, or receives benefits under, (i) any
employment, severance, termination, consulting, or retirement Contract providing
for aggregate payments to any Person in any calendar year in excess of $50,000,
(ii) any Contract relating to the borrowing of money by any Target Entity or the
guarantee by any Target Entity of any such obligation (other than Contracts
evidencing trade payables and Contracts relating to borrowings or guarantees
made in the ordinary course of business), (iii) any Contract which prohibits or
restricts any Target Entity from engaging in any business activities in any
geographic area, line of business or otherwise in competition with any other
Person, (iv) any Contract between or among Target Entities, (v) any Contract
involving Intellectual Property (other than Contracts entered into in the
ordinary course with customers and "shrink-wrap" software licenses), (vi) any
Contract relating to the purchase or sale of any goods or services (other than
Contracts entered into in the ordinary course of business and involving payments
under any individual Contract not in excess of $250,000 per year), and (vii) any
other Contract or amendment thereto that would be required to be filed as an
exhibit to a Form 10-K filed by Target with the SEC as of the date of this
Agreement (together with all Contracts referred to in Section 5.14(a), the
"Target Contracts"). With respect to each Target Contract and except as
disclosed in Section 5.15 of the Target Disclosure Memorandum: (i) the Contract
is in full force and effect; (ii) no Target Entity is in Default thereunder,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Target Material Adverse Effect; (iii) no Target Entity has
repudiated or waived any material provision of any such Contract; and (iv) no
other party to any such Contract is, to the Knowledge of Target, in Default in
any respect, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Target Material Adverse Effect, or has
repudiated or waived any material provision thereunder. Except as disclosed in
Section 5.15 of the Target Disclosure Memorandum, all of the indebtedness of any
Target Entity for money borrowed in excess of $100,000 in any single instrument,
is prepayable at any time by such Target Entity without penalty or premium.
5.16 Legal Proceedings. There is no Litigation instituted or pending, or,
to the Knowledge of Target, threatened against any Target Entity, or against any
director, employee or employee benefit plan of any Target Entity, or against any
Asset, interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Target Material Adverse Effect, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any Target Entity, that are reasonably likely
to have, individually or in the aggregate, a Target Material Adverse Effect.
5.17 Reports. Since January 1, 1994, or the date of organization if later,
each Target Entity has timely filed all reports and statements, together with
any amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities (except for failures to file which are not
reasonably likely to have, individually or in the aggregate, a Target Material
Adverse Effect). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied with all applicable Laws, except where the failure to comply is not
reasonably likely to have a Target Material Adverse Effect. As of its respective
date, each such report and document did not contain any untrue statement of a
fact or omit to state a fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading, except for such untrue statements or omissions which are
not reasonably likely to have a Target Material Adverse Effect.
5.18 Statements True and Correct. No statement or certificate furnished or
to be furnished by any Target Entity to Buyer pursuant to this Agreement or any
other document referred to herein contains or will contain any untrue statement
of material fact or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the information supplied or to be supplied by any Target
Entity for inclusion in the Joint Proxy Statement to be mailed to each Party's
stockholders in connection with the Stockholders' Meetings, and any other
documents to be filed by a Target Entity with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at the
respective time such documents are filed, and with respect to
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the Joint Proxy Statement, when first mailed to the stockholders of Target and
Buyer, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Joint Proxy Statement or any amendment thereof or supplement thereto, at the
time of the Stockholders' Meetings, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meetings. All documents that any Target Entity is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material respects
with the provisions of applicable Law.
5.19 Tax and Regulatory Matters. No Target Entity or, to Target's
Knowledge, any Affiliate thereof has taken or agreed or failed to take any
action and Target does not have any Knowledge of any fact or circumstance that
is reasonably likely to (i) prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.1(b) or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
5.20 State Takeover Laws. Each Target Entity has taken all necessary
action to exempt the transactions contemplated by this Agreement from, or if
necessary to challenge the validity or applicability of, any applicable
"moratorium," "fair price," "business combination," "control share," or other
anti-takeover Laws (collectively, "Takeover Laws"), including Section 203 of the
DGCL.
5.21 Charter Provisions. Each Target Entity has taken all action so that
the entering into of this Agreement and the consummation of the Merger and the
other transactions contemplated by this Agreement do not and will not result in
the grant of any rights to any Person under the Certificate of Incorporation,
Bylaws or other governing instruments of any Target Entity or restrict or impair
the ability of Buyer or any of its Subsidiaries to vote, or otherwise to
exercise the rights of a stockholder with respect to, shares of any Target
Entity that may be directly or indirectly acquired or controlled by them.
5.22 Opinion of Financial Advisor. Target has received the opinion of
Donaldson, Lufkin & Jenrette Securities Corporation, dated the date of this
Agreement, to the effect that the Exchange Ratio is fair, from a financial point
of view, to such holders, a signed copy of which has been delivered to Buyer.
5.23 Affiliate Transactions. Except as disclosed in Section 5.23 of the
Target Disclosure Memorandum, (i) there is no indebtedness outstanding between
any Target Entity, on the one hand, and any Affiliate of any Target Entity, on
the other hand, (ii) no Affiliate of any Target Entity provides or causes to be
provided any assets, services or facilities to any Target Entity, (iii) no
Target Entity provides or causes to be provided any assets, services or
facilities to any Affiliate of any Target Entity and (iv) no Target Entity
beneficially owns, directly or indirectly, any Investment Assets (as defined
below) issued by any Affiliate of any Target Entity (other than another Target
Entity). Except as disclosed in Section 5.23 of the Target Disclosure
Memorandum, each of the transactions disclosed thereon was incurred or engaged
in, as the case may be, on an arm's-length basis and, since December 31, 1996,
all settlements of liabilities between any Target Entity, on the one hand, and
any Affiliate of any Target Entity (other than another Target Entity), on the
other hand, have been made in the ordinary course of business consistent with
past practice. For purposes hereof, the term "Investment Assets" shall mean
debentures, notes and other evidences of indebtedness, stocks, securities
(including rights to purchase and securities convertible into or exchangeable
for other securities), interests in joint ventures and general and limited
partnerships, mortgage loans and other investment or portfolio assets.
ARTICLE 6
Representations and Warranties of Buyer
Buyer hereby represents and warrants to Target as follows:
6.1 Organization, Standing, and Power. Buyer is a corporation duly
incorporated, validly existing, and in good standing under the Laws of the State
of Delaware, and has the corporate power and authority to carry
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on its business as now conducted and to own, lease and operate its material
Assets. Buyer is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Buyer Material
Adverse Effect.
6.2 Authority; No Breach By Agreement. a) Buyer has the corporate power
and authority necessary to execute, deliver and perform its obligations under
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Buyer, subject to the approval of the issuance of the shares of Buyer
Common Stock pursuant to the Merger by a majority of the votes cast at the Buyer
Stockholders' Meeting (assuming for such purpose that the votes cast in respect
of such proposal represent a majority of the outstanding Buyer Common Stock),
which is the only stockholder vote required for approval of this Agreement and
consummation of the merger by Buyer. This Agreement has been duly executed and
delivered by Buyer, and subject to such requisite stockholder approval, this
Agreement represents a legal, valid, and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
(b) Neither the execution and delivery of this Agreement by Buyer, nor the
consummation by Buyer of the transactions contemplated hereby, nor compliance by
Buyer with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of Buyer's Certificate of Incorporation or Bylaws, or
(ii) constitute or result in a Default under, or require any Consent pursuant
to, or result in the creation of any Lien on any Asset of any Buyer Entity
under, any Contract or Permit of any Buyer Entity, where such Default or Lien,
or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Buyer Material Adverse Effect, or, (iii)
subject to receipt of the requisite Consents referred to in Section 9.1(b),
constitute or result in a Default under, or require any Consent pursuant to, any
Law or Order applicable to any Buyer Entity or any of their respective Assets
where such Default, or any failure to obtain such Consent is reasonably likely
to have, individually or in the aggregate, in a Buyer Material Adverse Effect.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NYSE, and other than Consents required from Regulatory Authorities as
described in Section 6.2 of the Buyer Disclosure Memorandum, and other than
notices to or filings with the Internal Revenue Service or the Pension Benefit
Guaranty Corporation with respect to any employee benefit plans, or under the
HSR Act, and other than Consents, filings, or notifications which, if not
obtained or made, are not reasonably likely to have, individually or in the
aggregate, a Buyer Material Adverse Effect, no notice to, filing with, or
Consent of, any public body or authority is necessary for the consummation by
Buyer of the Merger and the other transactions contemplated in this Agreement.
6.3 Capital Stock. (a) The authorized capital stock of Buyer consists of
(i) 60,000,000 shares of Buyer Common Stock, par value $0.025 per share, of
which 21,013,117 shares are issued and outstanding as of the date of this
Agreement, and (ii) 1,000,000 shares of Buyer Preferred Stock, par value $.001
per share, of which 7,100 shares are issued and outstanding. All of the issued
and outstanding shares of Buyer Capital Stock are, and all of the shares of
Buyer Common Stock to be issued in exchange for shares of Target Common Stock
upon consummation of the Merger, when issued in accordance with the terms of
this Agreement, will be, duly and validly issued and outstanding and fully paid
and nonassessable under the DGCL. None of the outstanding shares of Buyer
Capital Stock has been, and none of the shares of Buyer Common Stock to be
issued in exchange for shares of Target Common Stock upon consummation of the
Merger will be, issued in violation of any preemptive rights of the current or
past stockholders of Buyer.
(b) Except as set forth in Section 6.3(a), or as provided pursuant to the
Buyer Rights Agreement, or as disclosed in Section 6.3 of the Buyer Disclosure
Memorandum, there are no shares of capital stock or other
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equity securities of Buyer outstanding and no outstanding Equity Rights relating
to the capital stock of Buyer, and all shares of Buyer Common Stock issuable
upon the exercise or conversion of such outstanding Equity Rights will, when so
issued, be duly and validly issued and outstanding and fully paid and
nonassessable under the DGCL.
6.4 Buyer Subsidiaries. Buyer has disclosed in Section 6.4 of the Buyer
Disclosure Memorandum all of the Buyer Subsidiaries as of the date of this
Agreement that are corporations (identifying its jurisdiction of incorporation,
each jurisdiction in which the character of its Assets or the nature or conduct
of its business requires it to be qualified and/or licensed to transact
business, and the number of shares owned and percentage ownership interest
represented by such share ownership) and all of the Buyer Subsidiaries that are
general or limited partnerships or other non-corporate entities (identifying the
Law under which such entity is organized, each jurisdiction in which the
character of its Assets or the nature or conduct of its business requires it to
be qualified and/or licensed to transact business, and the amount and nature of
the ownership interest therein). Except as disclosed in Section 6.4 of the Buyer
Disclosure Memorandum, Buyer or one of its Subsidiaries owns all of the issued
and outstanding shares of capital stock (or other equity interests) of each
Buyer Subsidiary. No capital stock (or other equity interest) of any Buyer
Subsidiary are or may become required to be issued (other than to another Buyer
Entity) by reason of any Equity Rights, and there are no Contracts by which any
Buyer Subsidiary is bound to issue (other than to another Buyer Entity)
additional shares of its capital stock (or other equity interests) or Equity
Rights or by which any Buyer Entity is or may be bound to transfer any shares of
the capital stock (or other equity interests) of any Buyer Subsidiary (other
than to another Buyer Entity). There are no Contracts relating to the rights of
any Buyer Entity to vote or to dispose of any shares of the capital stock (or
other equity interests) of any Buyer Subsidiary. All of the shares of capital
stock (or other equity interests) of each Buyer Subsidiary held by a Buyer
Entity are fully paid and nonassessable under the applicable corporation Law of
the jurisdiction in which such Subsidiary is incorporated or organized and are
owned by the Buyer Entity free and clear of any Lien. Each Buyer Subsidiary is a
corporation, and is duly incorporated, validly existing, and (as to
corporations) in good standing under the Laws of the jurisdiction in which it is
incorporated or organized, and has the corporate power and authority necessary
for it to own, lease and operate its Assets and to carry on its business as now
conducted. Each Buyer Subsidiary is duly qualified or licensed to transact
business as a foreign corporation in good standing in the States of the United
States and foreign jurisdictions where the character of its Assets or the nature
or conduct of its business requires it to be so qualified or licensed, except
for such jurisdictions in which the failure to be so qualified or licensed is
not reasonably likely to have, individually or in the aggregate, a Buyer
Material Adverse Effect.
6.5 SEC Filings; Financial Statements. (a) Buyer has timely filed and made
available to Target all SEC Documents required to be filed by Buyer since
December 31, 1993 (the "Buyer SEC Reports"). The Buyer SEC Reports (i) at the
time filed, complied in all material respects with the applicable requirements
of the Securities Laws and other applicable Laws and (ii) did not, at the time
they were filed (or, if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated in such
Buyer SEC Reports or necessary in order to make the statements in such Buyer SEC
Reports, in light of the circumstances under which they were made, not
misleading; provided, that any pro forma financial statements contained in the
Buyer SEC Reports are not necessarily indicative of the consolidated financial
position of the Buyer Entities as of the respective dates thereof and the
consolidated results of operations and cash flows of the Buyer Entities for the
periods indicated. No Buyer Subsidiary is required to file any SEC Documents.
(b) Each of the Buyer Financial Statements (including, in each case, any
related notes) contained in the Buyer SEC Reports, including any Buyer SEC
Reports filed after the date of this Agreement until the Effective Time,
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly
presented in all material respects the consolidated financial position of Buyer
and its Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated, except that (i) the
unaudited
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interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in amount
or effect and (ii) any pro forma financial statements contained in the Buyer SEC
Reports are not necessarily indicative of the consolidated financial position of
the Buyer Entities as of the respective dates thereof and the consolidated
results of operations and cash flows of the Buyer Entities for the periods
indicated.
6.6 Absence of Undisclosed Liabilities. No Buyer Entity has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Buyer Material Adverse Effect, except Liabilities which are accrued
or reserved against in the consolidated balance sheets of Buyer as of December
31, 1996 and June 30, 1997, included in the Buyer Financial Statements delivered
prior to the date of this Agreement or reflected in the notes thereto. Except as
reflected in the Buyer SEC Reports, no Buyer Entity has incurred or paid any
Liability since June 30, 1997, except for such Liabilities incurred or paid (i)
in the ordinary course of business consistent with past business practice and
which are not reasonably likely to have, individually or in the aggregate, a
Buyer Material Adverse Effect or (ii) in connection with the transactions
contemplated by this Agreement.
6.7 Absence of Certain Changes or Events. Since December 31, 1996, except
as disclosed in the Buyer Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 6.7 of the Buyer Disclosure
Memorandum, (a) there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a Buyer
Material Adverse Effect, (b) the Buyer Entities have conducted their respective
businesses only in the ordinary course consistent with past practice and (c)
none of the Buyer Entities has taken any action which, if taken after the date
hereof, would constitute a breach of any provision of Section 7.3.
6.8 Tax Matters. (a) All Tax Returns required to be filed by or on behalf
of any of the Buyer Entities have been timely filed or requests for extensions
have been timely filed, granted, and have not expired for periods ended on or
before December 31, 1996, except to the extent that all such failures to file,
taken together, are not reasonably likely to have a Buyer Material Adverse
Effect, and all Tax Returns filed are complete and accurate in all material
respects. All Taxes shown on filed Tax Returns have been paid. As of the date of
this Agreement, there is no audit examination, deficiency, or refund Litigation
with respect to any Taxes that is reasonably likely to result in a determination
that would have, individually or in the aggregate, a Buyer Material Adverse
Effect, except as reserved against in the Buyer Financial Statements delivered
prior to the date of this Agreement or as disclosed in Section 6.8 of the Buyer
Disclosure Memorandum. Buyer's federal income Tax Returns have not been audited
for over ten years. All Taxes and other Liabilities due with respect to
completed and settled examinations or concluded Litigation have been paid.
(b) None of the Buyer Entities has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due (excluding
such statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
(c) The provision for any Taxes due or to become due for any of the Buyer
Entities for the period or periods through and including the date of the
respective Buyer Financial Statements that has been made and is reflected on
such Buyer Financial Statements is sufficient to cover all such Taxes.
(d) Deferred Taxes of the Buyer Entities have been provided for in
accordance with GAAP.
(e) None of the Buyer Entities is a party to any Tax allocation or sharing
agreement and none of the Buyer Entities has been a member of an affiliated
group filing a consolidated federal income Tax Return (other than a group the
common parent of which was Buyer) or has any Liability for Taxes of any Person
(other than Buyer and its Subsidiaries) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign Law) as a
transferee or successor or by Contract or otherwise.
6.9 Assets. (a) Except as disclosed in Section 6.9 of the Buyer Disclosure
Memorandum or as disclosed or reserved against in the Buyer Financial Statements
delivered prior to the date of this Agreement, the Buyer Entities have good and
marketable title, free and clear of all Liens, to all of their respective
Assets, except for any such Liens or other defects of title which are not
reasonably likely to have a Buyer Material Adverse Effect.
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(b) All items of inventory of the Buyer Entities reflected on the most
recent balance sheet included in the Buyer Financial Statements delivered prior
to the date of this Agreement and prior to the Effective Time consisted and will
consist, as applicable, of items of a quality and quantity usable and saleable
in the ordinary course of business and conform to generally accepted standards
in the industry in which the Buyer Entities are a part.
(c) The accounts receivable of the Buyer Entities as set forth on the most
recent balance sheet included in the Buyer Financial Statements delivered prior
to the date of this Agreement or arising since the date thereof are valid and
genuine; have arisen solely out of bona fide sales and deliveries of goods,
performance of services and other business transactions in the ordinary course
of business consistent with past practice; are not subject to valid defenses,
set-offs or counterclaims; and are collectible at the full recorded amount
thereof less, in the case of accounts receivable appearing on the most recent
balance sheet included in the Buyer Financial Statements delivered prior to the
date of this Agreement, the recorded allowance for collection losses on such
balance sheet. The allowance for collection losses on such balance sheet has
been determined in accordance with GAAP.
(d) The Buyer Entities currently maintain insurance similar in amounts,
scope and coverage as Buyer believes adequate to conduct its business. Except as
disclosed in Section 6.9 of the Buyer Disclosure Memorandum, there are presently
no claims for amounts exceeding in any individual case $250,000 pending under
such policies of insurance and no notices of claims in excess of such amounts
have been given by any Buyer Entity under such policies.
(e) The Assets of the Buyer Entities include all assets required to operate
the business of the Buyer Entities as presently conducted.
6.10 Intellectual Property. Each Buyer Entity owns or has a valid and
binding license to use all of the Intellectual Property used by such Buyer
Entity in the course of its business. Each Buyer Entity is the owner of or has a
valid and binding license to any Intellectual Property sold or licensed to a
third party by such Buyer Entity in connection with such Buyer Entity's business
operations, and such Buyer Entity has the right to convey by sale or license any
Intellectual Property so conveyed. No Buyer Entity is in Default under any of
its Intellectual Property licenses. No proceedings have been instituted, or are
pending or to the Knowledge of Buyer threatened, which challenge the rights of
any Buyer Entity with respect to Intellectual Property used, sold or licensed by
such Buyer Entity in the course of its business, nor to the Knowledge of Buyer
has any person claimed or alleged any rights to such Intellectual Property,
except for any failure to own or license, Default or proceeding which is not
reasonably likely to have a Buyer Material Adverse Effect. All Intellectual
Property owned by a Buyer Entity is owned free and clear of any Liens, and none
of such Intellectual Property is subject to any outstanding Order or Contract
restricting the scope of the use thereof, and there are no claims or demands of
any other Person pertaining to the Intellectual Property owned or used by any
Buyer Entity or any license with respect thereto, and no actions or proceedings,
judicial or administrative or otherwise, have been instituted, are pending or to
the Knowledge of Buyer are threatened which challenge or affect the rights of
any Buyer Entity in respect thereof, except for any Liens, Orders, Contracts,
claims, demands, actions or proceedings which are not reasonably likely to have
a Buyer Material Adverse Effect. To the Knowledge of Buyer the conduct of the
business of the Buyer Entities does not infringe any Intellectual Property of
any other person. Except as disclosed in Section 6.10 of the Buyer Disclosure
Memorandum, no Buyer Entity is obligated to pay any recurring royalties to any
Person with respect to any such Intellectual Property.
6.11 Environmental Matters. (a) Each Buyer Entity, its Participation
Facilities, and its Operating Properties are, and have been, in compliance with
all Environmental Laws, except for violations which are not reasonably likely to
have, individually or in the aggregate, a Buyer Material Adverse Effect or
except as disclosed in Section 6.11 of the Buyer Disclosure Memorandum.
(b) Except as disclosed in Section 6.11 of the Buyer Disclosure Memorandum,
there is no Litigation pending or, to the Knowledge of Buyer, threatened before
any court, governmental agency, or authority or other forum in which any Buyer
Entity or any of its Operating Properties or Participation Facilities (or Buyer
in respect of such Operating Property or Participation Facility) has been or,
with respect to threatened Litigation, may be named as a defendant (nor, to the
Knowledge of Buyer, are there any facts or
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circumstances reasonably likely to give rise to any such litigation), (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release, discharge, spillage, or disposal into the
environment of any Hazardous Material, whether or not occurring at, on, under,
adjacent to, or affecting (or potentially affecting) a site owned, leased, or
operated by any Buyer Entity or any of its Operating Properties or Participation
Facilities, except for such Litigation pending or threatened that is not
reasonably likely to have, individually or in the aggregate, a Buyer Material
Adverse Effect.
(c) Except as disclosed in Section 6.11 of the Buyer Disclosure Memorandum,
during the period of (i) any Buyer Entity's ownership or operation of any of
their respective current properties, (ii) any Buyer Entity's participation in
the management of any Participation Facility, or (iii) any Buyer Entity's
holding of a security interest in an Operating Property, there have been no
releases, discharges, spillages, or disposals of Hazardous Material in, on,
under, adjacent to, or affecting (or potentially affecting) such properties,
except such as are not reasonably likely to have, individually or in the
aggregate, a Buyer Material Adverse Effect.
(d) Each of the Buyer Entities has obtained all licenses, permits,
authorizations, approvals and consents from Regulatory Authorities which are
required under any applicable Environmental Law in respect of its business or
operations ("Environmental Permits") and each of such Environmental Permits is
in full force and effect, except for such failures to have Environmental Permits
which, individually or in the aggregate, could not reasonably be expected to
have a Buyer Material Adverse Effect and each of the Buyer Entities is in
compliance with the terms and conditions of all such Environmental Permits,
except for such failure to be in compliance which, individually or in the
aggregate, is not reasonably likely to have a Buyer Material dverse Effect.
6.12 Compliance With Laws. Each Buyer Entity has in effect all Permits
necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a Buyer Material
Adverse Effect, and there has occurred no Default under any such Permit, other
than Defaults which are not reasonably likely to have, individually or in the
aggregate, a Buyer Material Adverse Effect. Except as disclosed in Section 6.12
of the Buyer Disclosure Memorandum, none of the Buyer Entities:
(a) is in Default under its Certificate of Incorporation or Bylaws (or
other governing instruments); or
(b) is in Default under any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for Defaults which
are not reasonably likely to have, individually or in the aggregate, a
Buyer Material Adverse Effect.
6.13 Labor Relations. No Buyer Entity is the subject of any Litigation
asserting that it or any other Buyer Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other Buyer Entity to bargain with any
labor organization as to wages or conditions of employment, nor is any Buyer
Entity party to any collective bargaining agreement, nor is there any strike
involving any Buyer Entity, pending or threatened, or to the Knowledge of Buyer,
is there any activity involving any Buyer Entity's employees seeking to certify
a collective bargaining unit or engaging in any other organization activity.
6.14 Employee Benefit Plans. (a) Buyer has delivered or made available to
Target prior to the execution of this Agreement copies in each case of all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including "employee
benefit plans" as that term is defined in Section 3(3) of ERISA, and any related
trust agreements, service provider agreements, insurance contracts or agreements
with investment managers, currently adopted, maintained by, sponsored in whole
or in part by, or contributed to by any Buyer Entity or ERISA Affiliate thereof
for the benefit of employees, retirees, dependents, spouses, directors,
independent contractors, or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "Buyer Benefit
Plans"). Any of the Buyer Benefit
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Plans which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, is referred to herein as a "Buyer ERISA Plan." Each Buyer
ERISA Plan which is also a "defined benefit plan" (as defined in Section 414(j)
of the Internal Revenue Code) is referred to herein as a "Buyer Pension Plan."
No Buyer Pension Plan is or has been a multiemployer plan within the meaning of
Section 3(37) of ERISA. Buyer has also delivered or made available to Target
prior to the execution of this Agreement, with respect to each Buyer Benefit
Plan maintained by any Buyer Entity, copies of (i) the current summary plan
description (and/or any similar description), (ii) the most recent Form 5500
series filing and schedules thereto, if such plan is subject to ERISA reporting
requirement, (iii) the most recent determination of the Internal Revenue Service
with respect to the qualified status of such plan, if Section 401(a) of the
Internal Revenue Code applies to such plan, (iv) the most recent accounting with
respect to such plan if funded through a trust, and (v) the most recent
actuarial report of the qualified actuary of such plan if actuarial valuations
are conducted in respect of such plan.
(b) All Buyer Benefit Plans are in compliance with the applicable terms of
ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a Buyer Material Adverse Effect. Each Buyer ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
Buyer is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. To the Knowledge of Buyer, no Buyer Entity
has engaged in a transaction with respect to any Buyer Benefit Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
would subject any Buyer Entity to a Tax imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are reasonably
likely to have, individually or in the aggregate, a Buyer Material Adverse
Effect.
(c) Except as disclosed in Section 6.14 of the Buyer Disclosure Memorandum,
no Buyer Pension Plan has any "unfunded current liability," as that term is
defined in Section 302(d)(8)(A) of ERISA, based on actuarial assumptions set
forth for such plan's most recent actuarial valuation. Since the date of the
most recent actuarial valuation, there has been (i) no material change in the
financial position of a Buyer Pension Plan, (ii) no change in the actuarial
assumptions with respect to any Buyer Pension Plan, and (iii) no increase in
benefits under any Buyer Pension Plan as a result of plan amendments or changes
in applicable Law which is reasonably likely to have, individually or in the
aggregate, a Buyer Material Adverse Effect or materially adversely affect the
funding status of any such plan. Neither any Buyer Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any Buyer Entity, or the single-employer
plan of any ERISA Affiliate has an "accumulated funding deficiency" within the
meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
which is reasonably likely to have a Buyer Material Adverse Effect. Except as
disclosed in Section 6.14 of the Buyer Disclosure Memorandum, other than routine
claims for benefits, there are no pending or, to the Knowledge of Buyer,
threatened claims by or on behalf of any Buyer Benefit Plan, by any person
covered thereby, or otherwise, which allege violations of Law which could
reasonably be expected to result in a Buyer Material Adverse Effect, nor are
there any ongoing Internal Revenue Service, U.S. Department of Labor or other
agency audits or investigations of any Buyer Benefit Plans.
(d) Within the six-year period preceding the Effective Time, no Liability
under Subtitle C or D of Title IV of ERISA has been or is expected to be
incurred by any Buyer Entity with respect to any ongoing, frozen or terminated
single-employer plan or the single-employer plan of any ERISA Affiliate, which
Liability is reasonably likely to have a Buyer Material Adverse Effect. No Buyer
Entity has incurred any withdrawal Liability with respect to a multi-employer
plan under Subtitle B of Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate), which Liability is reasonably likely to
have a Buyer Material Adverse Effect. No notice of a "reportable event," within
the meaning of Section 4043 of ERISA for which the 30-day reporting requirement
has not been waived, has been required to be filed for any Buyer Pension Plan or
by any ERISA Affiliate within the 12-month period ending on the date hereof.
6.15 Material Contracts. Except as disclosed in Section 6.15 of the Buyer
Disclosure Memorandum or as set forth in the Buyer SEC Reports, none of the
Buyer Entities, nor any of their respective Assets, businesses, or operations,
is a party to, or is bound or affected by, or receives benefits under, (i) any
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employment, severance, termination, consulting or retirement Contract providing
for aggregate payments to any Person in any calendar year in excess of $50,000,
(ii) any Contract relating to the borrowing of money by any Buyer Entity or the
guarantee by any Buyer Entity of any such obligation (other than Contracts
evidencing trade payables and Contracts relating to borrowings or guarantees
made in the ordinary course of business), or (iii) any other Contract or
amendment thereto that would be required to be filed as an exhibit to a Form
10-K filed by Buyer with the SEC as of the date of this Agreement that has not
been filed as an exhibit to Buyer's Form 10-K filed for the fiscal year ended
December 31, 1996, or in an SEC Document and identified to Target (together with
all Contracts referred to in Sections 6.9 and 6.14(a), the "Buyer Contracts").
With respect to each Buyer Contract and except as disclosed in Section 6.15 of
the Buyer Disclosure Memorandum: (i) the Contract is in full force and effect;
(ii) no Buyer Entity is in Default thereunder, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Buyer Material
Adverse Effect; (iii) no Buyer Entity has repudiated or waived any material
provision of any such Contract; and (iv) no other party to any such Contract is,
to the Knowledge of Buyer, in Default in any respect, other than Defaults which
are not reasonably likely to have, individually or in the aggregate, a Buyer
Material Adverse Effect, or has repudiated or waived any material provision
thereunder. Except as reflected in the Buyer SEC Reports, all of the
indebtedness of any Buyer Entity for money borrowed in excess of $100,000 is
prepayable at any time by such Buyer Entity without penalty or premium.
6.16 Legal Proceedings. There is no Litigation instituted or pending, or,
to the Knowledge of Buyer, threatened against any Buyer Entity, or against any
director, employee or employee benefit plan of any Buyer Entity, or against any
Asset, interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Buyer Material Adverse Effect, nor are there
any Orders of any Regulatory Authorities, other governmental authorities, or
arbitrators outstanding against any Buyer Entity, that are reasonably likely to
have, individually or in the aggregate, a Buyer Material Adverse Effect.
6.17 Reports. Since January 1, 1994, or the date of organization if later,
each Buyer Entity has filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities (except for failures to file which are not
reasonably likely to have, individually or in the aggregate, a Buyer Material
Adverse Effect). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied with all applicable Laws, except where the failure to comply is not
reasonably likely to have a Buyer Material Adverse Effect. As of its respective
date, each such report and document did not contain any untrue statement of a
fact or omit to state a fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading, except for such untrue statements or omissions which are
not reasonably likely to have a Buyer Material Adverse Effect.
6.18 Statements True and Correct. No statement or certificate furnished or
to be furnished by any Buyer Entity to Target pursuant to this Agreement or any
other document referred to herein contains or will contain any untrue statement
of material fact or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the information supplied or to be supplied by any Buyer
Entity for inclusion in the Registration Statement to be filed by Buyer with the
SEC, will, when the Registration Statement becomes effective, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein not misleading. None of the information
supplied or to be supplied by any Buyer Entity or any Affiliate thereof for
inclusion in the Joint Proxy Statement to be mailed to each Party's stockholders
in connection with the Stockholders' Meetings, and any other documents to be
filed by any Buyer Entity with the SEC or any other Regulatory Authority in
connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and with respect to the Joint Proxy Statement,
when first mailed to the stockholders of Target and Buyer, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or, in the case of the Joint Proxy
Statement or any amendment thereof or supplement thereto, at the time of the
Stockholders' Meetings, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
Stockholders' Meetings. All documents that any Buyer Entity is responsible
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for filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
6.19 Authority of Sub. Sub is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware as a
wholly owned Subsidiary of Buyer. The authorized capital stock of Sub shall
consist of 100 shares of Sub Common Stock, all of which is validly issued and
outstanding, fully paid and nonassessable and is owned by Buyer free and clear
of any Lien. Sub has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Sub. This Agreement
represents a legal, valid, and binding obligation of Sub, enforceable against
Sub in accordance with its terms (except in all cases as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought). Buyer, as the sole stockholder of Sub, has voted
prior to the Effective Time the shares of Sub Common Stock in favor of adoption
of this Agreement, as and to the extent required by applicable Law.
6.20 Tax and Regulatory Matters. No Buyer Entity or, to Buyer's Knowledge,
any Affiliate thereof has taken or agreed or failed to take any action and
Target does not have any Knowledge of any fact or circumstance that is
reasonably likely to (i) prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or (ii)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) or result in the imposition of a condition or
restriction of the type referred to in the last sentence of such Section.
6.21 Rights Agreement. Execution of this Agreement and consummation of the
Merger and the other transactions contemplated by this Agreement will not result
in the grant of any rights to any Person under the Buyer Rights Agreement (other
than as contemplated by Section 3.1) or enable or require the Buyer Rights to be
exercised, distributed or triggered. No "Shares Acquisition Date" or
"Distribution Date" (as such terms are defined in the Buyer Rights Agreement)
has occurred. No event or sequence of events has occurred that has resulted in
or may result in any Person becoming an Acquiring Person, as such term is
defined in the Buyer Rights Agreement.
6.22 Affiliate Transactions. Except as disclosed in Section 6.22 of the
Buyer Disclosure Memorandum, (i) there is no indebtedness outstanding between
any Buyer Entity, on the one hand, and any Affiliate of any Buyer Entity, on the
other hand, (ii) no Affiliate of any Buyer Entity provides or causes to be
provided any assets, services or facilities to any Buyer Entity, (iii) no Buyer
Entity provides or causes to be provided any assets, services or facilities to
any Affiliate of any Buyer Entity and (iv) no Buyer Entity beneficially owns,
directly or indirectly, any Investment Assets (as defined below) issued by any
Affiliate of any Buyer Entity. Except as disclosed in Section 6.22 of the Buyer
Disclosure Memorandum, each of the transactions disclosed thereon was incurred
or engaged in, as the case may be, on an arm's-length basis and, since December
31, 1996, all settlements of liabilities between any Buyer Entity, on the one
hand, and any Affiliate of any Buyer Entity, on the other hand, have been made
in the ordinary course of business consistent with past practice.
6.23 Vote Required. The affirmative vote of a majority of the votes cast
by the holders of the outstanding shares of Buyer Capital Stock entitled to vote
and voting as a single class is the only vote of the holders of any class or
series of the capital stock of Buyer required to approve the issuance of shares
of Buyer Common Stock pursuant to the Merger (including the shares to be issued
in connection with the performance of the obligations set forth in Section 3.5),
as and to the extent required by Law, by the provisions of any governing
instruments, or by the rules of the NYSE.
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ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Target. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of Buyer shall have been obtained (which consent shall
not be unreasonably withheld), and except as otherwise expressly contemplated
herein, Target shall and shall cause each of its Subsidiaries to (a) operate its
business only in the usual, regular, and ordinary course, (b) preserve intact
its business organization and Assets and maintain its rights and franchises, and
(c) take no action which would (i) materially adversely affect the ability of
any Party to obtain any Consents required for the transactions contemplated
hereby, or (ii) materially adversely affect the ability of any Party to perform
its covenants and agreements under this Agreement.
