<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NO.: 1-8801
GRAHAM-FIELD HEALTH PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 11-2578230
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
400 RABRO DRIVE EAST, HAUPPAUGE, NEW YORK 11788
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 582-5900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $.025 PER SHARE NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NOT APPLICABLE
(TITLE OF CLASS)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [X].
Based on the closing price on March 31, 1998, the aggregate market value of
voting stock held by non-affiliates of the registrant was approximately
$195,106,192.
As of the close of business on March 31, 1998, the registrant had
31,156,436 shares of common stock outstanding, of $.025 par value each.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive proxy statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, incorporated by reference into Part III hereof.
================================================================================
<PAGE> 2
GRAHAM-FIELD HEALTH PRODUCTS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
PART I
ITEM 1. BUSINESS:
THE COMPANY
Graham-Field Health Products, Inc. ("Graham-Field" or the "Company") is a
leading manufacturer and distributor of healthcare products targeting the home
healthcare, medical/surgical, rehabilitation and long-term care markets in North
America, Europe, Central and South America, and Asia. The Company markets and
distributes approximately 45,000 products under its own brand names and under
suppliers' names throughout the world, a significant portion of which is derived
from the United States. The Company maintains manufacturing and distribution
facilities throughout North America. 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 principally to hospital, nursing
home, physician, home healthcare and rehabilitation dealers, 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 wheelchairs and
power wheelchair seating systems, mobility products and bathroom safety
products, medical beds and patient room furnishings, blood pressure and
diagnostic products, adult incontinence products, specialty seating products,
wound care and urologicals, ostomy products, diabetic products, obstetrical
supplies, nutritional supplements, therapeutic support systems and respiratory
equipment and supplies. 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.
The Company's strategic objective is to be the leading provider of medical
products to the rapidly growing home healthcare, medical/surgical,
rehabilitation and long-term care 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 can 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.
In December 1997, the Company acquired Fuqua Enterprises, Inc. (currently,
Lumex/Basic American Holdings, Inc.) ("Fuqua"). The acquisition of Fuqua has
positioned Graham-Field as one of the leading manufacturers of durable medical
products in North America. The Company believes that the strategic combination
of Graham-Field and Fuqua will significantly enhance Graham-Field's
manufacturing capabilities, expand Graham-Field's presence in the home
healthcare, medical/surgical and rehabilitation markets, and broaden
Graham-Field's product line. The Company intends to utilize Fuqua's existing
relations in the long-term and acute care markets to cross-sell its products
into these markets. The Company believes that Graham-Field's distribution
network and advanced technology systems will also provide significant growth
opportunities for Fuqua's proven manufacturing capabilities and leading product
lines.
<PAGE> 3
INDUSTRY OVERVIEW
Graham-Field distributes its medical, surgical and other healthcare
products primarily into the home healthcare, medical/surgical, rehabilitation
and long-term care 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 United States 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 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.
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 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.
Rehabilitation Market. The rehabilitation market includes a broad range of
medical products provided to individuals in order to minimize physical and
cognitive impairments, maximize functional ability and restore lost functional
capacity. The focus of rehabilitation medical products is to improve the
physical and cognitive impairments resulting from illness or injury, and to
restore or improve functional ability so that individuals can return to work and
lead independent and fulfilling lives. Typically, rehabilitation medical
products are provided by a variety of healthcare professionals including
rehabilitation nurses, physical therapists, occupational therapists, speech
language pathologists, respiratory therapists, recreation therapists, social
workers, psychologists, rehabilitation counselors and others.
Graham-Field believes that the demand for rehabilitation medical products
will continue to be driven by advances in medical technologies, an aging
population and the recognition on the part of the payor community (insurers,
self-insured companies, managed care organizations and federal, state and local
governments) that appropriately administered rehabilitation medical products can
lower overall healthcare costs as well as improve quality of life. Studies
conducted by insurance companies demonstrate the ability of rehabilitation
medical products to significantly reduce the cost of future care. Further,
reimbursement changes have encouraged the rapid discharge of patients from
acute-care hospitals while they remain in need of rehabilitation medical
products.
Long-Term Care Market. The long-term care market encompasses a broad range
of healthcare products provided to the elderly and to other patients with
medically complex needs who can be cared for outside of the acute care hospital
environment and generally cannot be efficiently and effectively cared for at
home. Long-term care facilities offer skilled nursing care, routine
rehabilitation therapy and other support services, primarily to elderly
patients. Long-term care facilities require ongoing medical and nursing
supervision and access to a broad range of medical products. The Company
believes that the demand for medical products
2
<PAGE> 4
provided to the long-term care market will increase substantially during the
next decade due primarily to demographic trends, advances in medical technology
and the impact of cost containment measures by government and private pay
sources. At the same time, government restrictions and high construction and
start-up costs are expected to limit the supply of long-term care facilities.
Graham-Field believes that the major healthcare industry trends impacting
the markets it serves 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 healthcare supply companies will be required to use size and economies
of scale to their competitive advantage to be successful.
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.
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. The Company believes 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.
BUSINESS STRATEGY
The Company's strategic objective is to become the leading provider of
low-cost, high-quality medical products to the rapidly growing home healthcare,
medical/surgical, rehabilitation and long-term care markets by offering a
comprehensive product line, single source purchasing and technologically
advanced, cost-effective delivery systems. To achieve this objective and to
continue to improve its profitability, the Company is pursuing the following
strategies:
Offer Comprehensive Product Line. The Company markets and distributes
approximately 45,000 products under its own brand names and under suppliers'
names throughout the world, and believes that it provides one of the most
extensive product offerings in each of the markets it serves. Through the
breadth of its product offerings and its competitive pricing, the Company
strives to be a single source supplier to the
3
<PAGE> 5
home healthcare, medical/surgical, rehabilitation and long-term care markets. As
a result of recent acquisitions, the Company has expanded its product line
through enhanced manufacturing and out-sourcing capabilities, which furthers the
Company's objective to become the most efficient and reliable low-cost provider
of medical products. The Company believes its ability to increase its revenue
base without commensurate increases in its cost structure enables it to offer a
wide array of products at prices below those of many of its competitors. The
Company continuously seeks to expand its product lines by increasing the number
of distributorship agreements it has with suppliers, forming strategic alliances
and acquiring other companies and product lines.
Focus on Value-Added Services. In order to differentiate itself from its
competitors and gain a competitive advantage in the industry, the Company
focuses on providing its customers with value-added services. Currently, the
Company has the following three programs in place which it believes furthers
this objective:
Consolidation Advantage Program. The C.A.P. program offers customers
the ability to significantly reduce their operating costs by consolidating
the purchase of multiple product lines through a single source. C.A.P.
significantly improves the level of service to the Company's customers by
streamlining the purchasing process, decreasing order turnaround time,
reducing delivery expenses, lowering administrative costs, and providing
inventory on demand. See "Value Added Services -- Consolidation Advantage
Program".
Graham-Field Express. The Graham-Field Express program enables the
Company 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 satellite Graham-Field Express
facilities. See "Value-Added Services -- Graham-Field Express".
Seamless Distribution Program. The Seamless Distribution Program
enables orders to be shipped from the Company's distribution facilities to
home healthcare end-users on behalf of the Company's customers. This
program enables these customers to realize significant reductions in their
operating costs by eliminating the receiving and shipping process and
inventory carrying costs, while reducing the product delivery time to end
users. See "Value-Added Services -- Seamless Distribution Program".
Utilize Low-Cost Manufacturing and Distribution Model. The Company
believes that its ability to offer its customers value-added services is
supported through its low-cost manufacturing and distribution model. The
Company's ability to increase revenues without commensurate increases in its
cost structure enables it to offer a wide array of products at prices below
those of many of its competitors. As the Company has integrated its acquisitions
of manufacturing companies, it has shifted certain of its production to overseas
manufacturers which has reduced certain of Graham-Field's manufacturing costs.
On the distribution side, Graham-Field has invested in emerging technology to
increase the efficiency of its distribution process. In 1993, the Company opened
an automated "paperless" warehouse and distribution center in St. Louis,
Missouri (the "St. Louis Facility"). The St. Louis Facility was designed with
IBM to include "state-of-the-art" technology in order to improve
delivery-cycles, inventory turnover and distribution efficiency. In addition,
the Company's technologically advanced EDI system enables customers to place
orders electronically which also serves to enhance Graham-Field's distribution
efficiency.
Pursue Strategic Alliances. The Company intends to continue to pursue
strategic alliances that are complementary to the Company's existing
manufacturing and distribution network and that enhance the Company's existing
product lines and market presence. The Company has completed six acquisitions
since January 1997, including the Fuqua acquisition, which substantially enhance
the Company's national scope and presence in the home healthcare and long-term
care markets. Strategic alliances such as exclusive distribution arrangements
will enable the Company to penetrate new markets and increase its presence in
existing markets. See "-- Recent Acquisitions" and "Management's Discussions and
Analysis of Financial Condition and Results of Operations."
4
<PAGE> 6
RECENT ACQUISITIONS
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 Ltd. Manufacturer and distributor of
wheelchairs and homecare 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.
December 1997............... Fuqua Enterprises, Inc. (currently, Manufacturer and distributor of
Lumex/Basic American Holdings, durable medical products and
Inc.) furnishings.
</TABLE>
V.C. Medical. In September 1996, Graham-Field acquired V.C. Medical
Distributors, Inc. ("V.C. Medical"), a wholesale distributor of medical products
in Puerto Rico. 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
patient aids, Everest & Jennings wheelchairs and homecare beds, adult
incontinence products and nutritional supplements. Through GF Express (Puerto
Rico), Graham-Field has increased its presence in Puerto Rico.
Everest & Jennings. In November 1996, Graham-Field acquired Everest &
Jennings International Ltd. ("Everest & Jennings"). 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
Motion 2000 and its wholly-owned subsidiary, Motion Quebec. 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. The strategic combination of Graham-Field (Canada) with Everest &
Jennings' operations, along with Graham-Field's broad product lines, has
positioned Graham-Field as one of the leading 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.
The business combination has enabled Graham-Field to expand its C.A.P. program
in the Canadian marketplace, and increase its revenue base in the Canadian
marketplace.
Kuschall. In March 1997, Everest & Jennings, a wholly-owned subsidiary of
the Company, acquired Kuschall of America, Inc. ("Kuschall"), a manufacturer of
pediatric wheelchairs, high-performance adult
5
<PAGE> 7
wheelchairs and other rehabilitation products. The acquisition of Kuschall has
provided Graham-Field with additional manufacturing capabilities and 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, and provided Graham-Field with the
ability to market and distribute its products into Japan, New Zealand and
Australia through Kuschall's established distributor relationships.
LaBac. In June 1997, Graham-Field acquired LaBac Systems, Inc. ("LaBac"),
a manufacturer and distributor of custom power wheelchair seating systems and
manual wheelchairs. The acquisition of LaBac has provided Graham-Field with one
of the premier custom power wheelchair seating product lines in the healthcare
industry, expanded the Everest & Jennings power wheelchair product lines and
enhanced the manufacturing and research and development capabilities of
Graham-Field. The LaBac products, which have a reputation for excellence and
quality, have broadened the Everest & Jennings and Kuschall product lines and
provided additional support and expertise to Graham-Field in the rehabilitation
market.
Medi-Source. In August 1997, Graham-Field acquired Medi-Source, Inc.
("Medi-Source"), a wholesale distributor of medical sundry products to the
medical/surgical market. The acquisition of Medi-Source has expanded
Graham-Field's presence in the medical/surgical market.
Medapex. In August 1997, Graham-Field acquired Medical Supplies of
America, Inc. ("Medapex"), a wholesale distributor of home healthcare products.
The acquisition of Medapex has provided Graham-Field with additional
distribution capabilities in the Southeast region of the United States, and
enabled Graham-Field to utilize Medapex's telemarketing operations to provide
increased customer service to the combined customer base.
Fuqua. In December 1997, Graham-Field acquired Fuqua. The medical products
business of Fuqua, through its subsidiaries, Lumex Medical Products, Inc.
("Lumex"), Basic American Medical Products, Inc. ("Basic American") and Prism
Enterprises, Inc. ("Prism"), manufactures and distributes a variety of products,
including medical beds, patient room furnishings, bathroom safety products,
mobility products, specialty seating products, vacuum pumps, heat and cold
packs, and therapeutic support systems.
The acquisition of Fuqua has positioned Graham-Field as one of the leading
manufacturers of durable medical products in North America. The acquisition has
provided Graham-Field with the well-established product brand names of Lumex,
Basic American and Prism, and expanded Graham-Field's presence in the acute and
long-term healthcare markets.
In connection with the acquisition of the medical products business of
Fuqua, the Company also acquired the leather tanning operations of Fuqua (the
"Leather Operations"), which supplies finished leather to leather product
manufacturers both domestically and internationally. In order to concentrate in
its area of expertise and focus in the medical products industry, Graham-Field
sold the Leather Operations on January 27, 1998. The cash proceeds from the sale
of the Leather Operations were used to retire the debt acquired in connection
with the Fuqua acquisition.
PRODUCTS
Graham-Field markets and distributes approximately 45,000 healthcare
products under its own brand names and under suppliers' names. Graham-Field's
products are marketed to dealers and other customers, principally hospital,
nursing home, physician, home healthcare and rehabilitation dealers, healthcare
product wholesalers and retailers, including drug stores, catalog companies,
pharmacies and home-shopping related businesses.
Product lines marketed by Graham-Field include wheelchairs and power
wheelchair seating systems, mobility products and bathroom safety products,
medical beds and patient room furnishings, blood pressure and diagnostic
products, adult incontinence products, specialty seating products, wound care
and urologicals, ostomy products, diabetic products, obstetrical supplies,
nutritional supplements, therapeutic support systems and respiratory equipment
and supplies.
6
<PAGE> 8
The acquisition of Fuqua has enhanced Graham-Field's product offering and
expanded Graham-Field's presence into the long-term, acute care and consumer
markets. The Company believes that the expanded product offering and new markets
serviced by Basic American and Prism will provide cross-selling opportunities
and present growth opportunities for Graham-Field.
Basic American operates through its divisions, Simmons Health Care, Omni
Manufacturing and SSC Medical, which manufacture and distribute medical beds,
patient room furnishings, patient aids and mobility products primarily for the
long-term and acute care markets. Basic American serves as one-stop shopping for
a customer looking to refurbish or newly construct a long-term care patient
room. Consistent with the one-stop shopping approach, Basic American maintains
several in-house interior designers who provide design services to customers
looking to refurbish or construct long-term care facilities.
Prism manufactures and distributes therapeutic heat and cold pack products,
and obstetrical vacuum pump systems for the acute care, long-term care and
consumer markets. Prism also sells heat and cold packs through a "show dealer"
network, which includes cart/kiosk retailing programs located in consumer
outlets.
Graham-Field's principal manufactured and proprietary products include the
following:
<TABLE>
<CAPTION>
PRODUCT LINE PRIMARY PRODUCTS
------------ ----------------
<S> <C>
Everest & Jennings.......................... Wheelchairs
Lumex....................................... Mobility products, bathroom safety
products, and specialty seating products
Smith & Davis............................... Homecare beds
LaBac....................................... Power wheelchair seating systems
Omni........................................ Medical beds and furnishings
Simmons..................................... Medical beds and furnishings
SSC Medical................................. Medical beds and furnishings
Prism....................................... Obstetrical supplies, heat and cold packs
Temco....................................... Mobility products, bathroom safety
products, and specialty seating products
Labtron..................................... Blood pressure and diagnostic products
John Bunn................................... Respiratory products
</TABLE>
During the years ended December 31, 1997, 1996, and 1995, sales of
Graham-Field's line of sphygmomanometers accounted for 3%, 14% and 11%,
respectively, of Graham-Field's revenues. Graham-Field's lines of wheelchairs,
ambulatory and patient aids and incontinence products accounted for
approximately 33%, 8% and 7%, respectively, of Graham-Field's revenues in 1997.
No other product line or product accounted for more than 5% of annual revenues
in 1997. The number of products marketed by Graham-Field has increased from
approximately 20,000 in 1992 to approximately 45,000 in 1997.
During the year ended December 31, 1997, approximately 49% of
Graham-Field's revenues were derived from products manufactured by Graham-Field,
approximately 20% were derived from imported products, and approximately 31%
were derived from products purchased from domestic sources.
VALUE-ADDED SERVICES
Consolidation Advantage Program. 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
7
<PAGE> 9
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 and Lumex 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 healthcare products. As of December 31, 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's sales and marketing strategies are developed on a
market-by-market basis through each of its business units -- Home Healthcare,
Medical/Surgical, Rehabilitation, Graham-Field Express, Basic American, Prism
and International. While Graham-Field's sales and marketing strategies are
developed and conducted on a business unit basis, the sale of Graham-Field's
products generally overlap all business units. Each of the business units has a
dedicated sales force consisting of direct, full-time sales employees and
independent sales representatives. The full-time sales employees receive both
salary and commission, while the independent sales representatives work solely
on commission. The sales force of the Rehabilitation business unit conducts
training activities for the benefit of dealers and their personnel, physical and
occupational therapists, and other healthcare professionals. The training
primarily focuses on the features and benefits of Graham-Field's rehabilitation
products, including the products of Everest & Jennings, Kuschall, LaBac, Lumex
and other rehabilitation product lines of Graham-Field, and also covers the
proper fitting and use of such rehabilitation products. As a result of recent
acquisitions, Graham-Field has expanded its telemarketing program to enhance the
sales and marketing efforts of its sales forces. Graham-Field employs an
extensive telemarketing program, consisting of telemarketing sales personnel
located in Atlanta, Georgia and Hauppauge, New York, which targets approximately
8,000 customers nationwide.
The international sales group consists of in-house sales employees, as well
as representatives located overseas. In order to expand its presence in the
European market, Graham-Field entered into a five-year European distribution
agreement in September 1997 for a wide range of its products with Thuasne, a
manufacturer and supplier of medical products throughout Europe.
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 satisfy the needs of its
customers. A CD-ROM version of Graham-Field's catalog and an Internet
interactive website are currently being developed. In 1997, Graham-Field
continued the implementation of its new marketing programs, which included
several high-visibility marketing programs, including a new strategic
advertising campaign, packaging designs, and new logos and catalogs.
8
<PAGE> 10
CUSTOMERS
Graham-Field's products are marketed principally to hospital, nursing home,
physician, home healthcare and rehabilitation 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 1997. Since
January 1, 1997, Graham-Field has entered into new supply arrangements with a
number of customers, including Baxter Healthcare Corporation, Allegiance
Healthcare Corporation, 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, Medquik, Sysco
Corporation, Option Care, U.S. Rehab., Henry Schein, Inc, Equipnet, Inc., VGM
Associates, Inc., and Binson's Home Healthcare Center.
The Home Healthcare business unit markets and sells its products to 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. The Medical/Surgical business unit markets and sells its
products to 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 Rehabilitation business unit markets and sells its
products primarily to rehabilitation dealers. These various 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.
Basic American and Prism market and sell their products primarily to the
long-term, acute care, and consumer markets. Graham-Field believes that the
existing relationships of Basic American and Prism in the long-term, acute care
and consumer markets will present significant growth opportunities for
Graham-Field to market and distribute its products into such markets.
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 nine (9) primary points
of distribution located in Hauppauge, New York; Bayshore, New York; St. Louis,
Missouri; Jacksonville, Florida; Santa Fe Springs, California; Downey,
California; Memphis, Tennessee; Toronto, Canada; and Guadalajara, Mexico.
Secondary points of distribution include seven (7) facilities located in
Atlanta, Georgia and Bowling Green, Kentucky, as well as 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 thirteen (13) manufacturing facilities located in
Passaic, New Jersey; Earth City, Missouri; Central Falls, Rhode Island;
Guadalajara, Mexico; Camarillo, California; Denver, Colorado; Toronto, Canada;
Bayshore, New York; Fond du Lac, Wisconsin; Johnstown, New York; Lawrenceville,
Georgia; San Antonio, Texas; and Tupelo, Mississippi.
MANUFACTURING AND PRODUCT SOURCING
Principal manufactured and proprietary products (designed and/or
manufactured by Graham-Field or manufactured to its specifications by third
parties) include EVEREST & JENNINGS(R) wheelchairs, LUMEX(R) bathroom safety
products, mobility products and specialty seating systems, AKROS(R) therapeutic
support systems, ORTHOBIOTIC(R) specialty seating systems, POSTURE GLIDE(R)
specialty seating systems, MITYVAC(R) vacuum pumps, ZAPPAC(R) heating packs, EZ
HEAT(R) heating packs, AQUA COOL(R) cooling scarves, SMITH & DAVIS(R) homecare
beds, LABTRON(R) stethoscopes and blood pressure instru-
9
<PAGE> 11
ments, JOHN BUNN(R) respiratory aid 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, Simmons beds, and Aquatherm specialty
cushions and mattresses for the treatment and prevention of pressure sores.
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 dependent on the maintenance of its Wheelchair Supply
Agreement with P.T. Dharma Polimetal ("P.T. Dharma"). If the Wheelchair Supply
Agreement is terminated, there can be no assurance that Graham-Field 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. In February
1998, the Company advanced $3.5 million to P.T. Dharma in consideration of the
grant of a six month option to purchase the wheelchair assets of P.T. Dharma for
a price to be determined. During the option period, the Company will be paid
interest on the advance at an annual interest rate of 10.3 percent. The advance
is collateralized by shares of the capital stock of P.T. Dharma, and is to be
applied against the purchase price. In the event the Company and P.T. Dharma are
unable to agree upon the terms of the transaction, the advance will be returned
to the Company.
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), LUMEX(R), TEMCO(R), and PRISM(R) product lines. Other companies may
provide similar products which may not be covered by Graham-Field's issued
patents. 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.
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.
Graham-Field has registered a significant number of trademarks in the
United States, including "GRAHAM-FIELD," "EVEREST & JENNINGS," "LUMEX," "AKROS,"
"ORTHOBIOTICS," "POSTURE GLIDE," "MITYVAC," "ZAPPAC," "EZ HEAT," "AQUA COOL,"
"SMITH & DAVIS,"
10
<PAGE> 12
"JOHN BUNN," "BRISTOLINE," "SURVALENT," "MEDICOPASTE," "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 premium 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 United States 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.
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 reductions in the 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, if enacted,
would provide 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. In
the fourth quarter of 1997, the Company recorded a provision for uncollectible
accounts and notes receivable of $5 million to reflect increased credit risk due
to the anticipated impact of changes in state Medicare reimbursement and
procurement policies for certain product lines and the extended payment terms
being taken by the Company's customers.
The Federal Food, Drug and Cosmetic Act ("FDA"), 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 "Good Manufacturing
Practices for Medical Devices" regulations, which set forth requirements for,
among other things, Graham-Field's manufacturing process and associated record
creation and maintenance, including tests and sterility.
11
<PAGE> 13
Graham-Field engages the services of an outside consulting firm to monitor
the quality control program to ensure that all manufactured products and
supplier products comply with FDA requirements. Graham-Field is in the process
of implementing 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 by the FDA or other government agencies. Graham-Field
believes that the manufacturing and quality control procedures it employs
conform to requirements of the FDA and does not anticipate having to make any
material expenditures as a result of these requirements.
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 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, and value-added services, including attractive financing programs and
delivery and service alternatives. 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
manufactured and proprietary products, Graham-Field's primary competitors
include Invacare Corporation and Sunrise Medical Corporation. Competition for
the sale of such products 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 manufactured and proprietary products 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.
EMPLOYEES
As of March 31, 1998, Graham-Field had 2,236 employees, of which eight were
executive officers, 499 were administrative and clerical personnel (of which 18
were part-time employees), 357 were sales, marketing and customer service
personnel (of which 9 were part-time employees) and 1,372 were manufacturing and
warehousing personnel (of which 17 were part-time employees).
Graham-Field is a party to six collective bargaining agreements covering
Graham-Field's facilities located in Hauppauge, New York; Bayshore, New York;
Passaic, New Jersey; Earth City, Missouri; Ontario, Canada; and Guadalajara,
Mexico. The collective bargaining agreements cover approximately 822 employees.
The collective bargaining agreements for Hauppauge, New York; Bayshore, New
York; Passaic, New Jersey; Earth City, Missouri; Ontario, Canada; and
Guadalajara, Mexico are scheduled to expire on October 18, 2000, October 19,
1998, July 27, 1999, September 13, 1999, July 24, 1998 and December 31, 1998,
respectively.
12
<PAGE> 14
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.
ITEM 2. PROPERTIES:
The Company's principal executive offices are located in Hauppauge, New
York.
Graham-Field distributes its products through nine (9) primary points of
distribution located in Hauppauge, New York; Bayshore, New York; St. Louis,
Missouri; Jacksonville, Florida; Santa Fe Springs, California; Downey,
California; Memphis, Tennessee; and Toronto, Canada. Secondary points of
distribution include seven (7) facilities located in Atlanta, Georgia and
Bowling Green, Kentucky, as well as Graham-Field Express satellite facilities
located in the Bronx, New York; Dallas, Texas; Puerto Rico; Baltimore, Maryland;
and Cleveland, Ohio. Graham-Field also distributes its products from thirteen
(13) manufacturing facilities located in Passaic, New Jersey; Earth City,
Missouri; Central Falls, Rhode Island; Guadalajara, Mexico; Denver, Colorado;
Toronto, Canada; Bayshore, New York; Fond du Lac, Wisconsin; Johnstown, New
York; Lawrenceville, Georgia, San Antonio, Texas; and Tupelo, Mississippi. The
manufacturing facilities located in Toronto, Canada; Guadalajara, Mexico;
Bayshore, New York; Fond du Lac, Wisconsin; and Lawrenceville, Georgia are owned
by the Company. The distribution facilities located in Tucker, Georgia; Atlanta,
Georgia; and Bayshore, New York are owned by the Company.
Graham-Field believes that its facilities are in good repair and provide
adequate capacity for the near term growth of the Company's business.
Owned and leased properties for Graham-Field's principal facilities are
summarized in the following table.
13
<PAGE> 15
A. MANUFACTURING FACILITIES:
<TABLE>
<CAPTION>
APPROXIMATE OWNED OR LEASE
LOCATION SQUARE FOOTAGE EXPIRATION DATE PRINCIPAL USE
-------- -------------- --------------- ------------------
<S> <C> <C> <C>
400 Rabro Drive East.................... 105,000 12/31/06 Corporate Office,
Hauppauge, NY Manufacturing,
Distribution
3601 Rider Trail........................ 147,000 7/31/02 Manufacturing,
Earth City, MO Distribution
125 South Street........................ 120,000 12/31/04 Manufacturing,
Passaic, NJ Distribution
131 Clay Street......................... 21,467 12/31/02 Manufacturing,
Central Falls, RI Distribution
111 Snidercroft Road.................... 63,000 Owned Manufacturing,
Concord, Ontario, Canada Distribution
3535 South Kipling Street............... 30,300 6/25/07 Manufacturing,
Lakewood, CO Distribution
Calle 3 #631............................ 16,204 Owned Manufacturing,
Zona Industrial Distribution
C.P. 44940
Guadalajara, Jalisco
Mexico
100 Spence Street....................... 130,000 Owned Manufacturing,
Bayshore, NY Distribution
336 Trowbridge Drive.................... 133,000 Owned Manufacturing
Fond du Lac, WI
5 Clermont Street....................... 42,000 12/01/10 Manufacturing,
Johnstown, NY Distribution
362 Industrial Park Drive............... 50,000 Owned Manufacturing
Lawrenceville, GA
6952 Fair Grounds Parkway............... 57,788 5/31/02 Manufacturing
San Antonio, TX
1691 S. Greer Street.................... 50,000 Month-to-Month Manufacturing
Tupelo, MS
</TABLE>
14
<PAGE> 16
B. DISTRIBUTION FACILITIES:
<TABLE>
<CAPTION>
APPROXIMATE OWNED OR LEASE
LOCATION SQUARE FOOTAGE EXPIRATION DATE PRINCIPAL USE
-------- -------------- --------------- ------------------
<S> <C> <C> <C>
12055 Missouri Bottom Road.............. 144,000 3/31/07 Warehouse,
St. Louis County, MO Distribution
11954 East Washington Blvd.............. 52,810 2/1/02 Warehouse,
Santa Fe Springs, CA Distribution
8291 Forshee Drive...................... 28,255 8/31/99 Warehouse,
Jacksonville, FL Distribution
144 East Kingsbridge.................... 48,000 2/28/99 Warehouse,
Mount Vernon, NY Distribution
135 Fell Court.......................... 30,000 12/31/06 Warehouse,
Hauppauge, NY Distribution
7447 New Ridge Road..................... 20,147 4/30/02 Warehouse,
Hanover, MD Distribution
1707 Falcon Drive....................... 10,151 7/31/01 Warehouse,
DeSoto, TX Distribution
4880 Hammermill Road.................... 25,000 Owned Warehouse,
Tucker, GA Distribution
1751 Scottsville Road................... 15,696 6/1/98 Warehouse,
Bowling Green, KY Distribution
525 Main Street......................... 51,456 12/31/98 Warehouse,
Belleville, NJ Distribution
711 Brush Avenue........................ 86,152 4/30/02 Warehouse,
Bronx, NY Distribution
10145 Philipp Parkway................... 30,000 11/14/04 Warehouse,
Streetsboro, OH Distribution
Kilometer 29.4.......................... 21,600 10/8/99 Warehouse,
Road #1 Distribution
Entrando por Ferrero
Caguas, PR
1600 Beaulac............................ 4,032 3/31/99 Warehouse,
St. Laurent, Quebec, Canada Distribution
50 Snidercroft Road..................... 8,775 3/14/98 Warehouse,
Concord, Ontario, Canada Distribution
2935 Bankers Industrial Drive........... 50,000 Owned Showroom,
Atlanta, GA Warehouse
81 Spence Street........................ 170,000 Owned Office, Warehouse,
Bayshore, NY Distribution
12020 Woodruff Avenue................... 23,000 1/31/00 Warehouse,
Units G&H Distribution
Downey, CA
4311 Air Trans Road..................... 21,000 3/1/99 Warehouse,
Memphis, TN Distribution
Lot 1.0................................. 35,472 3/14/03 Office, Warehouse,
Northboro Road Distribution
Southboro, MA
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
APPROXIMATE OWNED OR LEASE
LOCATION SQUARE FOOTAGE EXPIRATION DATE PRINCIPAL USE
-------- -------------- --------------- ------------------
B. DISTRIBUTION FACILITIES: -- (CONTINUED)
<S> <C> <C> <C>
2500 Constant Comment Place............. 25,125 3/31/03 Office, Warehouse,
Louisville, KY Distribution
11725 Missouri Bottom Road.............. 43,989 3/31/03 Office, Warehouse,
Hazelwood, MO Distribution
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Following the Company's public announcement on March 23, 1998 of its
financial results for the fourth quarter and year ended December 31, 1997, the
Company and certain of its directors and officers were named as defendants in at
least six putative class action lawsuits filed in the United States District
Court for the Eastern District of New York on behalf of all purchasers of common
stock of the Company (including former Fuqua shareholders who received shares of
common stock of the Company when the Company acquired Fuqua in December 1997)
during various periods within the time period May 1997 to March 1998. The
complaints assert claims against the Company and the other defendants for
violations of Sections 11, 12(2) and 15 of the Securities Act of 1933, as
amended, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 promulgated thereunder with respect to alleged material
misrepresentations and omissions in public filings made with the Securities and
Exchange Commission and certain press releases and other public statements made
by the Company and certain of its officers relating to the Company's business,
results of operations, financial condition and future prospects, as a result of
which, it is alleged, the market price of the common stock of the Company was
artificially inflated during the putative class periods. Several of the
complaints focus on statements made concerning the Company's integration of its
various recent acquisitions. The plaintiffs seek unspecified compensatory
damages, costs (including attorneys and expert fees), expenses and other
unspecified relief on behalf of the putative classes. The Company believes that
it has complied with all of its obligations under the federal securities laws,
considers the plaintiffs' allegations to be without merit and intends to defend
these suits vigorously.
On March 27, 1998, agents of the U.S. Customs Service and the Food and Drug
Administration arrived at the Company's principal headquarters and one other
Company location and retrieved several documents pursuant to search warrants.
The Company has subsequently been advised by an Assistant United States Attorney
for the Southern District of Florida that the Company is a target of an ongoing
grand jury investigation involving alleged fraud by one or more of the Company's
suppliers relating to the unauthorized diversion of medical products intended
for sale outside of the United States into United States markets. The Company
has also been advised that similar search warrants were obtained with respect to
approximately 14 other participants in the distribution of medical products. The
Company is presently investigating these matters. The Company does not know when
the grand jury investigation will conclude or what action, if any, may be taken
by the government against the Company or any of its employees, so it cannot yet
assess the impact of this investigation on the Company. The Company intends to
cooperate fully with the government in its investigation.
ENVIRONMENTAL CONTINGENCY: In March 1994, the Suffolk County Authorities
initiated an investigation to determine whether regulated substances had been
discharged in excess of permitted levels from Fuqua's Lumex division (the "Lumex
Division") located in Bayshore, New York. 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 Bayshore facilities and
reported the results to the Suffolk County Authorities in March 1997. 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
16
<PAGE> 18
plan. Management is not currently able to determine when any required
remediation and monitoring efforts with respect to the ground water
contamination will be completed. In May 1997, the Suffolk County Authorities
approved the soil remediation conducted by Fuqua and provided comments on the
ground water work plan.
In November 1997, the Lumex Division received the results of additional
ground water testing that had been performed in August and September 1997. The
results revealed significantly lower concentrations of contaminants than were
known at the time the "Ground Water Work Plan" was prepared in March 1997. In
January 1998, additional confirmatory samples were taken, including two
additional wells, but the results of this sampling have not yet been received
from the laboratory. Management is not currently able to determine whether or
when additional remediation or monitoring efforts will be required.
At December 30, 1997, the Lumex Division had reserves for remediation costs
and additional investigation costs which will be required. 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 estimated costs, although a portion of the 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.
DISPUTE WITH CYBEX: On April 3, 1996, Fuqua acquired the Lumex Division
from Cybex International, Inc. (formerly, Lumex, Inc.). The purchase price for
the Lumex Division was $40.7 million, subject to a final purchase price
adjustment in the asset sale agreement. The final purchase price adjustment was
disputed and, pursuant to the asset sale agreement, was to be resolved through
arbitration. 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. 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 continued the arbitration proceedings. The Appellate
Division subsequently affirmed the Supreme Court's denial of the stay, and
seller's motion for reconsideration has been denied. On February 13, 1998, the
arbitrator accepted $3,179,685 in claims by Fuqua, with interest of $350,690,
yielding a net award to Fuqua of $2,384,606.
In March 1997, Fuqua gave notice to the seller to preserve Fuqua's
indemnification rights provided in the asset sale agreement.
In February 1998, Fuqua filed in the State Court of Fulton County a lawsuit
against the seller and certain former officers and it states claims for fraud,
breach of warranty, negligent misrepresentation, Georgia RICO, and attorney's
fees. Defendants filed an answer and counterclaim on April 7, 1998, denying
liability and asserting fifteen defenses. Defendant Cybex has asserted four
counterclaims, seeking $1,284,288 in damages, plus attorneys' fees and costs.
Fuqua believes that the counterclaims lack merit for several reasons, including,
among others, that the punitive claim for $1,284,288, was decided adversely to
Cybex in the arbitration.
GENERAL: 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.
17
<PAGE> 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
A special meeting (the "Special Meeting") of the Company's stockholders was
held on December 30, 1997 to approve the following matters:
1. The issuance of shares of common stock of Graham-Field pursuant to
an Agreement and Plan of Merger dated as of September 5, 1997, as amended
as of September 29, 1997, by and among Graham-Field, GFHP Acquisition
Corp., a wholly-owned subsidiary of Graham-Field, and Fuqua.
2. To approve an amendment to the Graham-Field Incentive Program to
increase the maximum number of shares of common stock available under the
Incentive Program by 1,500,000 shares.
3. Approval of the postponement or adjournment of the Special Meeting
of Stockholders for the solicitation of additional votes, if necessary.
As of the record date of November 13, 1997, 21,138,255 shares of the common
stock of the Company were issued and outstanding. Tabulations for the proposals
voted at the Special Meeting are set forth below:
<TABLE>
<CAPTION>
FOR AGAINST/WITHHELD ABSTAIN
---------- ---------------- -------
<S> <C> <C> <C>
Proposal No. 1......................... 21,587,467 13,485 4,610
Proposal No. 2......................... 20,385,715 1,155,959 63,888
Proposal No. 3......................... 19,532,266 2,067,046 6,200
</TABLE>
All of such proposals were approved at the Special Meeting.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS:
(a) The common stock of the Company is traded on the New York Stock
Exchange (Symbol: GFI). The following provides the high and low sales prices for
the period from January 1, 1996 through March 31, 1998 as reported on the New
York Stock Exchange.
<TABLE>
<CAPTION>
HIGH SALES PRICE LOW SALES PRICE
---------------- ---------------
<S> <C> <C>
1996
- -----------------------------------------------
First Quarter.................................. 5 3 1/8
Second Quarter................................. 9 7/8 4 1/4
Third Quarter.................................. 9 1/8 6 1/2
Fourth Quarter................................. 9 1/2 6 5/8
1997
- -----------------------------------------------
First Quarter.................................. 13 3/4 8 1/2
Second Quarter................................. 13 3/4 8 3/8
Third Quarter.................................. 17 7/8 12 9/16
Fourth Quarter................................. 18 3/4 14
1998
- -----------------------------------------------
First Quarter.................................. 19 11/16 7 5/16
</TABLE>
(b) As of the close of business on March 31, 1998, the number of holders of
record of common stock of the Company was 1,273.
Under the terms of the Company's Senior Secured Revolving Credit Facility,
as amended (the "Credit Facility"), which provides for up to $100 million of
borrowings, including letters of credit and bankers' acceptances, arranged by
IBJ Schroder Business Credit Corporation ("IBJ Schroder"), as agent, 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,
18
<PAGE> 20
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 to BIL (Far East Holdings)
Limited and BIL Securities Offshore Ltd. (collectively, "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 shall have occurred and be continuing or would exist after giving effect
to the payment of the dividends.
The Company was not in compliance with certain financial covenants
contained in the Credit Facility as of December 31, 1997. On April 13, 1998,
these covenants were waived effective as of December 31, 1997 by IBJ Schroder
and amended for the balance of the term of the Credit Facility.
In addition, the Company's Indenture (the "Indenture") governing the
issuance of its $100 million Senior Subordinated Notes (the "Senior Subordinated
Notes") prohibits the Company from declaring or paying any dividend or making
any distribution or restricted payment as defined in the Indenture
(collectively, the "Restricted Payments") (other than dividends or distributions
payable in capital stock of the Company), unless, at the time of such payment
(i) no default or event of default shall have occurred and be continuing or
would occur as a consequence thereof; (ii) the Company would be able to incur at
least $1.00 of additional indebtedness under the fixed charge coverage ratio
contained in the Indenture; and (iii) such Restricted Payment, together with the
aggregate of all Restricted Payments made by the Company after the date of the
Indenture is less than the sum of (a) 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 (b) 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 capital stock of the Company or of debt securities of the
Company that have been converted into capital stock of the Company.
The Company anticipates that for the foreseeable future any earnings will
be retained for use in its business and accordingly, does not anticipate the
payment of cash dividends, other than to BIL in accordance with the terms and
provisions of the Series B and Series C Preferred Stock.
19
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA:
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,(1)
----------------------------------------------------------------
1996
1997(2) (3)(4)(5)(6) 1995(7)(8) 1994 1993(9)
---------- ------------ ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $263,143 $143,642 $112,414 $106,026 $101,607
(Loss) income before extraordinary
item and cumulative effect of
change in accounting
principle....................... $(22,893) $(11,873) $ 1,047 $ (1,979) $ (3,037)
Extraordinary item................ -- (736) -- -- --
Cumulative effect of change in
accounting principle............ -- -- -- -- 530
-------- -------- -------- -------- --------
Net (loss) income................. $(22,893) $(12,609) $ 1,047 $ (1,979) $ (2,507)
======== ======== ======== ======== ========
PER COMMON SHARE DATA:
(Loss) income before extraordinary
item and cumulative effect of
change in accounting
principle....................... $ (1.16) $ (.76) $ .07 $ (.14) $ (.22)
Extraordinary item................ -- (.05) -- -- --
Cumulative effect of change in
accounting principle............ -- -- -- -- .04
-------- -------- -------- -------- --------
Net (loss) income................. $ (1.16) $ (.81) $ .07 $ (.14) $ (.18)
======== ======== ======== ======== ========
Weighted average number of common
and dilutive shares
outstanding..................... 20,600 15,557 14,315 13,862 13,779
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets...................... $547,118 $207,194 $103,011 $102,454 $ 99,891
Working capital................... 97,618 14,064 35,061 29,389 29,997
Total long-term liabilities,
excluding current portion and
Senior Subordinated Notes....... 7,733 6,535 20,462 22,107 22,719
Senior Subordinated Notes......... 100,000 -- -- -- --
Stockholders' equity.............. 268,848 114,503 60,970 56,152 57,897
</TABLE>
- ---------------
(1) On August 28, 1997, Graham-Field acquired all of the issued and outstanding
shares of the capital stock of Medapex in a transaction accounted for as a
pooling of interests. The selected financial data has been restated to
reflect this transaction.
(2) 1997 includes indirect merger charges relating to the acquisition of Fuqua
of $4,583,000, restructuring charges of $26,619,000 (of which $7,732,000 is
included in cost of goods sold), $3,300,000 associated with the write-off of
purchased in-process research and development costs, and other charges of
$5,000,000 for allowances for receivables.
On December 30, 1997, Graham-Field acquired Fuqua in a transaction pursuant
to which Graham-Field issued 9,413,689 shares of common stock (excluding
shares of common stock of Graham-Field to be issued in connection with Fuqua
stock options assumed by Graham-Field) in exchange for the common stock of
Fuqua. 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 $134,900,000.
In connection with the acquisition of Fuqua, Graham-Field acquired the
Leather Operations. It was Graham-Field's intention to dispose of the
Leather Operations as soon as reasonably practicable following the
consummation of the acquisition of Fuqua. Accordingly, the net assets of the
Leather
20
<PAGE> 22
Operations have been reflected as "Assets held for sale" in the amount of
$61,706,000 on the balance sheet as of December 31, 1997. The net asset
value of the Leather Operations includes the value of the proceeds expected
to be realized from the sale of the Leather Operations. On January 27, 1998,
Graham-Field sold the Leather Operations for $60,167,400 in cash, 5,000
shares of Series A Preferred Stock of the buying entity with a stated value
of $4,250,000 (valued at $1,539,000), and the assumption of debt of
$2,341,250.
On August 17, 1997, Graham-Field acquired substantially all of the assets
and certain liabilities of 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 $3.7 million.
On June 25, 1997, Graham-Field acquired all of the capital stock of LaBac,
in a merger transaction. LaBac 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 selling stockholders of LaBac received in the
aggregate 772,557 shares of common stock of Graham-Field valued at $11.77
per share in exchange for all of the issued and outstanding shares of the
capital stock of LaBac. Graham-Field also entered into a three year
consulting agreement with the selling stockholders and an entity controlled
by the selling stockholders, and non-competition agreements with each of the
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
$7.3 million.
On March 7, 1997, Everest & Jennings acquired Kuschall, 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 common stock of Graham-Field valued at $13.00 per
share. 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. $2,900,000 (Canadian
Dollars) (approximately U.S. $2,150,000). The purchase price was paid by the
issuance of 187,733 shares of common stock of Graham-Field valued at
U.S.$11.437 per share. 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 U.S.$2.5 million.
(3) In March 1996, Graham-Field sold its Gentle Expressions breast pump product
line, and recorded a gain of $360,000.
(4) On November 27, 1996, the Company acquired Everest & Jennings pursuant to
the terms and provisions of the Amended and Restated Agreement and Plan of
Merger dated as of September 3, 1996 and amended as of October 1, 1996, by
and among Graham-Field, Everest & Jennings, Everest & Jennings Acquisition
Corp., and BIL. The acquisition was accounted for under the purchase method
of accounting and, accordingly, 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 deficiency acquired was approximately
$65.5 million.
On September 4, 1996, Graham-Field acquired substantially all of the assets
of 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 Graham-Field, valued at $7.625 per share.
In addition, Graham-Field assumed certain liabilities of V.C. Medical in the
amount of $296,721. The
21
<PAGE> 23
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.
(5) During 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-related expenses.
(6) 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.
(7) Effective July 1, 1995, Graham-Field acquired substantially all of the
assets and liabilities of National Medical Excess Corp. The acquisition was
accounted for under the purchase method of accounting and accordingly, the
results of operations are included in the consolidated financial statements
of Graham-Field subsequent to that date.
(8) Net income per common share for 1995, which was the same for basic and
diluted, was computed using the weighted average number of common shares
(14,278,000 shares) and dilutive common equivalent shares outstanding
(37,000 shares) during the period.
(9) In February 1992, the Financial Accounting Standard Board issued Statement
No. 109, "Accounting for Income Taxes." Graham-Field adopted the provisions
of the new standard in its financial statements effective January 1, 1993.
The adoption of Statement No. 109 did not affect Graham-Field's pre-tax loss
from operations for the year ended December 31, 1993. The cumulative effect
as of January 1, 1993 of adopting Statement No. 109 was a tax benefit of
$530,000, or $.04 per share, which was net of allowances of $55,000. This
tax benefit was principally attributable to available net operating loss
carryforwards and investment, research and development, jobs tax and
alternative minimum tax credits which can be used to reduce future tax
liabilities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include plans and objectives of management for future operations,
including plans and objectives relating to the future economic performance and
financial results of the Company. The forward-looking statements relate to (i)
the expansion of the Company's market share, (ii) the Company's growth into new
markets, (iii) the development of new products and product lines to appeal to
the needs of the Company's customers, (iv) the opening of new distribution and
warehouse facilities, including the expansion of the Graham-Field Express
program, (v) obtaining regulatory and governmental approvals, (vi) the upgrading
of the Company's technological resources and systems and (vii) the retention of
the Company's earnings for use in the operation and expansion of the Company's
business.
Important factors and risks that could cause actual results to differ
materially from those referred to in the forward-looking statements include, but
are not limited to, the effect of economic and market conditions, the impact of
the consolidation of healthcare practitioners, the impact of healthcare reform,
the Company's ability to effectively integrate acquired companies, the
termination of the Company's Exclusive Wheelchair Supply Agreement with P.T.
Dharma, the ability of the Company to maintain its gross profit margins, the
ability to obtain additional financing to expand the Company's business, the
failure of the Company to successfully compete with the Company's competitors
that have greater financial resources, the loss of key management personnel or
the inability of the Company to attract and retain qualified personnel, adverse
litigation results, the acceptance and quality of new software and hardware
products which will enable the Company to expand its business, the acceptance
and ability to manage the Company's operations in foreign markets, possible
disruptions in the Company's computer systems or distribution technology
systems, possible increases in shipping rates or interruptions in shipping
service, the level and volatility of interest rates and
22
<PAGE> 24
currency values, the impact of current or pending legislation and regulation, as
well as the risks described from time to time in the Company's filings with the
Securities and Exchange Commission, which include the section entitled "Risk
Factors" in the Company's Registration Statement on Form S-4 dated as of
December 19, 1997.
The forward-looking statements are based on current expectations and
involve a number of known and unknown risks and uncertainties that could cause
the actual results, performance and/or achievements of the Company to differ
materially from any future results, performance or achievements, express or
implied, by the forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, and that in light of the
significant uncertainties inherent in forward-looking statements, the inclusion
of such statements should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
RESULTS OF OPERATIONS
On August 28, 1997, the Company acquired all of the issued and outstanding
shares of the capital stock of Medapex, which 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.
Operating Revenues
1997 compared to 1996. Operating revenues were $261,981,000 for the year
ended December 31, 1997, representing an increase of 83% from the prior year.
The increase in operating revenues 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 acquisition of Everest & Jennings in November 1996 and
the acquisitions completed in 1997, and the incremental revenue growth of
Medapex over the 1996 period. Revenues for the fourth quarter ended December 31,
1997 fell below management's expectations primarily due to intense competition
within the healthcare industry and management's focus on the integration of the
acquisitions completed in 1997 and the merging of diverse manufacturing and
distribution facilities, information and technology systems, sales forces and
product lines. Management believes that intense competition within the
healthcare industry will continue in 1998.
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 patient aids, adult incontinence products,
Everest & Jennings wheelchairs, Smith & Davis homecare beds, nutritional
supplements and other freight and time sensitive products. As of December 31,
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. Management intends to moderate the growth of the Graham-Field
Express Program in 1998. Revenues attributable to Graham-Field Express were
approximately $50,512,000 and $14,431,000 for the years ended December 31, 1997
and 1996, respectively.
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 in November 1996.
For the year ended December 31, 1996, revenues attributable to the
Graham-Field Express program were approximately $14,431,000. Revenues of 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.
23
<PAGE> 25
Interest and Other Income
1997 compared to 1996. Interest and other income for the year ended
December 31, 1997 was $1,162,000, as compared to $559,000 for the prior year.
The increase is primarily due to interest earned on the unused proceeds from
Graham-Field's sale of its Senior Subordinated 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.
Cost of Revenues
1997 compared to 1996. Cost of revenues as a percentage of operating
revenues increased for the year ended December 31, 1997 to 72%, as compared to
70% for the prior year. As part of Graham-Field's strategic restructuring
initiatives, a charge of $7,732,000 is included in cost of revenues for 1997
related to inventory write-downs associated with the elimination of certain
non-strategic inventory and product lines. Excluding the charge associated with
the inventory write-downs, cost of revenues as a percentage of operating
revenues for 1997 would have been 69%. Nevertheless, management believes that
cost of revenues as a percentage of operating revenues was adversely effected in
the fourth quarter of 1997 due to intense competition and pricing pressures
within the healthcare industry. Management believes that cost of revenues as a
percentage of operating revenues will continue to be subject to intense
competition and pricing pressures. In addition, the delays associated with the
integration of the acquisitions completed in 1997 negatively impacted Graham-
Field's ability to realize certain manufacturing and operating efficiencies and
cost savings.
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.
Selling, General and Administrative Expenses
1997 compared to 1996. Selling, general and administrative expenses as a
percentage of operating revenues for the year ended December 31, 1997 increased
to 27%, as compared to 24% in the prior year. In the fourth quarter of 1997, a
provision for uncollectible accounts and notes receivable of $5,000,000 was
recorded to reflect increased credit risk due to the anticipated impact of
changes in state Medicare reimbursement and procurement policies for certain
product lines and the extended payment terms being taken by the Company's
customers. The changes in such reimbursement patterns have resulted in an
increased number of days outstanding for receivables. Excluding the provision
for uncollectible accounts receivable, selling, general and administrative
expenses as a percentage of operating revenues for 1997 would have been 25%. The
increase in selling, general and administrative expenses was primarily due to
higher than anticipated integration costs associated with the acquisitions
completed in 1997. The delays associated with the integration process also
negatively impacted the Company's ability to realize certain anticipated cost
savings relating to the consolidation of corporate offices, manufacturing and
distribution facilities, the streamlining of information and technology systems
and the merging of sales forces and product lines. Management believes that
selling, general and administrative expenses may continue to increase until the
cost savings related to the integration processes are realized, which may not
occur until the later part of 1998.
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.
24
<PAGE> 26
Interest Expense
1997 compared to 1996. Interest expense for the year ended December 31,
1997 increased to $7,260,000, as compared to $2,578,000 for the prior year. The
increase is primarily due to increased borrowings attributable to Graham-Field's
revenue growth, the expansion of the Graham-Field Express program, and the sale
of the Senior Subordinated 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.
Year 2000
Graham-Field is in the process of developing a Year 2000 remediation plan,
which relates to the upgrade and standardization of all business units for Year
2000 application software. Graham-Field has three major application
environments: distribution, manufacturing and warehouse automation. Management
has selected application packages for distribution and manufacturing functions,
and believes that the current warehouse automation system is Year 2000
compliant.
The distribution package includes the corporate general ledger, accounts
payable, accounts receivable, purchasing, inventory control and order entry
functions. General ledger, accounts payable and accounts receivable upgrades
were completed in 1997. Purchasing, inventory control and order entry functions
are anticipated to be upgraded in 1998. The manufacturing system upgrade is in
process, and is anticipated to be completed in 1998.