7.2 Negative Covenants of Target. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of Buyer shall have been obtained (which consent shall
not be unreasonably withheld), and except as otherwise expressly contemplated
herein, or as disclosed in Section 7.2 of the Target Disclosure Memorandum,
Target covenants and agrees that it will not do or agree or commit to do, or
permit any of its Subsidiaries to do or agree or commit to do, any of the
following:
(a) amend the Certificate of Incorporation, Bylaws or other governing
instruments of any Target Entity, or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than (i) indebtedness of a Target Entity to another
Target Entity and (ii) indebtedness under any of the Target Entities'
existing credit facilities up to $5.0 million more than the indebtedness
currently outstanding under such facilities as of the date hereof) (for the
Target Entities on a consolidated basis) or impose, or suffer the
imposition, on any Asset of any Target Entity of any Lien or permit any
such Lien to exist (other than in connection with Liens in effect as of the
date hereof that are disclosed in the Target Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any Target Entity, or declare or pay any dividend or
make any other distribution in respect of Target's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of stock
options outstanding as of the date hereof and pursuant to the terms thereof
in existence on the date hereof, or as disclosed in Section 7.2 of the
Target Disclosure Memorandum, issue, sell, pledge, encumber, authorize the
issuance of, enter into any Contract to issue, sell, pledge, encumber, or
authorize the issuance of, or otherwise permit to become outstanding, any
additional shares of Target Common Stock or any other capital stock of any
Target Entity, or any stock appreciation rights, or any option, warrant, or
other Equity Right; or
(e) adjust, split, combine or reclassify any capital stock of any
Target Entity or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of Target Common Stock, or sell,
lease, mortgage or otherwise dispose of or otherwise encumber any shares of
capital stock of any Target Subsidiary (unless any such shares of stock are
sold or otherwise transferred to another Target Entity) or any Asset having
a book value in excess of $100,000 other than in the ordinary course of
business for reasonable and adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of three
years or less, purchase any securities or make any material investment,
either by purchase of stock or securities, contributions to capital, Asset
transfers, or purchase of any Assets, in any Person other than a wholly
owned Target Subsidiary, or otherwise acquire direct or indirect control
over any Person, other than in connection with (i) foreclosures in the
ordinary course of business, or (ii) the creation of new wholly owned
Subsidiaries organized to conduct or continue activities
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otherwise permitted by this Agreement, or (iii) investments in connection
with cash management activities consistent with past practices; or
(g) grant any increase in compensation or benefits to the employees or
officers of any Target Entity, except as required by Law; or enter into or
amend any severance agreements with officers of any Target Entity; grant
any material increase in fees or other increases in compensation or other
benefits to directors of any Target Entity; or
(h) enter into or amend any employment Contract between any Target
Entity and any Person having a salary thereunder in excess of $100,000 per
year (unless such amendment is required by Law) that the Target Entity does
not have the unconditional right to terminate without Liability (other than
Liability for services already rendered), at any time on or after the
Effective Time; or
(i) adopt any new employee benefit plan of any Target Entity or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any Target Entity other than any such
change that is required by Law or that, in the opinion of counsel, is
necessary or advisable to maintain the tax qualified status of any such
plan, or make any distributions from such employee benefit plans, except as
required by Law, the terms of such plans or consistent with past practice;
or
(j) make any material change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or
GAAP; or
(k) enter into any Contract or amend or modify any existing Contract,
or engage in any new transaction outside the ordinary course of business
consistent with past practice or not on an arm's-length basis, with any
Affiliate of any Target Entity; or
(l) make any capital expenditures or commitments for additions to
plant, property or equipment constituting capital assets not in the
ordinary course of business consistent with past practice (excluding any
capital expenditures required to be made by Irving Tanning Company arising
in connection with the upgrade of the water/waste treatment facility
operated by the Town of Hartland, Maine); or
(m) make any change in the lines of business in which it participates
or is engaged; or
(n) except in the ordinary course of business, enter into, modify,
amend or terminate any material Contract or waive, release, compromise or
assign any material rights or claims.
7.3 Covenants of Buyer. From the date of this Agreement until the earlier
of the Effective Time or the termination of this Agreement, unless the prior
written consent of Target shall have been obtained (which consent shall not be
unreasonably withheld), and except as otherwise expressly contemplated herein,
Buyer shall and shall cause each of its Subsidiaries to (x) operate its business
only in the usual, regular, and ordinary course, (y) preserve intact its
business organization and Assets and maintain its rights and franchises, and (z)
take no action which would (i) materially adversely affect the ability of any
Party to obtain any Consents required for the transactions contemplated hereby,
or (ii) materially adversely affect the ability of any Party to perform its
covenants and agreements under this Agreement; provided, that the foregoing
shall not prevent any Buyer Entity from discontinuing or disposing of any of its
Assets or business if such action is, in the judgment of Buyer, desirable in the
conduct of the business of Buyer and its Subsidiaries. Buyer further covenants
and agrees that it will not do or agree or commit to do, or permit any of its
Subsidiaries to do or agree or commit to do, any of the following without the
prior written consent of Target, which consent shall not be unreasonably
withheld:
(a) amend the Certificate of Incorporation or Bylaws of Buyer or the
Buyer Rights Agreement, in each case, in any manner adverse to the holders
of Target Common Stock, or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a Buyer Entity to another Buyer
Entity) except (i) in the ordinary course of the business consistent with
past practices, (ii) in order to finance the purchase price, including
related expenses, of acquisitions (including the Merger) and joint
ventures, (iii) pursuant to the Buyer's credit facilities as in
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effect on the date hereof, (iv) in order to finance the construction of an
additional facility in Canada, or (v) in order to finance additional Buyer
Express facilities; or impose, or suffer the imposition, on any Asset of
any Buyer Entity of any Lien or permit any such Lien to exist (other than
in connection with Liens in effect as of the date hereof that are disclosed
in the Buyer Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of Buyer (other than in connection with the conversion of
currently outstanding shares of Buyer Preferred Stock) , or declare or pay
any dividend or make any other distribution in respect of Buyer's capital
stock (other than regularly scheduled dividends payable on the outstanding
shares of Buyer Preferred Stock); or
(d) except for this Agreement, or pursuant to the exercise of stock
options outstanding as of the date hereof and pursuant to the terms thereof
in existence on the date hereof or granted after the date hereof in the
ordinary course consistent with past practice, or as disclosed in Section
7.3 of the Buyer Disclosure Memorandum or in connection with acquisitions
or upon the conversion of currently outstanding shares of Buyer Preferred
Stock or warrants to purchase Buyer Common Stock, issue, sell, pledge,
encumber, authorize the issuance of, enter into any Contract to issue,
sell, pledge, encumber, or authorize the issuance of, or otherwise permit
to become outstanding, any additional shares of Buyer Common Stock or any
other capital stock of any Buyer Entity, or any stock appreciation rights,
or any option, warrant, conversion, or other right to acquire any such
stock, or any security convertible into any such stock; or
(e) adjust, split, combine or reclassify any shares of Buyer Capital
Stock or issue or authorize the issuance of any other securities in respect
of or in substitution for shares of Buyer Capital Stock (other than in
connection with the conversion of currently outstanding shares of Buyer
Preferred Stock or the exercise of currently outstanding warrants to
purchase Buyer Common Stock) or sell, lease, mortgage or otherwise dispose
of or otherwise encumber any shares of capital stock of any Buyer
Subsidiary (unless any such shares of stock are sold or otherwise
transferred to another Buyer Entity) or any Asset having a book value in
excess of $1,000,000 other than in the ordinary course of business for
reasonable and adequate consideration; or
(f) make any material change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in applicable Tax Laws or regulatory accounting
requirements or GAAP; or
(g) make any single acquisition of capital stock or assets of any
entity or enter into any joint venture in which the total consideration
paid or contributed by Buyer or any Buyer Entity exceeds $25 million or any
combination of acquisitions of capital stock or assets of one or more
entities or joint ventures in which the aggregate consideration paid or
contributed exceeds $50 million.
7.4 Adverse Changes in Condition. Each Party agrees to give written notice
promptly to the other Party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Target Material Adverse Effect or a Buyer Material Adverse Effect,
as applicable, or (ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and to use its
reasonable efforts to prevent or promptly to remedy the same.
7.5 Reports. Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed. If financial statements are
contained in any such reports filed with the SEC, such financial statements will
fairly present the consolidated financial position of the entity filing such
statements as of the dates indicated and the consolidated results of operations,
changes in stockholders' equity, and cash flows for the periods then ended in
accordance with GAAP (subject in the case of interim financial statements to
normal recurring year-end adjustments that are not material); provided, that any
pro forma financial statements contained in such reports filed with the SEC are
not
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necessarily indicative of the consolidated financial position of the Target
Entities or the Buyer Entities, as the case may be, as of the respective dates
thereof and the consolidated results of operations and cash flows of the Target
Entities or the Buyer Entities, as the case may be, for the periods indicated.
As of their respective dates, such reports filed with the SEC will comply in all
material respects with the Securities Laws and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Any financial
statements contained in any other reports to another Regulatory Authority shall
be prepared in all material respects in accordance with Laws applicable to such
reports.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Stockholder Approval. As soon
as reasonably practicable after execution of this Agreement, Buyer shall prepare
and file the Registration Statement with the SEC, and shall use its reasonable
efforts to cause the Registration Statement to become effective under the 1933
Act and take any action reasonably required to be taken under the applicable
state Blue Sky or securities Laws in connection with the issuance of the shares
of Buyer Common Stock upon consummation of the Merger. Target shall cooperate in
the preparation and filing of the Registration Statement and shall furnish all
information concerning it and the holders of its capital stock as Buyer may
reasonably request in connection with such action. Target shall call a
Stockholders' Meeting, to be held as soon as reasonably practicable after the
Registration Statement is declared effective by the SEC (and, to the extent
practicable, on the same day as Buyer's Stockholders' Meeting), for the purpose
of voting upon adoption of this Agreement and such other related matters (with
the consent of Buyer which shall not be unreasonably withheld) as it deems
appropriate. Buyer shall call a Stockholders' Meeting, to be held as soon as
reasonably practicable after the Registration Statement is declared effective by
the SEC, for the purpose of voting upon the issuance of shares of Buyer Common
Stock pursuant to the Merger, and such other related matters as it deems
appropriate (including, without limitation, the adoption of an amendment to
increase the number of shares that may be issued under the Buyer's Incentive
Program by 1,500,000). In connection with the Stockholders' Meetings, (i) Target
and Buyer shall prepare and file with the SEC a Joint Proxy Statement and mail
such Joint Proxy Statement to their respective stockholders, (ii) the Parties
shall furnish to each other all information concerning them that they may
reasonably request in connection with such Joint Proxy Statement, (iii) the
Board of Directors of Target and Buyer shall recommend to their respective
stockholders the approval of the matters submitted for approval (subject to the
Board of Directors of Target, after having consulted with and based on the
written opinion of outside counsel (a copy of which shall be furnished to
Buyer), reasonably determining in good faith that the making of such
recommendation, or the failure to withdraw or modify its recommendation, would
be reasonably likely to constitute a breach of fiduciary duties of the members
of such Board of Directors to Target's stockholder under applicable law), and
(iv) the Board of Directors and officers of Target and Buyer shall use their
reasonable efforts to obtain such stockholders' approval (subject to the Board
of Directors of Target, after having consulted with and based on the written
opinion of outside counsel (a copy of which shall be furnished to Buyer),
reasonably determining in good faith that the taking of such actions would be
reasonably likely to constitute a breach of fiduciary duties of the members of
such Board of Directors to Target's stockholder under applicable law). Buyer and
Target shall make all necessary filings with respect to the Merger under the
Securities Laws.
8.2 Exchange Listing. Buyer shall use its reasonable efforts to list,
prior to the Effective Time, on the NYSE, subject to official notice of
issuance, the shares of Buyer Common Stock to be issued to the holders of Target
Common Stock pursuant to the Merger, and Buyer shall give all notices and make
all filings with the NYSE required in connection with the transactions
contemplated herein.
8.3 Applications; Antitrust Notification. Buyer shall promptly prepare and
file, and Target shall cooperate in the preparation and, where appropriate,
filing of, applications with all Regulatory Authorities having jurisdiction over
the transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement. To the
extent required by the
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HSR Act, each of the Parties will promptly file with the United States Federal
Trade Commission and the United States Department of Justice the notification
and report form required for the transactions contemplated hereby and any
supplemental or additional information which may reasonably be requested in
connection therewith pursuant to the HSR Act and will comply in all material
respects with the requirements of the HSR Act. The Parties shall deliver to each
other copies of all filings, correspondence and orders to and from all
Regulatory Authorities in connection with the transactions contemplated hereby.
8.4 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, Target shall execute and file the Certificate of
Merger with the Secretary of State of the State of Delaware in connection with
the Closing.
8.5 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 9; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Without limiting the
generality of the foregoing, each Party agrees to use all reasonable efforts to
cause the Effective Time to occur not later than the first business day
following the last to occur of (i) the Effective Date (including expiration of
any applicable waiting period) of the last required Consent of any Regulatory
Authority having authority over and approving or exempting the Merger, and (ii)
the date on which the shareholders of Target and Buyer approve this Agreement to
the extent such approval is required by applicable Law or the rules of the NYSE.
Each Party shall use, and shall cause each of its Subsidiaries to use, its
reasonable efforts to obtain all Consents necessary or desirable for the
consummation of the transactions contemplated by this Agreement.
8.6 Investigation and Confidentiality. (a) Prior to the Effective Time,
each Party shall keep the other Party advised of all material developments
relevant to its business and to consummation of the Merger and shall permit the
other Party to make or cause to be made such investigation of the business and
properties of it and its Subsidiaries and of their respective financial and
legal conditions as the other Party reasonably requests, provided that such
investigation shall be reasonably related to the transactions contemplated
hereby and shall not interfere unnecessarily with normal operations. No
investigation by a Party shall affect the representations and warranties of the
other Party.
(b) The Parties' respective obligations under the Confidentiality
Agreements, which are hereby reaffirmed and adopted, and incorporated by
reference herein, shall apply to all confidential information furnished to it by
the other Party concerning its and its Subsidiaries' businesses, operations, and
financial positions pursuant to this Agreement.
(c) Each Party agrees to give the other Party notice as soon as practicable
after any determination by it of any fact or occurrence relating to the other
Party which it has discovered through the course of its investigation and which
represents, or is reasonably likely to represent, either a material breach of
any representation, warranty, covenant or agreement of the other Party or which
has had or is reasonably likely to have a Target Material Adverse Effect or a
Buyer Material Adverse Effect, as applicable.
8.7 Press Releases. Prior to the Effective Time, Target and Buyer shall
consult and cooperate with each other as to the timing, form and substance of
any press release or other public disclosure related to this Agreement or any
other transaction contemplated hereby, and will not issue any such press release
or make any such public disclosure without the prior consent of the other, which
consent shall not be unreasonably withheld; provided, that nothing in this
Section 8.7 shall be deemed to prohibit any Party from making any disclosure
which its outside counsel deems necessary or advisable in order to satisfy such
Party's disclosure obligations imposed by Law.
8.8 No Solicitations, Etc. (a) Except with respect to this Agreement and
the transactions contemplated hereby, no Target Entity nor any Affiliate thereof
nor any Representatives thereof retained by any
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Target Entity shall directly or indirectly solicit, initiate or encourage the
making of any Acquisition Proposal by any Person. No Target Entity or any
Affiliate or Representative thereof shall furnish any non-public information to
any Person or engage in any discussions or negotiate with respect to, or enter
into any Contract with respect to, any Acquisition Proposal, but Target Company
may communicate information about an unsolicited Acquisition Proposal to its
stockholders if and to the extent that it is required to do so, based on the
advice of outside counsel, in order to comply with its legal obligations. Target
Company shall promptly (i) cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons (other than Buyer) with
respect to any Acquisition Proposal and (ii) notify Buyer in the event that it
receives any Acquisition Proposal.
(b) During the period from the date of this Agreement through the Effective
Time (or earlier termination hereof), none of the Target Entities shall
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it is a party. During such period, the Target
Entities shall enforce, to the fullest extent permitted under applicable law,
the provisions of any such agreement, including, but not limited to, by
obtaining injunctions to prevent any breaches of any such agreements and to
enforce specifically the terms and provisions thereof in any court having
jurisdiction.
8.9 Tax Treatment. Each of the Parties undertakes and agrees to use its
reasonable efforts to cause the Merger, and to take no action or fail to take
any action which would cause the Merger not, to qualify for treatment as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes.
8.10 State Takeover Laws. Each Target Entity shall take all necessary
steps to exempt the transactions contemplated by this Agreement from, or if
necessary to challenge the applicability of, any applicable Takeover Law,
including Section 203 of the DGCL.
8.11 Agreement of Affiliates. Target has disclosed in Section 8.11 of the
Target Disclosure Memorandum all Persons whom it reasonably believes is an
"affiliate" of Target for purposes of Rule 145 under the 1933 Act. Target shall
use its reasonable efforts to cause each such Person to deliver to Buyer not
later than 30 days after the date of this Agreement, a written agreement,
substantially in the form of Exhibit 3. Buyer shall not be required to maintain
the effectiveness of the Registration Statement under the 1933 Act for the
purposes of resale of Buyer Common Stock by such affiliates.
8.12 Employee Benefits and Contracts. Following the Effective Time, Buyer
shall provide generally to officers and employees of the Target Entities
employee benefits under employee benefit and welfare plans (other than stock
option or other plans involving the potential issuance of Buyer Common Stock),
on terms and conditions which when taken as a whole are substantially similar to
those currently provided by the Buyer Entities to their similarly situated
officers and employees; provided, that, for a period of 12 months after the
Effective Time, Buyer shall provide generally to officers and employees of
Target Entities severance benefits in accordance with the policies of either (i)
Target as disclosed in Section 8.12 of the Target Disclosure Memorandum, or (ii)
Buyer, whichever of (i) or (ii) will provide the greater benefit to the officer
or employee. For purposes of participation, vesting and (except in the case of
Buyer retirement plans) benefit accrual under Buyer's employee benefit plans,
the service of the employees of the Target Entities prior to the Effective Time
shall be treated as service with a Buyer Entity participating in such employee
benefit plans. Buyer also shall cause the Surviving Corporation and its
Subsidiaries to honor in accordance with their terms all employment, severance,
consulting and other compensation Contracts disclosed in Section 8.13 of the
Target Disclosure Memorandum to Buyer between any Target Entity and any current
or former director, officer, or employee thereof, and all provisions for vested
benefits or other vested amounts earned or accrued through the Effective Time
under the Target Benefit Plans.
8.13 Indemnification. (a) Buyer shall, and shall cause the Surviving
Corporation to, indemnify, defend and hold harmless the present and former
directors and officers of the Target Entities (each, an "Indemnified Party")
against all Liabilities arising out of actions or omissions arising out of the
Indemnified Party's service or services as directors or officers of Target or,
at Target's request, of another corporation, partnership, joint venture, trust
or other enterprise affiliated with Target occurring at or prior to the
Effective Time (including the transactions contemplated by this Agreement) to
the fullest extent permitted under Delaware Law and by
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Target's Certificate of Incorporation and Bylaws as in effect on the date
hereof, including provisions relating to advances of expenses incurred in the
defense of any Litigation and whether or not any Buyer Entity is insured against
any such matter. Without limiting the foregoing, in any case in which approval
by the Surviving Corporation is required to effectuate any indemnification, the
Surviving Corporation shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent counsel
mutually agreed upon between Buyer and the Indemnified Party.
(b) Buyer, shall, or shall cause the Surviving Corporation to, maintain in
effect for the Indemnified Parties for not less than seven years after the
Effective Time policies of directors' and officers' liability insurance with
respect to matters occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement) providing
substantially the same coverage and containing terms and conditions which are no
less advantageous, in any material respect, to these currently maintained by
Target for the benefit of the Company's present or former directors, employees
or agents covered by such insurance policies prior to the Effective Time;
provided, however, that Buyer may, in lieu of maintaining such existing
insurance as provided above, cause comparable coverage to be provided with any
policy maintained for the benefit of Buyer or any of the Buyer Subsidiaries, so
long as the material terms are no less advantageous than such existing
insurance.
(c) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 8.13, upon learning of any such Liability or Litigation,
shall promptly notify Buyer thereof. In the event of any such Litigation
(whether arising before or after the Effective Time), (i) Buyer or the Surviving
Corporation shall have the right to assume the defense thereof and neither Buyer
nor the Surviving Corporation shall be liable to such Indemnified Parties for
any legal expenses of other counsel or any other expenses subsequently incurred
by such Indemnified Parties in connection with the defense thereof, except that
if Buyer or the Surviving Corporation elects not to assume such defense or
counsel for the Indemnified Parties advises that there are substantive issues
which raise conflicts of interest between Buyer or the Surviving Corporation and
the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory
to them, and Buyer or the Surviving Corporation shall pay all reasonable fees
and expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, that Buyer and the Surviving Corporation shall
be obligated pursuant to this paragraph (c) to pay for only one firm of counsel
for all Indemnified Parties in any jurisdiction, unless such Indemnified Parties
shall have been advised in writing by counsel that there exist conflicts of
interest among such Indemnified Parties that preclude one firm of counsel from
representing the interests of all such Indemnified Parties, (ii) Buyer, the
Surviving Corporation and the Indemnified Parties will cooperate in the defense
of any such Litigation, and (iii) neither Buyer nor the Surviving Corporation
shall be liable for any settlement effected without its prior written consent,
which consent shall not be unreasonably withheld; and provided further that
neither Buyer nor the Surviving Corporation shall have any obligation hereunder
to any Indemnified Party when and if a court of competent jurisdiction shall
determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable Law.
(d) If Buyer or the Surviving Corporation or any successors or assigns
shall consolidate with or merge into any other Person and shall not be the
continuing or surviving Person of such consolidation or merger or shall transfer
all or substantially all of its assets to any Person, then and in each case,
proper provision shall be made so that the successors and assigns of Buyer or
the Surviving Corporation shall assume the obligations set forth in this Section
8.13.
(e) The provisions of this Section 8.13 shall survive the Effective Time
are intended expressly to be for the benefit of and shall be enforceable by,
each Indemnified Party and their respective heirs and representatives. Buyer
hereby guarantees the performance by the Surviving Corporation of the
indemnification obligations of the Surviving Corporation pursuant to this
Section 8.13.
8.14 Related Party Contracts and Transactions. Except as contemplated by
this Agreement and the transactions contemplated hereby and except as set forth
in Section 8.14 of the Target Disclosure Memorandum, any and all Contracts and
transactions between any of the Target Entities, on the one hand, and an
Affiliate of any of the Target Entities (other than another Target Entity), on
the other hand, shall be
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canceled by the Closing Date (at no expense to the Target Entities) such that
the Target Entities will have no rights to any Assets of any such Affiliate or
obligations whatsoever with respect to such Contracts and transactions, and no
such Affiliate will have any rights to any Assets of any of the Target Entities
or obligations whatsoever with respect to such Contracts or transactions.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective obligations of
each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 11.6:
(a) Stockholder Approval. The stockholders of Target shall have
adopted this Agreement, and the consummation of the transactions
contemplated hereby, including the Merger, as and to the extent required by
Law, by the provisions of any governing instruments, or by the rules of the
NYSE. The stockholders of Buyer shall have approved the issuance of shares
of Buyer Common Stock pursuant to the Merger (including the shares to be
issued in connection with the performance of the obligations set forth in
Section 3.5), as and to the extent required by Law, by the provisions of
any governing instrument, or by the rules of the NYSE.
(b) Regulatory Approvals. All Consents of, filings and registrations
with, and notifications to, all Regulatory Authorities required for
consummation of the Merger (other than Consents and filing, registration
and notice requirements which if not obtained, made or complied with are
not reasonably likely to have, individually or in the aggregate, a Target
Material Adverse Effect or a Buyer Material Adverse Effect, as applicable
("Excluded Consents")) shall have been obtained or made and shall be in
full force and effect and all waiting periods required by Law shall have
expired (other than waiting periods the failure to comply with is not
reasonably likely to have a Target Material Adverse Effect or a Buyer
Material Adverse Effect, as applicable).
(c) Legal Proceedings. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions contemplated by
this Agreement.
(d) Registration Statement. The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued, no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing, and all necessary approvals
under state securities Laws or the 1933 Act or 1934 Act relating to the
issuance or trading of the shares of Buyer Common Stock issuable pursuant
to the Merger shall have been received.
(e) Exchange Listing. The shares of Buyer Common Stock issuable
pursuant to the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance.
(f) Tax Matters. Each Party shall have received a written opinion of
counsel from Buyer's Counsel, in form reasonably satisfactory to such
Parties (the "Tax Opinion"), to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, (ii) the exchange in the Merger of Target Common
Stock for Buyer Common Stock will not give rise to gain or loss to the
stockholders of Target with respect to such exchange (except to the extent
of any cash received in lieu of fractional shares), and (iii) none of
Target, Sub or Buyer will recognize gain or loss as a result of the Merger
(except for amounts resulting from any required change in accounting
methods and any income and deferred gain recognized pursuant to Treasury
regulations issued under Section 1502 of the Internal Revenue Code). In
rendering such Tax Opinion, such counsel shall be entitled to rely upon
representations of officers of Target and Buyer reasonably satisfactory in
form and substance to such counsel.
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9.2 Conditions to Obligations of Buyer. The obligations of Buyer to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Buyer pursuant to Section 11.6(a):
(a) Representations and Warranties. For purposes of this Section
9.2(a), the accuracy of the representations and warranties of Target set
forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties set forth in Sections 5.3 and 11.3 shall be true and correct
(except for inaccuracies which are de minimis in amount). The
representations and warranties set forth in Sections 5.19, 5.20, 5.21 and
5.23 shall be true and correct in all material respects. There shall not
exist inaccuracies in the representations and warranties of Target set
forth in this Agreement (including the representations and warranties set
forth in Sections 5.3, 5.19, 5.20, 5.21 and 5.23) such that the aggregate
effect of such inaccuracies has, or is reasonably likely to have, a Target
Material Adverse Effect.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Target to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. Target shall have delivered to Buyer (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 9.1 as relates to Target and in Section
9.2(a) and 9.2(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Target's Board of Directors and stockholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby.
9.3 Conditions to Obligations of Target. The obligations of Target to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Target pursuant to Section 11.6(b):
(a) Representations and Warranties. For purposes of this Section
9.3(a), the accuracy of the representations and warranties of Buyer set
forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties set forth in Sections 6.3 and 11.3 shall be true and correct
(except for inaccuracies which are de minimis in amount). The
representations and warranties of Buyer set forth in Sections 6.20, 6.21,
6.22 and 6.23 shall be true and correct in all material respects. There
shall not exist inaccuracies in the representations and warranties of Buyer
set forth in this Agreement (including the representations and warranties
set forth in Section 6.20) such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a Buyer Material Adverse
Effect.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Buyer to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. Buyer shall have delivered to Target (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 9.1 as relates to Buyer and in Section
9.3(a) and 9.3(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Buyer's Board of Directors and stockholders and
Sub's Board of Directors and sole stockholder evidencing the taking of all
corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby.
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(d) Exchange Agent Certification. The Exchange Agent shall have
delivered to Target a certificate, dated as of the Effective Time, to the
effect that the Exchange Agent has received from Buyer appropriate
instructions and authorization for the Exchange Agent to issue a sufficient
number of shares of Buyer Common Stock in exchange for outstanding shares
of Target Common Stock.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the stockholders of Target
and Buyer or both, this Agreement may be terminated and the Merger abandoned at
any time prior to the Effective Time:
(a) By mutual consent of Buyer and Target; or
(b) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any representation or warranty contained in this
Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching Party of such breach and which
breach is reasonably likely, in the opinion of the non-breaching Party, to
have, individually or in the aggregate, a Target Material Adverse Effect or
a Buyer Material Adverse Effect, as applicable, on the breaching Party; or
(c) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any covenant or agreement contained in this Agreement
which cannot be or has not been cured within 30 days after the giving of
written notice to the breaching Party of such breach; or
(d) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event (i) any Consent of any
Regulatory Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii) the
stockholders of Target or Buyer fail to vote their approval of the matters
relating to this Agreement and the transactions contemplated hereby at the
Stockholders' Meetings where such matters were presented to such
stockholders for approval and voted upon; or
(e) By either Party in the event that the Merger shall not have been
consummated by March 31, 1998, if the failure to consummate the
transactions contemplated hereby on or before such date is not caused by
any breach of this Agreement by the Party electing to terminate pursuant to
this Section 10.1(e); or
(f) By Target, in the event (i) of the acquisition, by any person or
group of persons, of beneficial ownership of 50% or more of the outstanding
shares of Buyer Common Stock (the terms "person," "group" and "beneficial
ownership" having the meanings ascribed thereto in Section 13(d) of the
Exchange Act and the regulations promulgated thereunder), or (ii) the Board
of Directors of Buyer accepts or publicly recommends acceptance of an offer
from a third party (including, without limitation, BIL (Far East Holdings)
Limited or BIL Securities (Offshore) Ltd. or their respective Affiliates)
to acquire 50% or more of the outstanding shares of Buyer Common Stock or
of Buyer's consolidated assets; or
(g) By Target, in the event Buyer terminates, amends, modifies or
novates in any way the standstill provisions contained in that certain
Amended and Restated Stockholder Agreement by and among BIL (Far East
Holdings) Limited, Buyer and Irwin Selinger, as amended on May 1, 1997.
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10.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
10.2 and Article 11 and Section 8.6(b) shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 10.1(b), 10.1(c),
10.1(d), 10.1(e), 10.1(f) or 10.1(g) shall not relieve the breaching Party from
Liability for an uncured willful breach of a representation, warranty, covenant,
or agreement giving rise to such termination.
10.3 Non-Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles 1, 2, 3, 4 and 11 and Sections 8.12 and 8.13.
ARTICLE 11
MISCELLANEOUS
11.1 Definitions. (a) Except as otherwise provided herein, the capitalized
terms set forth below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Acquisition Proposal" with respect to a Party shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of
the stock or assets of, or other business combination involving the
acquisition of such Party or any of its Subsidiaries or the acquisition of
a substantial equity interest in, or a substantial portion of the assets
of, such Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by
or under common control with such Person; (ii) any officer, director,
partner, employer, or direct or indirect beneficial owner of any 10% or
greater equity or voting interest of such Person; or (iii) any other Person
for which a Person described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including
the Exhibits delivered pursuant hereto and incorporated herein by
reference.
"Assets" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or
not carried on the books and records of such Person, and whether or not
owned in the name of such Person or any Affiliate of such Person and
wherever located.
"Buyer Capital Stock" shall mean, collectively, the Buyer Common
Stock, the Buyer Preferred Stock and any other class or series of capital
stock of Buyer.
"Buyer Common Stock" shall mean the $0.025 par value common stock of
Buyer.
"Buyer Disclosure Memorandum" shall mean the written information
entitled "Graham-Field Health Products, Inc. Disclosure Memorandum"
delivered prior to the date of this Agreement to Target describing in
reasonable detail the matters contained therein.
"Buyer Entities" shall mean, collectively, Buyer and all Buyer
Subsidiaries.
"Buyer Financial Statements" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of Buyer as of June
30, 1997, and as of December 31, 1996 and 1995, and the related statements
of operations, changes in stockholders' equity, and cash flows (including
related notes and schedules, if any) for the six months ended June 30,
1997, and for each of the three fiscal years ended December 31, 1996, 1995
and 1994, as filed by Buyer in SEC Documents, and (ii) the consolidated
balance sheets of Buyer (including related notes and schedules, if any) and
related statements of
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operations, changes in stockholders' equity, and cash flows (including
related notes and schedules, if any) included in SEC Documents filed with
respect to periods ended subsequent to June 30, 1997.
"Buyer Material Adverse Effect" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of Buyer and its Subsidiaries, taken as
a whole, or (ii) the ability of Buyer to perform its obligations under this
Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement, provided that "Material Adverse Effect"
shall not be deemed to include the impact of (a) changes in Laws of general
applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles, (c)
actions and omissions of Buyer (or any of its Subsidiaries) taken with the
prior informed written Consent of Target in contemplation of the
transactions contemplated hereby, and (d) the direct effects of compliance
with this Agreement on the operating performance of Buyer, including
expenses incurred by Buyer in consummating the transactions contemplated by
this Agreement.
"Buyer Preferred Stock" shall mean the preferred stock, $0.01 par
value per share, of Buyer and shall include the Series A Junior
Participating Preferred Stock, the Series B Cumulative Convertible
Preferred Stock and the Series C Cumulative Convertible Preferred Stock.
"Buyer Rights Agreement" shall mean that certain Rights Agreement,
dated as of September 3, 1996, between Buyer and American Stock Transfer &
Trust Company, as Rights Agent.
"Buyer Rights" shall mean the preferred stock purchase rights issued
pursuant to the Buyer Rights Agreement.
"Buyer Stock Plan" shall mean the existing stock option plan of Buyer
designated as follows: the Incentive Program, as amended through the date
hereof.
"Buyer Subsidiaries" shall mean the Subsidiaries of Buyer, which
shall include the Buyer Subsidiaries described in Section 6.4 and any
corporation or other organization acquired as a Subsidiary of Buyer in the
future and held as a Subsidiary by Buyer at the Effective Time.
"Certificate of Merger" shall mean the Certificate of Merger to be
executed by Target and filed with the Secretary of State of the State of
Delaware relating to the Merger as contemplated by Section 1.1.
"Closing Date" shall mean the date on which the Closing occurs.
"Confidentiality Agreements" shall mean that certain Confidentiality
Agreement, dated June 20, 1997, between Target and Buyer and that certain
Confidentiality Agreement, dated August 19, 1997, between Target and Buyer.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of
any kind or character, or other document to which any Person is a party or
that is binding on any Person or its capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit,
(ii) any occurrence of any event that with the passage of time or the
giving of notice or both would constitute a breach or violation of, default
under, contravention of, or conflict with, any Contract, Law, Order, or
Permit, or (iii) any occurrence of any event that with or without the
passage of time or the giving of notice would give rise to a right of any
Person to exercise any remedy or obtain any relief under, terminate or
revoke, suspend, cancel, or modify or change the current terms of, or
renegotiate, or to accelerate the maturity or performance of, or to
increase or impose any Liability under, any Contract, Law, Order, or
Permit.
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"DGCL" shall mean the Delaware General Corporation Law.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air,
surface water, ground water, land surface, or subsurface strata) and which
are administered, interpreted, or enforced by the United States
Environmental Protection Agency and state and local agencies with
jurisdiction over, and including common law in respect of, pollution or
protection of the environment, including the Comprehensive Environmental
Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions,
discharges, releases, or threatened releases of any Hazardous Material, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of any Hazardous
Material.
"Equity Rights" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings,
warrants, or other binding obligations of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of
the capital stock of a Person or by which a Person is or may be bound to
issue additional shares of its capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exhibits" 1 through 3, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"Hazardous Material" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance, or toxic
substance (as those terms are defined by any applicable Environmental Laws)
and (ii) any chemicals, pollutants, contaminants, petroleum, petroleum
products, or oil (and specifically shall include asbestos requiring
abatement, removal, or encapsulation pursuant to the requirements of
governmental authorities and any polychlorinated biphenyls).
"HSR Act" shall mean Section 7A of the Clayton Act, as added by Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder.
"Intellectual Property" shall mean copyrights, patents, trademarks,
service marks, service names, trade names, applications therefor,
technology rights and licenses, computer software (including any source or
object codes therefor or documentation relating thereto), trade secrets,
franchises, know-how, inventions, and other intellectual property rights.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
"Joint Proxy Statement" shall mean the proxy statement used by Target
and Buyer to solicit the approval of their respective stockholders of the
transactions contemplated by this Agreement, which shall include the
prospectus of Buyer relating to the issuance of the Buyer Common Stock to
holders of Target Common Stock.
"Knowledge" as used with respect to any Target Entity (including
references to any such Target Entity being aware of a particular matter)
shall mean the actual knowledge of J.B. Fuqua, J. Rex Fuqua, Lawrence P.
Klamon, John J. Huntz, Jr. or Brady W. Mullinax, Jr. and as used with
respect to any Buyer Entity (including references to such Buyer Entity
being aware of a particular matter) shall mean the actual knowledge of
Irwin Selinger, Gary M. Jacobs or Richard S. Kolodny.
39
<PAGE> 40
"Law" shall mean any code, law (including common law), ordinance,
regulation, reporting or licensing requirement, rule, or statute applicable
to a Person or its Assets, Liabilities, or business, including those
promulgated, interpreted or enforced by any Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of
notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, and (ii) Liens which do not materially
impair the use of or title to the Assets subject to such Lien.
"Litigation" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, governmental or other examination
or investigation, hearing, administrative or other proceeding relating to
or affecting a Party, its business, its Assets (including Contracts related
to it), or the transactions contemplated by this Agreement.
"Material" for purposes of this Agreement shall be determined in light
of the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Operating Property" shall mean any property owned, leased, or
operated by the Party in question or by any of its Subsidiaries, and, where
required by the context, includes the owner or operator of such property,
but only with respect to such property.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"Participation Facility" shall mean any facility or property in which
the Party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such
facility or property.
"Party" shall mean either Target or Buyer, and "Parties" shall mean
both Target and Buyer.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party
or that is or may be binding upon or inure to the benefit of any Person or
its securities, Assets, or business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting
in a representative capacity.
"Registration Statement" shall mean the Registration Statement on Form
S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by
Buyer under the 1933 Act with respect to the shares of Buyer Common Stock
to be issued to the stockholders of Target in connection with the
transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the SEC, the NYSE,
the Federal Trade Commission, the United States Department of Justice, and
all other federal, state, county, local or other
40
<PAGE> 41
governmental or regulatory agencies, authorities (including self-regulatory
authorities), instrumentalities, commissions, boards or bodies having
jurisdiction over the Parties and their respective Subsidiaries.
"Representative" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative engaged by a
Person.
"SEC Documents" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents (and all amendments and
supplements thereto) filed, or required to be filed, by a Party or any of
its Subsidiaries with any Regulatory Authority pursuant to the Securities
Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"Stockholders' Meetings" shall mean the respective meetings of the
stockholders of Target and Buyer to be held pursuant to Section 8.1,
including any adjournment or adjournments thereof.
"Sub Common Stock" shall mean the $0.01 par value common stock of Sub.
"Subsidiaries" shall mean all those corporations, associations, or
other business entities of which the entity in question either (i) owns or
controls 50% or more of the outstanding equity securities either directly
or through an unbroken chain of entities as to each of which 50% or more of
the outstanding equity securities is owned directly or indirectly by its
parent (provided, there shall not be included any such entity the equity
securities of which are owned or controlled in a fiduciary capacity), (ii)
in the case of partnerships, serves as a general partner, (iii) in the case
of a limited liability company, serves as a managing member, or (iv)
otherwise has the ability to elect a majority of the directors, trustees or
managing members thereof.
"Surviving Corporation" shall mean Target as the surviving corporation
resulting from the Merger.
"Target Common Stock" shall mean the $2.50 par value common stock of
Target.
"Target Disclosure Memorandum" shall mean the written information
entitled "Fuqua Enterprises, Inc. Disclosure Memorandum" delivered prior to
the date of this Agreement to Buyer describing in reasonable detail the
matters contained therein.
"Target Entities" shall mean, collectively, Target and all Target
Subsidiaries.
"Target Financial Statements" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of Target as of June
30, 1997, and as of December 31, 1996 and 1995, and the related statements
of income, changes in stockholders' equity, and cash flows (including
related notes and schedules, if any) for the six months ended June 30,
1997, and for each of the three fiscal years ended December 31, 1996, 1995
and 1994, as filed by Target in SEC Documents, and (ii) the consolidated
balance sheets of Target (including related notes and schedules, if any)
and related statements of income, changes in stockholders' equity, and cash
flows (including related notes and schedules, if any) included in SEC
Documents filed with respect to periods ended subsequent to June 30, 1997.
"Target Material Adverse Effect" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of Target and its Subsidiaries, taken as
a whole, or (ii) the ability of Target to perform its obligations under
this Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement, provided that "Material Adverse Effect"
shall not be deemed to include the impact of (a) changes in Laws of general
applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles, (c)
actions and omissions of Target (or any of its Subsidiaries) taken with the
prior informed written Consent of Buyer in contemplation of the
transactions contemplated hereby, and (d) the direct effects of compliance
with this Agreement on the operating performance of Target, including
expenses incurred by Target in consummating the transactions contemplated
by this Agreement and any demonstrable losses of revenues of Target that
are directly attributable to the acquisition of Medical Supplies of
America, Inc. by Buyer.
41
<PAGE> 42
"Target Stock Plans" shall mean the existing stock option and other
stock-based compensation plans of Target designated as follows: 1989 Stock
Option Plan, 1992 Stock Option Plan, the 1995 Long-Term Incentive Plan and
the 1995 Stock Option Plan for Outside Directors.
"Target Subsidiaries" shall mean the Subsidiaries of Target, which
shall include the Target Subsidiaries described in Section 5.4 and any
corporation or other organization acquired as a Subsidiary of Target in the
future and held as a Subsidiary by Target at the Effective Time.
"Tax Return" shall mean any report, return, information return, or
other information required to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or combined or
unitary group that includes a Party or its Subsidiaries.
"Tax" or "Taxes" shall mean any federal, state, county, local, or
foreign taxes, fees or other assessments, including, income, excise, sales,
use, transfer, payroll, franchise, real property or personal property,
including any interest and penalties thereon or with respect thereto.
(b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
<TABLE>
<S> <C>
Average Closing Price............................................... Section 3.1(c)
Base Exchange Ratio................................................. Section 3.1(c)
Business Combination................................................ Section 11.2
Buyer Benefit Plans................................................. Section 6.14
Buyer Contracts..................................................... Section 6.15
Buyer ERISA Plan.................................................... Section 6.14
Buyer Pension Plan.................................................. Section 6.14
Buyer SEC Reports................................................... Section 6.5(a)
Certificates........................................................ Section 4.1
Closing............................................................. Section 1.2
Common Stock Trust.................................................. Section 3.4
Effective Time...................................................... Section 1.3
ERISA Affiliate..................................................... Section 5.14(c)
Exchange Agent...................................................... Section 4.1
Exchange Ratio...................................................... Section 3.1(c)
Excess Shares....................................................... Section 3.4
Excluded Consents................................................... Section 9.1(b)
Indemnified Party................................................... Section 8.14
Investment Assets................................................... Section 5.23
Lower Threshold Price............................................... Section 3.1(c)
Merger.............................................................. Section 1.1
Takeover Laws....................................................... Section 5.20
Target Benefit Plans................................................ Section 5.14
Target Contracts.................................................... Section 5.15
Target ERISA Plan................................................... Section 5.14
Target Options...................................................... Section 3.5
Target Pension Plan................................................. Section 5.14
Target SEC Reports.................................................. Section 5.5(a)
Tax Opinion......................................................... Section 9.1(g)
Upper Threshold Price............................................... Section 3.1(c)
</TABLE>
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
11.2 Expenses. Except for filing fees associated with filings under the
HSR Act, which shall be split equally between the Parties, each of the Parties
shall bear and pay all direct costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including filing,
registration and
42
<PAGE> 43
application fees, printing fees, and fees and expenses of its own financial or
other consultants, investment bankers, accountants, and counsel, except that
each of the Parties shall bear and pay one-half of the filing fees payable in
connection with the Registration Statement and the Joint Proxy Statement and
printing costs incurred in connection with the printing of the Registration
Statement and the Joint Proxy Statement.
11.3 Brokers and Finders. Except for Donaldson, Lufkin & Jenrette
Securities Corporation as to Target and except for Smith Barney Inc. as to
Buyer, each of the Parties represents and warrants that neither it nor any of
its officers, directors, employees, or Affiliates has employed any broker or
finder or incurred any Liability for any financial advisory fees, investment
bankers' fees, brokerage fees, commissions, or finders' fees in connection with
this Agreement or the transactions contemplated hereby. In the event of a claim
by any broker or finder based upon his or its representing or being retained by
or allegedly representing or being retained by Target or by Buyer, each of
Target and Buyer, as the case may be, agrees to indemnify and hold the other
Party harmless of and from any Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral (except, as to Section
8.6(b), for the Confidentiality Agreements). Nothing in this Agreement expressed
or implied, is intended to confer upon any Person, other than the Parties or
their respective successors, any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, other than as provided in Section 8.13.
11.5 Amendments. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of each of the Parties, whether before or after stockholder approval of this
Agreement has been obtained; provided, that after any such approval by the
holders of Target Common Stock, there shall be made no amendment that pursuant
to Section 251(d) of the DGCL requires further approval by such stockholders
without the further approval of such stockholders; and further provided, that
after any such approval by the holders of Buyer Common Stock, the provisions of
this Agreement relating to the manner or basis in which shares of Target Common
Stock will be exchanged for shares of Buyer Common Stock shall not be amended
after the Stockholders' Meetings in a manner adverse to the holders of Buyer
Common Stock without any requisite approval of the holders of the issued and
outstanding shares of Buyer Common Stock entitled to vote thereon.
11.6 Waivers. (a) Prior to or at the Effective Time, Buyer, acting through
its Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of this
Agreement by Target, to waive or extend the time for the compliance or
fulfillment by Target of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of Buyer
under this Agreement, except any condition which, if not satisfied, would result
in the violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of Buyer.
(b) Prior to or at the Effective Time, Target, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
Buyer, to waive or extend the time for the compliance or fulfillment by Buyer of
any and all of its obligations under this Agreement, and to waive any or all of
the conditions precedent to the obligations of Target under this Agreement,
except any condition which, if not satisfied, would result in the violation of
any Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of Target.
(c) The failure of any Party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such Party at a
later time to enforce the same or any other provision of this Agreement. No
waiver of any condition or of the breach of any term contained in this Agreement
in one or more instances shall be deemed to be or construed as a further or
continuing waiver of such condition or breach or a waiver of any other condition
or of the breach of any other term of this Agreement.
11.7 Assignment. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law
43
<PAGE> 44
or otherwise) without the prior written consent of the other Party. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the Parties and their respective successors and
assigns.
11.8 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
<TABLE>
<S> <C>
Target: Fuqua Enterprises, Inc.
One Atlantic Center
Suite 5000
1201 West Peachtree Street
Atlanta, Georgia 30309
Telephone Number: (404) 815-2000
Telecopy Number: (404) 815-4529
Attention: J. Rex Fuqua
Copy to Counsel: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telephone Number: (404) 881-7000
Telecopy Number: (404) 881-7777
Attention: Bryan E. Davis
Buyer: Graham-Field Health Products, Inc.
400 Rabro Drive, East
Hauppauge, New York 11788
Telephone Number: (516) 582-5800
Telecopy Number: (516) 582-5608
Attention: Richard S. Kolodny
Copy to Counsel: Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Telephone Number: (212) 530-5000
Telecopy Number: (212) 530-5219
Attention: Robert S. Reder
</TABLE>
11.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, without regard to any
applicable conflicts of Laws.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 Captions; Articles and Sections. The captions contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this Agreement.
11.12 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
44
<PAGE> 45
11.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
11.14 Enforcement of Agreement. The Parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement was not
performed in accordance with its specified terms or was otherwise breached. It
is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger
Chairman of the Board and
Chief Executive Officer
GFHP ACQUISITION CORP.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger
Chairman of the Board and
Chief Executive Officer
FUQUA ENTERPRISES, INC.
By: /s/ J. REX FUQUA
------------------------------------
J. Rex Fugua
Chairman of the Board of Directors
Chief Executive Officer
45
<PAGE> 1
Exhibit 4.1
GRAHAM-FIELD HEALTH PRODUCTS, INC.
---------------------------------
$100,000,000
9.-3/4% SENIOR SUBORDINATED NOTES DUE 2007
--------------------------------
INDENTURE
Dated as of August 4, 1997
-------------------------------
-------------------------------
AMERICAN STOCK TRANSFER & TRUST COMPANY
-------------------------------
Trustee
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
- ----------- -----------------
<S> <C>
310 (a)(1) ....................................................... 7.10
(a)(2) ....................................................... 7.10
(a)(3) ....................................................... N.A.
(a)(4) ....................................................... N.A.
(a)(5) ....................................................... 7.10
(b) .......................................................... 7.03; 7.10
(c) .......................................................... N.A.
311 (a) .......................................................... 7.11
(b) .......................................................... 7.11
(c) .......................................................... N.A.
312 (a) .......................................................... 2.05
(b) .......................................................... 13.03
(c) .......................................................... 13.03
313 (a) .......................................................... 7.06
(b)(1) ....................................................... N.A.
(b)(2) ....................................................... 7.06; 7.07
(c) .......................................................... 7.06; 13.02
(d) .......................................................... 7.06
314 (a) .......................................................... 4.03; 13.05
(b) .......................................................... N.A.
(c)(1) ....................................................... 13.04
(c)(2) ....................................................... 13.04
(c)(3) ....................................................... N.A.
(d) .......................................................... N.A.
(e) .......................................................... 13.05
(f) .......................................................... N.A.
315 (a) .......................................................... 7.01
(b) .......................................................... 7.05; 13.02
(c) .......................................................... 7.01
(d) .......................................................... 7.01
(e) .......................................................... 6.11
316 (a) (last sentence) .......................................... 2.08
(a)(1)(A) .................................................... 6.05
(a)(1)(B) .................................................... 6.04
(a)(2) ....................................................... N.A.
(b) .......................................................... 6.07
(c) .......................................................... N.A.
317 (a)(1) ....................................................... 6.08
(a)(2) ....................................................... 6.09
(b) .......................................................... 2.04
318 (a) .......................................................... 13.01
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
(b) .......................................................... N.A.
(c) .......................................................... 13.01
</TABLE>
N.A. means not applicable
* This Cross-Reference Table is not part of the Indenture.
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 ...............................................................................................1
SECTION 1.01. DEFINITIONS................................................................1
SECTION 1.02. OTHER DEFINITIONS.........................................................17
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.........................17
SECTION 1.04. RULES OF CONSTRUCTION.....................................................17
ARTICLE 2 ..............................................................................................18
SECTION 2.01. FORM AND DATING...........................................................18
SECTION 2.02. EXECUTION AND AUTHENTICATION..............................................19
SECTION 2.03. REGISTRAR AND PAYING AGENT................................................20
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.......................................20
SECTION 2.05. REGISTRATION OF TRANSFER AND EXCHANGE.....................................20
SECTION 2.06. REPLACEMENT NOTES.........................................................26
SECTION 2.07. OUTSTANDING NOTES.........................................................26
SECTION 2.08. TREASURY NOTES............................................................27
SECTION 2.09. TEMPORARY NOTES...........................................................27
SECTION 2.10. CANCELLATION..............................................................27
SECTION 2.11. DEFAULTED INTEREST........................................................28
SECTION 2.12. NOTES ISSUABLE IN THE FORM OF A GLOBAL NOTE...............................28
ARTICLE 3 ..............................................................................................30
SECTION 3.01. NOTICES TO TRUSTEE........................................................30
SECTION 3.02. SELECTION OF NOTES TO BE PURCHASED
OR REDEEMED .............................................................30
SECTION 3.03. NOTICE OF REDEMPTION......................................................31
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION............................................32
SECTION 3.05. DEPOSIT OF REDEMPTION OR PURCHASE PRICE...................................32
SECTION 3.06. NOTES REDEEMED IN PART....................................................33
SECTION 3.07. OPTIONAL REDEMPTION.......................................................33
SECTION 3.08. MANDATORY REDEMPTION......................................................34
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS
PROCEEDS.................................................................34
ARTICLE 4 ..............................................................................................37
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 4.01. PAYMENT OF NOTES..........................................................37
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY...........................................37
SECTION 4.03. REPORTS...................................................................38
SECTION 4.04. COMPLIANCE CERTIFICATE....................................................39
SECTION 4.05. TAXES.....................................................................39
SECTION 4.06. STAY, EXTENSION AND USURY LAWS............................................40
SECTION 4.07. RESTRICTED PAYMENTS.......................................................40
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTION
AFFECTING RESTRICTED SUBSIDIARIES........................................43
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK .........................................................44
SECTION 4.10. ASSET SALES...............................................................46
SECTION 4.11. TRANSACTIONS WITH AFFILIATES..............................................47
SECTION 4.12. LIENS.....................................................................48
SECTION 4.13. SALE AND LEASEBACK TRANSACTIONS...........................................48
SECTION 4.14. OFFER TO PURCHASE UPON CHANGE OF CONTROL..................................48
SECTION 4.15. CORPORATE EXISTENCE.......................................................50
SECTION 4.16. ANTI-LAYERING.............................................................51
SECTION 4.17. LINE OF BUSINESS..........................................................51
ARTICLE 5 ..............................................................................................52
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS..................................52
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.........................................52
ARTICLE 6 ..............................................................................................53
SECTION 6.01. EVENTS OF DEFAULT.........................................................53
SECTION 6.02. ACCELERATION..............................................................55
SECTION 6.03. OTHER REMEDIES............................................................56
SECTION 6.04. WAIVER OF PAST DEFAULTS...................................................56
SECTION 6.05. CONTROL BY MAJORITY.......................................................56
SECTION 6.06. LIMITATION ON SUITS.......................................................56
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.............................57
SECTION 6.08. COLLECTION SUIT BY TRUSTEE................................................57
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM..........................................57
SECTION 6.10. PRIORITIES................................................................58
SECTION 6.11. UNDERTAKING FOR COSTS.....................................................59
ARTICLE 7 ..............................................................................................59
SECTION 7.01. DUTIES OF TRUSTEE.........................................................59
SECTION 7.02. RIGHTS OF TRUSTEE.........................................................60
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 7.04. TRUSTEE'S DISCLAIMER......................................................61
SECTION 7.05. NOTICE OF DEFAULTS........................................................61
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES................................62
SECTION 7.07. COMPENSATION AND INDEMNITY................................................62
SECTION 7.08. REPLACEMENT OF TRUSTEE....................................................63
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC..........................................64
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.............................................64
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST
THE COMPANY .............................................................65
ARTICLE 8 ..............................................................................................65
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE
OR COVENANT DEFEASANCE ..................................................65
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE............................................65
SECTION 8.03. COVENANT DEFEASANCE.......................................................66
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE................................66
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO
BE HELD IN TRUST; OTHER MISCELLANEOUS
PROVISIONS...............................................................68
SECTION 8.06. REPAYMENT TO THE COMPANY..................................................68
SECTION 8.07. REINSTATEMENT.............................................................69
ARTICLE 9 ..............................................................................................69
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF THE NOTES...................................69
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES..........................................70
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.......................................72
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.........................................72
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES..........................................73
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC...........................................73
ARTICLE 10 .............................................................................................73
SECTION 10.01. AGREEMENT TO SUBORDINATE................................................73
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.....................................74
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT........................................74
SECTION 10.04. ACCELERATION OF NOTES....................................................75
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER......................................75
SECTION 10.06. NOTICE BY COMPANY........................................................76
SECTION 10.07. SUBROGATION..............................................................76
SECTION 10.08. RELATIVE RIGHTS..........................................................76
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY
COMPANY.................................................................77
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.................................77
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.......................................77
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION....................................78
SECTION 10.13. AMENDMENTS...............................................................78
ARTICLE 11 .............................................................................................78
SECTION 11.01. SUBSIDIARY GUARANTEE.....................................................78
SECTION 11.02. EXECUTION AND DELIVERY OF
SUBSIDIARY GUARANTEE ...................................................80
SECTION 11.03. GUARANTEEING SUBSIDIARIES
MAY CONSOLIDATE, ETC., ON CERTAIN
TERMS...................................................................80
SECTION 11.04. RELEASES FOLLOWING SALE OF ASSETS........................................81
SECTION 11.05. ADDITIONAL GUARANTEEING SUBSIDIARIES.....................................82
SECTION 11.06. LIMITATION ON GUARANTEEING SUBSIDIARY
LIABILITY...............................................................82
SECTION 11.07. "TRUSTEE" TO INCLUDE PAYING AGENT........................................82
ARTICLE 12 .............................................................................................83
SECTION 12.01. AGREEMENT TO SUBORDINATE.................................................83
SECTION 12.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.....................................83
SECTION 12.03. DEFAULT ON DESIGNATED GUARANTOR SENIOR
DEBT....................................................................84
SECTION 12.04. ACCELERATION OF NOTES....................................................85
SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER......................................85
SECTION 12.06. NOTICE BY GUARANTEEING SUBSIDIARY........................................85
SECTION 12.07. SUBORDINATION............................................................86
SECTION 12.08. RELATIVE RIGHTS..........................................................86
SECTION 12.09. SUBORDINATION MAY NOT BE IMPAIRED BY
GUARANTEEING SUBSIDIARY ................................................86
SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.................................87
SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT.......................................87
SECTION 12.12. AUTHORIZATION TO EFFECT SUBORDINATION....................................87
SECTION 12.13. AMENDMENTS...............................................................88
ARTICLE 13 .............................................................................................88
SECTION 13.01. TRUST INDENTURE ACT CONTROLS.............................................88
SECTION 13.02. NOTICES..................................................................88
SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH
OTHER HOLDERS OF NOTES .................................................89
SECTION 13.04. CERTIFICATE AND OPINION AS TO
CONDITIONS PRECEDENT ...................................................89
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE
OR OPINION .............................................................90
SECTION 13.06. RULES BY TRUSTEE AND AGENTS..............................................90
SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS .............................................90
SECTION 13.08. GOVERNING LAW............................................................90
SECTION 13.09. NO ADVERSE INTERPRETATION OF
OTHER AGREEMENTS .......................................................90
SECTION 13.10. SUCCESSORS...............................................................91
SECTION 13.11. SEVERABILITY.............................................................91
SECTION 13.12. COUNTERPART ORIGINALS....................................................91
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.........................................91
SIGNATURES...............................................................................92
</TABLE>
vii
<PAGE> 9
INDENTURE dated as of August 4, 1997 between Graham-Field Health
Products, Inc. ("the Company"), the Guaranteeing Subsidiaries and American Stock
Transfer & Trust Company, as trustee (the "Trustee").
The Company, the Guaranteeing Subsidiaries and the Trustee agree as
follows for the benefit of each other and for the equal and ratable benefit of
the holders (the "Holders") of the 9.-3/4% Senior Subordinated Notes due 2007
(the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness secured by a Lien encumbering any assets acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or, indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Agent" means the Registrar or any Paying Agent.
"Asset Sale" means (i) the sale, lease, conveyance, or other disposition
by the Company or any of its Restricted Subsidiaries of any assets (including,
without limitation, by way of a sale and leaseback transaction) other than in
the ordinary course of business and (ii) the issue or sale by the Company or any
of its Restricted Subsidiaries of Equity Interests of any of the Company's
Restricted Subsidiaries, in the case of clauses (i) and (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $3.0 million or (b) for net proceeds in excess of $3.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to
another Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii)
a Restricted Payment that is permitted by Section 4.07 and (iv) the sale and
leaseback of any assets within 90 days of the acquisition of such assets will
not be deemed to be Asset Sales.
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"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited).
"Cash Equivalents" means (i) U.S. dollars, (ii) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than one year from the
date of acquisition, (iii) certificates of deposit and eurodollar time deposits
with maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case with any commercial bank or trust company having capital and
surplus in excess of $300 million, (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution meeting
the qualifications specified in clause (iii) above, (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies,
Inc. ("S&P") and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness with a rating of "A" or
higher from S&P or "A2" or higher from Moody's.
"Change of Control" means the occurrence of any of the following: (i) any
sale,
2
<PAGE> 11
lease, transfer, conveyance or other disposition (other than by way of merger or
consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as defined in Section 13(d) of the Exchange Act) or
"group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other
than a Permitted Holder; (ii) the adoption of a plan for the liquidation or
dissolution of the Company; (iii) the Company consolidates with, or merges with
or into, another "person" (as defined above) or "group" (as defined above) other
than a Permitted Holder, in a transaction or series of related transactions in
which the Voting Stock of the Company is converted into or exchanged for cash,
securities or other property, other than any transaction where (A) the
outstanding Voting Stock of the Company is converted into or exchanged for
Voting Stock (other than Disqualified Stock) of the surviving or transferee
corporation and (B) either (1) the "beneficial owners" (as defined in Rule 13d-3
under the Exchange Act) of the outstanding Voting Stock of the Company
immediately prior to such transaction own beneficially, directly or indirectly
through one or more Subsidiaries, not less than a majority of the total
outstanding Voting Stock of the surviving or transferee corporation immediately
after such transaction or (2) if, immediately prior to such transaction the
Company is a direct or indirect Subsidiary of any other Person (each such other
Person, the "Holding Company"), the "beneficial owners" (as defined above) of
the outstanding Voting Stock of such Holding Company immediately prior to such
transaction own beneficially, directly or indirectly through one or more
Subsidiaries, not less than a majority of the outstanding Voting Stock of the
surviving or transferee corporation immediately after such transaction; (iv) the
consummation of any transaction or series of related transactions (including,
without limitation, by way of merger or consolidation) the result of which is
that any "person" (as defined above) or "group" (as defined above) other than a
Permitted Holder becomes the "beneficial owner" (as defined above) of more than
50% of the voting power of the Voting Stock of the Company or (v) during any
consecutive two-year period, the first day on which a majority of the members of
the Board of Directors of the Company who were members of the Board of Directors
of the Company at the beginning of such period are not Continuing Directors.
"Commission" means the Securities and Exchange Commission.
"Consolidated EBITDA" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period, plus, to the extent deducted in computing Consolidated Net Income,
(i) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (ii) Consolidated Interest Expense of
such Person for such period, (iii) depreciation and amortization (including
amortization of goodwill and other intangibles) and all other non-cash charges
(excluding any such noncash charge to the extent that it represents an accrual
of or reserve for cash charges in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period and (iv) any extraordinary or non-recurring loss
and any net loss realized in connection with either any Asset Sale or the
extinguishment of Indebtedness, in each case, on a consolidated basis determined
in accordance with GAAP.
3
<PAGE> 12
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to
compute Consolidated EBITDA only to the extent (and in the same proportion) that
the Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the interest expense of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP
(including amortization of original issue discount and deferred financing costs,
(except as set forth in the proviso to this definition), non-cash interest
payments, the interest component of all payments associated with Capital Lease
Obligations, net payments, if any, pursuant to Hedging Obligations and imputed
interest with respect to Attributable Debt; provided, however, that in no event
shall any amortization of deferred financing costs incurred on or prior to the
date of the Indenture in connection with the Credit Facility or any amortization
of deferred financing costs incurred in connection with the issuance of the
Notes be included in Consolidated Interest Expense).
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid to the referent Person or a Restricted
Subsidiary thereof in cash, (ii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be included, (iii) the cumulative effect of a change in
accounting principles shall be excluded, (iv) the portion of net income of the
Company and its Consolidated Subsidiaries allocable to investments in
unconsolidated Persons to the extent that cash dividends or distributions have
not actually been received by the Company or one of its Consolidated
Subsidiaries shall be excluded and (v) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of Net Income
is not, at the date of determination, permitted without any prior governmental
approval (which has not been obtained) or, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary.
"Consolidated Net Worth" means, with respect to any Person at any date,
the consolidated stockholders' equity of such Person less the amount of such
stockholders' equity attributable to Redeemable Capital Stock of such Person and
its Subsidiaries, as determined in accordance with GAAP.
4
<PAGE> 13
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the relevant Person who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board of Directors at the
time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 13.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Facility" means that certain revolving credit and security
agreement, providing for up to $75 million aggregate principal amount of
borrowings, dated as of December 10, 1996 and as amended through the date of the
Indenture, by and among the Company, certain Subsidiaries and IBJ Schroder Bank
& Trust Company as lender and agent, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time (together with any amendment, modification,
renewal, refunding, replacement or refinancing to or of any of the foregoing
(collectively, a "Modification") or to any Modification, ad infinitum,
including, without limitation, any agreement modifying the maturity or
amortization schedule of or refinancing or refunding all or any portion of the
Indebtedness thereunder or increasing the amount that may be borrowed under such
agreement or any successor agreement, whether or not among the same parties.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Notes" means any Notes other than a Global Note.
"Depositary" means, with respect to Notes issuable or issued in whole or
in part in global form hereunder, unless otherwise specified by the Company
pursuant to Section 2.12, The Depository Trust Company, New York, New York, or
any successor thereto registered as a clearing agency under the Exchange Act or
other applicable statute or regulations.
"Designated Guarantor Senior Debt" means, with respect to any Guaranteeing
Subsidiary, (i) so long as any Indebtedness of such Guaranteeing Subsidiary is
outstanding under the Credit Facility, such Indebtedness, and (ii) any other
Guarantor Senior Debt permitted under the Indenture the principal amount of
which is $10.0 million or more and that has been designated by the Guaranteeing
Subsidiary as "Designated Guarantor Senior Debt."
"Designated Senior Debt" means (i) so long as any Indebtedness is
outstanding under the Credit Facility, such Indebtedness, and (ii) any other
Senior Debt permitted under the Indenture the principal amount of which is $10.0
million or more and that has
5
<PAGE> 14
been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means that portion of any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event (other than an event
which would constitute a Change of Control), matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof (except, in each case, upon the
occurrence of a Change of Control) on or prior to the final maturity date of the
Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Excess Amount" means, with respect to any Credit Facility, the amount by
which aggregate payments of principal made thereunder exceed the aggregate
payments of principal required to be made through the date of determination, in
respect of any term Indebtedness, under the amortization schedule of such Credit
Facility.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means Notes having terms substantially identical in all
respects to the Rule 144A Notes for which they are to be exchanged in the
Exchange Offer, except that (i) the Exchange Notes will have been registered
under the Securities Act and, therefore, will not bear legends restricting the
transfer thereof, and (ii) Holders of Exchange Notes will not be entitled to
certain rights of holders of Rule 144A Notes under the Registration Rights
Agreement.
"Exchange Offer" means the offer the Company is to make pursuant to the
Registration Rights Agreement to exchange Rule 144A Notes for Exchange Notes.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than the Indebtedness under the Credit Facility)
in existence on the date hereof until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the Consolidated Interest Expense of such Person for such period and (ii)
any interest expense on Indebtedness of another Person that is (A) Guaranteed by
the referent Person or one of its Restricted Subsidiaries (whether or not such
Guarantee is called upon) or (B) secured by a Lien on assets of such Person or
one of its Restricted Subsidiaries (whether or not such Lien is called upon);
provided that with respect to clause (ii)(B), the amount of Indebtedness (and
attributable interest expense) shall be equal to the lesser of (i) the principal
amount of the Indebtedness secured by the assets of such Person or one of its
Restricted Subsidiaries and (ii) the fair market value (as determined by the
Board of
6
<PAGE> 15
Directors of such Person and set forth in an Officers' Certificate delivered to
the Trustee) of the assets securing such Indebtedness and (iii) the product of
(a) all cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Subsidiary) on any series of preferred stock of such Person,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges of such Person and its
Restricted Subsidiaries for such period. In the event that the Company or any of
its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but on or prior to the date on which
the event for which the calculation of the Fixed Charge Coverage Ratio is made
(the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable reference period.
For purposes of making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the applicable reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the applicable reference period and shall give pro
forma effect to the Indebtedness and the Consolidated EBITDA of the Person which
is the subject of any such acquisition and (ii) the Consolidated EBITDA
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company
organized and existing under the laws of any jurisdiction outside the United
States.
"GAAP" means generally accepted accounting principles set forth in the
opinion and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, the Commission or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect from time to
time, provided, however, that all reports and other financial information
provided by the Company to the Holders, the Trustee and/or the Commission shall
be prepared in accordance with GAAP, as in effect on the date of such report or
other financial information.
"Global Note" means a Note which is executed by the Company and
authenticated and delivered by the Trustee to the Depository or pursuant to the
Depository's
7
<PAGE> 16
instruction, all in accordance with this Indenture and pursuant to a written
order of the Company, which shall be registered in the name of the Depositary or
its nominee and which shall represent, and shall be denominated in an amount
equal to the aggregate principal amount of, all of the Notes or any portion
thereof, but not including any Notes that are no longer outstanding, and having
the same terms, including, without limitation, the same original issue date,
date or dates on which principal is due, and rate of interest.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
indebtedness.
"Guarantee Obligations" means any principal, interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
date provided in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law), penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable with
respect to the Subsidiary Guarantees.
"Guaranteeing Subsidiary" means each of (i) the Restricted Subsidiaries of
the Company in existence on the date of the Indenture and (ii) any future
Restricted Subsidiary and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates and (iii) indemnity agreements and arrangements
entered into in connection with the agreements and arrangements described in
clauses (i) and (ii).
"Holder" means a Person in whose name a Note is registered.
"Incur or incur" means, with respect to any Indebtedness (including
Acquired Debt), to create, incur, issue, assume, guaranty or otherwise become
directly or indirectly liable for or with respect to, or become responsible for,
the payment of such Indebtedness (including Acquired Debt); provided that (i)
neither the accrual of interest nor the accretion of original issue discount
shall be considered an incurrence of Indebtedness and (ii) the assumption of
Indebtedness by the surviving entity of a transaction permitted by Section
11.03(a) hereof or the last sentence of Section 5.01 hereof in existence at the
time of such transaction shall not be deemed an incurrence of Indebtedness. The
term "incurrence" has corresponding meaning.
8
<PAGE> 17
"Indebtedness" means, with respect to any Person without duplication, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or representing
Capital Lease Obligations or the deferred and unpaid balance of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, or representing any Hedging Obligations if and to the
extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person), the maximum fixed repurchase price of Disqualified
Stock issued by such Person and the liquidation preference of preferred stock
issued by such Person, in each case if held by any Person other than the Company
or a Wholly Owned Restricted Subsidiary of the Company, and, to the extent not
otherwise included, the Guarantee by such Person of any such indebtedness of any
other Person.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Indirect Participant" means a Person who holds an interest through a
Participant.
"Interest Payment Date" shall have the meaning assigned to such term in
the Notes.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of the Company, or any
Restricted Subsidiary of the Company issues Equity Interests, such that, after
giving effect to any such sale or disposition, such Person is no longer a
Restricted Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale, disposition or issuance equal to the
fair market value of the Equity Interests of such Person held by the Company or
such Restricted Subsidiary immediately following any such sale, disposition or
issuance.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation executive order to remain closed. If a payment date is a Legal
Holiday at a place of payment, payment may be made at that place on the next
succeeding day that is
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<PAGE> 18
not a Legal Holiday, and no interest shall accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest).
"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received Upon the sale or other disposition of any
non-cash consideration received In any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, amounts
required to be applied to the repayment of Indebtedness (other than long-term
Indebtedness of a Restricted Subsidiary of such Person and Indebtedness under
the Credit Facility) secured by a Lien on the asset or assets that are the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Note Custodian" means the Trustee, as custodian for the Depository with
respect to the Notes in global form, or any successor entity thereto.
"Notes" means the Rule 144A Notes and Exchange Notes issued under this
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<PAGE> 19
Indenture.
"Obligations" means any principal, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided in the documentation with respect thereto, whether or not such interest
is an allowed claim under applicable law), penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, delivered to the Trustee that meets
the requirements of Section 13.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 13.05 hereof.
The counsel may be an employee of or counsel to the Company, any Subsidiary of
the Company or the Trustee.
"Pari Passu Indebtedness" means Indebtedness of the Company which ranks
pari passu in right of payment with the Notes.
"Permitted Holder" means BIL and its current, former and future employees,
members, stockholders, affiliates, directors and officers.
"Permitted Investments" means (i) Investments in the Company or in a
Restricted Subsidiary of the Company (including, without limitation, Guarantees
of the Indebtedness and/or other Obligations of the Company and/or any
Restricted Subsidiary of the Company, so long as such Indebtedness and/or other
Obligations are permitted under the Indenture), (ii) Investments in Cash
Equivalents, (iii) Investments by the Company or any Restricted Subsidiary of
the Company in, or the purchase of the securities of, a Person if, as a result
of such Investment, (a) such person becomes a Restricted Subsidiary of the
Company or (b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Restricted Subsidiary of the Company, (iv) Investments in
accounts and notes receivable acquired in the ordinary course of business, (v)
any non-cash consideration received in connection with an Asset Sale that
complies with Section 4.10 hereof and (vi) Investments in connection with
Hedging Obligations permitted to be incurred under Section 4.09 hereof.
"Permitted Junior Securities" means Equity Interests or debt securities of
the
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<PAGE> 20
Company, that are unsecured, subordinated at least to the same extent as the
Notes to Senior Debt of the Company and guarantees of any such debt by any
Guaranteeing Subsidiary that are unsecured and subordinated at least to the same
extent as the Subsidiary Guarantee of such Guaranteeing Subsidiary to the Senior
Debt of such Guaranteeing Subsidiary, as the case may be, and have a final
maturity date at least as late as the final maturity date of, and have a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Notes.
"Permitted Liens" means (i) Liens on property of the Company and any
Guaranteeing Subsidiary securing (a) Senior Debt and/or (b) Hedging Obligations
permitted to be incurred under the Indenture; (ii) Liens in favor of the Company
or any of its Restricted Subsidiaries; (iii) Liens on property of a Person
existing at the time such Person is merged with or into or consolidated with the
Company or any Restricted Subsidiary of the Company; provided, that such Liens
were not incurred in connection with, or in contemplation of, such merger or
consolidation and do not extend to any assets of the Company or any Restricted
Subsidiary of the Company other than the assets acquired in such merger or
consolidation; (iv) Liens on property of a Person existing at the time such
Person becomes a Restricted Subsidiary of the Company; provided that such Liens
were not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary and do not extend to any assets of the Company
or any other Restricted Subsidiary of the Company; (v) Liens on property
existing at the time of acquisition thereof by the Company or any Restricted
Subsidiary of the Company; provided that such Liens were not incurred in
connection with, or in contemplation of, such acquisition and do not extend to
any assets of the Company or any of its Restricted Subsidiaries other than the
property so acquired; (vi) Liens to secure the performance of statutory
obligations, surety or appeal bonds or performance bonds, or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's, or other like
Liens, in any case incurred in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as is
required by GAAP shall have been made therefor; (vii) Liens existing on the date
of the Indenture; (viii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (ix) Liens to secure (A)
Indebtedness (including Capital Lease Obligations) permitted by clause (iii) of
the second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness or the assets which are the subject of the sale leaseback
transaction, as the case may be and (B) Indebtedness of any Restricted
Subsidiary (other than a Guaranteeing Subsidiary) permitted to be incurred by
such Restricted Subsidiary pursuant to the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock;" (x) Liens incurred in the
ordinary course of business of the Company or any Restricted Subsidiary of the
Company with respect to obligations not constituting Indebtedness for borrowed
money that do not exceed $10.0 million in the aggregate at any one time
outstanding; (xi) Liens securing
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Indebtedness incurred to refinance Indebtedness that has been secured by a Lien
permitted under the Indenture; provided that (a) any such Lien shall not extend
to or cover any assets or property not securing the Indebtedness so refinanced
and (b) the refinancing Indebtedness secured by such Lien shall have been
permitted to be incurred under the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock;" (xii) Liens in favor of the lessee on
instruments which are the subject of leases entered into in the ordinary course
of business; provided that any such Lien shall not extend to or cover any assets
or property of the Company and its Restricted Subsidiaries that is not the
subject of any such lease; and (xiii) Liens to secure Attributable Debt and or
that is permitted to be incurred pursuant to the covenant entitled "Sale and
Leaseback Transactions;" provided that any such Lien shall not extend to or
cover any assets of the Company or any Guaranteeing Subsidiary other than the
assets which are the subject of the sale leaseback transaction in which the
Attributable Debt is incurred.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date at least as late as the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred by the Company or
by the Restricted Subsidiary who is the obliger on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be required to be
redeemed prior to the Stated Maturity with respect to the principal of any Note
or is redeemable at the option of the holder thereof at any time prior to any
such Stated Maturity, or is convertible into or
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<PAGE> 22
exchangeable for debt securities at any time prior to any such Stated Maturity.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of August 4, 1997 by and between the Company, the Guaranteeing
Subsidiaries and the Initial Purchasers, as such agreement may be amended,
modified or supplemented from time to time.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the date of the Indenture
and any and all businesses that in the good faith judgment of the Board of
Directors of the Company are materially related businesses.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt or Guarantor Senior Debt.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the referent Person that
is not an Unrestricted Subsidiary.