A Year 2000 project manager has been assigned to manage the computer system
upgrades, and ensure compliance for all external interfaces. The cost of
upgrading or modifying all non-year 2000 information systems is not expected to
have a material effect on the Company. Capital expenditures on all information
system technology amounted to approximately $400,000 during 1997, which was
primarily related to capacity upgrades and changes in software modules. The
Company anticipates completing the Year 2000 compliance project in 1998.
Merger and Restructuring Related Charges
1997 compared to 1996. In connection with the acquisition of Fuqua on
December 30, 1997, the Company adopted a plan to implement certain strategic
restructuring initiatives (the "Restructuring Plan") and recorded $26,619,000 of
restructuring charges (the "Restructuring Charges"). The Restructuring Plan was
initiated to create manufacturing, distribution and operating efficiencies and
enhance the Company's position as a low-cost supplier in the healthcare
industry. These steps will include a broad range of efforts, including the
consolidation of the Company's Temco manufacturing operations in New Jersey into
Fuqua's Lumex manufacturing facility in New York and relocation of the Company's
corporate headquarters to the Lumex facility. In addition, the Company will be
closing several other distribution facilities and consolidating operations in an
effort to achieve additional cost savings.
The Restructuring Charges include exit costs of $16,037,000 related to the
elimination of duplicate manufacturing and distribution facilities, severance
costs of $650,000 for approximately 100 employees, asset write-downs of
$2,200,000 relating to assets to be sold or abandoned, and inventory write-downs
of $7,732,000 associated with the elimination of certain non-strategic inventory
and product lines (which costs are included in costs of revenue). The Company
anticipates recording additional restructuring charges in 1998 as the Company
continues the implementation of its Restructuring Plan.
The Company incurred $4,583,000 of indirect merger charges (the "Merger
Charges") related to the Fuqua acquisition and Medapex combination with respect
to the write-off of certain unamortized catalog costs with no future value,
certain insurance policies, payment of bonuses related to the acquisitions, and
various transaction costs. The Company also incurred $3,300,000 of expenses
related to the write-off of purchased in-process research and development costs
of Fuqua.
25
<PAGE> 27
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 Loss or Income
1997 compared to 1996. Loss before income taxes for the year ended
December 31, 1997 was $30,228,000, as compared to a loss before income taxes and
extraordinary item of $8,955,000 for the prior year. The loss before income
taxes for 1997 includes Restructuring Charges of $26,619,000, an accounts
receivable provision of $5,000,000, Merger Charges of $4,583,000, and the charge
of $3,300,000 related to the write-off of purchased in-process research and
development costs of Fuqua. The loss before income taxes and extraordinary item
for 1996 includes certain charges of $15,800,000 relating to the acquisition of
Everest & Jennings. Excluding the restructuring, merger and other charges and
the write-off of purchased in-process research and development costs in 1996 and
1997, income before income taxes increased from $6,845,000 in 1996 to $9,274,000
in 1997, primarily due to the increase in revenues and the improvement in gross
profit margin.
Net loss for the year ended December 31, 1997 was $22,893,000, as compared
to $11,873,000 for the prior year. Graham-Field recorded an income tax benefit
of $7,335,000 for the year ended December 31, 1997, as compared to income tax
expense of $2,918,000 for the prior year. As of December 31, 1997, Graham-Field
had net deferred tax assets of $13,739,000, primarily comprised of net operating
loss carryforwards acquired in connection with the acquisition of Everest &
Jennings, and restructuring and other accruals and reserves related to the
acquisition of Fuqua. A full valuation allowance has been recorded against
Everest & Jennings' net deferred tax assets. When realized, the tax benefit for
such items will be recorded as a reduction of the Everest & Jennings' goodwill.
A valuation allowance on the remaining deferred tax assets has not been provided
because management believes that there will be sufficient earnings in the
carryforward period to utilize such deferred tax assets.
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.
Graham-Field's business has not been materially affected by inflation.
Liquidity and Capital Resources
Graham-Field had working capital of $97,618,000 at December 31, 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
(excluding the Restructuring Charges, Merger Charges, other charges and the
write-off of purchased in-process research and development costs of Fuqua) of
$4,388,000, which reflects $6,745,000 of depreciation and amortization expense,
and the net current assets acquired in connection with Graham-Field's
acquisitions during the year ended December 31, 1997 and from Graham-Field's
sale of the Senior Subordinated Notes on August 4, 1997.
26
<PAGE> 28
Cash used in operating activities for the year ended December 31, 1997 was
$37,643,000 as compared to cash provided by operating activities of $3,770,000
in 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 (excluding the Restructuring Charges, Merger Charges, other charges
and the write-off of purchased in-process research and development costs of
Fuqua) of $4,388,000 and depreciation and amortization expense of $6,745,000 for
the period.
On December 30, 1997, Graham-Field acquired Fuqua and assumed $62,076,000
of Fuqua indebtedness (the "Fuqua Indebtedness") under Fuqua's revolving credit
facility with SunTrust Bank. On January 28, 1998, Graham-Field sold the Leather
Operations of Fuqua for $60,167,400 in cash, 5,000 shares of Series A Preferred
Stock of the buying entity with a stated value of $4,250,000 (which has been
valued at $1,539,000), and the assumption of debt of $2,341,250. The cash
proceeds from the sale of the Fuqua leather operations were used to repay the
indebtedness incurred under the Credit Facility, which was used to retire the
Fuqua Indebtedness.
Management anticipates utilizing approximately $6,000,000 in cash in 1998
related to the Restructuring and Merger Charges recorded in 1997.
Graham-Field anticipates that its cash flow from operations, together with
its current cash balance, available borrowings under the Credit Facility and the
proceeds from the Senior Subordinated Notes, will be sufficient to meet its
working capital requirements in the foreseeable future. While the Company does
not expect to make any significant acquisitions in 1998, future acquisitions may
require additional financial resources.
The Credit Facility. The Credit Facility provides for up to $100 million
of borrowings on a revolving credit basis, including letters of credit and
banker's acceptances, arranged by IBJ Schroder, as agent. The credit facility
terminates on December 10, 1999. Under the terms of the Credit Facility,
borrowings bear interest, at Graham-Field's option, at IBJ Schroder's prime rate
(8.50% at December 31, 1998) or 1.625% above LIBOR in 1997 (2.25% above LIBOR
effective as of January 1, 1998), or 1.5% above IBJ Schroder's bankers'
acceptance rate. The Credit Facility is secured by all of Graham-Field's assets.
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 and certain consolidations, mergers and
acquisitions and sales of assets. In addition, Graham-Field is prohibited from
declaring or paying any dividend or making any distribution on any shares of
common stock or preferred stock of Graham-Field (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 such shares, or of any options to purchase
or acquire any such shares. Notwithstanding the foregoing restrictions,
Graham-Field 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 Graham-Field Series B and Series C Preferred Stock in any fiscal year, or
(ii) 12.5% of the net income of Graham-Field on a consolidated basis, provided
that no event of default under the Credit Facility shall have occurred and be
continuing or would exist after giving effect to the payment of the dividends.
The Credit Facility contains certain financial covenants, including a cash flow
coverage and leverage ratio, and an earnings before interest and taxes covenant,
as well as the requirement that Graham-Field reduce outstanding borrowings with
the net cash proceeds of certain asset sales.
The Company was not in compliance with certain financial covenants
contained in the Credit Facility as of December 31, 1997. On April 13, 1998,
these covenants were waived effective as of December 31, 1997 by IBJ Schroder
and amended for the balance of the term of the Credit Facility.
The Senior Subordinated Notes. On August 4, 1997, Graham-Field issued the
Senior Subordinated Notes under Rule 144A of the Securities Act of 1933, as
amended (the "Securities Act"). On February 9, 1998, Graham-Field completed its
exchange offer to exchange the outstanding Senior Subordinated Notes for an
equal amount of the new Senior Subordinated Notes, which have been registered
under the Securities Act. The new Senior Subordinated Notes are identical in all
material respects to the previously outstanding Senior Subordi-
27
<PAGE> 29
nated Notes. The Senior Subordinated Notes bear interest at the rate of 9.75%
per annum and mature on August 15, 2007. The Senior Subordinated 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 Senior Subordinated Notes are guaranteed (the
"Subsidiary Guarantees"), jointly and severally, on a senior subordinated basis
by all existing and future restricted subsidiaries of Graham-Field (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 Company is a holding company with no assets or operations other than
its investments in its subsidiaries. The subsidiary guarantors are wholly-owned
subsidiaries of the Company and comprise all of the direct and indirect
subsidiaries of the Company. Accordingly, the Company has not presented separate
financial statements and other disclosures concerning each subsidiary guarantor
because management has determined that such information is not material to
investors.
The net proceeds from the offering of the Senior Subordinated 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 were used for
general corporate purposes, including the funding for acquisitions, the opening
of additional Graham-Field Express facilities and strategic alliances.
Under the terms of the Indenture, the Senior Subordinated Notes are not
redeemable at Graham-Field's option prior to August 15, 2002. Thereafter, the
Senior Subordinated 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 Senior
Subordinated Notes originally issued with the net proceeds from one or more
public offerings of 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 Senior
Subordinated Notes originally issued remain outstanding after giving effect to
any such redemption.
The Indenture contains customary covenants including, but not limited to,
covenants relating to limitations on the incurrence of additional indebtedness,
the creation of liens, restricted payments, the sales of assets, mergers and
consolidations, payment restrictions affecting subsidiaries and transactions
with affiliates. In addition, in the event of a change of control of
Graham-Field as defined in the Indenture, each holder of the Senior Subordinated
Notes will have the right to require Graham-Field to repurchase such holder's
Senior Subordinated 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 addition, Graham-Field will be required in certain circumstances
to make an offer to purchase Senior Subordinated Notes 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 Graham-Field from purchasing the Senior
Subordinated Notes without the consent of the lenders thereunder.
In addition, the Indenture prohibits the Company from declaring or paying
any dividend or making any distribution or restricted payment as defined in the
Indenture (collectively, the "Restricted Payments") (other than dividends or
distributions payable in capital stock of the Company), unless, at the time of
such payment (i) no default or event of default shall have occurred and be
continuing or would occur as a consequence thereof; (ii) the Company would be
able to incur at least $1.00 of additional indebtedness under the fixed charge
coverage ratio contained in the Indenture; and (iii) such Restricted Payment,
together with the aggregate of all Restricted Payments made by the Company after
the date of the Indenture is less than the sum of (a) 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 (b) 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 capital stock of the Company or of
debt securities of the Company that have been converted into capital stock of
the Company.
28
<PAGE> 30
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)
LIST OF FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1997
GRAHAM-FIELD HEALTH PRODUCTS, INC.
HAUPPAUGE, NEW YORK
<PAGE> 31
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Graham-Field Health
Products, Inc. and subsidiaries are included in Item 8:
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets --
December 31, 1997 and 1996................................ F-3
Consolidated Statements of Operations --
Years ended December 31, 1997, 1996 and 1995.............. F-5
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1997, 1996 and 1995.............. F-6
Consolidated Statements of Cash Flows --
Years ended December 31, 1997, 1996 and 1995.............. F-7
Notes to Consolidated Financial Statements --
December 31, 1997......................................... F-9
The following consolidated financial statement schedule of
Graham-Field Health Products, Inc. and subsidiaries is included in
Item 14(d):
Schedule II -- Valuation and qualifying accounts............ F-37
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-1
<PAGE> 32
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, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Graham-Field Health Products, Inc. and subsidiaries at December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, 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 23, 1998,
except for Note 7,
as to which the date
is April 13, 1998
F-2
<PAGE> 33
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,430,000 $ 1,241,000
Accounts receivable, less allowance for doubtful accounts
of $13,199,000 and $7,243,000, respectively............ 91,451,000 45,703,000
Inventories............................................... 73,532,000 48,245,000
Other current assets...................................... 8,103,000 3,023,000
Recoverable and prepaid income taxes...................... 4,422,000 256,000
Deferred tax assets....................................... 10,695,000 --
Asset held for sale....................................... 61,706,000 --
------------ ------------
TOTAL CURRENT ASSETS.............................. 254,339,000 98,468,000
Property, plant and equipment, net.......................... 35,955,000 11,264,000
Excess of cost over net assets acquired, net of accumulated
amortization of $11,512,000 and $8,185,000,
respectively.............................................. 240,071,000 91,412,000
Deferred tax assets......................................... 3,044,000 938,000
Other assets................................................ 13,709,000 5,112,000
------------ ------------
TOTAL ASSETS...................................... $547,118,000 $207,194,000
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 34
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit facility........................................... $ 65,883,000 $ 13,985,000
Current maturities of long-term debt...................... 2,619,000 2,016,000
Accounts payable.......................................... 33,888,000 22,995,000
Acceptances payable....................................... -- 19,800,000
Accrued expenses.......................................... 54,331,000 25,608,000
------------ ------------
TOTAL CURRENT LIABILITIES......................... 156,721,000 84,404,000
Long-term debt and Senior Subordinated Notes................ 107,733,000 6,535,000
Other long-term liabilities................................. 13,816,000 1,752,000
------------ ------------
TOTAL LIABILITIES................................. 278,270,000 92,691,000
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 28,200,000
Series C preferred stock, par value $.01 per share:
authorized shares 1,000, issued and outstanding 1,000..... 3,400,000 3,400,000
Common stock, par value $.025 per share:
authorized shares 60,000,000, issued and outstanding
30,574,982 and 19,650,744, respectively................... 764,000 492,000
Additional paid-in capital.................................. 279,341,000 101,573,000
(Deficit)................................................... (42,953,000) (18,995,000)
Cumulative translation adjustment........................... 96,000 (12,000)
------------ ------------
268,848,000 114,658,000
Notes receivable from sale of shares........................ -- (155,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY........................ 268,848,000 114,503,000
Commitments and contingencies...............................
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $547,118,000 $207,194,000
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 35
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues:
Medical equipment and supplies.................... $261,981,000 $143,083,000 $112,113,000
Interest and other income......................... 1,162,000 559,000 301,000
------------ ------------ ------------
263,143,000 143,642,000 112,414,000
------------ ------------ ------------
Costs and expenses:
Cost of revenues.................................. 188,695,000 99,641,000 78,525,000
Selling, general and administrative............... 70,646,000 34,578,000 29,428,000
Interest expense.................................. 7,260,000 2,578,000 2,720,000
Purchased in-process research and development
costs.......................................... 3,300,000 12,800,000 --
Merger and restructuring related charges.......... 23,470,000 3,000,000 --
------------ ------------ ------------
293,371,000 152,597,000 110,673,000
------------ ------------ ------------
(Loss) income before income taxes (benefit) and
extraordinary item................................ (30,228,000) (8,955,000) 1,741,000
Income taxes (benefit).............................. (7,335,000) 2,918,000 694,000
------------ ------------ ------------
(Loss) income before extraordinary item............. (22,893,000) (11,873,000) 1,047,000
Extraordinary loss on early retirement of debt (net
of tax benefit of $383,000)....................... -- (736,000) --
------------ ------------ ------------
Net (loss) income................................... (22,893,000) (12,609,000) 1,047,000
Preferred stock dividends........................... 1,065,000 -- --
------------ ------------ ------------
Net (loss) income available to common
stockholders...................................... $(23,958,000) $(12,609,000) $ 1,047,000
============ ============ ============
Net (loss) income per common share -- basic and
diluted:
(Loss) income before extraordinary item............. $ (1.16) $ (.76) $ .07
Extraordinary loss on early retirement of debt...... -- (.05) --
------------ ------------ ------------
Net (loss) income................................... $ (1.16) $ (.81) $ .07
============ ============ ============
Weighted average number of common shares
outstanding....................................... 20,600,000 15,557,000 14,315,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 36
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 (DEFICIT)
------------ ----------- ---------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994...... $ 56,152,000 13,921,649 $348,000 $ 63,149,000 $ (7,345,000)
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 -- -- -- 1,047,000
------------ ----------- ---------- ---------- -------- ------------ ------------
BALANCE, DECEMBER 31, 1995...... 60,970,000 15,065,286 377,000 66,891,000 (6,298,000)
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) -- -- -- -- -- (88,000)
Translation adjustment......... (12,000) -- -- -- -- -- --
Notes receivable from officers
for sale of shares........... (155,000) -- -- -- -- -- --
Net loss....................... (12,609,000) -- -- -- -- -- (12,609,000)
------------ ----------- ---------- ---------- -------- ------------ ------------
BALANCE, DECEMBER 31, 1996...... 114,503,000 28,200,000 3,400,000 19,650,744 492,000 101,573,000 (18,995,000)
Issuance of common stock on
exercise of stock options.... 1,212,000 -- -- 527,975 13,000 2,816,000 --
Issuance of stock in connection
with acquisitions............ 175,944,000 -- -- 10,490,133 262,000 175,682,000 --
Issuance of common stock for
accrued dividends............ 364,000 -- -- 41,000 1,000 363,000 --
Tax benefit from exercise of
stock options................ 520,000 -- -- -- -- 520,000 --
Retirement of Treasury Stock... -- -- -- (134,870) (4,000) (1,613,000) --
Dividend accrued on Preferred
Stock........................ (1,065,000) -- -- -- -- -- (1,065,000)
Translation adjustment......... 108,000 -- -- -- -- -- --
Notes receivable from
officers..................... 155,000 -- -- -- -- -- --
Net loss....................... (22,893,000) -- -- -- -- -- (22,893,000)
------------ ----------- ---------- ---------- -------- ------------ ------------
BALANCE, DECEMBER 31, 1997...... $268,848,000 $28,200,000 $3,400,000 30,574,982 $764,000 $279,341,000 $(42,953,000)
============ =========== ========== ========== ======== ============ ============
<CAPTION>
TREASURY STOCK CUMULATIVE NOTES RECEIVABLE
--------------------- TRANSLATION FROM SALE
SHARES AMOUNT ADJUSTMENT OF SHARES
-------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994...... 0 $ 0
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..................... -- --
-------- ---------- -------- ---------
BALANCE, DECEMBER 31, 1995...... 0 0
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........................ -- --
Translation adjustment......... -- -- $(12,000)
Notes receivable from officers
for sale of shares........... -- -- -- $(155,000)
Net loss....................... -- -- -- --
-------- ---------- -------- ---------
BALANCE, DECEMBER 31, 1996...... 0 0 (12,000) (155,000)
Issuance of common stock on
exercise of stock options.... (134,870) (1,617,000) -- --
Issuance of stock in connection
with acquisitions............ -- -- -- --
Issuance of common stock for
accrued dividends............ -- -- -- --
Tax benefit from exercise of
stock options................ -- -- -- --
Retirement of Treasury Stock... 134,870 1,617,000 -- --
Dividend accrued on Preferred
Stock........................ -- -- -- --
Translation adjustment......... -- -- 108,000 --
Notes receivable from
officers..................... -- -- -- 155,000
Net loss....................... -- -- -- --
-------- ---------- -------- ---------
BALANCE, DECEMBER 31, 1997...... 0 $ 0 $ 96,000 $ 0
======== ========== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 37
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------- ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income................................ $ (22,893,000) $(12,609,000) $ 1,047,000
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating
activities:
Depreciation and amortization.................. 6,745,000 3,539,000 3,347,000
Deferred income taxes.......................... (10,878,000) 2,139,000 475,000
Provisions for losses on accounts receivable... 6,749,000 606,000 451,000
Gain on sale of product line................... -- (360,000) --
Gain on sale of marketable securities.......... (41,000) -- --
Loss on disposal of property, plant and
equipment................................... 121,000 -- 3,000
Purchased in-process research and development
costs....................................... 3,300,000 12,800,000 --
Non-cash amounts included in merger and
restructuring related charges............... 20,754,000 1,191,000 --
Non-cash amounts included in extraordinary
loss........................................ -- 476,000 --
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable......................... (30,247,000) (11,279,000) (3,117,000)
Inventories, other current assets and
recoverable and prepaid income taxes...... (9,685,000) (5,269,000) (1,000)
Accounts and acceptances payable and accrued
expenses.................................. (1,568,000) 12,536,000 (5,312,000)
------------- ------------ -----------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES..................................... (37,643,000) 3,770,000 (3,107,000)
INVESTING ACTIVITIES
Proceeds from sale of marketable securities...... 104,198,000 -- --
Purchase of marketable securities................ (104,157,000) -- --
Purchase of property, plant and equipment........ (6,555,000) (1,085,000) (709,000)
Acquisitions, net of cash acquired............... (12,009,000) (4,558,000) (668,000)
Proceeds from the sale of property, plant, and
equipment...................................... 240,000 -- 19,000
Proceeds from sale of product line............... -- 500,000 --
Proceeds from sale of assets under leveraged
lease.......................................... -- 487,000 --
Notes receivable from officers................... -- (155,000) --
Net (increase) decrease in other assets.......... (4,194,000) (228,000) 116,000
------------- ------------ -----------
NET CASH (USED IN) INVESTING ACTIVITIES.......... $ (22,477,000) $ (5,039,000) $(1,242,000)
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 38
GRAHAM-FIELD HEALTH PRODUCTS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------- ------------ -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of Senior Subordinated
Notes.......................................... $ 100,000,000 $ -- $ --
Proceeds from notes payable to bank and long-term
debt........................................... 279,619,000 27,310,000 2,054,000
Principal payments on long-term debt and notes
payable........................................ (292,645,000) (35,576,000) (1,226,000)
Payments on acceptances payable, net............. (19,800,000) -- --
Proceeds on exercise of stock options............ 1,212,000 550,000 172,000
Proceeds from issuance of common stock, net...... -- -- 3,471,000
Payment of preferred stock dividends............. (435,000) -- --
Proceeds from issuance of preferred stock in
connection with an acquisition................. -- 10,000,000 --
Payments for note issue costs.................... (4,642,000) -- --
------------- ------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES........ 63,309,000 2,284,000 4,471,000
INCREASE IN CASH AND CASH EQUIVALENTS............ 3,189,000 1,015,000 122,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR... 1,241,000 226,000 104,000
------------- ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR......... $ 4,430,000 $ 1,241,000 $ 226,000
============= ============ ===========
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid.................................. $ 3,130,000 $ 2,975,000 $ 2,522,000
============= ============ ===========
Income taxes paid.............................. $ 4,094,000 $ 187,000 $ 266,000
============= ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 39
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Graham-Field Health Products, Inc.
("Graham-Field" or the "Company") is a leading manufacturer and distributor of
healthcare products targeting the home healthcare, medical/surgical,
rehabilitation and long-term care markets in North America, Europe, Central and
South America, and Asia. The Company markets and distributes approximately
45,000 products under its own brand names and under suppliers' names throughout
the world. The Company maintains manufacturing and distribution facilities
throughout North America. The Company continuously seeks to expand its product
lines by increasing the number of distributorship agreements with suppliers, and
forming strategic alliances and acquiring other companies and product lines. The
Company's products are marketed principally to hospital, nursing home,
physician, home healthcare and rehabilitation dealers, 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 wheelchairs and
power wheelchair seating systems, mobility products and bathroom safety
products, medical beds and patient room furnishings, blood pressure and
diagnostic products, adult incontinence products, specialty seating products,
wound care and urologicals, ostomy products, diabetic products, obstetrical
supplies, nutritional supplements, therapeutic support systems and respiratory
equipment and supplies. 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.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries, each of which is wholly-owned.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are valued at the lower of cost or market. 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, where appropriate, the lease
term.
Excess of Cost Over Net Assets Acquired: Excess of cost over net assets
acquired is amortized on a straight-line 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. Based
upon present operations and strategic plans, management believes that no
impairment of the excess of cost over net assets acquired has occurred.
F-9
<PAGE> 40
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 purchased
certain excess inventory from its customers, who in turn placed additional
purchase orders with the Company exceeding the value of the excess inventory
purchased. Substantially all of the medical products purchased by the Company as
part of the inventory buy-back program were items not generally offered for sale
by the Company. Items repurchased by the Company which were identified as items
previously sold by the Company to a customer were de minimus based on the
Company's experience, and were recorded in accordance with the Company's normal
revenue recognition policy. This program was discontinued during 1997.
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, "Accounting for Income Taxes".
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Net Loss/Income Per Common Share Information: Net loss per common share
for 1997 and 1996 was computed using the weighted average number of common
shares outstanding and by assuming the accrual of a dividend of 1.5% on 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 $1,065,000. 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, which was the same for basic
and diluted, was computed using the weighted average number of common shares
(14,278,000 shares) and dilutive common equivalent shares outstanding (37,000
shares) during the period.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented and,
where appropriate, restated to conform to the SFAS No. 128 requirements.
Employee Stock Options: The Company has a stock option program which is
more fully described in Note 11. The Company accounts for stock option grants in
accordance with Accounting Principles Board Opinion ("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
F-10
<PAGE> 41
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period. Pursuant to SFAS No. 123, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under APB Opinion No. 25, but are required to disclose in the
financial statement footnotes, proforma net (loss) income and per share amounts
as if the Company had applied the new method of accounting for all grants made
beginning with 1995. SFAS No. 123 also requires increased disclosures for
stock-based compensation arrangements.
Concentration of Credit Risk: The Company is a leading manufacturer and
distributor of healthcare products targeting the home healthcare,
medical/surgical, rehabilitation and long-term care markets in North America,
Europe, Central and South America, and Asia. The Company's products are marketed
principally to hospital, nursing home, physician, home healthcare and
rehabilitation dealers, healthcare product wholesalers and retailers, including
drug stores, catalog companies, pharmacies and home-shopping related business.
Third party reimbursement through private or governmental insurance programs and
managed care programs have increasingly impacted the Company's customers, which
affects a portion of the Company's business. In the fourth quarter of 1997, a
provision for uncollectible accounts and notes receivable of $5 million (which
provision is included in selling, general and administrative expenses) was
recorded to reflect increased credit risk due to the anticipated impact of
changes in state medicare reimbursement and procurement policies for certain
product lines and the extended payment terms being taken by the Company's
customers. The changes in such reimbursement patterns have resulted in an
increased number of days outstanding for receivables. The Company performs
periodic credit evaluations of its customers' financial condition and in certain
instances requires collateral. Receivables generally are due within 30 to 120
days, except for notes receivable which have a stated term.
Concentration of Sources of Supply: The business of Everest & Jennings
International Ltd. ("Everest & Jennings") is heavily dependent on its
maintenance of a key supply contract. 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 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 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 Everest & Jennings to secure an alternate source of
supply would result in a material adverse effect on Graham-Field's business and
financial condition. In February 1998, the Company advanced $3.5 million to P.T.
Dharma in consideration of the grant of a six month option to purchase the
wheelchair assets of P.T. Dharma for a price to be determined. During the option
period, the Company will be paid interest on the advance at an annual interest
rate of 10.3 percent. The advance is collateralized by shares of the capital
stock of P.T. Dharma, and is to be applied against the purchase price. In the
event the Company and P.T. Dharma are unable to agree upon the terms of the
transaction, the advance will be returned to the Company.
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.
Research and Development: Research and development costs are expensed as
incurred. The amount of such cost for 1997 was $392,000. Research and
development cost for 1996 and 1995 were not material.
F-11
<PAGE> 42
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS OF BUSINESSES
On December 30, 1997, the Company acquired Fuqua Enterprises, Inc.
(currently, Lumex/Basic American Holdings, Inc.) ("Fuqua") pursuant to an
Agreement and Plan of Merger (the "Fuqua Merger Agreement"), dated as of
September 5, 1997 and amended as of September 29, 1997, by and among Fuqua, GFHP
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the
Company ("Sub"), and the Company. Under the terms of the Fuqua Merger Agreement,
Sub was merged with and into Fuqua with Fuqua continuing as the surviving
corporation wholly-owned by the Company (the "Fuqua Merger"). In the Fuqua
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 Fuqua Merger Agreement, was converted into the right to receive 2.1
shares of common stock, par value $.025 per share, of the Company (the "Company
Common Stock"). There were 4,482,709 shares of Fuqua Common Stock outstanding on
December 30, 1997, which converted into 9,413,689 shares of the Company Common
Stock.
In accordance with the terms of the Fuqua Merger Agreement, each Fuqua
stock option was assumed by Graham-Field and was converted into the right to
purchase shares of the Company Common Stock. As of the effective date of the
Fuqua Merger, there were Fuqua stock options outstanding representing the right
to purchase 421,500 shares of Fuqua Common Stock. The equivalent number of
shares of the Company Common Stock to be issued, after giving effect to the
exercise price of the Fuqua stock options as adjusted for the exchange ratio of
2.1, is approximately 364,319 shares of the Company Common Stock. For purposes
of calculating the purchase price, the Company Common Stock was valued at $16.69
per share, which represents the average closing market price of the Company
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.
The acquisition of Fuqua has been accounted for under the purchase method
of accounting and, accordingly, the operating results of Fuqua have been
included in the Company's consolidated financial statements from the date of
acquisition. The Company allocated $3,300,000 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 and development projects
at the date of acquisition. The excess of the aggregate purchase price over the
estimated fair market value of the net assets acquired was approximately
$134,900,000, which is being amortized on a straight line basis over 30 years.
The purchase price allocations have been made on a preliminary basis, subject to
adjustment. From the date of acquisition, Fuqua contributed approximately
$2,100,000 of revenue for the quarter and year ended December 31, 1997.
In connection with the Fuqua Merger, the Company acquired the leather
operations of Fuqua ("Leather Operations"). It was the Company's intention to
dispose of this Leather Operations as soon as reasonably practicable following
the consummation of the Fuqua Merger. Accordingly, the net assets of the Leather
Operations have been reflected as "Assets held for sale" in the accompanying
consolidated balance sheet as of December 31, 1997. The net asset value of the
Leather Operations includes the value of the proceeds that were realized from
the sale of the Leather Operations. The Company did not record any earnings or
losses for the Leather Operations for the period December 30, 1997 to January
27, 1998 (date of disposal).
On January 27, 1998, Fuqua disposed of the Leather Operations (the "Leather
Sale Transaction") through the sale of all of the capital stock of Irving
Tanning Company ("ITC"), Hancock Ellsworth Tanners, Inc., Kroy Tanning Company,
Incorporated and Seagrave Leather Corporation (collectively, the "Leather
Companies"), to the management of ITC pursuant to a (i) Stock Purchase Agreement
dated as of January 27, 1998, by and among IT Acquisition Corporation ("ITAC"),
the Company and Fuqua, and (ii) Stock Purchase Agreement dated as of January 27,
1998, by and among HEKS Corporation, the Company and Fuqua. The aggregate
selling price for the Leather Companies consisted of (i) $60,167,400 in cash,
(ii) an aggregate of 5,000 shares of Series A Preferred Stock of ITAC with a
stated value of $4,250,000
F-12
<PAGE> 43
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(which has been valued at $1,539,000), and (iii) the assumption of debt of
$2,341,250. In addition, as the holder of the ITAC Preferred Stock, the Company
is entitled to appoint one director to the Board of Directors of ITAC.
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 the 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.
Each of the Medapex Selling Stockholders entered into a two-year employment
agreement and non-competition agreement with the Company. The Medapex
transaction was accounted for as a pooling of interests and the Company's
historical financial statements have been restated to reflect this transaction.
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>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, ----------------------------
1997 1996 1995
-------------- ------------ ------------
<S> <C> <C> <C>
Net revenues:
Graham-Field........................... $109,160,000 $127,245,000 $100,403,000
Medapex................................ 10,006,000 16,397,000 12,011,000
------------ ------------ ------------
Combined............................... $119,166,000 $143,642,000 $112,414,000
============ ============ ============
Extraordinary loss, net:
Graham-Field........................... $ -- $ (736,000) $ --
Medapex................................ -- -- --
------------ ------------ ------------
Combined............................... $ -- $ (736,000) $ --
============ ============ ============
Net income (loss):
Graham-Field........................... $ 4,700,000 $(12,951,000) $ 738,000
Medapex................................ 196,000 342,000 309,000
------------ ------------ ------------
Combined............................... $ 4,896,000 $(12,609,000) $ 1,047,000
============ ============ ============
</TABLE>
On August 17, 1997, the Company acquired substantially all of the assets
and certain liabilities of Medi-Source, Inc. ("Medi-Source"), a privately-owned
distributor of medical supplies, for $4,500,000 in cash. The Company also
entered into a five (5) year non-competition agreement with the previous owner
in the aggregate amount of $301,000 payable over the five (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 $3.7 million.
F-13
<PAGE> 44
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 25, 1997, the Company acquired all of the capital stock of LaBac
Systems, Inc., a Colorado corporation ("LaBac"), in a merger transaction
pursuant to an Agreement and Plan of Merger dated June 25, 1997, by and among
the Company, LaBac Acquisition Corp., a wholly-owned subsidiary of the Company,
LaBac, Gregory A. Peek and Michael L. Peek (collectively, the "LaBac Selling
Stockholders"). In connection with the acquisition, LaBac became a wholly-owned
subsidiary of the Company, and the LaBac Selling Stockholders received in the
aggregate 772,557 shares of Company Common Stock valued at $11.77 per share in
exchange for all of the issued and outstanding shares of the capital stock of
LaBac. Of this amount, 77,255 of the shares of Company 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 the Company or purchase price
adjustments in favor of the Company. The Company also entered into a three (3)
year consulting agreement with the LaBac Selling Stockholders and an entity
controlled by the LaBac Selling Stockholders, and non-competition agreements
with each of the LaBac Selling Stockholders. The acquisition was accounted for
as a purchase and accordingly, assets and liabilities were recorded at fair
value at the date of acquisition and the results of operations are included
subsequent to that date. The excess of cost over net assets acquired amounted to
approximately $7.3 million.
On March 7, 1997, Everest & Jennings, a wholly-owned subsidiary of the
Company, acquired Kuschall of America, Inc. ("Kuschall"), a manufacturer of
pediatric wheelchairs, high-performance adult wheelchairs and other
rehabilitation products, for a purchase price of $1.51 million representing the
net book value of Kuschall. The purchase price was paid by the issuance of
116,154 shares of Company Common Stock valued at $13.00 per share, of which
23,230 shares were delivered into escrow. The escrow shares will be released on
March 7, 1999, subject to any purchase price adjustments in favor of the Company
and claims for indemnification. The acquisition was accounted for as a purchase
and accordingly, assets and liabilities were recorded at fair value at the date
of acquisition and the results of operations are included subsequent to that
date.
On February 28, 1997, Everest & Jennings Canadian Limited ("Everest &
Jennings Canada") a wholly-owned subsidiary of the Company, acquired
substantially all of the assets and certain liabilities of Motion 2000 Inc. and
its wholly-owned subsidiary, Motion 2000 Quebec Inc., for a purchase price equal
to Cdn. $2.9 million (Canadian Dollars) (approximately $2.15 million). The
purchase price was paid by the issuance of 187,733 shares of the Company Common
Stock valued at $11.437 per share. 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 $2.5 million.
On November 27, 1996, the Company acquired Everest & Jennings pursuant to
the terms and provisions of the Amended and Restated Agreement and Plan of
Merger dated as of September 3, 1996 and amended as of October 1, 1996 (the
"Everest & Jennings Merger Agreement"), by and among the Company, Everest &
Jennings, Everest & Jennings Acquisition Corp., a wholly-owned subsidiary of the
Company ("E&J Sub"), and BIL (Far East Holdings) Limited, a Hong Kong
corporation and the majority stockholder of Everest & Jennings ("BIL"). Under
the terms of the Everest & Jennings Merger Agreement, E&J Sub was merged with
and into Everest & Jennings with Everest & Jennings continuing as the surviving
corporation wholly-owned by the Company (the "Everest & Jennings Merger").
In the Everest & Jennings 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 the Everest
& Jennings Merger Agreement, was converted into the right to receive .35 shares
of the Company Common Stock. The Company Common Stock was valued at $7.64 per
share, which represents the average closing market price of the Company Common
Stock for the period three business days immediately prior to and three business
days immediately after the announcement of the execution of the
F-14
<PAGE> 45
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Everest & Jennings Merger Agreement. There were 7,207,689 shares of Everest &
Jennings Common Stock outstanding on November 27, 1996, which converted into
2,522,691 shares of the Company Common Stock.
In addition, in connection with, and at the effective time of the Everest &
Jennings Merger:
(i) BIL was issued 1,922,242 shares of the Company Common Stock 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 Everest & Jennings Merger and
used to discharge the HSBC Indebtedness. The Company Common Stock was
valued at $7.64 per share, which represents the average closing market
price of the Company Common Stock for the period three business days
immediately prior to and three business days immediately after the
announcement of the execution of the Everest & Jennings 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 Common Stock and the Series C Preferred
Stock, is not subject to redemption and is convertible into shares of the
Company Common Stock (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 was $28,200,000.
(iii) BIL was issued $10 million stated value 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 Company Common Stock
automatically on the fifth anniversary of the date of issuance at a
conversion price of $20 per share, subject to customary antidilution
adjustments. The fair value ascribed to the Series C Preferred Stock was
$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
from 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 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 deficiency acquired was approximately
$65.5 million, which is being
F-15
<PAGE> 46
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortized on a straight line basis over 30 years. 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 the Company Common Stock valued at
$7.625 per share representing the closing market price of the Company Common
Stock on the last trading day immediately prior to the closing. In addition, the
Company assumed certain liabilities of V.C. Medical in the amount of $296,721.
The shares of the Company Common Stock were delivered into escrow and will
remain in escrow, subject to the resolution of a claim for indemnification
asserted by 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.
The following summary presents unaudited proforma consolidated results of
operations for the years ended December 31, 1997 and 1996 as if the acquisitions
described above 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. Both the 1997 and 1996 pro forma
information includes the write-off of certain purchased in-process research and
development costs of $3,300,000 in 1997 and $16,100,000 in 1996 and merger and
restructuring related charges of $36,202,000 in 1997 and $39,202,000 in 1996
associated with the strategic restructuring initiatives. 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, 1997 and
1996. Conversion of the preferred stock was not assumed since the result would
have been antidilutive.
<TABLE>
<CAPTION>
PRO-FORMA
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net revenues............................................ $374,189,000 $330,759,000
============ ============
Loss before extraordinary item.......................... $(32,630,000) $(58,769,000)
============ ============
Net loss................................................ $(32,630,000) $(59,505,000)
============ ============
Common per share data -- basic and diluted:
Loss before extraordinary item.......................... $ (1.10) $ (1.99)
============ ============
Net loss per common share -- basic and diluted.......... $ (1.10) $ (2.01)
============ ============
Weighted average number of common shares outstanding.... 30,525,000 30,105,000
============ ============
</TABLE>
On March 4, 1996, the Company sold its Gentle Expressions(R) breast pump
product line for $1,000,000 of which $500,000 was paid in cash with the balance
paid by the delivery of 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.
3. MERGER AND RESTRUCTURING RELATED CHARGES
In connection with the acquisition of Fuqua on December 30, 1997, the
Company adopted a plan to implement certain strategic restructuring initiatives
(the "Restructuring Plan") and recorded $26,619,000 of restructuring charges
(the "Restructuring Charges"). The Restructuring Plan was initiated to create
manufacturing, distribution and operating efficiencies and enhance the Company's
position as a low-cost supplier in the healthcare industry. These steps will
include a broad range of efforts, including the
F-16
<PAGE> 47
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consolidation of the Company's Temco manufacturing operations in New Jersey into
Fuqua's Lumex manufacturing facility in New York and relocation of the Company's
corporate headquarters to the Lumex facility. In addition, the Company will be
closing several other distribution facilities and consolidating operations in an
effort to achieve additional cost savings.
The Restructuring Charges include exit costs of $16,037,000 related to the
elimination of duplicate manufacturing and distribution facilities, severance
costs of $650,000 for approximately 100 employees, asset write-downs of
$2,200,000 relating to assets to be sold or abandoned, and inventory write-downs
of $7,732,000 associated with the elimination of certain non-strategic inventory
and product lines (which costs are included in costs of revenue). The Company
anticipates recording additional restructuring charges in 1998 as the Company
continues the implementation of its Restructuring Plan.
The Company incurred $4,583,000 of indirect merger charges (the "Merger
Charges") related to the Fuqua acquisition and Medapex combination with respect
to the write-off of certain unamortized catalog costs with no future value,
certain insurance policies, payment of bonuses related to the acquisitions, and
various transaction costs. The Company also incurred $3,300,000 of expenses
related to the write-off of purchased in-process research and development costs
of Fuqua.
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).
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Raw materials..................................... $16,553,000 $ 8,423,000
Work-in-process................................... 6,735,000 4,430,000
Finished goods.................................... 50,244,000 35,392,000
----------- -----------
$73,532,000 $48,245,000
=========== ===========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Land and buildings.............................. $ 17,323,000 $ 1,462,000
Equipment....................................... 26,845,000 17,490,000
Furniture and fixtures.......................... 2,619,000 1,629,000
Leasehold improvements.......................... 2,668,000 2,222,000
Construction in progress........................ 1,566,000 --
------------ ------------
51,021,000 22,803,000
Accumulated depreciation and amortization....... (15,066,000) (11,539,000)
------------ ------------
$ 35,955,000 $ 11,264,000
============ ============
</TABLE>
F-17
<PAGE> 48
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded depreciation and amortization expense on the assets
included in property, plant and equipment of $2,395,000 (excluding amounts
recorded in the restructuring charge), $1,778,000, and $1,704,000, for the years
ended December 31, 1997, 1996 and 1995, respectively.
6. INVESTMENT IN LEVERAGED LEASE
The Company was the lessor in a leveraged lease agreement entered into in
December 1983, pursuant to which helicopters having an estimated economic life
of approximately 22 years were leased for a term of 16 years. The Company's
equity investment represented 9% of the purchase price, and 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. In May
1996, the Company liquidated its investment in the leveraged lease agreement and
received cash proceeds of $487,000 which approximated the recorded net
investment in the lease at December 31, 1995.
7. NOTES AND ACCEPTANCES PAYABLE
The Company is a party to a syndicated three-year senior secured revolving
credit facility, as amended (the "Credit Facility"), for up to $100 million of
borrowings, including letters of credit and bankers' acceptances, arranged by
IBJ Schroder Business Credit Corp. ("IBJ Schroder"), as agent. The Credit
Facility terminates on December 10, 1999. Under the terms of the Credit
Facility, borrowings bear interest, at the option of the Company, at IBJ
Schroder's prime rate (8.50% at December 31, 1997) or 1.625% above LIBOR in 1997
(2.25% above LIBOR effective as of January 1, 1998), or 1.5% above IBJ
Schroder's bankers' acceptance rate. The Credit Facility is secured by all of
the Company's assets.
The Credit Facility contains certain customary terms and provisions,
including limitations with respect to the prepayment of principal on
subordinated debt, including the Company's 9.75% Senior Subordinated Notes due
2007 (the "Senior Subordinated Notes"), the incurrence of additional debt,
liens, transactions with affiliates, and certain consolidations, mergers and
acquisitions, and 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, including a cash flow coverage and leverage ratio, and
requires specified levels of earnings before interest and taxes, as well as the
requirement that the Company reduce outstanding borrowings with the net cash
proceeds of certain asset sales.
The Company was not in compliance with certain financial covenants
contained in the Credit Facility as of December 31, 1997. On April 13, 1998,
these covenants were waived effective as of December 31, 1997 by IBJ Schroder
and amended for the balance of the term of the Credit Facility.
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, 1997, the Company had aggregate direct borrowings under the
Credit Facility of $65,883,000. On January 27, 1998, the Company used the
proceeds from the sale of the Leather Operations of
F-18
<PAGE> 49
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$60,167,000 to repay outstanding borrowings under the Credit Facility. The
weighted average interest rate on the amounts outstanding as of December 31,
1997 was 8.5%. Open letters of credit at December 31, 1997 were $2,261,000
relating to trade credit and $1,759,000 for other requirements.
At December 31, 1996, the Company had aggregate direct borrowings 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 $6,000,000 for other requirements.
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
---------- ----------
<S> <C> <C>
BIL Note(a)......................................... $4,000,000 $4,000,000
Notes payable to International Business Machines
Corp. ("IBM")(b).................................. 490,000 1,019,000
Capital lease obligations(c)........................ 1,715,000 1,344,000
Term loan(d)........................................ 1,535,000 --
Other(e)............................................ 2,612,000 2,188,000
---------- ----------
10,352,000 8,551,000
Less current maturities........................ 2,619,000 2,016,000
---------- ----------
$7,733,000 $6,535,000
========== ==========
</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 principal amount matures on April 1,
2001 and bears interest at the effective rate of 7.7% per annum and 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%.
F-19
<PAGE> 50
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) At December 31, 1997, the Company is obligated under certain lease
agreements for equipment which have been accounted for as capital leases.
Future minimum payments in the aggregate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ---------------------- ----------
<S> <C>
1998............................................. $ 698,000
1999............................................. 328,000
2000............................................. 291,000
2001............................................. 245,000
2002............................................. 141,000
Thereafter....................................... 136,000
----------
Total............................................ 1,839,000
Less amounts representing interest............... 124,000
----------
Present value of future minimum lease payments... $1,715,000
==========
</TABLE>
The net book value of assets held under capital lease obligations amounted
to $1,364,000 at December 31, 1997.
(d) In connection with the Fuqua Merger, the Company assumed a term loan, which
is payable in monthly installments of $9,900, bearing interest at LIBOR +
.55% through January 2001.
(e) Other long-term debt consists primarily of a mortgage payable for the
Company's Canadian subsidiary in the amount of $788,000 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 $300,000 was outstanding as of December
31, 1997. Borrowings under the credit facility bear interest at
approximately 13%. The Mexican borrowings are secured by the assets of the
Mexican subsidiary, and are payable in semi-annual installments of $100,000
through 1999. In connection with the acquisition of Medapex's principal
corporate headquarters, the Company assumed debt in the amount of $508,000
with a remaining term of approximately seven (7) years, which is
collateralized by the principal headquarters and requires the payment of
interest at 72% of the current prime rate (8.5% as of the date which the
Company assumed the indebtedness). In connection with the acquisitions of
LaBac and Medi-Source, the Company entered into non-competition agreements
with certain former shareholders of such companies. The non-competition
agreements have a remaining balance due of $679,000 as of December 31, 1997.
In addition, the Company assumed certain debt obligations of other acquired
companies. Such debt obligations, aggregating $337,000 as of December 31,
1997, bear interest at various rates.
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>
1998............................................. $2,002,000
1999............................................. 477,000
2000............................................. 324,000
2001............................................. 4,306,000
2002............................................. 284,000
Thereafter....................................... 1,244,000
----------
$8,637,000
==========
</TABLE>
F-20
<PAGE> 51
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SENIOR SUBORDINATED NOTES
On August 4, 1997, the Company issued the Senior Subordinated Notes due
2007 under Rule 144A of the Securities Act of 1933, as amended (the "Securities
Act"). On February 9, 1998, the Company completed its exchange offer to exchange
the outstanding Senior Subordinated Notes for an equal amount of new Senior
Subordinated Notes which have been registered under the Securities Act. The new
Senior Subordinated Notes are identical in all material respects to the
previously outstanding Senior Subordinated Notes. The Senior Subordinated Notes
bear interest at the rate of 9.75% per annum and mature on August 15, 2007. The
Senior Subordinated Notes are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior debt of the
Company, including indebtedness under the Credit Facility arranged by IBJ
Schroder, as agent. The Senior Subordinated Notes are 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 are subordinated in
right of payment to all existing and future senior debt of the Guaranteeing
Subsidiaries including any guarantees by the Guaranteeing Subsidiaries of the
Company's obligations under the Credit Facility.
The Company is a holding company with no assets or operations other than
its investments in its subsidiaries. The subsidiary guarantors are wholly-owned
subsidiaries of the Company and comprise all of the direct and indirect
subsidiaries of the Company. Accordingly, the Company has not presented separate
financial statements and other disclosures concerning each subsidiary guarantor
because management has determined that such information is not material to
investors.
The net proceeds from the offering of the Senior Subordinated 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 were used for
general corporate purposes, including the funding for acquisitions and the
opening of an additional Graham-Field Express facility.
Beginning on August 15, 2002, the Senior Subordinated Notes are redeemable,
in whole or in part, at the option of the Company, at certain redemption prices
plus accrued and unpaid interest to the date of redemption. In addition, prior
to August 15, 2000, the Company may, at its option, redeem up to 25% of the
aggregate principal amount of Senior Subordinated Notes originally issued with
the net proceeds from one or more public offerings of Company Common Stock at a
redemption price of 109.75% of the principal amount, plus accrued and unpaid
interest to the date of redemption; provided that at least 75% of the aggregate
principal amount of Notes originally issued remain outstanding after giving
effect to any such redemption.
The indenture ("Indenture") governing the Senior Subordinated Notes
contains customary covenants including, but not limited to, covenants relating
to limitations on the incurrence of additional indebtedness, the creation of
liens, restricted payments, the sales of assets, mergers and consolidations,
payment restrictions affecting subsidiaries, and transactions with affiliates.
In addition, in the event of a change of control of the Company as defined in
the Indenture, each holder of the Senior Subordinated Notes will have the right
to require the Company to repurchase such holder's Senior Subordinated 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 addition, the
Company will be required in certain circumstances to make an offer to purchase
Senior Subordinated Notes 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 assets sales. The Credit Facility prohibits the
Company from purchasing the Senior Subordinated Notes without the consent of the
lenders.
In addition, the Indenture prohibits the Company from declaring or paying
any dividend or making any distribution or restricted payment as defined in the
Indenture (collectively, the "Restricted Payments") (other than dividends or
distributions payable in capital stock of the Company), unless, at the time of
such payment (i) no default or event of default shall have occurred and be
continuing or would occur as a
F-21
<PAGE> 52
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consequence thereof; (ii) the Company would be able to incur at least $1.00 of
additional indebtedness under the fixed charge coverage ratio contained in the
Indenture; and (iii) such Restricted Payment, together with the aggregate of all
Restricted Payments made by the Company after the date of the Indenture is less
than the sum of (a) 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 (b) 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 capital stock of the Company or of debt securities of the Company
that have been converted into capital stock of the Company.
10. EXTRAORDINARY ITEM
During December 1996, the Company repaid $20,000,000 of indebtedness under
the John Hancock Note and Warrant Agreement with proceeds from the Credit
Facility. In connection with the early retirement of the John Hancock
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.
11. STOCKHOLDERS' EQUITY
Rights Agreement
On August 12, 1996, the Board of Directors of the Company declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of the Company Common Stock. The dividend was paid on September 17, 1996
(the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $.01 per
share, of the Company (the "Series A Preferred Stock") at a price of $35.00 per
one one-hundredth of a share of Series A Preferred Stock (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement dated as of September 3, 1996 (the "Rights Agreement")
between the Company and American Stock Transfer & Trust Company, as Rights Agent
(the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons have acquired (an
"Acquiring Person") beneficial ownership of 15% or more of the outstanding
shares of capital stock of 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 of the Company
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 Company Common Stock certificates outstanding as of the
Record Date, by such certificate with a copy of the Summary of Rights which is
attached to the Rights Agreement (the "Summary of Rights"). Notwithstanding the
foregoing, BIL will not be an Acquiring Person by virtue of its ownership of any
Voting Shares acquired in connection with the Company's acquisition of Everest &
Jennings or in accordance with the Amended and Restated Stockholder Agreement
dated as of September 3, 1996, as amended (the "BIL Stockholder Agreement"), by
and among Irwin Selinger, the Company and BIL (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. "BIL Voting Shares" is defined in the
Rights Agreement as (i) any Voting Shares owned by BIL which were acquired by
F-22
<PAGE> 53
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BIL in connection with the Company's acquisition of Everest & Jennings or in
accordance with the BIL Stockholder Agreement, and (ii) any shares of the
Company Common Stock issued by the Company to BIL upon conversion of or as a
dividend on the shares referred to in clause (i) above.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Company Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Company Common Stock certificates
issued after the Record Date upon transfer or new issuance of the Company Common
Stock will contain a notation incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the Rights),
the surrender for transfer of any certificates for the Company Common Stock
outstanding as of the Record Date, even without such notation or a copy of the
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Company Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Company Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on September 3, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of shares of Series A Preferred
Stock or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Series A
Preferred Stock (ii) upon the grant to holders of Series A Preferred Stock of
certain rights or warrants to subscribe for or purchase Series A Preferred Stock
at a price, or a securities convertible into Series A Preferred Stock with a
conversion price, less than the then-current market price of Series A Preferred
Stock or (iii) upon the distribution to holders of Series A Preferred Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in shares of
Series A Preferred Stock) or of subscription rights or warrants (other than
those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
share of Series A Preferred Stock issuable upon exercise of each Right are also
subject to adjustment in the event of a stock split of the Company Common Stock
or a stock dividend on the Company Common Stock payable in shares of the Company
Common Stock, subdivisions, consolidations or combinations of the Company Common
Stock occurring, in any such case, prior to the Distribution Date.
Shares of Series A Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of Series A Preferred Stock will be entitled
to a minimum preferential quarterly dividend payment of $1 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of the Company Common Stock. In the event of liquidation of the Company, the
holders of the Series A Preferred Stock will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per share of the Company Common
Stock. Each share of Series A Preferred Stock will have 100 votes, voting
together with the Company Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of the Company Common Stock
are exchanged, each share of Series A Preferred Stock will be entitled to
receive 100 times the amount received per share of the Company Common Stock.
These rights are protected by customary antidilution provisions.
Because of the nature of the Series A Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
share of Series A Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of the Company Common Stock.
F-23
<PAGE> 54
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earnings
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current Purchase Price,
that number of shares of common stock of the acquiring company which at the time
of such transaction will have a market value of two times the Purchase Price.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, the Rights Agreement provides that proper provision
shall be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive (subject to adjustment) upon exercise that number of
shares of the Company Common Stock having a market value of two times the
Purchase Price. At any time after any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of 50% or more of
the outstanding shares of the Company Common Stock 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 the Company Common Stock, or one one-hundredth of a share of
Series A Preferred Stock (or of a share of a class or series of Company
Preferred Stock having equivalent rights, preferences and privileges), per Right
(subject to adjustment).
The Rights Agreement provides that none of the directors or officers of
Company shall be deemed to beneficially own any Voting Shares owned by any other
director or officer solely by virtue of such persons acting in their capacities
as such, including in connection with the formulation and publication of the
recommendation of the position of the Board of Directors of the Company, and
actions taken in furtherance thereof, with respect to an acquisition proposal
relating to Company or a tender or exchange offer for the Company Common Stock.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Series A Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of Series A Preferred Stock, which may, at the election of the
Company, be evidenced by depositary receipts) and in lieu thereof, any
adjustment in cash will be made based on the market price of the Series A
Preferred Stock on the last trading day prior to the date of exercise.
At any time prior to a person or group becoming an Acquiring Person, the
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 of the Company 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, (c) reduce the Redemption Price or (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).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
F-24
<PAGE> 55
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As long as the Rights are attached to the Company Common Stock, the Company
will issue one Right with each new share of the Company Common Stock so that all
such shares will have Rights attached. The Board of Directors of the Company has
reserved for issuance upon exercise of the Rights 300,000 shares of Series A
Preferred Stock.
Stock Transactions
On December 30, 1997, the Company acquired Fuqua (see Note 2), in
consideration of the issuance of 9,413,689 shares of the Company Common Stock
(excluding shares of Company Common Stock to be issued in connection with Fuqua
stock options assumed by the Company).
On June 25, 1997, the Company acquired the capital stock of LaBac (see Note
2), in consideration of the issuance of 772,557 shares of the Company Common
Stock.
On March 7, 1997, Everest & Jennings, a wholly-owned subsidiary of the
Company, acquired Kuschall (see Note 2), in consideration of the issuance of
116,154 shares of the Company Common Stock.
On February 28, 1997, Everest & Jennings Canada, a wholly-owned subsidiary
of the Company, acquired Motion 2000, Inc. and Motion 2000 Quebec, Inc. (see
Note 2), in consideration of the issuance of the 187,733 shares of the Company
Common Stock.
On November 27, 1996, in connection with the acquisition of Everest &
Jennings (see Note 2), the Company issued an aggregate of 4,444,933 shares of
the Company Common Stock, and $61 million stated value of Series B Preferred
Stock and $10 million stated value of Series C Preferred Stock to 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
Common Stock of the Company and the Series C Preferred Stock, is not subject to
redemption and is convertible into shares of the Company Common Stock (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
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 Company Common Stock automatically on the fifth anniversary of the
date of issuance at a conversion price of $20 per share, subject to customary
antidilution adjustments.
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 $1,703,829 in cash and the issuance of
32,787 shares of the Company Common Stock.
In September 1995, the Company completed an offshore private placement of
1,071,655 shares of the Company Common Stock with various European institutional
investors. The net proceeds of $3,471,000 realized from the offering were used
for general corporate purposes.
F-25
<PAGE> 56
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the John Hancock Note and Warrant Agreement, the Company
issued warrants to John Hancock to purchase 345,336 shares of the Company Common
Stock at exercise prices ranging from $5.17 to $5.42. The warrants expire in
February 2000.
Stock Options
Under the Company's stock option program (the "Incentive 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% of the
fair market value of the Company Common Stock at the date of grant. Stock
options outstanding under the Incentive 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 stock options expire five years from the
date of grant.
In 1996, the plan was amended to increase the maximum number of shares
available from 2,100,000 to 3,000,000. On December 30, 1997, the plan was
further amended to increase the maximum number of shares available from
3,000,000 to 4,500,000.
During 1997, 1996 and 1995, officers of the Company surrendered 134,870,
45,517 and 14,518 shares, respectively, of the Company Common Stock with a fair
market value of $1,617,000, $165,000 and $50,000, respectively, in satisfaction
of the exercise price of stock options to purchase 306,669, 50,000 and 25,000
shares, respectively, of the Company Common Stock. 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 the Company Common Stock.
The Company has elected to comply with APB Opinion No. 25, and related
interpretations in accounting for its employee stock options because the
alternate fair value accounting provided for under SFAS 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 Opinion No. 25,
no compensation expense is recognized in connection with the grant of stock
options under the Incentive Program.
In accordance with SFAS No. 123, pro forma information regarding net (loss)
income and (loss) income 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 stock options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 1997, 1996 and 1995, respectively: risk-free interest
rates of 6.375% for 1997 and 6.5% for 1996 and 1995; no dividend yields on the
Common Stock, volatility factors of the expected market price of the Company's
Common Stock of .46, .41 and .42; and a weighted-average expected life of the
option is approximately 3 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.
F-26
<PAGE> 57
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
1997 1996 1995
------------ ------------ --------
<S> <C> <C> <C>
Pro forma net (loss) income................. $(24,448,000) $(13,098,000) $953,000
============ ============ ========
Pro forma net (loss) income per share basic
and diluted............................... $ (1.24) $ (.85) $ .07
============ ============ ========
</TABLE>
Information with respect to options during the years ended December 31,
1997, 1996 and 1995 under SFAS No. 123 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- -------------- ---------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding --
beginning of year..... 1,643,175 $ 5.77 912,645 $ 5.49 818,379 $ 6.10
Options granted:
Incentive options..... 240,483 12.25 699,121 6.45 257,432 3.47
Directors' options.... 90,000 9.33 90,000 3.25 91,852 3.65
Non-qualified
options............ 185,453 11.96 91,764 6.02 -- --
Fuqua stock options..... 885,150 9.69 -- -- -- --
Options exercised....... (527,975) (5.36) (103,255) (3.83) (86,500) (2.58)
Options cancelled and
expired............... (42,204) (8.38) (47,100) (4.87) (168,518) (5.79)
---------- ------ ---------- ------ --------- ------
Options outstanding --
end of year........... 2,474,082 $ 8.44 1,643,175 $ 5.77 912,645 $ 5.49
========== ====== ========== ====== ========= ======
Options exercisable at
end of year........... 1,594,142 $ 7.91 582,244 $ 5.45 483,929 $ 4.95
========== ====== ========== ====== ========= ======
Weighted average fair
value of options
granted during the
year.................. $ 4.22 $ 2.10 $ 1.20
========== ========== =========
</TABLE>
In accordance with the terms of the Fuqua Merger Agreement, each Fuqua
stock option was assumed by Graham-Field and was converted into the right to
purchase shares of the Company Common Stock. As of the effective date of the
Fuqua Merger, there were Fuqua stock options outstanding representing the right
to purchase 421,500 shares of Fuqua Common Stock. The equivalent number of
shares of the Company Common Stock to be issued, after giving effect to the
exercise price of the Fuqua stock options, has been adjusted for the exchange
ratio of 2.1, in accordance with the terms of the Fuqua Merger Agreement.
F-27
<PAGE> 58
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Exercise prices for stock options outstanding and for options exercisable
as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF OPTIONS RANGE OF EXERCISE
OPTIONS EXERCISABLE PRICES
- --------- ----------- -----------------
<S> <C> <C>
15,000 15,000 $ 2.00 - $ 2.99
296,718 245,604 3.00 - 3.99
82,550 64,050 4.00 - 4.99
74,044 74,044 5.00 - 5.99
12,750 6,375 6.00 - 6.99
502,715 257,322 7.00 - 7.99
188,194 46,597 8.00 - 8.99
885,150 885,150 9.00 - 9.99
99,512 -- 10.00 - 10.99
56,000 -- 11.00 - 11.99
195,250 -- 12.00 - 12.99
20,000 -- 13.00 - 13.99
23,500 -- 14.00 - 14.99
22,699 -- 15.00 - 15.99
- --------- ---------
2,474,082 1,594,142
========= =========
</TABLE>
The weighted average remaining contractual life of the above-described
stock options is 3 years.
Shares of common stock reserved for future issuance as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Stock options............................................... 3,212,188
Warrants issued to John Hancock............................. 345,336
Series B Preferred Stock.................................... 3,935,483
Series C Preferred Stock.................................... 500,000
---------
7,993,007
=========
</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 1997, 1996 and 1995, approximately $520,000, $38,000, and $38,000,
respectively, was credited to additional paid in capital.
F-28
<PAGE> 59
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- --------
<S> <C> <C> <C>
Current:
Federal..................................... $ 1,953,000 $ 328,000 $129,000
State and local............................. 591,000 86,000 71,000
Foreign..................................... 1,073,000 9,000 --
------------ ---------- --------
3,617,000 423,000 200,000
Deferred Federal and state.................... (10,952,000) 2,495,000 494,000
------------ ---------- --------
$ (7,335,000) $2,918,000 $694,000
============ ========== ========
</TABLE>
Pre-tax (loss) income consists of the amounts earned in the United States
versus Foreign locations as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ----------
<S> <C> <C> <C>
United States............................... $(33,029,000) $(8,965,000) $1,741,000
Foreign..................................... 2,801,000 10,000 --
------------ ----------- ----------
Total....................................... $(30,228,000) $(8,955,000) $1,741,000
============ =========== ==========
</TABLE>
The following is a reconciliation of income tax computed at the Federal
statutory rate to the provision for taxes:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- --------------------- ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ ------- ----------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax expense (benefit) computed
at statutory rate............. $(10,278,000) (34)% $(3,045,000) (34)% $592,000 34%
Expenses not deductible for
income tax purposes:
Amortization of excess of cost
over net assets acquired...... 1,015,000 3% 276,000 3% 286,000 16%
In-process R&D costs............ 1,122,000 4% 4,352,000 49% -- --
Other........................... 459,000 2% 32,000 -- 7,000 1%
Write-off of merger and
restructuring charges......... 1,835,000 6% -- -- -- --
State tax expense (benefit), net
of Federal benefit............ (1,488,000) (5)% 303,000 3% 121,000 7%
Previously unrecognized State
tax benefits.................. -- -- -- -- (312,000) (18)%
Valuation allowance on deferred
tax assets.................... -- -- 1,000,000 11% -- --
------------ --- ----------- --- -------- ---
$ (7,335,000) (24)% $ 2,918,000 32% $694,000 40%
============ === =========== === ======== ===
</TABLE>
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.
F-29
<PAGE> 60
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards...................... $ 7,769,000 $ 7,893,000
Tax credits........................................... 890,000 890,000
Accounts receivable allowances........................ 4,412,000 2,600,000
Inventory related..................................... 5,387,000 2,575,000
Deferred rent......................................... 349,000 382,000
Merger and restructuring related charges.............. 8,061,000 --
Other reserves and accrued items...................... 5,286,000 4,765,000
------------ ------------
32,154,000 19,105,000
Valuation allowance for deferred assets............... (14,505,000) (15,549,000)
------------ ------------
Total deferred tax assets..................... 17,649,000 3,556,000
------------ ------------
Deferred Tax Liabilities:
Tax in excess of book depreciation.................... 2,148,000 1,696,000
Prepaid expenses...................................... 940,000 254,000
Amortization of intangibles........................... 822,000 668,000
------------ ------------
Total deferred tax liabilities................ 3,910,000 2,618,000
------------ ------------
Net deferred tax assets....................... $ 13,739,000 $ 938,000
============ ============
</TABLE>
At December 31, 1997, the Company had aggregate net operating loss
carryforwards of approximately $25,726,000 for income tax purposes which expire
in 2011, which were acquired primarily in connection with the Everest & Jennings
acquisition and are limited as to use in any particular year. In addition, at
December 31, 1997, the Company had approximately $890,000 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.
For financial reporting purposes, due to prior years' losses of Everest &
Jennings, and SRLY limitations, a full valuation allowance of approximately
$13,338,000 has been recorded against the Everest & Jennings net operating
losses and other deferred tax assets. When realized, the tax benefit for those
items will be recorded as a reduction of the excess of cost over net assets
acquired. In addition, at December 31, 1997, the Company has a valuation
allowance of approximately $1,167,000 against a portion of its remaining net
deferred tax asset as a result of recent acquisitions. 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.
13. EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
employees of Everest & Jennings 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 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. In addition, Everest &
Jennings froze the Salaried Plan effective as of January 1, 1993.
F-30
<PAGE> 61
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 as of December 31,
1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $18,404,000 $17,567,000
=========== ===========
Accumulated benefit obligation.......................... $18,404,000 $17,567,000
=========== ===========
Projected benefit obligation for services rendered to
date.................................................... $18,404,000 $17,567,000
Plan assets at fair value, primarily listed stocks, bonds,
investment funds and annuity contracts.................. 16,817,000 14,746,000
----------- -----------
Projected benefit obligation in excess of plan assets..... 1,587,000 2,821,000
Unrecognized loss......................................... (63,000) --
----------- -----------
Pension liability (current portion of $1,264,000 and
$1,069,000)............................................. $ 1,524,000 $ 2,821,000
=========== ===========
</TABLE>
The following assumptions were used to determine the projected benefit
obligations and plan assets:
<TABLE>
<CAPTION>
SMITH & DAVIS
EVEREST & -----------------------------
JENNINGS SALARIED PLAN HOURLY PLAN
------------ -------------- -----------
1997 1996 1997 1996 1997 & 1996
---- ---- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Weighted-average discount rate...................... 7.0% 7.5% 7.0% 7.5% 7.5%
Expected long-term rate of return on assets......... 9.0% 9.0% 9.0% 9.0% 9.0%
</TABLE>
As all participants are inactive and the plans are frozen, no compensation
increases were assumed.
The Company also sponsors five 401(k) Savings and Investment Plans. A
separate and distinct individual plan covers all full-time employees of Everest
& Jennings, Medapex, LaBac, and Fuqua and an additional 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 an employee's
contribution up to a maximum contribution of 6% of an employee's salary, the
LaBac plan matches 25% of an employee's contribution up to a maximum
contribution of 15% of an employee's salary, and the Fuqua plan matches 50% of
an employee's contribution up to a maximum contribution of 4% of an employee's
salary. Amounts expensed for the Medapex, LaBac and Fuqua plans for the fiscal
years 1997, 1996 and 1995 were immaterial.
14. 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, 1997 and 1996, 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.
Credit facility and acceptances payable: The carrying amounts of the
Company's borrowings under its Credit Facility approximate their fair value.
Long-term debt and Senior Subordinated Notes: The fair values of the
Company's long-term debt and Senior Subordinated Notes are estimated using
discounted cash flow analyses, based on the Company's incremental borrowing
rates for similar types of borrowing arrangements. At December 31, 1997 and
1996, the carrying amount reported approximates fair value.
F-31
<PAGE> 62
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. 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, 1997, 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, 1997 and 1996, $132,000
and $933,000, respectively, of rent expense was accrued in excess of rental
payments made by the Company.
As of December 31, 1997, minimal annual rental payments under all
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
-----------------------
<S> <C>
1998............................................ 6,699,000
1999............................................ 6,287,000
2000............................................ 5,142,000
2001............................................ 4,492,000
2002............................................ 3,338,000
Thereafter...................................... 11,349,000
-----------
$37,307,000
===========
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995
approximated $3,896,000, $2,805,000 and $2,400,000, respectively.
LEGAL PROCEEDINGS
Following the Company's public announcement on March 23, 1998 of its
financial results for the fourth quarter and year ended December 31, 1997, the
Company and certain of its directors and officers were named as defendants in at
least six putative class action lawsuits filed in the United States District
Court for the Eastern District of New York on behalf of all purchasers of common
stock of the Company (including former Fuqua shareholders who received shares of
the Company Common Stock when the Company acquired Fuqua in December 1997)
during various periods within the time period May 1997 to March 1998. The
complaints assert claims against the Company and the other defendants for
violations of Sections 11, 12(2) and 15 of the Securities Act of 1933, as
amended, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 promulgated thereunder with respect to alleged material
misrepresentations and omissions in public filings made with the Securities and
Exchange Commission and certain press releases and other public statements made
by the Company and certain of its officers relating to the Company's business,
results of operations, financial condition and future prospects, as a result of
which, it is alleged, the market price of the Company Common Stock was
artificially inflated during the putative class periods. Several of the
complaints focus on statements made concerning the Company's integration of its
various recent acquisitions. The plaintiffs seek unspecified compensatory
damages costs (including attorneys and expert fees), expenses and other
unspecified relief on behalf of the putative classes. The Company believes that
it has complied with all of its obligations under the federal securities laws,
considers the plaintiffs' allegations to be without merit and intends to defend
these suits vigorously.
On March 27, 1998, agents of the U.S. Customs Service and the Food and Drug
Administration arrived at the Company's principal headquarters and one other
Company location and retrieved several documents pursuant to search warrants.
The Company has subsequently been advised by an Assistant United States
F-32
<PAGE> 63
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Attorney for the Southern District of Florida that the Company is a target of an
ongoing grand jury investigation involving alleged fraud by one or more of the
Company's suppliers relating to the unauthorized diversion of medical products
intended for sale outside of the United States into United States markets. The
Company has also been advised that similar search warrants were obtained with
respect to approximately 14 other participants in the distribution of medical
products. The Company is presently investigating these matters. The Company does
not know when the grand jury investigation will conclude or what action, if any,
may be taken by the government against the Company or any of its employees, so
it cannot yet assess the impact of this investigation on the Company. The
Company intends to cooperate fully with the government in its investigation.
ENVIRONMENTAL CONTINGENCY: In March 1994, the Suffolk County Authorities
initiated an investigation to determine whether regulated substances had been
discharged in excess of permitted levels from Fuqua's Lumex division (the "Lumex
Division") located in Bayshore, New York. 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 Bayshore facilities and
reported the results to the Suffolk County Authorities in March 1997. 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. Management is
not currently able to determine when any required remediation and monitoring
efforts with respect to the ground water contamination will be completed. In May
1997, the Suffolk County Authorities approved the soil remediation conducted by
Fuqua and provided comments on the ground water work plan.
In November 1997, the Lumex Division received the results of additional
ground water testing that had been performed in August and September 1997. The
results revealed significantly lower concentrations of contaminants than were
known at the time the "Ground Water Work Plan" was prepared in March 1997. In
January 1998, additional confirmatory samples were taken, including two
additional wells, but the results of this sampling have not yet been received
from the laboratory. Management is not currently able to determine whether or
when additional remediation or monitoring efforts will be required.
At December 30, 1997, the Lumex Division had reserves for remediation costs
and additional investigation costs which will be required. 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 estimated costs, although a portion of the 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.
DISPUTE WITH CYBEX: On April 3, 1996, Fuqua acquired the Lumex Division
from Cybex International, Inc. (formerly, Lumex, Inc.). The purchase price for
the Lumex Division was $40.7 million, subject to a final purchase price
adjustment in the asset sale agreement. The final purchase price adjustment was
disputed and,
F-33
<PAGE> 64
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pursuant to the asset sale agreement, was to be resolved through arbitration. 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. 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 continued the arbitration proceedings. The Appellate Division
subsequently affirmed the Supreme Court's denial of the stay, and seller's
motion for reconsideration has been denied. On February 13, 1998, the arbitrator
accepted $3,179,685 in claims by Fuqua, with interest of $350,690, yielding a
net award to Fuqua of $2,384,606.
In March 1997, Fuqua gave notice to the seller to preserve Fuqua's
indemnification rights provided in the asset sale agreement.
In February 1998, Fuqua filed in the State Court of Fulton County a lawsuit
against the seller and certain former officers and it states claims for fraud,
breach of warranty, negligent misrepresentation, Georgia RICO, and attorney's
fees. Defendants filed an answer and counterclaim on April 7, 1998, denying
liability and asserting fifteen defenses. Defendant Cybex has asserted four
counterclaims, seeking $1,284,288 in damages, plus attorneys' fees and costs.
Fuqua believes that the counterclaims lack merit for several reasons, including,
among others, that the punitive claim for $1,284,288, was decided adversely to
Cybex in the arbitration.
GENERAL
The Company and its subsidiaries are parties to lawsuits and other
proceedings arising out of the conduct of its ordinary course of business,
including those relating to product liability and the sale and distribution of
its products. While the results of such lawsuits and other proceedings cannot be
predicted with certainty, management does not expect that the ultimate
liabilities, if any, will have a material adverse effect on the consolidated
financial position or results of operations of the Company.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to six (6) collective bargaining agreements covering
approximately 822 employees. The collective bargaining agreements are scheduled
to expire at various dates from October 19, 1998 through October 18, 2000.
16. OTHER MATTERS
During 1997, the Company loaned an officer $2.5 million bearing interest at
the Company's borrowing rate, as adjusted from time to time. The loan is due on
December 3, 2004 and is collateralized by shares of the Company Common Stock and
is included in other assets on the balance sheet.
F-34
<PAGE> 65
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1997:
Net revenues:
Medical equipment and supplies.............. $56,191 $62,579 $70,745 $ 72,466
Interest and other income................... 144 252 363 403
------- ------- ------- --------
56,335 62,831 71,108 72,869
Costs and expenses:
Cost of revenues............................ 38,438 42,503 47,159 60,595
Selling, general and administrative......... 13,193 14,765 16,018 26,670
Interest expense............................ 994 1,169 2,394 2,703
Purchased in-process research & development
costs.................................... -- -- -- 3,300
Merger and restructuring related charges.... -- -- -- 23,470
------- ------- ------- --------
52,625 58,437 65,571 116,738
------- ------- ------- --------
Income (loss) before income taxes (benefit)... 3,710 4,394 5,537 (43,869)
Income taxes (benefit)........................ 1,527 1,681 2,187 (12,730)
------- ------- ------- --------
Net income (loss)............................. $ 2,183 $ 2,713 $ 3,350 $(31,139)
======= ======= ======= ========
Net income (loss) per common share:
Net income (loss)............................. $ 2,183 $ 2,713 $ 3,350 $(31,139)
Preferred stock dividends..................... --(a) --(a) --(a) 266
------- ------- ------- --------
Net income (loss) available to common
shareholders................................ 2,183 2,713 3,350 (31,405)
======= ======= ======= ========
Common shares outstanding -- basic............ 19,763 20,204 21,078 21,296
------- ------- ------- --------
Convertible preferred stock................... 4,435 4,435 4,435 --(b)
Incremental shares using treasury stock
method...................................... 966 849 1,227 --(b)
------- ------- ------- --------
Common shares outstanding -- diluted.......... 25,164 25,488 26,740 21,296
======= ======= ======= ========
Basic earnings per share...................... $ .11 $ .13 $ .16 $ (1.47)
Diluted earnings per share.................... $ .09 $ .11 $ .13 $ (1.47)(b)
</TABLE>
- ---------------
(a) Assumes conversion of the preferred stock and elimination of any dividends
relation to such preferred stock.
(b) No incremental shares related to conversion of the preferred stock and
options are included due to the loss in the fourth quarter.
(c) The March 31 and June 30 quarters have been restated to reflect the Medapex
transaction recorded as a pooling of interests.
(d) The fourth quarter 1997 loss before income taxes includes merger related,
restructuring and other charges totaling $36.2 million (see Note 3).
F-35
<PAGE> 66
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996:
Net revenues:
Medical equipment and supplies.............. $30,806 $33,432 $36,436 $ 42,409
Interest and other income................... 432 74 31 22
------- ------- ------- --------
31,238 33,506 36,467 42,431
Costs and expenses:
Cost of revenues............................ 21,429 22,832 24,942 30,438
Selling, general and administrative......... 8,189 8,468 9,021 8,900
Interest expense............................ 610 680 672 616
Purchased in-process research & development
costs.................................... -- -- -- 12,800
Merger and restructuring related charges.... -- -- -- 3,000
------- ------- ------- --------
30,228 31,980 34,635 55,754
------- ------- ------- --------
Income (loss) before income taxes and
extraordinary item.......................... 1,010 1,526 1,832 (13,323)
Income taxes.................................. 449 683 811 975
------- ------- ------- --------
Income (loss) before extraordinary item....... 561 843 1,021 (14,298)
Extraordinary loss on early retirement of debt
(net of tax benefit of $383)................ -- -- -- (736)
------- ------- ------- --------
NET INCOME (LOSS)............................. $ 561 $ 843 $ 1,021 $(15,034)
======= ======= ======= ========
Net income (loss) per common share:
Common shares outstanding -- basic............ 15,090 15,090 15,171 16,840
Incremental shares using treasury stock
method...................................... 75 440 503 --(a)
------- ------- ------- --------
Common shares outstanding -- diluted.......... 15,165 15,530 15,674 16,840
======= ======= ======= ========
Basic earnings per share:
Before extraordinary item................... $ .04 $ .06 $ .07 $ (.85)
Extraordinary item.......................... -- -- -- (.04)
------- ------- ------- --------
$ .04 $ .06 $ .07 $ (.89)
======= ======= ======= ========
Diluted earnings per share:
Before extraordinary item................... $ .04 $ .05 $ .07 $ (.85)
Extraordinary item.......................... -- -- -- (.04)
------- ------- ------- --------
$ .04 $ .05 $ .07 $ (.89)
======= ======= ======= ========
</TABLE>
- ---------------
(a) No incremental shares related to conversion of the preferred stock and
options are included due to the loss in the fourth quarter.
(b) The March 31 and June 30 quarters have been restated to reflect the Medapex
transaction recorded as a pooling of interests.
(c) The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with SFAS No. 128, Earnings per Share.
(d) During the fourth quarter of 1996, the Company recorded charges of $15.8
million related to the acquisition of Everest & Jennings (see Note 3). The
extraordinary item of $736,000 (net of tax benefit of $383,000) relates to
the early retirement of the indebtedness underlying the John Hancock Note
and Warrant Agreement.
F-36
<PAGE> 67
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------ ----------- --------------------------------------- ---------------- -----------
ADDITIONS
---------------------------------------
1
BALANCE AT ADDITIONS 2 OTHER CHANGES -- BALANCE AT
BEGINNING CHARGED TO COSTS CHARGED TO OTHER ADD (DEDUCT) -- END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS -- DESCRIBE DESCRIBE PERIOD
----------- ----------- ---------------- -------------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended December 31,
1997........................ $ 7,243,000 $6,749,000 $ 1,253,000(4) $(2,046,000)(1) $13,199,000
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
Valuation allowance for net
deferred tax assets:
Year ended December 31,
1997........................ $15,549,000 $ -- $ -- $(1,044,000)(3) $14,505,000
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
</TABLE>
- ---------------
(1) Net write-offs of accounts receivable.
(2) Represents an allocation of the purchase price of the Everest & Jennings and
V.C. Medical acquisitions.
(3) Utilization of deferred tax assets previously reserved for, related to the
use of an acquired net operating loss carryforward.
(4) Represents accounts receivable allowances of Kuschall and Fuqua acquired
during 1997.
F-37
<PAGE> 68
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The response to this Item is submitted as a separate section of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES:
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are elected by, and serve at the
discretion of the Board of Directors. The following table sets forth certain
information concerning the present executive officers of the Company:
<TABLE>
<CAPTION>
POSITION(S) WITH YEAR BECAME
NAME AGE COMPANY EXECUTIVE OFFICER
---- --- ---------------- -----------------
<S> <C> <C> <C>
Irwin Selinger.......... 56 Chairman of the Board and Chief Executive 1981
Officer
Andrew A. Giordano...... 65 President and Chief Operating Officer 1998
Paul Bellamy............ 49 Vice President -- Finance and Chief Financial 1998
Officer
Richard S. Kolodny...... 39 Vice President, General Counsel, and Secretary 1993
Peter Winocur........... 41 Executive Vice President of Sales and Marketing 1996
Jeffrey Schwartz........ 36 Corporate Vice President, Graham-Field Express 1997
Ralph Liguori........... 51 Executive Vice President of Operations 1995
Beatrice Scherer........ 58 Vice President -- Administration 1981
Donald J. Cantwell...... 47 Vice President of Information Systems 1997
</TABLE>
Mr. Selinger, a founder and principal stockholder of the Company, has been
the Chairman of the Board and Chief Executive Officer of the Company since April
1981. Mr. 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. Giordano has been the President and Chief Operating Officer of the
Company since February 2, 1998, and a director of the Company since 1994. Prior
to such time, Mr. Giordano was 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. Bellamy has been the Vice President, Finance and Chief Financial
Officer of the Company since March 2, 1998. From September 1995 to February
1998, Mr. Bellamy was the Chief Financial Officer of Davis Vision, a national
managed eye care company based in Long Island. From October 1992 to May 1995,
Mr. Bellamy was the Chief Financial Officer, as well as Chief Executive Officer
and President and a member of the Board of Directors, of Nichols Institute, a
California based international diagnostic services and products company. In
addition, from January 1994 to September 1995, Mr. Bellamy was a member of the
Board of Directors of Ancra International Inc., a manufacturer of transportation
equipment and parts.
Mr. Kolodny has been Vice President, General Counsel and Secretary of the
Company since August 1993. From 1990 to 1993, Mr. Kolodny was associated with
the law firm of Carro, Spanbock, Kaster & Cuiffo. Prior to such time, Mr.
Kolodny was associated with the law firm of Shea & Gould.
76
<PAGE> 69
Mr. Winocur has held various positions with the Company since May 1992, and
has been the Executive Vice President of Sales and Marketing of the Company
since January 1996. Prior to 1992, Mr. Winocur was the founder and President of
National Health Care Equipment, Inc., which was acquired by the Company in May
1992.
Mr. 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
the Company.
Mr. Liguori has been the Executive Vice President of Operations of the
Company since July 1995. From 1990 to 1995, Mr. Liguori was the Group Vice
President of Operations of Del Laboratories, Inc. Prior to such time, Mr.
Liguori was the Senior Vice President of U.S. Operations of Coleco Industries,
Inc.
Ms. Scherer has been Vice President-Administration of the Company since
1985. From 1981 to 1985, Ms. Scherer was Vice-President-Finance for the Company.
Mr. Cantwell has been the Vice President of Information Systems of the
Company since May 1996, and became an executive officer of the Company 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.
The information to be furnished with respect to the directors of the
Company is incorporated by reference to the Company's definitive proxy statement
to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION:
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A.
77
<PAGE> 70
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
14(a). Documents filed as part of this Form 10-K:
1. Financial Statements. The following financial statements are included
in Part II, Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets -- December 31, 1997 and 1996... F-3
Consolidated Statements of Operations -- Years ended
December 31, 1997, 1996 and 1995............................ F-5
Consolidated Statements of Stockholders' Equity -- Years
ended December 31, 1997, 1996 and 1995...................... F-6
Consolidated Statements of Cash Flows -- Years ended
December 31, 1997, 1996 and 1995............................ F-7
Notes to Consolidated Financial Statements -- December 31,
1997........................................................ F-9
2. Financial Statement Schedules. The following
consolidated financial statement schedule for the company is
included in Part II, Item 14(d):
Schedule VIII -- Valuation and Qualifying Accounts.......... F-37
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
3. Exhibits filed under Item 601 of Regulation
S-K. (Numbers assigned to the following correlate to those
used in such Item 601; asterixes indicate that an Exhibit is
incorporated by reference).
</TABLE>
- ---------------
* Incorporated by reference.
78
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
<C> <S> <C>
3.1 Graham-Field's Certificate of Incorporation, as amended,
incorporated by reference to Exhibit 3(1) to Graham-Field's
Registration Statement on Form S-1 (File No. 33-40442) (the
"1991 Registration Statement").*
3.2 Certificate of Amendment of Certificate of Incorporation of
Graham-Field dated as of November 27, 1996, incorporated by
reference as Exhibit 3(b) to Graham-Field's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 (the
"1996 10-K").*
3.3 Graham-Field's By-Laws, as amended, incorporated by
reference as an Exhibit to Graham-Field's Current Report on
Form 8-K dated as of July 14, 1995.*
3.4 Amendment to Graham-Field's By-Laws, dated December 1, 1997,
incorporated by reference as Exhibit 3.4 to Graham-Field's
S-4/A Registration Statement filed on December 19, 1997
(Registration No.: 333-42561) (the "1997 S-4 Registration
Statement").*
4.1 Certificate of Designations of Graham-Field's Series B
Cumulative Convertible Preferred Stock, incorporated by
reference to Annex D to Graham-Field's S-4 Registration
Statement filed on October 18, 1996 (Registration No.:
333-14423) (the "1996 S-4 Registration Statement").*
4.2 Certificate of Designations of Graham-Field's Series C
Cumulative Convertible Preferred Stock, incorporated by
reference to Annex E to the 1996 S-4 Registration
Statement.*
4.3 Certificate of Designations of Series A Junior Participating
Preferred Stock, incorporated by reference to Exhibit 4(c)
to Graham-Field's Current Report on Form 8-K dated as of
September 3, 1996 (the "September 1996 Form 8-K").*
4.4 Rights Agreement dated as of September 3, 1996 between
Graham-Field and American Stock Transfer & Trust Company, as
Rights Agent, incorporated by reference to Exhibit 4(b) to
the 1996 Form 8-K.*
10.1 Registration Rights Agreement, dated as of September 3,
1996, between Graham-Field and BIL (Far East Holdings)
Limited ("BIL"), incorporated by reference to Exhibit 4(g)
to the September 1996 Form 8-K.*
10.2 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, E&J Acquisition Corp., E&J and BIL,
incorporated by reference to Exhibit 2(a) to Graham-Field's
Current Report on Form 8-K dated as of December 12, 1996
(the "December 1996 Form 8-K").*
10.3 Stockholder Agreement, dated as of September 3, 1996, and
amended and restated as of October 1, 1996, among
Graham-Field, BIL and Irwin Selinger, incorporated by
reference to Exhibit 4(b) to the December 1996 Form 8-K.*
10.4 Amendment No. 1, 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, by and among
Graham-Field, BIL and Irwin Selinger, incorporated by
reference to Exhibit 4(a) to Graham-Field's Current Report
on Form 8-K dated as of May 14, 1997.*
10.5 Promissory Note dated as of December 10, 1996, in the
principal amount of $4 million made by Graham-Field and
payable to BIL Securities (Offshore) Limited, incorporated
by reference to Exhibit 10(vv) to the 1996 10-K.*
</TABLE>
79
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
<C> <S> <C>
10.6 Revolving Credit and Security Agreement dated as of December
10, 1996 (the "Revolving Credit Agreement"), by and among
IBJ Schroder Bank & Trust Company (as lender and as agent),
Graham-Field, Graham-Field, Inc., Graham-Field Express,
Inc., Graham-Field Temco, Inc., Graham-Field Distribution,
Inc., Graham-Field Bandage, Inc.,Graham-Field Express
(Puerto Rico), Inc., and Everest & Jennings, Inc.,
incorporated by reference to Exhibit 10 to Graham-Field's
Current Report on Form 8-K dated as of December 23, 1996.*
10.7 Amendment No. 1, dated as of June 25, 1997, to the Revolving
Credit and Security Agreement dated as of December 10, 1996
(the "Revolving Credit Agreement"), by and among IBJ
Schroder Bank & Trust Company (as lender and as agent),
Graham-Field, Graham-Field, Inc., Graham-Field Express,
Inc., Graham-Field Temco, Inc., Graham-Field Distribution,
Inc., Graham-Field Bandage, Inc., Graham-Field Express
(Puerto Rico), Inc., and Everest & Jennings, Inc.,
incorporated by reference to Exhibit 10(a) to Graham-Field's
Current Report on Form 8-K dated as of July 17, 1997 (the
"July 1997 8-K").*
10.8 Amendment No. 2, dated as of July 9, 1997, to the Revolving
Credit Agreement, by and among IBJ Schroder Bank & Trust
Company (as lender and as agent), Graham-Field,
Graham-Field, Inc., Graham-Field Express, Inc., Graham-Field
Temco, Inc., Graham-Field Distribution, Inc., Graham-Field
Bandage, Inc., Graham-Field Express (Puerto Rico), Inc., and
Everest & Jennings, Inc., incorporated by reference to
Exhibit 10(b) to the July 1997 8-K.*
10.9 Amendment No. 3, dated as of July 9, 1997, to the Revolving
Credit Agreement, by and among IBJ Schroder Bank & Trust
Company (as lender and as agent), Graham-Field,
Graham-Field, Inc., Graham-Field Express, Inc., Graham-Field
Temco, Inc., Graham-Field Distribution, Inc., Graham-Field
Bandage, Inc., Graham-Field Express (Puerto Rico), Inc., and
Everest & Jennings, Inc., incorporated by reference to
Exhibit 10(c) to the July 1997 8-K.*
10.10 Letter Amendment, dated as of September 18, 1997, to the IBJ
Schroder Bank & Trust Company (as lender and as agent),
Graham-Field, Graham-Field, Inc., Graham-Field Express,
Inc., Graham-Field Temco, Inc., Graham-Field Distribution,
Inc., Graham-Field Bandage, Inc., Graham-Field Express
(Puerto Rico), Inc., and Everest & Jennings, Inc.,
incorporated by reference as Exhibit 10.67 to the 1997 S-4
Registration Statement.*
10.11 Amendment No. 4 and Joinder Agreement, dated as of December
30, 1997, to the Revolving Credit Agreement, by and among
IBJ Schroder Business Credit Corporation (as agent for
Lenders), Graham-Field, Graham-Field, Inc., Graham-Field
Express, Inc., Graham-Field Temco, Inc., Graham-Field
Distribution, Inc., Graham-Field Bandage, Inc., Graham-Field
Express (Puerto Rico), Inc., Everest & Jennings, Inc., LaBac
Systems, Inc., Medical Supplies of American, Inc., Health
Care Wholesalers, Inc., HC Wholesalers, Inc., Critical Care
Associates, Inc., Lumex/Basic American Holdings, Inc., Basic
American Medical Products, Inc., Lumex Medical Products,
Inc., Prism Enterprises, Inc., Basic American Sales and
Distribution Co., Inc., PrisTech, Inc., Lumex Sales and
Distribution Co., Inc., MUL Acquisition Corp. II.
</TABLE>
80
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
<C> <S> <C>
10.12 Amendment No. 5, dated as of April 13, 1998, to the
Revolving Credit Agreement by and between IBJ Schroder
Business Credit Corporation. (as agent for Lenders),
Graham-Field, Graham-Field, Inc., Graham-Field Express,
Inc., Graham-Field Temco, Inc., Graham-Field Distribution,
Inc., Graham-Field Bandage, Inc., Graham-Field Express
(Puerto Rico), Inc., Everest & Jennings, Inc., LaBac
Systems, Inc., Medical Supplies of American, Inc., Health
Care Wholesalers, Inc., HC Wholesalers, Inc., Critical Care
Associates, Inc., Lumex/Basic American Holdings, Inc., Basic
American Medical Products, Inc., Lumex Medical Products,
Inc., Prism Enterprises, Inc., Basic American Sales and
Distribution Co., Inc., Pristech, Inc., Lumex Sales and
Distribution Co., Inc., MUL Acquisition Corp. II.
10.13 Indenture dated as of August 4, 1997, by and between
Graham-Field and American Stock Transfer & Trust Company as
trustee, incorporated by reference to Exhibit 4.1 to
Graham-Field's S-4 Registration Statement filed in January
8, 1997 (Registration No. 333-43189).*
10.14 Agreement and Plan of Merger, dated as of September 5, 1997,
as amended as of September 29, 1997, by and among
Graham-Field, GFHP Acquisition Corp. and Fuqua Enterprises,
Inc., incorporated by reference to the 1997 S-4 Registration
Statement.*
10.15 Stockholders Agreement, dated as of September 5, 1997, by
and among Graham-Field, BIL (Far East Holdings) Limited, BIL
Securities (Offshore) Ltd., Irwin Selinger and the Fuqua
Stockholders, incorporated by reference to Annex B to the
1997 S-4 Registration Statement.*
10.16 Voting Agreement, dated as of September 5, 1997, by and
between Graham-Field and Gene J. Minotto, incorporated by
reference to Annex C to the 1997 S-4 Registration
Statement.*
10.17 Registration Rights Agreement, dated as of September 5,
1997, by and between Graham-Field and the Fuqua
Stockholders, incorporated by reference to Annex D to the
1997 S-4 Registration Statement.*
10.18 Registration Rights Agreement, dated as of November 25,
1997, by and among Graham-Field, Minotto Partners, L.P. and
Gene J. Minotto, incorporated by reference to Annex E to the
1997 S-4 Registration Statement.*
10.19 Noncompetition Agreement, dated as of September 5, 1997, by
and among Graham-Field, GFHP Acquisition Corp., J.B. Fuqua
and J. Rex Fuqua, incorporated by reference to Annex F to
the 1997 S-4 Registration Statement.*
10.20 Supply Agreement, by and between Everest & Jennings, Inc.
and P.T. Dharma Polimetal, incorporated by reference to
Exhibit 10(b) to the 1996 10-K.*
10.21 Asset Purchase Agreement, dated as of February 18, 1998, by
and among Graham-Field, PT. Dharma Polimetal, Joppy Kurniadi
Negara and Iwan Dewono Budiyuwono.
10.22 Employment Agreement dated as of July 8, 1981 (the "Selinger
Agreement"), between Graham-Field and Irwin Selinger,
incorporated by reference to Exhibit 10(a) to Graham-
Field's Registration Statement on Form S-18 (Registration
No.: 2-80107-NY).*
10.23 Amendment to the Selinger Agreement dated as of July 8,
1991, incorporated by reference to Exhibit 10.1 to the 1991
Registration Statement.*
10.24 Amendment to the Selinger Agreement dated as of May 3, 1996,
incorporated by reference to Exhibit 10(e) to the 1996
10-K.*
10.25 The Incentive Program, as amended, incorporated by reference
to Graham-Field's Registration Statements on Form S-8 (File
Nos.: 33-37179, 33-38656, 33-48860, 033-60679, 333-16993,
and 333-43493).*
</TABLE>
81
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
<C> <S> <C>
10.26 Asset Purchase Agreement dated as of September 4, 1996, by
and among Graham-Field, Graham-Field Express (Puerto Rico),
Inc., and V.C. Medical Distributors, Inc., incorporated by
reference to Exhibit 2(a) to Graham-Field's Current Report
on Form 8-K dated as of September 17, 1996.*
10.27 Asset Purchase Agreement dated as of February 10, 1997, by
and among Graham-Field, Everest & Jennings Canadian Ltd.
("E&J Canada"), Motion 2000 Inc. ("Motion 2000" and Motion
2000 Quebec Inc. ("Motion Quebec"), incorporated by
reference to Exhibit 2(a) Graham-Field's Current Report on
Form 8-K dated as of March 12, 1997.*),
10.28 Stock Purchase Agreement dated as of March 7, 1997, by and
among Graham-Field, Everest & Jennings, Inc., Michael H.
Dempsey, and Naomi C. Dempsey, incorporated by reference to
Exhibit 2(a) to Graham-Field's Current Report on Form 8-K
dated as of March 20, 1997 (the "March 1997 8-K").*
10.29 Employment Agreement dated as of February 28, 1997, by and
between Graham-Field and Marco Ferrara, incorporated by
reference to Exhibit 10(b) to the March 1997 8-K.*
10.30 Consultant Agreement dated as of March 7, 1997, by and
between Graham-Field and Michael H. Dempsey, incorporated by
reference to Exhibit 10(b) to the March 1997 8-K.*
10.31 Agreement and Plan of Merger dated as of June 25, 1997, by
and among Graham-Field, LaBac Acquisition Corp., a
wholly-owned subsidiary of Graham-Field, LaBac Systems,
Inc., Gregory A. Peek, and Michael L. Peek, incorporated by
reference to Exhibit 2(a) to Graham-Field's Current Report
on Form 8-K dated as of June 25, 1997 (the "June 1997
8-K").*
10.32 Registration Rights Agreement dated as of June 25, 1997, by
and among Graham-Field, Gregory A. Peek, and Michael L.
Peek, incorporated by reference to Exhibit 4(a) to the June
1997 8-K.*
10.33 Consulting Agreement dated as of June 25, 1997, by and among
Graham-Field, Gregory A. Peek, and Michael L. Peek,
incorporated by reference to Exhibit 4(b) to the June 1997
8-K.*
10.34 Non-Competition Agreement dated as of June 25, 1997, by and
among Graham-Field and Gregory A. Peek, incorporated by
reference to Exhibit 4(c) to the June 1997 8-K.*
10.35 Non-Competition Agreement dated as of June 25, 1997, by and
among Graham-Field and Michael L. Peek, incorporated by
reference to Exhibit 4(d) to the June 1997 8-K.*
10.36 Agreement and Plan of Reorganization dated as of August 28,
1997, by and among Graham-Field, S.E. (Gene) Davis, and
Vicki Ray, incorporated by reference to Exhibit 2(a) to
Graham-Field's Current Report on Form 8-K dated as of
September 4, 1997 (the "September 1997 8-K").*
10.37 Registration Rights Agreement dated as of August 28, 1997,
by and among Graham-Field, S.E. (Gene) Davis, and Vicki Ray,
incorporated by reference to Exhibit 4(a) to the September
1997 8-K.*
10.38 Employment Agreement dated as of August 28, 1997, by and
between Graham-Field and S.E. (Gene) Davis, incorporated by
reference to Exhibit 4(b) to the September 1997 8-K.*
10.39 Employment Agreement dated as of August 28, 1997, by and
between Graham-Field and Vicki Ray, incorporated by
reference to Exhibit 4(c) to the September 1997 8-K.*
</TABLE>
82
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
<C> <S> <C>
10.40 Non-Competition Agreement dated as of August 28, 1997, by
and between Graham-Field and S.E. (Gene) Davis, incorporated
by reference to Exhibit 4(d) to the September 1997 8-K.*
10.41 Non-Competition Agreement dated as of August 28, 1997, by
and between Graham-Field and Vicki Ray, incorporated by
reference to Exhibit 4(e) to the September 1997 8-K.*
10.42 Real Estate Sales Agreement dated as of August 28, 1997, by
and between BBD&M, Ltd. and Graham-Field, incorporated by
reference to Exhibit 4(g) to the September 1997 8-K.*
10.43 Supply Agreement dated as of April 3, 1997, between Maxwell
Products, Inc. and Graham-Field, incorporated by reference
to Graham-Field's Quarterly Report for the fiscal quarter
ended June 30, 1997.*
10.44 International Distributorship Agreement dated as of
September 30, 1997, by and between Graham-Field and Thuasne,
incorporated by reference to Exhibit 1 to Graham-Field's
Quarterly Report for the fiscal quarter ended September 30,
1997 (the "September 1997 10-Q").*
10.45 Asset Purchase Agreement dated as of August 21, 1997, by and
among Graham-Field, Graham-Field, Inc., Medi-Source, Inc.,
Peter Galambos and Irene Galambos, incorporated by reference
to Exhibit 2 to the September 1997 10-Q.*
10.46 Employment Agreement, dated as of March 2, 1998, by and
between Graham-Field and Paul Bellamy.
10.47 Employment Agreement, dated as of March 15, 1996, by and
between Jeffco Express Medical Supply, Inc. and Jeff
Schwartz.
10.48 Agreement, dated as of March 2, 1998, by and between
Graham-Field and Paul Bellamy.
10.49 Agreement, dated as of January 1, 1997, by and between
Graham-Field and Donald D. Cantwell.
10.50 Agreement, dated as of January 1, 1997, by and between
Graham-Field and Ralph Liguori.
10.51 Agreement, dated as of May 14, 1996, by and between
Graham-Field and Jeff Schwartz.
10.52 Agreement, dated as of October 31, 1995, by and between
Graham-Field and Peter Winocur.
10.53 Agreement, dated as of August 16, 1993, by and between
Graham-Field and Richard S. Kolodny.
10.54 Agreement, dated as of July 21, 1989, by and between
Graham-Field and Beatrice Scherer.
10.55 Agreement, dated as of July 21, 1989, by and between
Graham-Field and Irwin Selinger.
10.56 Note dated as of December 3, 1997 in an amount of $2,500,000
for Irwin Selinger.
</TABLE>
83
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
<C> <S> <C>
10.57 Pledge Agreement dated as of December 3, 1997, between Irwin
Selinger and Graham-Field.
</TABLE>
- ---------------
* Incorporated by reference herein from the document described therein.
21. Subsidiaries of the Company:
Labtron Scientific Corporation
(a New York corporation)
Patient Technology, Inc.
(a New York corporation)
Graham-Field Express, Inc.
(a Delaware corporation)
Bristoline, Inc.
(a New York corporation)
Ventilator Corp.
(a New York corporation)
Graham-Field, Inc.
(a New York corporation)
Medisco, Inc.
(a Delaware corporation)
ExNewt, Inc.
(a New York corporation)
M.E. Team, Inc.
(a New Jersey corporation)
Graham-Field Temco, Inc.
(a New Jersey corporation)
AquaTherm Corp.
(a New Jersey corporation)
Health and Medical Techniques, Inc.
(a Connecticut corporation)
Graham-Field Distribution, Inc.
(a Missouri corporation)
Graham-Field Bandage, Inc.
(a Rhode Island corporation)
G.F.E. Healthcare Products Corp.
(a Delaware corporation)
Graham-Field European Distribution Corporation Limited
(an Ireland corporation)
HealthTeam, Inc.
(a Delaware corporation)
Graham-Field Express (Puerto Rico), Inc.
(a Delaware corporation)
Graham-Field Express (Dallas), Inc.
(a Delaware corporation)
Everest & Jennings International Ltd.
(a Delaware corporation)
Everest & Jennings, Inc.
(a California corporation)
Smith & Davis Manufacturing Company
(a Missouri corporation)
84
<PAGE> 77
Everest & Jennings de Mexico S.A. de C.V.
(a Mexico corporation)
The Jennings Investment Company
(a California corporation)
Everest & Jennings Canadian Ltd.
(a Canadian corporation)
MCT Acquisition Corp.
(a Missouri corporation)
Thompson Blair, Inc.
(a Missouri corporation)
Freeway Investment Corp.
(a California corporation)
Metal Products Corp.
(a California corporation)
Professional Securities Corp.
(a Missouri corporation)
International Medical Equipment Corp.
(a California corporation)
Everest & Jennings Lifestyles
(a California corporation)
Rabson Medical Sales, Ltd.
(a New York corporation)
Kuschall of America, Inc.
(a California corporation)
LaBac Systems, Inc.
(a Colorado corporation)
Medical Supplies of America, Inc.
(a Georgia corporation)
Health Care Wholesalers, Inc.
(a Georgia corporation)
H C Wholesalers, Inc.
(a Georgia corporation)
Critical Care Associates, Inc.
(a Georgia corporation)
Fuqua Enterprises, Inc.
(a Delaware corporation)
Basic American Medical Products, Inc.
(a Georgia corporation)
Basic American Sales and Distribution Co., Inc.
(a Delaware corporation)
Lumex Medical Products, Inc.
(a Delaware corporation)
Lumex Sales and Distribution Co., Inc.
(a Delaware corporation)
MUL Acquisition Corp. II
(a Delaware corporation)
Prism Enterprises, Inc.
(a Delaware corporation)
PrisTech, Inc.
(a Delaware corporation)
85
<PAGE> 78
23. Consent of Independent Auditors.
14(b). Reports on Form 8-K.
The Company's Report on Form 8-K dated as of December 31, 1997 (Date of
Event: December 31, 1997)
86
<PAGE> 79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ IRWIN SELINGER
------------------------------------
Irwin Selinger, Chairman of the
Board and Chief Executive Officer
Date: April 14, 1998
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ IRWIN SELINGER Chairman of the Board and Chief April 14, 1998
- --------------------------------------------------- Executive Officer (Principal
Irwin Selinger Executive Officer and Director)
/s/ GARY M. JACOBS Vice President (Principal Financial April 14, 1998
- --------------------------------------------------- and Accounting Officer)
Gary M. Jacobs
/s/ ANDREW A. GIORDANO President, Chief Operating Officer April 14, 1998
- --------------------------------------------------- and Director
Andrew A. Giordano
/s/ DAVID P. DELANEY Director April 14, 1998
- ---------------------------------------------------
David P. Delaney, Jr.