"Rule 144A Notes" means the Company's 9.-3/4% Senior Subordinated Notes
due 2007, as initially issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means (a) with respect to the Company, (i) all Obligations
permitted to be incurred pursuant to the Indenture under or in respect of the
Credit Facility and (ii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Indenture and any Hedging Obligation permitted to
be incurred under the terms of the Indenture, unless the instrument under which
the foregoing is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes and (b) with respect to any
Guaranteeing Subsidiary, (i) all Obligations permitted to be incurred pursuant
to the Indenture under or in respect of the Credit Facility and (ii) any other
Indebtedness permitted to be incurred by such Guaranteeing Subsidiary under the
terms of the Indenture and any Hedging Obligation permitted to be incurred under
the terms of the Indenture, unless the instrument under which the foregoing is
incurred expressly provided that such Indebtedness is on parity with or
subordinated in right of payment to the Subsidiary Guarantee of such
Guaranteeing Subsidiary. Notwithstanding
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<PAGE> 23
anything to the contrary in the foregoing, Senior Debt will not include (w) any
liability for federal, state, local or other taxes; (x) any Indebtedness of the
Company or any Guaranteeing Subsidiary to the Company or any Subsidiary of the
Company or any of their respective Affiliates, (y) any trade payables or (z) any
Indebtedness that is incurred in violation of the Indenture.
"Shelf Registration Statement" means the Registration Statement with
respect to the Notes which the Company is required to file pursuant to the
Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means any guarantee of the Notes by a Guaranteeing
Subsidiary.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Transfer Restricted Securities" means Notes or beneficial interest
therein that bear or are required to bear the legend set forth in Section 2.05
hereof.
"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
Board Resolution,
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<PAGE> 24
but only to the extent that such Subsidiary: (i) has no Indebtedness other than
Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (iii) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (iv) has not guaranteed or otherwise directly
or indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by Section 4.07 hereof. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under Section 4.09 hereof, the Company shall be in default of such covenant
from the date of such incurrence). The Board of Directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.09 hereof and
(ii) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding principal amount of such Indebtedness into (ii) the total of the
product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such
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<PAGE> 25
Person or by one or more Wholly Owned Restricted Subsidiaries of such Person or
by such Person and one or more Wholly Owned Restricted Subsidiaries of such
Person.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Term Defined in
Section
-------
<S> <C> <C>
"Affiliate Transaction"........... 4.11
"Asset Sale Offer"................ 3.09
"Change of Control Offer"......... 4.14
"Change of Control Payment"....... 4.14
"Change of Control Payment Date".. 4.14
"Covenant Defeasance"............. 8.03
"Event of Default"................ 6.01
"Excess Proceeds"................. 4.10
"Legal Defeasance"................ 8.02
"Offer Amount".................... 3.09
"Offer Period".................... 3.09
"Paying Agent".................... 2.03
"Purchase Date"................... 3.09
"Registrar"....................... 2.03
"Restricted Payments"............. 4.07
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
All terms used in this Indenture that are defined by the TIA, defined by
TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires, a term has the meaning assigned to
it.
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural include
the singular;
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(e) provisions apply to successive events and transactions;
(f) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement of successor sections or
rules adopted by the Commission from time to time; and
(g) For purposes of making any determination of any amount under any
single definition set forth in Section 1.01 hereof, such
determination shall be made without double counting of any item;
provided that with respect to the definition of "Fixed Charge
Coverage Ratio" it shall not be deemed to be double counting if an
item is included in the calculation of each of "Consolidated EBITDA"
and "Fixed Charges."
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
The Rule 144A Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A. Subject to Section 2.06, the
Rule 144A Notes shall be in an aggregate principal amount no greater than
$100,000,000; provided, that if Exchange Notes are issued hereunder pursuant to
the Exchange Offer, the aggregate maximum principal amount of Rule 144A Notes
shall be reduced by the principal amount of Exchange Notes so issued. The
Exchange Notes, when and if issued, and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit B. Subject to
Section 2.06, the Exchange Notes shall be in an aggregate principal amount no
greater than $100,000,000 less the principal amount of Rule 144A Notes not
exchanged for the Exchange Notes in the Exchange Offer. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The Notes may be initially issued either in the form of a Global
Note or Notes or in the form of Definitive Notes or both. A Global Note shall
represent such of the outstanding Notes as shall be specified therein and shall
provide that it shall represent the aggregate amount of outstanding Notes from
time to time endorsed thereon and that the aggregate amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the amount of
outstanding Notes represented thereby shall be made by the Trustee or an Agent
thereof, at the direction of the Trustee, in accordance with written
instructions given by the Holder thereof. Definitive Notes shall be printed,
lithographed or engraved
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<PAGE> 27
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Notes may be listed, all as determined by the officers
executing such Notes, as evidenced by their execution of such Notes.
The terms and provisions contained in the Notes shall constitute,
and are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company, the Guaranteeing Subsidiaries and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds that
office at the time the Note is authenticated, the Note nevertheless shall be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall authenticate Notes for original issue up to the
aggregate principal amount stated in paragraph 4 of the Notes, upon a written
order of the Company signed by two Officers. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.06.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate.
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<PAGE> 28
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain or cause to be maintained through the
Trustee or such other Person as may be appointed hereunder an office or agency
where Notes may be presented for registration of transfer or for exchange
("Registrar") and an office or agency where Notes may be presented for payment
("Paying Agent"). The Registrar shall keep a register of the Notes and of their
transfer and exchange. The Company may appoint one or more co-registrars and one
or more additional paying agents. The term "Registrar" includes any co-registrar
and the term "Paying Agent" includes any additional paying agent. The Company
may change any Paying Agent or Registrar without notice to any Holder. The
Company shall notify the Trustee in writing of the name and address of any Agent
not a party to this Indenture, such notification to be delivered, together with
a certificate of such Agent that it agrees to perform its duties in accordance
with the procedures established by the Trustee and with the terms of this
Indenture, to the Trustee prior to the date such Agent assumes its duties
hereunder. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit of
the Holders or the Trustee all money held by the Paying Agent for the payment of
principal of or premium, if any, or interest on the Notes, and will notify the
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent.
SECTION 2.05. REGISTRATION OF TRANSFER AND EXCHANGE.
(a) With respect to the transfer and exchange of Definitive Notes:
when Definitive Notes are presented to the Trustee with the request (x) to
register the transfer of the Definitive Notes or (y) to exchange such Definitive
Notes for an equal principal amount of Definitive Notes of other authorized
denominations, the Trustee shall register the transfer or make the exchange as
requested if its requirements for such transactions are met; provided, however,
that the Definitive Notes presented or surrendered for register of transfer or
exchange:
(A) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Trustee duly
executed by
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the Holder thereof or by its attorney, duly authorized in writing; and
(B) shall, in the case of Transfer Restricted Securities that
are Definitive Notes, except if exchanged for an Exchange Note in the
Exchange Offer, be accompanied by the following additional information
and documents, as applicable
(1) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for registration in the
name of such Holder, without transfer, a certification from
such Holder to that effect (in substantially the form of
Exhibit C hereto); or
(2) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act) in reliance on Rule
144A under the Securities Act or pursuant to an exemption from
registration in accordance with Rule 144 under the Securities
Act or pursuant to an effective registration statement under
the Securities Act, a certification to that effect (in
substantially the form of Exhibit C hereto); or
(3) if such Transfer Restricted Security is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act, a
certification to that effect (in substantially the form of
Exhibit C hereto) and an opinion of counsel reasonably
acceptable to the Company and to the Registrar to the effect
that such transfer is in compliance with the Securities Act.
(b) The following restrictions apply to any transfer of a Definitive
Note for a beneficial interest in a Global Note. A Definitive Note may not be
exchanged for a beneficial interest in a Global Note except until and upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee of
a Definitive Note, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Trustee, together with:
(A) if such Definitive Note is a Transfer Restricted Security
and such transfer is not being made in connection with the Exchange
Offer, certification, substantially in the form of Exhibit C hereto,
that such Definitive Note is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act)
in accordance with Rule 144A under the Securities Act; and
(B) whether or not such Definitive Note is a Transfer
Restricted Security, written instructions directing the Trustee to make
an endorsement
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on the Global Note to reflect an increase in the aggregate principal
amount of the Notes represented by the Global Note,
then the Trustee shall cancel such Definitive Note and cause, in accordance with
the standing instructions and procedures existing between it and the Depositary,
the aggregate principal amount of Notes represented by the Global Note to be
increased accordingly. If no Global Notes are then outstanding, the Company
shall issue and, upon receipt of a written authentication order in the form of
an Officers' Certificate, the Trustee shall authenticate a new Global Note in
the appropriate principal amount.
(c) The transfer and exchange of Global Notes or beneficial
interests therein shall be effected through the Depositary, in accordance with
this Indenture (including the restrictions on transfer set forth herein) and the
procedures of the Depositary therefor.
(d) With respect to the transfer of a beneficial interest in a
Global Note for a Definitive Note:
(A) Any person having a beneficial interest in a Global Note
may upon request exchange such beneficial interest for a Definitive
Note. Upon receipt by the Trustee of written instructions or such other
form of instructions as is customary for the Depositary or its nominee
on behalf of any person having a beneficial interest in a Global Note
constituting a Transfer Restricted Security only, except if exchanged
for an Exchange Note in the Exchange Offer, the following additional
information and documents (all of which may be submitted by facsimile):
(1) if such beneficial interest is being transferred
to the person designated by the Depositary as being the
beneficial owner, a certification from such person to that
effect (in substantially the form of Exhibit C hereto); or
(2) if such beneficial interest is being transferred
to a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A under
the Securities Act or pursuant to an exemption from
registration in accordance with Rule 144 under the Securities
Act or pursuant to an effective registration statement under
the Securities Act, a certification to that effect from the
transferor (in substantially the form of Exhibit C hereto); or
(3) if such beneficial interest is being transferred
in reliance on another exemption from the registration
requirements of the Securities Act, a certification to that
effect from the transferee or transferor (in substantially the
form of Exhibit C
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hereto) and an opinion of counsel from the transferee or
transferor reasonably acceptable to the Company and to the
Registrar to the effect that such transfer is in compliance
with the Securities Act,
then the Trustee will cause, in accordance with the standing instructions and
procedures existing between it and the Depositary, the aggregate principal
amount of the Global Note to be reduced and, following such reduction, the
Company will execute and, upon receipt of a written authentication order in the
form of an Officers' Certificate, the Trustee will authenticate and deliver to
the transferee a Definitive Note.
(B) Definitive Notes issued in exchange for a beneficial
interest in a Global Note pursuant to this Section 2.05 shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall in writing instruct the Trustee. The
Trustee shall deliver such Definitive Notes to the persons in whose
name such Notes are so registered.
(e) Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in subsection (f) of this Section 2.05), a Global
Note may not be transferred as a whole except by the Depositary to a nominee of
the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) The following relates to the authentication of Definitive Notes
in the absence of the Depositary. If at any time: (i) the Depositary for the
Notes notifies the Company that the Depositary is unwilling or unable to
continue as Depositary for the Global Notes and a successor Depositary for the
Global Notes is not appointed by the Company within 90 days after delivery of
such notice; or (ii) the Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Notes under this
Indenture, then the Company will execute, and the Trustee, upon receipt of a
written order in the form of an Officers' Certificate requesting the
authentication and delivery of Definitive Notes, will authenticate and deliver
Definitive Notes, in an aggregate principal amount equal to the principal amount
of the Global Notes, in exchange for such Global Notes.
(g) (A) Except as otherwise agreed to by the Company, the Trustee
and the Holder thereof or as permitted by the following paragraph (B), each Rule
144A Note certificate evidencing the Global Notes and the Definitive Notes (and
all Notes other than Exchange Notes issued in exchange therefor or substitution
thereof) shall bear a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR
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PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION UNDER SUCH LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HERETO AGREES NOT TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS Note UNLESS SUCH
OFFER, SALE OR OTHER TRANSFER IS (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON THE HOLDER REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (a)(2), (a)(3) OR
(a)(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY
FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR
FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND IN EACH OF THE
FOREGOING CASES SUCH OFFER, SALE OR OTHER TRANSFER IS IN COMPLIANCE WITH
ANY APPLICABLE STATE SECURITIES LAWS, SUBJECT TO THE COMPANY'S AND THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND
IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM
CONTAINED IN THE INDENTURE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE THEN
HOLDER OF THIS SECURITY AFTER THE RESALE RESTRICTION TERMINATION DATE. ANY
TRANSFEREE OF THIS SECURITY SHALL BE DEEMED TO HAVE REPRESENTED EITHER
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(A) THAT IT IS NOT USING THE ASSETS OF AN EMPLOYEE BENEFIT PLAN SUBJECT TO
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT ("ERISA") OR THE INTERNAL
REVENUE CODE (THE "CODE") TO PURCHASE THIS SECURITY OR (B) THAT ITS
PURCHASE AND CONTINUED HOLDING OF THE SECURITY WILL BE COVERED BY A U.S.
DEPARTMENT OF LABOR CLASS EXEMPTION (WITH RESPECT TO PROHIBITED
TRANSACTIONS UNDER SECTION 406(a) OF ERISA).
(B) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Note) pursuant to Rule 144 under the Securities Act or an
effective registration statement under the Securities Act (including
the Shelf Registration Statement):
(1) in the case of any Transfer Restricted Security
that is a Definitive Note, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security
for a Definitive Note that does not bear the legend set forth
above and rescind any restriction on the transfer of such
Transfer Restricted Security; and
(2) any such Transfer Restricted Security represented
by a Global Note shall not be subject to the provisions set
forth in (i) above (such sales or transfers being subject only
to the provisions of Section 2.05(c) hereof); provided,
however, that with respect to any request for an exchange of a
Transfer Restricted Security that is represented by a Global
Note for a Definitive Note that does not bear a legend, which
request is made in reliance upon Rule 144 or an effective
registration statement, the Holder thereof shall certify in
writing to the Registrar that such request is being made
pursuant to Rule 144 or an effective registration statement
(such certification to be substantially in the form of Exhibit
C hereto.)
(h) At such time as all beneficial interests in a Global Note have
either been exchanged for Definitive Notes, redeemed, repurchased or cancelled,
such Global Note shall be returned to or retained and cancelled by the Trustee.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for Definitive Notes, redeemed, repurchased or cancelled, the
principal amount of Notes represented by such Global Note shall be reduced and
an endorsement shall be made on such Global Note, by the Trustee or the Note
Custodian, at the direction of the Trustee, to reflect such reduction.
(i) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive Notes or Global Notes shall
be the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this
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Indenture, as the Definitive Notes or Global Notes surrendered upon such
registration of transfer or exchange.
The Registrar shall not be required (A) to issue, to register the
transfer of or to exchange Notes during a period beginning at the opening of
business 15 days before the day of any selection of Notes for redemption under
Section 3.02 hereof and ending at the close of business on the day of selection,
(B) to register the transfer of or to exchange any Note so selected for
redemption in whole or in part, except the unredeemed portion of any Note being
redeemed in part or (C) to register the transfer of or to exchange a Note
between a record date and the next succeeding Interest Payment Date.
No service charge shall be made to a Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable and any other expenses (including the fees
and expenses of the Trustee) in connection therewith (other than such transfer
tax or similar governmental charge payable upon exchanges pursuant to Section
2.06 or 9.05).
SECTION 2.06. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by two Officers, shall authenticate a replacement
Note if the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
the Agent or any authenticating agent from any loss which any of them may suffer
if a Note is replaced. The Company and the Trustee may charge for their expenses
in replacing a Note.
Every replacement Note is an additional obligation of the Company.
SECTION 2.07. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section 2.07 as not outstanding.
If a Note is replaced pursuant to Section 2.06, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01, it ceases to be outstanding and interest on it ceases to accrue as of the
date it is deemed paid. Upon a "legal defeasance" pursuant to Section 8.02 or a
"covenant defeasance"
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pursuant to Section 8.03, the Notes shall be deemed to be outstanding or not
outstanding as provided in the applicable Section 8.02 or 8.03.
Except as set forth in Section 2.08, a Note does not cease to be
outstanding because the Company or an Affiliate holds the Note.
SECTION 2.08. TREASURY NOTES.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or any Guaranteeing Subsidiary or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Notes which the Trustee actually knows
are so owned shall be so disregarded.
SECTION 2.09. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Company considers appropriate for temporary Notes. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate definitive
Notes in exchange for temporary Notes.
SECTION 2.10 CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation, and, upon request of the
Company, certification of their destruction shall be delivered to the Company
unless, by a written order signed by two Officers, the Company shall direct that
canceled Notes be returned to it. The Company may not issue new Notes to replace
Notes that it has paid or that have been delivered to the Trustee for
cancellation.
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SECTION 2.11. DEFAULTED INTEREST.
If the Company or any Guaranteeing Subsidiary defaults in a payment
of interest on the Notes, it shall pay the defaulted interest in any lawful
manner plus, to the extent lawful, interest payable on the defaulted interest,
to the Persons who are Holders on a subsequent special record date, in each case
at the rate provided in the Notes. The Company, with the consent of the Trustee,
shall fix each such special record date and payment date. At least 15 days
before the special record date, the Company (or, upon written request of the
Company, the Trustee, in the name of and at the expense of the Company) shall
mail to Holders a notice that states the special record date, the related
payment date and the amount of such interest to be paid.
SECTION 2.12. NOTES ISSUABLE IN THE FORM OF A GLOBAL NOTE.
(a) If the Company shall establish that the Notes are to be issued
in whole or in part in the form of one or more Global Notes, then the Company
shall execute and the Trustee or an agent thereof shall, in accordance with
Section 2.02 and the written order of the Company delivered to the Trustee or
its agent thereunder, authenticate and deliver such Global Note or Notes, which
(i) shall represent, and shall be denominated in an amount equal to the
aggregate principal amount of the outstanding Notes to be represented by such
Global Note or Notes, or such portion thereof as the Company shall specify in a
written order of the Company signed by two Officers, (ii) shall be registered in
the name of the Depositary for such Global Note or Notes or its nominee, (iii)
shall be delivered by the Trustee or its agent to the Depositary or pursuant to
the Depositary's instruction and (iv) shall bear a legend substantially to the
following effect: "Unless and until it is exchanged in whole or in part for
securities in definitive form, this security may not be transferred except as a
whole by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary. Unless this certificate is presented by an authorized
representative of the Depositary to the Company or its agent for registration of
transfer, exchange, or payment, and any certificate issued is registered in the
name of the nominee of the Depositary or in such other name as is requested by
an authorized representative of the Depositary (and any payment is made to the
nominee of the Depositary or to such other entity as is requested by an
authorized representative of the Depositary), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, the nominee of the Depositary, has an interest herein."
(b) Notwithstanding any other provision of this Section 2.12 or of
Section 2.05, and subject to the provisions of paragraph (c) below, a Global
Note may be transferred, in whole but not in part and in the manner provided in
Section 2.05, only to a nominee of the Depositary for such Global Note, or to
the Depositary, or a successor Depositary for such Global Note selected or
approved by the Company, or to a nominee
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of such successor Depositary.
(c) (i) If at any time the Depositary for a Global Note notifies the
Company that it is unwilling or unable to continue as Depositary for such Global
Note or if at any time the Depositary for the Notes shall no longer be eligible
or in good standing under the Exchange Act or any other applicable statute or
regulation, the Company shall appoint a successor Depositary with respect to
such Global Note. If a successor Depositary for such Global Note is not
appointed by the Company within 90 days after the Company receives such notice
or becomes aware of such ineligibility, the Company and the Guaranteeing
Subsidiaries will execute, and the Trustee or an agent thereof, upon receipt of
a written order of the Company signed by two Officers for the authentication and
delivery of individual Definitive Notes in exchange for such Global Note, will
authenticate and deliver, individual Definitive Notes of like tenor and terms in
an aggregate principal amount equal to the principal amount of the Global Note
in exchange for such Global Note.
(ii) The Company may at any time and in its sole discretion
determine that the Notes issued in the form of one or more Global Notes shall no
longer be represented by such Global Note or Notes. In such event the Company
will execute, and the Trustee, upon receipt of a written order of the Company
signed by two Officers for the authentication and delivery of individual
Definitive Notes in exchange in whole or in part for such Global Note, will
authenticate and deliver individual Definitive Notes of like tenor and terms in
an aggregate principal amount equal to the principal amount of such Global Note
or Notes in exchange for such Global Note or Notes.
(iii) If specified by the Company pursuant to a written order of the
Company signed by two Officers, the Depositary for a Global Note may surrender
such Global Note in exchange in whole or in part for individual Definitive Notes
of like tenor and terms on such terms as are acceptable to the Company and such
Depositary. Thereupon the Company shall execute, and the Trustee or an agent
thereof, upon a written order of the Company signed by two Officers, shall
authenticate and deliver, without service charge, (1) to each Person specified
by such Depositary a new Definitive Note or Notes of like tenor and terms and of
any authorized denomination as requested by such Person in an aggregate
principal amount equal to and in exchange for such Person's beneficial interest
as specified by such Depositary in the Global Note; and (2) to such Depositary a
new Global Note of like tenor and terms and in an authorized denomination equal
to the difference, if any, between the principal amount of the surrendered
Global Note and the aggregate principal amount of Definitive Notes delivered to
Holders thereof.
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(iv) In any exchange provided for in (i), (ii) or (iii) of this
paragraph (c), the Company will execute and the Trustee or an agent thereof will
authenticate and deliver individual Definitive Notes in registered form in
authorized denominations. Upon the exchange of the entire principal amount of a
Global Note for individual Definitive Notes, such Global Notes shall be
cancelled by the Trustee or an agent thereof. Except as provided in (iii) above,
Definitive Notes issued in exchange for a Global Note pursuant to this Section
shall be registered in such names and in such authorized denominations as the
Depositary for such Global Note, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct either the Trustee or the
Registrar. Such Trustee or the Registrar shall deliver such Definitive Notes to
the Persons in whose names such Notes are so registered.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30
days but not more than 60 days before a redemption date (unless a shorter period
is acceptable to the Trustee), an Officers' Certificate setting forth (i) the
Section of this Indenture pursuant to which the redemption shall occur, (ii) the
redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the
redemption price.
If the Company is required to make an offer to purchase Notes pursuant to
the provisions of Sections 3.09 or 4.14 hereof, it shall furnish to the Trustee,
at least 30 days before the scheduled purchase date, an Officers' Certificate
setting forth (i) the Section of this Indenture pursuant to which the offer to
purchase shall occur, (ii) the terms of the offer, (iii) the Purchase price,
(iv) the principal amount of the Notes to be purchased, (v) the purchase date,
(vi) a statement to the effect that all conditions precedent required to be met
as part of such offers to purchase have been met and (vii) further setting forth
a statement to the effect that (a) the Company or one of its Restricted
Subsidiaries has effected an Asset Sale and there are Excess Proceeds
aggregating more than $5.0 million and the amount of such Excess Proceeds or (b)
a Change of Control has occurred, as applicable.
SECTION 3.02. SELECTION OF NOTES TO BE PURCHASED OR REDEEMED.
If less than all of the Notes are to be redeemed at any time, selection of
the Notes for redemption shall be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such other method as the Trustee deems fair and appropriate; provided that
no Notes with a principal amount of $1,000 or less shall be redeemed in part.
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The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
purchase or redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be purchased or
redeemed, the entire outstanding amount of Notes held by such Holder, even if
not a multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Notes called for redemption
also apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at its registered
address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price and accrued interest and Liquidated Damages, if
any;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption
date upon surrender of such Note, a new Note or Notes in principal
amount equal to the unredeemed portion shall be issued upon
surrender of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest and Liquidated Damages, if any, on Notes called for
redemption cease to accrue on and after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture pursuant
to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
shall have
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delivered to the Trustee, at least 45 days prior to the redemption date (or such
shorter period as shall be acceptable to the Trustee), an Officers' Certificate
requesting that the Trustee give such notice and setting forth the information
to be stated in such notice as provided in the preceding paragraph. The notice
mailed in the manner herein provided shall be conclusively presumed to have been
duly given whether or not the Holder receives such notice. In any case, failure
to give such notice by mail or any defect in the notice to the Holder of any
Note shall not affect the validity of the proceeding for the redemption of any
other Note.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
Redemption Date at the redemption price, plus accrued and unpaid interest and
Liquidated Damages, if any, to such date. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION OR PURCHASE PRICE.
On or before 12:00 p.m. (New York City time) on each redemption date or
the date on which Notes must be accepted for purchase pursuant to Section 3.09
or 4.14, the Company shall deposit with the Trustee or with the Paying Agent
money sufficient to pay the redemption price of and accrued and unpaid interest
and Liquidated Damages, if any, on all Notes to be redeemed or purchased on that
date. The Trustee or the Paying Agent shall promptly return to the Company upon
its written request any money deposited with the Trustee or the Paying Agent by
the Company in excess of the amounts necessary to pay the redemption price of
(including any applicable premium), accrued interest on and Liquidated Damages,
if any, all Notes to be redeemed or purchased.
If Notes called for redemption or tendered in an Asset Sale Offer or
Change of Control Offer are paid or if the Company has deposited with the
Trustee or Paying Agent money sufficient to pay the redemption or purchase price
of, unpaid and accrued interest and Liquidated Damages, if any, on all Notes to
be redeemed or purchased on and after the redemption or purchase date, interest
and Liquidated Damages, if any, shall cease to accrue on the Notes or the
portions of Notes called for redemption or tendered and not withdrawn in an
Asset Sale Offer or Change of Control Offer (regardless of whether certificates
for such securities are actually surrendered). Notwithstanding Sections 3.09 and
Sections 3.14, if a Note is redeemed or purchased on or after an interest record
date but on or prior to the related interest payment date, then any accrued and
unpaid interest and Liquidated Damages, if any, shall be paid to the Person in
whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, and Liquidated
Damages, if any, from the redemption or purchase date until such principal is
paid, and to the extent lawful, on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes and in Section 4.01
hereof.
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<PAGE> 41
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and, upon the Company's written request, the Trustee shall authenticate for the
Holder at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at the Company's option prior to August 15, 2002. Thereafter, the
Notes shall be subject to redemption at the option of the Company, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on August 15 of the years indicated below:
33
<PAGE> 42
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002.............................. 104.875%
2003.............................. 103.250%
2004.............................. 101.625%
2005 and thereafter............... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to August 15, 2000, the
Company on one or more occasions may redeem up to 25% of the aggregate principal
amount of Notes originally issued with any of the net proceeds of one or more
public offerings of common stock of the Company at a redemption price of 109.75%
of the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable date of redemption; provided that at
least 75% of the aggregate principal amount of the Notes remain outstanding
immediately after the occurrence of each such redemption.
Any redemption pursuant to this Section 3.07 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under the Sections 3.09, 4.10 and 4.14 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an offer to all Holders to purchase Notes (an "Asset Sale
Offer"), it shall follow the procedures specified below:
The Asset Sale Offer shall remain open for a period of twenty (20)
Business Days after the Commencement Date relating to such Asset Sale Offer,
except to the extent that a longer period is required by applicable law (as so
extended, the "Offer Period"). No later than five Business Days after the
termination of the Offer Period (the "Purchase Date"), the Company shall
purchase the principal amount of Notes required to be purchased pursuant to
Sections 3.02 and 4.10 hereof (the "Offer Amount") or, if less than the Offer
Amount has been tendered, all Notes tendered in response to the Asset Sale
Offer.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest or Liquidated Damages, if any, shall be payable to Holders who tender
Notes pursuant to the Asset Sale Offer.
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<PAGE> 43
No later than the date which is five (5) Business Days after the date on
which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
shall notify the Trustee of such Asset Sale Offer in accordance with Section
3.09 hereof and commence or cause to be commenced the Asset Sale Offer on a date
no later than fifteen (15) Business Days after such notice (the "Commencement
Date").
On the Commencement Date, as defined in Section 4.10, of any Asset Sale
Offer, the Company shall send or cause to be sent, by first class mail, a notice
to the Trustee and each of the Holders. Such notice, which shall govern the
terms of the Asset Sale Offer, shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer and shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in the payment of the
purchase price, any Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest and Liquidated Damages, if any, after
the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice not later than the close of business on the last
day of the Offer Period;
(f) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case may be,
receives, not later than the close of business on the last day of the
Offer Period, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Note purchased;
(g) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Company shall select the Notes to
be purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased); and
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<PAGE> 44
(h) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
On or before 12:00 p.m. (New York City time) on each Purchase Date, the
Company shall irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Notes equal to the Offer Amount, together with accrued and
unpaid interest and Liquidated Damages, if any, thereon, to be held for Payment
in accordance with the terms of this Section 3.09. On the Purchase Date, the
Company shall, to the extent lawful, (i) accept for payment, on a pro rata basis
to the extent necessary, the Offer Amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer, or if less than the Offer Amount has been
tendered, all Notes tendered, (ii) deliver or cause the Paying Agent or
depositary, as the case may be, to deliver to the Trustee Notes so accepted and
(iii) deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the depository or the Paying Agent, as
the case may be, shall promptly (but in any case not later than three (3)
Business Days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, plus any accrued and unpaid interest and
Liquidated Damages, if any, thereon, and the Company shall promptly issue a new
Note, and the Trustee, shall authenticate and mail or deliver such new Note, to
such Holder, equal in principal amount to any unpurchased portion of such
Holder's Notes surrendered. Any Note not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce in a newspaper of general circulation or in a press release provided to
a nationally recognized financial wire service the results of the Asset Sale
Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01, 3.02, 3.05 and 3.06 hereof.
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<PAGE> 45
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. The Company shall pay all Liquidated Damages, if any, in the same manner
on the dates and in the amounts set forth in the Registration Rights Agreement.
Principal, premium, if any interest and Liquidated Damages, if any, shall be
considered paid for all purposes hereunder on the date the Paying Agent, if
other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. (New York
City time) money deposited by the Company in immediately available funds and
designated for and sufficient to pay all such principal, premium, if any,
interest and Liquidated Damages, if any, then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee or Registrar) where Notes may be surrendered for registration of
transfer or for exchange and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one
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<PAGE> 46
such office or agency of the Company in accordance with Section 2.03 hereof.
SECTION 4.03. REPORTS.
Whether or not required by the rules and regulations of the Commission, so
long as any Notes are outstanding, the Company shall furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of the Company and its
Restricted Subsidiaries and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, from and after the
consummation of the Exchange Offer or the effectiveness of the Shelf
Registration Statement (as defined in the Registration Rights Agreement), the
Company will file a copy of all such information and reports with the Commission
for public availability (unless the Commission will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. In addition, the Company and the Guaranteeing
Subsidiaries have agreed that, for so long as any Notes remain outstanding, they
will furnish to Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act. The Company shall at all times comply with
TIA Section 314(a).
The financial information to be distributed to Holders of Notes shall be
filed with the Trustee and mailed to the Holders at their addresses appearing in
the register of Notes maintained by the Registrar, within 120 days after the end
of the Company's fiscal years and within 60 days after the end of each of the
first three quarters of each such fiscal year.
The Company shall provide the Trustee with a sufficient number of copies
of all reports and other documents and information and if requested by the
Company the Trustee will deliver such reports to the Holders under this Section
4.03.
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<PAGE> 47
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture (including with respect to any Restricted
Payments made during such year, the basis upon which the calculations required
by Section 4.07 hereof were computed, which calculations may be based on the
Company's latest available financial statements), and further stating, as to
each such Officer signing such certificate, that to the best of his or her
knowledge each entity has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture (or,
if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of, interest
or Liquidated Damages, if any, on the Notes is prohibited or if such event has
occurred, a description of the event and what action the Company is taking or
proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accounts, in connection with the year-end
financial statements delivered pursuant to Section 4.03 hereof, the Company
shall use its best efforts to deliver a written statement of the Company's
independent public accountants (who shall be a firm of established national
reputation reasonably satisfactory to the Trustee) that in making the
examination necessary for certification of such financial statements, nothing
has come to their attention that would lead them to believe that the Company has
violated any provisions of Article Four or Section 5.01 hereof or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation. In the event that such written statement of the Company's independent
public accountants cannot be obtained, the Company shall deliver an Officer's
Certificate certifying that it has used its best efforts to obtain such
statements and was unable to do so.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.05. TAXES.
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<PAGE> 48
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies,
except such as are contested in good faith and by appropriate proceedings and
with respect to which appropriate reserves have been taken in accordance with
GAAP.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each Guaranteeing Subsidiary covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and the
Company and each Guaranteeing Subsidiary (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any distribution (including in connection with any merger or consolidation) on
account of any Equity Interests of the Company or any of its Restricted
Subsidiaries (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Wholly Owned Restricted Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company, any of its Restricted Subsidiaries or any other
Affiliate of the Company (other than any such Equity Interests owned by the
Company or any Wholly Owned Restricted Subsidiary of the Company); (iii) make
any principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated in right of payment to
the Notes or a Subsidiary Guarantee, except at the original final maturity
thereof or in accordance with the scheduled mandatory redemption or repayment
provisions set forth in the original documentation governing such Indebtedness
(but not pursuant to any mandatory offer to repurchase upon the occurrence of
any event); or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof, and
(b) the Company would be able to incur at least $1.00 of additional
Indebtedness under the Fixed Charge Coverage Ratio test set forth in
the first paragraph of Section 4.09 hereof, and
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<PAGE> 49
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of this Indenture (excluding Restricted
Payments permitted by clauses (ii), (iii), (v), (vi) and (viii) of
the next succeeding paragraph), is less than the sum of (1) 50% of
the Consolidated Net Income of the Company for the period (taken as
one accounting period) beginning on April 1, 1997 to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, minus 100% of such deficit), plus (2) 100% of the aggregate
net cash proceeds received by the Company from contributions of
capital or the issue or sale since the date of the Indenture of
Equity Interests of the Company or of debt securities of the Company
that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), plus
(3) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash or otherwise liquidated
or repaid for cash, the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any);
provided that no cash proceeds received by the Company from the
issue or sale of any Equity Interests issued by the Company will be
counted in determining the amount available for Restricted Payments
under this clause (c) to the extent such proceeds were used to
redeem, repurchase, retire or acquire any Equity Interests of the
Company pursuant to clause (ii) of the next succeeding paragraph, to
defease, redeem or repurchase any subordinated Indebtedness pursuant
to clause (iii) of the next succeeding paragraph or to repurchase,
redeem or acquire any Equity Interests of the Company pursuant to
clause (iv) of the next succeeding paragraph.