/s/ RODNEY F. PRICE Director April 14, 1998
- ---------------------------------------------------
Rodney F. Price
/s/ J. REX FUQUA Director April 14, 1998
- ---------------------------------------------------
J. Rex Fuqua
/s/ STEVEN D. LEVKOFF Director April 14, 1998
- ---------------------------------------------------
Steven D. Levkoff
/s/ LOUIS A. LUBRANO Director April 14, 1998
- ---------------------------------------------------
Louis A. Lubrano
</TABLE>
<PAGE> 1
Exhibit 10.11
AMENDMENT NO. 4 AND JOINDER AGREEMENT
TO
REVOLVING CREDIT AND SECURITY AGREEMENT
THIS AMENDMENT NO. 4 AND JOINDER AGREEMENT ("Amendment") is
entered into as of December 30, 1997, by and among GRAHAM-FIELD HEALTH PRODUCTS,
INC., a corporation organized under the laws of the State of Delaware
("Holdings"), GRAHAM-FIELD, INC., a corporation organized under the laws of the
State of New York ("Field"), GRAHAM-FIELD EXPRESS, INC., a corporation organized
under the laws of the State of Delaware ("Express"), GRAHAM-FIELD TEMCO, INC., a
corporation organized under the laws of the State of New Jersey ("Temco"),
GRAHAM-FIELD DISTRIBUTION, INC., a corporation organized under the laws of the
State of Missouri ("Distribution"), GRAHAM-FIELD BANDAGE, INC., a corporation
organized under the laws of the State of Rhode Island ("Bandage"), GRAHAM-FIELD
EXPRESS (PUERTO RICO), INC., a corporation organized under the laws of the State
of Delaware ("GFPR"), EVEREST & JENNINGS, INC., a corporation organized under
the laws of the State of California ("E & J"), LABAC SYSTEMS, INC., a
corporation organized under the laws of the State of Colorado ("LaBac"), MEDICAL
SUPPLIES OF AMERICA, INC., a corporation organized under the laws of the State
of Florida ("Medapex"), HEALTH CARE WHOLESALERS, INC., a corporation organized
under the laws of the State of Georgia ("Health Care"), H C WHOLESALERS, INC., a
corporation organized under the laws of the State of Georgia ("HCW"), CRITICAL
CARE ASSOCIATES, INC., a corporation organized under the laws of the State of
Georgia ("Critical"), LUMEX/BASIC AMERICAN HOLDINGS, INC. (formerly known as
Fuqua Enterprises, Inc.), a corporation organized under the laws of the State of
Delaware ("Fuqua"), BASIC AMERICAN MEDICAL PRODUCTS, INC., a corporation
organized under the laws of the State of Georgia ("Basic American"), LUMEX
MEDICAL PRODUCTS, INC., a corporation organized under the laws of the State of
Delaware ("Lumex Medical"), PRISM ENTERPRISES, INC., a corporation organized
under the laws of the State of Delaware ("Prism"), BASIC AMERICAN SALES AND
DISTRIBUTION CO., INC., a corporation organized under the laws of the State of
Delaware ("Basic Distribution"), PRISTECH, INC., a corporation organized under
the laws of the State of Delaware ("Pristech"), LUMEX SALES AND DISTRIBUTION
CO., INC., a corporation organized under the laws of the State of Delaware
("Lumex Distribution") and MUL ACQUISITION CORP. II, a corporation organized
under the laws of the State of Delaware ("Mul Acquisition) (each a "Borrower"
and collectively "Borrowers", and LaBac, Medapex, Health Care, HCW, Critical,
Fuqua, Basic American, Lumex Medical, Prism, Basic Distribution, Pristech, Lumex
Distribution and Mul Acquisition, each a "New Borrower" and collectively, "New
Borrowers" and all Borrowers other than New Borrowers, "Existing Borrowers"),
the financial institutions which are now or which hereafter become a party to
(collectively, the "Lenders" and individually a "Lender") the Loan Agreement (as
defined below) and IBJ SCHRODER BUSINESS CREDIT CORPORATION, a New York banking
corporation ("IBJS"), as agent for Lenders (IBJS, in such capacity, the
"Agent").
<PAGE> 2
BACKGROUND
Existing Borrowers, Lenders and Agent are parties to a
Revolving Credit and Security Agreement dated as of December 10, 1996, as
amended by an Amendment Letter dated May 15, 1997, Amendment No. 1 dated June
25, 1997, Amendment No. 2 dated July 9, 1997, Amendment No. 3 dated July 9, 1997
and a Letter Amendment dated September 18, 1997 (as further amended,
supplemented or otherwise modified from time to time, the "Loan Agreement")
pursuant to which Lenders provide Borrowers with certain financial
accommodations.
Holdings has formed a subsidiary, GFHP Acquisition Corp.
("GFHP"). Pursuant to the terms of an Agreement and Plan of Merger dated as of
September 5, 1997, as amended as of September 29, 1997, by and among Holdings,
GFHP and Fuqua Enterprises, Inc. ("Fuqua Enterprise"), GFHP will be merged with
and into Fuqua Enterprise and Fuqua Enterprise will survive the merger as a
wholly-owned subsidiary of Holdings. Thereafter, Fuqua Enterprise's name will be
changed to Lumex/Basic American Holdings, Inc. In addition, Holdings has
informed Agent that it has purchased LaBac and Medapex.
Holdings has requested that the New Borrowers become Borrowers
under the Loan Agreement and become jointly and severally liable for the
Obligations. Agent and Lenders are willing to permit the New Borrowers to become
Borrowers under the Loan Agreement and to provide financial accommodations to
the New Borrowers thereunder on the terms and conditions hereafter set forth
herein.
NOW, THEREFORE, in consideration of any loan or advance or
grant of credit heretofore or hereafter made to or for the account of Borrowers
by Agent and/or Lenders, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Loan Agreement.
2. Joinder.
(a) Each of the New Borrowers is added as an
additional Borrower under the Loan Agreement, and all references to "Borrower"
or "Borrowers" thereunder and under all of the Other Documents shall henceforth
be deemed to include each of the New Borrowers.
(b) Each of the New Borrowers hereby adopts the Loan
Agreement and each of the Other Documents and assumes in full, and acknowledges
that it is jointly and severally liable for, the payment, discharge,
satisfaction and performance of all Obligations under the Loan Agreement and the
Other Documents. Without limiting the generality of the foregoing, in order to
secure the prompt payment and performance of the Obligations, each of the New
Borrowers hereby assigns, pledges and grants to Agent for its benefit and for
the ratable benefit of Lenders a continuing security interest in and to all of
its Collateral, whether now owned or existing or hereafter acquired or arising
and wheresoever located.
3. Amendment to Loan Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 4 below, the Loan Agreement is amended
as follows:
(a) The following definitions in Section 1.2 are
amended in their entirety to provide as follows:
2
<PAGE> 3
"Maximum Revolving Advance Amount" shall mean
$100,000,000.
"Original Owners" shall mean (i) with respect to
Fuqua, LaBac, Medapex, Field, Express, E & J International and GFPR, Holdings,
(ii) with respect to Temco, Distribution and Bandage, Field, (iii) with respect
to E & J, E & J International, (iv) with respect to E & J Canada, The Jennings
Investment Company, a California corporation, (v) with respect to Basic
American, Lumex Medical and Prism, Fuqua, (vi) with respect to Basic
Distribution, Basic American, (vii) with respect to Pristech, Prism, (viii) with
respect to Lumex Distribution and Mul Acquisition, Lumex Medical and (ix) with
respect to Health Care, HCW and Critical, Medapex.
"Revolving Interest Rate" shall mean an interest rate
per annum equal to (a) the Alternate Base Rate with respect to Domestic Rate
Loans and (b) the sum of the Eurodollar Rate plus one and five-eighths percent
(1.625%) with respect to Eurodollar Rate Loans.
(b) The following definitions are added to Section
1.2:
"Amendment No. 4" shall mean Amendment No. 4 and
Joinder Agreement to Revolving Credit and Security Agreement dated as of
December 30, 1997.
"Amendment No. 4 Effective Date" shall mean the date
all of the conditions set forth in Section 4 of Amendment No. 4 have been
satisfied.
"Basic American" shall mean Basic American Medical
Products, Inc., a Georgia corporation.
"Basic Distribution" shall mean Basic American Sales
and Distribution Co., Inc., a Delaware corporation.
"Critical" shall mean Critical Care Associates, Inc.,
a Georgia corporation.
"Earnings Before Interest and Taxes" shall mean for
any period the sum of (i) net income (or loss) of Borrowers on a Consolidated
Basis for such period (excluding extraordinary gains and losses), plus (ii) all
interest expense of Borrowers on a Consolidated Basis for such period, plus
(iii) all charges against income of Borrowers on a Consolidated Basis for such
period for federal, state and local taxes incurred, plus (iv) for the fiscal
quarter ended December 31, 1997, merger related costs and charges incurred by
Borrowers in connection with the transactions contemplated by the Fuqua Merger
Agreement and write-offs of purchased in-process research and development costs
(together, the "Non-Recurring Charges"), minus (v) for any fiscal quarter, any
cash payments made during such fiscal quarter with respect to the Non-Recurring
Charges."
"Fuqua" shall mean Lumex/Basic American Holdings,
Inc., a Delaware corporation.
"Fuqua Merger Agreement" shall mean the Agreement and
Plan of Merger dated as of September 5, 1997, as amended as of September 29,
1997 by and among Holdings, GFHP and Fuqua Enterprises, Inc.
"GFHP" shall mean GFHP Acquisition Corp., a Delaware
corporation.
3
<PAGE> 4
"HCW" shall mean H C Wholesalers, Inc., a Georgia
corporation.
"Health Care" shall mean Health Care Wholesalers,
Inc., a Georgia corporation.
"LaBac" shall mean LaBac Systems, Inc., a Colorado
corporation.
"Leather Tanning" shall mean and include Irving
Tanning Company, a Delaware corporation, and certain other Subsidiaries of Fuqua
which are in the business of producing leathers.
"Lumex Distribution" shall mean Lumex Sales and
Distribution Co., Inc., a Delaware corporation.
"Lumex Medical" shall mean Lumex Medical Products,
Inc., a Delaware corporation.
"Medapex" shall mean Medical Supplies of America,
Inc., a Florida corporation.
"Mul Acquisition" shall mean Mul Acquisition Corp.
II, a Delaware corporation.
"Prism" shall mean Prism Enterprises, Inc., a
Delaware corporation.
"Pristech" shall mean Pristech, Inc., a Delaware
corporation.
(c) The reference to "$30,000,000" in Section
2.1(a)(y)(ii) is deleted and replaced with "$40,000,000".
(d) The reference to "five (5)" in the last sentence
of Section 2.2(d) is deleted and replaced with "ten (10)".
(e) The reference to "$10,000,000" in the second
sentence of Section 2.9 is deleted and replaced with "$20,000,000".
(f) A new Section 5.7(d) is added to the Loan
Agreement which provides as follows:
"(d) none of the information described on
Schedule 5.7 could reasonably be expected to have a Material Adverse Effect."
(g) Section 6.6(d) is amended in its entirety and
Section 6.6(e) is added to the Loan Agreement to provide as follows:
"(d) of not less than 1.50 to 1.00 at the
end of the fiscal quarter ending March 31, 1998 with respect to the four (4)
fiscal quarters then ended; and
(e) of not less than 1.75 to 1.00 at the end
of the fiscal quarter ending June 30, 1998, and at the end of each fiscal
quarter thereafter, in each case with respect to the four (4) fiscal quarters
then ended."
4
<PAGE> 5
(h) Section 6.7(b) is amended in its entirety to
provide as follows:
"(b) Cause Earnings Before Interest and
Taxes to be equal to or greater than $20,000,000 at the end of the fiscal
quarter ending March 31, 1998, and at the end of each fiscal quarter thereafter,
in each case with respect to the four (4) fiscal quarters then ended."
(i) The following new Section 6.14 is added to the
Loan Agreement:
"6.14 Pledge Agreement. Within ninety (90)
days of the Amendment No. 4 Effective Date, unless Fuqua has sold Leather
Tanning in accordance with the provisions of Section 7.1(b) hereof, Borrowers
shall provide Agent with pledge agreements on terms and conditions satisfactory
to Agent pursuant to which all of the common stock of Leather Tanning is pledged
to Agent for the ratable benefit of the Lenders as security for the
Obligations."
(j) The following language is added at the end of
Section 7.1(b):
"further, provided, however, Fuqua may sell
Leather Tanning at any time after the Amendment No. 4 Effective Date provided
that the cash proceeds of any sale are remitted to Agent to be applied to the
Obligations in such order as Agent may in its sole discretion determine and, if
the proceeds of any sale are not in cash, (i) then as such proceeds are
converted to cash, such cash is delivered to Agent to be applied to the
Obligations in such order as Agent may in its sole discretion determine and (ii)
at Agent's option, provided that the non-cash proceeds shall represent at least
twenty-five percent (25.0%) of the total proceeds, the non-cash proceeds shall
be delivered to Agent as collateral security for the Obligations."
(k) The following language is added at the end of
Section 7.1:
"Notwithstanding the provisions of Sections
7.1(a) and (c) above, Holdings may permit the merger of GFHP into Fuqua and
issue its common stock in connection with such merger, all in accordance with
the terms and conditions of the Merger Agreement."
(l) The following language is added at the end of
Section 7.2:
"or permit any Subsidiary to create or
suffer to exist any Lien or transfer upon or against any of its property or
assets now owned or hereafter acquired, except Permitted Encumbrances."
(m) The following language is added at the end of
Section 7.5:
"further, provided, however, Borrowers may
make additional loans of up to $10,000,000 in the aggregate to Leather Tanning
so long as (i) Leather Tanning is a Subsidiary of Fuqua, (ii) no Event of
Default has occurred and is continuing prior to and after giving effect to
making such loan (for purposes of determining compliance with Sections 6.6, 6.7
and 6.8 hereof, the covenants set forth in such sections shall be tested on a
pro forma basis as if such loans had been made during the applicable fiscal
period end immediately before the loans had been made) and (iii) upon the sale
of Leather Tanning, such loans are repaid in full."
(n) The following language is added at the end of
Section 7.8:
"and (viii) Indebtedness assumed under the Fuqua
Merger
5
<PAGE> 6
Agreement in an amount not to exceed $67,000,000; provided, however, that all
such indebtedness (other than the amount set forth in Schedule 7.8 hereof),
including all Indebtedness under the Amended and Restated Credit Agreement dated
June 28, 1996 by and among Fuqua Enterprises, Inc., Sun Trust Bank, Atlanta, and
certain other lenders named therein shall be repaid in full on the Amendment No.
4 Effective Date."
(o) Section 7.17 is amended in its entirety to
provide as follows:
"7.17 Prepayment of Indebtedness. Except as
permitted pursuant to Section 7.18 hereof and except the repayment of the
Indebtedness permitted to be incurred pursuant to Section 7.8(viii) hereof, at
any time, directly or indirectly, prepay any Indebtedness (other than to
Lenders), or repurchase, redeem, retire or otherwise acquire any Indebtedness of
any Borrower."
(p) Schedules 1.2, 4.5, 4.15(c), 4.19, 5.2(a),
5.2(b), 5.4, 5.6, 5.7, 5.8(b) and 5.8(d) and Exhibit 2.1(a) to the Loan
Agreement are replaced with Schedules 1.2, 4.5, 4.15(c), 4.19, 5.2(a), 5.2(b),
5.4, 5.6, 5.7, 5.8(b) and 5.8(d) and Exhibit 2.1(a), respectively, to this
Amendment and Schedule 7.8 to this Amendment is added as Schedule 7.8 to the
Loan Agreement.
(q) Upon the Amendment No. 4 Effective Date, the
Commitment Percentage of each Lender shall be adjusted to be the percentage set
forth below such Lender's name on the signature pages hereof.
4. Conditions of Effectiveness. This Amendment shall become
effective upon satisfaction of the following conditions precedent:
(i) Agent shall have received six (6) copies of this
Amendment duly executed by each Borrower and a Guaranty
Confirmation duly executed by Guarantor;
(ii) Agent shall have received the executed Amended
and Restated Revolving Notes in the form attached hereto as
Exhibit 2.1(a);
(iii) Each document (including, without limitation,
any Uniform Commercial Code financing statement) required by
the Loan Agreement or under law or reasonably requested by
Agent to be filed, registered or recorded in order to create,
in favor of Agent for its benefit and for the ratable benefit
of the Lenders, a perfected security interest in or lien upon
the Collateral owned by each of the New Borrowers shall have
been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation
thereof is so required or requested, and Agent shall have
received an acknowledgment copy, or other evidence
satisfactory to it, of each such filing, registration or
recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto;
(iv) Agent shall have received a copy of the
resolutions in form and substance reasonably satisfactory to
Agent, of the Board of Directors of (x) each of the New
Borrowers authorizing (1) the execution, delivery and
performance of this Amendment and (2) the granting by each of
the New Borrowers of the Liens upon the Collateral, certified
by the Secretary or an Assistant Secretary of each of the New
Borrowers as of the date of this Agreement; and (y) of all
Existing Borrowers authorizing (1) the execution, delivery and
performance of this
6
<PAGE> 7
Agreement and (2) the addition of each of the New Borrowers as
a "Borrower" under the Loan Agreement; and, such certificates
shall state that the resolutions thereby certified have not
been amended, modified, revoked or rescinded as of the date of
such certificate;
(v) Agent shall have received a copy of the Articles
or Certificate of Incorporation of each of the New Borrowers,
and all amendments thereto, certified by the Secretary of
State or other appropriate official of its jurisdiction of
incorporation together with copies of the By-Laws of each of
the New Borrowers certified as accurate and complete by the
Secretary or an Assistant Secretary of each of the New
Borrowers;
(vi) Agent shall have received good standing
certificates for each of the Borrowers dated not more than
thirty (30) days prior to the date of this Agreement, issued
by the Secretary of State or other appropriate official of
each of the Borrowers' jurisdiction of incorporation and each
jurisdiction where the conduct of each of the Borrowers'
business activities or the ownership of its properties
necessitates qualification;
(vii) Agent shall have received the executed legal
opinion of Milbank, Tweed, Hadley & McCloy, Richard Kolodny,
Esq. and Stikeman Elliot in form and substance satisfactory to
Agent regarding the due authorization, enforceability and
validity of this Amendment, the Affirmation of Guaranty and
the transactions contemplated herein;
(viii) Agent shall have received in form and
substance satisfactory to Agent, certified copies of each of
the New Borrowers' casualty insurance policies, together with
loss payable endorsements on Agent's standard form of loss
payee endorsement naming Agent as loss payee, and certified
copies of each of the New Borrowers' liability insurance
policies, together with endorsements naming Agent as a
co-insured;
(ix) Agent shall have received any and all Consents
necessary to permit the effectuation of the transactions
contemplated by this Agreement; and, Agent shall have received
such Consents and waivers of such third parties as might
assert claims with respect to the Collateral, as Agent and its
counsel shall deem necessary;
(x) Agent shall have received a letter from BIL
consenting to the transactions contemplated by this Amendment;
(xi) Agent shall have received (i) the Fee Letter
dated the date hereof executed by Borrowers and (ii) payment
of the line increase fee referenced in such Fee Letter;
(xii) Agent shall have received (i) final executed
copies of the Fuqua Merger Agreement and all related
agreements, documents and instruments as in effect on the
Amendment No. 4 Effective Date and the transactions
contemplated by such documentation shall be consummated
without waiver of any conditions precedent including, without
limitation, the merger of GFHP into Fuqua Enterprises, Inc.
and the subsequent name change to Lumex/Basic American
Holdings, Inc. and (ii) certificates of the appropriate
authorities evidencing such
7
<PAGE> 8
merger and name change; and
(xiii) Agent shall have received such other
certificates, instruments, documents and agreements as may
reasonably be required by Agent or its counsel, each of which
shall be in form and substance satisfactory to Agent and its
counsel.
5. Representations and Warranties. Each Borrower hereby
represents and warrants as follows:
(a) This Amendment and the Loan Agreement, as amended
hereby, constitute legal, valid and binding obligations of Borrowers and are
enforceable against Borrowers in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment, each
Borrower hereby reaffirms all covenants, representations and warranties made in
the Loan Agreement to the extent the same are not amended hereby and agree that
all such covenants, representations and warranties shall be deemed to have been
remade as of the effective date of this Amendment.
(c) No Event of Default or Default has occurred and
is continuing or would exist after giving effect to this Amendment.
(d) Borrowers have no defense, counterclaim or offset
with respect to the Loan Agreement.
6. Effect on the Loan Agreement.
(a) Upon the effectiveness of Section 3 hereof, each
reference in the Loan Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import shall mean and be a reference to the Loan
Agreement as amended hereby.
(b) Except as specifically amended herein, the Loan
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and
are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of Agent
or Lenders, nor constitute a waiver of any provision of the Loan Agreement, or
any other documents, instruments or agreements executed and/or delivered under
or in connection therewith.
(d) The Obligations under the Loan Agreement as
amended pursuant to this Amendment benefit fully from all collateral security
and guaranties with respect thereto.
7. Governing Law. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns and shall be governed by and construed in accordance with the laws of
the State of New York.
8. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE> 9
9. Counterparts. This Amendment may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed an original
and all of which when taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, this Amendment has been duly executed as
of the day and year first written above.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
GRAHAM-FIELD, INC.
GRAHAM-FIELD EXPRESS, INC.
GRAHAM-FIELD TEMCO, INC.
GRAHAM-FIELD DISTRIBUTION, INC.
GRAHAM-FIELD BANDAGE, INC.
GRAHAM-FIELD EXPRESS (PUERTO RICO), INC.
EVEREST & JENNINGS, INC.
LABAC SYSTEMS, INC.
MEDICAL SUPPLIES OF AMERICA, INC.
HEALTH CARE WHOLESALERS, INC.
H C WHOLESALERS, INC.
CRITICAL CARE ASSOCIATES, INC.
LUMEX/BASIC AMERICAN HOLDINGS, INC.
BASIC AMERICAN MEDICAL PRODUCTS, INC
LUMEX MEDICAL PRODUCTS, INC.
PRISM ENTERPRISES, INC
BASIC AMERICAN SALES AND DISTRIBUTION
CO., INC.
PRISTECH, INC.
LUMEX SALES AND DISTRIBUTION CO., INC.
MUL ACQUISITION CORP. II
By: /s/ Gary M. Jacobs
____________________________________
Gary M. Jacobs, Vice President
of each of the foregoing corporations
ATTEST:
/s/ Richard S. Kolodny
__________________________________
Richard Kolodny, Secretary
of each Existing Borrower, LaBac, Medapex,
Health Care, HCW and Critical
/s/ Mildred Hutcheson
__________________________________
Mildred Hutcheson, Secretary of each
New Borrower other than LaBac, Medapex,
Health Care, HCW and Critical
9
<PAGE> 10
IBJ SCHRODER BUSINESS CREDIT CORPORATION,
as Lender and as Agent
By: /s/ James M. Steffy
_________________________________________
James M. Steffy, Vice President
One State Street
New York, New York 10004
Commitment Percentage: 25.00%
NATIONAL CITY COMMERCIAL FINANCE, INC.
By: /s/ The Bank
_______________________________________
Name: _______________________________________
Title:_______________________________________
1965 East Sixth Street, Suite 400
Cleveland, Ohio 44114
Commitment Percentage: 25.00%
BTM CAPITAL CORPORATION
By: /s/ The Bank
_______________________________________
Name: _______________________________________
Title:_______________________________________
125 Summer Street, Fourth Floor
Boston, Massachusetts 02110
Commitment Percentage: 25.00%
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ The Bank
_______________________________________
Name: _______________________________________
Title:_______________________________________
Address:_____________________________________
_____________________________________________
Commitment Percentage: 25.00%
10
<PAGE> 1
Exhibit 10.12
AMENDMENT NO. 5
TO
REVOLVING CREDIT AND SECURITY AGREEMENT
THIS AMENDMENT NO. 5 ("Amendment") is entered into as of April
13, 1998, by and among GRAHAM-FIELD HEALTH PRODUCTS, INC., a corporation
organized under the laws of the State of Delaware ("Holdings"), GRAHAM-FIELD,
INC., a corporation organized under the laws of the State of New York ("Field"),
GRAHAM-FIELD EXPRESS, INC., a corporation organized under the laws of the State
of Delaware ("Express"), GRAHAM-FIELD TEMCO, INC., a corporation organized under
the laws of the State of New Jersey ("Temco"), GRAHAM-FIELD DISTRIBUTION, INC.,
a corporation organized under the laws of the State of Missouri
("Distribution"), GRAHAM-FIELD BANDAGE, INC., a corporation organized under the
laws of the State of Rhode Island ("Bandage"), GRAHAM-FIELD EXPRESS (PUERTO
RICO), INC., a corporation organized under the laws of the State of Delaware
("GFPR"), EVEREST & JENNINGS, INC., a corporation organized under the laws of
the State of California ("E & J"), LABAC SYSTEMS, INC., a corporation organized
under the laws of the State of Colorado ("LaBac"), MEDICAL SUPPLIES OF AMERICA,
INC., a corporation organized under the laws of the State of Florida
("Medapex"), HEALTH CARE WHOLESALERS, INC., a corporation organized under the
laws of the State of Georgia ("Health Care"), H C WHOLESALERS, INC., a
corporation organized under the laws of the State of Georgia ("HCW"), CRITICAL
CARE ASSOCIATES, INC., a corporation organized under the laws of the State of
Georgia ("Critical"), LUMEX/BASIC AMERICAN HOLDINGS, INC., a corporation
organized under the laws of the State of Delaware ("Lumex"), BASIC AMERICAN
MEDICAL PRODUCTS, INC., a corporation organized under the laws of the State of
Georgia ("Basic American"), LUMEX MEDICAL PRODUCTS, INC., a corporation
organized under the laws of the State of Delaware ("Lumex Medical"), PRISM
ENTERPRISES, INC., a corporation organized under the laws of the State of
Delaware ("Prism"), BASIC AMERICAN SALES AND DISTRIBUTION CO., INC., a
corporation organized under the laws of the State of Delaware ("Basic
Distribution"), PRISTECH, INC., a corporation organized under the laws of the
State of Delaware ("Pristech"), LUMEX SALES AND DISTRIBUTION CO., INC., a
corporation organized under the laws of the State of Delaware ("Lumex
Distribution") and MUL ACQUISITION CORP. II, a corporation organized under the
laws of the State of Delaware ("Mul Acquisition) (each a "Borrower" and
collectively "Borrowers"), the financial institutions which are now or which
hereafter become a party to (collectively, the "Lenders" and individually a
"Lender") the Loan Agreement (as defined below) and IBJ SCHRODER BUSINESS CREDIT
CORPORATION, a New York banking corporation ("IBJS"), as agent for Lenders
(IBJS, in such capacity, the "Agent").
<PAGE> 2
BACKGROUND
Borrowers, Lenders and Agent are parties to a Revolving Credit
and Security Agreement dated as of December 10, 1996, as amended by an Amendment
Letter dated May 15, 1997, Amendment No. 1 dated June 25, 1997, Amendment No. 2
dated July 9, 1997, Amendment No. 3 dated July 9, 1997, a Letter Amendment dated
September 18, 1997 and an Amendment No. 4 and Joinder Agreement dated December
30, 1997 (as further amended, supplemented or otherwise modified from time to
time, the "Loan Agreement") pursuant to which Lenders provide Borrowers with
certain financial accommodations.
Borrowers have requested that Agent and Lenders waive various
Events of Default that have occurred and to make certain amendments to the Loan
Agreement, and Agent and Lenders are willing to do so on the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of any loan or advance or
grant of credit heretofore or hereafter made to or for the account of Borrowers
by Agent and/or Lenders, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Loan Agreement.
2. Waiver. Subject to the satisfaction of the conditions
precedent set forth in Section 4 below, Agent and Lenders hereby waive the
Events of Default that have occurred as a result of Borrowers' non-compliance
with (i) Sections 6.6 and 6.7 of the Loan Agreement due to Borrowers' failure to
be in compliance with such sections for the period ending December 31, 1997 and
(ii) Section 9.9 of the Loan Agreement due to Borrowers' failure to deliver the
monthly financial statements referenced therein during 1997 and January and
February of 1998.
3. Amendment to Loan Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 4 below, the Loan Agreement is amended
as follows:
(a) The following definitions in Section 1.2 are
amended in their entirety to provide as follows:
"Earnings Before Interest and Taxes" shall mean for
any period the sum of (i) net income (or loss) of Borrowers on a Consolidated
Basis for such period (excluding extraordinary gains and losses), plus (ii) all
interest expense of Borrowers on a Consolidated Basis for such period, plus
(iii) all charges against income of Borrowers on a Consolidated Basis for such
period for federal, state and local taxes incurred.
"Revolving Interest Rate" shall mean an interest rate
per annum equal to (a) the Alternate Base Rate with respect to Domestic Rate
Loans and (b) the sum of the Eurodollar Rate plus two and one-quarter percent
(2.25%) with respect to Eurodollar Rate Loans.
(b) The following definitions are added to Section
1.2:
<PAGE> 3
"Amendment No. 5" shall mean Amendment No. 5 to
Revolving Credit and Security Agreement dated as of April 13, 1998.
"Amendment No. 5 Effective Date" shall mean the date
all of the conditions set forth in Section 4 of Amendment No. 5 have been
satisfied.
"Availability Reserve" shall mean $20,000,000.
"Restructuring Charges" shall mean the restructuring,
merger and other charges incurred by Borrowers and write-offs of purchased
in-process research and development costs as recorded in the financial
statements of Holdings for the year ending December 31, 1997.
"Restructuring Charge Reserve" shall mean (x)
$12,000,000 less the amount of cash payments of Restructuring Charges made after
the Amendment No. 5 Effective Date with the reduction being effective with the
making of a Revolving Advance and written evidence from Borrowers to Agent that
all or a portion of such Revolving Advance was used for the purpose of making
the applicable cash payment or (y) such other amount as may be mutually agreed
upon by Holdings and Agent based upon the amount of Restructuring Charges
projected to be paid.
(c) Section 2.1(a) of the Loan Agreement is amended
in its entirety to provide as follows:
"2.1 (a) Revolving Advances. Subject to the terms and
conditions set forth in this Agreement, each Lender, severally and not jointly,
will make Revolving Advances to Borrowers in aggregate amounts outstanding at
any time equal to such Lender's Commitment Percentage of the lesser of (x) the
Maximum Revolving Advance Amount less the sum of (i) the aggregate amount of
outstanding Letters of Credit and Acceptances and Spot Contracts and (ii) the FX
Reserve and (iii) the Restructuring Charge Reserve or (y) an amount equal to the
sum of:
(i) up to 85%, subject to the provisions of
Section 2.1(b) hereof ("Receivables Advance
Rate"), of Eligible Receivables, plus
(ii) up to the lesser of (A) 60%, subject to the
provisions of Section 2.1(b) hereof
("Inventory Advance Rate"), of the value of
the Eligible Inventory (the Receivables
Advance Rate and the Inventory Advance Rate
shall be referred to collectively, as the
"Advance Rates") or (B) $40,000,000 in the
aggregate at any one time (inclusive of
amounts advanced pursuant to clause (iii)
below), plus
(iii) the product of (a) the aggregate amount of
outstanding trade Letters of Credit times
(b) the Inventory Advance Rate, minus
(iv) the aggregate amount of outstanding Letters
of Credit and Acceptances and Spot
Contracts, minus
(v) the FX Reserve, minus
<PAGE> 4
(vi) the Availability Reserve, minus
(vii) the Restructuring Charge Reserve, minus
(viii) such reserves as determined in good faith by
Agent from time to time in the exercise of
its discretion in a reasonable manner,
including, without limitation, reserves for
Liens permitted under subparagraphs (h) and
(i) under the definition of Permitted
Encumbrances.
The amount derived from the sum of (x) Sections
2.1(a)(y)(i) and (ii) and (iii) minus the sum of (y) Sections 2.1 (a)(y)(v) and
(vi) and (vii) and (viii) at any time and from time to time shall be referred to
as the "Formula Amount". The Revolving Advances shall be evidenced by the
secured promissory notes ("Revolving Credit Notes") substantially in the form
attached hereto as Exhibit 2.1(a).
At such time as (i) the Receivables and Inventory of
E & J Canada are subject to a first priority perfected security interest in
favor of Agent and (ii) the eligibility criteria set forth in this Agreement are
met (it being deemed for purposes of this determination that E & J Canada is a
"Borrower"), the determination of the Formula Amount shall include the Eligible
Receivables and Eligible Inventory of E & J Canada."
(d) Sections 6.6(d) and 6.6(e) are amended in their
entirety and Section 6.6(f) is added to the Loan Agreement to provide as
follows:
"(d) of not less than 0.80 to 1.00 at the end of the
fiscal quarter ending June 30, 1998 for the
immediately preceding six (6) month period;
(e) of not less than 1.00 to 1.00 at the end of the
fiscal quarter ending September 30, 1998 for the
immediately preceding nine (9) month period; and
(f) of not less than 1.00 to 1.00 at the end of the
fiscal quarter ending December 31, 1998, and at the
end of each fiscal quarter thereafter, in each case
with respect to the four (4) fiscal quarters then
ended."
(e) Section 6.7(b) is amended in its entirety and
Sections 6.7(c), 6.7(d) and 6.7(e) are added to the Loan Agreement to provide as
follows:
"(b) Cause EBITDA to be equal to or greater than
$5,000,000 at the end of the fiscal quarter ending
March 31, 1998, for the immediately preceding three
(3) month period;
(c) Cause EBITDA to be equal to or greater than
$10,000,000 at the end of the fiscal quarter ending
June 30, 1998 for the immediately preceding six (6)
month period;
(d) Cause EBITDA to be equal to or greater than
$16,000,000 at the end of the fiscal quarter ending
September 30, 1998 for the immediately preceding nine
(9) month period; and
<PAGE> 5
(e) Cause EBITDA to be equal to or greater than
$23,000,000 at the end of the fiscal quarter ending
December 31, 1998 and at the end of each fiscal
quarter thereafter, in each case with respect to the
four (4) fiscal quarters then ended."
(f) The last sentence of Section 13.1 is amended in
its entirety to provide as follows:
"In the event the Obligations are prepaid in full
prior to the last day of the Term (the date of such prepayment hereinafter
referred to as the "Early Termination Date"), Borrowers shall pay to Agent for
the pro rata benefit of Lenders (based on their Commitment Percentages) an early
termination fee in an amount equal to one percent (1.00%) of the Maximum
Revolving Advance Amount if the Early Termination Date occurs on or after the
Closing Date to and including June 10, 1999."
4. Conditions of Effectiveness. This Amendment shall become
effective upon satisfaction of the following conditions precedent: Agent shall
have received (i) eight (8) copies of this Amendment executed by Borrowers and
Required Lenders and consented and agreed to by Guarantor, (ii) a $50,000
Amendment Fee for the ratable benefit of Lenders which execute this Amendment,
(iii) resolutions authorizing Borrowers to enter into this Amendment and the
transactions contemplated hereby and (iv) such other certificates, instruments,
documents, agreements and opinions of counsel as may be required by Agent,
Lenders or their counsel, each of which shall be in form and substance
satisfactory to Agent, Lenders and their counsel.
5. Representations and Warranties. Each Borrower
hereby represents and warrants as follows:
(a) This Amendment and the Loan Agreement, as amended
hereby, constitute legal, valid and binding obligations of Borrowers and are
enforceable against Borrowers in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment, each
Borrower hereby reaffirms all covenants, representations and warranties made in
the Loan Agreement to the extent the same are not amended hereby and agree that
all such covenants, representations and warranties shall be deemed to have been
remade as of the effective date of this Amendment.
(c) No Event of Default or Default has occurred and
is continuing or would exist after giving effect to this Amendment.
(d) Borrowers have no defense, counterclaim or offset
with respect to the Loan Agreement.
6. Effect on the Loan Agreement.
(a) Upon the effectiveness of Section 3 hereof, each
reference in the Loan Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import shall mean and be a reference to the Loan
Agreement as amended hereby.
<PAGE> 6
(b) Except as specifically amended herein, the Loan
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and
are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided in Section 2, operate as a
waiver of any right, power or remedy of Agent or Lenders, nor constitute a
waiver of any provision of the Loan Agreement, or any other documents,
instruments or agreements executed and/or delivered under or in connection
therewith.
(d) The Obligations under the Loan Agreement as
amended pursuant to this Amendment benefit fully from all collateral security
and guaranties with respect thereto.
7. Governing Law. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns and shall be governed by and construed in accordance with the laws of
the State of New York.
8. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
9. Counterparts. This Amendment may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed an original
and all of which when taken together shall constitute one and the same
agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 7
IN WITNESS WHEREOF, this Amendment has been duly
executed as of the day and year first written above.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
GRAHAM-FIELD, INC.
GRAHAM-FIELD EXPRESS, INC.
GRAHAM-FIELD TEMCO, INC.
GRAHAM-FIELD DISTRIBUTION, INC.
GRAHAM-FIELD BANDAGE, INC.
GRAHAM-FIELD EXPRESS (PUERTO RICO), INC.
EVEREST & JENNINGS, INC.
LABAC SYSTEMS, INC.
MEDICAL SUPPLIES OF AMERICA, INC.
HEALTH CARE WHOLESALERS, INC.
H C WHOLESALERS, INC.
CRITICAL CARE ASSOCIATES, INC.
LUMEX/BASIC AMERICAN HOLDINGS, INC.
BASIC AMERICAN MEDICAL PRODUCTS, INC
LUMEX MEDICAL PRODUCTS, INC.
PRISM ENTERPRISES, INC
BASIC AMERICAN SALES AND DISTRIBUTION
CO., INC.
PRISTECH, INC.
LUMEX SALES AND DISTRIBUTION CO., INC.
MUL ACQUISITION CORP. II
By: /s/ Irwin Selinger
_________________________________
Name: Irwin Selinger
Title: Chief Executive Officer of each
of the foregoing corporations
ATTEST:
/s/ Richard S. Kolodny
- ------------------------------
Name: Richard S. Kolodny
Title: Vice President, General Counsel
<PAGE> 8
CONSENTED AND AGREED TO:
EVEREST & JENNINGS CANADIAN LIMITED
By:/s/ Richard S. Kolodny
------------------------
Name: Richard S. Kolodny
----------------------
Title: Vice President, General Counsel
-------------------------------
IBJ SCHRODER BUSINESS CREDIT CORPORATION,
as Lender and as Agent
By: /s/ James M. Steffy
-------------------
James M. Steffy, Vice President
One State Street
New York, New York 10004
Commitment Percentage: 25.00%
NATIONAL CITY COMMERCIAL FINANCE, INC.
By: /s/The Bank
------------------------------
Name:
-----------------------------
Title:
-----------------------------
1965 East Sixth Street, Suite 400
Cleveland, Ohio 44114
Commitment Percentage: 25.00%
BTM CAPITAL CORPORATION
By: /s/ The Bank
------------------------------
Name:
-----------------------------
Title:
----------------------------
125 Summer Street, Fourth Floor
Boston, Massachusetts 02110
Commitment Percentage: 25.00%
<PAGE> 9
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ The Bank
------------------------------
Name:
----------------------------
Title:
---------------------------
Address:
-------------------------
---------------------------------
Commitment Percentage: 25.00%
<PAGE> 1
Exhibit 10.21
THIS ASSET PURCHASE AGREEMENT is made the 18 day of February one thousand
nine hundred ninety-eight (the "Agreement")
between:
GRAHAM-FIELD HEALTH PRODUCTS, INC., a limited company duly organized and
existing under the laws of the State of Delaware, having its registered office
at 400 Rabro Drive East, Hauppage, NY 11788, United States of America, in this
matter duly represented by Mr. Irwin Selinger in accordance with its Articles of
Association ("Graham-Field");
AND
PT. DHARMA POLIMETAL, a limited liability company duly organized and existing
under the laws of the Republic of Indonesia and having its principal place of
business at Jalan Raya Serang Km. 24 Balaraja, Tangerang, Indonesia, in this
matter duly represented by Mr. Joppy Kurniadi Negara, its President Director,
and Iwan Dewono Budiyuwono, a Director, in accordance with its Articles of
Association ("Dharma Polimetal")
AND
JOPPY KURNIADI NEGARA, a private person, Indonesian citizen, residing in
Jakarta, Billi & Moon Block CH4/14, RT.006/RW.0l0, Kelurahan Pondok Kelapa,
Kecamatan Duren Sawit, Jakarta Timur, Indonesia, holder of DKI Jakarta Identity
Card Number 5707.11701/2305590238 ("Joppy")
AND
IWAN DEWONO BUDIYUWONO, a businessman, Indonesian citizen, residing in Jalan
Tulodong Bawah III/42, Senayan, Kebayoran Baru, Jakarta Selatan, Indonesia,
holder of DKI Jakarta Identity Card Number 09.5307.021260.0161 ("Iwan")
WHEREAS
A. It is the intention of the Parties that PT. Dharma Medipro (the
"Company"), a limited liability company duly established under the laws of
the Republic of Indonesia and having its domicile at Serang, shall own,
operate and manage the wheelchair assets of Dharma Polimetal as part of
its own health care related businesses and that Graham-Field will become a
direct shareholder in the Company, however the Parties acknowledge that
the corporate structure of the Company will have to be reorganized prior
to the transaction contemplated by this Agreement being completed.
B. All the issued capital in Dharma Polimetal is presently registered in the
following names:
Joppy Kurniadi Negara 4896 shares
Iwan Dewono Budiyuwono 125 shares
<PAGE> 2
C. All the issued capital in the Company is presently registered in the
following names:
Joppy Kurniadi Negara 1,053 shares
Dharma Polimetal 1,097 shares
D. Graham-Field, Dharma Polimetal, Joppy and Iwan (hereinafter collectively
referred to as the "Parties" and singly as a "Party") have agreed to
restructure the assets and various business of Dharma Polimetal and
corporate structure of the Company. Subsequent to the restructure of the
Company it shall own, operate and manage the Wheelchair Assets and foreign
entities shall be entitled to be shareholders therein (the "Everest and
Jennings Company")
E. Joppy and Iwan have agreed that their rights as shareholders in Dharma
Polimetal and their indirect and direct interests in the Company, shall be
regulated by the provisions of this Asset Purchase Agreement, subject to
the prevailing laws of the Republic of Indonesia, and they will personally
use their best endeavours to ensure the spirit and intention of this
Agreement is fulfilled.
F. Graham-Field, or its nominee in writing has agreed to acquire, subject to
Dharma Polimetal and the Company obtaining all approvals required by law
in the Republic of Indonesia including without limitation approval from
the Relevant Authorities and the shareholders of Dharma Polimetal and the
Company, indirect ownership of the assets of the wheelchair related
business of Dharma Polimetal (the "Wheelchair Assets") via Graham-Field's
direct shareholding in the Everest and Jennings Company.
G. Subject to the conditions herein contained, Dharma Polimetal has agreed to
assign to the Company and the Company has agreed to accept, the assignment
from Dharma Polimetal of the Wheelchair Assets, and Joppy and Iwan have
agreed to cause Dharma Polimetal to assign the Wheelchair Assets to the
Company, in consideration of the Purchase Price of which US$ 3,500,000
(three million and five hundred United States Dollars) is paid hereunder.
The precise amount of the Purchase Price will be mutually agreed at a
later date by the Parties.
IT IS HEREBY AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1. Definitions: In this Agreement, unless the subject or context otherwise
requires, the following words and expressions shall have the meanings
respectively assigned below to each such word or expression:
"Auditors" such firm of internationally known Chartered
Accountants or Certified Public Accountants,
as the case may be, as shall be appointed the
auditors for the time being of Dharma
Polimetal, the Company and the Everest and
Jennings Company respectively;
<PAGE> 3
"Articles of Association
of the Company" the Articles of Association of the Company as
set out in Appendix B, and as to be amended
pursuant hereto, as the context requires;
"Board" the Board of Directors of the Company, the
Everest and Jennings Company and/or Dharma
Polimetal as the context requires;
"Directors" the directors for the time being composing the
Board of Directors of the Company, the Everest
and Jennings Company or Dharma Polimetal as
the context requires;
"Relevant Authorities" any Indonesian government institutions or
agencies which have authority over the
establishment and operations of the Company,
the Everest and Jennings Company and Dharma
Polimetal, respectively, and the matters
provided by this Agreement;
1.2 Interpretation:
(i) Any reference to statutory provisions shall include such provisions as
from time to time are modified or re-enacted so far as such modification
or re-enactment applies or is capable of applying to any transactions
entered into hereunder.
(ii) References to Clauses, paragraphs, Schedules and Appendices are to
Clauses, paragraphs, Schedules and Appendices of this Agreement.
(iii) The headings are for convenience only and shall not affect the
interpretation hereof.
(iv) Unless the context otherwise requires or permits, references to the
singular number shall include references to the plural number and vice
versa, and references to natural persons shall include bodies corporate
and there shall be no distinction as to gender.
(v) References to "US$" and "United States Dollars" are to the lawful
currency of the United States of America.
2. CONDITIONAL AGREEMENT
2.1 This Agreement is conditional upon:
(i) the restructuring of the Company and Dharma Polimetal in accordance
with the provisions of Clause 3; and
<PAGE> 4
(ii) the receipt by the Company, the Everest and Jennings Company, Dharma
Polimetal and Graham-Field, respectively, of all material approvals,
permits and licences from the Relevant Authorities necessary for the
Company, the Everest and Jennings Company, Dharma Polimetal and
Graham-Field each to carry on its business and perform the obligations as
contemplated herein;
(iii) the Board approval of the transaction contemplated herein;
(iv) the approval of the shareholders of each of Dharma Polimetal, the
Everest and Jennings Company and/or the Company pursuant to the Articles
of Association of each and Law No. 1 of 1995 on Limited Liability
Companies; and
(v) the mutual written agreement of the Parties in regard to the level of
shareholding of each in the Everest and Jennings Company after it has been
restructed and the Purchase Price to be paid by the Company, or the
Everest and Jennings Company as the case may be, for the Wheelchair
Assets.
2.2 If the conditions specified in Clause 2.1 are not fulfilled or waived in
writing within six (6) months of the date hereof (or by such later date as
the Parties may agree in writing, in the event the Parties in good faith
agree on an alternative approach or approaches to the transactions
contemplated hereby which shall have essentially the same economic effect)
then this Agreement shall ipso facto cease and determine, and neither of
the Parties shall have any claim against the other for costs, damages,
compensation or otherwise, except that Graham-Field shall be entitled to
be reimbursed by Dharma Polimetal within 10 (ten) days from the date this
Agreement was determined by Graham-Field for all monies which it has
advanced, plus any outstanding interest thereon, to Dharma Polimetal
pursuant to this Agreement without any deduction or set off whatsoever.
2.3 On or before 20 February 1998, in advance of the conditions set out herein
being satisfied and the approval of the shareholders, Directors and
Commissioners of Dharma Polimetal and the Company respectively and the
Relevant Authorities, Graham-Field shall advance to Dharma Polimetal US$
3,500,000 (three million five hundred United States Dollars) against the
future assignment and transfer of the Wheelchair Assets by Dharma
Polimetal to the Company, by way of deposit for the Purchase Price of a
direct interest in the shareholding of the Company after that Company has
acquired the Wheelchair Assets (the "Advance").
2.4 The Purchase Price of the Wheelchair Assets shall be calculated as soon as
practicable on terms and conditions to be agreed between the Parties in
writing, which shall include consideration of the net book value of the
Wheelchair Assets which shall be determined based on the latest December
1997 year-end audited balance sheet of Dharma Polimetal, subject to
adjustment based upon the audited balance sheet of Dharma Polimetal as at
31 June 1998 and subject to adjustment based upon such verification
procedures as Graham-Field may reasonably determine.
<PAGE> 5
2.5 Dharma Polimetal's obligation to sell all of the Wheelchair Assets and the
reimbursement of the Advance pursuant to this Clause 2, shall be secured
to Graham-Field by Joppy and Iwan's pledge to Graham-Field all of their
shares in Dharma Polimetal pursuant to a pledge agreement in customary
form and otherwise to be agreed by the Parties in substantially the same
form as attached as Exhibit A or such alternative security as Graham-Field
may reasonably require.
2.6 Dharma Polimetal shall pay to Graham-Field the sum of US$ 30,000 (thirty
thousand United States Dollars) each calendar month commencing from the
first monthly anniversary of the date of this Agreement being the 20th
(twentieth) day of each month in consideration of the Advance having been
made by Graham-Field (which sum shall be equal to an interest rate of
10.3% per annum of the Advance) until such time as the Advance and any
outstanding interest thereon has been repaid in full to Graham-Field
pursuant to Clause 2.2 or the advance has been applied against the
purchase contemplated in Clause 2.4. In the event less than the amount of
the Advance is required to match the Purchase Price pursuant to Clause 2.4
then Graham-Field shall be entitled to be reimbursed the balance and in
the event there is a shortfall Graham-Field shall be required to
contribute further funds, proportionate to the interest of Graham-Field in
the Everest and Jennings Company.
2.7 Dharma Polimetal shall be required to deduct US$ 2.50 (two dollars and
fifty United States cents) from each wheelchair billed to Graham-Field
until such time as this Agreement either expires or is terminated
commencing from the date of this Agreement. The total reduction on the
unit price of each wheelchair shall therefore be US$ 6.50 six dollars and
fifty United States cents).
3. RESTRUCTURING OF DHARMA POLIMETAL AND THE COMPANY
3.1 Joppy and Iwan hereby warrant to Graham-Field that they will keep
Graham-Field fully informed of the financial condition of Dharma Polimetal and
the Company, or Everest and Jennings Company as the case may be, in all material
respects at all times, and that Dharma Polimetal and the Company are duly
incorporated and existing, and that the issued capital of each is free from any
encumbrances except those encumbrances specifically listed in Appendix C.
3.2 As soon as practicable after the execution of this Agreement, Joppy and
Dharma Polimetal, shall cause the Company:
(a) seek approval from Badan Koordinasi Penanaman Modal to convert the
status of the Company to a foreign investment company;
(b) to amend its Articles of Association so as to restate same in a form
to be agreed by the Parties and which is consistent with the terms of this
Agreement and to insure that the Company conforms in all material aspects
with this Agreement including without limitation, approval from the
Relevant Authorities to enable Graham-Field to become a direct majority
shareholder in the Company;
<PAGE> 6
(c) take such steps as may be necessary to vary, transfer or otherwise
revise the Board of Directors and Commissioners of the Company to conform
with the respective provisions contained in this Agreement; and
(d) make such other changes as may be necessary or desirable to properly
reflect the provisions and intent of this Agreement and seek all necessary
material approvals from the Relevant Authorities.
4. COMPANY ACTIONS REQUIRING APPROVAL FROM GRAHAM-FIELD
The Parties agree and shall procure that the Company and Dharma Polimetal
each shall not, without the prior written approval of Graham-Field:
(i) to purchase, sell or by any other way relinquish rights to immovable
assets, or to encumber any assets, other than in the ordinary course of
business;
(ii) make any distribution of profits by way of dividend;
(iii) borrow money or make loans (but not including credit facilities
already obtained or granted) except in the ordinary course of business;
(iv) dispose of any asset with a book value in excess of US$1,000 (one
thousand United States Dollars), other than in the ordinary course of
business, except where such asset relates to the non-wheelchair business
of Dharma Polimetal;
(v) increase, reduce or cancel its authorized or issued share capital or
issue or grant any option over its unissued share capital;
(vi) amend its Articles of Association;
(vii) increase or reduce the number of members comprising its Board of
Directors or Board of Commissioners;
(viii) enter into a scheme of reconstruction or amalgamation or commence
voluntary liquidation; or
(ix) approve its annual budget (but if no approval of the annual budget is
reached within fourteen (14) days, then the annual budget shall be the
same as the budget for the previous financial year).
(x) bind the Company or Dharma Polimetal as guarantor; and
(xi) establish new businesses, except where such new business relates to
the non-wheelchair business of Dharma Polimetal.