The foregoing provisions will not prohibit any or all of the following
(each and all of which (1) constitutes an independent exception to the foregoing
provisions and (2) may occur in addition to any action permitted to occur under
any other exception): (i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such date of declaration such payment would
have complied with the provisions of the Indenture; (ii) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company in exchange for, or out of the net proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause (c)(2)
of the preceding paragraph; (iii) the defeasance, redemption or repurchase of
subordinated Indebtedness with the net proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds
41
<PAGE> 50
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(2) of the preceding paragraph;
(iv) the funding of loans (but not including the forgiveness of any such loan)
to executive officers, directors or shareholders for relocation loans, bonus
advances and other purposes consistent with past practices or the purchase,
redemption or other acquisition for value of shares of Capital Stock of the
Company (other than Disqualified Stock) or options on such shares held by the
Company's or the Restricted Subsidiaries' officers or employees or former
officers or employees (or their estates or trusts or beneficiaries under their
estates or trusts for the benefit of such beneficiaries) upon the death,
disability, retirement or termination of employment of such current or former
officers or employees pursuant to the terms of an employee benefit plan or any
other agreement pursuant to which such shares of Capital Stock or options were
issued or pursuant to a severance, buy-sell or right of first refusal agreement
with such current or former officers or employees provided that the aggregate
amount of any such loans funded and cash consideration paid, or distributions
made, pursuant to this clause (iv) does not in any one fiscal year exceed $1.0
million; (v) the payment of dividends by a Restricted Subsidiary on any class of
common stock of such Restricted Subsidiary if such dividend is paid pro rata to
all holders of such class of common stock; (vi) the repurchase of any class of
common stock of a Restricted Subsidiary if such repurchase is made pro rata with
respect to such class of common stock; (vii) any other Restricted Payment (other
than (A) a dividend or other distribution on account of any Equity Interests of
the Company or any of its Restricted Subsidiaries and (B) a purchase, redemption
or other acquisition of any Equity Interests of the Company, any of its
Restricted Subsidiaries or any Affiliate of the Company) if the amounts thereof,
together with all other Restricted Payments made pursuant to this clause since
the date of the Indenture do not exceed $5.0 million; and (viii) the redemption,
repurchase, or other acquisition of Notes.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary; provided, however, that (i) no Default or Event of
Default shall have occurred and be continuing or would arise therefrom, (ii)
such designation, when considered as an Investment as described in the next
sentence, is at that time permitted under this Section 4.07 and (iii)
immediately after giving effect to such designation, the Company would be able
to incur at least $1.00 of additional Indebtedness under the Fixed Charge
Coverage Ratio set forth in the first paragraph of Section 4.09 hereof. All such
outstanding Investments shall be deemed to constitute Restricted Investments in
an amount equal to the greater of (i) the net book value of such Investments at
the time of such designation and (ii) the fair market value of such Investments
at the time of such designation. Such designation shall only be permitted if
such Restricted Investment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, which calculations
shall be based upon the Company's latest
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<PAGE> 51
available financial statements.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or consensual restriction on the
ability of any Restricted Subsidiary to: (i)(A) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries on its
Capital Stock or (B) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries; (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries; or (iii) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness, as in effect on the date of the Indenture; (b) the Credit Facility
as in effect on the date of the Indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof; provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are not more restrictive in the aggregate than those contained in
the Credit Facility as in effect on the date of the Indenture; (c) the Indenture
and the Notes; (d) applicable law; (e) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries, as in effect at the time of acquisition (except to the extent such
Indebtedness was incurred in connection with, or in contemplation of, such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred; (f) customary non-assignment provisions in leases and other
agreements entered into in the ordinary course of business and consistent with
past practices; (g) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired; (h) Permitted Refinancing
Indebtedness; provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive in the
aggregate than those contained in the agreements governing the Indebtedness
being refinanced; (i) an agreement that has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or property or
assets of a Restricted Subsidiary; provided that such restrictions are limited
to the Restricted Subsidiary that is the subject of such agreement; or (j)
restrictions applicable to any Foreign Subsidiary pursuant to Indebtedness
permitted to be incurred pursuant to clause (x) of the second paragraph of
Section 4.09 hereof; provided that such restrictions shall be limited to
customary net worth, leverage, cash flow and other financial ratios applicable
to such Foreign Subsidiary, customary restrictions on mergers and consolidations
involving such Foreign Subsidiary, customary restrictions on transactions with
affiliates of such Foreign Subsidiary and customary provisions subordinating the
payment of intercompany Indebtedness owed by such Foreign Subsidiary to the
Company or any of its Restricted
43
<PAGE> 52
Subsidiaries upon the occurrence of a default in respect of Indebtedness of such
Foreign Subsidiary or its Subsidiaries and/or events of insolvency with respect
to such Foreign Subsidiary or its Subsidiaries; and provided further that in no
event shall any Indebtedness incurred by a Foreign Subsidiary prohibit such
Foreign Subsidiary from making any dividend or other distribution to the Company
or its Restricted Subsidiaries or from otherwise making any loan to the Company
or its Restricted Subsidiaries in the absence of a breach by such Foreign
Subsidiary of the covenants contained in such Indebtedness.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its Guaranteeing
Subsidiaries to, directly or indirectly, Incur, contingently or otherwise, any
Indebtedness (including Acquired Debt) and the Company will not issue any
Disqualified Stock and will not permit any of its Guaranteeing Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company and its
Guaranteeing Subsidiaries may Incur Indebtedness (including Acquired Debt) and
the Company may issue shares of Disqualified Stock if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available (or where such incurrence or
issuance occurs on or prior to March 31, 1998, the Fixed Charge Coverage Ratio
shall be determined for the period beginning on January 1, 1997 through the most
recently ended fiscal quarter for which internal financial statements are
available) immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock issued would have been at least (x) 2.00
to 1 if such incurrence or issuance occurs on or before June 30, 1999, or (y)
2.25 to 1 if such incurrence or issuance occurs at any time thereafter, in each
case, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period, provided that, if such incurrence or issuance was
incurred or issued on or prior to March 31, 1998, the aforementioned pro forma
calculations shall be made assuming such incurrence or issuance occurred on
January 1, 1997 rather than at the beginning of such four-quarter period.
The foregoing provisions will not apply to any of the following (each and
all of which (1) may be issued or incurred, (2) constitute an independent
exception to the foregoing provisions and (3) may be incurred in addition to any
other Indebtedness permitted to be incurred under any other exception): (i) the
incurrence by the Company or any Guaranteeing Subsidiary of Indebtedness and
letters of credit pursuant to any Credit Facility (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability of
the Company or the relevant Guaranteeing Subsidiary thereunder) in an aggregate
principal amount outstanding at any one time not to exceed $75.0 million (A)(1)
less the aggregate amount of all mandatory repayments (a "Mandatory Repayment")
of the principal of any term Indebtedness under the Credit Facility that have
been made since the date of the Indenture pursuant to the amortization schedule
of any Credit Facility (other than any Mandatory Repayment made concurrently
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with refinancing or refunding of the Credit Facility), (B) plus the Excess
Amount and (C) less the aggregate amount of all Net Proceeds of Asset Sales
applied pursuant to clause (a) of the first sentence of the second paragraph
under Section 4.10 hereof to permanently reduce Indebtedness (and, in the case
of revolving Indebtedness, the commitments) under the Credit Facility or to cash
collateralize letters of credit and permanently reduce commitments with respect
to revolving Indebtedness under the Credit Facility; provided that the amount of
Indebtedness permitted to be incurred pursuant to the Credit Facility in
accordance with this clause (i) shall be in addition to any Indebtedness
permitted to be incurred pursuant to the Credit Facility or otherwise in
reliance on, and in accordance with, clause (ix) of this paragraph; (ii) the
incurrence by the Company and any Guaranteeing Subsidiary of Indebtedness
represented by the Notes and any Subsidiary Guarantee; (iii) the incurrence by
the Company or any of its Restricted Subsidiaries of Indebtedness represented by
Capital Lease Obligations, mortgage financings, purchase money obligations or
sale and leaseback transactions, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or such Restricted
Subsidiary, in an aggregate principal amount not to exceed $15.0 million at any
time outstanding; provided that in no event shall the aggregate principal amount
of Indebtedness incurred in connection with sale and leaseback transactions
pursuant to this clause exceed $7.5 million at any time outstanding; (iv)
Existing Indebtedness; (v) the incurrence by the Company or any of its
Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for,
or the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indenture; (vi) the
incurrence by the Company or any of its Restricted Subsidiaries of intercompany
Indebtedness between or among the Company and any of its Restricted
Subsidiaries; provided, however, that (a) any subsequent issuance or transfer
(other than for security purposes) of Equity Interests and (b) any subsequent
sale or other transfer (including for security purposes other than to secure
Indebtedness permitted to be incurred pursuant to clause (i) of this paragraph)
of such Indebtedness, in each case, that results in any such Indebtedness being
held by a Person other than the Company or any of its Restricted Subsidiaries
shall be deemed to constitute an incurrence of such Indebtedness by the Company
or such Restricted Subsidiary, as the case may be; (vii) the incurrence by the
Company or any of its Restricted Subsidiaries of Hedging Obligations that are
incurred for the purpose of fixing or hedging (a) interest rate risk with
respect to any floating rate Indebtedness of such Person so long as such
floating rate Indebtedness is permitted by the terms of the Indenture to be
outstanding or (b) exchange rate risk with respect to agreements or indebtedness
of such Person payable or denominated in a currency other than U.S. dollars;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse
Debt; provided, however, that if any such Indebtedness ceases to be Non-Recourse
Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of the Company; (ix) the
incurrence by the Company and any Guaranteeing Subsidiary of Indebtedness in an
aggregate principal amount at any time outstanding not to exceed $10.0 million;
(x) the incurrence by any Foreign Subsidiary of Indebtedness and letters of
credit to fund working capital and capital expenditure requirements (with
letters of credit being deemed
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to have a principal amount equal to the maximum potential liability of such
Foreign Subsidiary thereunder) in an aggregate maximum principal amount
outstanding at any one time not to exceed $5.0 million; (xi) Obligations in
respect of performance and surety bonds provided by the Company or any
Guaranteeing Subsidiary in the ordinary course of business and (xii) the
incurrence or issuance by any Restricted Subsidiary of the Company of
Indebtedness (in addition to Indebtedness that may be incurred or issued
pursuant to any other clause of this paragraph) in an aggregate principal amount
not to exceed $1.0 million.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (as determined in good
faith by the Board of Directors of the Company and set forth in an Officers'
Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor received by the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents; provided that the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet), of the Company or any Restricted Subsidiary (other than liabilities that
are by their terms subordinated to the Notes or, in the case of liabilities of a
Restricted Subsidiary, the Subsidiary Guarantee of such Subsidiary) that are
assumed by the transferee of any such assets and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are converted by the Company or such Restricted Subsidiary
into cash (to the extent of the cash received) within 180 days after receipt,
shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay Senior Debt
or Pari Passu Indebtedness (provided that if the Company shall so reduce Pari
Passu Indebtedness, it will equally and ratably make an Asset Sale Offer (in
accordance with the procedures set forth below for an Asset Sale Offer) to all
Holders) and/or (b) to an investment in another business, the making of a
capital expenditure or the acquisition of other tangible assets, product
distribution rights or intellectual property or rights thereto, in each case, in
a line of business permitted by Section 4.17. Pending the final application of
any such Net Proceeds, the Company may temporarily reduce borrowings under the
Credit Facility or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds."
If and when the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company shall (i) make an offer to all Holders of Notes and (ii) prepay,
purchase or redeem (or make an offer to do so) any other Pari Passu Indebtedness
of the Company in
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accordance with provisions requiring the Company to prepay, purchase or redeem
such Indebtedness with the proceeds from any asset sales (or offer to do so),
the maximum principal amount of Notes and of such indebtedness that may be
purchased out of such Excess Proceeds, pro rata in proportion to the respective
principal amounts (or accreted value, as applicable) of the Notes and such other
Indebtedness required to be prepaid, purchased or redeemed or tendered for
pursuant to such offer (an "Asset Sale Offer"), at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any to the date of purchase, in
accordance with the procedures set forth in Section 3.09.
An Asset Sale Offer shall be made pursuant to the provisions of Section
3.09. hereof.
The Asset Sale Offer shall be made by the Company in compliance with all
applicable laws, including, without limitation, Rule 14e-1 under the Exchange
Act and the rules thereunder, to the extent applicable, and all other applicable
federal and state securities laws.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
could have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; (ii) if such Affiliate
Transaction involves aggregate consideration in excess of $2.0 million, the
Company delivers to the Trustee a resolution of the Board of Directors of the
Company set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and such Affiliate Transaction is
approved by a majority of the disinterested members of the Board of Directors of
the Company; and (iii) if such Affiliate Transaction involves aggregate
consideration in excess of $5.0 million, the Company delivers to the Trustee an
opinion as to the fairness of such Affiliate Transaction from a financial
point-of-view issued by an investment bank or accounting firm of national
standing, provided, however, that (a) any employment, consulting or similar
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business of the Company or such Restricted Subsidiary,
(b) transactions between or among the Company and/or its Restricted
Subsidiaries, (c) payment of employee benefits, including wages, salary,
bonuses, retirement plans and stock options and director fees in the ordinary
course of business and (d) Restricted Payments described under clauses (i),
(iv), (v), (vi), (vii) and (viii) of the second paragraph of Section 4.07
hereof, in each case, shall not be deemed Affiliate Transactions.
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SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien (other than Permitted Liens) securing any Obligations on any
property or asset now owned or hereafter acquired, or on any income or profits
therefrom or assign or convey any right to receive income therefrom, unless the
Notes, and the Subsidiary Guarantees, as applicable, are either (i) secured by a
Lien on such property, assets, income or profits that is senior in priority to
the Lien securing such other Obligations, if such other Obligations are
subordinated in right of payment to the Notes and/or the Subsidiary Guarantees,
that is senior in priority to the Lien securing such other Obligations or (ii)
equally and ratably secured by a Lien on such property, assets, income or
profits with the Lien securing such other Obligations if such other Obligations
are pari passu in right of payment to the Notes and/or the Subsidiary
Guarantees.
SECTION 4.13. SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company and any Guaranteeing Subsidiary may enter into a sale and leaseback
transaction if (i) the Company or such Guaranteeing Subsidiary could have
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to (a) the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.09 hereof and/or (b)
clause (iii) of the second paragraph of Section 4.09 hereof (as limited by the
proviso to such clause), (ii) the Lien to secure such Indebtedness does not
extend to or cover any assets of the company or such Guaranteeing Subsidiary
other than the assets which are the subject of the sale and leaseback
transaction, (iii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors of the Company and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iv) the transfer of assets in such sale
and leaseback transaction is permitted by, and the proceeds of such transaction
are applied in compliance with, Section 4.10 hereof.
SECTION 4.14. OFFER TO PURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder of Notes shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company shall mail a notice to each Holder stating:
(a) that the Change of Control Offer is being made pursuant to this
Section
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4.14 and that all Notes properly tendered will be accepted for
payment;
(b) the purchase price and the purchase date (the "Change of Control
Payment Date"), which will be no earlier than 30 days nor later than
60 days from the date such notice is mailed;
(c) that any Note not properly tendered will continue to accrue
interest;
(d) that, unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest, and
Liquidated Damages, if any, after the Change of Control Payment
Date;
(e) that Holders electing to have any Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Notes,
with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, or transfer by book-entry, to the
Paying Agent at the address specified in the notice not later than
the close of business on the Change of Control Payment Date;
(f) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the
Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of Notes delivered for purchase, and a statement
that such Holder is withdrawing his election to have such Notes
purchased;
(g) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry),
which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof; and
(h) the circumstances and material facts regarding such Change of
Control (including, but not limited to, information with respect to
pro forma and historical financial information after giving effect
to such Change of Control, and information regarding the Person or
Persons acquiring control).
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof
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being purchased by the Company. The Paying Agent shall promptly mail to each
Holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee shall promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. Prior to being required to comply with the provisions of this Section
4.14, but in any event within 90 days following a Change of Control, the Company
shall either repay all outstanding Senior Debt or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this Section 4.14. The Company shall publicly
announce in a newspaper of national circulation or in a press release provided
to a nationally recognized financial wire service the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Change of Control provisions described above shall be applicable
whether or not any other provisions of this Indenture are applicable.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
SECTION 4.15. CORPORATE EXISTENCE.
Subject to Section 4.14 and Article 5 hereof, as the case may be, the
Company and each of the Guaranteeing Subsidiaries shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, that the Company shall not be
required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of its Subsidiaries, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
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SECTION 4.16. ANTI-LAYERING.
The Company shall not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is both (a) subordinate or junior in
right of payment to any Senior Debt and (b) senior in any respect in right of
payment to the Notes; and no Guaranteeing Subsidiary shall incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is both
(a) subordinate or junior in right of payment to its Senior Debt and (b) senior
in any respect in right of payment to its Subsidiary Guarantee.
SECTION 4.17. LINE OF BUSINESS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, engage to any substantial extent in any
line or lines of business activity other than that which, in the reasonable good
faith judgment of the Board of Directors of the Company, is a Related Business;
provided that the Company shall not be deemed to be in violation of this
covenant if the Company acquires a business which derives substantial revenues
from a Related Business, regardless of whether such acquired business includes a
line or lines of business that are not a Related Business.
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ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or not
the Company is the surviving entity), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions to, another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or by which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized and existing under the laws of the United
States, any state hereof or the District of Columbia; (ii) immediately after
giving effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), the Consolidated Net Worth of the Company or the surviving
entity, as the case may be, is at least equal to the Consolidated Net Worth of
the Company immediately before such transaction or series of transactions; (iii)
the Person formed by or surviving any such consolidation or merger (if other
than the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made assumes all the obligations
of the Company under the Notes and the Indenture pursuant to a supplemental
indenture in form reasonably satisfactory to the Trustee; (iv) immediately after
such transaction, no Default or Event of Default exists; and (v) the Company or
the Person formed by or surviving any such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made will, at the time of such transaction after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.09 hereof. The foregoing will not
prohibit a consolidation or merger between the Company and a Wholly Owned
Restricted Subsidiary, the transfer of all or substantially all of the
properties or assets of the Company to a Wholly Owned Restricted Subsidiary or
the transfer of all or substantially all of the properties or assets of a Wholly
Owned Restricted Subsidiary to the Company; provided that if the Company is not
the surviving entity of such transaction or to the Person to which such transfer
is made, the surviving entity or the Person to which such transfer is made shall
comply with clause (iii) of this paragraph.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale,
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assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, that, (i)
solely for the purposes of computing Consolidated Net Income for purposes of
clause (b) of the first paragraph of Section 4.07 hereof, the Consolidated Net
Income of any person other than the Company and its Restricted Subsidiaries
shall be included only for periods subsequent to the effective time of such
merger, consolidation, combination or transfer of assets; and (ii) in the case
of any sale, assignment, transfer, lease, conveyance, or other disposition of
less than all of the assets of the predecessor Company, the predecessor Company
shall not be released or discharged from the obligation to pay the principal of
or interest on the Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(i) default for 30 days in the payment when due of interest or
Liquidated Damages, if any, with respect to the Notes (whether or
not prohibited by Article 10 or Article 12 hereof);
(ii) default in payment when due of principal or premium, if any, on the
Notes at maturity, upon redemption or otherwise (whether or not
prohibited by Article 10 or Article 12 hereof);
(iii) failure by the Company or any Guaranteeing Subsidiary for 30 days
after receipt of notice from the Trustee or Holders of at least 25%
in principal amount of the Notes then outstanding to comply with the
provisions described under Sections 4.07, 4.09, 4.10, 4.13, 4.14 or
5.01 hereof;
(iv) failure by the Company or any Guaranteeing Subsidiary for 60 days
after notice from the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding to comply with its
other agreements in this Indenture or the Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or
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Guarantee now exists, or is created after the date hereof, which
default (A) (i) is caused by a failure to pay when due at final
stated maturity (giving effect to any grace period related thereto)
principal of such Indebtedness (a "Payment Default") or (ii) results
in the acceleration of such Indebtedness prior to its express
maturity and (B) in each case, the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been accelerated as a result of any matter
contemplated in clause (v)(A)(i) or (v)(A)(ii), aggregates $7.5
million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments (to the extent not covered by insurance or as to
which the insurer has not acknowledged coverage in writing)
aggregating in excess of $7.5 million, which judgments are not paid,
fully bonded, discharged or stayed within 60 days after their entry;
(vii) the Company or any Restricted Subsidiary that is a Significant
Subsidiary or group of Restricted Subsidiaries that, together would
constitute a Significant Subsidiary, pursuant to or within the
meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case in which it is the debtor,
(c) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(d) makes a general assignment for the benefit of its creditors, or
(e) admits in writing its inability generally to pay its debts as
the same become due;
(viii) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company or any Restricted Subsidiary
that is a Significant Subsidiary or group of Restricted Subsidiaries
that, together, would constitute a Significant Subsidiary of the
Company in an involuntary case in which it is the debtor,
(b) appoints a Custodian of the Company or any Restricted Subsidiary
that is a Significant Subsidiary or group of Restricted Subsidiaries
that,
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together, would constitute a Significant Subsidiary of the Company
or for all or substantially all of the property of the Company or
any Restricted Subsidiary that is a Significant Subsidiary or group
of Restricted Subsidiaries that, together, would constitute a
Significant Subsidiary of the Company, or
(c) orders the liquidation of the Company or any Restricted
Subsidiary that is a Significant Subsidiary or group of Restricted
Subsidiaries that, together, would constitute a Significant
Subsidiary of the Company and the order or decree contemplated in
clauses (i), (ii) or (iii) remains unstayed and in effect for 60
consecutive days; or
(ix) the termination of the Subsidiary Guarantee(s) of either a
Guaranteeing Subsidiary that is a Significant Subsidiary or group of
Guaranteeing Subsidiaries that together constitute a Significant
Subsidiary for any reason not permitted by this Indenture, or the
denial of any Person acting on behalf of any such Guaranteeing
Subsidiary or Group of Guaranteeing Subsidiaries of its Obligations
under any such Subsidiary Guarantee(s).
To the extent that the last day of the period referred to in clauses (i),
(iii), (iv) or (vi) of the immediately preceding paragraph is not a Business
Day, then the first Business Day following such day shall be deemed to be the
last day of the period referred to in such clauses. Any "day" will be deemed to
end as of 11:59 p.m., New York City time.
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default with respect to the
company specified in clauses (vii) and (viii) of Section 6.01 hereof) occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare the unpaid principal of, premium, if any,
accrued and unpaid interest and Liquidated Damages, if any, on all the Notes to
be due and payable by notice in writing to the Company (and the Trustee, if
given by the Holders) specifying the respective Event of Default and that it is
a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Credit Facility, shall become immediately due and payable upon the
first to occur of an acceleration under the Credit Facility or 5 Business Days
after receipt by the Company and the Representative under the Credit Facility of
such Acceleration Notice but only if such Event of Default is then continuing.
If an Event of Default with respect to the Company specified in clauses (vii) or
(viii) of Section 6.01 hereof occurs, all outstanding Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. The Holders of a majority in principal
amount of the then outstanding Notes by written notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal or interest that has become due solely because
of the
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acceleration) have been cured or waived.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any,
interest and Liquidated Damages, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for Notes) by notice to the Trustee may on behalf of the Holders of all
of the Notes waive an existing Default or Event of Default and its consequences
hereunder, except a continuing Default or Event of Default in the payment of
principal of or premium, if any, or interest or Liquidated Damages, if any, on
the Notes. Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability. The Trustee may take any other action which it
deems proper which is not inconsistent with any such direction.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture, the
Subsidiary Guarantees or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing
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Event of Default or the Trustee receives such notice from the
Company;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue
the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, interest, and
Liquidated Damages, if any, on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(i) or (ii) hereof occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and
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advances of the Trustee, its agents and counsel) and the Holders of the Notes
allowed in any judicial proceedings relative to the Company (or any other
obliger upon the Notes), its creditors or its property and shall be entitled and
empowered to collect, receive and distribute any money or other securities or
property payable or deliverable upon the conversion or exchange of the Notes or
on any such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it shall pay
out the money in the following order:
FIRST: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
SECOND: to holders of Senior Debt to the extent required by Article 10 or
12 hereof;
THIRD: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium, if any, interest, and Liquidated Damages, if any, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium, if any, interest, and Liquidated
Damages, if any, respectively;
FOURTH: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Notes; and
FIFTH: to the Company, the Guaranteeing Subsidiaries or to such party as a
court of competent jurisdiction shall direct.
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The Trustee may fix a record date and payment date for any payment to Holders of
Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant
to Section 6.07 hereof, or a suit by Holders of more than 10% in principal
amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing of which it
has knowledge, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture and use the same degree of
case and skill in its exercise, as a prudent man would exercise of
use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture or the TIA and the
Trustee need preform only those duties that are specifically
set forth in this Indenture or the TIA and no others, and no
implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent
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action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under
this Indenture at the request of any Holders, unless such Holder
shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely on the truth of the statements and
correctness of the opinions contained in, and shall be protected
from acting or refraining from acting upon, any document believed by
it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of
Counsel. Prior to taking, suffering or admitting any action, the
Trustee may consult with counsel of the Trustee's own choosing and
the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection
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from liability in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any
Guaranteeing Subsidiary shall be sufficient if signed by an Officer
of the Company or Guaranteeing Subsidiary, as applicable.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have
offered to the Trustee reasonable security or indemnity satisfactory
to the Trustee against the costs, expenses and liabilities that
might be incurred by it in compliance with such request or
direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner
of Notes and may otherwise deal with the Company, the Guaranteeing Subsidiaries
or any Affiliate of the Company with the same rights it would have if it were
not Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue as Trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture, the Subsidiary Guarantees or the
Notes, it shall not be accountable for the Company's use of the proceeds from
the Notes or any money paid to the Company or upon the Company's direction under
any provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
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If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Notes a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment on any
Note pursuant to Section 6.01(i) or (ii) hereof, the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of the
Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA -section- 313(a) (but if no event described in TIA
- -section- 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA
- -section- 313(b). The Trustee shall also transmit by mail all reports as
required by TIA -section- 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Company has informed the Trustee in writing the Notes are
listed in accordance with TIA -section- 313(d). The Company shall promptly
notify the Trustee when the Notes are listed on any stock exchange and of any
delisting thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company and the Guaranteeing Subsidiaries shall pay to the Trustee
from time to time reasonable compensation for its acceptance of this Indenture
and services hereunder. To the extent permitted by law, the Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee promptly upon request for
all reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
The Company and the Guaranteeing Subsidiaries shall indemnify, jointly and
severally, the Trustee against any and all losses, liabilities or expenses
incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Company and the Guaranteeing
Subsidiaries (including this Section 7.07) and defending itself against any
claim (whether asserted by the Company, the Guaranteeing Subsidiaries or any
Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall
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notify the Company and the Guaranteeing Subsidiaries promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company and
the Guaranteeing Subsidiaries shall not relieve the Company and the Guaranteeing
Subsidiaries of its obligations hereunder. The Company and the Guaranteeing
Subsidiaries shall defend the claim and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel and the Company and the
Guaranteeing Subsidiaries shall pay the reasonable fees and expenses of such
counsel. The Company and the Guaranteeing Subsidiaries need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
The obligations of the Company and the Guaranteeing Subsidiaries under
this Section 7.07 shall survive the satisfaction and discharge of this
Indenture.
To secure the Company's and the Guaranteeing Subsidiaries' payment
obligations in this Section 7.07, the Trustee shall have a Lien prior to the
Notes on all money or property held or collected by the Trustee, except that
held in trust to pay principal, interest and Liquidated Damages, if any, on
particular Notes. Such Lien shall survive the satisfaction and discharge of this
Indenture and the resignation or removal of the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(vii) or (viii) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA -section- 313(b)(2) to
the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
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(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has been
a Holder of a Note for at least six months, fails to comply with Section 7.10,
such Holder of a Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and the duties of the Trustee under
this Indenture. The successor Trustee shall mail a notice of its succession to
the Holders of the Notes. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided that all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee or any Agent.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities. The Trustee and its direct parent shall at all times have a
combined capital surplus of at least $10.0 million as set forth in its most
recent annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA
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- -section- 310(a)(1), (2) and (5). The Trustee is subject to TIA -section-
310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA -section- 311(a), excluding any creditor
relationship listed in TIA -section- 311(b). A Trustee who has resigned or been
removed shall be subject to TIA -section- 311(a) to the extent indicated
therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes and
Subsidiary Guarantees upon compliance with the conditions set forth below in
this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and each Guaranteeing Subsidiary
shall, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be deemed to have been discharged from its obligations with respect to
all outstanding Notes and Subsidiary Guarantees on the date the conditions set
forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose,
Legal Defeasance means that the Company and each Guaranteeing Subsidiary shall
be deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes and Subsidiary Guarantees, which shall thereafter be deemed to
be "outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and Subsidiary Guarantees
and this Indenture (and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged hereunder:
(a) the rights of Holders of outstanding Notes to receive payments
in respect of the principal of, premium, if any, interest and Liquidated
Damages, if any, on such Notes when such payments are due or on the
redemption date, as the case may be, from the trust referred to in Section
8.04(a),
(b) the Company's obligations with respect to such Notes under
Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10 and 4.02 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee
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including without limitation thereunder Section 7.07, 8.05 and 8.07
hereunder and the Company's obligations in connection therewith, and
(d) the provisions of this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option
under this Section 8.02 notwithstanding the prior exercise of its option under
Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and each Guaranteeing Subsidiary
shall, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be released from its obligations under the covenants contained in
Sections 3.09, 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16,
4.17, 5.01 and 11.01 hereof with respect to the outstanding Notes and Subsidiary
Guarantees on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes and Subsidiary Guarantees
shall thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes and Subsidiary Guarantees shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes and Subsidiary Guarantees, the Company, its Subsidiaries or
any Guaranteeing Subsidiary may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.01 hereof,
but, except as specified above, the remainder of this Indenture and such Notes
and Subsidiary Guarantees shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03 hereof, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(iii) through 6.01(vi) and Section 6.01(ix)
hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Notes and Subsidiary Guarantees:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, (i) cash in United States
dollars, (ii) non-callable Government Securities which through the
scheduled payment of principal, premium, if any, interest and Liquidated
Damages, if any, in respect thereof in accordance with their terms will
provide, not later than one day before
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the due date of payment, cash in United States dollars in an amount, or
(iii) a combination thereof, in such amounts as shall be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge the principal of, premium, if any, interest
and Liquidated Damages, if any, on the outstanding Notes on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date hereof, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders of the outstanding Notes shall not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance
and shall be subject to federal income tax on the same amounts, in the
same manner and at the same time as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes shall not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance
and shall be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Section 6.01(vii) and
(viii) hereof are concerned, at any time in the period ending on the 91st
day after the date of deposit (it being understood that this condition
shall not be deemed satisfied until the expiration of such period);
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the
trust funds shall not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
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(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Company or others;
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with; and
(i) the Trustee shall have received such other documents and
assurances as the Trustee shall have reasonably required.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal premium, if any, interest and
Liquidated Damages, if any, but such money need not be segregated from other
funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the written request
of the Company and be relieved of all liability with respect to any money or
non-callable Government Securities held by it as provided in Section 8.04 hereof
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are
in excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO THE COMPANY.
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Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any,
interest or Liquidated Damages, if any, on any Note and remaining unclaimed for
one year after such principal, and premium, if any, or interest or Liquidated
Damages, if any, has become due and payable shall be paid to the Company on its
written request or (if then held by the Company) shall be discharged from such
trust; and the Holder of such Note shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in the
New York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining shall be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company and the Guaranteeing
Subsidiaries under this Indenture, the Notes and the Subsidiary Guarantees shall
be revived and reinstated as though no deposit had occurred pursuant to Section
8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the
case may be; provided, however, that, if the Company makes any payment of
principal of, premium, if any, interest or Liquidated Damages, if any, on any
Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF THE NOTES.
Notwithstanding Section 9.02 of this Indenture, without the consent
of any Holder of Notes the Company, the Guaranteeing Subsidiaries and the
Trustee may amend or supplement this Indenture, the Subsidiary Guarantees or the
Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of
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certificated Notes;
(c) to provide for the assumption of the Company's or a
Guaranteeing Subsidiary's obligations to the Holders of the
Notes in the case of a merger, transfer of assets or
consolidation pursuant to Article 5 or Article 11 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not
adversely affect the legal rights hereunder of any Holder of
the Note;
(e) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under
the TIA;
(f) to allow any Guaranteeing Subsidiary to guarantee the Notes;
Upon the written request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
9.06 hereof, the Trustee shall join with the Company and the Guaranteeing
Subsidiaries in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided in (i) the fourth and fifth paragraphs of this Section
9.02 and (ii) Sections 8.02, 8.03 and 8.04 hereof, in connection with clause (b)
below, with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for Notes):
(a) this Indenture, the Notes or the Subsidiary Guarantees may be
amended or supplemented;
(b) the Guaranteeing Subsidiaries may be released from their
obligations under the Subsidiary Guarantees; and
(c) subject to Sections 6.02, 6.04 and 6.07 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, or premium, if any, or interest or Liquidated
Damages, if any, on the Notes
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(except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of this Indenture, the Notes or the
Subsidiary Guarantees may be waived
Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
indenture, and upon the filing with the Trustee of evidence aforesaid, and upon
receipt by the Trustee of the documents described in Section 9.06 hereof, the
Trustee shall join with the Company and the Guaranteeing Subsidiaries in the
execution of such amended or supplemental Indenture unless such amended or
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may, but shall not
be obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof. After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of each Note affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver.
Subject to Sections 6.02, 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company or the Guaranteeing
Subsidiaries with any provision of this Indenture, the Notes or the Subsidiary
Guarantees. However, without the consent of each Holder affected, an amendment,
or waiver may not (with respect to any Note or Subsidiary Guarantee held by a
non-consenting Holder):
(a) reduce the principal amount of Notes;
(b) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes or
any Change of Control Offer;
(c) reduce the rate of or change the time for payment of interest or
Liquidated Damages, if any, on any Notes;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest or Liquidated Damages, if any, on
the Notes (except a rescission of acceleration of the Notes by the
Holders of at least a majority in aggregate principal amount of the
Notes and a waiver of the payment default that resulted form such
acceleration);
(e) make any Note payable in money other than that stated in the Notes;
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(f) make any change in Section 6.04 or 6.07 hereof;
(g) waive a redemption or repurchase payment with respect to any Note;
(h) make any change in the foregoing amendment and waiver provisions of
this Article 9; or
(i) except as provided in Sections 8.02, 8.03 and 11.04 hereof, release
any of the Guaranteeing Subsidiaries from their obligations under
the Subsidiary Guarantees or make any change in the Subsidiary
Guarantees that would adversely affect the Holders.
Notwithstanding the foregoing, Sections 3.09 and 4.10 may be amended or
supplemented only with the consent of the Holders of at least two-thirds in
principal amount of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the Notes). In addition,
any amendment to the provisions of Article 10 or Article 12 of this Indenture
shall require the consent of the Holders of at least 75% in aggregate amount of
Notes then outstanding (including consents obtained in connection with a tender
offer or exchange offer for the Notes) if such amendment would adversely affect
the rights of the Holders of Notes.
Without obtaining any necessary consents under the Credit Facility, the
Company may not amend or supplement the provisions contained in Article 10 and
Article 12 hereof.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture, the Subsidiary
Guarantees or the Notes shall be set forth in an amended or supplemental
Indenture that complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder of a Note may revoke the
consent as to its Note if the Trustee receives written notice of revocation
before the date the waiver, supplement or amendment becomes effective. An
amendment, supplement or waiver becomes effective in accordance with its terms
and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date for
determining which Holders of the Notes must consent to such amendment,
supplement or waiver. If
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the Company fixes a record date, the record date shall be fixed at (i) the later
of 30 days prior to the first solicitation of such consent or the date of the
most recent list of Holders of Notes furnished for the Trustee prior to such
solicitation pursuant to Section 2.05 hereof or (ii) such other date as the
Company shall designate.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In signing or refusing to sign any amended or supplemental
indenture the Trustee shall be entitled to receive and (subject to Section 7.01)
shall be fully protected in relying upon, in addition to the documents required
by Section 13.04 hereof, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture, that it is not inconsistent herewith,
and that it will be valid and binding upon the Company and the Guaranteeing
Subsidiaries in accordance with its terms.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Note agrees, that all
Obligations on the Notes shall be subordinated in right of payment, to the
extent and in the manner provided in this Article 10, to the prior payment in
full in cash or Cash Equivalents of all Senior Debt, whether outstanding on the
date hereof or thereafter incurred.
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SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities:
(a) the holders of Senior Debt will be entitled to receive payment
in full in cash or Cash Equivalents of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or
not such interest is in an allowed claim under applicable law) before the
Holders of Notes will be entitled to receive any payment with respect to
the Notes (except that Holders of Notes may receive (i) Permitted Junior
Securities and any other Permitted Junior Securities issued in exchange
for any Permitted Junior Securities and (ii) payments made from the
defeasance trust created pursuant to Article 8 hereof); and
(b) until all Obligations with respect to Senior Debt are paid in
full in cash or Cash Equivalents, any distribution to which the Holders of
Notes would be entitled shall be made to the holders of Senior Debt
(except that Holders of Notes may receive (i) Permitted Junior Securities
and any other Permitted Junior Securities issued in exchange for any
Permitted Junior Securities and (ii) payments made from the defeasance
trust created pursuant to Article 8 hereof).