<PAGE> 7
5. TRANSFER RESTRICTIONS ON DHARMA POLIMETAL AND COMPANY SHARES
Neither Dharma Polimetal nor Joppy shall not transfer any of its or his
shares or other securities in the Company and neither Joppy nor Iwan shall
transfer their shares in Dharma Polimetal, otherwise than in accordance with
the provisions hereof and neither shall otherwise sell, charge, encumber or
dispose of all or any part of their interest in their shares of Dharma Polimetal
or the Company unless the written consent of Graham-Field is first had and
obtained.
6. DURATION AND TERMINATION
This Agreement shall take effect without limit in point of time but, upon
the transfer by Dharma Polimetal of the entirety of its shares in the Company to
Graham-Field, or its nominee, and the acquisition by Graham-Field, or its
nominee, of the Wheelchair Assets, each Party shall be released from all its
obligations hereunder (unless otherwise provided herein). The Parties each waive
any provision of applicable law which may be construed to require judicial
intervention or approval for the termination of this Agreement under any
circumstances, including Articles 1266 and 1267 of the Civil Code of Indonesia.
7. CONFIDENTIALITY
7.1 All communications between the Parties and the Company or any of them, and
all information and other material supplied to or received by any of them from
the others, which is either marked "confidential" or is by its nature intended
to be exclusively for the knowledge of the recipient alone, and any information
concerning the business transactions or the financial arrangements of the
Parties and the Company or of any person with whom any of them has a
confidential relationship with regard to the matter in question, which comes to
the knowledge of the recipient shall be held in strict confidence unless or
until the recipient can reasonably determine (i) that it is or part of it is, in
the public domain, whereupon, to the extent that it is public, this obligation
shall cease or (ii) it is required to be furnished to the bankers or investors
or potential investors of or in any of the Parties or to any regulatory agencies
involving any of the Parties, and in such cases, this obligation shall cease
only to the extent required under the respective circumstances.
7.2 Joppy and Iwan shall procure the observance of the abovementioned
restrictions by Dharma Polimetal and the Company and shall take all reasonable
steps to minimize the risk of disclosure of confidential information, by
ensuring that only their employees, directors, managers and those employees of
Dharma Polimetal and the Company whose duties require them to possess any of
such information shall have access thereto, and that they shall be instructed to
treat the same as confidential.
7.3 The obligations contained in this Clause shall endure, even after the
termination of this Agreement, without limit in point of time except and until
any confidential information enters the public domain as set out above.
<PAGE> 8
8. NOTICE AND GENERAL MATTERS
A11 notices, demands or other communications required or permitted to be
given or made hereunder shall be in writing and delivered personally or sent by
fax addressed to the intended recipient thereof at its address set out below or
at its fax number set out below (or to such other address or fax number as any
Party may from time to time duly notify the others). Any such notice, demand or
communication shall be deemed to have been duly served immediately. The
addresses and fax numbers of the Parties for the purposes of this Agreement are:
(i) Graham-Field Health Products, Inc.
Attn: Mr. Irwin Selinger
Address: 400 Rabro Drive
East Hauppage, NY 1788
United States of America
Tel. No.: (516) 582 5900
Fax No.: (516) 582 5608
(ii) PT. Dharma Polimetal
Address: Jl. Raya Serang Km. 24
Balaraja, Tangerang
Jawa Barat
Tel. No.: (21) 5951634
Fax No.: (21)5951628
(iii) Joppy Kurniadi Negara
Address: Billi & Moon Block CH4/14,
RT.006/RW.010.
Kelurahan Pondok Kelapa,
Kecamatan Duren Sawit, Jakarta Timur
(iv) Iwan Dewono Budiyuwono
Address: Jl. Tulodong Bawah III/43
Senayan, Kebayoran Barn
Jakarta Selatan
8.2 No remedy conferred by any of the provisions of this Agreement is intended
to be exclusive of any other remedy which is otherwise available at law, in
equity, by statute or otherwise, and each and every other remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law, in equity, by statute or
<PAGE> 9
otherwise. The election of any one or more of such remedies by any of the
Parties hereto shall not constitute a waiver by such Party of the right to
pursue any other available remedies.
8.3 In the event of any inconsistency between the provisions of this Agreement
and the Articles of Association of Dharma Polimetal or the Company, the
provisions of this Agreement shall, as between the Parties, prevail and the
Parties shall cause the Articles of Association of Dharma Polimetal or the
Company to be amended to conform herewith to the extent permitted by law and
practice. Any other matters not specifically provided for in this Agreement
shall be mutually agreed in writing by the Parties and this Agreement shall
prevail over the terms of any previous discussions or written agreements to the
extent they conflict with terms of this Agreement or any written amendment
hereto.
8.4 Save as expressly provided in this Agreement, the respective rights and
obligations of the Parties hereto shall not be assignable or transferable except
to a statutory successor in interest of a Party to this Agreement or otherwise
with the consent of the other Party, with the express exception that
Graham-Field shall be entitled to assign or transfer any of its rights and
obligations hereunder.
8.5 The Parties shall bear their own costs and expenses in respect of the
preparation and negotiation of this Agreement, but the Parties shall take such
steps as may be in their power to procure that Dharma Polimetal and the Company,
to the extent permitted by law, reimburses them for any costs and expenses
incurred by them in connection with the reorganization of Dharma Polimetal and
the Company.
8.6 The Parties shall execute and do and take such steps as may be in their
power to procure that all other necessary persons, if any, execute all such
further documents, agreements, deeds, acts and things as may be required so that
the full extent may be given to the provisions of this Agreement.
8.7 If any provision of this Agreement or part thereof is rendered void, illegal
or unenforceable by any legislation to which it is subject, it shall be rendered
void, illegal or unenforceable to that extent and no further unless the part
rendered void, illegal or unenforceable goes to the essence of this Agreement
and the Parties are unable to agree on any adequate substitute provision which
is not void, illegal or unenforceable.
8.8 Nothing contained in or relating to this Agreement shall constitute or be
deemed to constitute a partnership between the Parties hereto.
8.9 Both parties will try to amicably settle any dispute that may arise. The
Parties agree that any dispute arising out of or in connection of this
Agreement, including without limitation any question regarding its existence,
validity, termination, or the rights or obligations of either of them that
cannot be settled amicably within sixty (60) days after it has been first raised
in writing (unless further extended by Parties) shall be settled by arbitration
under the Arbitration Rules of UNCITRAL (the "Rules"). The arbitration shall be
conducted in Singapore by 3 (three) arbitrators appointed in accordance with the
Rules. In the absence of agreement on the third arbitrator, he or she shall be
appointed by the International Chamber of Commerce, Singapore. Any notice of
arbitration, response or other communications given to or by a Party to the
arbitration shall be given and deemed received
<PAGE> 10
as provided in the Rules. The costs of the arbitration shall be determined and
paid by the Parties to the arbitration as provided in the Rules. In order to
further ensure the final and binding nature of the arbitral award, the Parties
expressly agree to waive to the extent permitted by applicable law the following
to the extent otherwise applicable: Section 641 of the Reglement op de
Rechtsvordering ("R.V.") and any rights they may have under Article V.(I) and
Article VI of the 1958 New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, so that there will be no appeal to any court from the
decision of the arbitral tribunal. No Party, as against the other, shall be
entitled to commence or maintain any action in a court of law upon any matter in
dispute arising from or in relation to this Agreement except for the enforcement
of an arbitral award made in accordance with this Clause. During the period of
the submission to arbitration and thereafter until the publication of the
arbitral award, the Parties shall, except in the event of termination, continue
to perform all their obligations hereunder. The provisions contained in this
Article shall survive the termination and/or expiration of this Agreement.
8.10 This Agreement shall be governed by and construed in accordance with the
laws in force in the Republic of Indonesia;
8.11 This Agreement may consist of a number of counterparts which taken together
constitute one and the same instrument.
<PAGE> 11
IN WITNESS WHEREOF this Agreement has been entered into on the date stated
at the beginning.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Irwin Selinger
--------------------------------
Name: Mr. Irwin Selinger
Title:
/s/ Gina Marie Ciero
-----------------------------------
Witness
PT. DHARMA POLIMETAL
[SEAL]
By: /s/ Joppy Kurniadi Negara
--------------------------------
Name: Joppy Kurniadi Negara
Title: President Director
By: /s/ Iwan Dewono Budiyuwono
--------------------------------
Name: Iwan Dewono Budiyuwono
Title: Director
JOPPY KURNIADI NEGARA
/s/ JOPPY KURNIADI NEGARA
-----------------------------------
<PAGE> 12
IWAN DEWONO BUDIYUWONO
/s/ IWAN DEWONO BUDIYUWONO
-----------------------------------
<PAGE> 13
EXHIBIT A
PLEDGE OF SHARES AGREEMENT
THIS PLEDGE OF SHARES AGREEMENT (the "Agreement") is entered into this 18 day of
February, 1998
BETWEEN:
(1) GRAHAM-FIELD HEALTH PRODUCTS INC., a limited liability company duly
organized and existing under the laws of the State of Delaware, with its
registered office at 400 Rabro Drive East, Hauppage, NY 11788 (the
"Pledgee"); and
(2) MR. JOPPY KURNIADI NEGARA, a private person, Indonesian citizen, residing
in Jakarta, Billi & Moon Block CH4/14, RT.006/RW.010, Kelurahan Pondok
Kelapa, Kecamatan Duren Sawit, Jakarta Timur, Indonesia, holder of DKI
Jakarta Idenity Card Number 5707.11701/2305590238, and
MR. IWAN DEWONO BUDIYUWONO, a private person, Indonesian citizen, residing
in Jalan Tulodong Bawab III/42, Senayan, Kebayoran Baru, Jakarta Selatan,
Indonesia, holder of DKI Jakarta Identity Card Number 09.5307.021260.0161
(collectively known as the "Pledgors");
WHEREAS:
A. PT. DHARMA POLIMETAL is a limited liability company duly organized and
existing under the laws of the Republic of Indonesia and having its
principal place of business at Jalan Raya Serang Km. 24 Balaraja,
Tangerang, Indonesia ("Company").
B. The Pledgors are the registered holders of all issued shares in the total
issued capital of the Company.
C. PT. Dharma Medipro is a limited liability company duly organized and
existing under the laws of the Republic of Indonesia and having its
domicile at Serang ("Medipro"), the issued share capital of which is held
entirely by the Company and Mr. Joppy Kurniadi Negara.
D. The Pledgors wish to approve the transfer the wheelchair assets of the
Company to Medipro, subject to the terms and conditions of the Asset
Purchase Agreement.
E. The Pledgors and the Pledgee have entered into an Asset Purchase Agreement
on 18 February 1998 whereby the Pledgee has agreed with the Pledgors that
in consideration of the advance payment of US$ 3,500,000 (three million
five hundred United States Dollars), to the Company being part of the
purchase price
<PAGE> 14
2
for direct equity in Medipro after Medipro has been restructured in
accordance with the said Asset Purchase Agreement, the Company will
transfer its wheelchair assets to Medipro and the Pledgee will become a
direct equity shareholder in Medipro.
F. The Pledgee would not have advanced moneys to the Company under the Asset
Purchase Agreement without security being given by the Pledgors, including
but not limited to the security established by this Agreement.
G. Pursuant to the Asset Purchase Agreement, the Pledgors agreed to pledge to
the Pledgee all of the shares held by them, and to be held by them, in the
Company, in order to secure repayment of all amounts advanced by the
Pledgee to the Company under the Asset Purchase Agreement and any
agreements supplemental or ancillary thereto (such amounts, whether now or
hereafter existing, including but not limited to the principal hereinafter
collectively referred to as the "Debt").
OPERATIVE TERMS AND CONDITIONS:
Article 1
PLEDGE OF SHARES AND SECURITY
1.1 The Pledgors hereby irrevocably and unconditionally agree with the Pledgee
that effective from the date hereof, the Pledgors pledge and surrender to
the Pledgee all of the shares owned by the Pledgors in the Company, being
the total issued share capital of the Company and the Pledgors further
irrevocably and unconditionally covenant and agree to immediately pledge
and surrender to the Pledgee any additional shares, rights or entitlements
which they may acquire in the Company at any time in the future by way of
further security for repayment of the entire Debt (the "Shares").
1.2 The Pledgors undertake and agree to cause all share certificates issued to
the name of the Pledgors in respect of any shareholding or other financial
interests in the Company which they may each hereafter acquire to be
delivered by the Board of Directors of the Company to the Pledgee, or a
custodian nominated by the Pledgee, for safekeeping and security purposes.
1.3 This Agreement forms an integral part of the Asset Purchase Agreement and
any other agreements supplemental or ancillary thereto. Such agreements
would not have been entered into, nor monies advanced by the Pledgee to
the Company under the Asset Purchase Agreement without the Pledgors having
entered into this Agreement with the Pledgee. Therefore the pledge made
hereunder and the power of attorney hereunder referred to shall be
irrevocable for so long as and any part of the Debt remains outstanding
under the terms of the Asset Purchase Agreement.
1.4 The Pledgors shall immediately notify the Company and the directors and
responsible officers thereof of this Agreement, and shall instruct such of
its
<PAGE> 15
3
directors and officers to furnish the Pledgee with copies of all notices
or other correspondence which may be sent or given to any shareholder
including without limitation all notices of general and extraordinary
shareholders' meetings, notices of dividends, calls for subscription
payments, annual or other periodic reports and financial statements or any
other notice with respect to any shareholder of the Company.
1.5 This Agreement shall have immediate force and effect from the date of
execution by the Parties.
Article 2
SUBSCRIPTION RIGHTS
The Pledgors shall make all subscription payments or other payments to the
Company or any other party as the Company's Board of Directors shall direct and
shall hold the Pledgee harmless from liability caused by the Pledgors' failure
to do so.
Article 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 The Pledgors hereby represent and warrant to the Pledgee that the Shares
shall not be subject to any other pledge, lien, charge or encumbrance of
any kind whatsoever and that they are each the true and rightful owner of
the Shares and now have and shall at all times hereafter have full power
and authority over the Shares and to surrender and deliver share
certificates for the Shares to the Pledgee.
3.2 During the term of this Agreement the Pledgors shall not without prior
written consent of the Pledgee (i) sell or otherwise transfer the Shares,
(ii) grant or allow to be created any lien, charge or other encumbrance of
any kind over or in respect of the Shares, (iii) subject, or attempt to
subject, the Shares to any other pledge, or (iv) cause any further shares
to be issued in the Company.
3.3 The Pledgors shall cause the pledge hereby created over the Shares to be
recorded in the special register of charges, pledges and other
encumbrances over share capital which is kept and maintained by each of
the Company.
Article 4
UNCONDITIONAL AGREEMENT
The pledge created by this Agreement, the delivery of share certificates
covering the Shares at the appropriate time, and the obligations of the Pledgors
hereunder, are unconditional and shall not be affected by any invalidity or
unenforceability of this Agreement or any provision hereof, or any agreement
supplemental or ancillary thereto. The liability, responsibilities and rights
and obligations of each Pledgor are joint and several.
<PAGE> 16
4
Article 5
ENFORCEMENT SALE
5.1 In the event that:
(a) any of the Pledgors default upon their responsibilities and
obligations as defined in the Asset Purchase Agreement or any
agreement executed by the Pledgors pursuant to the Asset Purchase
Agreement; or
(b) any event occurs which, upon the giving of notice or the lapse of
time or both, would constitute an event of default as described in
paragraph (a).
the Pledgee may take whatever action it, in its sole and absolute
discretion, deems necessary to protect its rights hereunder including, but
not by way of limitation, selling or otherwise transferring the Shares to
any person or entity (including itself) by private in good faith
transaction, after due solicitations of interest from prospective buyers,
public sale, or by any other type of sale pursuant to the laws of the
Republic of Indonesia at whatever time, location and price, on such terms
and conditions as the Pledgee may in its reasonable opinion deem to be
appropriate.
5.2 If the Pledgee takes any action pursuant to Article 5.1, then the Pledgors
unconditionally and irrevocably undertakes, promises and covenants to
cooperate fully with the Pledgee and any third parties in respect of such
action and that it will not take any action to challenge the validity of
the Pledgee's actions or to limit or diminish the rights of the Pledgee in
respect of such matters.
The Pledgors hereby irrevocably and unconditionally agree to forego and
waive all rights to assert any interest, claim or right of redemption with
respect to the Shares against any purchaser or other transferee, whether
or not such interest, claim, or right may exist under the laws or
regulations of the jurisdiction where the Shares are situated or any other
jurisdiction.
5.3 Upon the occurrence of such sale and transfer, the Pledgors shall be
entitled to receive the balance of any net proceeds from the sale of the
Shares in excess of the Debt and conversely in the event there is a
shortfall in the said net proceeds then the Pledgors shall be obligated to
make good the deficiency and interest shall accrue on the outstanding
amount at the rate of 10.3% (ten point three percent) per annum until such
time as the Pledgee receives full satisfaction of the Debt.
Article 6
POWER OF ATTORNEY
In order to ensure and protect the Pledgee's rights pursuant to the Asset
Purchase Agreement, including without limitation, the Pledgee's rights under
Article 5 of this Agreement, the Pledgors hereby irrevocably and
unconditionally appoint each of the directors of the Pledgee and / or its
attorneys to be its lawful attorney, with full right of
<PAGE> 17
6
9.2 Variation
The terms of this Agreement may only be amended, waived, discharged or
terminated by instrument in writing signed by each of the Pledgors and the
Pledgee.
9.3 Non-waiver
Failure by the Pledgee to exercise any and all of its rights hereunder, or
any partial exercise thereof, shall not act as a waiver of such rights,
granted hereunder or by general law.
9.4. Severability
If one or more of the provisions hereof shall be invalid, illegal or
unenforceable in any respect under any applicable law or decision, the
validity, legality and enforceability of the remaining provisions
contained herein shall not be effected or impaired in any way. The
Pledgors shall in any such event execute such additional documents as the
Pledgee may request in order to give effect to any provision hereof which
is determined to be invalid, illegal or unenforceable.
9.5 Governing Law
This Agreement and the performance hereof will be governed by the laws of
the Republic of Indonesia, without regard to its conflict of laws rules
and the forum for the resolution of any dispute in respect of this
Agreement shall be Singapore pursuant to arbitration as provided under the
UNCITRAL rules as set out in the Asset Purchase Agreement.
9.6 Language
This Agreement is executed in a text using the English language which
shall be the governing language despite translation into any other
language. If another language translation of this Agreement be required
for any purpose whatsoever, the parties agree that the Pledgee shall
provide such translation prepared by a sworn translator at the Pledgors's
cost, which shall not be contested by the Pledgors save for manifest
error.
9.7 Assignment
The Pledgee may assign or transfer any of its rights or obligations
hereunder, or any part thereof, to any party, provided, that upon such
assignment or transfer it shall thereafter give written notice thereof to
the Pledgors and to the Company, to be registered in the Company's
register of shareholders and special register of shares.
<PAGE> 18
7
The Pledgors shall not assign or transfer any of their rights or
obligations hereunder, or any part thereof to any party without the prior
written consent of the Pledgee.
9.8 Headings
The headings of the Sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof or
affect in any way the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF the parties hereto have executed and entered into this
Agreement on the date set out above.
JOPPY KURNIADI NEGARA
[Graphic omitted]
/s/ JOPPY KURNIADI NEGARA
- ----------------------------------
/s/ Lara Jacqueline Peake
- ----------------------------------
Signature of Witness
Lara Jacqueline Peake
c/ Makarim & Tacra S.
Summitmasi
Ji. Jend. Sudirman, Jakarta.
- ----------------------------------
Full name and address of Witness
IWAN DEWONO BUDIYUWONO
/s/ IWAN DEWONO BUDIYUWONO
- ----------------------------------
/s/ Lara Jacqueline Peake
- ----------------------------------
Signature of Witness
Lara Jacqueline Peake
c/ Makarim & Tacra S.
Summitmasi
Ji. Jend. Sudirman, Jakarta.
- ----------------------------------
Full name and address of Witness
<PAGE> 19
8
SIGNED for and on behalf of )
GRAHAM-FIELD HEALTH, INC. )
in accordance with its articles of association )
in accordance by its duly authorised officer )
/s/ Gina Marie Cicero
- ----------------------------------
Signature of Witness
Gina Marie Cicero
Gina Marie Cicero, 86 KENWOOD DR., BOHEMIA, NY 11716
- ----------------------------------------------------
Full name and address of Witness
<PAGE> 1
Exhibit 10.46
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of March 2, 1998, by and between
GRAHAM-FIELD HEALTH PRODUCTS, INC., a Delaware corporation having its principal
place of business at 400 Rabro Drive East, Hauppauge, New York 11788 (the
"Company"), and PAUL BELLAMY, residing at 21 Indian Head Road, Greenwich,
Connecticut 06878 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the Executive as its
Vice President of Finance and Chief Financial Officer to advance the business
and interests of the Company on the terms and conditions set forth herein; and
WHEREAS, the Executive desires to provide his services to the
Company in such capacities, on and subject to the terms and conditions hereof;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions
hereof, the Company does hereby employ the Executive, effective as of March 2,
1998 (the "Effective Date") for a term commencing on the date hereof and ending
on the date which is three (3) years after the date hereof (subject to early
termination as provided herein) (the "Term") as its Vice President of Finance
and
<PAGE> 2
Chief Financial Officer, and the Executive does hereby accept such employment.
2. DUTIES OF EXECUTIVE. The Executive shall, during the Term,
perform such executive and administrative duties and functions as may from time
to time be appropriate to and consistent with his position as Vice President of
Finance and Chief Financial Officer of the Company, subject at all times to the
control and direction of the Board of Directors and Chief Executive Officer of
the Company. The Executive agrees to devote substantially all of his business
time to the business and affairs of the Company. The Executive agrees to perform
his duties hereunder faithfully, diligently and to the best of his abilities and
to refrain from engaging in any other business activity that does, will or could
be deemed to interfere with the performance of his duties hereunder or does,
will or could reasonably be deemed to conflict with the best interests of the
Company. The Executive agrees to accept the payments to be made to him under
this Agreement as full and complete compensation for the services required to be
performed by, and the covenants of, the Executive under this Agreement.
3. COMPENSATION.
3.1 BASE SALARY. The Company agrees to pay the
Executive an annual base salary at the rate of Two Hundred Fifty Thousand
Dollars ($250,000) per annum (the "Base Salary") payable in substantially equal
installments every week or in such other manner as the Company may generally pay
its employees. Nothing
-2-
<PAGE> 3
contained herein shall be deemed to obligate the Company to increase the Base
Salary at any time.
3.2 BONUS PROGRAM. In order to provide
performance-based incentive compensation to the Executive, the Executive shall
be eligible to participate in the Company's Incentive Program and bonus program,
which are administered by the Stock Option and Compensation Committee of the
Company.
3.3 REGULAR BENEFITS. The Executive shall be entitled
to participate in any health insurance, accident insurance, hospitalization
insurance, life insurance, pension, or any other similar plan or benefit
afforded by the Company to its executive officers generally, if and to the
extent that the Executive is eligible to participate in accordance with the
provisions of any such insurance, plan or benefit generally.
3.4 RELOCATION EXPENSE. In order to assist the
Executive with the permanent relocation of the Executive and his family to the
Long Island, New York area, the Company shall reimburse the Executive for
reasonable and customary brokerage fees relating to the sale of his principal
residence in Greenwich, Connecticut and reasonable out-of-pocket costs of
transporting household furnishings, personal effects, automobiles and similar
items from Greenwich, Connecticut to the Long Island, New York area.
Notwithstanding the foregoing, the Company shall not reimburse the Executive for
any other costs or expenses associated with the disposition of the Executive's
principal residence in
-3-
<PAGE> 4
Greenwich, Connecticut, including, without limitation, transaction costs or loss
of market value; nor shall the Company reimburse the Executive for any costs
associated with acquiring a principal residence in the Long Island, New York
area or the financing thereof.
3.5 AUTOMOBILE ALLOWANCE. The Company recognizes that
the Executive will require the use of an automobile for business purposes.
Therefore, the Company will provide the Executive with an automobile allowance
of $500 per month. In addition, the Company will reimburse the Executive for his
costs associated with the operation of the automobile, including gas expenses
for the operation of the automobile.
4. REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall
reimburse the Executive for reasonable travel and business expenses incurred on
behalf of the Company, subject to the approval and substantiation requirements
and other procedures from time to time established by the Company. The Executive
may reasonably incur such expenses in the manner permitted by the executive
officers of the Company.
5. TERMINATION AND SEVERANCE ARRANGEMENTS.
(a) The Executive's employment hereunder may be
terminated under the following circumstances:
(i) The Executive may terminate his
employment hereunder at any time on not less than sixty (60) days prior written
notice to the Company.
-4-
<PAGE> 5
(ii) On or after the third anniversary date
of the Effective Date, the Company may terminate the Executive's employment
hereunder by providing written notice of termination on not less than three (3)
months prior written notice to the Executive.
(iii) In the event of the death of or
adjudicated incompetency of the Executive during the Term, this Agreement and
all benefits payable hereunder shall terminate on the date of death or
adjudication of incompetency of the Executive.
(iv) If the Executive, because of illness,
injury or other incapacitating condition, is unable to perform the services
required to be performed by him under this Agreement for a period or periods
aggregating more than forty-five (45) days in any twelve (12) consecutive months
or a period of forty-five (45) consecutive days during any twelve (12) month
period, then the Company, in its sole discretion, may terminate this Agreement
by giving notice thereof to the Executive, and this Agreement and all benefits
payable hereunder shall terminate upon the date of such notice.
(v) The Company may terminate the
Executive's employment at any time for Cause. For purposes of this Agreement,
the term "Cause" shall mean: (A) gross negligence of the Executive in the
performance of his duties, (B) willful neglect of his duties, (C) the
Executive's conviction of any felony, (D) the Executive's conviction of any
misdemeanor involving theft or fraud, (E) any embezzlement of the Company's or
its subsidiaries' property
-5-
<PAGE> 6
or any misappropriation of any property material to the Company or any of its
subsidiaries (whether or not a felony or misdemeanor), (F) the willful
engagement by the Executive in conduct which is injurious to the Company or any
of its subsidiaries, (G) the persistent and willful disobedience or material
breach by the Executive of any of the Company's written rules, instructions or
orders, or (H) the Executive's persistent and willful and material breach of the
covenants contained herein.
b. Upon any termination of the Executive's employment
under Section 5(a) of this Agreement, the Executive shall be entitled to receive
solely all amounts and benefits to be paid or provided by the Company under
Sections 3.1, 3.3, 3.5, and 4 to the date of such termination.
6. EXECUTIVE COVENANTS.
6.1 CONFIDENTIAL INFORMATION. The Executive expressly
covenants and agrees that he will not at any time, whether during or after his
employment by the Company, directly or indirectly, use or permit the use of any
trade secrets, confidential information, or proprietary information (including,
without limitation, customer lists, costing information, technical information,
software techniques, business plans, marketing data, financial information or
similar items) of, or relating to, the Company, or any affiliate of the Company,
in connection with any activity or business, whether for his own account or
otherwise (except solely the business of the Company, if and to the extent that
the Executive is then an employee of the Company) and will not
-6-
<PAGE> 7
divulge such trade secrets, confidential information or proprietary information
to any person, firm, corporation or other entity whatsoever. Any information
which becomes known to the public without breach by the Executive of any of the
terms hereof or of Executive's common law duties shall not be deemed to be a
trade secret or confidential or proprietary information of the Company.
6.2 OWNERSHIP BY COMPANY. The Executive acknowledges
and agrees that all of his work product created, produced or conceived in
connection with his association with the Company shall be deemed work for hire
and shall be deemed owned exclusively by the Company. Without limiting the
generality of the foregoing, the Executive agrees that the Company shall have
and possess all proprietary rights, patent rights, copyright rights and trade
secret rights as may exist in such work product or as which are inherent therein
or appurtenant thereto. The Executive agrees to execute and deliver all
documents required by the Company to document or perfect the Company's
proprietary rights in and to the Executive's work product.
6.3 REMEDIES. It is expressly understood and agreed
that the services to be rendered hereunder by the Executive are special, unique,
and of extraordinary character, and in the event of the breach by the Executive
of any of the terms and conditions of this Agreement on his part to be performed
hereunder, or in the event of the breach or threatened breach by the Executive
of the terms and provision of this Section 6 of this Agreement, then the Company
shall be entitled, if it so elects, to institute
-7-
<PAGE> 8
and prosecute any proceedings in any court of competent jurisdiction, either in
law or equity, for such relief as it deems appropriate.
6.4 COVENANTS NON-EXCLUSIVE. The Executive
acknowledges and agrees that the covenants contained in this Section 6 shall not
be deemed exclusive of any common law rights of the Company in connection with
the relationships contemplated hereby; and that the Company shall have any and
all rights as may be provided by law in connection with the relationships
contemplated hereby.
7. STOCK OPTIONS.
7.1 STOCK OPTIONS. The Company hereby agrees to grant
to the Executive, effective as of the Effective Date (the "Grant Date"), stock
options under the terms and provisions of the Company's Incentive Program, as
amended (the "Incentive Program"), to purchase 200,000 shares of the common
stock, par value $.025 per share (the "Common Stock"), of the Company subject to
the terms and conditions set forth in the Stock Option Agreements (a copy of
which are attached hereto as Exhibit I), which are incorporated herein by
reference.
8. GENERAL.
8.1 APPLICABLE LAW AND EXPENSES. This document shall,
in all respects, be governed by the laws of the State of New York. With regard
to such choice of law, the parties acknowledge that substantially all of the
negotiations relating to this
-8-
<PAGE> 9
Agreement were conducted in New York State and that this Agreement has been
executed by both parties in New York State.
8.2 VENUE; PROCESS. The parties to this Agreement
agree that jurisdiction and venue shall properly lie in the Supreme Court of the
State of New York, New York County, or in the United States District Court for
the Southern District of New York, with respect to any legal proceedings arising
from this Agreement. Such jurisdiction and venue are merely permissive;
jurisdiction and venue shall also continue to lie in any court where
jurisdiction and venue would otherwise be proper. The parties agree that they
will not object that any action commenced in the foregoing jurisdictions is
commenced in a forum non conveniens. Notwithstanding the foregoing, however,
nothing contained in this Section 8.2 shall be deemed to limit or waive any
right of the parties to remove any dispute to federal court which might
otherwise properly be removed to such court.
8.3 SURVIVAL. The parties hereto agree that the
covenants contained in Section 6 hereof shall survive any termination of
employment by the Executive and any termination of this Agreement.
8.4 INDEPENDENT REPRESENTATION. The Executive
acknowledges that he has had the opportunity to seek independent counsel and tax
advice in connection with the execution of this Agreement, and the Executive
represents and warrants to the Company (a) that he has sought such counsel and
advice as he has deemed appropriate in connection with the execution hereof and
the
-9-
<PAGE> 10
transactions contemplated hereby; and (b) that he has not relied on any
representation of the Company as to tax matters or as to the consequences of the
execution hereof.
8.5 CLAIMS BY EXECUTIVE'S PRIOR EMPLOYER. The
Executive represents and warrants to the Company (a) that he is not a party to
any written employment agreement, covenant not to compete, confidentiality
agreement, non-solicitation of customer agreement or any other written
agreement, arrangement or understanding with his prior employer which otherwise
restricts or limits the Executive's employment with the Company in any manner
(collectively, the "Restrictive Agreements), and (b) that he is not, to the best
of the Executive's knowledge, a party to any oral Restrictive Agreement.
8.6 NOTICES. Any and all notices required or desired
to be given hereunder by any party shall be in writing and shall be validly
given or made to another party if delivered either personally, by telex,
facsimile transmission, same day delivery service, overnight expedited delivery
service, or if deposited in the United States mail, certified or registered,
postage prepaid, return receipt requested. If notice is served personally,
notice shall be deemed effective upon receipt. If notice is served by telex or
by facsimile transmission, notice shall be deemed effective upon transmission,
provided that such notice is confirmed in writing by the sender within one day
after transmission. If notice is served by same day delivery service or
overnight expedited delivery service, notice shall be deemed effective the
-10-
<PAGE> 11
day after it is sent, and if notice is given by United States mail, notice shall
be deemed effective five days after it is sent. In all instances, notice shall
be sent to the parties at the following addresses:
If to the Company:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attention: Richard S. Kolodny
Vice President,
General Counsel
If to the Executive:
Mr. Paul Bellamy
21 Indian Head Road
Greenwich, Connecticut 06878
(203) 637-5573
Any party may change its address for the purpose of receiving
notices by a written notice given to the other party.
8.7 MODIFICATIONS OR AMENDMENTS. No amendment, change
or modification of this document shall be valid unless in writing and signed by
all of the parties hereto.
8.8 WAIVER. No reliance upon or waiver of one or more
provisions of this Agreement shall constitute a waiver of any other provisions
hereof.
8.9 SUCCESSORS AND ASSIGNS. All of the terms and
provisions contained herein shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns. However, no party shall voluntarily assign any rights
hereunder, or delegate
-11-
<PAGE> 12
any duties hereunder, except upon the prior written consent of the other.
8.10 SEPARATE COUNTERPARTS. This document may be
executed in one or more separate counterparts, each of which, when so executed,
shall be deemed to be an original. Such counterparts shall, together, constitute
and shall be one and the same instrument.
8.11 HEADINGS. The captions appearing at the
commencement of the sections hereof are descriptive only and are for convenience
of reference. Should there be any conflict between any such caption and the
section at the head of which it appears, the substantive provisions of such
section and not such caption shall control and govern in the construction of
this document.
8.12 FURTHER ASSURANCES. Each of the parties hereto
shall execute and deliver any and all additional papers, documents and other
assurances, and shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and to carry out
the intent of the parties hereto.
8.13 ENTIRE AGREEMENT. This Agreement constitutes the
entire understanding and agreement of the parties with respect to the subject
matter of this Agreement, and any and all prior agreements, understandings or
representations are hereby terminated and canceled in their entirety.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Richard S. Kolodny
-----------------------------------
Name: Richard S. Kolodny
Title: Vice President, General Counsel
/s/ Paul Bellamy
--------------------------------------
PAUL BELLAMY
-13-
<PAGE> 14
EXHIBIT I
GRAHAM-FIELD HEALTH PRODUCTS, INC.
STOCK OPTION AGREEMENTS
<PAGE> 1
Exhibit 10.47
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of March 15, 1996, by and
between JEFFCO EXPRESS MEDICAL SUPPLY, INC., a New York corporation having its
principal place of business at 144 East Kingsbridge Road, Mount Vernon, New York
10550 (the "Company"), and JEFF SCHWARTZ, residing at 41 Roslyn Court, Port
Jefferson, New York 11777 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is the sole stockholder of
the Company;
WHEREAS, the Company desires to retain the Executive
as its President and Chief Operating Officer to advance the business and
interests of the Company on the terms and conditions set forth herein;
WHEREAS, the Executive desires to provide his services to the
Company in such capacities, on and subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions
hereof, the Company does hereby employ the Executive, effective as of March 15,
1996 (the "Effective Date"), for a term commencing on the date hereof and ending
on the date which is five
<PAGE> 2
(5) years after the date hereof (subject to early termination as provided
herein) (the "Employment Term"), as its President and Chief Operating Officer,
and the Executive does hereby accept such employment.
2. DUTIES OF EXECUTIVE. The Executive shall, during the term
of employment hereunder, perform such executive and administrative duties and
functions as may from time to time be appropriate, subject at all times to the
control and direction of the Board of Directors and the Chairman of the Board
and Chief Executive Officer of the Company. The Executive agrees to devote all
of his business time to the business and affairs of the Company. The Executive
agrees to perform his duties hereunder faithfully, diligently and to the best of
his abilities and to refrain from engaging in any other business activity that
does, will or could be deemed to interfere with the performance of his duties
hereunder or does, will or could reasonably be deemed to conflict with the best
interests of the Company. The Executive agrees to accept the payments to be made
to him under this Agreement as full and complete compensation for the services
required to be performed by, and the covenants of, the Executive under this
Agreement.
3. COMPENSATION.
3.1 BASE SALARY. The Company agrees to pay the
Executive an annual base salary at the rate of One Hundred Fifty Thousand
Dollars ($150,000) per annum (the "Base Salary") payable
-2-
<PAGE> 3
in substantially equal installments every week or in such other manner as the
Company may generally pay its employees. The Base Salary may be increased, but
not decreased, from time to time; provided, however, that this Agreement shall
not be deemed abrogated or terminated if the Company shall determine to increase
the Base Salary (or any other compensation of the Executive) for any period of
time, or if the Executive shall accept such increase. The Company agrees to
review the Base Salary of the Executive on an annual basis; but nothing
contained herein shall be deemed to obligate the Company to increase the Base
Salary at such time, or at any other time. Notwithstanding anything contained
herein, the Base Salary may not be decreased by the Company without the consent
of the Executive.
3.2 REGULAR BENEFITS. The Executive shall be entitled to
participate in any health insurance, accident insurance, hospitalization
insurance, life insurance, pension, or any other similar plan or benefit
afforded to its officers generally, if and to the extent that the Executive is
eligible to participate in accordance with the provisions of any such insurance,
plan or benefit generally (such benefits, collectively, the "Regular Benefits").
Nothing contained herein is intended, or shall be construed, to require the
Company to institute or retain any Regular Benefit, or any particular plan,
insurance or benefits.
3.3 BONUS PROGRAM. In order to provide performance-based
incentive compensation to the Executive, the
-3-
<PAGE> 4
Company hereby agrees to pay the Executive, in addition to the Base Salary, a
bonus (the "Cash Bonus") in respect of the first year during the Employment Term
(the "Initial Year"), in an amount equal to ten (10) percent of the excess of
the "pre-tax income" of the Company, which shall be based upon the financial
statements of the Company and prepared in accordance with generally accepted
accounting principles on a "stand-alone" basis, over $300,000. The Company's
pre-tax income shall be determined by the Board of Directors of the Company (or
a subcommittee thereof appointed for such purpose) based on the unaudited
financial statements of the Company with respect to the Initial Year, which
shall be prepared in accordance with generally accepted accounting principles on
a "stand-alone" basis (i.e., actual costs and expenses of the Company and direct
and indirect allocable costs and expenses shall be taken into account in the
preparation of the unaudited financial statements on a "stand-alone" basis). The
Board of Directors of the Company (or a subcommittee thereof appointed for such
purpose) shall determine the extent, if any, to which the Cash Bonus shall have
been earned, which determination shall be made on or before the ninetieth (90th)
day (the "Determination Date") following the completion of the Initial Year. The
Cash Bonus, if any, shall be paid to the Executive on or before the tenth (10th)
day following the Determination Date (the "Payment Date"). In any event, all
matters pertaining to the determination of the Company's pre-tax income and the
payment of the Cash Bonus to the Executive hereunder, shall be administered by
the Board of Directors of the
-4-
<PAGE> 5
Company (or a subcommittee thereof appointed for such purpose) in its reasonable
discretion consistent with the terms hereof, the determination of which shall be
final, conclusive and binding for all purposes. Following the Initial Year, a
new bonus program will be developed which will be mutually acceptable to the
Executive and the Company and it is intended that this new bonus program will be
an upward modification of the first year's plan.
3.4 AUTOMOBILE ALLOWANCE. The Company recognizes that
the Executive will require the use of an automobile for business purposes.
Therefore, the Company will provide the Executive with an automobile allowance
of $500 per month. In addition, the Company will reimburse the Executive for his
gas and normal repair expenses for the operation of the automobile for business
purposes.
4. TERMINATION AND SEVERANCE ARRANGEMENTS.
(a) The Executive's employment hereunder may be
terminated under the following circumstances:
(i) The Executive may terminate his
employment hereunder at any time on not less than ninety (90) days' prior
written notice to the Company.
(ii) In the event of the death of or
adjudicated incompetency or adjudicated insanity of the Executive during the
Employment Term, this Agreement and all benefits payable hereunder shall
terminate on the date of death or adjudication of incompetency or adjudicated
insanity of the Executive.
-5-
<PAGE> 6
(iii) If the Executive, because of illness,
injury or other incapacitating condition, is unable to perform the services
required to be performed by him under this Agreement for a period or periods
aggregating more than sixty (60) days in any twelve (12) consecutive months or a
period of forty-five (45) consecutive days during any twelve (12) month period,
then the Company, in its sole discretion, may terminate this Agreement by giving
notice thereof to the Executive, and this Agreement and all benefits payable
hereunder shall terminate upon the date of such notice.
(iv) The Company may terminate the
Executive's employment at any time "for Cause". For purposes of this Agreement,
the term "Cause" shall mean: (A) gross negligence of the Executive in the
performance of his duties, (B) the Executive's commission of any felony or any
misdemeanor involving violence, drugs, dishonesty or a breach of trust, (C) any
material misappropriation, or material conversion of any property of the Company
or any of its "affiliates" (as such term is defined herein) (whether or not a
felony or misdemeanor), or any embezzlement of the Company's or its affiliates'
property, (D) the willful engagement by the Executive in conduct which is
materially injurious to the Company or any of its affiliates, (E) the
Executive's material breach of any of the covenants contained herein. As used
herein, the term "affiliates" shall have the meaning ascribed to such term in
Rule 405 of the Securities Act of
-6-
<PAGE> 7
1933, as amended, and shall include, but not be limited to, all direct and
indirect subsidiaries.
(b) Upon any termination of the Executive's
employment under Section 4(a) of this Employment Agreement, the Executive shall
be entitled to receive solely all amounts and benefits to be paid or provided by
the Company under Sections 3.1 and 3.2 of this Employment Agreement to the date
of such termination.
5. EXECUTIVE COVENANTS.
5.1 NON-COMPETITION COVENANT.
(a) The Executive expressly covenants and agrees
that, during the period commencing on the Effective Date and ending on the
Termination Date (as hereinafter defined), subject to extension as provided
herein, the Executive will not compete, directly or indirectly, own, manage,
operate, join, control or participate in or be connected with as an officer,
employee, consultant, partner, stockholder, lender, or otherwise, any
Competitor, as defined below, or any subsidiary or affiliate thereof. For
purposes hereof, a "Competitor" shall be deemed to mean any business,
individual, partnership, firm, corporation or organization (other than the
Company or any direct or indirect subsidiary or affiliate of the Company
(collectively, the Company Affiliates")) anywhere in the United States which is
(i) in competition with the then-business of the Company or any Company
Affiliate, or (ii) involved in the business of the Company or any Company
Affiliate (i.e., the medical products business) as then
-7-
<PAGE> 8
conducted by any person, firm or corporation which shall succeed to all or a
substantial part of the business of the Company or any Company Affiliate.
(b) Nothing in this Agreement is intended, or shall
be construed, to prevent Executive during the term hereof or thereafter from
investing in the stock or other securities listed on a national securities
exchange or traded in the over-the-counter market of any corporation which is at
the time a Competitor provided that Executive and members of his immediate
family shall not, directly or indirectly, hold, beneficially or otherwise, in
the aggregate, more than one percent (1%) of any issue of such stock or other
securities of any one (1) such corporation.
(c) During the period commencing on the date hereof
and ending on the Termination Date, the Executive agrees that he will not,
directly or indirectly, interfere with or solicit (i) any of the business,
customers or accounts of the Company or any of the Company Affiliates which
existed at any time during the period commencing on the Effective Date and
ending on the Termination Date, or (ii) any prospective customer of the Company
or any Company Affiliate whose business the Company or any Company Affiliate is
in the process of soliciting at any time during the period commencing on the
Effective Date and ending on the Termination Date; and during the period
commencing on the date hereof and ending on the Termination Date, the Executive
agrees that he will not, directly or indirectly, solicit (i) the employment of
or hire any employee or representative of the Company
-8-
<PAGE> 9
or any of the Company Affiliates who was so employed, or otherwise had a
commercial relationship with the Company or any Company Affiliate, at any time
during the period commencing on the Effective Date and ending on the Termination
Date, or (ii) any supplier of the Company or any of the Company Affiliates at
any time during the period commencing on the Effective Date and ending on the
Termination Date, or induce or request any such person or business entity to
curtail or terminate its commercial or employment relationship with the Company
or any of the Company Affiliates.
(d) As used herein, "Termination Date" means the
later to occur of (i) the fifth (5th) anniversary of the Effective Date of this
Agreement, or (ii) the date as of which the Executive ceases to be engaged by
the Company, or any of the Company Affiliates, in a capacity substantially
similar to the Executive's duties and responsibilities as outlined herein, plus
two (2) years if the Company exercises its Non-Competition Extension Option (as
hereinafter defined).
(e) In the event this Employment Agreement is not
renewed or otherwise renegotiated on terms and conditions mutually agreeable to
the Company and the Executive on or before the one hundred twentieth (120th) day
prior to the fifth (5th) anniversary of the Effective Date of this Employment
Agreement, the terms and provisions of the non-competition covenant contained in
Section 5.1 of this Employment Agreement shall be of no force and effect, unless
the Company, in its sole discretion, notifies the Executive
-9-
<PAGE> 10
on or before the ninetieth (90th) day prior to the fifth (5th) anniversary date
of the Effective Date of this Employment Agreement of its decision to continue
to compensate the Executive for an additional two (2) year period (the
"Non-Competition Extension Option") at an annual rate in an amount equal to the
average Base Salary and bonus earned plus all Regular Benefits over the
Employment Term, in which case, all of the terms and provisions of the
non-competition covenant contained in Section 5.1 of this Employment Agreement
shall remain in full force and effect for such additional two (2) year period.
5.2 CONFIDENTIAL INFORMATION. The Executive expressly
covenants and agrees that he will not at any time, whether during or after his
employment by the Company, directly or indirectly, use or permit the use of any
trade secrets, confidential information, or proprietary information (including,
without limitation, customer lists, costing information, technical information,
software techniques, business plans, marketing data, financial information or
similar items) of the Company, or any affiliate of the Company, in connection
with any activity or business, whether for his own account or otherwise (except
solely the business of the Company, if and to the extent that the Executive is
then an employee of the Company) and will not divulge such trade secrets,
confidential information, proprietary information or terms of this Employment
Agreement to any person, firm, corporation or other entity whatsoever.
-10-
<PAGE> 11
5.3 OWNERSHIP BY COMPANY. The Executive acknowledges
and agrees that all of his work product created, produced or conceived in
connection with his association with the Company shall be deemed work for hire
and shall be deemed owned exclusively by the Company. Without limiting the
generality of the foregoing, the Executive agrees that the Company shall have
and possess all proprietary rights, patent rights, copyright rights and trade
secret rights as may exist in such work product or as which are inherent therein
or appurtenant thereto. The Executive agrees to execute and deliver all
documents required by the Company to document or perfect the Company's
proprietary rights in and to the Executive's work product.
5.4 REMEDIES. In the event of the breach by Executive
of any of the terms and conditions of this Agreement on his part to be performed
hereunder, or in the event of the breach or threatened breach by Executive of
any of the terms and provisions of this Section 5, then the Company shall be
entitled, if it so elects, to institute and prosecute any proceedings in any
court of competent jurisdiction, either in law or equity, for such relief as it
deems appropriate, including, without limiting the generality of the foregoing,
any proceedings to obtain provable damages for any breach of this Agreement, to
enforce the specific performance thereof by Executive or to obtain an injunction
against the commission, threatened commission or continuance of any such breach
or threatened breach without the necessity of proving actual damages or that
damages would be inadequate or of posting a bond.
-11-
<PAGE> 12
In any such action, if the Company is successful, in whole or in part, Executive
shall further, as an element of the Company's damages, be liable for the
reasonable attorney's fees and expenses of the Company in the prosecution of
such action or proceeding; provided, however, that if the Executive prevails, in
whole or in part, in any such action or proceeding, and the matter is not
otherwise settled by mutual agreement of the parties, the Company shall
reimburse the Executive for the reasonable attorneys' fees and expenses of the
Executive in defending against such action or proceeding.
5.5 COVENANTS NON-EXCLUSIVE. The Executive
acknowledges and agrees that the covenants contained in this Section 5 shall not
be deemed exclusive of any common law rights of the Company in connection with
the relationships contemplated hereby; and that the Company shall have any and
all rights as may be provided by law in connection with the relationships
contemplated hereby.
6. GENERAL.
6.1 APPLICABLE LAW AND EXPENSES. This document shall,
in all respects, be governed by the laws of the State of New York. With regard
to such choice of law, the parties acknowledge that all of the negotiations
relating to this Agreement were conducted in New York State, and that this
Agreement has been executed by both parties in New York State. In any action or
proceeding between the Company and the Executive, the prevailing
-12-
<PAGE> 13
party shall be entitled to recover reasonable attorney's fees and costs as well
as any damages to which such party may be entitled.
6.2 VENUE; PROCESS. The parties to this Agreement
agree that jurisdiction and venue shall properly lie in the Supreme Court of the
State of New York, Suffolk County, or in the United States District Court for
the Eastern District of New York, with respect to any legal proceedings arising
from this Agreement. Such jurisdiction and venue are merely permissive;
jurisdiction and venue shall also continue to lie in any court where
jurisdiction and venue would otherwise be proper. The parties agree that they
will not object that any action commenced in the foregoing jurisdictions is
commenced in a forum non conveniens. Notwithstanding the foregoing, however,
nothing contained in this Section 6 shall be deemed to limit or waive any right
of the parties to remove any dispute to federal court which might otherwise
properly be removed to such court.
6.3 SURVIVAL. Except as otherwise provided herein,
the parties hereto agree that the covenants contained in Section 5 hereof shall
survive any termination of employment by the Executive (other than wrongful
termination by the Company) and any termination of this Agreement. In addition,
the parties hereto agree that any compensation or right which shall have
accrued, wholly or partly to the Executive as of the date of any termination of
employment or termination hereof shall survive any such termination and shall be
paid when due to the extent accrued on the date of such termination.
-13-
<PAGE> 14
6.4 CLAIMS BY EXECUTIVE'S PRIOR EMPLOYER. The
Executive represents and warrants to the Company (a) that, except for the
original shareholders' agreement dated June 30, 1993 (and Rider), which by its
terms expired on June 30, 1995, and has not been renewed in any respect by the
parties thereto, he is not a party to any written employment agreement,
stockholders' agreement, covenant not to compete, confidentiality agreement,
non- solicitation of customer agreement or any other written agreement,
arrangement or understanding with Jofra Enterprises, Inc. or any of its
subsidiaries or affiliates, Harold Siegal, Joan Silverberg or any of their
respective representatives or agents (collectively, the "Prior Employer") which
otherwise restricts or limits the Executive's employment with the Company in any
manner (collectively, the "Restrictive Agreements), and (b) that he is not a
party to any Restrictive Agreement. Subject to the representations and
warranties contained in this Section 6.5 being true and correct in all respects
on and as of the date hereof and at all times hereafter, the Company shall,
subject to the terms and conditions contained herein, defend the Executive and
hold him harmless from and against any and all demands, claims, and lawsuits
(collectively, "Claims") by and on behalf of the Prior Employer, directly or
indirectly, arising out of, or related to the circumstances of, the negotiation
and execution of this Agreement, and the Executive's commencement and
continuation of employment hereunder and otherwise generally acting on the
Company's behalf in competition with the Prior Employer; provided, however, such
-14-
<PAGE> 15
indemnification provisions shall not apply (i) in the event it is determined
that the representations and warranties contained in this Section 6.5 are not
true and correct in all respects on and as of the date hereof and at all times
hereafter, or (ii) to any Claims, directly or indirectly, arising out of, or
related to the Executive's acts or omissions during his employment with the
Prior Employer (including, but not limited to, any breach of a fiduciary duty),
other than the Executive's act of terminating his employment with his Prior
Employer.
The Company shall contest or defend any Claim at its
sole cost and expense and through counsel of its own choosing, which counsel
shall be reasonably acceptable to the Executive. The Company shall have the
right to settle or compromise any Claim without the consent of the Executive.
The Executive shall make available to the Company or its agents all records and
other materials in his possession reasonably required by it for its use in
contesting or defending any Claim and shall otherwise cooperate, at the expense
of the Company, in the defense thereof in such manner as the Company reasonably
requests.
6.5 NOTICES. Any and all notices required or desired
to be given hereunder by any party shall be in writing and shall be validly
given or made to another party if delivered either personally, by telex,
facsimile transmission, same day delivery service, overnight expedited delivery
service, or if deposited in the United States Mail, certified or registered,
postage prepaid, return receipt requested. If notice is served personally,
notice
-15-
<PAGE> 16
shall be deemed effective upon receipt. If notice is served by telex or by
facsimile transmission, notice shall be deemed effective upon transmission,
provided that such notice is confirmed in writing by the sender within one day
after transmission. If notice is served by same day delivery service or
overnight expedited delivery service, notice shall be deemed effective the day
after it is sent, and if notice is given by United States mail, notice shall be
deemed effective five days after it is sent. In all instances, notice shall be
sent to the parties at the following addresses:
If to the Company:
144 East Kingsbridge Road
Mount Vernon, New York 10550
Attention: Chairman of the Board and
Chief Executive Officer
If to the Executive:
Mr. Jeff Schwartz
41 Roslyn Court
Port Jefferson, New York 11777
With a copy to:
Matthew Finklestein, Esq.