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company also may not make any payment upon or in respect of the Notes
(except that Holders of Notes may receive (i) Permitted Junior Securities and
any other Permitted Junior Securities issued in exchange for any Permitted
Junior Securities and (ii) payments made from the defeasance trust created
pursuant to Article 8 hereof) if:
(i) a default in the payment of the principal of, premium, if
any, or interest on Designated Senior Debt occurs and is continuing; or
(ii) any other default occurs and is continuing with respect
to Designated Senior Debt that permits holders of the Designated Senior
Debt as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice")
from a Representative with respect to such Designated Senior Debt. If the
Trustee receives any such Payment Blockage Notice, no subsequent Payment
Blockage Notice shall be effective for purposes of this Section 10.03
unless and until (i) 360 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice and (ii) all scheduled payments
of principal, premium, if any, interest and Liquidated Damages,
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if any, on the Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on the Notes:
(a) in the case of a payment default described in clause (i) above,
upon the date on which such default is cured or waived, and
(b) in case of a nonpayment default described in clause (ii) above,
the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior Debt has
been accelerated.
SECTION 10.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of Default, the
Company shall provide the names of the Representatives of the Senior Debt to the
Trustee and the Trustee shall promptly notify such Representatives of Senior
Debt of the acceleration.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee receives any payment of any Obligations with
respect to the Notes at a time when the Trustee has actual knowledge that such
payment is prohibited by Section 10.02 or 10.03 hereof, such Payment shall be
held by the Trustee, in trust for the benefit of, and shall be paid forthwith
over and delivered, upon written request to, the holders of Senior Debt as their
interest may appear or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
interest may appear, for application to the payment of all Obligations with
respect to Senior Debt remaining unpaid to the extent necessary to pay such
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
In the event that any Holder receives any payment of any Obligations with
respect to the Notes at a time when such payment is prohibited by Section 10.02
or 10.03 hereof, such payment shall be held by such Holder, in trust for the
benefit of, and shall be paid forthwith over and delivered, upon written request
to, the holders of Senior Debt as their interest may appear or their
Representative under the indenture or other agreement (if any) pursuant to which
Senior Debt may have been issued, as their interest may appear, for application
to the payment of all Obligations with respect to Senior Debt remaining unpaid
to the extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt.
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With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.06. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of any
facts known to the Company that would cause a payment of any Obligations with
respect to the Notes to violate this Article 10, but failure to give such notice
shall not affect the subordination of the Notes to the Senior Debt as provided
in this Article 10.
SECTION 10.07. SUBROGATION.
After all Senior Debt is paid in full in cash or Cash Equivalents and
until the Notes are paid in full, Holders shall be subrogated (equally and
ratably with all other Indebtedness pari passu with the Notes) to the rights of
holders of Senior Debt to receive distributions applicable to Senior Debt to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Debt. A distribution made under this Article 10 to holders
of Senior Debt that otherwise would have been made to Holders is not, as between
the Company and Holders, a payment by the Company on the Senior Debt.
SECTION 10.08. RELATIVE RIGHTS.
This Article 10 defines the relative rights of the Holders and holders of
Senior Debt. Nothing in this Indenture shall:
(i) impair, as between the Company and the Holders, the
obligation of the Company, which is absolute and unconditional, to
pay principal of, premium, if any, interest and Liquidated Damages,
if any, on the Notes in accordance with their terms;
(ii) affect the relative rights of Holders and creditors of
the Company other than their rights in relation to holders of Senior
Debt; or
(iii) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or an Event of Default, subject to
the rights of holders and owners of Senior Debt to receive
distributions and
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payments otherwise payable to Holders.
If the Company fails because of this Article 10 to pay principal of,
premium, if any, interest or Liquidated Damages, if any, on a Note on the due
date, the failure is nevertheless a Default or an Event of Default.
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the subordination of the
Indebtedness evidenced by the Notes shall be prejudiced or impaired by any act
or failure to act by the Company or any Holder or by the failure of the Company
or any Holder to comply with this Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee and the Holders shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least two Business Days prior to the date of such
payment written notice that the payment of any Obligations with respect to the
Notes would violate this Article 10, provided that this Section 10.11 shall not
limit or modify the rights of holders of Senior Debt to recover any such
payments from the Holders of the Notes pursuant to Sections 10.02, 10.03 and/or
10.05. Only the Company or a Representative may give the notice. Nothing in this
Article 10 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
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SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time to file such
claim, a Representative of Designated Senior Debt is hereby authorized to file
an appropriate claim for and on behalf of the Holders of the Notes.
SECTION 10.13. AMENDMENTS.
Any amendment to the provisions of this Article 10 shall require the
consent of the Holders of at least 75% in aggregate amount of Notes then
outstanding if such amendment would adversely affect the rights of the Holders
of Notes.
ARTICLE 11
GUARANTEE OF NOTES
SECTION 11.01. SUBSIDIARY GUARANTEE.
Subject to Section 11.06 hereof, each of the Guaranteeing
Subsidiaries hereby, jointly and severally, unconditionally guarantees to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity and enforceability
of this Indenture, the Notes and the Obligations of the Company hereunder and
thereunder, that:
(a) the principal of, premium, if any, interest and Liquidated
Damages, if any, on the Notes will be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue
principal, premium, if any (to the extent permitted by law), interest on
any interest, if any, and Liquidated Damages, if any, on the Notes, and
all other payment Obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full and performed, all
in accordance with the terms hereof and thereof; and
(b) in case of any extension of time of payment or renewal of any
Notes or any of such other Obligations, the same will be promptly paid in
full when due or performed in accordance with the terms of the extension
or renewal, subject to any applicable grace period, whether at stated
maturity, by acceleration, redemption or otherwise. Failing payment when
so due of any amount so guaranteed or any performance so guaranteed for
whatever reason the
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Guaranteeing Subsidiaries will be jointly and severally obligated to pay
the same immediately.
An Event of Default under this Indenture or the Notes shall
constitute an event of default under the Subsidiary Guarantees, and shall
entitle the Holders to accelerate the Obligations of the Guaranteeing
Subsidiaries hereunder in the same manner and to the same extent as the
Obligations of the Company. The Guaranteeing Subsidiaries hereby agree that
their Obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
with respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
Guaranteeing Subsidiary.
Each Guaranteeing Subsidiary hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that this
Subsidiary Guarantee will not be discharged except by complete performance of
the Obligations contained in the Notes and this Indenture. If any Holder or the
Trustee is required by any court or otherwise to return to the Company, the
Guaranteeing Subsidiaries, or any Note Custodian, Trustee, liquidator or other
similar official acting in relation to either the Company or the Guaranteeing
Subsidiaries, any amount paid by either the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each Guaranteeing Subsidiary agrees that it shall not
be entitled to, and hereby waives, any right of subrogation in relation to the
Holders in respect of any Obligations Guaranteed hereby.
Each Guaranteeing Subsidiary further agrees that, as between the
Guaranteeing Subsidiaries, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the Obligations guaranteed hereby may be
accelerated as provided in Article 6 for the purposes of this Subsidiary
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such Obligations as provided in
Article 6 hereof, such Obligations (whether or not due and payable) shall
forthwith become due and payable by the Guaranteeing Subsidiaries for the
purpose of this Subsidiary Guarantee. The Guaranteeing Subsidiaries shall have
the right to seek contribution from any non-paying Guaranteeing Subsidiary so
long as the exercise of such right does not impair the rights of the Holders
under the Subsidiary Guarantees.
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SECTION 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each
Guaranteeing Subsidiary hereby agrees that a notation of such Subsidiary
Guarantee substantially in the form of Exhibit D shall be endorsed by an Officer
of such Guaranteeing Subsidiary on each Note authenticated and delivered by the
Trustee and that this Indenture shall be executed on behalf of such Guaranteeing
Subsidiary, by manual or facsimile signature, by an Officer of such Guaranteeing
Subsidiary.
Each Guaranteeing Subsidiary hereby agrees that its Subsidiary Guarantee
set forth in Section 11.01 shall remain in full force and effect notwithstanding
any failure to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the Subsidiary
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall
be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth
in this Indenture on behalf of the Guaranteeing Subsidiaries.
SECTION 11.03. GUARANTEEING SUBSIDIARIES MAY CONSOLIDATE, ETC., ON CERTAIN
TERMS.
(a) Except as set forth in Articles 4 and 5 hereof, nothing contained in
this Indenture shall prohibit a merger between a Guaranteeing Subsidiary and
another Guaranteeing Subsidiary or a merger between a Guaranteeing Subsidiary
and the Company.
(b) Except as provided in Section 11.03(a) hereof or in a transaction
referred to in Section 11.04 hereof, no Guaranteeing Subsidiary may consolidate
with or merge with or into (whether or not such Guaranteeing Subsidiary is the
surviving Person), another corporation, Person or entity whether or not
affiliated with such Guaranteeing Subsidiary, or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets to another
corporation, Person or entity unless:
(i) subject to the provisions of Section 11.04, the Person formed by
or surviving any such consolidation or merger (if other than such
Guaranteeing Subsidiary) assumes all the obligations of such Guaranteeing
Subsidiary under the Notes and the Indenture pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee in
the Form of Exhibit E hereto;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default exists;
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<PAGE> 89
(iii) immediately after giving effect to such transaction or series
of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), the
Consolidated Net Worth of the Guaranteeing Subsidiary or the surviving
entity, as the case may be, is at least equal to the Consolidated Net
Worth of the Guaranteeing Subsidiary immediately before such transaction
or series of transactions; and
(iv) the Company would be permitted by virtue of the Company's pro
forma Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio set forth in Section 4.09 hereof.
(c) In the case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor Person, by supplemental indenture, executed
and delivered to the Trustee and substantially in the form of Exhibit E hereto,
of the Subsidiary Guarantee and the due and punctual performance of all of the
covenants and conditions of this Indenture to be performed by the Guaranteeing
Subsidiary, such successor Person shall succeed to and be substituted for the
Guaranteeing Subsidiary with the same effect as if it had been named herein as a
Guaranteeing Subsidiary; provided that, solely for purposes of computing
Consolidated Net Income for purposes of clause (b) of the first paragraph of
Section 4.07 hereof, the Consolidated Net Income of any Person other than the
Company and its Restricted Subsidiaries shall only be included for periods
subsequent to the effective time of such merger, consolidation, combination or
transfer of assets. Such successor Person thereupon may cause to be signed any
or all of the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All of the Subsidiary Guarantees so issued shall
in all respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
SECTION 11.04. RELEASES FOLLOWING SALE OF ASSETS.
Concurrently with the sale or other disposition of all or substantially
all of the assets of any Guaranteeing Subsidiary or all of the Capital Stock of
any Guaranteeing Subsidiary, such Guaranteeing Subsidiary (in the event of a
sale or other disposition of all of the Capital Stock of such Guaranteeing
Subsidiary) or the Person acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of a Guaranteeing
Subsidiary) shall be released from and relieved of its Obligations under its
Subsidiary Guarantee or Section 11.03 hereof, as the case may be; provided that
(i) In the event of an Asset Sale, the Net Proceeds from such sale
or other disposition are treated in accordance with the provisions of
Section 4.10
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<PAGE> 90
hereof and
(ii) the Company is in compliance with all other provisions of this
Indenture applicable to such disposition. Upon delivery by the Company to
the Trustee of an Officers' Certificate to the effect of the foregoing,
the Trustee shall execute any documents reasonably required in order to
evidence the release of any Guaranteeing Subsidiary from its Obligation
under its Subsidiary Guarantee. Any Guaranteeing Subsidiary not released
from its Obligations under its Subsidiary Guarantee shall remain liable
for the full amount of principal of, premium, If any, interest and
Liquidated Damages, if any, on the Notes and for the other Obligations of
such Guaranteeing Subsidiary under the Indenture as provided in this
Article 11.
SECTION 11.05. ADDITIONAL GUARANTEEING SUBSIDIARIES.
Any Person that was not a Guaranteeing Subsidiary on the date of this
Indenture may become a Guaranteeing Subsidiary by executing and delivering to
the Trustee (a) a supplemental indenture in substantially the form of Exhibit E
and (b) an Opinion of Counsel to the effect that such supplemental indenture has
been duly authorized and executed by such Person and constitutes the legal,
valid, binding and enforceable obligation of such Person (subject to such
customary exceptions concerning creditors rights', fraudulent transfers, public
policy and equitable principles as may be acceptable to the Trustee in its
discretion).
SECTION 11.06. LIMITATION ON GUARANTEEING SUBSIDIARY LIABILITY.
For purposes hereof, each Guaranteeing Subsidiary's liability shall be
limited to the lesser of (i) the aggregate amount of the Obligations of the
Company under the Notes and this Indenture and (ii) the amount, if any, which
would not have (A) rendered such Guaranteeing Subsidiary "insolvent" (as such
term is defined in the United States Bankruptcy Code and in the Debtor and
Creditor Law of the State of New York) or (B) left such Guaranteeing Subsidiary
with unreasonably small capital at the time its Subsidiary Guarantee of the
Notes was entered into; provided that, it will be a presumption in any lawsuit
or other proceeding in which a Guaranteeing Subsidiary is a party that the
amount guaranteed pursuant to the Subsidiary Guarantee is the amount set forth
in clause (i) above unless any creditor, or representative of creditors of such
Guaranteeing Subsidiary, or debtor in possession or trustee in bankruptcy of the
Guaranteeing Subsidiary, otherwise proves in such a lawsuit that the aggregate
liability of the Guaranteeing Subsidiary is the amount set forth in clause (ii)
above. In making any determination as to solvency or sufficiency of capital of a
Guaranteeing Subsidiary in accordance with the previous sentence, the right of
such Guaranteeing Subsidiary to contribution from other Guaranteeing
Subsidiaries, and any other rights such Guaranteeing Subsidiary may have,
contractual or otherwise, shall be taken into account.
SECTION 11.07. "TRUSTEE" TO INCLUDE PAYING AGENT.
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In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 11 shall in each case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully and for all intents and purposes as if such Paying
Agent were named in this Article 11 in place of the Trustee.
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
SECTION 12.01. AGREEMENT TO SUBORDINATE.
The Guaranteeing Subsidiaries agree, and each Holder by accepting a Note
agrees, that all Guarantee Obligations, shall be subordinated in right of
payment, to the extent and in the manner provided in this Article 12, to the
prior payment in full in cash or Cash Equivalents of all Senior Debt, whether
outstanding on the date hereof or thereafter incurred.
SECTION 12.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of any Guaranteeing Subsidiary in a
liquidation or dissolution of such Guaranteeing Subsidiary or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to such
Guaranteeing Subsidiary or its property, an assignment for the benefit of
creditors or any marshalling of such Guaranteeing Subsidiary's assets and
liabilities:
(a) the holders of Senior Debt of such Guaranteeing Subsidiary will
be entitled to receive payment in full in cash or Cash Equivalents of all
Obligations due in respect of such Senior Debt (including interest after
the commencement of any such proceeding at the rate specified in the
applicable Guarantor Senior Debt, whether or not such interest is in an
allowed claim under applicable law) before the Holders of Notes will be
entitled to receive any payment under the Subsidiary Guarantee of such
Guaranteeing Subsidiary; and
(b) until all Obligations with respect to Senior Debt of any
Guaranteeing Subsidiary are paid in full in cash or Cash Equivalents, any
distribution under the Subsidiary Guarantee of such Guaranteeing
Subsidiary to which the Holders of Notes would be entitled shall be made
by such Guaranteeing Subsidiary to the holders of Senior Debt of such
Guaranteeing Subsidiary (except that Holders of Notes may receive (i)
Permitted Junior Securities and any other Permitted Junior Securities
issued in exchange for any Permitted Junior Securities and (ii) payments
made from the defeasance trust created pursuant to Article 8 hereof).
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<PAGE> 92
SECTION 12.03. DEFAULT ON DESIGNATED GUARANTOR SENIOR DEBT.
No Guaranteeing Subsidiary may make any payment upon or in respect of such
Guaranteeing Subsidiary's Subsidiary Guarantee (except that Holders of Notes may
receive (i) Permitted Junior Securities and any other Permitted Junior
Securities issued in exchange for any Permitted Junior Securities and (ii)
payments and other distributions made from the defeasance trust created pursuant
to Article 8 hereof if:
(i) a default in the payment of the principal of, premium, if any,
or interest on Designated Guarantor Senior Debt of such Guaranteeing
Subsidiary occurs and is continuing; or
(ii) any other default occurs and is continuing with respect to
Designated Guarantor Senior Debt of such Guaranteeing Subsidiary that
permits holders of such Designated Guarantor Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from a Representative
with respect to such Designated Guarantor Senior Debt. If the Trustee
receives any such Payment Blockage Notice, no subsequent Payment Blockage
Notice shall be effective for purposes of this Section 12.03 unless and
until (i) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, interest and Liquidated Damages, if any, on
the Notes and the Subsidiary Guarantee that have come due have been paid
in full in cash. No nonpayment default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall
be, or be made, the basis for a subsequent Payment Blockage Notice.
Such Guaranteeing Subsidiary may and shall resume payments on its
Subsidiary Guarantee:
(a) in the case of a payment default described in clause (i) above,
upon the date on which such default is cured or waived, and
(b) in case of a nonpayment default described in clause (ii) above,
the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Guarantor Senior
Debt of such Guaranteeing Subsidiary has been accelerated.
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SECTION 12.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of Default, the
Guaranteeing Subsidiary shall provide the names of the Representatives of the
Senior Debt to the Trustee and the Trustee shall promptly notify such
Representatives of Senior Debt of the acceleration.
SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee receives any payment of any Guarantee
Obligations with respect to a Guaranteeing Subsidiary at a time when the Trustee
has actual knowledge that such payment is prohibited by Section 12.02 or 12.03
hereof, such Payment shall be held by the Trustee, in trust for the benefit of,
and shall be paid forthwith over and delivered, upon written request to, the
holders of Senior Debt of such Guaranteeing Subsidiary as their interest may
appear or their Representative under the indenture or other agreement (if any)
pursuant to which such Senior Debt may have been issued, as their interest may
appear, for application to the payment of all Obligations with respect to such
Senior Debt remaining unpaid to the extent necessary to pay such Obligations in
full in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Debt.
In the event that any Holder receives any payment of any Guarantee
Obligations of a Guaranteeing Subsidiary at a time when such payment is
prohibited by Section 12.02 or 12.03 hereof, such payment shall be held by such
Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request to, the holders of Senior Debt of such
Guaranteeing Subsidiary as their interest may appear or their Representative
under the indenture or other agreement (if any) pursuant to which such Senior
Debt may have been issued, as their interest may appear, for application to the
payment of all Obligations with respect to such Senior Debt remaining unpaid to
the extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 12, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the
Guaranteeing Subsidiaries or any other Person money or assets to which any
holders of Senior Debt shall be entitled by virtue of this Article 12, except if
such payment is made as a result of the willful misconduct or gross negligence
of the Trustee.
SECTION 12.06. NOTICE BY GUARANTEEING SUBSIDIARY.
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Each Guaranteeing Subsidiary shall promptly notify the Trustee and the
Paying Agent of any facts known to such Guaranteeing Subsidiary that would cause
a payment of any Guarantee Obligations to violate this Article 12, but failure
to give such notice shall not affect the subordination of the Subsidiary
Guarantees to the Senior Debt as provided in this Article 12.
SECTION 12.07. SUBORDINATION.
After all Senior Debt is paid in full in cash or Cash Equivalents and
until the Subsidiary Guarantees are paid in full, Holders shall be subrogated
(equally and ratably with all other Indebtedness pari passu with the Subsidiary
Guarantees) to the rights of holders of Senior Debt to receive distributions
applicable to Senior Debt to the extent that distributions otherwise payable to
the Holders have been applied to the payment of Senior Debt. A distribution made
under this Article 12 to holders of Senior Debt that otherwise would have been
made to Holders is not, as between the Guaranteeing Subsidiaries and Holders, a
payment by the Guaranteeing Subsidiaries on the Senior Debt.
SECTION 12.08. RELATIVE RIGHTS.
This Article 12 defines the relative rights of the Holders and holders of
Senior Debt. Nothing in this Indenture shall:
(i) impair, as between the Guaranteeing Subsidiaries and the
Holders, the obligation of the Guaranteeing Subsidiaries, which is
absolute and unconditional, to pay principal of, premium, if any, interest
and Liquidated Damages, If any, on the Notes in accordance with the terms
of the Subsidiary Guarantees;
(ii) affect the relative rights of Holders and creditors of the
Guaranteeing Subsidiaries other than their rights in relation to holders
of Senior Debt; or
(iii) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or an Event of Default, subject to the
rights of holders and owners of Senior Debt to receive distributions and
payments otherwise payable to Holders.
If any Guaranteeing Subsidiary fails because of this Article 12 to pay its
Guarantee Obligations in accordance with its Subsidiary Guarantee on the due
date, the failure is nevertheless a Default or an Event of Default.
SECTION 12.09. SUBORDINATION MAY NOT BE IMPAIRED BY GUARANTEEING SUBSIDIARY.
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No right of any holder of Senior Debt to enforce the subordination of the
Guarantee Obligations shall be prejudiced or impaired by any act or failure to
act by the Guaranteeing Subsidiaries or any Holder or by the failure of the
Guaranteeing Subsidiaries or any Holder to comply with this Indenture.
SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of a Guaranteeing Subsidiary
referred to in this Article 12, the Trustee and the Holders shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Debt and other Indebtedness of such
Guaranteeing Subsidiary, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article 12.
SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 12 or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Subsidiary Guarantees, unless the Trustee shall have
received at its Corporate Trust Office at least 5 Business Days prior to the
date of such payment written notice that the payment of any Obligations with
respect to the Subsidiary Guarantees would violate this Article 12. Only the
Guaranteeing Subsidiaries or a Representative may give the notice. Nothing in
this Article 12 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
SECTION 12.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 12, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time to file
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such claim, a Representative of Designated Guarantor Senior Debt is hereby
authorized to file an appropriate claim for and on behalf of the Holders of the
Notes.
SECTION 12.13. AMENDMENTS.
Any amendment to the provisions of this Article 12 shall require the
consent of the Holders of at least 75% in aggregate amount of Notes then
outstanding if such amendment would adversely affect the rights of the Holders
of Notes.
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 13.02. NOTICES.
Any notice or communication by the Company, any Guaranteeing Subsidiary or
the Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail registered or certified, return receipt requested),
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company or any Guaranteeing Subsidiary:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attention: General Counsel
With a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005-1413
Attention: Robert Reder, Esq.
If to the Trustee:
American Stock Transfer & Trust
40 Wall Street, 46th Floor
New York, New York 10005
Attention: Corporate Trust Administration
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The Company, any Guaranteeing Subsidiary or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; 5 Business Days after being deposited in the mail, postage prepaid,
if mailed; when receipt acknowledged, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail to its address shown on the register kept by the Registrar. Any notice or
communication shall also be so mailed to any Person described in TIA Section
313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA Section
312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or any Guaranteeing
Subsidiary to the Trustee to take any action under this Indenture, the Company
or such Guaranteeing Subsidiary shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 13.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 13.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
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SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 13.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the Company
or any Guaranteeing Subsidiary, as such, shall have any liability for any
obligations of the Company under the Notes, any Subsidiary Guarantee, this
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and any Subsidiary Guarantee. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
SECTION 13.08. GOVERNING LAW.
The internal law of the State of New York shall govern and be used to
construe this Indenture, the Subsidiary Guarantees and the Notes.
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SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 13.10. SUCCESSORS.
All agreements of the Company and the Guaranteeing Subsidiaries in this
Indenture and the Notes shall bind their respective successors and assigns. All
agreements of the Trustee in this Indenture shall bind its successors and
assigns.
SECTION 13.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 13.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
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SIGNATURES
Dated as of August 4, 1997
GRAHAM-FIELD HEALTH
PRODUCTS, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
AQUA-THERM CORP.
Attest: By:
----------------- --------------------------------
Name:
Title:
BRISTOLINE, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
EVEREST & JENNINGS
CANADIAN LTD.
Attest: By:
----------------- --------------------------------
Name:
Title:
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EVEREST & JENNINGS
DE MEXICO S.A. DE C.V.
Attest: By:
----------------- --------------------------------
Name:
Title:
EVEREST & JENNINGS, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
EVEREST & JENNINGS
INTERNATIONAL LTD.
Attest: By:
----------------- --------------------------------
Name:
Title:
EVEREST & JENNINGS LIFESTYLES
Attest: By:
----------------- --------------------------------
Name:
Title:
EXNEWT, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
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<PAGE> 102
FREEWAY INVESTMENT CORP.
Attest: By:
----------------- --------------------------------
Name:
Title:
G.F.E. HEALTHCARE PRODUCTS CORP.
Attest: By:
----------------- --------------------------------
Name:
Title:
GRAHAM-FIELD BANDAGE, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
GRAHAM-FIELD DISTRIBUTION, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
GRAHAM-FIELD EUROPEAN
DISTRIBUTION CORPORATION
LIMITED
Attest: By:
----------------- --------------------------------
Name:
Title:
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<PAGE> 103
GRAHAM-FIELD EXPRESS, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
GRAHAM-FIELD EXPRESS (DALLAS), INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
GRAHAM-FIELD EXPRESS
(PUERTO RICO) INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
GRAHAM-FIELD, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
GRAHAM-FIELD TEMCO, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
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<PAGE> 104
HEALTH AND MEDICAL
TECHNIQUES, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
HEALTHTEAM, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
INTERNATIONAL MEDICAL
EQUIPMENT CORP.
Attest: By:
----------------- --------------------------------
Name:
Title:
THE JENNINGS INVESTMENT COMPANY
Attest: By:
----------------- --------------------------------
Name:
Title:
KUSCHALL OF AMERICA, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
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<PAGE> 105
LABAC SYSTEMS, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
LABTRON SCIENTIFIC CORP.
Attest: By:
----------------- --------------------------------
Name:
Title:
M.E. TEAM, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
MCT ACQUISITION CORP.
Attest: By:
----------------- --------------------------------
Name:
Title:
MEDISCO, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
METAL PRODUCTS CORP.
Attest: By:
----------------- --------------------------------
Name:
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<PAGE> 106
Title:
PATIENT TECHNOLOGY, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
PROFESSIONAL SECURITIES CORP.
Attest: By:
----------------- --------------------------------
Name:
Title:
RABSON MEDICAL SALES, LTD.
Attest: By:
----------------- --------------------------------
Name:
Title:
SMITH & DAVIS MANUFACTURING
COMPANY
Attest: By:
----------------- --------------------------------
Name:
Title:
THOMPSON BLAIR, INC.
Attest: By:
----------------- --------------------------------
Name:
Title:
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<PAGE> 107
VENTILATOR CORP.
Attest: By:
----------------- --------------------------------
Name:
Title:
99
<PAGE> 108
Dated as of August 4, 1997
[SEAL]
AMERICAN STOCK TRANSFER &
TRUST COMPANY
as Trustee
Attest: By:
----------------- --------------------------------
Name:
Title:
100
<PAGE> 109
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES
IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR
ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION UNDER SUCH LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY UNLESS SUCH
OFFER, SALE OR OTHER TRANSFER IS (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON WHO IS OR WHO THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
<PAGE> 110
SUBPARAGRAPH (a)(1), (a)(2), (a)(3) OR (a)(7) OF RULE 501 UNDER THE SECURITIES
ACT THAT IS PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND IN EACH OF THE FOREGOING
CASES SUCH OFFER, SALE OR OTHER TRANSFER IS IN COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE
OF TRANSFER IN THE FORM PROVIDED FOR IN THE INDENTURE (A COPY OF WHICH MAY BE
OBTAINED FROM THE TRUSTEE) IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE THEN HOLDER OF THIS
SECURITY AFTER THE RESALE RESTRICTION TERMINATION DATE. ANY TRANSFEREE OF THIS
SECURITY SHALL BE DEEMED TO HAVE REPRESENTED EITHER (X) THAT IT IS NOT USING THE
ASSETS OF AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT ("ERISA") OR THE INTERNAL REVENUE CODE (THE "CODE") TO PURCHASE
THIS SECURITY OR (Y) THAT ITS PURCHASE AND CONTINUED HOLDING OF THE SECURITY
WILL BE COVERED BY A U.S. DEPARTMENT OF LABOR CLASS EXEMPTION (WITH RESPECT TO
PROHIBITED TRANSACTIONS UNDER SECTION 406(a) OF ERISA).
A-2
<PAGE> 111
9-3/4% SENIOR SUBORDINATED NOTES DUE 2007
Cusip No. 384 632 AA3 $100,000,000
GRAHAM-FIELD HEALTH PRODUCTS, INC.
promises to pay to
CEDE & CO.
or registered assigns,
the principal sum of $100,000,000
Dollars or such greater or lesser amount as indicated on the Schedule of
Exchanges of Definitive Notes on the reverse hereof on August 15, 2007
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
Authentication: Dated: August 4, 1997
This is one of the Notes referred
to in the within-mentioned Indenture.
AMERICAN STOCK TRANSFER
& TRUST COMPANY,
as Trustee GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: By:
------------------- ------------------------------
Authorized Officer
By:
-------------------------
A-3
<PAGE> 112
9-3/4% SENIOR SUBORDINATED NOTES DUE 2007
1. INTEREST. GRAHAM-FIELD HEALTH PRODUCTS, INC., a Delaware
corporation, or its successor (the "Company"), promises to pay interest on the
principal amount of this Note at the rate of 9-3/4% per annum and shall pay the
Liquidated Damages, if any, payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company will pay interest and Liquidated
Damages in United States dollars (except as otherwise provided herein)
semi-annually in arrears on February 15 and August 15, commencing on February
15, 1998 or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Interest on the Notes shall
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance; provided that if
there is no existing Default or Event of Default in the payment of interest, and
if this Note is authenticated between a record date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such next succeeding Interest Payment Date, except in the case of the original
issuance of Notes, in which case interest shall accrue from the date of
authentication. The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 1.0% per annum in excess of
the rate then in effect; it shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue installments of interest
and Liquidated Damages, if any (without regard to any applicable grace periods),
from time to time on demand at the same rate to the extent lawful. Interest
shall be computed on the basis of a 360-day year comprised of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages, if any, to the Persons who
are registered Holders of Notes at the close of business on the February 1 or
August 1 next preceding the Interest Payment Date, even if such Notes are
cancelled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.11 of the Indenture with respect to defaulted
interest. The Notes shall be payable as to principal, premium, if any, interest
and Liquidated Damages, if any, at the office or agency of the Company
maintained for such purpose within the City and State of New York, or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders at their addresses set forth in the register of Holders; provided that
payment by wire transfer of immediately available funds shall be required with
respect to principal of, and interest, premium and Liquidated Damages, if any,
on, all Global Notes and all other Notes the Holders of which shall have
provided written wire transfer instructions to the Company or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. PAYING AGENT AND REGISTRAR. Initially, American
Stock Transfer & Trust Company, the Trustee under the Indenture, shall
act as Paying Agent and Registrar. The Company may change any Paying
Agent or Registrar without notice
A-4
<PAGE> 113
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated
as of August 4, 1997 ("Indenture") between the Company, the Guaranteeing
Subsidiaries and the Trustee. The terms of the Notes include those stated in the
Indenture and those made a part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA"). The Notes are subject to all such terms, and Holders are referred to the
Indenture and such Act for a statement of such terms. The Notes are general
unsecured Obligations of the Company limited to $100,000,000 in aggregate
principal amount, plus amounts, if any, sufficient to pay premium, if any,
interest or Liquidated Damages, if any, on outstanding Notes as set forth in
Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at the Company's option prior to August 15, 2002. Thereafter, the
Notes shall be subject to redemption at the option of the Company, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below together
with accrued and unpaid Interest and any Liquidated Damages, if any, thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on August 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C> <C>
2002...................................... 104.875%
2003...................................... 103.250%
2004...................................... 101.625%
2005 and thereafter....................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to August 15, 2000,
the Company on one or more occasions may redeem up to 25% of the aggregate
principal amount of originally issued Notes with any of the net proceeds of one
or more public offerings of common stock of the Company at a redemption price of
109.75% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable date of redemption;
provided that at least 75% of the aggregate principal amount of the Notes remain
outstanding immediately after the occurrence of each such redemption.
Any redemption pursuant to Section 3.07 of the Indenture shall be
made pursuant to the provisions of Section 3.01 through 3.06 thereof.
A-5
<PAGE> 114
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase.
Within 30 days following any Change of Control, the Company will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control setting forth the procedures governing the
Change of Control Offer required by the Indenture.
(b) When the aggregate amount of Excess Proceeds held by the Company
in connection with an Asset Sale exceeds $5.0 million, the Company shall,
pursuant to Section 3.09 of the Indenture, (i) make an offer to all Holders of
Notes to purchase and (ii) prepay, purchase or redeem (or make an offer to do
so) any other Pari Passu Indebtedness of the Company in accordance with
provisions requiring the Company to prepay, purchase or redeem such Indebtedness
with the proceeds from any asset sales (or offer to do so), the maximum
principal amount of Notes and of such Indebtedness that may be purchased out of
the Excess Proceeds, pro rata in proportion to the respective principal amounts
(or accreted value, as applicable) of the Notes and such other Indebtedness
required to be prepaid, purchased or redeemed or tendered for pursuant to such
offer (an "Asset Sale Offer"), at an offer price in cash in an amount equal to
100% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any to the date of purchase, in accordance with
the procedures set forth in Section 3.09 of the Indenture.
(c) Holders of the Notes that are the subject of an offer to
purchase will receive a Change of Control Offer or Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form titled "Option of Holder to Elect Purchase"
appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date, interest and Liquidated Damages, if
any, cease to accrue on the Notes or portions thereof
A-6
<PAGE> 115
called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in initial denominations of $1,000 and integral multiples
of $1,000. The transfer of the Notes may be registered and the Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. SUBORDINATION. Each Holder by accepting a Note agrees that the
payment of principal of, premium and Liquidated Damages, if any, and interest on
each Note is subordinated in right of payment, to the extent and in the manner
provided in Article 10 of the Indenture, to the prior payment in full of all
Senior Debt (whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed), and the subordination is for the
benefit of the holders of Senior Debt.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the following
paragraphs, the Indenture, the Notes and the Subsidiary Guarantees may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding (including consents obtained
in connection with a tender offer or exchange offer for Notes), and any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, interest or Liquidated Damages, if
any, on the Notes, except a payment default resulting from an acceleration that
has been rescinded) or compliance with any provision of the Indenture, the Notes
or the Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Notwithstanding the foregoing, the provisions with respect to Asset
Sales may be amended or supplemented with the consent of the Holders of at least
two-thirds in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes). In
addition, any amendment to the provisions of Article 10 and Article 12 of the
Indenture (which relate to subordination) will require the consent of the
Holders of at least 75% in aggregate amount of Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for the
Notes) if such amendment would adversely affect the rights of Holders of Notes.
Without obtaining any necessary consents under the Credit Facility, the Company
A-7
<PAGE> 116
may not amend or supplement the subordination provisions with respect to the
Notes.
Without the consent of each Holder affected, however, an amendment
or waiver may not (with respect to any Note held by a non-consenting Holder):
(i) reduce the principal amount of Notes; (ii) reduce the principal of or change
the fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes or any Change of Control Offer; (iii) reduce the rate of
or change the time for payment of interest or Liquidated Damages, if any, on any
Notes; (iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration); (v) make any Note payable in
money other than that stated in the Notes; (vi) waive a redemption or repurchase
payment with respect to any Note; or (vii) make any change in the foregoing
amendment and waiver provisions.
Without the consent of any Holder of Notes, the Company, the
Guaranteeing Subsidiaries and the Trustee may amend or supplement the Indenture,
the Subsidiary Guarantees or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or a
Guaranteeing Subsidiary's obligations to Holders of the Notes in case of a
merger, transfer of assets or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the TIA or to allow any
Guaranteeing Subsidiary to guarantee the Notes.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for
30 days in the payment when due of interest or Liquidated Damages, if any, with
respect to the Notes (whether or not prohibited by Article 10 or Article 12 of
the Indenture); (ii) default in payment when due of principal or premium, if
any, on the Notes at maturity, upon redemption or otherwise (whether or not
prohibited by Article 10 or Article 12 of the Indenture); (iii) failure by the
Company or any Guaranteeing Subsidiary for 30 days after receipt of notice from
the Trustee or Holders of at least 25% in principal amount of the Notes then
outstanding to comply with the provisions described in Sections 4.07, 4.09,
4.13, 4.14, or 5.01 of the Indenture; (iv) failure by the Company or any
Guaranteeing Subsidiary for 60 days after notice from the Trustee or the Holders
of at least 25% in principal amount of the Notes then outstanding to comply with
its other agreements in the Indenture or the Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the date of the
Indenture, which default (A)(i) is caused by a failure to pay when due at final
stated maturity (giving effect to any grace period related thereto) principal of
such
A-8
<PAGE> 117
Indebtedness (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and (B) in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been accelerated as a result of any matter contemplated in clause
(v)(A)(i) or (v)(A)(ii), aggregates $7.5 million or more; (vi) failure by the
Company or any of its respective Restricted Subsidiaries to pay final judgments
(to the extent not covered by insurance and as to which the insurer has not
acknowledged coverage in writing) aggregating in excess of $7.5 million, which
judgments are not paid, fully bonded, discharged or staved within 60 days after
their entry; (vii) certain events of bankruptcy or insolvency with respect to
the Company or any Restricted Subsidiary of the company that is a Significant
Subsidiary or group of Restricted Subsidiaries of the Company that, together,
would constitute a Significant Subsidiary; and (viii) the termination of the
Subsidiary Guarantee(s) of either a Guaranteeing Subsidiary that is a
Significant Subsidiary or group of Guaranteeing Subsidiaries that together
constitute a Significant Subsidiary for any reason not permitted by the
Indenture, or the denial of any Person acting on behalf of any such Guaranteeing
Subsidiary or group of Guaranteeing Subsidiaries of its Obligations under any
such Subsidiary Guarantee(s).
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable by notice in writing to the Company
and the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice") and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Credit Facility, shall become immediately due and payable upon the
first to occur of an acceleration under the Credit Facility or 5 Business Days
after receipt by the Company and the Representative under the Credit Facility of
such Acceleration Notice but only if such Event of Default is then continuing.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or Power. The Holders of a majority in aggregate principal amount of
the Notes then outstanding, by notice to the Trustee, may on behalf of the
Holders of all of the Notes waive any existing Default or Event of Default and
its consequences under the Indenture, except a continuing Default or Event of
Default in the payment of interest or premium, if any, on, or principal of, the
Notes. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in such Holders' interest. The Company is required to
deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default to deliver to the Trustee a statement specifying such Default
or Event of Default.
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<PAGE> 118
14. SUBSIDIARY GUARANTEES. The Notes will be guaranteed (the
"Subsidiary Guarantees"), jointly and severally, on a senior subordinated basis
by the Guaranteeing Subsidiaries. The Subsidiary Guarantees will be subordinated
in right of payment to all existing and future Senior Debt of the Guaranteeing
Subsidiaries.
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
16. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder, of the Company or any Guaranteeing Subsidiary, as
such, shall have any liability for any obligations of the Company under the
Notes, any Subsidiary Guarantee or the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Notes and any
Subsidiary Guarantee. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
17. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
18. ERISA MATTERS. Each Holder of Securities, by its acceptance
thereof, will be deemed to certify that (i) no part of the funds used by such
Holder to purchase the Securities constitutes assets of an employee benefit plan
or (ii) the acquisition and continued holding of the Securities will be covered
by a U.S. Department of Labor class exemption (with respect to prohibited
transactions set forth under Section 406(a) of ERISA).
19. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. Additional Rights of Holders of Transfer Restricted Securities.
In addition to the rights provided to Holders of the Notes under the Indenture,
Holders of Transferred Restricted Securities shall have all the rights set forth
in the Registration Rights Agreement dated as of the date hereof, among the
Company, the Guaranteeing Subsidiary and the parties named on the signature
pages thereof (the "Registration Rights Agreement").
21. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has
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<PAGE> 119
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to the Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attention: General Counsel
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<PAGE> 120
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
________________________________________________________________
(Insert assignee's Soc. Sec. or Tax I.D. no.)
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________ to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.
Date: ______________
Your Signature:_____________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:____________________________
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<PAGE> 121
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.14 of the Indenture, check the appropriate box:
/ / Section 4.10 / / Section 4.14
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or 4.14 of the Indenture, state the amount you
elect to have purchased: $____________.
Date: __________
Your Signature:__________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:____________________
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<PAGE> 122
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES
The following exchanges of a part of this Global Note for Definitive
Notes have been made.
<TABLE>
<CAPTION>
Amount of Amount of Principal
decrease in increase in Amount of this
Principal Principal Global Note Signature of
Amount of Amount of following such authorized
Date of this Global this Global decrease (or officer of
Exchange Note Note increase) Trustee
-------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
</TABLE>
A-14
<PAGE> 1
Exhibit 4.3
$100,000,000
GRAHAM-FIELD HEALTH PRODUCTS, INC.
9-3/4% Senior Subordinated Notes due 2007
REGISTRATION RIGHTS AGREEMENT
August 4, 1997
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Graham-Field Health Products, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Smith Barney Inc. (the "Initial
Purchaser"), upon the terms set forth in a purchase agreement dated as of July
30, 1997 (the "Purchase Agreement"), an aggregate of $100,000,000 principal
amount of its 9-3/4% Senior Subordinated Notes due 2007 (the "Notes"). The Notes
will be issued pursuant to an indenture (the "Indenture") dated as of August 4,
1997, between the Company, the entities listed in Schedule I hereto (the
"Guaranteeing Subsidiaries") and American Stock Transfer & Trust Company, as
trustee (the "Trustee"). As an inducement to the Initial Purchaser to enter into
the Purchase Agreement and in satisfaction of a condition to the obligations of
the Initial Purchaser thereunder, the Company and the Guaranteeing Subsidiaries
agree with the Initial Purchaser, for the benefit of the holders of the Notes
(including, without limitation, the Initial Purchaser), as follows:
Section 1. Definitions.
As used in this Agreement, the following capitalized terms shall
have the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Broker-Dealer Transfer Restricted Securities: New Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Notes that
such Broker-Dealer acquired for its own account as a result of market-making
activities or other trading activities (other than Notes acquired directly from
the Company or any of its affiliates).
Closing Date: The date hereof.
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Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the New Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company and
the Guaranteeing Subsidiaries to the Registrar under the Indenture of New Notes
in the same aggregate principal amount as the aggregate principal amount of
Notes tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Transfer
Restricted Securities, each Interest Payment Date.
Definitive Note: Any Notes other than a Global Note.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company and the Guaranteeing
Subsidiaries under the Act of the New Notes pursuant to the Exchange Offer
Registration Statement under which the Company and the Guaranteeing Subsidiaries
shall offer the Holders of all outstanding Notes the opportunity to exchange all
such outstanding Notes for New Notes in an aggregate principal amount equal to
the aggregate principal amount of the Notes tendered in such exchange offer by
such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Global Note: As defined in the Indenture.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8 hereof.
Indenture: The Indenture, dated the Closing Date, among the Company,
the Guaranteeing Subsidiaries and the Trustee, pursuant to which the Notes are
to be issued, as such Indenture is amended or supplemented from time to time in
accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
New Notes: The Company's 9-3/4% Senior Subordinated Notes due 2007
to be issued pursuant to the Indenture (i) in the Exchange Offer or (ii) upon
the request of any Holder of Notes covered by a Shelf Registration Statement, in
exchange for such Notes.
Non-Company Indemnitee: As defined in Section 8 hereof.
Person: An individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement at
the time such
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Registration Statement is declared effective, as amended or supplemented by any
prospectus supplement and by all other amendments thereto, including
post-effective amendments, and all material incorporated by reference into such
Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Notes on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
and the Guaranteeing Subsidiaries relating to (a) an offering of New Notes
pursuant to an Exchange Offer or (b) the registration for resale of Transfer
Restricted Securities pursuant to the Shelf Registration Statement, in each
case, (i) which is filed pursuant to the provisions of this Agreement and (ii)
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds
Broker-Dealer Transfer Restricted Securities.
Shelf Registration: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been disposed of in accordance with a Shelf Registration Statement, (c) the
date on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
"Transfer Restricted Securities" shall be deemed to include the guarantees of
the Company's obligations under the Indenture and the Notes by the Guaranteeing
Subsidiaries.
Section 2. Securities Subject To This Agreement.
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns Transfer Restricted Securities.
Section 3. Exchange Offer.
(a) Unless the Exchange Offer shall not be permitted by applicable
federal
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law or Commission policy, the Company and the Guaranteeing Subsidiaries shall
(i) cause to be filed with the Commission as soon as practicable after the
Closing Date, but in no event later than 60 days after the Closing Date, the
Exchange Offer Registration Statement, (ii) use their respective best efforts to
cause such Exchange Offer Registration Statement to become effective at the
earliest possible time, but in no event later than 120 days after the Closing
Date, (iii) in connection with the foregoing, (A) file all pre-effective
amendments to such Exchange Offer Registration Statement as may be necessary in
order to cause such Exchange Offer Registration Statement to become effective,
(B) file, if applicable, a post-effective amendment to such Exchange Offer
Registration Statement pursuant to Rule 430A under the Act and (C) cause all
necessary filings, if any, in connection with the registration and qualification
of the New Notes to be made under the Blue Sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting registration of the New Notes to be offered in exchange for the
Notes that are Transfer Restricted Securities and to permit sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers as
contemplated by Section 3(c) below.
(b) The Company and the Guaranteeing Subsidiaries shall use their
respective best efforts to cause the Exchange Offer Registration Statement to be
effective continuously, and shall keep the Exchange Offer open for a period of
not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 days. The Company and the Guaranteeing
Subsidiaries shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Notes shall be
included in the Exchange Offer Registration Statement. The Company and the
Guaranteeing Subsidiaries shall use their respective best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 days thereafter.
(c) The Company and the Guaranteeing Subsidiaries shall include a
"Plan of Distribution" section in the Prospectus contained in the Exchange Offer
Registration Statement and indicate therein that any Restricted Broker-Dealer
who holds Notes that are Transfer Restricted Securities and that were acquired
for the account of such Broker-Dealer as a result of market-making activities or
other trading activities, may exchange such Notes (other than Transfer
Restricted Securities acquired directly from the Company or any of its
affiliates) pursuant to the Exchange Offer; however, such Broker-Dealer may be
deemed to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with its
initial sale of each New Note received by such Broker-Dealer in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery by
such Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement. Such "Plan of Distribution" section shall also contain
all other information with respect to such sales of Broker-Dealer Transfer
Restricted Securities by Restricted Broker-Dealers that the Commission may
require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Notes held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy after the date of this Agreement.
The Company and the Guaranteeing Subsidiaries shall use their
respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Section 6 below to the extent necessary to ensure
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that it is available for sales of Broker-Dealer Transfer Restricted Securities
by Restricted Broker-Dealers, and to ensure that such Registration Statement
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of 180 days from the date on which the Exchange Offer is Consummated.
The Company and the Guaranteeing Subsidiaries shall promptly provide
sufficient copies of the latest version of such Prospectus to such Restricted
Broker-Dealers promptly upon request, and in no event later than one day after
such request, at any time during such 180-day period in order to facilitate such
sales.
Section 4. Shelf Registration.
(a) Shelf Registration. If (i) the Company is not required to file
an Exchange Offer Registration Statement with respect to the New Notes because
the Exchange Offer is not permitted by applicable law or Commission policy or
(ii) any Holder of Transfer Restricted Securities shall notify the Company
within 20 days following the Consummation of the Exchange Offer that (A) such
Holder was prohibited by law or Commission policy from participating in the
Exchange Offer or (B) such Holder may not resell the New Notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder or (C) such Holder is a
Broker-Dealer and holds Notes acquired directly from the Company or one of its
affiliates, then the Company and the Guaranteeing Subsidiaries shall (x) cause
to be filed on or prior to 45 days after the date on which the Company
determines that it is not required to file the Exchange Offer Registration
Statement pursuant to clause (i) above or 45 days after the date on which the
Company receives the notice specified in clause (ii) above a shelf registration
statement pursuant to Rule 415 under the Act (the "Shelf Registration") (which
may be an amendment to the Exchange Offer Registration Statement (in either
event, the "Shelf Registration Statement")), relating to all Transfer Restricted
Securities the Holders of which shall have provided the information required
pursuant to Section 4(b) hereof, and shall (y) use their respective best efforts
to cause such Shelf Registration Statement to become effective on or prior to
120 days after the date on which the Company becomes obligated to file such
Shelf Registration Statement. If, after the Company has filed an Exchange Offer
Registration Statement which satisfies the requirements of Section 3(a) above,
the Company is required to file and make effective a Shelf Registration
Statement solely because the Exchange Offer shall not be permitted under
applicable federal law or Commission policy, then the filing of the Exchange
Offer Registration Statement shall be deemed to satisfy the requirements of
clause (x) above. Such an event shall have no effect on the requirements of
clause (y) above. The Company and the Guaranteeing Subsidiaries shall use their
respective best efforts to keep the Shelf Registration Statement discussed in
this Section 4(a) continuously effective, supplemented and amended as required
by and subject to the provisions of Section 6 hereof to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), and to ensure that
it conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years following the date on which such Shelf Registration
Statement first becomes effective under the Act or such shorter period ending
when all of the Transfer Restricted Securities available for sale thereunder
have been sold.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its
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<PAGE> 6
Transfer Restricted Securities in any Shelf Registration Statement pursuant to
this Agreement unless and until such Holder furnishes to the Company and the
Guaranteeing Subsidiaries in writing, within 20 days after receipt of a request
therefor, such information specified in Item 507 of Regulation S-K under the Act
for use in connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted
Securities shall be entitled to Liquidated Damages pursuant to Section 5 hereof
unless and until such Holder shall have provided all such information. Each
Holder as to which any Shelf Registration Statement is being effected agrees to
furnish promptly to the Company and the Guaranteeing Subsidiaries all
information required to be disclosed in order to make the information previously
furnished to them by such Holder not materially misleading.
Section 5. Liquidated Damages.
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 days after the Exchange Offer Registration Statement is
first declared effective by the Commission or (iv) any Registration Statement
required by this Agreement is filed and declared effective but shall thereafter
cease to be effective or fail to be usable for its intended purpose without
being succeeded immediately by a post-effective amendment to such Registration
Statement that cures such failure and that is itself declared effective
immediately (each such event referred to in clauses (i) through (iv), a
"Registration Default"), then the Company and the Guaranteeing Subsidiaries
hereby jointly and severally agree to pay liquidated damages to each Holder of
Transfer Restricted Securities with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an amount
equal to $.05 per week per $1,000 principal amount of Transfer Restricted
Securities held by such Holder for each week or portion thereof that the
Registration Default continues. The amount of the liquidated damages shall
increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of $.50 per week per $1,000 principal amount of Transfer
Restricted Securities. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders by wire
transfer of immediately available funds or by federal funds check and to Holders
of Definitive Notes by mailing checks to their registered addresses on each
Damages Payment Date. All obligations of the Company and the Guaranteeing
Subsidiaries set forth in the preceding paragraph that are outstanding with
respect to any Transfer Restricted Security at the time such security ceases to
be a Transfer Restricted Security shall survive until such time as all such
obligations with respect to such security shall have been satisfied in full.
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Section 6. Registration Procedures. In connection with any Shelf
Registration contemplated by Section 4 hereof and, to the extent applicable, the
Exchange Offer contemplated by Section 3 hereof, the Company and the
Guaranteeing Subsidiaries shall:
(a) furnish to the Initial Purchaser, prior to the filing thereof
with the Commission, a copy of the Registration Statement and each amendment
thereof and each supplement, if any, to the Prospectus included therein and
shall obtain the consent (which shall not be unreasonably withheld or delayed)
of the Initial Purchaser to any such filing;
(b) advise the Initial Purchaser and the holders of the Notes and
the New Notes (to the extent applicable) in writing:
(i) when the Registration Statement and any amendment thereto
has been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company and Guaranteeing Subsidiaries
of any notification with respect to the suspension of the qualification of
the Notes and New Notes for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the Company and
the Guaranteeing Subsidiaries to make changes in the Registration
Statement or the Prospectus in order to make the statements therein not
misleading (which advice shall be accompanied by an instruction that such
notice constitutes material nonpublic information, and to suspend the use
of the Prospectus until the requisite changes have been made, and which
instruction shall require that such holders shall not communicate such
material nonpublic information to any third party and shall not sell or
purchase, or offer to sell or purchase, any securities of the Company or
Guaranteeing Subsidiaries after receipt of such advice and prior to the
effectiveness of any action required to be taken by the Company pursuant
to Section 6(h) hereof);
(c) use all reasonable efforts to prevent the issuance or obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible time;
(d) furnish to each holder of Notes included within the coverage of
the Shelf Registration, without charge, at least one copy of the Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, and, if the holder so requests in writing, all
exhibits (including those incorporated by reference);
(e) deliver to each holder of Notes included within the coverage of
the Shelf
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Registration, if any, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in the Registration Statement
with respect to the Shelf Registration and any amendment or supplement thereto
as such persons may reasonably request. The Company and the Guaranteeing
Subsidiaries consent, subject to the provisions of the Agreement, to the use of
the Prospectus or any amendment or supplement thereto by each of the selling
holders of Notes in connection with the offering and sale of the Notes covered
by the Prospectus, or any amendment or supplement thereto, included in such
Registration Statement;
(f) prior to any public offering of Notes pursuant to the Shelf
Registration, register or qualify or cooperate with the holders of securities
included therein and their respective counsel in connection with the
registration or qualification of such Notes for offer and sale under the
securities or blue sky laws of such jurisdictions in the United States as any
holder of Notes reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such jurisdictions
of the securities covered by the Shelf Registration; provided that neither the
Company nor any Guaranteeing Subsidiary shall be required to (i) qualify
generally to do business in any jurisdiction where it is not then so qualified,
(ii) take any action that would subject it to the service of process in suits,
other than as to matters and transactions relating to the Shelf Registration, in
any jurisdiction where it is not now subject or (iii) take any action which
would subject it to general service of process or to taxation in any
jurisdiction where it is not then so subject;
(g) cooperate with the holders of the Notes to facilitate the timely
preparation and delivery of certificates representing Notes to be sold in the
Shelf Registration free of any restrictive legends and in such denominations and
registered in such names as the holders may request a reasonable period of time
prior to sales of Notes pursuant to the Shelf Registration;
(h) upon the occurrence of any event contemplated by Section 6(b)(v)
above, as promptly as reasonably practicable, prepare a post-effective amendment
to the Registration Statement or a supplement to the related Prospectus or file
any other required document so that, as thereafter delivered to purchasers of
the Notes, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(i) not later than the effective date of the applicable Registration
Statement, provide a CUSIP number for the New Notes and provide the applicable
trustee with printed certificates for the Notes or New Notes, as the case may
be, in a form eligible for deposit with The Depository Trust Company;
(j) use all reasonable efforts to comply with all rules and
regulations of the Commission to the extent and so long as they are applicable
to the Exchange Offer or the Shelf Registration and will make generally
available to its security holders (or otherwise provide in accordance with
Section 11(a) of the Securities Act and Rule 158 promulgated thereunder) an
earnings statement satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 days after the end of a 12-month period (or 90 days, if
such period is a fiscal year) beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of the Shelf
Registration, which statement shall cover such 12-month period; and
(k) cause the Indenture (or an indenture substantially identical to
the Indenture in the case of an Exchange Offer) to be qualified under the Trust
Indenture Act of 1939, as amended.
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The Company and the Guaranteeing Subsidiaries may require each
Holder of Notes to be sold pursuant to the Shelf Registration to furnish to them
such information regarding the Holder and the distribution of such Notes as they
may from time to time reasonably require for inclusion in the Registration
Statement. The Company and the Guaranteeing Subsidiaries may also require each
holder of Notes participating in the Exchange Offer to represent to them that at
the time of the consummation of the Exchange Offer (i) such holder is not an
affiliate of the Company or any Guaranteeing Subsidiary within the meaning of
Rule 158, (ii) any New Notes received by such holder will be acquired in the
ordinary course of its business and (iii) such holder will have no arrangement
or understanding with any person to participate in the distribution of the Notes
or the New Notes within the meaning of the Act. Each holder agrees by
acquisition of Notes that, upon receipt of any notice from the Company and the
Guaranteeing Subsidiary of the existence of any fact of the kind described in
Section 6(b)(v) hereof, such holder will forthwith discontinue disposition of
Notes until such holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 6(h) hereof, or until it is advised in
writing by the Company and the Guaranteeing Subsidiaries that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings with respect to the Prospectus. If so directed by the
Company and the Guaranteeing Subsidiaries, each holder will deliver to the
Company and the Guaranteeing Subsidiaries (at the Company's and Guaranteeing
Subsidiaries' expense) all copies, other than permanent file copies then in such
holder's possession, of the Prospectus covering such Notes current at the time
of receipt of such notice.
Section 7. Registration Expenses. The Company and the Guaranteeing
Subsidiaries shall bear all reasonable expenses incurred in connection with the
performance of their obligations under Sections 3 through 6 hereof and, in the
event of a Shelf Registration, shall bear or reimburse the holders of the Notes
for the reasonable fees and disbursements of one firm of counsel designated by
the holders of a majority in principal amount of the Notes to act as counsel for
the holders of the Notes in connection therewith.
Section 8. Indemnification. (a) The Company and the Guaranteeing
Subsidiaries, jointly and severally, agree to indemnify and hold harmless (i)
the Initial Purchaser, (ii) each holder of Notes and/or New Notes (including
Broker-Dealers receiving New Notes in the Exchange Offer)(each an "Indemnity
Holder"), (iii) each person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Initial Purchaser or any
Indemnity Holder (any of the persons referred to in this clause (iii) being
hereinafter referred to as a "controlling person") and (iv) the respective
officers, directors, partners, employees, representatives and agents of the
Initial Purchaser or any Indemnity Holder or any controlling person (any person
referred to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as
a "Non-Company Indemnitee"), to the fullest extent lawful, from and against any
and all losses, claims, damages, liabilities and judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (or any amendments or supplements thereto)
prepared in accordance with this Agreement, including any document incorporated
by reference therein, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except, with respect to any Non-Company
Indemnitee, insofar as such losses, claims, damages, liabilities or judgments
(1) are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information furnished in writing to the Company
or the Guaranteeing Subsidiaries by such Non-Company Indemnitee expressly for
use therein or (2) with respect to any preliminary Prospectus, result from the
fact that such Non-Company Indemnitee sold Notes or New Notes to a person to
whom there was not sent or given,
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at or prior to the written confirmation of such sale, a copy of the final
Prospectus, as amended or supplemented, if required under the Act and if the
Company or the Guaranteeing Subsidiaries shall have previously furnished copies
thereof to such Non-Company Indemnitee in accordance with this Agreement and the
final Prospectus, as amended or supplemented, would have corrected such untrue
statement or omission.
(b) In case any action shall be brought against any Non-Company
Indemnitee based upon any Registration Statement or Prospectus, or any amendment
or supplement thereto, and with respect to which indemnity may be sought against
the Company and/or the Guaranteeing Subsidiaries, such Non-Company Indemnitee
shall promptly notify the Company and the Guaranteeing Subsidiaries in writing
and the Company and the Guaranteeing Subsidiaries shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Non-Company Indemnitee and payment of all fees and expenses. Such Non-Company
Indemnitee shall have the right to employ separate counsel in any such action
and participate in the defense thereof, but the fees and expenses of counsel
shall be paid by such Non-Company Indemnitee, unless (i) the employment of such
counsel shall have been specifically authorized in writing by the Company and
the Guaranteeing Subsidiaries, (ii) the Company or the Guaranteeing Subsidiaries
shall have failed to assume the defense and employ counsel or (iii) the named
parties to any such action (including any impleaded parties) include both such
Non-Company Indemnitee and the Company and/or the Guaranteeing Subsidiaries and
such Non-Company Indemnitee shall have been advised by counsel that it would be
inappropriate for the same counsel to represent such Non-Company Indemnitee and
the Company and/or the Guaranteeing Subsidiaries (in which case the Company
and/or the Guaranteeing Subsidiaries shall not have the right to assume the
defense of such action on behalf of such Non-Company Indemnitee, it being
understood, however, that neither the Company nor any Guaranteeing Subsidiary
shall, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
the Non-Company Indemnitees, which firm shall be designated in writing by the
Non-Company Indemnitees and whose fees and expenses reasonably incurred shall be
reimbursed as they are incurred). The Company and the Guaranteeing Subsidiaries
shall not be liable for any settlement of any such action effected without the
written consent of the Company and the Guaranteeing Subsidiary, but if settled
with the written consent of the Company and the Guaranteeing Subsidiary, the
Company and the Guaranteeing Subsidiaries agree to indemnify and hold harmless
any Non-Company Indemnitee from and against any amounts payable pursuant to such
written consent in connection with such settlement. Notwithstanding the
immediately preceding sentence, if in any case where the fees and expenses of
counsel are at the expense of the Company and/or the Guaranteeing Subsidiaries
and a Non-Company Indemnitee shall have requested the Company and/or the
Guaranteeing Subsidiaries to reimburse such Non-Company Indemnitee for such fees
and expenses of counsel as incurred, the Company and the Guaranteeing
Subsidiaries agree that they shall be liable for any settlement of any action
effected without their written consent if (i) such settlement is entered into
more than 30 business days after the receipt by the Company and the Guaranteeing
Subsidiaries of the aforesaid request and (ii) the Company and/or the
Guaranteeing Subsidiaries shall have failed to reimburse such Non-Company
Indemnitee in accordance with such request for reimbursement prior to the date
of such settlement. The Company and the Guaranteeing Subsidiaries shall not,
without the prior written consent of such Non-Company Indemnitee, effect any
settlement of any pending or threatened proceeding in respect of which such
Non-Company Indemnitee is or could have been a party and indemnity could have
been sought hereunder by such Non-Company Indemnitee, unless such settlement
includes an unconditional release of such Non-Company Indemnitee from all
liability on claims that are the
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<PAGE> 11
subject matter of such proceeding.
(c) Each Indemnity Holder agrees to indemnify and hold harmless (i)
the Company and the Guaranteeing Subsidiaries, (ii) the Initial Purchaser, (iii)
each other Indemnity Holder, (iv) any person controlling (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company, the
Initial Purchaser and each other Indemnity Holder and (v) the respective
officers, directors, partners, employees, representatives and agents of each of
the parties referred to in clauses (i), (ii), (iii) and (iv), to the same extent
as the foregoing indemnity from the Company and the Guaranteeing Subsidiaries to
each of the Non-Company Indemnitees, but only with respect to information
relating to such Indemnity Holder that was furnished in writing by such
Indemnity Holder expressly for use in any Registration Statement (or any
amendment or supplement thereto) prepared in accordance with this Agreement. In
no event shall the liability of any Indemnity Holder hereunder be greater in
amount by which the dollar amount of the proceeds received by such Indemnity
Holder upon the sales of the Notes or New Notes giving rise to such
indemnification obligation exceeds the amount of any damages which such
Indemnity Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to herein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments in such proportion as is appropriate to
reflect the relative fault of the indemnifying party, on the one hand, and the
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party, on the one hand, and the indemnified party, on
the other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party, on the one hand, or the indemnified party, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Guaranteeing Subsidiaries, the Initial Purchaser
and each Indemnity Holder agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The losses, claims, damages, liabilities or judgments of an indemnified party
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim prior to the indemnifying party's
assumption of the defense thereof or subsequent thereto to the extent permitted
by the second sentence of Section 8(b) hereof. Notwithstanding the provisions of
this Section 8, none of the Indemnity Holders shall be required to contribute,
in the aggregate, any amount in excess of the amount by which the total amount
received by such Indemnity Holder with respect to the sale of Notes or New Notes
exceeds the amount of any damages which such Indemnity Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of Indemnity Holders to contribute
11
<PAGE> 12
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Notes and/or New Notes held by each of the Indemnity Holders
hereunder and not joint.
Section 9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the Company and Guaranteeing
Subsidiaries have obtained the written consent of holders of a majority in
aggregate principal amount of the Notes.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier or air courier which guarantees overnight delivery:
(1) If to a holder of Notes or New Notes, at the most current
address given by such holder to the Company or Guaranteeing Subsidiary in
accordance with the provisions of this Section 9(b), which address
initially is, with respect to each holder, the address of such holder to
which confirmation of the sale of Notes or New Notes to such holder was
first sent, with a copy in like manner to the Initial Purchaser c/o Smith
Barney Inc. at 388 Greenwich Street, New York, New York 10013.
(2) If to the Company or Guaranteeing Subsidiary, at the
following address:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, NY 11788
Attention: General Counsel
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; three
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged by recipient's
telecopy operator, if telecopied; and on the day delivered, if sent by overnight
air courier guaranteeing next day delivery.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation, and without the need for an express
assignment, subsequent holders of the Notes and the New Notes.
(d) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed
in
12
<PAGE> 13
accordance with the laws of the State of New York, without regard to its
conflicts of laws rules.
(g) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
13
<PAGE> 14
Please confirm that the foregoing correctly sets forth the agreement
between the Company, the Guaranteeing Subsidiaries and the Initial Purchaser.
SIGNATURES
Dated as of August 4, 1997
GRAHAM-FIELD HEALTH
PRODUCTS, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
AQUA-THERM CORP.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
BRISTOLINE, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
EVEREST & JENNINGS
CANADIAN LTD.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
14
<PAGE> 15
EVEREST & JENNINGS
DE MEXICO S.A. DE C.V.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
EVEREST & JENNINGS, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
EVEREST & JENNINGS
INTERNATIONAL LTD.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
EVEREST & JENNINGS LIFESTYLES
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
EXNEWT, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
FREEWAY INVESTMENT CORP.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
15
<PAGE> 16
G.F.E. HEALTHCARE PRODUCTS CORP.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
GRAHAM-FIELD BANDAGE, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
GRAHAM-FIELD DISTRIBUTION, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
GRAHAM-FIELD EUROPEAN
DISTRIBUTION CORPORATION LIMITED
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
GRAHAM-FIELD EXPRESS, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
16
<PAGE> 17
GRAHAM-FIELD EXPRESS (DALLAS), INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
GRAHAM-FIELD EXPRESS
(PUERTO RICO) INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
GRAHAM-FIELD, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
GRAHAM-FIELD TEMCO, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
HEALTH AND MEDICAL
TECHNIQUES, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
HEALTHTEAM, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
17
<PAGE> 18
INTERNATIONAL MEDICAL
EQUIPMENT CORP.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
THE JENNINGS INVESTMENT COMPANY
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
KUSCHALL OF AMERICA, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
LABAC SYSTEMS, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
LABTRON SCIENTIFIC CORP.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
M.E. TEAM, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
18
<PAGE> 19
Title:
MCT ACQUISITION CORP.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
MEDISCO, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
METAL PRODUCTS CORP.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
PATIENT TECHNOLOGY, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
PROFESSIONAL SECURITIES CORP.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
RABSON MEDICAL SALES, LTD.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
19
<PAGE> 20
SMITH & DAVIS MANUFACTURING
COMPANY
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
THOMPSON BLAIR, INC.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
VENTILATOR CORP.
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
Dated as of August 4, 1997
(SEAL)
AMERICAN STOCK TRANSFER &
TRUST COMPANY
as Trustee
Attest: By:
--------------------------- -------------------------------------
Name:
Title:
20
<PAGE> 21
Accepted in New York, New York
______________, 1997
SMITH BARNEY INC.
By: SMITH BARNEY INC.
By:
-----------------------------------------------
Name:
Title:
21
<PAGE> 22
SCHEDULE I
AQUA-THERM CORP.
BRISTOLINE, INC.
EVEREST & JENNINGS CANADIAN LTD.
EVEREST & JENNINGS DE MEXICO S.A. DE C.V.
EVEREST & JENNINGS, INC.
EVEREST & JENNINGS INTERNATIONAL LTD.
EVEREST & JENNINGS LIFESTYLES
EXNEWT, INC.
FREEWAY INVESTMENT CORP.
G.F.E. HEALTHCARE PRODUCTS CORP.
GRAHAM-FIELD BANDAGE, INC.
GRAHAM-FIELD DISTRIBUTION, INC.
GRAHAM-FIELD EUROPEAN DISTRIBUTION CORPORATION
GRAHAM-FIELD EXPRESS, INC.
GRAHAM-FIELD EXPRESS (DALLAS), INC.
GRAHAM-FIELD EXPRESS (PUERTO RICO) INC.
GRAHAM-FIELD, INC.
GRAHAM-FIELD TEMCO, INC.
HEALTH AND MEDICAL TECHNIQUES, INC.
HEALTHTEAM, INC.
INTERNATIONAL MEDICAL EQUIPMENT CORP.
THE JENNINGS INVESTMENT COMPANY
KUSCHALL OF AMERICA, INC.
LABAC SYSTEMS, INC.
LABTRON SCIENTIFIC CORP.
M.E. TEAM, INC.
MCT ACQUISITION CORP.
MEDISCO, INC.
METAL PRODUCTS CORP.
PATIENT TECHNOLOGY, INC.
PROFESSIONAL SECURITIES CORP.
RABSON MEDICAL SALES, LTD.
SMITH & DAVIS MANUFACTURING COMPANY
THOMPSON BLAIR, INC.
VENTILATOR CORP.
22
<PAGE> 1
Exhibit 5.1
December 23, 1997
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Re: Offer to Exchange $100,000,000 9 3/4% Senior Subordinated Notes Due
2007, Series A
Ladies and Gentlemen:
We are acting as special counsel for Graham-Field Health Products, Inc., a
Delaware corporation (the "Company"), in connection with the filing by the
Company of a Registration Statement on Form S-4 (the "Registration Statement")
with the Securities and Exchange Commission for the purpose of registering the
issuance of up to $100,000,000 aggregate principal amount of the Company's 9
3/4% Senior Subordinated Notes Due 2007, Series A (the "Exchange Notes") and the
guarantees thereof (the "Guarantees") under the Securities Act of 1933, as
amended (the "Act"). The Exchange Notes are to be issued in exchange for an
equal aggregate principal amount of the Company's 9 3/4% Senior Subordinated
Notes Due 2007 (the "Existing Notes") and the guarantees thereof pursuant to the
Registration Rights Agreement among the Company, Smith Barney Inc. and the
Guarantors named therein, filed as an exhibit to the Registration Statement. The
Exchange Notes and the Guarantees are to be issued pursuant to the terms of the
Indenture among the Company, the Guarantors named therein (the "Guarantors") and
American Stock Transfer & Trust Company, as trustee (the "Trustee"), filed as an
exhibit to the Registration Statement. The Indenture is to be qualified under
the Trust Indenture Act of 1939, as amended (the "TIA"). Capitalized terms used
herein and not otherwise defined shall have the meanings set forth in the
Indenture.
In rendering the opinions expressed below, we have examined originals of
such corporate records of the Company and its subsidiaries and such other
documents as we have deemed necessary as a basis for the opinions expressed
below. In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity with authentic original documents of all documents submitted to us as
copies. When relevant facts were not independently established, we have relied
upon statements of governmental officials and upon representations by and
statements of appropriate representatives of the Company and its subsidiaries.
In rendering the opinions expressed below, we have assumed with respect to
all of the documents referred to in this opinion letter that, except as set
forth below, (i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid, binding and enforceable
obligations of, all of the parties to such documents; (ii) all signatories to
such documents have been duly authorized; and (iii) all of the parties to such
documents are duly organized and validly existing and have the power and
authority (corporate or other) to execute, deliver and perform such documents.
Based upon and subject to the foregoing and subject also to the comments
and qualifications set forth below, and having considered such questions of law
as we have deemed necessary as a basis for the opinions expressed below, we are
of the opinion that:
1. When (i) the Registration Statement has been declared effective,
(ii) the Indenture has been duly qualified under the TIA, (iii) the
Exchange Notes have been duly executed by the Company and (iv) the Exchange
Notes have been duly authenticated by the Trustee in accordance with the
terms of the Indenture and issued and delivered against exchange of the
Existing Notes in accordance with the terms set forth in the prospectus
included as part of the Registration Statement, the Exchange Notes will be
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
fraudulent transfer or other similar laws relating to or affecting
creditors' rights and remedies generally and except as such enforceability
is subject to general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
2. When (i) the Registration Statement has been declared effective,
(ii) the Indenture has been duly qualified under the TIA, (iii) the
Exchange Notes have been duly executed by the Company, (iv) the Guarantees
have been duly executed and (v) the Exchange Notes have been duly
authenticated by the Trustee in accordance with the terms of the Indenture
and issued and delivered against exchange
<PAGE> 2
of the Existing Notes in accordance with the terms set forth in the
prospectus included as part of the Registration Statement, the Guarantees
will be valid and binding obligations, enforceable against the Guarantors
in accordance with their terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent
transfer or other similar laws relating to or affecting creditors' rights
and remedies generally and except as such enforceability is subject to
general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
In addition, it is our opinion that the discussions under the caption
"Certain Federal Income Tax Considerations" in the prospectus included as part
of the Registration Statement are correct in all material respects.
This opinion is rendered to the Company in connection with the filing of
the Registration Statement and for no other purpose. We express no opinion as to
the laws of any jurisdiction other than the federal laws of the United States
and laws of the State of New York.
We hereby consent to the filing of this opinion as Exhibit 5.1 and Exhibit
8.1 to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the prospectus which is included in the Registration
Statement.