Smith, Finklestein, Lundberg,
Isler & Yakaboski
P.O. Box 389
456 Griffing Avenue
Riverhead, New York 11901
Any party may change its address for the purpose of receiving
notices by a written notice given to the other party.
-16-
<PAGE> 17
6.6 MODIFICATIONS OR AMENDMENTS. No amendment, change
or modification of this document shall be valid unless in writing and signed by
all of the parties hereto.
6.7 WAIVER. No reliance upon or waiver of one or more
provisions of this Agreement shall constitute a waiver of any other provisions
hereof.
6.8 SUCCESSORS AND ASSIGNS. All of the terms and
provisions contained herein shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns. However, no party shall voluntarily assign any rights
hereunder, or delegate any duties hereunder, except upon the prior written
consent of the other.
6.9 SEPARATE COUNTERPARTS. This document may be
executed in one or more separate counterparts, each of which, when so executed,
shall be deemed to be an original. Such counterparts shall, together, constitute
and shall be one and the same instrument.
6.10 HEADINGS. The captions appearing at the
commencement of the sections hereof are descriptive only and are for convenience
of reference. Should there be any conflict between any such caption and the
section at the head of which it appears, the substantive provisions of such
section and not such caption shall control and govern in the construction of
this document.
6.11 FURTHER ASSURANCES. Each of the parties hereto
shall execute and deliver any and all additional papers,
-17-
<PAGE> 18
documents and other assurances, and shall do any and all acts and things
reasonably necessary in connection with the performance of their obligations
hereunder and to carry out the intent of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
JEFFCO EXPRESS MEDICAL
SUPPLY, INC.
By: /s/ Jeffco Express /s/ Jeff Schwartz
------------------------------- -----------------------------------
Name: JEFF SCHWARTZ
Title:
-18-
<PAGE> 1
Exhibit 10.48
AGREEMENT
DATED AS OF MARCH 2, 1998
BY AND BETWEEN
GRAHAM-FIELD HEALTH PRODUCTS, INC.
AND
PAUL BELLAMY
AGREEMENT, dated as of March 2, 1998 (the "Agreement"), by and between
Graham-Field Health Products, Inc., a Delaware corporation (the "Corporation"),
and Paul Bellamy, an individual residing at 21 Indian Head Road, Greenwich,
CT 06878.
W I T N E S S E T H :
WHEREAS, the Corporation has determined that it is in the best
interests of the Corporation and its stockholders for the Corporation to agree
to pay the Executive certain termination compensation in the event the Executive
should leave the employment of the Corporation under the circumstances described
in this Agreement; and
WHEREAS, the Corporation recognizes that the possibility of a proposal
from a third person, whether solicited by the Corporation or unsolicited,
concerning a possible business combination with the Corporation, including the
acquisition of a substantial share of the equity or voting securities of the
Corporation, is unsettling to the Executive and other key personnel of the
Corporation; and
WHEREAS, this Agreement is intended to help assure a continuing
dedication by the Executive to his duties to the Corporation notwithstanding the
occurrence of a business combination proposal; and
WHEREAS, the Corporation and the Executive believe it is imperative
that should the Corporation receive proposals from third parties with respect to
its future, the Executive should, without being influenced by the uncertainties
of his or her own situation, assess and advise the Board of Directors whether
such proposals would be in the best interest of the Corporation and its
stockholders and take such other action regarding such proposals as the Board of
Directors might determine to be appropriate;
NOW, THEREFORE, in view of the foregoing and in further consideration
of the Executive's continued dedicated employment with the Corporation and the
availability of the Executive's advice and counsel, and to reward the Executive
for his valuable and dedicated service to the Corporation, should his services
be terminated under any of the circumstances described below, and for other good
and valuable consideration, the receipt and sufficiency of which each party
hereby acknowledges, the Corporation and the Executive hereby agree as follows:
<PAGE> 2
1. EFFECTIVE DATE AND TERM OF EMPLOYMENT OF EMPLOYEE.
(a) Except as provided in Section 1(b) below, nothing in this Agreement
shall affect any right which the Executive may otherwise have to terminate his
employment from the Corporation or any subsidiary of the Corporation (a
"Subsidiary"). Nor shall anything in this Agreement affect any right which the
Corporation or any Subsidiary may have to terminate the Executives's employment
at any time in any lawful manner, subject to the provision that in the event of
termination of the Executive's employment under the circumstances specified in
Sections 2 and 3 below following a "Change in Control" (as defined in Section
1(c)), the Corporation will provide to the Executive the payments and benefits
described in Sections 2 and 3 of this Agreement.
(b) In the event any person or organization commences a tender or
exchange offer, circulates a proxy statement to the Corporation's stockholders,
or takes other steps designed to effect a Change in Control of the Corporation,
the Executive agrees that in order to receive the benefits provided by this
Agreement, he will not voluntarily leave the employ of the Corporation or any of
its Subsidiaries and will continue to perform his regular duties and to render
his services, until such person or organization has abandoned or terminated his
or its efforts to effect a Change in Control or until a Change in Control has
occurred. In the event the Executive voluntarily terminates his employment
before any such effort to effect a Change in Control of the Corporation has
commenced, or after any such effort has been abandoned or terminated without
effecting a Change in Control and no such effort is then in process, this
Agreement shall lapse and be of no further force or effect. In the event the
Executive voluntarily terminates his employment with the Corporation or any
Subsidiary during such time any person or organization has commenced, but has
not yet abandoned, any steps designed to effect a Change in Control of the
Corporation, but at a time when a Change in Control has not been effected, the
Executive shall not be entitled to receive any of the benefits of Sections 2 and
3 hereof.
(c) For purposes of this Agreement, a "Change in Control" of the
Corporation shall be deemed to have occurred upon the occurrence of any of the
following events:
(i) A change in control of the direction and administration of the
Corporation's business of a nature that if any securities of the Corporation
were registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported (a) in response to Item 6 (e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or (b)
Item 1(a) of Form 8-K under the Exchange Act as each is in effect on the date
hereof and any successor provision of such regulations under the Exchange Act,
whether or not the Corporation is then subject to such reporting requirement; or
- 2 -
<PAGE> 3
(ii) Any "person" or "group" (as such term is used in connection
with Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any employee
benefit plan of the Corporation or any "affiliate" or "associate" thereof (as
defined in Regulation 12b-2 under the Exchange Act) (a) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing fifty percent (50%)
or more of the combined voting power of the Corporation's outstanding securities
then entitled ordinarily (and apart from rights accruing under special
circumstances) to vote for the election of directors or (b) acquires by proxy or
otherwise 50% or more of the combined voting securities of the Corporation
having the right to vote for the election of directors of the Corporation, for
any merger or consolidation of the Corporation, for the election of directors of
the Corporation, for any merger or consolidation of the Corporation, for the
election of directors, or for any other matter; or
(iii) During any period of twenty-four (24) consecutive months, the
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at least
a majority thereof; or
(iv) There shall be consummated (A) any consolidation, merger or
recapitalization of the Corporation or any similar transactions involving the
Corporation, whether or not the Corporation is the continuing or surviving
Corporation, pursuant to which shares of the Corporation's common stock ("Common
Stock") would be converted into cash, securities or other property, other than a
merger of the Corporation in which the holders of Common Stock immediately prior
to the merger have the same proportion and ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange or other transfer (in one transaction or a series or related
transactions) of all, or substantially all, of the assets of the Corporation or
(C) the adoption of a plan of complete liquidation of the Corporation (whether
or not in connection with the sale of all or substantially all of the
Corporation's assets) or a series of partial liquidations of the Corporation
that is a de jure or de facto part of a plan of complete liquidation of the
Corporation; provided, that the divestiture of less than substantially all of
the assets of the Corporation in one transaction or a series or related
transactions, whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a subsidiary or otherwise, or a transaction solely for the
purpose of reincorporating the Corporation in another jurisdiction, shall not
constitute a "Change-in-Control"; or
(v) The Board of Directors of the Corporation shall approve any
merger, consolidation, or like business combination or
- 3 -
<PAGE> 4
reorganization of the Corporation, the consummation of which would result in the
occurrence of any event described in clause (A), (B) or (C) or Section 1 (iv)
above.
2. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If a Change in Control of the Corporation shall have occurred at
any time that the Executive is employed by the Corporation, then the Executive
shall be entitled to the benefits provided in Section 3 hereof upon the
subsequent termination of his employment within the applicable period set forth
following such Change in Control, unless such termination is (i) due to the
Executive's death or "Retirement" (as defined in Section 2(e)) or (ii) by the
Executive other than for "Good Reason" (as such term is defined in Section 2(f))
or (iii) by the Corporation or a Subsidiary by reason of the Executive's
"Disability" (as defined in Section 2(k)) or for Cause (as defined in Subsection
2(1)).
(b) If, following a Change in Control, the Executive's employment is
terminated by reason of his death or Disability during the two (2) years
following a Change in Control, the Executive shall be entitled to death or
long-term disability benefits, as the case may be, from the Corporation no less
favorable than the most favorable benefits to which he would have been entitled
had the death or termination for Disability occurred at any time during the
period commencing one year prior to the initiation of actions that resulted in a
Change in Control. If prior to any such termination for Disability during the
two (2) years following a Change in Control, the Executive fails to perform his
duties as a result of incapacity due to physical or mental illness, he shall
continue to receive his "Base Salary" (as defined in Section 2(g)) less any
benefits as may be received by him under the Corporation's disability plan until
his employment is terminated for Disability, and shall be entitled to the most
favorable other benefits applicable under the Corporation's policies during the
period commencing one year prior to the initiation of actions that resulted in
the Change in Control.
(c) If, following a Change in Control, the Executive's employment shall
be terminated by the Corporation for Cause or by the Executive other than for
Good Reason during the two (2) years following a Change in Control, the
Corporation shall pay to the Executive his full Base Salary through the "Date of
Termination" (as defined in Section 2(i)) at the rate in effect at the time the
"Notice of Termination" (as defined in Section 2(h)) is given and any amounts to
be paid to the Executive pursuant to any deferred compensation or other employee
benefit plan or program, and the Corporation shall have no further obligations
to the Executive under this Agreement.
(d) For purposes of this Agreement, "Continuing Directors" shall mean
the directors of the Corporation in office on the date
- 4 -
<PAGE> 5
hereof and any successor to any such director and any additional director who
after the date hereof (i) was nominated or selected by a majority of the
Continuing Directors in office at the time of his nomination or selection and
(ii) who is not an "affiliate" or "associate" (as defined in Regulation 12b-2
under the Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the combined
voting power of the Corporation's outstanding securities then entitled
ordinarily to vote for the election of directors.
(e) For purposes of this Agreement, "Retirement" shall mean that the
Executive shall have retired after reaching the age of 65.
(f) For purposes of this Agreement, "Good Reason" shall mean:
(A) The assignment by the Corporation or a Subsidiary to the
Executive of duties which (i) are inconsistent with, or require travel
significantly more time-consuming or extensive than, the Executives's duties and
business travel obligations immediately prior to the Change in Control, or (ii)
result, without the Executive's express written consent, in a significant
reduction in the Executive's authority and responsibility when compared to the
highest level of authority and responsibility assigned to the Executive at any
time during the six (6) month period prior to the Change in Control, or (iii)
require the Executive, without his express written consent, to report directly
or through one or more intermediaries, to a person or group other than the
person or group to whom or which the Executive reported, directly or thorough
one or more intermediaries, immediately prior to the Change of Control; or
(B) A reduction by the Corporation or any Subsidiary of the
Executive's Base Salary as the same may be increased from time to time
hereafter; or
(C) A change of the Executive's assigned site location without the
Executive's express written consent, or in the event of any relocation of the
Executive with his express written consent, the failure by the Corporation to
pay (or reimburse the Executive for) all reasonable moving expenses incurred by
the Executive and relating to a change of his principal residence, and to
indemnify the Executive against any loss realized by the Executive and/or the
Executive's spouse in the sale of the Executive's principal residence in
connection with any such change or residence, all to the effect that the
Executive shall incur no loss on an after-tax basis; or
(D) The failure of the Corporation to continue to provide the
Executive with substantially the same level of retirement and welfare benefits
(which for purposes of this Agreement shall mean benefits under all welfare
plans as that term is defined in Section 3(1) of the Executive Retirement Income
- 5 -
<PAGE> 6
Security Act of 1974, as amended) and perquisites (including participation on a
comparable basis in the Corporation's retirement plans, stock option plans,
incentive plans, group life insurance plans, medical, health, accident,
disability and other plan in which employees of the Corporation of comparable
title and salary grade participate), as were provided to the Executive
immediately prior to such Change in Control, or with a package of retirement and
welfare benefits and perquisites that, though one or more such benefits or
perquisites (including participation on a comparable basis in the Corporation's
or a Subsidiary's retirement plans, stock option plans, incentive plans, group
life insurance plans, medical, health, accident, disability and other plans) may
vary from those provided before such Change in Control, is substantially
comparable in all material respects when taken as a whole to such retirement and
welfare benefits and perquisites provided prior to the Change in Control; or
(E) The failure by the Corporation to obtain the express written
assumption of and agreement to perform this Agreement by any successor as
contemplated in Section 4(c) hereof; and
For purposes of this Section 2(f), no act, or failure to act, on
the Executive's part shall be considered "willful" unless done, or omitted to be
done, by him knowing and with the intent that such action or inaction would not
be in the best interests of the Corporation or otherwise was done or omitted to
be done in bad faith.
(g) For purposes of this Agreement, "Base Salary" shall mean the First
Year Salary or the Salary, as the case may be, paid to the Executive immediately
prior to the Change in Control of the Corporation (provided that such amount
shall in no event be less than the First Year Salary or the Salary paid to the
Executive during the one (1) year period immediately prior to the Change in
Control).
(h) Any purported termination of employment by the Corporation by
reason of the Executive's Disability or for Cause, or by the Executive for Good
Reason, shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice given by the Executive or by the Corporation or a Subsidiary,
which shall indicate the specific basis for termination and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
determination of any payments under this Agreement; provided, however, that the
Executive shall not be entitled to give a Notice of Termination that he is
terminating his employment with the Corporation or a Subsidiary for Good Reason
after the expiration of six (6) months following the last to occur of the events
claimed by him to constitute Good Reason.
- 6 -
<PAGE> 7
(i) For purposes of this Agreement, "Date of Termination" shall mean
(i) if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such thirty (30) day
period) and (ii) if the Executive's employment is terminated for Cause or Good
Reason, the date specified in the Notice of Termination, which shall be not more
than ninety (90) days after such Notice of Termination is given. If within
thirty (30) days after any Notice of Termination is given, the party who
receives such Notice of Termination is given, the party who receives such Notice
of Termination notifies the other party that a "Dispute" (as defined in Section
2(j)) exists, the parties agree to pursue promptly the resolution of any such
Dispute with reasonable diligence. Pending the resolution of any such Dispute,
the Corporation or a Subsidiary shall make the payments and provide the benefits
provided for herein to the Executive. In the event that it is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected), that a challenged
termination by the Corporation or a Subsidiary by reason of the Executive's
Disability or for Cause was justified, or that a challenged termination by the
Executive for Good Reason was not justified, then all sums paid by the
Corporation or any Subsidiary to the Executive from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this Section 2(i) shall be repaid promptly by the Executive to the
Corporation, with interest at the base rate charged from time to time by the
Corporation's principal commercial bank. In the event that it is finally
determined that a challenged termination by the Corporation by reason of the
Executive's Disability or for Cause was not justified, or that a challenged
termination by the Executive for Good Reason was justified, then the Executive
shall be entitled to retain all sums paid to the Executive pending resolution of
the Dispute.
(j) For purposes of this Agreement, "Dispute" shall mean (i) in the
case of the Executive's termination as an Executive with the Corporation or a
Subsidiary for Disability or Cause, that the Executive challenges the existence
of Disability or Cause and (ii) in the case of the Executive's termination as an
Executive with the Corporation or a Subsidiary by the Executive for Good Reason,
that the Corporation or a Subsidiary challenges the existence of Good Reason.
(k) For purposes of this Agreement, "Disability" shall mean that, as a
result of the Executive's incapacity due to physical or mental illness, the
Executive has been absent from the full-time performance of his duties with the
Corporation for six (6) consecutive months and within thirty (30) days after
Notice of
- 7 -
<PAGE> 8
Termination is given to the Executive, he has not returned to the full-time
performance of his duties. Any question as to the existence of Disability shall
be determined by a qualified independent physician selected by the Executive
(or, if he is unable to make such selection, such selection shall be made by any
adult member of the Executive's family) and approved by the Corporation. The
written determination of such physician shall be final and conclusive for
purposes of this Agreement.
(l) For purposes of this Agreement, "Cause" shall mean the willful and
continued failure by the Executive to perform his duties for the Corporation
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure resulting
from termination by the Executive for Good Reason) after a written demand for
substantial performance is delivered to the Executive by the Board of Directors,
which demand specifically identifies the manner in which the Board of Directors
believes that the Executive has not substantially performed his duties, or (ii)
the willful engagement in conduct by the Executive which is demonstrably and
materially injurious to the Company, monetarily or otherwise, (iii) conviction
for a felony or other crime punishable by imprisonment for more than one (1)
year, or the entering of a plea of nolo contendere thereto.
Notwithstanding any of the foregoing, the Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to the Executive a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting called and held for such purpose after reasonable notice to the
Executive and an opportunity for the Executive, together with his counsel, to be
heard before the Board of Directors, finding that in the good faith opinion of
the Board of Directors the Executive was guilty of conduct set forth above in
clause (i), (ii) or (iii) and specifying the particulars thereof in detail.
3. PAYMENTS UPON TERMINATION.
If within two (2) years after a Change in Control of the Corporation,
the Corporation or a Subsidiary shall terminate the Executive's employment other
than by reason of the Executive's death, Disability, Retirement or for Cause or
if the Executive shall terminate his employment for Good Reason then, in any
such event, and subject in each case to Section 2(j) hereof, the Corporation or
a Subsidiary will pay to the Executive as compensation for services rendered,
beginning not later than the fifth business day following completion of the
"Parachute Procedure" (as hereinafter defined) if the Corporation elects to
follow such procedure and not later than the fifteenth day after the Date of
Termination otherwise:
- 8 -
<PAGE> 9
(a) the Executive's Salary through the Date of Termination, any
existing fringe benefits (including medical benefits) and incentive compensation
for the fiscal year in which the termination occurs in accordance with any
arrangements then existing with the Executive and proportionate to the period of
the fiscal year which has expired prior to the termination; and
(b) a lump sum severance payment equal to one (1) times the Executive's
"Base Amount," as such term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") (subject to any applicable payroll or
other taxes and changes required to be withheld computed at the rate for
supplemental payments), provided that in no event shall "Total Payments" (as
hereinafter defined) exceed 2.99 times the Executive's Base Amount. The
Executive's Base Amount shall be determined in accordance with temporary or
final regulations promulgated under Section 280G of the Code then in effect, if
any. In the absence of such regulations, if the Executive were not employed by
the Corporation (or any corporation or partnership affiliated with the
Corporation (an "Affiliate") within the meaning of Section 1504 of the Code or a
predecessor of the Corporation) during the entire five calendar years (the "Base
Period") preceding the calendar year in which a Change in Control of the
Corporation occurred, the Executive's average annual compensation for the
purposes of such determination shall be the lesser of (i) the average of the
Executive's annual compensation for the complete calendar years during the Base
Period during which the Executive was so employed or (ii) the average of the
Executive's annual compensation for both complete and partial calendar years
during the Base Period during which the Executive was so employed, determined by
any compensation (other than nonrecurring items) includible in the Executive's
gross income for any partial calendar year or (iii) the annual average of the
Executive's total compensation for the Base Period during which the Executive
was so employed, determined by dividing such total compensation by the number of
whole and fractional years included in the Base Period. Compensation payable to
the Executive by the Corporation or any Affiliate or predecessor of the
Corporation shall include every type and form of compensation includible in the
Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G of the
Code. For purposes of this Section 3(b) a "change in control of the Corporation"
shall have the meaning set forth in Section 280G of the Code and any temporary
or final regulations promulgated thereunder, subject to the limitation stated in
Section 3(c) below; and
(c) (i) Notwithstanding anything to the contrary contained herein, in
the event that any portion of the aggregate payments and
- 9 -
<PAGE> 10
benefits (the "Total Payments") received or to be received by the Executive,
whether paid or payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Corporation, a Subsidiary or any other
person or entity, would not be deductible in whole or in part by the
Corporation, a Subsidiary or by such other person or entity in the calculation
of its federal income tax by reason of Section 280G of the Code, the Total
Payments payable shall be reduced by the least amount necessary so that no
portion of the Total Payments payable shall be reduced by the least amount
necessary so that no portion of the Total Payments would fail to be deductible
by reason of being an "excess parachute payment."
(ii) At the option of the Corporation, no payments shall be made
pursuant to this Section 3 until the procedure described in this Section
3(c)(ii) is completed (the "Parachute Procedure"). If the Corporation elects to
comply with such procedure, the Corporation shall cause its independent auditors
to deliver to the Executive, within fifteen (15) days after the Date of
Termination, a statement which shall indicate whether payment to the Executive
of the Total Payments would cause any portion of the Total Payments not to be
deductible in whole or part in the calculation of federal income tax by reason
of section 280G of the Code, or would cause, directly or indirectly, an "excess
parachute payment" to exist within the meaning of Section 280G of the Code. Such
statement shall set forth the value, calculated in accordance with the
principles of Section 280G of the Code and any temporary or final regulations
promulgated thereunder, of any non-cash benefits or any deferred or contingent
payment or benefit payable pursuant to the terms of this Agreement or any other
plan, arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 280G of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 280G of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3 within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall
- 10 -
<PAGE> 11
constitute completion of the Parachute Procedure.
(d) The Corporation shall contest any improper assessment of an excise
or other tax imposed as a result of a determination that an "excess parachute
payment" has been made to the Executive within the meaning of Section 280G of
the Code. If it is established pursuant to a final determination of a court of
competent jurisdiction or an Internal Revenue Service proceeding that an "excess
parachute payment" does in fact exist, within the meaning of Section 280G of the
Code, then the Executive shall pay to the Corporation, upon demand, an amount
not to exceed the sum of (i) the excess of the aggregate Total Payments over the
aggregate Total Payments that would have been paid without any portion of such
payment being deemed an "excess parachute payment" within the meaning of Section
280G of the Code and (ii) interest on the amount set forth in clause (i) above
at the applicable federal rate specified in Section 1274(d) of the Code from the
date of receipt by the Executive of such excess until the date of such
repayment.
4. GENERAL.
(a) If litigation shall be brought to enforce or interpret any
provision contained herein, the Corporation shall indemnify the Executive for
his attorneys' fees and other fees and disbursements incurred in such litigation
and pay prejudgment interest on any money judgment obtained by the Executive
calculated at the base rate of interest charged from time to time from the date
that payment should have been made under this Agreement; provided, however, that
the Executive shall not have been found by the court to have had no cause to
bring the action, or to have acted in bad faith, which finding must be final
with the time to appeal therefrom having expired and no appeal having been
taken.
(b) The Corporation's obligation to pay the Executive the compensation
and to make the arrangements provided herein shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
any setoff, counterclaim, recoupment, defense or other right which the
Corporation may have against the Executive or anyone else. All amounts payable
by the Corporation hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Corporation waives all rights it may now have or
may hereafter have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as otherwise
provided herein, each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover for any reason all or any
part of such payment from the Executive or any person entitled thereto. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment, and if Executive obtains such
other employment, any compensation earned by Executive pursuant thereto shall
not be applied to mitigate any payment made
- 11 -
<PAGE> 12
to the Executive pursuant to this Agreement.
(c) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by written
agreement to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. As used in this Agreement, the term
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement required by this Section 4(c), or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(d) For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Paul Bellamy
21 Indian Head Road
Greenwich, CT 06878
If to the Corporation:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attn: Irwin Selinger
Chairman of the Board
and Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(e) This Agreement shall constitute the entire agreement between the
Executive and the Corporation concerning the Executive's employment by the
Corporation and the termination of Executive's employment within two (2) years
after a Change in Control as provided herein, and performance of its obligations
hereunder by the Corporation shall constitute full settlement and release of any
claim or cause of action, of whatsoever nature, which the Executive might
otherwise assert or claim against the Corporation or any of its directors,
stockholders, officers or employees on account of such termination. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver,
- 12 -
<PAGE> 13
modification or discharge is agreed to in writing, signed by the Executive and
an authorized officer of the Corporation. No waiver by either party hereto at
any time of any breach by the other party hereto of compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provision or condition at
such same or at any prior or subsequent time. No assurances or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. However, this Agreement is in addition to and not in lieu of any
other plan providing for payments to or benefits for the Executive or any
agreement now existing or which hereafter may be entered into between the
Corporation and the Executive; provided that, notwithstanding anything to the
contrary contained in the terms of any such plan or agreement, in the event of
Executive's termination, within two years after a Change in Control as provided
herein, of the Executive's employment, this Agreement shall govern the rights
and the obligations of the Corporation and the Executive. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without giving effect to the provisions,
principles, or policies thereof relating to choice or conflict of laws.
(f) The invalidity or unenforceability of any provisions of this
Agreement in any circumstance shall not affect the validity or enforceability of
such provision in any other circumstance or the validity or enforceability of
any other provision of this Agreement, and except to the extent such provision
is invalid or unenforceable, this Agreement shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof in such jurisdiction, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement this
2nd day of March 1998.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Richard S. Kolodny
-------------------------------
Name: Richard S. Kolodny
Title: Vice President,
General Counsel
EXECUTIVE
/s/ Paul Bellamy
----------------------------------
Paul Bellamy
Vice President, Finance and
Chief Financial Officer
- 14 -
<PAGE> 1
Exhibit 10.49
AGREEMENT
DATED AS OF JANUARY 1, 1997
BY AND BETWEEN
GRAHAM-FIELD HEALTH PRODUCTS, INC.
AND
DONALD CANTWELL
AGREEMENT, dated as of January 1, 1997 (the "Agreement"), by and
between Graham-Field Health Products, Inc., a Delaware corporation (the
"Corporation"), and Donald Cantwell, an individual residing at 289 River Road,
St. James, New York 11780-9628.
W I T N E S S E T H :
WHEREAS, the Corporation has determined that it is in the best
interests of the Corporation and its stockholders for the Corporation to agree
to pay the Executive certain termination compensation in the event the Executive
should leave the employment of the Corporation under the circumstances described
in this Agreement; and
WHEREAS, the Corporation recognizes that the possibility of a proposal
from a third person, whether solicited by the Corporation or unsolicited,
concerning a possible business combination with the Corporation, including the
acquisition of a substantial share of the equity or voting securities of the
Corporation, is unsettling to the Executive and other key personnel of the
Corporation; and
WHEREAS, this Agreement is intended to help assure a continuing
dedication by the Executive to his duties to the Corporation notwithstanding the
occurrence of a business combination proposal; and
WHEREAS, the Corporation and the Executive believe it is imperative
that should the Corporation receive proposals from third parties with respect to
its future, the Executive should, without being influenced by the uncertainties
of his or her own situation, assess and advise the Board of Directors whether
such proposals would be in the best interest of the Corporation and its
stockholders and take such other action regarding such proposals as the Board of
Directors might determine to be appropriate;
NOW, THEREFORE, in view of the foregoing and in further consideration
of the Executive's continued dedicated employment with the Corporation and the
availability of the Executive's advice and counsel, and to reward the Executive
for his valuable and dedicated service to the Corporation, should his services
be terminated under any of the circumstances described below, and for other good
and valuable consideration, the receipt and sufficiency of which each party
hereby acknowledges, the Corporation and the Executive hereby agree as follows:
<PAGE> 2
1. EFFECTIVE DATE AND TERM OF EMPLOYMENT OF EMPLOYEE.
(a) Except as provided in Section 1(b) below, nothing in this Agreement
shall affect any right which the Executive may otherwise have to terminate his
employment from the Corporation or any subsidiary of the Corporation (a
"Subsidiary"). Nor shall anything in this Agreement affect any right which the
Corporation or any Subsidiary may have to terminate the Executives's employment
at any time in any lawful manner, subject to the provision that in the event of
termination of the Executive's employment under the circumstances specified in
Sections 2 and 3 below following a "Change in Control" (as defined in Section
1(c)), the Corporation will provide to the Executive the payments and benefits
described in Sections 2 and 3 of this Agreement.
(b) In the event any person or organization commences a tender or
exchange offer, circulates a proxy statement to the Corporation's stockholders,
or takes other steps designed to effect a Change in Control of the Corporation,
the Executive agrees that in order to receive the benefits provided by this
Agreement, he will not voluntarily leave the employ of the Corporation or any of
its Subsidiaries and will continue to perform his regular duties and to render
his services, until such person or organization has abandoned or terminated his
or its efforts to effect a Change in Control or until a Change in Control has
occurred. In the event the Executive voluntarily terminates his employment
before any such effort to effect a Change in Control of the Corporation has
commenced, or after any such effort has been abandoned or terminated without
effecting a Change in Control and no such effort is then in process, this
Agreement shall lapse and be of no further force or effect. In the event the
Executive voluntarily terminates his employment with the Corporation or any
Subsidiary during such time any person or organization has commenced, but has
not yet abandoned, any steps designed to effect a Change in Control of the
Corporation, but at a time when a Change in Control has not been effected, the
Executive shall not be entitled to receive any of the benefits of Sections 2 and
3 hereof.
(c) For purposes of this Agreement, a "Change in Control" of the
Corporation shall be deemed to have occurred upon the occurrence of any of the
following events:
(i) A change in control of the direction and administration of the
Corporation's business of a nature that if any securities of the Corporation
were registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported (a) in response to Item 6 (e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or (b)
Item 1(a) of Form 8-K under the Exchange Act as each is in effect on the date
hereof and any successor provision of such regulations under the Exchange Act,
whether or not the Corporation is then subject to such reporting requirement; or
- 2 -
<PAGE> 3
(ii) Any "person" or "group" (as such term is used in connection
with Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any employee
benefit plan of the Corporation or any "affiliate" or "associate" thereof (as
defined in Regulation 12b-2 under the Exchange Act) (a) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing fifty percent (50%)
or more of the combined voting power of the Corporation's outstanding securities
then entitled ordinarily (and apart from rights accruing under special
circumstances) to vote for the election of directors or (b) acquires by proxy or
otherwise 50% or more of the combined voting securities of the Corporation
having the right to vote for the election of directors of the Corporation, for
any merger or consolidation of the Corporation, for the election of directors of
the Corporation, for any merger or consolidation of the Corporation, for the
election of directors, or for any other matter; or
(iii) During any period of twenty-four (24) consecutive months, the
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at least
a majority thereof; or
(iv) There shall be consummated (A) any consolidation, merger or
recapitalization of the Corporation or any similar transactions involving the
Corporation, whether or not the Corporation is the continuing or surviving
Corporation, pursuant to which shares of the Corporation's common stock ("Common
Stock") would be converted into cash, securities or other property, other than a
merger of the Corporation in which the holders of Common Stock immediately prior
to the merger have the same proportion and ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange or other transfer (in one transaction or a series or related
transactions) of all, or substantially all, of the assets of the Corporation or
(C) the adoption of a plan of complete liquidation of the Corporation (whether
or not in connection with the sale of all or substantially all of the
Corporation's assets) or a series of partial liquidations of the Corporation
that is a de jure or de facto part of a plan of complete liquidation of the
Corporation; provided, that the divestiture of less than substantially all of
the assets of the Corporation in one transaction or a series or related
transactions, whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a subsidiary or otherwise, or a transaction solely for the
purpose of reincorporating the Corporation in another jurisdiction, shall not
constitute a "Change-in-Control"; or
(v) The Board of Directors of the Corporation shall approve any
merger, consolidation, or like business combination or
- 3 -
<PAGE> 4
reorganization of the Corporation, the consummation of which would result in the
occurrence of any event described in clause (A), (B) or (C) or Section 1 (iv)
above.
2. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If a Change in Control of the Corporation shall have occurred at
any time that the Executive is employed by the Corporation, then the Executive
shall be entitled to the benefits provided in Section 3 hereof upon the
subsequent termination of his employment within the applicable period set forth
following such Change in Control, unless such termination is (i) due to the
Executive's death or "Retirement" (as defined in Section 2(e)) or (ii) by the
Executive other than for "Good Reason" (as such term is defined in Section 2(f))
or (iii) by the Corporation or a Subsidiary by reason of the Executive's
"Disability" (as defined in Section 2(k)) or for Cause (as defined in Subsection
2(1)).
(b) If, following a Change in Control, the Executive's employment is
terminated by reason of his death or Disability during the two (2) years
following a Change in Control, the Executive shall be entitled to death or
long-term disability benefits, as the case may be, from the Corporation no less
favorable than the most favorable benefits to which he would have been entitled
had the death or termination for Disability occurred at any time during the
period commencing one year prior to the initiation of actions that resulted in a
Change in Control. If prior to any such termination for Disability during the
two (2) years following a Change in Control, the Executive fails to perform his
duties as a result of incapacity due to physical or mental illness, he shall
continue to receive his "Base Salary" (as defined in Section 2(g)) less any
benefits as may be received by him under the Corporation's disability plan until
his employment is terminated for Disability, and shall be entitled to the most
favorable other benefits applicable under the Corporation's policies during the
period commencing one year prior to the initiation of actions that resulted in
the Change in Control.
(c) If, following a Change in Control, the Executive's employment shall
be terminated by the Corporation for Cause or by the Executive other than for
Good Reason during the two (2) years following a Change in Control, the
Corporation shall pay to the Executive his full Base Salary through the "Date of
Termination" (as defined in Section 2(i)) at the rate in effect at the time the
"Notice of Termination" (as defined in Section 2(h)) is given and any amounts to
be paid to the Executive pursuant to any deferred compensation or other employee
benefit plan or program, and the Corporation shall have no further obligations
to the Executive under this Agreement.
(d) For purposes of this Agreement, "Continuing Directors" shall mean
the directors of the Corporation in office on the date
- 4 -
<PAGE> 5
hereof and any successor to any such director and any additional director who
after the date hereof (i) was nominated or selected by a majority of the
Continuing Directors in office at the time of his nomination or selection and
(ii) who is not an "affiliate" or "associate" (as defined in Regulation 12b-2
under the Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the combined
voting power of the Corporation's outstanding securities then entitled
ordinarily to vote for the election of directors.
(e) For purposes of this Agreement, "Retirement" shall mean that the
Executive shall have retired after reaching the age of 65.
(f) For purposes of this Agreement, "Good Reason" shall mean:
(A) The assignment by the Corporation or a Subsidiary to the
Executive of duties which (i) are inconsistent with, or require travel
significantly more time-consuming or extensive than, the Executives's duties and
business travel obligations immediately prior to the Change in Control, or (ii)
result, without the Executive's express written consent, in a significant
reduction in the Executive's authority and responsibility when compared to the
highest level of authority and responsibility assigned to the Executive at any
time during the six (6) month period prior to the Change in Control, or (iii)
require the Executive, without his express written consent, to report directly
or through one or more intermediaries, to a person or group other than the
person or group to whom or which the Executive reported, directly or thorough
one or more intermediaries, immediately prior to the Change of Control; or
(B) A reduction by the Corporation or any Subsidiary of the
Executive's Base Salary as the same may be increased from time to time
hereafter; or
(C) A change of the Executive's assigned site location without the
Executive's express written consent, or in the event of any relocation of the
Executive with his express written consent, the failure by the Corporation to
pay (or reimburse the Executive for) all reasonable moving expenses incurred by
the Executive and relating to a change of his principal residence, and to
indemnify the Executive against any loss realized by the Executive and/or the
Executive's spouse in the sale of the Executive's principal residence in
connection with any such change or residence, all to the effect that the
Executive shall incur no loss on an after-tax basis; or
(D) The failure of the Corporation to continue to provide the
Executive with substantially the same level of retirement and welfare benefits
(which for purposes of this Agreement shall mean benefits under all welfare
plans as that term is defined in Section 3(1) of the Executive Retirement Income
- 5 -
<PAGE> 6
Security Act of 1974, as amended) and perquisites (including participation on a
comparable basis in the Corporation's retirement plans, stock option plans,
incentive plans, group life insurance plans, medical, health, accident,
disability and other plan in which employees of the Corporation of comparable
title and salary grade participate), as were provided to the Executive
immediately prior to such Change in Control, or with a package of retirement and
welfare benefits and perquisites that, though one or more such benefits or
perquisites (including participation on a comparable basis in the Corporation's
or a Subsidiary's retirement plans, stock option plans, incentive plans, group
life insurance plans, medical, health, accident, disability and other plans) may
vary from those provided before such Change in Control, is substantially
comparable in all material respects when taken as a whole to such retirement and
welfare benefits and perquisites provided prior to the Change in Control; or
(E) The failure by the Corporation to obtain the express written
assumption of and agreement to perform this Agreement by any successor as
contemplated in Section 4(c) hereof; and
For purposes of this Section 2(f), no act, or failure to act, on
the Executive's part shall be considered "willful" unless done, or omitted to be
done, by him knowing and with the intent that such action or inaction would not
be in the best interests of the Corporation or otherwise was done or omitted to
be done in bad faith.
(g) For purposes of this Agreement, "Base Salary" shall mean the First
Year Salary or the Salary, as the case may be, paid to the Executive immediately
prior to the Change in Control of the Corporation (provided that such amount
shall in no event be less than the First Year Salary or the Salary paid to the
Executive during the one (1) year period immediately prior to the Change in
Control).
(h) Any purported termination of employment by the Corporation by
reason of the Executive's Disability or for Cause, or by the Executive for Good
Reason, shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice given by the Executive or by the Corporation or a Subsidiary,
which shall indicate the specific basis for termination and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
determination of any payments under this Agreement; provided, however, that the
Executive shall not be entitled to give a Notice of Termination that he is
terminating his employment with the Corporation or a Subsidiary for Good Reason
after the expiration of six (6) months following the last to occur of the events
claimed by him to constitute Good Reason.
- 6 -
<PAGE> 7
(i) For purposes of this Agreement, "Date of Termination" shall mean
(i) if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such thirty (30) day
period) and (ii) if the Executive's employment is terminated for Cause or Good
Reason, the date specified in the Notice of Termination, which shall be not more
than ninety (90) days after such Notice of Termination is given. If within
thirty (30) days after any Notice of Termination is given, the party who
receives such Notice of Termination is given, the party who receives such Notice
of Termination notifies the other party that a "Dispute" (as defined in Section
2(j)) exists, the parties agree to pursue promptly the resolution of any such
Dispute with reasonable diligence. Pending the resolution of any such Dispute,
the Corporation or a Subsidiary shall make the payments and provide the benefits
provided for herein to the Executive. In the event that it is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected), that a challenged
termination by the Corporation or a Subsidiary by reason of the Executive's
Disability or for Cause was justified, or that a challenged termination by the
Executive for Good Reason was not justified, then all sums paid by the
Corporation or any Subsidiary to the Executive from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this Section 2(i) shall be repaid promptly by the Executive to the
Corporation, with interest at the base rate charged from time to time by the
Corporation's principal commercial bank. In the event that it is finally
determined that a challenged termination by the Corporation by reason of the
Executive's Disability or for Cause was not justified, or that a challenged
termination by the Executive for Good Reason was justified, then the Executive
shall be entitled to retain all sums paid to the Executive pending resolution of
the Dispute.
(j) For purposes of this Agreement, "Dispute" shall mean (i) in the
case of the Executive's termination as an Executive with the Corporation or a
Subsidiary for Disability or Cause, that the Executive challenges the existence
of Disability or Cause and (ii) in the case of the Executive's termination as an
Executive with the Corporation or a Subsidiary by the Executive for Good Reason,
that the Corporation or a Subsidiary challenges the existence of Good Reason.
(k) For purposes of this Agreement, "Disability" shall mean that, as a
result of the Executive's incapacity due to physical or mental illness, the
Executive has been absent from the full-time performance of his duties with the
Corporation for six (6) consecutive months and within thirty (30) days after
Notice of
- 7 -
<PAGE> 8
Termination is given to the Executive, he has not returned to the full-time
performance of his duties. Any question as to the existence of Disability shall
be determined by a qualified independent physician selected by the Executive
(or, if he is unable to make such selection, such selection shall be made by any
adult member of the Executive's family) and approved by the Corporation. The
written determination of such physician shall be final and conclusive for
purposes of this Agreement.
(l) For purposes of this Agreement, "Cause" shall mean the willful and
continued failure by the Executive to perform his duties for the Corporation
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure resulting
from termination by the Executive for Good Reason) after a written demand for
substantial performance is delivered to the Executive by the Board of Directors,
which demand specifically identifies the manner in which the Board of Directors
believes that the Executive has not substantially performed his duties, or (ii)
the willful engagement in conduct by the Executive which is demonstrably and
materially injurious to the Company, monetarily or otherwise, (iii) conviction
for a felony or other crime punishable by imprisonment for more than one (1)
year, or the entering of a plea of nolo contendere thereto.
Notwithstanding any of the foregoing, the Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to the Executive a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting called and held for such purpose after reasonable notice to the
Executive and an opportunity for the Executive, together with his counsel, to be
heard before the Board of Directors, finding that in the good faith opinion of
the Board of Directors the Executive was guilty of conduct set forth above in
clause (i), (ii) or (iii) and specifying the particulars thereof in detail.
3. PAYMENTS UPON TERMINATION.
If within two (2) years after a Change in Control of the Corporation,
the Corporation or a Subsidiary shall terminate the Executive's employment other
than by reason of the Executive's death, Disability, Retirement or for Cause or
if the Executive shall terminate his employment for Good Reason then, in any
such event, and subject in each case to Section 2(j) hereof, the Corporation or
a Subsidiary will pay to the Executive as compensation for services rendered,
beginning not later than the fifth business day following completion of the
"Parachute Procedure" (as hereinafter defined) if the Corporation elects to
follow such procedure and not later than the fifteenth day after the Date of
Termination otherwise:
- 8 -
<PAGE> 9
(a) the Executive's Salary through the Date of Termination, any
existing fringe benefits (including medical benefits) and incentive compensation
for the fiscal year in which the termination occurs in accordance with any
arrangements then existing with the Executive and proportionate to the period of
the fiscal year which has expired prior to the termination; and
(b) a lump sum severance payment equal to one (1) times the Executive's
"Base Amount," as such term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") (subject to any applicable payroll or
other taxes and changes required to be withheld computed at the rate for
supplemental payments), provided that in no event shall "Total Payments" (as
hereinafter defined) exceed 2.99 times the Executive's Base Amount. The
Executive's Base Amount shall be determined in accordance with temporary or
final regulations promulgated under Section 280G of the Code then in effect, if
any. In the absence of such regulations, if the Executive were not employed by
the Corporation (or any corporation or partnership affiliated with the
Corporation (an "Affiliate") within the meaning of Section 1504 of the Code or a
predecessor of the Corporation) during the entire five calendar years (the "Base
Period") preceding the calendar year in which a Change in Control of the
Corporation occurred, the Executive's average annual compensation for the
purposes of such determination shall be the lesser of (i) the average of the
Executive's annual compensation for the complete calendar years during the Base
Period during which the Executive was so employed or (ii) the average of the
Executive's annual compensation for both complete and partial calendar years
during the Base Period during which the Executive was so employed, determined by
any compensation (other than nonrecurring items) includible in the Executive's
gross income for any partial calendar year or (iii) the annual average of the
Executive's total compensation for the Base Period during which the Executive
was so employed, determined by dividing such total compensation by the number of
whole and fractional years included in the Base Period. Compensation payable to
the Executive by the Corporation or any Affiliate or predecessor of the
Corporation shall include every type and form of compensation includible in the
Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G of the
Code. For purposes of this Section 3(b) a "change in control of the Corporation"
shall have the meaning set forth in Section 280G of the Code and any temporary
or final regulations promulgated thereunder, subject to the limitation stated in
Section 3(c) below; and
(c) (i) Notwithstanding anything to the contrary contained herein, in
the event that any portion of the aggregate payments and
- 9 -
<PAGE> 10
benefits (the "Total Payments") received or to be received by the Executive,
whether paid or payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Corporation, a Subsidiary or any other
person or entity, would not be deductible in whole or in part by the
Corporation, a Subsidiary or by such other person or entity in the calculation
of its federal income tax by reason of Section 280G of the Code, the Total
Payments payable shall be reduced by the least amount necessary so that no
portion of the Total Payments payable shall be reduced by the least amount
necessary so that no portion of the Total Payments would fail to be deductible
by reason of being an "excess parachute payment."
(ii) At the option of the Corporation, no payments shall be made
pursuant to this Section 3 until the procedure described in this Section
3(c)(ii) is completed (the "Parachute Procedure"). If the Corporation elects to
comply with such procedure, the Corporation shall cause its independent auditors
to deliver to the Executive, within fifteen (15) days after the Date of
Termination, a statement which shall indicate whether payment to the Executive
of the Total Payments would cause any portion of the Total Payments not to be
deductible in whole or part in the calculation of federal income tax by reason
of section 280G of the Code, or would cause, directly or indirectly, an "excess
parachute payment" to exist within the meaning of Section 280G of the Code. Such
statement shall set forth the value, calculated in accordance with the
principles of Section 280G of the Code and any temporary or final regulations
promulgated thereunder, of any non-cash benefits or any deferred or contingent
payment or benefit payable pursuant to the terms of this Agreement or any other
plan, arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 280G of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 280G of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3 within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall
- 10 -
<PAGE> 11
constitute completion of the Parachute Procedure.
(d) The Corporation shall contest any improper assessment of an excise
or other tax imposed as a result of a determination that an "excess parachute
payment" has been made to the Executive within the meaning of Section 280G of
the Code. If it is established pursuant to a final determination of a court of
competent jurisdiction or an Internal Revenue Service proceeding that an "excess
parachute payment" does in fact exist, within the meaning of Section 280G of the
Code, then the Executive shall pay to the Corporation, upon demand, an amount
not to exceed the sum of (i) the excess of the aggregate Total Payments over the
aggregate Total Payments that would have been paid without any portion of such
payment being deemed an "excess parachute payment" within the meaning of Section
280G of the Code and (ii) interest on the amount set forth in clause (i) above
at the applicable federal rate specified in Section 1274(d) of the Code from the
date of receipt by the Executive of such excess until the date of such
repayment.
4. GENERAL.
(a) If litigation shall be brought to enforce or interpret any
provision contained herein, the Corporation shall indemnify the Executive for
his attorneys' fees and other fees and disbursements incurred in such litigation
and pay prejudgment interest on any money judgment obtained by the Executive
calculated at the base rate of interest charged from time to time from the date
that payment should have been made under this Agreement; provided, however, that
the Executive shall not have been found by the court to have had no cause to
bring the action, or to have acted in bad faith, which finding must be final
with the time to appeal therefrom having expired and no appeal having been
taken.
(b) The Corporation's obligation to pay the Executive the compensation
and to make the arrangements provided herein shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
any setoff, counterclaim, recoupment, defense or other right which the
Corporation may have against the Executive or anyone else. All amounts payable
by the Corporation hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Corporation waives all rights it may now have or
may hereafter have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as otherwise
provided herein, each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover for any reason all or any
part of such payment from the Executive or any person entitled thereto. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment, and if Executive obtains such
other employment, any compensation earned by Executive pursuant thereto shall
not be applied to mitigate any payment made
- 11 -
<PAGE> 12
to the Executive pursuant to this Agreement.
(c) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by written
agreement to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. As used in this Agreement, the term
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement required by this Section 4(c), or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(d) For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Donald Cantwell
289 River Road
St. James, New York 11780-9628
If to the Corporation:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attn: Irwin Selinger
Chairman of the Board
and Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(e) This Agreement shall constitute the entire agreement between the
Executive and the Corporation concerning the Executive's employment by the
Corporation and the termination of Executive's employment within two (2) years
after a Change in Control as provided herein, and performance of its obligations
hereunder by the Corporation shall constitute full settlement and release of any
claim or cause of action, of whatsoever nature, which the Executive might
otherwise assert or claim against the Corporation or any of its directors,
stockholders, officers or employees on account of such termination. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver,
- 12 -
<PAGE> 13
modification or discharge is agreed to in writing, signed by the Executive and
an authorized officer of the Corporation. No waiver by either party hereto at
any time of any breach by the other party hereto of compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provision or condition at
such same or at any prior or subsequent time. No assurances or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. However, this Agreement is in addition to and not in lieu of any
other plan providing for payments to or benefits for the Executive or any
agreement now existing or which hereafter may be entered into between the
Corporation and the Executive; provided that, notwithstanding anything to the
contrary contained in the terms of any such plan or agreement, in the event of
Executive's termination, within two years after a Change in Control as provided
herein, of the Executive's employment, this Agreement shall govern the rights
and the obligations of the Corporation and the Executive. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without giving effect to the provisions,
principles, or policies thereof relating to choice or conflict of laws.
(f) The invalidity or unenforceability of any provisions of this
Agreement in any circumstance shall not affect the validity or enforceability of
such provision in any other circumstance or the validity or enforceability of
any other provision of this Agreement, and except to the extent such provision
is invalid or unenforceable, this Agreement shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof in such jurisdiction, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement this
1st day of January 1997.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Richard S. Kolodny
-------------------------------
Name: Richard S. Kolodny
Title: Vice President, General Counsel
EXECUTIVE
/s/ Donald Cantwell
----------------------------------
Donald Cantwell
Vice President of
Information Systems
- 14 -
<PAGE> 1
Exhibit 10.50
AGREEMENT
DATED AS OF JANUARY 1, 1997
BY AND BETWEEN
GRAHAM-FIELD HEALTH PRODUCTS, INC.
AND
RALPH LIGUORI
AGREEMENT, dated as of January 1, 1997 (the "Agreement"), by and
between Graham-Field Health Products, Inc., a Delaware corporation (the
"Corporation"), and Ralph Liguori, Ralph R. Liguroi, an individual residing at
699 Tower Mews, Oakdale, New York 11769.
W I T N E S S E T H :
WHEREAS, the Corporation has determined that it is in the best
interests of the Corporation and its stockholders for the Corporation to agree
to pay the Executive certain termination compensation in the event the Executive
should leave the employment of the Corporation under the circumstances described
in this Agreement; and
WHEREAS, the Corporation recognizes that the possibility of a proposal
from a third person, whether solicited by the Corporation or unsolicited,
concerning a possible business combination with the Corporation, including the
acquisition of a substantial share of the equity or voting securities of the
Corporation, is unsettling to the Executive and other key personnel of the
Corporation; and
WHEREAS, this Agreement is intended to help assure a continuing
dedication by the Executive to his duties to the Corporation notwithstanding the
occurrence of a business combination proposal; and
WHEREAS, the Corporation and the Executive believe it is imperative
that should the Corporation receive proposals from third parties with respect to
its future, the Executive should, without being influenced by the uncertainties
of his or her own situation, assess and advise the Board of Directors whether
such proposals would be in the best interest of the Corporation and its
stockholders and take such other action regarding such proposals as the Board of
Directors might determine to be appropriate;
NOW, THEREFORE, in view of the foregoing and in further consideration
of the Executive's continued dedicated employment with the Corporation and the
availability of the Executive's advice and counsel, and to reward the Executive
for his valuable and dedicated service to the Corporation, should his services
be terminated under any of the circumstances described below, and for other good
and valuable consideration, the receipt and sufficiency of which each party
hereby acknowledges, the Corporation and the Executive hereby agree as follows:
<PAGE> 2
1. EFFECTIVE DATE AND TERM OF EMPLOYMENT OF EMPLOYEE.
(a) Except as provided in Section 1(b) below, nothing in this Agreement
shall affect any right which the Executive may otherwise have to terminate his
employment from the Corporation or any subsidiary of the Corporation (a
"Subsidiary"). Nor shall anything in this Agreement affect any right which the
Corporation or any Subsidiary may have to terminate the Executives's employment
at any time in any lawful manner, subject to the provision that in the event of
termination of the Executive's employment under the circumstances specified in
Sections 2 and 3 below following a "Change in Control" (as defined in Section
1(c)), the Corporation will provide to the Executive the payments and benefits
described in Sections 2 and 3 of this Agreement.