Very truly yours,
MILBANK, TWEED, HADLEY &
McCLOY
RSR/MLW
<PAGE> 1
EXHIBIT 12
COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------------- ---------------------------
Pro Forma, Pro Forma,
as combined as combined
1992 1993 1994 1995 1996 1996 1996 1997 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges:
Fixed charges:
Interest expense .............. $1,727 $ 2,447 $ 2,697 $2,720 $ 2,578 $ 15,923 $1,962 $ 4,557 $10,370
Amortization of debt
issuance costs .............. 50 50 50 50 13 400 13 -- 300
Estimated interest component
of rent expense ............. 268 334 323 303 354 476 182 277 315
------ ------ ------- ------ ------- ------- ------ ------- -------
Total fixed charges ............... $2,045 $ 2,831 $ 3,070 $3,073 $ 2,945 $ 16,799 $2,157 $ 4,834 $10,985
====== ======= ======= ====== ======= ======== ====== ======= =======
Earnings (loss) from operations
before income taxes ........... $2,897 $(4,455) $(2,714) $1,741 $(8,955) $(38,182) $4,368 $13,641 $11,029
Add: Non-recurring items .......... 1,640 -- -- -- 15,800 15,800 -- -- --
Fixed charges ................. 2,045 2,831 3,070 3,073 2,945 16,799 2,157 4,834 10,985
------ ------ ------- ------ ------- -------- ------ ------- -------
Earnings (loss) available
for fixed charges ................ $6,582 $(1,624) $ 356 $4,814 $ 9,790 $ (5,583) $6,525 $18,475 $22,014
3.22 -- -- 1.57 3.32 -- 3.02 3.82 2.00
====== ====== ======= ====== ======= ======== ====== ======= =======
</TABLE>
* Earnings did not cover fixed charges during the period noted.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" in the Registration Statement (Form S-4) and related Prospectus of
Graham-Field Health Products, Inc. and subsidiaries for the registration of
$100,000,000 of its 9-3/4% Senior Subordinated Notes due 2007, Series A and to
the inclusion and incorporation by reference therein of our report dated March
10, 1997 (except for Note 2 paragraph 5, as to which the date is August 28,
1997), with respect to the consolidated financial statements and schedule of
Graham-Field Health Products, Inc. and subsidiaries included in Amendment No. 3
on Form 10-K/A to its Annual Report on Form 10-K for the year ended December 31,
1996 filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Melville, New York
December 23, 1997
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" in the Registration Statement (Form S-4) and related prospectus of
Graham-Field Health Products, Inc. and subsidiaries for the registration of
$100,000,000 of its 9-3/4% Senior Subordinated Notes due 2007, Series A and to
the inclusion of our report on the consolidated financial statements and
schedule of Fuqua Enterprises, Inc. dated February 20, 1997, (except for the
last paragraph of Note 2, as to which the date of our report is February 26,
1997).
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
December 23, 1997
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" in the Registration Statement (Form S-4) and related prospectus of
Graham-Field Health Products, Inc. and subsidiaries for the registration of
$100,000,000 of it 9 3/4% Senior Subordinated Notes due 2007, Series A and to
the inclusion of our report on the financial statements of the Lumex Division of
Lumex, Inc. dated March 13, 1996, (except for note 1, as to which the date of
our report is March 13, 1997).
/s/ ERNST & YOUNG LLP
New York, New York
December 23, 1997
<PAGE> 1
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting
part of this Registration Statement on Form S-4 of Graham-Field Health Products,
Inc. of our report dated March 15, 1996, except as to the tenth paragraph of
Note 3, which is as of June 4, 1996, relating to the consolidated financial
statements of Everest & Jennings International Ltd. We also consent to the
application of such report to the Financial Statement Schedule of Everest &
Jennings International Ltd. for the three years ended December 31, 1995 included
in this Registration Statement when such schedule is read in conjunction with
the consolidated financial statements referred to in our report. The audits
referred to in such report also included this schedule. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
St. Louis, Missouri
December 22, 1997
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
AMERICAN STOCK TRANSFER & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-3439945
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
40 Wall Street 10005
New York, New York (Zip Code)
(Address of trustee's
principal executive offices)
GRAHAM-FIELD HEALTH PRODUCTS, INC.
(Exact name of obligor 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
HAPPAUGE, NEW YORK 11788
(Address of principal executive (Zip Code)
offices)
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
(Title of the Indenture Securities)
<PAGE> 2
-2-
GENERAL
1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust
powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of
the trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting securities
of the trustee:
<TABLE>
<CAPTION>
As of December 23, 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
COL. A COL. B
- --------------------------------------------------------------------------------
Title of Class Amount Outstanding
- --------------------------------------------------------------------------------
Common Shares - par value $600 per share. 1,000 shares
</TABLE>
4. Trusteeships under Other Indentures.
None.
5. Interlocking Directorates and Similar Relationships with the
Obligor or Underwriters.
None.
<PAGE> 3
-3-
6. Voting Securities of the Trustee Owned by the Obligor or its
Officials.
None.
7. Voting Securities of the Trustee Owned by Underwriters or their
Officials.
None.
8. Securities of the Obligor Owned or Held by the Trustee.
None.
9. Securities of Underwriters Owned or Held by the Trustee.
None.
10. Ownership or Holdings by the Trustee of Voting Securities of
Certain Affiliates or Security Holders of the Obligor.
None.
11. Ownership or Holdings by the Trustee of any Securities of
a Person Owning 50 Percent or More of the Voting Securities
of the Obligor.
None.
12. Indebtedness of the Obligor to the Trustee.
None.
13. Defaults by the Obligor.
None.
14. Affiliations with the Underwriters.
None.
15. Foreign Trustee.
Not applicable.
<PAGE> 4
-4-
16. List of Exhibits.
T-1.1 - A copy of the Organization Certificate of American
Stock Transfer & Trust Company, as amended to date
including authority to commence business and
exercise trust powers was filed in connection with
the Registration Statement of Live Entertainment,
Inc., File No. 33-54654, and is incorporated herein
by reference.
T-1.4 - A copy of the By-Laws of American Stock Transfer
& Trust Company, as amended to date was filed in
connection with the Registration Statement of Live
Entertainment, Inc., File No. 33-54654, and is
incorporated herein by reference.
T-1.6 - The consent of the Trustee required by Section
312(b) of the Trust Indenture Act of 1939.
Exhibit A.
T-1.7 - A copy of the latest report of condition of the
Trustee published pursuant to law or the
requirements of its supervising or examining
authority. - Exhibit B.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
American Stock Transfer & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 23rd day of December, 1997.
AMERICAN STOCK TRANSFER
& TRUST COMPANY
Trustee
By: /S/ ILLEGIBLE SIGNATURE
-----------------------
Vice President
<PAGE> 5
EXHIBIT A
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321 (b) of the Trust Indenture Act of
1939, and subject to the limitations therein contained, American Stock Transfer
& Trust Company hereby consents that reports of examinations of said corporation
by Federal, State, Territorial or District authorities may be furnished by such
authorities to you upon request therefor.
Very truly yours,
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By /s/ ILLEGIBLE SIGNATURE
---------------------------
Vice President
<PAGE> 6
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL ST.
NEW YORK, NY 10005
EXHIBIT B
CONSOLIDATED REPORT OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC OFFICES
ONLY AND TOTAL ASSETS OF LESS THAN $100 MILLION REPORT AT CLOSE OF BUSINESS ON
JUNE 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN THOUSANDS
- ----------------------------------------------------------------------------------------
ASSETS
<S> <C>
1. Cash and balances due from depository institutions:
a. Noninterest-bearing balances and currency and coin 433
b. Interest-bearing balances
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)
b. Available-for-sale securities (from Schedule RC-B, column D) 3,537
3. Federal funds sold and securities purchased under agreements to resell
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C)
b. LESS: Allowance for loan and lease losses
c. LESS: Allocated transfer risk reserve
d. Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b and 4.c
5. Trading assets
6. Premises and fixed assets (including capitalized leases) 3,641
7. Other real estate owned (from Schedule RC-M)
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)
9. Customers' liability to this bank on acceptances outstanding
10. Intangible assets (from Schedule RC-M)
11. Other assets (from Schedule RC-F) 6,678
12. a. Total assets (sum of items 1 through 11) 14,289
b. Losses deferred pursuant to 12 U.S.C. 1823 (j)
c. Total assets and losses deferred pursuant to 12 U.S.C. 1823 (j)
(sum of items 12.a and 12.b) 14,289
</TABLE>
<PAGE> 7
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN THOUSANDS
- ----------------------------------------------------------------------------------------
LIABILITIES
<S> <C>
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E)
(1) Noninterest-bearing
(2) Interest-bearing
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased and securities sold under agreements to repurchase
15. a. Demand notes issued to the U.S. Treasury
b. Trading liabilities
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less
b. With a remaining maturity of more than one year through three years
c. With a remaining maturity of more than three years
17. Not applicable
18. Bank's liability on acceptances executed and outstanding
19. Subordinated notes and debentures
20. Other liabilities (from Schedule RC-G) 1,851
21. Total liabilities (sum of items 13 through 20) 1,851
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus
24. Common stock 600
25. Surplus (exclude all surplus related to preferred stock) 9,289
26. a. Undivided profits and capital reserves 2,523
b. Net unrealized holding gains (losses) on available-for-sale securities
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27) 12,438
b. Losses deferred pursuant to 12 U.S.C. 1823(j)
c. Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j) 12,438
(sum of items 28.a and 28.b)
29. Total liabilities, equity capital, and losses deferred pursuant to 12
U.S.C.. 1823 (j) (sum of items 21 and 28.c) 14,289
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
TENDER OF 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
GRAHAM-FIELD HEALTH PRODUCTS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
Deliver to the Exchange Agent:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<CAPTION>
By Mail: Telephone Number: By Hand or Overnight Delivery:
<S> <C> <C>
(212)
- ------------------------------ ----------------------------- ------------------------------
New York, NY
------------------
- ------------------------------ ------------------------------
New York, NY Facsimile Number: Attention:
- ------------------ ------------------------
Attention: (212)
- ------------------------ -----------------------------
------------------------------
Attention:
------------------------
- ------------------------------
------------------------------
------------------------------
- ------------------------------
------------------------------
Telex:
----------------------------
- ------------------------------
------------------------------
</TABLE>
------------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated , 1997 (the "Prospectus") of Graham-Field Health Products,
Inc. (the "Company") and this Letter of Transmittal (the "Letter of
Transmittal"), which together describe the Company's offer (the "Exchange
Offer") to exchange its 9 3/4% Senior Subordinated Notes due August 15, 2007,
Series A (the "New Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement
of which the Prospectus is a part, for a like principal amount of its issued and
outstanding 9 3/4% Senior Subordinated Notes due January 15, 2007 (the "Old
Notes"). Capitalized terms used but not defined herein have the respective
meanings given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date in which the Exchange Offer is extended. The
Company shall notify the holders of the Old Notes of any extension by oral or
written notice prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
<PAGE> 2
This Letter of Transmittal is to be used by a Holder of Old Notes either if
original Old Notes are to be forwarded herewith or if delivery of Old Notes, if
available, is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in the Prospectus under the
caption "The Exchange Offer -- Book-Entry Transfer." Holders of Old Notes whose
Old Notes are not immediately available, or who are unable to deliver their Old
Notes and all other documents required by this Letter of Transmittal to the
Exchange Agent on or prior to the Expiration Date, or who are unable to complete
the procedure for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." See Instruction 1. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space below is inadequate, list the registered numbers and principal amounts
on a separate signed schedule and affix the list to this Letter of Transmittal.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<CAPTION>
<S> <C> <C> <C>
DESCRIPTION OF OLD NOTES TENDERED
<CAPTION>
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NAME(S) AND ADDRESS(ES) OF REGISTERED AGGREGATE
HOLDER(S), EXACTLY AS NAME(S) PRINCIPAL AMOUNT PRINCIPAL
APPEAR(S) ON OLD NOTES (PLEASE FILL REPRESENTED BY AMOUNT
IN, IF BLANK) REGISTERED NUMBER(S) (NOTES(S) TENDERED**
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL SHARES
------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, any tendering Holder of Old Notes will be deemed to have tendered the entire
aggregate principal amount represented by such Old Notes. All tenders must be integral multiples of $1,000.
</TABLE>
<PAGE> 3
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE
INSTITUTIONS ONLY):
Name of Tendering Institution:
- --------------------------------------------------------------------------------
Account Number:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BRING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Old Notes:
- -------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
- --------------------------------------------------------
Window Ticket Number (if available):
- -----------------------------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
- ------------------------------------------------------
Account Number (if delivered by book-entry transfer):
- ------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
If the undersigned in not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes, it acknowledges that the Old Notes were
acquired as a result of market-making activities or other trading activities and
that it will deliver a prospectus in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE> 4
Ladies and Gentleman:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Old Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned hereby exchanges, assigns and transfers to the
Company all right, title and interest in and to the Old Notes tendered for
exchange hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent, the agent and attorney-in-fact of the undersigned (with full
knowledge that the Exchange Agent also acts as the agent of the Company in
connection with the Exchange Offer) with respect to the tendered Old Notes with
full power of substitution to (i) deliver such Old Notes, or transfer ownership
of such Old Notes on the account books maintained by the Book-Entry Transfer
Facility, to the Company and deliver all accompanying evidences of transfer and
authenticity, and (ii) present such Old Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire the New Notes issuable upon the exchange of such
tendered Old Notes, and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim, when the same are accepted
for exchange by the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission") that the New Notes issued in exchange for the Old Notes pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such Holders' business and such Holders are not engaging in and do not
intend to engage in a distribution of the New Notes and have no arrangement or
understanding with any person to participate in a distribution of such New
Notes. The undersigned hereby further represent(s) to the Company that (i) any
New Notes acquired in exchange for Old Notes tendered hereby are being acquired
in the ordinary course of business of the person receiving such New Notes,
whether or not the undersigned, (ii) neither the undersigned nor any such other
person is engaging in or intends to engage in a distribution of the New Notes,
(iii) neither the undersigned nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, and (iv) neither the Holder nor any such other person is an "affiliate,"
an defined in Rule 405 under the Securities Act, of the Company or, if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If the undersigned or the person receiving the New Notes is a broker-dealer
that is receiving New Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other trading
activities, the undersigned acknowledges that it or such other person will
deliver a prospectus in connection with any resale of such New Notes; however,
by so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that the undersigned or such other person is an "underwriter"
within the meaning of the Securities Act. The undersigned acknowledges that if
the undersigned is participating in the Exchange Offer for the purpose of
distributing the New Notes (i) the undersigned cannot rely on the position of
the staff of the Commission in certain no-action letters and, in the absence of
an exemption therefrom, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the New Notes, in which case, such registration statement
must contain the selling security holder information required by Item 507 of
Regulation S-K of the Commission, and (ii) failure to comply with such
requirements in such instance could result in the undersigned incurring
liability under the Securities Act for which the undersigned is not indemnified
by the Company.
<PAGE> 5
If the undersigned or the person receiving the New Notes is an "affiliate"
(as defined in Rule 405 under the Securities Act), the undersigned represents to
the Company that the undersigned understands and acknowledges that the New Notes
may not be offered for resale, resold or otherwise transferred by the
undersigned or such other person without registration under the Securities Act
or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange properly tendered Old Notes when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered Old
Notes that are not accepted for exchange pursuant to the Exchange Offer for any
reason will be returned, without expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the expiration or
termination of the Exchange Offer.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Old Notes pursuant to the procedures described under the caption "The
Exchange Offer -- Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the New Notes issued in exchange for the Old Notes accepted for exchange
and return any Old Notes not tendered or not exchanged, in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail or deliver the New Notes issued in exchange for the
Old Notes accepted for exchange and any Old Notes not tendered or not exchanged
(and accompanying documents, as appropriate) to the undersigned at the address
shown below the undersigned's signatures). In the event that both "Special
Issuance Instructions" and "Special Delivery Instructions" are completed, please
issue the New Notes issued in exchange for the Old Notes accepted for exchange
in the name(s) of, and return any Old Notes not tendered or not exchanged to,
the person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the Old
Notes so tendered for exchange.
<PAGE> 6
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Old Notes in a principal amount not tendered, or New
Notes issued in exchange for Old Notes accepted for exchange, are to be issued
in the name of someone other than the undersigned, or (ii) if Old Notes tendered
by book-entry transfer which are not exchanged are to be returned by credit to
an account maintained at the Book-Entry Transfer Facility. Issue New Notes
and/or Old Notes to:
Name(s):
- ------------------------------------------
- ------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
- -------------------------------------------
- ------------------------------------------------------
(INCLUDE ZIP CODE)
- ------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(Complete Substitute Form W-9)
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility set forth below:
- ------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER, IF APPLICABLE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if Old Notes in a principal amount not tendered, or New
Notes issued in exchange for Old Notes accepted for exchange, are to be mailed
or delivered to someone other than the undersigned, or to the undersigned at an
address other than that shown below the undersigned's signature.
Mail or deliver New Notes and/or Old Notes to:
Name(s):
- ------------------------------------------
- ------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
- -------------------------------------------
- ------------------------------------------------------
(INCLUDE ZIP CODE)
- ------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
<PAGE> 7
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
<TABLE>
<S> <C> <C>
x ------------------------------------------------- ------------------------------
Signature of Holder(s) Date
x
------------------------------------------------- ------------------------------
Signature of Holder(s) Date
</TABLE>
Area Code and Telephone Number:
- -------------------------------------------------------------------
The above lines must be signed by the registered Holder(s) of Old Notes as
name(s) appear(s) on the Old Notes or on a security position listing, or by
person(s) authorized to become registered Holder(s) by a properly completed bond
power from the registered Holder(s), a copy of which must be transmitted with
this Letter of Transmittal. If Old Notes to which this Letter of Transmittal
relate are held of record by two or more joint Holders, then all such Holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority so to
act. See Instruction 5 regarding the completion of this Letter of Transmittal,
printed below.
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Tax Payer Identification:
- --------------------------------------------------------------------------------
MEDALLION SIGNATURE GUARANTEES
(IF REQUIRED BY INSTRUCTION 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
- ----------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(NAME)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME OF FIRM)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
Dated:
- -------------------------------------------------------------------------------,
1997
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes or Book-Entry
Confirmations. All physically delivered Old Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. The method of delivery of the tendered Old Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and, except as otherwise provided below, the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. Instead of delivery by mail, it is recommended that the Holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Old Notes should be sent to the Company.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Old
Notes and (a) whose Old Notes are not immediately available, or (b) who cannot
deliver their Old Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date must tender
their Old Notes according to the guaranteed delivery procedures set forth in the
Prospectus. Pursuant to such procedures: (i) such tender must be made by or
through a firm which is a member of a registered national securities exchange or
of the National Association of Securities Dealers, Inc. or a commercial bank or
a trust company having an office or correspondent in the United States (an
"Eligible institution"); (ii) prior to the Expiration Date, the Exchange Agent
must have received from the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder of the Old Notes, the
registration number(s) of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within three (3) New York Stock Exchange, Inc. ("NYSE") trading days after the
Expiration Date, this Letter of Transmittal (or facsimile hereof) together with
the Old Notes (or a Book-Entry Confirmation) in proper form for transfer, must
be received by the Exchange Agent within three (3) NYSE trading days after the
Expiration Date; and (iii) the certificates for all physically tendered shares
of Old Notes, in proper form for transfer, or Book-Entry Confirmation, as the
case may be, and all other documents required by this Letter are received by the
Exchange Agent within three (3) NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
Any Holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice
of Guaranteed Delivery will be sent to Holders who wish to tender their Old
Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.
3. Tender by Holder. Only a Holder of Old Notes may tender such Old Notes
in the Exchange Offer. Any beneficial Holder of Old Notes who is not the
registered Holder and who wishes to tender should arrange with the registered
Holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in such Holder's name or obtain a properly completed bond power from the
registered Holder.
<PAGE> 9
4. Partial Tenders. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Old Notes in tendered, the tendering Holder should fill in the principal amount
tendered in the column entitled "Principal Amount Tendered" contained in the box
entitled "Description of Old Notes Tendered" above. The entire principal amount
of Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated. If the entire principal amount of all Old
Notes in not tendered, then Old Notes for the principal amount of Old Notes not
tendered and New Notes issued in exchange for any Old Notes accepted will be
sent to the Holder at his or her registered address, unless a different address
is provided in the box on this Letter of Transmittal entitled "Special Delivery
Instructions", promptly after the Old Notes are accepted for exchange.
5. Signatures on This Letter of Transmittal; Bond Powers and Endorsements;
Medallion Guarantee of Signatures. If this Letter of Transmittal (or facsimile
hereof) in signed by the record Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the names as written on the face of the Old Notes
without alteration, enlargement or any change whatsoever. If this Letter of
Transmittal is signed by a participant in the Book-Entry Transfer Facility, the
signature must correspond with the name as it appears on the security position
listing as the Holder of the Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Old Notes listed and tendered hereby and the New
Notes issued in exchange therefor is to be issued (or any untendered principal
amount of Old Notes is to be reissued) to the registered Holder, the said Holder
need not and should not endorse any tendered Old Notes, nor provide a separate
bond power. In any other case, such Holder must either properly endorse the Old
Notes tendered or transmit a properly completed separate bond power with this
Letter of Transmittal, with the signatures on the endorsement or bond power
guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by properly completed bond powers, in each
case signed as the name of the registered Holder or Holders appears on the Old
Notes with the signature thereon guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
ENDORSEMENTS ON OLD NOTES OR SIGNATURES ON BOND POWERS REQUIRED BY THIS
INSTRUCTION 5 MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Old Notes tendered herewith (or by a
participant in the Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of the tendered Old Notes) and the issuance of New
Notes (and any Old Notes not tendered or not accepted) are to be issued directly
to such registered Holder(s) (or, if signed by a participant in the Book-Entry
Transfer Facility, any New Notes or Old Notes not tendered or not accepted are
to be deposited to such participant's account at such Book-Entry Transfer
Facility) and neither the box entitled "Special Delivery Instructions" nor the
box entitled "Special Issuance Instructions" has been completed, or (ii) such
Old Notes are tendered for the account of an Eligible Institution. In all other
cases, all signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution.
6. Special Issuance and Delivery Instructions. Tendering Holders should
indicate, in the applicable box or boxes, the name and address (or account at
the Book-Entry Transfer Facility) to which New Notes or substitute Old Notes for
principal amounts not tendered or not accepted for exchange are to be issued or
sent, if different from the name and address of the person signing this Letter
of Transmittal. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
<PAGE> 10
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, New Notes or Old Notes for principal amounts not tendered or accepted
for exchange are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered Holder of the Old Notes tendered
hereby, or if tendered Old Notes are registered in the name of any person other
than the person signing this Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
in not submitted with this Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. Tax Identification Number. Federal income tax law requires that a
Holder of any Old Notes which are accepted for exchange must provide the Company
(as payor) with its correct taxpayer identification number ("TIN"), which, in
the case of a Holder who is an individual, is his or her social security number.
If the Company is not provided with the correct TIN, the Holder may be subject
to a $50 penalty imposed by Internal Revenue Service. (If withholding results in
an over-payment of taxes, a refund may be obtained.) Certain Holders (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
To prevent backup withholding, each tendering Holder must provide such
Holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN), and that (i) the Holder has not been notified by the Internal Revenue
Service that such Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the Holder that such Holder is no longer subject to backup withholding.
If the Old Notes are registered in more than one name or are not in the name of
the actual owner, see the enclosed "Guidelines for Certification of Taxpayer
Identification Number of Substitute Form W-9" for information on which TIN to
report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of tendered Old Notes
will be determined by the Company, in its sole discretion, which determination
will be final and binding. The Company reserves the right to reject any and all
Old Notes not validly tendered or any Old Notes, the Company's acceptance of
which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Old Notes as to any ineligibility of any
Holder who seeks to tender Old Notes in the Exchange Offer. The interpretation
of the terms and conditions of the Exchange Offer (includes this Letter of
Transmittal and the instructions hereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes,
but shall not incur any liability for failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute right to
waive, in whole or part, any of the conditions to the Exchange Offer set forth
in the Prospectus.
11. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Old Notes on transmittal of this Letter of Transmittal will
be accepted.
<PAGE> 11
12. Mutilated, Lost, Stolen or Destroyed Old Notes. Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
13. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
14. Acceptance of Tendered Old Notes and Issuance of New Notes; Return of
Old Notes. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes as soon as
practicable after the Exchange Date and will issue New Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted tendered Old Notes when, as and if the Company has given
written and oral notice thereof to the Exchange Agent. If any tendered Old Notes
are not exchanged pursuant to the Exchange Offer for any reason, such
unexchanged Old Notes will be returned, without expense, to the undersigned at
the address shown above (or credited to the undersigned's account at the
Book-Entry Transfer Facility designated above) or at a different address as may
be indicated under the box entitled "Special Delivery Instructions."
15. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OLD NOTES WHICH MUST BE DELIVERED BY BOOK-ENTRY TRANSFER OR
IN ORIGINAL FORM) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE> 12
PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------
SUBSTITUTE PART I -- Please provide your TIN PART III -- Social Security
FORM in the box at the right and Number
W-9 certify by signing and dating OR
DEPARTMENT below -------------------------------
OF THE Employer Identification
TREASURY Number
INTERNAL (If awaiting TIN write
REVENUE "Applied For")
SERVICE
--------------------------------------------------------------------
Payer's PART II -- For Payees Exempt from Backup Withholding, see the
Request enclosed Guidelines for Certification of Taxpayer Identification
for Number on Substitute Form W-9 and complete as instructed therein.
Taxpayer
Identification
Number (TIN)
- ------------------------------------------------------------------------
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The Number shown on this form in my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding either because I have not
been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report
all interest or dividends, or the IRS has notified me that I am no
longer subject to backup withholding.
CERTIFICATE INSTRUCTIONS-- You must cross out item (2) above if you
have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax
return. However, if after being notified by the IRS that you were
subject to backup withholding, you received another notification from
the IRS that you were no longer subject to backup withholding, do not
cross out item (2). (Also see instructions in the enclosed Guidelines.)
- ------------------------------------------------------------------------
NAME:
---------------------------------------------------------------
(Please Print)
SIGNATURE:
- ------------------------------------------------------------- DATE:
-----------------------
- ------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER TO PURCHASE. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TIN.
<PAGE> 13
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
sixty (60) days, 31% of all payments of the Offer Price made to me thereafter
will be withheld until I provide a number.
========================================================
Signature Date
- --------------------------------------------------------------------------------
<PAGE> 14
TENDER OF 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
GRAHAM-FIELD HEALTH PRODUCTS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a Prospectus, dated 1997, of
Graham-Field Health Products, Inc. (the "Company"), a Delaware corporation, and
a related Letter of Transmittal (which together constitute the "Exchange Offer")
relating to the offer by the Company, to exchange its 9 3/4% Senior Subordinated
Notes Due 2007, Series A (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") for a like principal
amount of its issued and outstanding 9 3/4% Senior Subordinated Notes Due 2007
(the "Old Notes"), upon the terms and subject to the conditions set forth in the
Exchange Offer.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the holder of record of Old Notes held by us for your own account. A
tender of such Old Notes can be made only by us as the record holder and
pursuant to your instructions. The Letter of Transmittal is furnished to you for
your information only and cannot be used by you to tender Old Notes held by us
for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the Exchange Offer. We also request that you confirm that we may on your behalf
make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
undersigned, (ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
within the meaning of the Securities Act of such New Notes, (iii) if the
undersigned is not a broker-dealer, or in a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, neither the undersigned
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned in an "affiliate," that the
undersigned will comply, with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Old Notes, it represents that such
Old Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Very truly yours,
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF 9 3/4% SENIOR SUBORDINATED
NOTES DUE 2007
IN EXCHANGE FOR
9 3/4% SENIOR SUBORDINATED NOTES DUE
2007, SERIES A
GRAHAM-FIELD HEALTH PRODUCTS, INC.
This form, or one substantially equivalent hereto, must be used by a Holder
to accept the Exchange Offer of Graham-Field Health Products, Inc., a Delaware
corporation (the "Company"), who wishes to tender 9 3/4% Senior Subordinated
Notes due 2007 (the "Old Notes") to the Exchange Agent pursuant to the
guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed
Delivery Procedures" of the Company's Prospectus, dated , 1997 (the
"Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any
Holder who wishes to tender Old Notes pursuant to such guaranteed delivery
procedures must ensure that the Exchange Agent receives this Notice of
Guaranteed Delivery prior to the Expiration Date (as defined below) of the
Exchange Offer. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<CAPTION>
By Mail: Telephone Number: By Hand or Overnight Delivery:
<S> <C> <C>
P.O. Box 84 (212) 858-2103 One State Street
Bowling Green Station New York, N.Y. 10004
New York, N.Y. 10274-0084 Facsimile Number: Attention: Reorganization
Attention: Reorganization (212) 858-2611 Operations Department
Operations Department Attention: Reorganization Securities Processing Window,
Operations Department Subcellar One (SC-1)
Telex: 177754
</TABLE>
------------------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
<PAGE> 3
THE UNDERSIGNED HEREBY TENDERS THE OLD NOTES LISTED BELOW:
<TABLE>
<S> <C> <C>
CERTIFICATE NUMBER(S) (IF KNOWN) OF OLD
NOTES OR ACCOUNT NUMBER AT THE AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
BOOK-ENTRY FACILITY AMOUNT PRESENTED AMOUNT TENDERED
- ------------------------------------------------------- ------------------------- -------------------------
</TABLE>
The Book-Entry Transfer Facility Account Number
(if the Old Notes will be tendered by book-entry
transfer):
- --------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Holder(s) or
Authorized Signatory:
- --------------------------------------------------------------------------------
Name(s) of Registered Holder(s):
- ----------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone No.
- --------------------------------------------------------------------------
Date
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s)
================================================================================
- --------------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
Address(es):
================================================================================
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the Exchange Agent of the Letter of Transmittal (or
facsimile thereof), together with the Old Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility described in
the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures" and in the Letter of Transmittal and any other required documents,
all by 5:00 p.m., New York City time, within three (3) New York Stock Exchange
trading days following the Expiration Date.
<TABLE>
<S> <C>
Name of Firm:
---------------------------------- ------------------------------------------
(AUTHORIZED SIGNATURE)
Address:
----------------------------------------- Name:
------------------------------------------
(INCLUDE ZIP CODE)
Title:
------------------------------------------
(PLEASE TYPE OR PRINT)
Area Code and Tel. Number:
Date:
-------------------------------------,
1997
- ------------------------------------------
</TABLE>
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY A PROPERLY COMPLETED AND DULY EXECUTED LETTER
OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the Holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
Holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered Holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Old Notes.
<PAGE> 5
If this Notice of Guaranteed Delivery is signed by a person other than
the registered Holder(s) of any Old Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the
registered Holder(s) appears on the Old Notes or signed as the name of the
participant shown on the Book-Entry Transfer Facility's security position
listing.
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a
corporation, or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and submit with the
Letter of Transmittal evidence satisfactory to the Company of such person's
authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
<PAGE> 6
INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK
ENTRY TRANSFER PARTICIPANT FROM BENEFICIAL OWNER
FOR
TENDER OF 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
GRAHAM-FIELD HEALTH PRODUCTS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1997 (the "Prospectus") of Graham-Field Health Products, Inc., a
Delaware corporation (the "Company"), and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange its 9 3/4% Senior Subordinated Notes Due 2007,
Series A (the "New Notes") for all of its outstanding 9 3/4% Senior Subordinated
Notes Due 2007 (the "Old Notes"). Capitalized terms used but not defined herein
have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (FILL IN AMOUNT):
$ of the 9 3/4% Senior Subordinated Notes Due 2007.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] To TENDER the following Old Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE TENDERED (IF ANY):
$ .
[ ] NOT to TENDER any Old Notes held by you for the account of the undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
New Notes acquired pursuant to the Exchange Offer are being acquired in the
ordinary course of business of the undersigned, (ii) neither the undersigned nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, neither the undersigned
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the undersigned nor any such
other person
<PAGE> 7
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or, if the undersigned is an "affiliate," that the undersigned
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. If the undersigned is a broker-dealer
(whether or not it is also an "affiliate") that will receive New Notes for its
own account in exchange for Old Notes, it represents that such Old Notes were
acquired as a result of market-making activities or other trading activities,
and it acknowledges that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such New Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes, the undersigned is not deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
SIGN HERE
Name of beneficial owner(s):
- ---------------------------------------------------------------------------
Signature(s):
- --------------------------------------------------------------------------------
Name(s) (please print):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Telephone Number:
- --------------------------------------------------------------------------------
Taxpayer Identification or Social Security Number:
- ----------------------------------------------------
Date:
- --------------------------------------------------------------------------------
<PAGE> 8
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER -- Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
------------------------------------------------------------------
<TABLE>
<S> <C> <C>
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ------------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the ac-
account) count or, if combined funds,
any one of the
individuals(1)
3. Husband and wife (joint account) The actual owner of the ac-
count or, if joint funds,
either person
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor
is the only contributor, the
minor(1)
6. Account in the name of guardian The ward, minor or incompe-
or committee for a designated tent person(3)
ward, minor or incompetent
person
7. a. The usual revocable savings The grantor trustee(1)
trust account (grantor is also
trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid trust
under state law
8. Sole proprietorship account The actual owner(4)
- ------------------------------------------------------------------
GIVE THE EMPLOYER IDEN-
FOR THIS TYPE OF ACCOUNT: TIFICATION NUMBER OF --
- ------------------------------------------------------------------
9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identification
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school,
district, or prison) that
receives agricultural program
payments
</TABLE>
------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a) of the Code.
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1) of the Code.
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
- - Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
- - Payments described in section 6049(b)(5) of the Code to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451 of the Code.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE MUST STILL COMPLETE THE SUBSTITUTE FORM W-9
ENCLOSED HEREWITH TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE
SUBSTITUTE FORM W-9 WITH THE PAYER, REMEMBERING TO CERTIFY YOUR TAXPAYER
IDENTIFICATION NUMBER ON PART III OF THE FORM. WRITE "EXEMPT" ON THE FACE OF THE
FORM AND SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A, and 6050N of the Code and their regulations.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. Payers must be
given the numbers whether or not recipients are required to file a tax return.
Payers must generally withhold 31% of taxable interest, dividends, and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 9
PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------
SUBSTITUTE PART I -- Please provide your TIN PART III
in the box at the right and --------------------------------
FORM certify by signing and dating Social Security Number
W-9 below. OR
---------------------------------
DEPARTMENT Employer Identification
OF THE Number
TREASURY (If awaiting TIN write
"Applied For")
INTERNAL
REVENUE
SERVICE
--------------------------------------------------------------------
Payer's PART II -- For Payees Exempt from Backup Withholding, see the
Request enclosed Guidelines for Certification of Taxpayer Identification
for Number on Substitute Form W-9 and complete as instructed therein.
Taxpayer
Identification
Number (TIN)
- ------------------------------------------------------------------------
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The Number shown on this form in my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding either because I have not
been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report
all interest or dividends, or the IRS has notified me that I am no
longer subject to backup withholding.
CERTIFICATE INSTRUCTIONS -- You must cross out item (2) above if you
have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax
return. However, if after being notified by the IRS that you were
subject to backup withholding, you received another notification from
the IRS that you were no longer subject to backup withholding, do not
cross out item (2). (Also see instructions in the enclosed Guidelines.)
- ------------------------------------------------------------------------
NAME:
-----------------------------------------------------------------------
(PLEASE PRINT)
SIGNATURE: DATE:
-------------------------------------
-------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER TO PURCHASE. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TIN.
<PAGE> 10
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number within sixty (60) days, 31% of all payments of the
Offer Price made to me thereafter will be withheld until I provide a
number.
=========================================================
Signature Date
- --------------------------------------------------------------------------------
<PAGE> 11
TENDER OF 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
GRAHAM-FIELD HEALTH PRODUCTS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by Graham-Field Health Products, Inc. (the "Company"), a Delaware corporation,
to exchange its 9 3/4% Senior Subordinated Notes Due 2007, Series A (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like principal amount of its issued and
outstanding 9 3/4% Senior Subordinated Notes Due 2007 (the "Old Notes") upon the
terms and subject to the conditions set forth in the Company's Prospectus, dated
, 1997, and the related Letter of Transmittal (which together
constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated , 1997;
2. Letter of Transmittal (together with accompanying Substitute Form
W-9 Guidelines);
3. Notice of Guaranteed Delivery; and
4. Letter which may be sent to your clients for whose account you hold
Old Notes in your name or in the name of your nominee, with space provided
for obtaining such client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the Exchange
Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
Pursuant to the Letter of Transmittal, each Holder of Old Notes will
represent to the Company that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
undersigned, (ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes within the meaning of the Securities Act, (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, neither the undersigned
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned is an "affiliate," that the
undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Old Notes, it represents that such
Old Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with
<PAGE> 12
any resale of such New Notes, the undersigned is not deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The enclosed Letter to Clients contains an authorization by the beneficial
owners of the Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company
will pay or cause to be paid any transfer taxes payable on the transfer of Old
Notes to it, except as otherwise provided in Instruction 7 of the enclosed
Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
AMERICAN STOCK TRANSFER
& TRUST COMPANY