(b) In the event any person or organization commences a tender or
exchange offer, circulates a proxy statement to the Corporation's stockholders,
or takes other steps designed to effect a Change in Control of the Corporation,
the Executive agrees that in order to receive the benefits provided by this
Agreement, he will not voluntarily leave the employ of the Corporation or any of
its Subsidiaries and will continue to perform his regular duties and to render
his services, until such person or organization has abandoned or terminated his
or its efforts to effect a Change in Control or until a Change in Control has
occurred. In the event the Executive voluntarily terminates his employment
before any such effort to effect a Change in Control of the Corporation has
commenced, or after any such effort has been abandoned or terminated without
effecting a Change in Control and no such effort is then in process, this
Agreement shall lapse and be of no further force or effect. In the event the
Executive voluntarily terminates his employment with the Corporation or any
Subsidiary during such time any person or organization has commenced, but has
not yet abandoned, any steps designed to effect a Change in Control of the
Corporation, but at a time when a Change in Control has not been effected, the
Executive shall not be entitled to receive any of the benefits of Sections 2 and
3 hereof.
(c) For purposes of this Agreement, a "Change in Control" of the
Corporation shall be deemed to have occurred upon the occurrence of any of the
following events:
(i) A change in control of the direction and administration of the
Corporation's business of a nature that if any securities of the Corporation
were registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported (a) in response to Item 6 (e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or (b)
Item 1(a) of Form 8-K under the Exchange Act as each is in effect on the date
hereof and any successor provision of such regulations under the Exchange Act,
whether or not the Corporation is then subject to such reporting requirement; or
- 2 -
<PAGE> 3
(ii) Any "person" or "group" (as such term is used in connection
with Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any employee
benefit plan of the Corporation or any "affiliate" or "associate" thereof (as
defined in Regulation 12b-2 under the Exchange Act) (a) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing fifty percent (50%)
or more of the combined voting power of the Corporation's outstanding securities
then entitled ordinarily (and apart from rights accruing under special
circumstances) to vote for the election of directors or (b) acquires by proxy or
otherwise 50% or more of the combined voting securities of the Corporation
having the right to vote for the election of directors of the Corporation, for
any merger or consolidation of the Corporation, for the election of directors of
the Corporation, for any merger or consolidation of the Corporation, for the
election of directors, or for any other matter; or
(iii) During any period of twenty-four (24) consecutive months, the
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at least
a majority thereof; or
(iv) There shall be consummated (A) any consolidation, merger or
recapitalization of the Corporation or any similar transactions involving the
Corporation, whether or not the Corporation is the continuing or surviving
Corporation, pursuant to which shares of the Corporation's common stock ("Common
Stock") would be converted into cash, securities or other property, other than a
merger of the Corporation in which the holders of Common Stock immediately prior
to the merger have the same proportion and ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange or other transfer (in one transaction or a series or related
transactions) of all, or substantially all, of the assets of the Corporation or
(C) the adoption of a plan of complete liquidation of the Corporation (whether
or not in connection with the sale of all or substantially all of the
Corporation's assets) or a series of partial liquidations of the Corporation
that is a de jure or de facto part of a plan of complete liquidation of the
Corporation; provided, that the divestiture of less than substantially all of
the assets of the Corporation in one transaction or a series or related
transactions, whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a subsidiary or otherwise, or a transaction solely for the
purpose of reincorporating the Corporation in another jurisdiction, shall not
constitute a "Change-in-Control"; or
(v) The Board of Directors of the Corporation shall approve any
merger, consolidation, or like business combination or
- 3 -
<PAGE> 4
reorganization of the Corporation, the consummation of which would result in the
occurrence of any event described in clause (A), (B) or (C) or Section 1 (iv)
above.
2. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If a Change in Control of the Corporation shall have occurred at
any time that the Executive is employed by the Corporation, then the Executive
shall be entitled to the benefits provided in Section 3 hereof upon the
subsequent termination of his employment within the applicable period set forth
following such Change in Control, unless such termination is (i) due to the
Executive's death or "Retirement" (as defined in Section 2(e)) or (ii) by the
Executive other than for "Good Reason" (as such term is defined in Section 2(f))
or (iii) by the Corporation or a Subsidiary by reason of the Executive's
"Disability" (as defined in Section 2(k)) or for Cause (as defined in Subsection
2(1)).
(b) If, following a Change in Control, the Executive's employment is
terminated by reason of his death or Disability during the two (2) years
following a Change in Control, the Executive shall be entitled to death or
long-term disability benefits, as the case may be, from the Corporation no less
favorable than the most favorable benefits to which he would have been entitled
had the death or termination for Disability occurred at any time during the
period commencing one year prior to the initiation of actions that resulted in a
Change in Control. If prior to any such termination for Disability during the
two (2) years following a Change in Control, the Executive fails to perform his
duties as a result of incapacity due to physical or mental illness, he shall
continue to receive his "Base Salary" (as defined in Section 2(g)) less any
benefits as may be received by him under the Corporation's disability plan until
his employment is terminated for Disability, and shall be entitled to the most
favorable other benefits applicable under the Corporation's policies during the
period commencing one year prior to the initiation of actions that resulted in
the Change in Control.
(c) If, following a Change in Control, the Executive's employment shall
be terminated by the Corporation for Cause or by the Executive other than for
Good Reason during the two (2) years following a Change in Control, the
Corporation shall pay to the Executive his full Base Salary through the "Date of
Termination" (as defined in Section 2(i)) at the rate in effect at the time the
"Notice of Termination" (as defined in Section 2(h)) is given and any amounts to
be paid to the Executive pursuant to any deferred compensation or other employee
benefit plan or program, and the Corporation shall have no further obligations
to the Executive under this Agreement.
(d) For purposes of this Agreement, "Continuing Directors" shall mean
the directors of the Corporation in office on the date
- 4 -
<PAGE> 5
hereof and any successor to any such director and any additional director who
after the date hereof (i) was nominated or selected by a majority of the
Continuing Directors in office at the time of his nomination or selection and
(ii) who is not an "affiliate" or "associate" (as defined in Regulation 12b-2
under the Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the combined
voting power of the Corporation's outstanding securities then entitled
ordinarily to vote for the election of directors.
(e) For purposes of this Agreement, "Retirement" shall mean that the
Executive shall have retired after reaching the age of 65.
(f) For purposes of this Agreement, "Good Reason" shall mean:
(A) The assignment by the Corporation or a Subsidiary to the
Executive of duties which (i) are inconsistent with, or require travel
significantly more time-consuming or extensive than, the Executives's duties and
business travel obligations immediately prior to the Change in Control, or (ii)
result, without the Executive's express written consent, in a significant
reduction in the Executive's authority and responsibility when compared to the
highest level of authority and responsibility assigned to the Executive at any
time during the six (6) month period prior to the Change in Control, or (iii)
require the Executive, without his express written consent, to report directly
or through one or more intermediaries, to a person or group other than the
person or group to whom or which the Executive reported, directly or thorough
one or more intermediaries, immediately prior to the Change of Control; or
(B) A reduction by the Corporation or any Subsidiary of the
Executive's Base Salary as the same may be increased from time to time
hereafter; or
(C) A change of the Executive's assigned site location without the
Executive's express written consent, or in the event of any relocation of the
Executive with his express written consent, the failure by the Corporation to
pay (or reimburse the Executive for) all reasonable moving expenses incurred by
the Executive and relating to a change of his principal residence, and to
indemnify the Executive against any loss realized by the Executive and/or the
Executive's spouse in the sale of the Executive's principal residence in
connection with any such change or residence, all to the effect that the
Executive shall incur no loss on an after-tax basis; or
(D) The failure of the Corporation to continue to provide the
Executive with substantially the same level of retirement and welfare benefits
(which for purposes of this Agreement shall mean benefits under all welfare
plans as that term is defined in Section 3(1) of the Executive Retirement Income
- 5 -
<PAGE> 6
Security Act of 1974, as amended) and perquisites (including participation on a
comparable basis in the Corporation's retirement plans, stock option plans,
incentive plans, group life insurance plans, medical, health, accident,
disability and other plan in which employees of the Corporation of comparable
title and salary grade participate), as were provided to the Executive
immediately prior to such Change in Control, or with a package of retirement and
welfare benefits and perquisites that, though one or more such benefits or
perquisites (including participation on a comparable basis in the Corporation's
or a Subsidiary's retirement plans, stock option plans, incentive plans, group
life insurance plans, medical, health, accident, disability and other plans) may
vary from those provided before such Change in Control, is substantially
comparable in all material respects when taken as a whole to such retirement and
welfare benefits and perquisites provided prior to the Change in Control; or
(E) The failure by the Corporation to obtain the express written
assumption of and agreement to perform this Agreement by any successor as
contemplated in Section 4(c) hereof; and
For purposes of this Section 2(f), no act, or failure to act, on
the Executive's part shall be considered "willful" unless done, or omitted to be
done, by him knowing and with the intent that such action or inaction would not
be in the best interests of the Corporation or otherwise was done or omitted to
be done in bad faith.
(g) For purposes of this Agreement, "Base Salary" shall mean the First
Year Salary or the Salary, as the case may be, paid to the Executive immediately
prior to the Change in Control of the Corporation (provided that such amount
shall in no event be less than the First Year Salary or the Salary paid to the
Executive during the one (1) year period immediately prior to the Change in
Control).
(h) Any purported termination of employment by the Corporation by
reason of the Executive's Disability or for Cause, or by the Executive for Good
Reason, shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice given by the Executive or by the Corporation or a Subsidiary,
which shall indicate the specific basis for termination and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
determination of any payments under this Agreement; provided, however, that the
Executive shall not be entitled to give a Notice of Termination that he is
terminating his employment with the Corporation or a Subsidiary for Good Reason
after the expiration of six (6) months following the last to occur of the events
claimed by him to constitute Good Reason.
- 6 -
<PAGE> 7
(i) For purposes of this Agreement, "Date of Termination" shall mean
(i) if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such thirty (30) day
period) and (ii) if the Executive's employment is terminated for Cause or Good
Reason, the date specified in the Notice of Termination, which shall be not more
than ninety (90) days after such Notice of Termination is given. If within
thirty (30) days after any Notice of Termination is given, the party who
receives such Notice of Termination is given, the party who receives such Notice
of Termination notifies the other party that a "Dispute" (as defined in Section
2(j)) exists, the parties agree to pursue promptly the resolution of any such
Dispute with reasonable diligence. Pending the resolution of any such Dispute,
the Corporation or a Subsidiary shall make the payments and provide the benefits
provided for herein to the Executive. In the event that it is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected), that a challenged
termination by the Corporation or a Subsidiary by reason of the Executive's
Disability or for Cause was justified, or that a challenged termination by the
Executive for Good Reason was not justified, then all sums paid by the
Corporation or any Subsidiary to the Executive from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this Section 2(i) shall be repaid promptly by the Executive to the
Corporation, with interest at the base rate charged from time to time by the
Corporation's principal commercial bank. In the event that it is finally
determined that a challenged termination by the Corporation by reason of the
Executive's Disability or for Cause was not justified, or that a challenged
termination by the Executive for Good Reason was justified, then the Executive
shall be entitled to retain all sums paid to the Executive pending resolution of
the Dispute.
(j) For purposes of this Agreement, "Dispute" shall mean (i) in the
case of the Executive's termination as an Executive with the Corporation or a
Subsidiary for Disability or Cause, that the Executive challenges the existence
of Disability or Cause and (ii) in the case of the Executive's termination as an
Executive with the Corporation or a Subsidiary by the Executive for Good Reason,
that the Corporation or a Subsidiary challenges the existence of Good Reason.
(k) For purposes of this Agreement, "Disability" shall mean that, as a
result of the Executive's incapacity due to physical or mental illness, the
Executive has been absent from the full-time performance of his duties with the
Corporation for six (6) consecutive months and within thirty (30) days after
Notice of
- 7 -
<PAGE> 8
Termination is given to the Executive, he has not returned to the full-time
performance of his duties. Any question as to the existence of Disability shall
be determined by a qualified independent physician selected by the Executive
(or, if he is unable to make such selection, such selection shall be made by any
adult member of the Executive's family) and approved by the Corporation. The
written determination of such physician shall be final and conclusive for
purposes of this Agreement.
(l) For purposes of this Agreement, "Cause" shall mean the willful and
continued failure by the Executive to perform his duties for the Corporation
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure resulting
from termination by the Executive for Good Reason) after a written demand for
substantial performance is delivered to the Executive by the Board of Directors,
which demand specifically identifies the manner in which the Board of Directors
believes that the Executive has not substantially performed his duties, or (ii)
the willful engagement in conduct by the Executive which is demonstrably and
materially injurious to the Company, monetarily or otherwise, (iii) conviction
for a felony or other crime punishable by imprisonment for more than one (1)
year, or the entering of a plea of nolo contendere thereto.
Notwithstanding any of the foregoing, the Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to the Executive a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting called and held for such purpose after reasonable notice to the
Executive and an opportunity for the Executive, together with his counsel, to be
heard before the Board of Directors, finding that in the good faith opinion of
the Board of Directors the Executive was guilty of conduct set forth above in
clause (i), (ii) or (iii) and specifying the particulars thereof in detail.
3. PAYMENTS UPON TERMINATION.
If within two (2) years after a Change in Control of the Corporation,
the Corporation or a Subsidiary shall terminate the Executive's employment other
than by reason of the Executive's death, Disability, Retirement or for Cause or
if the Executive shall terminate his employment for Good Reason then, in any
such event, and subject in each case to Section 2(j) hereof, the Corporation or
a Subsidiary will pay to the Executive as compensation for services rendered,
beginning not later than the fifth business day following completion of the
"Parachute Procedure" (as hereinafter defined) if the Corporation elects to
follow such procedure and not later than the fifteenth day after the Date of
Termination otherwise:
- 8 -
<PAGE> 9
(a) the Executive's Salary through the Date of Termination, any
existing fringe benefits (including medical benefits) and incentive compensation
for the fiscal year in which the termination occurs in accordance with any
arrangements then existing with the Executive and proportionate to the period of
the fiscal year which has expired prior to the termination; and
(b) a lump sum severance payment equal to one (1) times the Executive's
"Base Amount," as such term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") (subject to any applicable payroll or
other taxes and changes required to be withheld computed at the rate for
supplemental payments), provided that in no event shall "Total Payments" (as
hereinafter defined) exceed 2.99 times the Executive's Base Amount. The
Executive's Base Amount shall be determined in accordance with temporary or
final regulations promulgated under Section 280G of the Code then in effect, if
any. In the absence of such regulations, if the Executive were not employed by
the Corporation (or any corporation or partnership affiliated with the
Corporation (an "Affiliate") within the meaning of Section 1504 of the Code or a
predecessor of the Corporation) during the entire five calendar years (the "Base
Period") preceding the calendar year in which a Change in Control of the
Corporation occurred, the Executive's average annual compensation for the
purposes of such determination shall be the lesser of (i) the average of the
Executive's annual compensation for the complete calendar years during the Base
Period during which the Executive was so employed or (ii) the average of the
Executive's annual compensation for both complete and partial calendar years
during the Base Period during which the Executive was so employed, determined by
any compensation (other than nonrecurring items) includible in the Executive's
gross income for any partial calendar year or (iii) the annual average of the
Executive's total compensation for the Base Period during which the Executive
was so employed, determined by dividing such total compensation by the number of
whole and fractional years included in the Base Period. Compensation payable to
the Executive by the Corporation or any Affiliate or predecessor of the
Corporation shall include every type and form of compensation includible in the
Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G of the
Code. For purposes of this Section 3(b) a "change in control of the Corporation"
shall have the meaning set forth in Section 280G of the Code and any temporary
or final regulations promulgated thereunder, subject to the limitation stated in
Section 3(c) below; and
(c) (i) Notwithstanding anything to the contrary contained herein, in
the event that any portion of the aggregate payments and
- 9 -
<PAGE> 10
benefits (the "Total Payments") received or to be received by the Executive,
whether paid or payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Corporation, a Subsidiary or any other
person or entity, would not be deductible in whole or in part by the
Corporation, a Subsidiary or by such other person or entity in the calculation
of its federal income tax by reason of Section 280G of the Code, the Total
Payments payable shall be reduced by the least amount necessary so that no
portion of the Total Payments payable shall be reduced by the least amount
necessary so that no portion of the Total Payments would fail to be deductible
by reason of being an "excess parachute payment."
(ii) At the option of the Corporation, no payments shall be made
pursuant to this Section 3 until the procedure described in this Section
3(c)(ii) is completed (the "Parachute Procedure"). If the Corporation elects to
comply with such procedure, the Corporation shall cause its independent auditors
to deliver to the Executive, within fifteen (15) days after the Date of
Termination, a statement which shall indicate whether payment to the Executive
of the Total Payments would cause any portion of the Total Payments not to be
deductible in whole or part in the calculation of federal income tax by reason
of section 280G of the Code, or would cause, directly or indirectly, an "excess
parachute payment" to exist within the meaning of Section 280G of the Code. Such
statement shall set forth the value, calculated in accordance with the
principles of Section 280G of the Code and any temporary or final regulations
promulgated thereunder, of any non-cash benefits or any deferred or contingent
payment or benefit payable pursuant to the terms of this Agreement or any other
plan, arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 280G of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 280G of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3 within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall
- 10 -
<PAGE> 11
constitute completion of the Parachute Procedure.
(d) The Corporation shall contest any improper assessment of an excise
or other tax imposed as a result of a determination that an "excess parachute
payment" has been made to the Executive within the meaning of Section 280G of
the Code. If it is established pursuant to a final determination of a court of
competent jurisdiction or an Internal Revenue Service proceeding that an "excess
parachute payment" does in fact exist, within the meaning of Section 280G of the
Code, then the Executive shall pay to the Corporation, upon demand, an amount
not to exceed the sum of (i) the excess of the aggregate Total Payments over the
aggregate Total Payments that would have been paid without any portion of such
payment being deemed an "excess parachute payment" within the meaning of Section
280G of the Code and (ii) interest on the amount set forth in clause (i) above
at the applicable federal rate specified in Section 1274(d) of the Code from the
date of receipt by the Executive of such excess until the date of such
repayment.
4. GENERAL.
(a) If litigation shall be brought to enforce or interpret any
provision contained herein, the Corporation shall indemnify the Executive for
his attorneys' fees and other fees and disbursements incurred in such litigation
and pay prejudgment interest on any money judgment obtained by the Executive
calculated at the base rate of interest charged from time to time from the date
that payment should have been made under this Agreement; provided, however, that
the Executive shall not have been found by the court to have had no cause to
bring the action, or to have acted in bad faith, which finding must be final
with the time to appeal therefrom having expired and no appeal having been
taken.
(b) The Corporation's obligation to pay the Executive the compensation
and to make the arrangements provided herein shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
any setoff, counterclaim, recoupment, defense or other right which the
Corporation may have against the Executive or anyone else. All amounts payable
by the Corporation hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Corporation waives all rights it may now have or
may hereafter have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as otherwise
provided herein, each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover for any reason all or any
part of such payment from the Executive or any person entitled thereto. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment, and if Executive obtains such
other employment, any compensation earned by Executive pursuant thereto shall
not be applied to mitigate any payment made
- 11 -
<PAGE> 12
to the Executive pursuant to this Agreement.
(c) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by written
agreement to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. As used in this Agreement, the term
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement required by this Section 4(c), or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(d) For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Ralph Liguori
699 Tower Mews
Oakdale, New York 11769
If to the Corporation:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attn: Irwin Selinger
Chairman of the Board
and Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(e) This Agreement shall constitute the entire agreement between the
Executive and the Corporation concerning the Executive's employment by the
Corporation and the termination of Executive's employment within two (2) years
after a Change in Control as provided herein, and performance of its obligations
hereunder by the Corporation shall constitute full settlement and release of any
claim or cause of action, of whatsoever nature, which the Executive might
otherwise assert or claim against the Corporation or any of its directors,
stockholders, officers or employees on account of such termination. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver,
- 12 -
<PAGE> 13
modification or discharge is agreed to in writing, signed by the Executive and
an authorized officer of the Corporation. No waiver by either party hereto at
any time of any breach by the other party hereto of compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provision or condition at
such same or at any prior or subsequent time. No assurances or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. However, this Agreement is in addition to and not in lieu of any
other plan providing for payments to or benefits for the Executive or any
agreement now existing or which hereafter may be entered into between the
Corporation and the Executive; provided that, notwithstanding anything to the
contrary contained in the terms of any such plan or agreement, in the event of
Executive's termination, within two years after a Change in Control as provided
herein, of the Executive's employment, this Agreement shall govern the rights
and the obligations of the Corporation and the Executive. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without giving effect to the provisions,
principles, or policies thereof relating to choice or conflict of laws.
(f) The invalidity or unenforceability of any provisions of this
Agreement in any circumstance shall not affect the validity or enforceability of
such provision in any other circumstance or the validity or enforceability of
any other provision of this Agreement, and except to the extent such provision
is invalid or unenforceable, this Agreement shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof in such jurisdiction, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement this
1st day of January 1997.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Richard S. Kolodny
-------------------------------
Name: Richard S. Kolodny
Title: Vice President, General Counsel
EXECUTIVE
/s/ Ralph Liguori
----------------------------------
Ralph Liguori
Senior Vice President of
Operations
- 14 -
<PAGE> 1
EXHIBIT 10.51
AGREEMENT
DATED AS OF MAY 14, 1996
BY AND BETWEEN
GRAHAM-FIELD HEALTH PRODUCTS, INC.
AND
JEFF SCHWARTZ
AGREEMENT, dated as of May 14, 1996 (the "Agreement"), by and between
Graham-Field Health Products, Inc., a Delaware corporation (the "Corporation"),
and Jeff Schwartz, an individual residing at 41 Roslyn Court, Port Jefferson,
New York 11777.
W I T N E S S E T H :
WHEREAS, the Corporation has determined that it is in the best
interests of the Corporation and its stockholders for the Corporation to agree
to pay the Executive certain termination compensation in the event the Executive
should leave the employment of the Corporation under the circumstances described
in this Agreement; and
WHEREAS, the Corporation recognizes that the possibility of a proposal
from a third person, whether solicited by the Corporation or unsolicited,
concerning a possible business combination with the Corporation, including the
acquisition of a substantial share of the equity or voting securities of the
Corporation, is unsettling to the Executive and other key personnel of the
Corporation; and
WHEREAS, this Agreement is intended to help assure a continuing
dedication by the Executive to his duties to the Corporation notwithstanding the
occurrence of a business combination proposal; and
WHEREAS, the Corporation and the Executive believe it is imperative
that should the Corporation receive proposals from third parties with respect to
its future, the Executive should, without being influenced by the uncertainties
of his or her own situation, assess and advise the Board of Directors whether
such proposals would be in the best interest of the Corporation and its
stockholders and take such other action regarding such proposals as the Board of
Directors might determine to be appropriate;
NOW, THEREFORE, in view of the foregoing and in further consideration
of the Executive's continued dedicated employment with the Corporation and the
availability of the Executive's advice and counsel, and to reward the Executive
for his valuable and dedicated service to the Corporation, should his services
be terminated under any of the circumstances described below, and for other good
and valuable consideration, the receipt and sufficiency of which each party
hereby acknowledges, the Corporation and the Executive hereby agree as follows:
<PAGE> 2
1. EFFECTIVE DATE AND TERM OF EMPLOYMENT OF EMPLOYEE.
(a) Except as provided in Section 1(b) below, nothing in this Agreement
shall affect any right which the Executive may otherwise have to terminate his
employment from the Corporation or any subsidiary of the Corporation (a
"Subsidiary"). Nor shall anything in this Agreement affect any right which the
Corporation or any Subsidiary may have to terminate the Executives's employment
at any time in any lawful manner, subject to the provision that in the event of
termination of the Executive's employment under the circumstances specified in
Sections 2 and 3 below following a "Change in Control" (as defined in Section
1(c)), the Corporation will provide to the Executive the payments and benefits
described in Sections 2 and 3 of this Agreement.
(b) In the event any person or organization commences a tender or
exchange offer, circulates a proxy statement to the Corporation's stockholders,
or takes other steps designed to effect a Change in Control of the Corporation,
the Executive agrees that in order to receive the benefits provided by this
Agreement, he will not voluntarily leave the employ of the Corporation or any of
its Subsidiaries and will continue to perform his regular duties and to render
his services, until such person or organization has abandoned or terminated his
or its efforts to effect a Change in Control or until a Change in Control has
occurred. In the event the Executive voluntarily terminates his employment
before any such effort to effect a Change in Control of the Corporation has
commenced, or after any such effort has been abandoned or terminated without
effecting a Change in Control and no such effort is then in process, this
Agreement shall lapse and be of no further force or effect. In the event the
Executive voluntarily terminates his employment with the Corporation or any
Subsidiary during such time any person or organization has commenced, but has
not yet abandoned, any steps designed to effect a Change in Control of the
Corporation, but at a time when a Change in Control has not been effected, the
Executive shall not be entitled to receive any of the benefits of Sections 2 and
3 hereof.
(c) For purposes of this Agreement, a "Change in Control" of the
Corporation shall be deemed to have occurred upon the occurrence of any of the
following events:
(i) A change in control of the direction and administration of
the Corporation's business of a nature that if any securities of the Corporation
were registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported (a) in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or (b)
Item 1(a) of Form 8-K under the Exchange Act as each is in effect on the date
hereof and any successor provision of such regulations under the Exchange Act,
whether or not the Corporation is then subject to such reporting requirement; or
- 2 -
<PAGE> 3
(ii) Any "person" or "group" (as such term is used in
connection with Section 13(d) and 14(d)(2) of the Exchange Act) but excluding
any employee benefit plan of the Corporation or any "affiliate" or "associate"
thereof (as defined in Regulation 12b-2 under the Exchange Act) (a) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing
fifty percent (50%) or more of the combined voting power of the Corporation's
outstanding securities then entitled ordinarily (and apart from rights accruing
under special circumstances) to vote for the election of directors or (b)
acquires by proxy or otherwise 50% or more of the combined voting securities of
the Corporation having the right to vote for the election of directors of the
Corporation, for any merger or consolidation of the Corporation, for the
election of directors of the Corporation, for any merger or consolidation of the
Corporation, for the election of directors, or for any other matter; or
(iii) During any period of twenty-four (24) consecutive
months, the individuals who at the beginning of such period constitute the Board
of Directors of the Corporation or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at least
a majority thereof; or
(iv) There shall be consummated (A) any consolidation, merger
or recapitalization of the Corporation or any similar transactions involving the
Corporation, whether or not the Corporation is the continuing or surviving
Corporation, pursuant to which shares of the Corporation's common stock ("Common
Stock") would be converted into cash, securities or other property, other than a
merger of the Corporation in which the holders of Common Stock immediately prior
to the merger have the same proportion and ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange or other transfer (in one transaction or a series or related
transactions) of all, or substantially all, of the assets of the Corporation or
(C) the adoption of a plan of complete liquidation of the Corporation (whether
or not in connection with the sale of all or substantially all of the
Corporation's assets) or a series of partial liquidations of the Corporation
that is a de jure or de facto part of a plan of complete liquidation of the
Corporation; provided, that the divestiture of less than substantially all of
the assets of the Corporation in one transaction or a series or related
transactions, whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a subsidiary or otherwise, or a transaction solely for the
purpose of reincorporating the Corporation in another jurisdiction, shall not
constitute a "Change-in-Control"; or
(v) The Board of Directors of the Corporation shall
approve any merger, consolidation, or like business combination or
- 3 -
<PAGE> 4
reorganization of the Corporation, the consummation of which would result in the
occurrence of any event described in clause (A), (B) or (C) or Section 1(iv)
above.
2. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If a Change in Control of the Corporation shall have occurred at
any time that the Executive is employed by the Corporation, then the Executive
shall be entitled to the benefits provided in Section 3 hereof upon the
subsequent termination of his employment within the applicable period set forth
following such Change in Control, unless such termination is (i) due to the
Executive's death or "Retirement" (as defined in Section 2(e)) or (ii) by the
Executive other than for "Good Reason" (as such term is defined in Section 2(f))
or (iii) by the Corporation or a Subsidiary by reason of the Executive's
"Disability" (as defined in Section 2(k)) or for Cause (as defined in Subsection
2(l)).
(b) If, following a Change in Control, the Executive's employment is
terminated by reason of his death or Disability during the two (2) years
following a Change in Control, the Executive shall be entitled to death or
long-term disability benefits, as the case may be, from the Corporation no less
favorable than the most favorable benefits to which he would have been entitled
had the death or termination for Disability occurred at any time during the
period commencing one year prior to the initiation of actions that resulted in a
Change in Control. If prior to any such termination for Disability during the
two (2) years following a Change in Control, the Executive fails to perform his
duties as a result of incapacity due to physical or mental illness, he shall
continue to receive his "Base Salary" (as defined in Section 2(g)) less any
benefits as may be received by him under the Corporation's disability plan until
his employment is terminated for Disability, and shall be entitled to the most
favorable other benefits applicable under the Corporation's policies during the
period commencing one year prior to the initiation of actions that resulted in
the Change in Control.
(c) If, following a Change in Control, the Executive's employment shall
be terminated by the Corporation for Cause or by the Executive other than for
Good Reason during the two (2) years following a Change in Control, the
Corporation shall pay to the Executive his full Base Salary through the "Date of
Termination" (as defined in Section 2(i)) at the rate in effect at the time the
"Notice of Termination" (as defined in Section 2(h)) is given and any amounts to
be paid to the Executive pursuant to any deferred compensation or other employee
benefit plan or program, and the Corporation shall have no further obligations
to the Executive under this Agreement.
(d) For purposes of this Agreement, "Continuing Directors" shall mean
the directors of the Corporation in office on the date
- 4 -
<PAGE> 5
hereof and any successor to any such director and any additional director who
after the date hereof (i) was nominated or selected by a majority of the
Continuing Directors in office at the time of his nomination or selection and
(ii) who is not an "affiliate" or "associate" (as defined in Regulation 12b-2
under the Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the combined
voting power of the Corporation's outstanding securities then entitled
ordinarily to vote for the election of directors.
(e) For purposes of this Agreement, "Retirement" shall mean that the
Executive shall have retired after reaching the age of 65.
(f) For purposes of this Agreement, "Good Reason" shall mean:
(A) The assignment by the Corporation or a Subsidiary to the
Executive of duties which (i) are inconsistent with, or require travel
significantly more time-consuming or extensive than, the Executives's duties and
business travel obligations immediately prior to the Change in Control, or (ii)
result, without the Executive's express written consent, in a significant
reduction in the Executive's authority and responsibility when compared to the
highest level of authority and responsibility assigned to the Executive at any
time during the six (6) month period prior to the Change in Control, or (iii)
require the Executive, without his express written consent, to report directly
or through one or more intermediaries, to a person or group other than the
person or group to whom or which the Executive reported, directly or thorough
one or more intermediaries, immediately prior to the Change of Control; or
(B) A reduction by the Corporation or any Subsidiary of the
Executive's Base Salary as the same may be increased from time to time
hereafter; or
(C) A change of the Executive's assigned site location without
the Executive's express written consent, or in the event of any relocation of
the Executive with his express written consent, the failure by the Corporation
to pay (or reimburse the Executive for) all reasonable moving expenses incurred
by the Executive and relating to a change of his principal residence, and to
indemnify the Executive against any loss realized by the Executive and/or the
Executive's spouse in the sale of the Executive's principal residence in
connection with any such change or residence, all to the effect that the
Executive shall incur no loss on an after-tax basis; or
(D) The failure of the Corporation to continue to provide the
Executive with substantially the same level of retirement and welfare benefits
(which for purposes of this Agreement shall mean benefits under all welfare
plans as that term is defined in Section 3(l) of the Executive Retirement Income
- 5 -
<PAGE> 6
Security Act of 1974, as amended) and perquisites (including participation on a
comparable basis in the Corporation's retirement plans, stock option plans,
incentive plans, group life insurance plans, medical, health, accident,
disability and other plan in which employees of the Corporation of comparable
title and salary grade participate), as were provided to the Executive
immediately prior to such Change in Control, or with a package of retirement and
welfare benefits and perquisites that, though one or more such benefits or
perquisites (including participation on a comparable basis in the Corporation's
or a Subsidiary's retirement plans, stock option plans, incentive plans, group
life insurance plans, medical, health, accident, disability and other plans) may
vary from those provided before such Change in Control, is substantially
comparable in all material respects when taken as a whole to such retirement and
welfare benefits and perquisites provided prior to the Change in Control; or
(E) The failure by the Corporation to obtain the express
written assumption of and agreement to perform this Agreement by any successor
as contemplated in Section 4(c) hereof; and
For purposes of this Section 2(f), no act, or failure to act,
on the Executive's part shall be considered "willful" unless done, or omitted to
be done, by him knowing and with the intent that such action or inaction would
not be in the best interests of the Corporation or otherwise was done or omitted
to be done in bad faith.
(g) For purposes of this Agreement, "Base Salary" shall mean the First
Year Salary or the Salary, as the case may be, paid to the Executive immediately
prior to the Change in Control of the Corporation (provided that such amount
shall in no event be less than the First Year Salary or the Salary paid to the
Executive during the one (1) year period immediately prior to the Change in
Control).
(h) Any purported termination of employment by the Corporation by
reason of the Executive's Disability or for Cause, or by the Executive for Good
Reason, shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice given by the Executive or by the Corporation or a Subsidiary,
which shall indicate the specific basis for termination and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
determination of any payments under this Agreement; provided, however, that the
Executive shall not be entitled to give a Notice of Termination that he is
terminating his employment with the Corporation or a Subsidiary for Good Reason
after the expiration of six (6) months following the last to occur of the events
claimed by him to constitute Good Reason.
- 6 -
<PAGE> 7
(i) For purposes of this Agreement, "Date of Termination" shall mean
(i) if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such thirty (30) day
period) and (ii) if the Executive's employment is terminated for Cause or Good
Reason, the date specified in the Notice of Termination, which shall be not more
than ninety (90) days after such Notice of Termination is given. If within
thirty (30) days after any Notice of Termination is given, the party who
receives such Notice of Termination is given, the party who receives such Notice
of Termination notifies the other party that a "Dispute" (as defined in Section
2(j)) exists, the parties agree to pursue promptly the resolution of any such
Dispute with reasonable diligence. Pending the resolution of any such Dispute,
the Corporation or a Subsidiary shall make the payments and provide the benefits
provided for herein to the Executive. In the event that it is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected), that a challenged
termination by the Corporation or a Subsidiary by reason of the Executive's
Disability or for Cause was justified, or that a challenged termination by the
Executive for Good Reason was not justified, then all sums paid by the
Corporation or any Subsidiary to the Executive from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this Section 2(i) shall be repaid promptly by the Executive to the
Corporation, with interest at the base rate charged from time to time by the
Corporation's principal commercial bank. In the event that it is finally
determined that a challenged termination by the Corporation by reason of the
Executive's Disability or for Cause was not justified, or that a challenged
termination by the Executive for Good Reason was justified, then the Executive
shall be entitled to retain all sums paid to the Executive pending resolution of
the Dispute.
(j) For purposes of this Agreement, "Dispute" shall mean (i) in the
case of the Executive's termination as an Executive with the Corporation or a
Subsidiary for Disability or Cause, that the Executive challenges the existence
of Disability or Cause and (ii) in the case of the Executive's termination as an
Executive with the Corporation or a Subsidiary by the Executive for Good Reason,
that the Corporation or a Subsidiary challenges the existence of Good Reason.
(k) For purposes of this Agreement, "Disability" shall mean that, as a
result of the Executive's incapacity due to physical or mental illness, the
Executive has been absent from the full-time performance of his duties with the
Corporation for six (6) consecutive months and within thirty (30) days after
Notice of
- 7 -
<PAGE> 8
Termination is given to the Executive, he has not returned to the full-time
performance of his duties. Any question as to the existence of Disability shall
be determined by a qualified independent physician selected by the Executive
(or, if he is unable to make such selection, such selection shall be made by any
adult member of the Executive's family) and approved by the Corporation. The
written determination of such physician shall be final and conclusive for
purposes of this Agreement.
(l) For purposes of this Agreement, "Cause" shall mean the willful and
continued failure by the Executive to perform his duties for the Corporation
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure resulting
from termination by the Executive for Good Reason) after a written demand for
substantial performance is delivered to the Executive by the Board of Directors,
which demand specifically identifies the manner in which the Board of Directors
believes that the Executive has not substantially performed his duties, or (ii)
the willful engagement in conduct by the Executive which is demonstrably and
materially injurious to the Company, monetarily or otherwise, (iii) conviction
for a felony or other crime punishable by imprisonment for more than one (1)
year, or the entering of a plea of nolo contendere thereto.
Notwithstanding any of the foregoing, the Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to the Executive a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting called and held for such purpose after reasonable notice to the
Executive and an opportunity for the Executive, together with his counsel, to be
heard before the Board of Directors, finding that in the good faith opinion of
the Board of Directors the Executive was guilty of conduct set forth above in
clause (i), (ii) or (iii) and specifying the particulars thereof in detail.
3. PAYMENTS UPON TERMINATION.
If within two (2) years after a Change in Control of the Corporation,
the Corporation or a Subsidiary shall terminate the Executive's employment other
than by reason of the Executive's death, Disability, Retirement or for Cause or
if the Executive shall terminate his employment for Good Reason then, in any
such event, and subject in each case to Section 2(j) hereof, the Corporation or
a Subsidiary will pay to the Executive as compensation for services rendered,
beginning not later than the fifth business day following completion of the
"Parachute Procedure" (as hereinafter defined) if the Corporation elects to
follow such procedure and not later than the fifteenth day after the Date of
Termination otherwise:
- 8 -
<PAGE> 9
(a) the Executive's Salary through the Date of Termination, any
existing fringe benefits (including medical benefits) and incentive compensation
for the fiscal year in which the termination occurs in accordance with any
arrangements then existing with the Executive and proportionate to the period of
the fiscal year which has expired prior to the termination; and
(b) a lump sum severance payment equal to one (1) times the Executive's
"Base Amount," as such term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") (subject to any applicable payroll or
other taxes and changes required to be withheld computed at the rate for
supplemental payments), provided that in no event shall "Total Payments" (as
hereinafter defined) exceed 2.99 times the Executive's Base Amount. The
Executive's Base Amount shall be determined in accordance with temporary or
final regulations promulgated under Section 280G of the Code then in effect, if
any. In the absence of such regulations, if the Executive were not employed by
the Corporation (or any corporation or partnership affiliated with the
Corporation (an "Affiliate") within the meaning of Section 1504 of the Code or a
predecessor of the Corporation) during the entire five calendar years (the "Base
Period") preceding the calendar year in which a Change in Control of the
Corporation occurred, the Executive's average annual compensation for the
purposes of such determination shall be the lesser of (i) the average of the
Executive's annual compensation for the complete calendar years during the Base
Period during which the Executive was so employed or (ii) the average of the
Executive's annual compensation for both complete and partial calendar years
during the Base Period during which the Executive was so employed, determined by
any compensation (other than nonrecurring items) includible in the Executive's
gross income for any partial calendar year or (iii) the annual average of the
Executive's total compensation for the Base Period during which the Executive
was so employed, determined by dividing such total compensation by the number of
whole and fractional years included in the Base Period. Compensation payable to
the Executive by the Corporation or any Affiliate or predecessor of the
Corporation shall include every type and form of compensation includible in the
Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G of the
Code. For purposes of this Section 3(b) a "change in control of the Corporation"
shall have the meaning set forth in Section 280G of the Code and any temporary
or final regulations promulgated thereunder, subject to the limitation stated in
Section 3(c) below; and
(c) (i) Notwithstanding anything to the contrary contained herein, in
the event that any portion of the aggregate payments and
- 9 -
<PAGE> 10
benefits (the "Total Payments") received or to be received by the Executive,
whether paid or payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Corporation, a Subsidiary or any other
person or entity, would not be deductible in whole or in part by the
Corporation, a Subsidiary or by such other person or entity in the calculation
of its federal income tax by reason of Section 280G of the Code, the Total
Payments payable shall be reduced by the least amount necessary so that no
portion of the Total Payments payable shall be reduced by the least amount
necessary so that no portion of the Total Payments would fail to be deductible
by reason of being an "excess parachute payment."
(ii) At the option of the Corporation, no payments shall be
made pursuant to this Section 3 until the procedure described in this Section
3(c)(ii) is completed (the "Parachute Procedure"). If the Corporation elects to
comply with such procedure, the Corporation shall cause its independent auditors
to deliver to the Executive, within fifteen (15) days after the Date of
Termination, a statement which shall indicate whether payment to the Executive
of the Total Payments would cause any portion of the Total Payments not to be
deductible in whole or part in the calculation of federal income tax by reason
of section 280G of the Code, or would cause, directly or indirectly, an "excess
parachute payment" to exist within the meaning of Section 280G of the Code. Such
statement shall set forth the value, calculated in accordance with the
principles of Section 280G of the Code and any temporary or final regulations
promulgated thereunder, of any non-cash benefits or any deferred or contingent
payment or benefit payable pursuant to the terms of this Agreement or any other
plan, arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 280G of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 280G of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3 within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall
- 10 -
<PAGE> 11
constitute completion of the Parachute Procedure.
(d) The Corporation shall contest any improper assessment of an excise
or other tax imposed as a result of a determination that an "excess parachute
payment" has been made to the Executive within the meaning of Section 280G of
the Code. If it is established pursuant to a final determination of a court of
competent jurisdiction or an Internal Revenue Service proceeding that an "excess
parachute payment" does in fact exist, within the meaning of Section 280G of the
Code, then the Executive shall pay to the Corporation, upon demand, an amount
not to exceed the sum of (i) the excess of the aggregate Total Payments over the
aggregate Total Payments that would have been paid without any portion of such
payment being deemed an "excess parachute payment" within the meaning of Section
280G of the Code and (ii) interest on the amount set forth in clause (i) above
at the applicable federal rate specified in Section 1274(d) of the Code from the
date of receipt by the Executive of such excess until the date of such
repayment.
4. GENERAL.
(a) If litigation shall be brought to enforce or interpret any
provision contained herein, the Corporation shall indemnify the Executive for
his attorneys' fees and other fees and disbursements incurred in such litigation
and pay prejudgment interest on any money judgment obtained by the Executive
calculated at the base rate of interest charged from time to time from the date
that payment should have been made under this Agreement; provided, however, that
the Executive shall not have been found by the court to have had no cause to
bring the action, or to have acted in bad faith, which finding must be final
with the time to appeal therefrom having expired and no appeal having been
taken.
(b) The Corporation's obligation to pay the Executive the compensation
and to make the arrangements provided herein shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
any setoff, counterclaim, recoupment, defense or other right which the
Corporation may have against the Executive or anyone else. All amounts payable
by the Corporation hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Corporation waives all rights it may now have or
may hereafter have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as otherwise
provided herein, each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover for any reason all or any
part of such payment from the Executive or any person entitled thereto. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment, and if Executive obtains such
other employment, any compensation earned by Executive pursuant thereto shall
not be applied to mitigate any payment made
- 11 -
<PAGE> 12
to the Executive pursuant to this Agreement.
(c) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by written
agreement to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. As used in this Agreement, the term
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement required by this Section 4(c), or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(d) For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Jeff Schwartz
41 Roslyn Court
Port Jefferson, New York 11777.
If to the Corporation:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attn: Irwin Selinger
Chairman of the Board
and Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(e) This Agreement shall constitute the entire agreement between the
Executive and the Corporation concerning the Executive's employment by the
Corporation and the termination of Executive's employment within two (2) years
after a Change in Control as provided herein, and performance of its obligations
hereunder by the Corporation shall constitute full settlement and release of any
claim or cause of action, of whatsoever nature, which the Executive might
otherwise assert or claim against the Corporation or any of its directors,
stockholders, officers or employees on account of such termination. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver,
- 12 -
<PAGE> 13
modification or discharge is agreed to in writing, signed by the Executive and
an authorized officer of the Corporation. No waiver by either party hereto at
any time of any breach by the other party hereto of compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provision or condition at
such same or at any prior or subsequent time. No assurances or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. However, this Agreement is in addition to and not in lieu of any
other plan providing for payments to or benefits for the Executive or any
agreement now existing or which hereafter may be entered into between the
Corporation and the Executive; provided that, notwithstanding anything to the
contrary contained in the terms of any such plan or agreement, in the event of
Executive's termination, within two years after a Change in Control as provided
herein, of the Executive's employment, this Agreement shall govern the rights
and the obligations of the Corporation and the Executive. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without giving effect to the provisions,
principles, or policies thereof relating to choice or conflict of laws.
(f) The invalidity or unenforceability of any provisions of this
Agreement in any circumstance shall not affect the validity or enforceability of
such provision in any other circumstance or the validity or enforceability of
any other provision of this Agreement, and except to the extent such provision
is invalid or unenforceable, this Agreement shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof in such jurisdiction, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement
this 14th day of May, 1996.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Richard S. Kolodny
________________________________
Name: Richard S. Kolodny
Title: Vice President, General
Counsel
EXECUTIVE
/s/ Jeff Schwartz
___________________________________
Jeff Schwartz
President of
Graham-Field Express, Inc.
- 14 -
<PAGE> 1
Exhibit 10.52
AGREEMENT
DATED AS OF OCTOBER 31, 1995
BY AND BETWEEN
GRAHAM-FIELD HEALTH PRODUCTS, INC.
AND
PETER WINOCUR
AGREEMENT, dated as of October 31, 1995 (the "Agreement"), by and
between Graham-Field Health Products, Inc., a Delaware corporation (the
"Corporation"), and Peter Winocur, an individual residing at 159 Boulder Ridge
Road, Scarsdale, New York 10583.
W I T N E S S E T H :
WHEREAS, the Corporation has determined that it is in the best
interests of the Corporation and its stockholders for the Corporation to agree
to pay the Executive certain termination compensation in the event the Executive
should leave the employment of the Corporation under the circumstances described
in this Agreement; and
WHEREAS, the Corporation recognizes that the possibility of a proposal
from a third person, whether solicited by the Corporation or unsolicited,
concerning a possible business combination with the Corporation, including the
acquisition of a substantial share of the equity or voting securities of the
Corporation, is unsettling to the Executive and other key personnel of the
Corporation; and
WHEREAS, this Agreement is intended to help assure a continuing
dedication by the Executive to his duties to the Corporation notwithstanding the
occurrence of a business combination proposal; and
WHEREAS, the Corporation and the Executive believe it is imperative
that should the Corporation receive proposals from third parties with respect to
its future, the Executive should, without being influenced by the uncertainties
of his or her own situation, assess and advise the Board of Directors whether
such proposals would be in the best interest of the Corporation and its
stockholders and take such other action regarding such proposals as the Board of
Directors might determine to be appropriate;
NOW, THEREFORE, in view of the foregoing and in further consideration
of the Executive's continued dedicated employment with the Corporation and the
availability of the Executive's advice and counsel, and to reward the Executive
for his valuable and dedicated service to the Corporation, should his services
be terminated under any of the circumstances described below, and for other good
and valuable consideration, the receipt and sufficiency of which each party
hereby acknowledges, the Corporation and the Executive hereby agree as follows:
<PAGE> 2
1. EFFECTIVE DATE AND TERM OF EMPLOYMENT OF EMPLOYEE.
(a) Except as provided in Section 1(b) below, nothing in this Agreement
shall affect any right which the Executive may otherwise have to terminate his
employment from the Corporation or any subsidiary of the Corporation (a
"Subsidiary"). Nor shall anything in this Agreement affect any right which the
Corporation or any Subsidiary may have to terminate the Executives's employment
at any time in any lawful manner, subject to the provision that in the event of
termination of the Executive's employment under the circumstances specified in
Sections 2 and 3 below following a "Change in Control" (as defined in Section
1(c)), the Corporation will provide to the Executive the payments and benefits
described in Sections 2 and 3 of this Agreement.
(b) In the event any person or organization commences a tender or
exchange offer, circulates a proxy statement to the Corporation's stockholders,
or takes other steps designed to effect a Change in Control of the Corporation,
the Executive agrees that in order to receive the benefits provided by this
Agreement, he will not voluntarily leave the employ of the Corporation or any of
its Subsidiaries and will continue to perform his regular duties and to render
his services, until such person or organization has abandoned or terminated his
or its efforts to effect a Change in Control or until a Change in Control has
occurred. In the event the Executive voluntarily terminates his employment
before any such effort to effect a Change in Control of the Corporation has
commenced, or after any such effort has been abandoned or terminated without
effecting a Change in Control and no such effort is then in process, this
Agreement shall lapse and be of no further force or effect. In the event the
Executive voluntarily terminates his employment with the Corporation or any
Subsidiary during such time any person or organization has commenced, but has
not yet abandoned, any steps designed to effect a Change in Control of the
Corporation, but at a time when a Change in Control has not been effected, the
Executive shall not be entitled to receive any of the benefits of Sections 2 and
3 hereof.
(c) For purposes of this Agreement, a "Change in Control" of the
Corporation shall be deemed to have occurred upon the occurrence of any of the
following events:
(i) A change in control of the direction and administration of the
Corporation's business of a nature that if any securities of the Corporation
were registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported (a) in response to Item 6 (e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or (b)
Item 1(a) of Form 8-K under the Exchange Act as each is in effect on the date
hereof and any successor provision of such regulations under the Exchange Act,
whether or not the Corporation is then subject to such reporting requirement; or
- 2 -
<PAGE> 3
(ii) Any "person" or "group" (as such term is used in connection
with Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any employee
benefit plan of the Corporation or any "affiliate" or "associate" thereof (as
defined in Regulation 12b-2 under the Exchange Act) (a) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing fifty percent (50%)
or more of the combined voting power of the Corporation's outstanding securities
then entitled ordinarily (and apart from rights accruing under special
circumstances) to vote for the election of directors or (b) acquires by proxy or
otherwise 50% or more of the combined voting securities of the Corporation
having the right to vote for the election of directors of the Corporation, for
any merger or consolidation of the Corporation, for the election of directors of
the Corporation, for any merger or consolidation of the Corporation, for the
election of directors, or for any other matter; or
(iii) During any period of twenty-four (24) consecutive months, the
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at least
a majority thereof; or
(iv) There shall be consummated (A) any consolidation, merger or
recapitalization of the Corporation or any similar transactions involving the
Corporation, whether or not the Corporation is the continuing or surviving
Corporation, pursuant to which shares of the Corporation's common stock ("Common
Stock") would be converted into cash, securities or other property, other than a
merger of the Corporation in which the holders of Common Stock immediately prior
to the merger have the same proportion and ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange or other transfer (in one transaction or a series or related
transactions) of all, or substantially all, of the assets of the Corporation or
(C) the adoption of a plan of complete liquidation of the Corporation (whether
or not in connection with the sale of all or substantially all of the
Corporation's assets) or a series of partial liquidations of the Corporation
that is a de jure or de facto part of a plan of complete liquidation of the
Corporation; provided, that the divestiture of less than substantially all of
the assets of the Corporation in one transaction or a series or related
transactions, whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a subsidiary or otherwise, or a transaction solely for the
purpose of reincorporating the Corporation in another jurisdiction, shall not
constitute a "Change-in-Control"; or
(v) The Board of Directors of the Corporation shall approve any
merger, consolidation, or like business combination or
- 3 -
<PAGE> 4
reorganization of the Corporation, the consummation of which would result in the
occurrence of any event described in clause (A), (B) or (C) or Section 1 (iv)
above.
2. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If a Change in Control of the Corporation shall have occurred at
any time that the Executive is employed by the Corporation, then the Executive
shall be entitled to the benefits provided in Section 3 hereof upon the
subsequent termination of his employment within the applicable period set forth
following such Change in Control, unless such termination is (i) due to the
Executive's death or "Retirement" (as defined in Section 2(e)) or (ii) by the
Executive other than for "Good Reason" (as such term is defined in Section 2(f))
or (iii) by the Corporation or a Subsidiary by reason of the Executive's
"Disability" (as defined in Section 2(k)) or for Cause (as defined in Subsection
2(1)).
(b) If, following a Change in Control, the Executive's employment is
terminated by reason of his death or Disability during the two (2) years
following a Change in Control, the Executive shall be entitled to death or
long-term disability benefits, as the case may be, from the Corporation no less
favorable than the most favorable benefits to which he would have been entitled
had the death or termination for Disability occurred at any time during the
period commencing one year prior to the initiation of actions that resulted in a
Change in Control. If prior to any such termination for Disability during the
two (2) years following a Change in Control, the Executive fails to perform his
duties as a result of incapacity due to physical or mental illness, he shall
continue to receive his "Base Salary" (as defined in Section 2(g)) less any
benefits as may be received by him under the Corporation's disability plan until
his employment is terminated for Disability, and shall be entitled to the most
favorable other benefits applicable under the Corporation's policies during the
period commencing one year prior to the initiation of actions that resulted in
the Change in Control.
(c) If, following a Change in Control, the Executive's employment shall
be terminated by the Corporation for Cause or by the Executive other than for
Good Reason during the two (2) years following a Change in Control, the
Corporation shall pay to the Executive his full Base Salary through the "Date of
Termination" (as defined in Section 2(i)) at the rate in effect at the time the
"Notice of Termination" (as defined in Section 2(h)) is given and any amounts to
be paid to the Executive pursuant to any deferred compensation or other employee
benefit plan or program, and the Corporation shall have no further obligations
to the Executive under this Agreement.
(d) For purposes of this Agreement, "Continuing Directors" shall mean
the directors of the Corporation in office on the date
- 4 -
<PAGE> 5
hereof and any successor to any such director and any additional director who
after the date hereof (i) was nominated or selected by a majority of the
Continuing Directors in office at the time of his nomination or selection and
(ii) who is not an "affiliate" or "associate" (as defined in Regulation 12b-2
under the Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the combined
voting power of the Corporation's outstanding securities then entitled
ordinarily to vote for the election of directors.
(e) For purposes of this Agreement, "Retirement" shall mean that the
Executive shall have retired after reaching the age of 65.
(f) For purposes of this Agreement, "Good Reason" shall mean:
(A) The assignment by the Corporation or a Subsidiary to the
Executive of duties which (i) are inconsistent with, or require travel
significantly more time-consuming or extensive than, the Executives's duties and
business travel obligations immediately prior to the Change in Control, or (ii)
result, without the Executive's express written consent, in a significant
reduction in the Executive's authority and responsibility when compared to the
highest level of authority and responsibility assigned to the Executive at any
time during the six (6) month period prior to the Change in Control, or (iii)
require the Executive, without his express written consent, to report directly
or through one or more intermediaries, to a person or group other than the
person or group to whom or which the Executive reported, directly or thorough
one or more intermediaries, immediately prior to the Change of Control; or
(B) A reduction by the Corporation or any Subsidiary of the
Executive's Base Salary as the same may be increased from time to time
hereafter; or
(C) A change of the Executive's assigned site location without the
Executive's express written consent, or in the event of any relocation of the
Executive with his express written consent, the failure by the Corporation to
pay (or reimburse the Executive for) all reasonable moving expenses incurred by
the Executive and relating to a change of his principal residence, and to
indemnify the Executive against any loss realized by the Executive and/or the
Executive's spouse in the sale of the Executive's principal residence in
connection with any such change or residence, all to the effect that the
Executive shall incur no loss on an after-tax basis; or
(D) The failure of the Corporation to continue to provide the
Executive with substantially the same level of retirement and welfare benefits
(which for purposes of this Agreement shall mean benefits under all welfare
plans as that term is defined in Section 3(1) of the Executive Retirement Income
- 5 -
<PAGE> 6
Security Act of 1974, as amended) and perquisites (including participation on a
comparable basis in the Corporation's retirement plans, stock option plans,
incentive plans, group life insurance plans, medical, health, accident,
disability and other plan in which employees of the Corporation of comparable
title and salary grade participate), as were provided to the Executive
immediately prior to such Change in Control, or with a package of retirement and
welfare benefits and perquisites that, though one or more such benefits or
perquisites (including participation on a comparable basis in the Corporation's
or a Subsidiary's retirement plans, stock option plans, incentive plans, group
life insurance plans, medical, health, accident, disability and other plans) may
vary from those provided before such Change in Control, is substantially
comparable in all material respects when taken as a whole to such retirement and
welfare benefits and perquisites provided prior to the Change in Control; or
(E) The failure by the Corporation to obtain the express written
assumption of and agreement to perform this Agreement by any successor as
contemplated in Section 4(c) hereof; and
For purposes of this Section 2(f), no act, or failure to act, on
the Executive's part shall be considered "willful" unless done, or omitted to be
done, by him knowing and with the intent that such action or inaction would not
be in the best interests of the Corporation or otherwise was done or omitted to
be done in bad faith.
(g) For purposes of this Agreement, "Base Salary" shall mean the First
Year Salary or the Salary, as the case may be, paid to the Executive immediately
prior to the Change in Control of the Corporation (provided that such amount
shall in no event be less than the First Year Salary or the Salary paid to the
Executive during the one (1) year period immediately prior to the Change in
Control).
(h) Any purported termination of employment by the Corporation by
reason of the Executive's Disability or for Cause, or by the Executive for Good
Reason, shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice given by the Executive or by the Corporation or a Subsidiary,
which shall indicate the specific basis for termination and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
determination of any payments under this Agreement; provided, however, that the
Executive shall not be entitled to give a Notice of Termination that he is
terminating his employment with the Corporation or a Subsidiary for Good Reason
after the expiration of six (6) months following the last to occur of the events
claimed by him to constitute Good Reason.
- 6 -
<PAGE> 7
(i) For purposes of this Agreement, "Date of Termination" shall mean
(i) if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such thirty (30) day
period) and (ii) if the Executive's employment is terminated for Cause or Good
Reason, the date specified in the Notice of Termination, which shall be not more
than ninety (90) days after such Notice of Termination is given. If within
thirty (30) days after any Notice of Termination is given, the party who
receives such Notice of Termination is given, the party who receives such Notice
of Termination notifies the other party that a "Dispute" (as defined in Section
2(j)) exists, the parties agree to pursue promptly the resolution of any such
Dispute with reasonable diligence. Pending the resolution of any such Dispute,
the Corporation or a Subsidiary shall make the payments and provide the benefits
provided for herein to the Executive. In the event that it is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected), that a challenged
termination by the Corporation or a Subsidiary by reason of the Executive's
Disability or for Cause was justified, or that a challenged termination by the
Executive for Good Reason was not justified, then all sums paid by the
Corporation or any Subsidiary to the Executive from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this Section 2(i) shall be repaid promptly by the Executive to the
Corporation, with interest at the base rate charged from time to time by the
Corporation's principal commercial bank. In the event that it is finally
determined that a challenged termination by the Corporation by reason of the
Executive's Disability or for Cause was not justified, or that a challenged
termination by the Executive for Good Reason was justified, then the Executive
shall be entitled to retain all sums paid to the Executive pending resolution of
the Dispute.
(j) For purposes of this Agreement, "Dispute" shall mean (i) in the
case of the Executive's termination as an Executive with the Corporation or a
Subsidiary for Disability or Cause, that the Executive challenges the existence
of Disability or Cause and (ii) in the case of the Executive's termination as an
Executive with the Corporation or a Subsidiary by the Executive for Good Reason,
that the Corporation or a Subsidiary challenges the existence of Good Reason.
(k) For purposes of this Agreement, "Disability" shall mean that, as a
result of the Executive's incapacity due to physical or mental illness, the
Executive has been absent from the full-time performance of his duties with the
Corporation for six (6) consecutive months and within thirty (30) days after
Notice of
- 7 -
<PAGE> 8
Termination is given to the Executive, he has not returned to the full-time
performance of his duties. Any question as to the existence of Disability shall
be determined by a qualified independent physician selected by the Executive
(or, if he is unable to make such selection, such selection shall be made by any
adult member of the Executive's family) and approved by the Corporation. The
written determination of such physician shall be final and conclusive for
purposes of this Agreement.
(l) For purposes of this Agreement, "Cause" shall mean the willful and
continued failure by the Executive to perform his duties for the Corporation
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure resulting
from termination by the Executive for Good Reason) after a written demand for
substantial performance is delivered to the Executive by the Board of Directors,
which demand specifically identifies the manner in which the Board of Directors
believes that the Executive has not substantially performed his duties, or (ii)
the willful engagement in conduct by the Executive which is demonstrably and
materially injurious to the Company, monetarily or otherwise, (iii) conviction
for a felony or other crime punishable by imprisonment for more than one (1)
year, or the entering of a plea of nolo contendere thereto.
Notwithstanding any of the foregoing, the Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to the Executive a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting called and held for such purpose after reasonable notice to the
Executive and an opportunity for the Executive, together with his counsel, to be
heard before the Board of Directors, finding that in the good faith opinion of
the Board of Directors the Executive was guilty of conduct set forth above in
clause (i), (ii) or (iii) and specifying the particulars thereof in detail.
3. PAYMENTS UPON TERMINATION.
If within two (2) years after a Change in Control of the Corporation,
the Corporation or a Subsidiary shall terminate the Executive's employment other
than by reason of the Executive's death, Disability, Retirement or for Cause or
if the Executive shall terminate his employment for Good Reason then, in any
such event, and subject in each case to Section 2(j) hereof, the Corporation or
a Subsidiary will pay to the Executive as compensation for services rendered,
beginning not later than the fifth business day following completion of the
"Parachute Procedure" (as hereinafter defined) if the Corporation elects to
follow such procedure and not later than the fifteenth day after the Date of
Termination otherwise:
- 8 -
<PAGE> 9
(a) the Executive's Salary through the Date of Termination, any
existing fringe benefits (including medical benefits) and incentive compensation
for the fiscal year in which the termination occurs in accordance with any
arrangements then existing with the Executive and proportionate to the period of
the fiscal year which has expired prior to the termination; and
(b) a lump sum severance payment equal to one (1) times the Executive's
"Base Amount," as such term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") (subject to any applicable payroll or
other taxes and changes required to be withheld computed at the rate for
supplemental payments), provided that in no event shall "Total Payments" (as
hereinafter defined) exceed 2.99 times the Executive's Base Amount. The
Executive's Base Amount shall be determined in accordance with temporary or
final regulations promulgated under Section 280G of the Code then in effect, if
any. In the absence of such regulations, if the Executive were not employed by
the Corporation (or any corporation or partnership affiliated with the
Corporation (an "Affiliate") within the meaning of Section 1504 of the Code or a
predecessor of the Corporation) during the entire five calendar years (the "Base
Period") preceding the calendar year in which a Change in Control of the
Corporation occurred, the Executive's average annual compensation for the
purposes of such determination shall be the lesser of (i) the average of the
Executive's annual compensation for the complete calendar years during the Base
Period during which the Executive was so employed or (ii) the average of the
Executive's annual compensation for both complete and partial calendar years
during the Base Period during which the Executive was so employed, determined by
any compensation (other than nonrecurring items) includible in the Executive's
gross income for any partial calendar year or (iii) the annual average of the
Executive's total compensation for the Base Period during which the Executive
was so employed, determined by dividing such total compensation by the number of
whole and fractional years included in the Base Period. Compensation payable to
the Executive by the Corporation or any Affiliate or predecessor of the
Corporation shall include every type and form of compensation includible in the
Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G of the
Code. For purposes of this Section 3(b) a "change in control of the Corporation"
shall have the meaning set forth in Section 280G of the Code and any temporary
or final regulations promulgated thereunder, subject to the limitation stated in
Section 3(c) below; and
(c) (i) Notwithstanding anything to the contrary contained herein, in
the event that any portion of the aggregate payments and
- 9 -
<PAGE> 10
benefits (the "Total Payments") received or to be received by the Executive,
whether paid or payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Corporation, a Subsidiary or any other
person or entity, would not be deductible in whole or in part by the
Corporation, a Subsidiary or by such other person or entity in the calculation
of its federal income tax by reason of Section 280G of the Code, the Total
Payments payable shall be reduced by the least amount necessary so that no
portion of the Total Payments payable shall be reduced by the least amount
necessary so that no portion of the Total Payments would fail to be deductible
by reason of being an "excess parachute payment."
(ii) At the option of the Corporation, no payments shall be made
pursuant to this Section 3 until the procedure described in this Section
3(c)(ii) is completed (the "Parachute Procedure"). If the Corporation elects to
comply with such procedure, the Corporation shall cause its independent auditors
to deliver to the Executive, within fifteen (15) days after the Date of
Termination, a statement which shall indicate whether payment to the Executive
of the Total Payments would cause any portion of the Total Payments not to be
deductible in whole or part in the calculation of federal income tax by reason
of section 280G of the Code, or would cause, directly or indirectly, an "excess
parachute payment" to exist within the meaning of Section 280G of the Code. Such
statement shall set forth the value, calculated in accordance with the
principles of Section 280G of the Code and any temporary or final regulations
promulgated thereunder, of any non-cash benefits or any deferred or contingent
payment or benefit payable pursuant to the terms of this Agreement or any other
plan, arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 280G of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 280G of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3 within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall
- 10 -
<PAGE> 11
constitute completion of the Parachute Procedure.
(d) The Corporation shall contest any improper assessment of an excise
or other tax imposed as a result of a determination that an "excess parachute
payment" has been made to the Executive within the meaning of Section 280G of
the Code. If it is established pursuant to a final determination of a court of
competent jurisdiction or an Internal Revenue Service proceeding that an "excess
parachute payment" does in fact exist, within the meaning of Section 280G of the
Code, then the Executive shall pay to the Corporation, upon demand, an amount
not to exceed the sum of (i) the excess of the aggregate Total Payments over the
aggregate Total Payments that would have been paid without any portion of such
payment being deemed an "excess parachute payment" within the meaning of Section
280G of the Code and (ii) interest on the amount set forth in clause (i) above
at the applicable federal rate specified in Section 1274(d) of the Code from the
date of receipt by the Executive of such excess until the date of such
repayment.
4. GENERAL.
(a) If litigation shall be brought to enforce or interpret any
provision contained herein, the Corporation shall indemnify the Executive for
his attorneys' fees and other fees and disbursements incurred in such litigation
and pay prejudgment interest on any money judgment obtained by the Executive
calculated at the base rate of interest charged from time to time from the date
that payment should have been made under this Agreement; provided, however, that
the Executive shall not have been found by the court to have had no cause to
bring the action, or to have acted in bad faith, which finding must be final
with the time to appeal therefrom having expired and no appeal having been
taken.
(b) The Corporation's obligation to pay the Executive the compensation
and to make the arrangements provided herein shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
any setoff, counterclaim, recoupment, defense or other right which the
Corporation may have against the Executive or anyone else. All amounts payable
by the Corporation hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Corporation waives all rights it may now have or
may hereafter have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as otherwise
provided herein, each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover for any reason all or any
part of such payment from the Executive or any person entitled thereto. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment, and if Executive obtains such
other employment, any compensation earned by Executive pursuant thereto shall
not be applied to mitigate any payment made
- 11 -
<PAGE> 12
to the Executive pursuant to this Agreement.
(c) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by written
agreement to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. As used in this Agreement, the term
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement required by this Section 4(c), or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(d) For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Peter Winocur
159 Boulder Ridge Road
Scarsdale, NY 10583
If to the Corporation:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attn: Irwin Selinger
Chairman of the Board
and Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(e) This Agreement shall constitute the entire agreement between the
Executive and the Corporation concerning the Executive's employment by the
Corporation and the termination of Executive's employment within two (2) years
after a Change in Control as provided herein, and performance of its obligations
hereunder by the Corporation shall constitute full settlement and release of any
claim or cause of action, of whatsoever nature, which the Executive might
otherwise assert or claim against the Corporation or any of its directors,
stockholders, officers or employees on account of such termination. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver,
- 12 -
<PAGE> 13
modification or discharge is agreed to in writing, signed by the Executive and
an authorized officer of the Corporation. No waiver by either party hereto at
any time of any breach by the other party hereto of compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provision or condition at
such same or at any prior or subsequent time. No assurances or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. However, this Agreement is in addition to and not in lieu of any
other plan providing for payments to or benefits for the Executive or any
agreement now existing or which hereafter may be entered into between the
Corporation and the Executive; provided that, notwithstanding anything to the
contrary contained in the terms of any such plan or agreement, in the event of
Executive's termination, within two years after a Change in Control as provided
herein, of the Executive's employment, this Agreement shall govern the rights
and the obligations of the Corporation and the Executive. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without giving effect to the provisions,
principles, or policies thereof relating to choice or conflict of laws.
(f) The invalidity or unenforceability of any provisions of this
Agreement in any circumstance shall not affect the validity or enforceability of
such provision in any other circumstance or the validity or enforceability of
any other provision of this Agreement, and except to the extent such provision
is invalid or unenforceable, this Agreement shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof in such jurisdiction, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement this
31st day of October 1995.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Richard S. Kolodny
-------------------------------
Name: Richard S. Kolodny
Title: Vice President,
General Counsel
EXECUTIVE
/s/ Peter Winocur
----------------------------------
Peter Winocur
Vice President, Finance and
Chief Financial Officer
- 14 -
<PAGE> 1
EXHIBIT 10.53
AGREEMENT
DATED AS OF AUGUST 16, 1993
BY AND BETWEEN
GRAHAM-FIELD HEALTH PRODUCTS, INC.
AND
RICHARD S. KOLODNY
AGREEMENT, dated as of August 16, 1993 (the "Agreement"), by and
between Graham-Field Health Products, Inc., a Delaware corporation (the
"Corporation"), and Richard S. Kolodny, an individual residing at 53 Ridgeway
Drive, Irvington, New York 10533.
W I T N E S S E T H :
WHEREAS, the Corporation has determined that it is in the best
interests of the Corporation and its stockholders for the Corporation to agree
to pay the Executive certain termination compensation in the event the Executive
should leave the employment of the Corporation under the circumstances described
in this Agreement; and
WHEREAS, the Corporation recognizes that the possibility of a proposal
from a third person, whether solicited by the Corporation or unsolicited,
concerning a possible business combination with the Corporation, including the
acquisition of a substantial share of the equity or voting securities of the
Corporation, is unsettling to the Executive and other key personnel of the
Corporation; and
WHEREAS, this Agreement is intended to help assure a continuing
dedication by the Executive to his duties to the Corporation notwithstanding the
occurrence of a business combination proposal; and
WHEREAS, the Corporation and the Executive believe it is imperative
that should the Corporation receive proposals from third parties with respect to
its future, the Executive should, without being influenced by the uncertainties
of his or her own situation, assess and advise the Board of Directors whether
such proposals would be in the best interest of the Corporation and its
stockholders and take such other action regarding such proposals as the Board of
Directors might determine to be appropriate;
NOW, THEREFORE, in view of the foregoing and in further consideration
of the Executive's continued dedicated employment with the Corporation and the
availability of the Executive's advice and counsel, and to reward the Executive
for his valuable and dedicated service to the Corporation, should his services
be terminated under any of the circumstances described below, and for other good
and valuable consideration, the receipt and sufficiency of which each party
hereby acknowledges, the Corporation and the Executive hereby agree as follows:
<PAGE> 2
1. EFFECTIVE DATE AND TERM OF EMPLOYMENT OF EMPLOYEE.
(a) Except as provided in Section 1(b) below, nothing in this Agreement
shall affect any right which the Executive may otherwise have to terminate his
employment from the Corporation or any subsidiary of the Corporation (a
"Subsidiary"). Nor shall anything in this Agreement affect any right which the
Corporation or any Subsidiary may have to terminate the Executives's employment
at any time in any lawful manner, subject to the provision that in the event of
termination of the Executive's employment under the circumstances specified in
Sections 2 and 3 below following a "Change in Control" (as defined in Section
1(c)), the Corporation will provide to the Executive the payments and benefits
described in Sections 2 and 3 of this Agreement.
(b) In the event any person or organization commences a tender or
exchange offer, circulates a proxy statement to the Corporation's stockholders,
or takes other steps designed to effect a Change in Control of the Corporation,
the Executive agrees that in order to receive the benefits provided by this
Agreement, he will not voluntarily leave the employ of the Corporation or any of
its Subsidiaries and will continue to perform his regular duties and to render
his services, until such person or organization has abandoned or terminated his
or its efforts to effect a Change in Control or until a Change in Control has
occurred. In the event the Executive voluntarily terminates his employment
before any such effort to effect a Change in Control of the Corporation has
commenced, or after any such effort has been abandoned or terminated without
effecting a Change in Control and no such effort is then in process, this
Agreement shall lapse and be of no further force or effect. In the event the
Executive voluntarily terminates his employment with the Corporation or any
Subsidiary during such time any person or organization has commenced, but has
not yet abandoned, any steps designed to effect a Change in Control of the
Corporation, but at a time when a Change in Control has not been effected, the
Executive shall not be entitled to receive any of the benefits of Sections 2 and
3 hereof.
(c) For purposes of this Agreement, a "Change in Control" of the
Corporation shall be deemed to have occurred upon the occurrence of any of the
following events:
(i) A change in control of the direction and administration of
the Corporation's business of a nature that if any securities of the Corporation
were registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported (a) in response to Item 6 (e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or (b)
Item 1(a) of Form 8-K under the Exchange Act as each is in effect on the date
hereof and any successor provision of such regulations under the Exchange Act,
whether or not the Corporation is then subject to such reporting requirement; or
- 2 -
<PAGE> 3
(ii) Any "person" or "group" (as such term is used in
connection with Section 13(d) and 14(d)(2) of the Exchange Act) but excluding
any employee benefit plan of the Corporation or any "affiliate" or "associate"
thereof (as defined in Regulation 12b-2 under the Exchange Act) (a) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing
fifty percent (50%) or more of the combined voting power of the Corporation's
outstanding securities then entitled ordinarily (and apart from rights accruing
under special circumstances) to vote for the election of directors or (b)
acquires by proxy or otherwise 50% or more of the combined voting securities of
the Corporation having the right to vote for the election of directors of the
Corporation, for any merger or consolidation of the Corporation, for the
election of directors of the Corporation, for any merger or consolidation of the
Corporation, for the election of directors, or for any other matter; or
(iii) During any period of twenty-four (24) consecutive
months, the individuals who at the beginning of such period constitute the Board
of Directors of the Corporation or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at least
a majority thereof; or
(iv) There shall be consummated (A) any consolidation, merger
or recapitalization of the Corporation or any similar transactions involving the
Corporation, whether or not the Corporation is the continuing or surviving
Corporation, pursuant to which shares of the Corporation's common stock ("Common
Stock") would be converted into cash, securities or other property, other than a
merger of the Corporation in which the holders of Common Stock immediately prior
to the merger have the same proportion and ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange or other transfer (in one transaction or a series or related
transactions) of all, or substantially all, of the assets of the Corporation or
(C) the adoption of a plan of complete liquidation of the Corporation (whether
or not in connection with the sale of all or substantially all of the
Corporation's assets) or a series of partial liquidations of the Corporation
that is a de jure or de facto part of a plan of complete liquidation of the
Corporation; provided, that the divestiture of less than substantially all of
the assets of the Corporation in one transaction or a series or related
transactions, whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a subsidiary or otherwise, or a transaction solely for the
purpose of reincorporating the Corporation in another jurisdiction, shall not
constitute a "Change-in-Control"; or
(v) The Board of Directors of the Corporation shall approve
any merger, consolidation, or like business combination or
- 3 -
<PAGE> 4
reorganization of the Corporation, the consummation of which would result in the
occurrence of any event described in clause (A), (B) or (C) or Section 1 (iv)
above.
2. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If a Change in Control of the Corporation shall have occurred at
any time that the Executive is employed by the Corporation, then the Executive
shall be entitled to the benefits provided in Section 3 hereof upon the
subsequent termination of his employment within the applicable period set forth
following such Change in Control, unless such termination is (i) due to the
Executive's death or "Retirement" (as defined in Section 2(e)) or (ii) by the
Executive other than for "Good Reason" (as such term is defined in Section 2(f))
or (iii) by the Corporation or a Subsidiary by reason of the Executive's
"Disability" (as defined in Section 2(k)) or for Cause (as defined in Subsection
2(1)).
(b) If, following a Change in Control, the Executive's employment is
terminated by reason of his death or Disability during the two (2) years
following a Change in Control, the Executive shall be entitled to death or
long-term disability benefits, as the case may be, from the Corporation no less
favorable than the most favorable benefits to which he would have been entitled
had the death or termination for Disability occurred at any time during the
period commencing one year prior to the initiation of actions that resulted in a
Change in Control. If prior to any such termination for Disability during the
two (2) years following a Change in Control, the Executive fails to perform his
duties as a result of incapacity due to physical or mental illness, he shall
continue to receive his "Base Salary" (as defined in Section 2(g)) less any
benefits as may be received by him under the Corporation's disability plan until
his employment is terminated for Disability, and shall be entitled to the most
favorable other benefits applicable under the Corporation's policies during the
period commencing one year prior to the initiation of actions that resulted in
the Change in Control.
(c) If, following a Change in Control, the Executive's employment shall
be terminated by the Corporation for Cause or by the Executive other than for
Good Reason during the two (2) years following a Change in Control, the
Corporation shall pay to the Executive his full Base Salary through the "Date of
Termination" (as defined in Section 2(i)) at the rate in effect at the time the
"Notice of Termination" (as defined in Section 2(h)) is given and any amounts to
be paid to the Executive pursuant to any deferred compensation or other employee
benefit plan or program, and the Corporation shall have no further obligations
to the Executive under this Agreement.
(d) For purposes of this Agreement, "Continuing Directors" shall mean
the directors of the Corporation in office on the date
- 4 -
<PAGE> 5
hereof and any successor to any such director and any additional director who
after the date hereof (i) was nominated or selected by a majority of the
Continuing Directors in office at the time of his nomination or selection and
(ii) who is not an "affiliate" or "associate" (as defined in Regulation 12b-2
under the Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the combined
voting power of the Corporation's outstanding securities then entitled
ordinarily to vote for the election of directors.
(e) For purposes of this Agreement, "Retirement" shall mean that the
Executive shall have retired after reaching the age of 65.
(f) For purposes of this Agreement, "Good Reason" shall mean:
(A) The assignment by the Corporation or a Subsidiary to the
Executive of duties which (i) are inconsistent with, or require travel
significantly more time-consuming or extensive than, the Executives's duties and
business travel obligations immediately prior to the Change in Control, or (ii)
result, without the Executive's express written consent, in a significant
reduction in the Executive's authority and responsibility when compared to the
highest level of authority and responsibility assigned to the Executive at any
time during the six (6) month period prior to the Change in Control, or (iii)
require the Executive, without his express written consent, to report directly
or through one or more intermediaries, to a person or group other than the
person or group to whom or which the Executive reported, directly or thorough
one or more intermediaries, immediately prior to the Change of Control; or
(B) A reduction by the Corporation or any Subsidiary of the
Executive's Base Salary as the same may be increased from time to time
hereafter; or
(C) A change of the Executive's assigned site location without
the Executive's express written consent, or in the event of any relocation of
the Executive with his express written consent, the failure by the Corporation
to pay (or reimburse the Executive for) all reasonable moving expenses incurred
by the Executive and relating to a change of his principal residence, and to
indemnify the Executive against any loss realized by the Executive and/or the
Executive's spouse in the sale of the Executive's principal residence in
connection with any such change or residence, all to the effect that the
Executive shall incur no loss on an after-tax basis; or
(D) The failure of the Corporation to continue to provide the
Executive with substantially the same level of retirement and welfare benefits
(which for purposes of this Agreement shall mean benefits under all welfare
plans as that term is defined in Section 3(1) of the Executive Retirement Income
- 5 -
<PAGE> 6
Security Act of 1974, as amended) and perquisites (including participation on a
comparable basis in the Corporation's retirement plans, stock option plans,
incentive plans, group life insurance plans, medical, health, accident,
disability and other plan in which employees of the Corporation of comparable
title and salary grade participate), as were provided to the Executive
immediately prior to such Change in Control, or with a package of retirement and
welfare benefits and perquisites that, though one or more such benefits or
perquisites (including participation on a comparable basis in the Corporation's
or a Subsidiary's retirement plans, stock option plans, incentive plans, group
life insurance plans, medical, health, accident, disability and other plans) may
vary from those provided before such Change in Control, is substantially
comparable in all material respects when taken as a whole to such retirement and
welfare benefits and perquisites provided prior to the Change in Control; or
(E) The failure by the Corporation to obtain the express
written assumption of and agreement to perform this Agreement by any successor
as contemplated in Section 4(c) hereof; and
For purposes of this Section 2(f), no act, or failure to act,
on the Executive's part shall be considered "willful" unless done, or omitted to
be done, by him knowing and with the intent that such action or inaction would
not be in the best interests of the Corporation or otherwise was done or omitted
to be done in bad faith.
(g) For purposes of this Agreement, "Base Salary" shall mean the First
Year Salary or the Salary, as the case may be, paid to the Executive immediately
prior to the Change in Control of the Corporation (provided that such amount
shall in no event be less than the First Year Salary or the Salary paid to the
Executive during the one (1) year period immediately prior to the Change in
Control).
(h) Any purported termination of employment by the Corporation by
reason of the Executive's Disability or for Cause, or by the Executive for Good
Reason, shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice given by the Executive or by the Corporation or a Subsidiary,
which shall indicate the specific basis for termination and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
determination of any payments under this Agreement; provided, however, that the
Executive shall not be entitled to give a Notice of Termination that he is
terminating his employment with the Corporation or a Subsidiary for Good Reason
after the expiration of six (6) months following the last to occur of the events
claimed by him to constitute Good Reason.
- 6 -
<PAGE> 7
(i) For purposes of this Agreement, "Date of Termination" shall mean
(i) if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such thirty (30) day
period) and (ii) if the Executive's employment is terminated for Cause or Good
Reason, the date specified in the Notice of Termination, which shall be not more
than ninety (90) days after such Notice of Termination is given. If within
thirty (30) days after any Notice of Termination is given, the party who
receives such Notice of Termination is given, the party who receives such Notice
of Termination notifies the other party that a "Dispute" (as defined in Section
2(j)) exists, the parties agree to pursue promptly the resolution of any such
Dispute with reasonable diligence. Pending the resolution of any such Dispute,
the Corporation or a Subsidiary shall make the payments and provide the benefits
provided for herein to the Executive. In the event that it is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected), that a challenged
termination by the Corporation or a Subsidiary by reason of the Executive's
Disability or for Cause was justified, or that a challenged termination by the
Executive for Good Reason was not justified, then all sums paid by the
Corporation or any Subsidiary to the Executive from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this Section 2(i) shall be repaid promptly by the Executive to the
Corporation, with interest at the base rate charged from time to time by the
Corporation's principal commercial bank. In the event that it is finally
determined that a challenged termination by the Corporation by reason of the
Executive's Disability or for Cause was not justified, or that a challenged
termination by the Executive for Good Reason was justified, then the Executive
shall be entitled to retain all sums paid to the Executive pending resolution of
the Dispute.
(j) For purposes of this Agreement, "Dispute" shall mean (i) in the
case of the Executive's termination as an Executive with the Corporation or a
Subsidiary for Disability or Cause, that the Executive challenges the existence
of Disability or Cause and (ii) in the case of the Executive's termination as an
Executive with the Corporation or a Subsidiary by the Executive for Good Reason,
that the Corporation or a Subsidiary challenges the existence of Good Reason.
(k) For purposes of this Agreement, "Disability" shall mean that, as a
result of the Executive's incapacity due to physical or mental illness, the
Executive has been absent from the full-time performance of his duties with the
Corporation for six (6) consecutive months and within thirty (30) days after
Notice of
- 7 -
<PAGE> 8
Termination is given to the Executive, he has not returned to the full-time
performance of his duties. Any question as to the existence of Disability shall
be determined by a qualified independent physician selected by the Executive
(or, if he is unable to make such selection, such selection shall be made by any
adult member of the Executive's family) and approved by the Corporation. The
written determination of such physician shall be final and conclusive for
purposes of this Agreement.
(l) For purposes of this Agreement, "Cause" shall mean the willful and
continued failure by the Executive to perform his duties for the Corporation
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure resulting
from termination by the Executive for Good Reason) after a written demand for
substantial performance is delivered to the Executive by the Board of Directors,
which demand specifically identifies the manner in which the Board of Directors
believes that the Executive has not substantially performed his duties, or (ii)
the willful engagement in conduct by the Executive which is demonstrably and
materially injurious to the Company, monetarily or otherwise, (iii) conviction
for a felony or other crime punishable by imprisonment for more than one (1)
year, or the entering of a plea of nolo contendere thereto.
Notwithstanding any of the foregoing, the Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to the Executive a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting called and held for such purpose after reasonable notice to the
Executive and an opportunity for the Executive, together with his counsel, to be
heard before the Board of Directors, finding that in the good faith opinion of
the Board of Directors the Executive was guilty of conduct set forth above in
clause (i), (ii) or (iii) and specifying the particulars thereof in detail.
3. PAYMENTS UPON TERMINATION.
If within two (2) years after a Change in Control of the Corporation,
the Corporation or a Subsidiary shall terminate the Executive's employment other
than by reason of the Executive's death, Disability, Retirement or for Cause or
if the Executive shall terminate his employment for Good Reason then, in any
such event, and subject in each case to Section 2(j) hereof, the Corporation or
a Subsidiary will pay to the Executive as compensation for services rendered,
beginning not later than the fifth business day following completion of the
"Parachute Procedure" (as hereinafter defined) if the Corporation elects to
follow such procedure and not later than the fifteenth day after the Date of
Termination otherwise:
- 8 -
<PAGE> 9
(a) the Executive's Salary through the Date of Termination, any
existing fringe benefits (including medical benefits) and incentive compensation
for the fiscal year in which the termination occurs in accordance with any
arrangements then existing with the Executive and proportionate to the period of
the fiscal year which has expired prior to the termination; and
(b) a lump sum severance payment equal to one (1) times the Executive's
"Base Amount," as such term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") (subject to any applicable payroll or
other taxes and changes required to be withheld computed at the rate for
supplemental payments), provided that in no event shall "Total Payments" (as
hereinafter defined) exceed 2.99 times the Executive's Base Amount. The
Executive's Base Amount shall be determined in accordance with temporary or
final regulations promulgated under Section 280G of the Code then in effect, if
any. In the absence of such regulations, if the Executive were not employed by
the Corporation (or any corporation or partnership affiliated with the
Corporation (an "Affiliate") within the meaning of Section 1504 of the Code or a
predecessor of the Corporation) during the entire five calendar years (the "Base
Period") preceding the calendar year in which a Change in Control of the
Corporation occurred, the Executive's average annual compensation for the
purposes of such determination shall be the lesser of (i) the average of the
Executive's annual compensation for the complete calendar years during the Base
Period during which the Executive was so employed or (ii) the average of the
Executive's annual compensation for both complete and partial calendar years
during the Base Period during which the Executive was so employed, determined by
any compensation (other than nonrecurring items) includible in the Executive's
gross income for any partial calendar year or (iii) the annual average of the
Executive's total compensation for the Base Period during which the Executive
was so employed, determined by dividing such total compensation by the number of
whole and fractional years included in the Base Period. Compensation payable to
the Executive by the Corporation or any Affiliate or predecessor of the
Corporation shall include every type and form of compensation includible in the
Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G of the
Code. For purposes of this Section 3(b) a "change in control of the Corporation"
shall have the meaning set forth in Section 280G of the Code and any temporary
or final regulations promulgated thereunder, subject to the limitation stated in
Section 3(c) below; and
(c) (i) Notwithstanding anything to the contrary contained herein, in
the event that any portion of the aggregate payments and
- 9 -
<PAGE> 10
benefits (the "Total Payments") received or to be received by the Executive,
whether paid or payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Corporation, a Subsidiary or any other
person or entity, would not be deductible in whole or in part by the
Corporation, a Subsidiary or by such other person or entity in the calculation
of its federal income tax by reason of Section 280G of the Code, the Total
Payments payable shall be reduced by the least amount necessary so that no
portion of the Total Payments payable shall be reduced by the least amount
necessary so that no portion of the Total Payments would fail to be deductible
by reason of being an "excess parachute payment."
(ii) At the option of the Corporation, no payments shall be
made pursuant to this Section 3 until the procedure described in this Section
3(c)(ii) is completed (the "Parachute Procedure"). If the Corporation elects to
comply with such procedure, the Corporation shall cause its independent auditors
to deliver to the Executive, within fifteen (15) days after the Date of
Termination, a statement which shall indicate whether payment to the Executive
of the Total Payments would cause any portion of the Total Payments not to be
deductible in whole or part in the calculation of federal income tax by reason
of section 280G of the Code, or would cause, directly or indirectly, an "excess
parachute payment" to exist within the meaning of Section 280G of the Code. Such
statement shall set forth the value, calculated in accordance with the
principles of Section 280G of the Code and any temporary or final regulations
promulgated thereunder, of any non-cash benefits or any deferred or contingent
payment or benefit payable pursuant to the terms of this Agreement or any other
plan, arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 280G of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 280G of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3 within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall
- 10 -
<PAGE> 11
constitute completion of the Parachute Procedure.
(d) The Corporation shall contest any improper assessment of an excise
or other tax imposed as a result of a determination that an "excess parachute
payment" has been made to the Executive within the meaning of Section 280G of
the Code. If it is established pursuant to a final determination of a court of
competent jurisdiction or an Internal Revenue Service proceeding that an "excess
parachute payment" does in fact exist, within the meaning of Section 280G of the
Code, then the Executive shall pay to the Corporation, upon demand, an amount
not to exceed the sum of (i) the excess of the aggregate Total Payments over the
aggregate Total Payments that would have been paid without any portion of such
payment being deemed an "excess parachute payment" within the meaning of Section
280G of the Code and (ii) interest on the amount set forth in clause (i) above
at the applicable federal rate specified in Section 1274(d) of the Code from the
date of receipt by the Executive of such excess until the date of such
repayment.
4. GENERAL.
(a) If litigation shall be brought to enforce or interpret any
provision contained herein, the Corporation shall indemnify the Executive for
his attorneys' fees and other fees and disbursements incurred in such litigation
and pay prejudgment interest on any money judgment obtained by the Executive
calculated at the base rate of interest charged from time to time from the date
that payment should have been made under this Agreement; provided, however, that
the Executive shall not have been found by the court to have had no cause to
bring the action, or to have acted in bad faith, which finding must be final
with the time to appeal therefrom having expired and no appeal having been
taken.
(b) The Corporation's obligation to pay the Executive the compensation
and to make the arrangements provided herein shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
any setoff, counterclaim, recoupment, defense or other right which the
Corporation may have against the Executive or anyone else. All amounts payable
by the Corporation hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Corporation waives all rights it may now have or
may hereafter have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as otherwise
provided herein, each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover for any reason all or any
part of such payment from the Executive or any person entitled thereto. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment, and if Executive obtains such
other employment, any compensation earned by Executive pursuant thereto shall
not be applied to mitigate any payment made
- 11 -
<PAGE> 12
to the Executive pursuant to this Agreement.
(c) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by written
agreement to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. As used in this Agreement, the term
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement required by this Section 4(c), or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(d) For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Richard S. Kolodny
53 Ridgeway Drive
Irvington, New York 10533
If to the Corporation:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attn: Irwin Selinger
Chairman of the Board
and Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(e) This Agreement shall constitute the entire agreement between the
Executive and the Corporation concerning the Executive's employment by the
Corporation and the termination of Executive's employment within two (2) years
after a Change in Control as provided herein, and performance of its obligations
hereunder by the Corporation shall constitute full settlement and release of any
claim or cause of action, of whatsoever nature, which the Executive might
otherwise assert or claim against the Corporation or any of its directors,
stockholders, officers or employees on account of such termination. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver,
- 12 -
<PAGE> 13
modification or discharge is agreed to in writing, signed by the Executive and
an authorized officer of the Corporation. No waiver by either party hereto at
any time of any breach by the other party hereto of compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provision or condition at
such same or at any prior or subsequent time. No assurances or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. However, this Agreement is in addition to and not in lieu of any
other plan providing for payments to or benefits for the Executive or any
agreement now existing or which hereafter may be entered into between the
Corporation and the Executive; provided that, notwithstanding anything to the
contrary contained in the terms of any such plan or agreement, in the event of
Executive's termination, within two years after a Change in Control as provided
herein, of the Executive's employment, this Agreement shall govern the rights
and the obligations of the Corporation and the Executive. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without giving effect to the provisions,
principles, or policies thereof relating to choice or conflict of laws.
(f) The invalidity or unenforceability of any provisions of this
Agreement in any circumstance shall not affect the validity or enforceability of
such provision in any other circumstance or the validity or enforceability of
any other provision of this Agreement, and except to the extent such provision
is invalid or unenforceable, this Agreement shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof in such jurisdiction, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement
this 16th day of August 1993.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Irwin Selinger
-----------------------------
Name: Irwin Selinger
Title: Chairman of the Board
Chief Executive Officer
EXECUTIVE
/s/ Richard S. Kolodny
--------------------------------
Richard S. Kolodny
Vice President, General Counsel
- 14 -
<PAGE> 1
EXHIBIT 10.54
AGREEMENT
DATED AS OF JULY 21, 1989
BY AND BETWEEN
GRAHAM-FIELD HEALTH PRODUCTS, INC.
AND
BEATRICE SCHERER
AGREEMENT, dated as of July 21, 1989 (the "Agreement"), by and between
Graham-Field Health Products, Inc., a Delaware corporation (the "Corporation"),
and Beatrice Scherer, an individual residing at 98 Westgate Drive, Huntington,
New York 11743.
W I T N E S S E T H :
WHEREAS, the Corporation has determined that it is in the best interests
of the Corporation and its stockholders for the Corporation to agree to pay the
Executive certain termination compensation in the event the Executive should
leave the employment of the Corporation under the circumstances described in
this Agreement; and
WHEREAS, the Corporation recognizes that the possibility of a proposal
from a third person, whether solicited by the Corporation or unsolicited,
concerning a possible business combination with the Corporation, including the
acquisition of a substantial share of the equity or voting securities of the
Corporation, is unsettling to the Executive and other key personnel of the
Corporation; and
WHEREAS, this Agreement is intended to help assure a continuing dedication
by the Executive to his duties to the Corporation notwithstanding the occurrence
of a business combination proposal; and
WHEREAS, the Corporation and the Executive believe it is imperative that
should the Corporation receive proposals from third parties with respect to its
future, the Executive should, without being influenced by the uncertainties of
his or her own situation, assess and advise the Board of Directors whether such
proposals would be in the best interest of the Corporation and its stockholders
and take such other action regarding such proposals as the Board of Directors
might determine to be appropriate;
NOW, THEREFORE, in view of the foregoing and in further consideration of
the Executive's continued dedicated employment with the Corporation and the
availability of the Executive's advice and counsel, and to reward the Executive
for his valuable and dedicated service to the Corporation, should his services
be terminated under any of the circumstances described below, and for other good
and valuable consideration, the receipt and sufficiency of which each party
hereby acknowledges, the Corporation and the Executive hereby agree as follows:
<PAGE> 2
1. EFFECTIVE DATE AND TERM OF EMPLOYMENT OF EMPLOYEE.
(a) Except as provided in Section 1(b) below, nothing in this Agreement
shall affect any right which the Executive may otherwise have to terminate his
employment from the Corporation or any subsidiary of the Corporation (a
"Subsidiary"). Nor shall anything in this Agreement affect any right which the
Corporation or any Subsidiary may have to terminate the Executives's employment
at any time in any lawful manner, subject to the provision that in the event of
termination of the Executive's employment under the circumstances specified in
Sections 2 and 3 below following a "Change in Control" (as defined in Section
1(c)), the Corporation will provide to the Executive the payments and benefits
described in Sections 2 and 3 of this Agreement.
(b) In the event any person or organization commences a tender or exchange
offer, circulates a proxy statement to the Corporation's stockholders, or takes
other steps designed to effect a Change in Control of the Corporation, the
Executive agrees that in order to receive the benefits provided by this
Agreement, he will not voluntarily leave the employ of the Corporation or any of
its Subsidiaries and will continue to perform his regular duties and to render
his services, until such person or organization has abandoned or terminated his
or its efforts to effect a Change in Control or until a Change in Control has
occurred. In the event the Executive voluntarily terminates his employment
before any such effort to effect a Change in Control of the Corporation has
commenced, or after any such effort has been abandoned or terminated without
effecting a Change in Control and no such effort is then in process, this
Agreement shall lapse and be of no further force or effect. In the event the
Executive voluntarily terminates his employment with the Corporation or any
Subsidiary during such time any person or organization has commenced, but has
not yet abandoned, any steps designed to effect a Change in Control of the
Corporation, but at a time when a Change in Control has not been effected, the
Executive shall not be entitled to receive any of the benefits of Sections 2 and
3 hereof.
(c) For purposes of this Agreement, a "Change in Control" of the
Corporation shall be deemed to have occurred upon the occurrence of any of the
following events:
(i) A change in control of the direction and administration of the
Corporation's business of a nature that if any securities of the Corporation
were registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported (a) in response to Item 6 (e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or (b)
Item 1(a) of Form 8-K under the Exchange Act as each is in effect on the date
hereof and any successor provision of such regulations under the Exchange Act,
whether or not the Corporation is then subject to such reporting requirement; or
- 2 -
<PAGE> 3
(ii) Any "person" or "group" (as such term is used in connection
with Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any employee
benefit plan of the Corporation or any "affiliate" or "associate" thereof (as
defined in Regulation 12b-2 under the Exchange Act) (a) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing fifty percent (50%)
or more of the combined voting power of the Corporation's outstanding securities
then entitled ordinarily (and apart from rights accruing under special
circumstances) to vote for the election of directors or (b) acquires by proxy or
otherwise 50% or more of the combined voting securities of the Corporation
having the right to vote for the election of directors of the Corporation, for
any merger or consolidation of the Corporation, for the election of directors of
the Corporation, for any merger or consolidation of the Corporation, for the
election of directors, or for any other matter; or
(iii) During any period of twenty-four (24) consecutive months, the
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at least
a majority thereof; or
(iv) There shall be consummated (A) any consolidation, merger or
recapitalization of the Corporation or any similar transactions involving the
Corporation, whether or not the Corporation is the continuing or surviving
Corporation, pursuant to which shares of the Corporation's common stock ("Common
Stock") would be converted into cash, securities or other property, other than a
merger of the Corporation in which the holders of Common Stock immediately prior
to the merger have the same proportion and ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange or other transfer (in one transaction or a series or related
transactions) of all, or substantially all, of the assets of the Corporation or
(C) the adoption of a plan of complete liquidation of the Corporation (whether
or not in connection with the sale of all or substantially all of the
Corporation's assets) or a series of partial liquidations of the Corporation
that is a de jure or de facto part of a plan of complete liquidation of the
Corporation; provided, that the divestiture of less than substantially all of
the assets of the Corporation in one transaction or a series or related
transactions, whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a subsidiary or otherwise, or a transaction solely for the
purpose of reincorporating the Corporation in another jurisdiction, shall not
constitute a "Change-in-Control"; or
(v) The Board of Directors of the Corporation shall approve any
merger, consolidation, or like business combination or
- 3 -
<PAGE> 4
reorganization of the Corporation, the consummation of which would result in the
occurrence of any event described in clause (A), (B) or (C) or Section 1 (iv)
above.
2. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If a Change in Control of the Corporation shall have occurred at any
time that the Executive is employed by the Corporation, then the Executive shall
be entitled to the benefits provided in Section 3 hereof upon the subsequent
termination of his employment within the applicable period set forth following
such Change in Control, unless such termination is (i) due to the Executive's
death or "Retirement" (as defined in Section 2(e)) or (ii) by the Executive
other than for "Good Reason" (as such term is defined in Section 2(f)) or (iii)
by the Corporation or a Subsidiary by reason of the Executive's "Disability" (as
defined in Section 2(k)) or for Cause (as defined in Subsection 2(1)).
(b) If, following a Change in Control, the Executive's employment is
terminated by reason of his death or Disability during the two (2) years
following a Change in Control, the Executive shall be entitled to death or
long-term disability benefits, as the case may be, from the Corporation no less
favorable than the most favorable benefits to which he would have been entitled
had the death or termination for Disability occurred at any time during the
period commencing one year prior to the initiation of actions that resulted in a
Change in Control. If prior to any such termination for Disability during the
two (2) years following a Change in Control, the Executive fails to perform his
duties as a result of incapacity due to physical or mental illness, he shall
continue to receive his "Base Salary" (as defined in Section 2(g)) less any
benefits as may be received by him under the Corporation's disability plan until
his employment is terminated for Disability, and shall be entitled to the most
favorable other benefits applicable under the Corporation's policies during the
period commencing one year prior to the initiation of actions that resulted in
the Change in Control.
(c) If, following a Change in Control, the Executive's employment shall be
terminated by the Corporation for Cause or by the Executive other than for Good
Reason during the two (2) years following a Change in Control, the Corporation
shall pay to the Executive his full Base Salary through the "Date of
Termination" (as defined in Section 2(i)) at the rate in effect at the time the
"Notice of Termination" (as defined in Section 2(h)) is given and any amounts to
be paid to the Executive pursuant to any deferred compensation or other employee
benefit plan or program, and the Corporation shall have no further obligations
to the Executive under this Agreement.
(d) For purposes of this Agreement, "Continuing Directors" shall mean the
directors of the Corporation in office on the date
- 4 -
<PAGE> 5
hereof and any successor to any such director and any additional director who
after the date hereof (i) was nominated or selected by a majority of the
Continuing Directors in office at the time of his nomination or selection and
(ii) who is not an "affiliate" or "associate" (as defined in Regulation 12b-2
under the Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the combined
voting power of the Corporation's outstanding securities then entitled
ordinarily to vote for the election of directors.
(e) For purposes of this Agreement, "Retirement" shall mean that the
Executive shall have retired after reaching the age of 65.
(f) For purposes of this Agreement, "Good Reason" shall mean:
(A) The assignment by the Corporation or a Subsidiary to the
Executive of duties which (i) are inconsistent with, or require travel
significantly more time-consuming or extensive than, the Executives's duties and
business travel obligations immediately prior to the Change in Control, or (ii)
result, without the Executive's express written consent, in a significant
reduction in the Executive's authority and responsibility when compared to the
highest level of authority and responsibility assigned to the Executive at any
time during the six (6) month period prior to the Change in Control, or (iii)
require the Executive, without his express written consent, to report directly
or through one or more intermediaries, to a person or group other than the
person or group to whom or which the Executive reported, directly or thorough
one or more intermediaries, immediately prior to the Change of Control; or
(B) A reduction by the Corporation or any Subsidiary of the
Executive's Base Salary as the same may be increased from time to time
hereafter; or
(C) A change of the Executive's assigned site location without the
Executive's express written consent, or in the event of any relocation of the
Executive with his express written consent, the failure by the Corporation to
pay (or reimburse the Executive for) all reasonable moving expenses incurred by
the Executive and relating to a change of his principal residence, and to
indemnify the Executive against any loss realized by the Executive and/or the
Executive's spouse in the sale of the Executive's principal residence in
connection with any such change or residence, all to the effect that the
Executive shall incur no loss on an after-tax basis; or
(D) The failure of the Corporation to continue to provide the
Executive with substantially the same level of retirement and welfare benefits
(which for purposes of this Agreement shall mean benefits under all welfare
plans as that term is defined in Section 3(1) of the Executive Retirement Income
- 5 -
<PAGE> 6
Security Act of 1974, as amended) and perquisites (including participation on a
comparable basis in the Corporation's retirement plans, stock option plans,
incentive plans, group life insurance plans, medical, health, accident,
disability and other plan in which employees of the Corporation of comparable
title and salary grade participate), as were provided to the Executive
immediately prior to such Change in Control, or with a package of retirement and
welfare benefits and perquisites that, though one or more such benefits or
perquisites (including participation on a comparable basis in the Corporation's
or a Subsidiary's retirement plans, stock option plans, incentive plans, group
life insurance plans, medical, health, accident, disability and other plans) may
vary from those provided before such Change in Control, is substantially
comparable in all material respects when taken as a whole to such retirement and
welfare benefits and perquisites provided prior to the Change in Control; or
(E) The failure by the Corporation to obtain the express written
assumption of and agreement to perform this Agreement by any successor as
contemplated in Section 4(c) hereof; and
For purposes of this Section 2(f), no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by him knowing and with the intent that such action or inaction would not
be in the best interests of the Corporation or otherwise was done or omitted to
be done in bad faith.
(g) For purposes of this Agreement, "Base Salary" shall mean the First
Year Salary or the Salary, as the case may be, paid to the Executive immediately
prior to the Change in Control of the Corporation (provided that such amount
shall in no event be less than the First Year Salary or the Salary paid to the
Executive during the one (1) year period immediately prior to the Change in
Control).
(h) Any purported termination of employment by the Corporation by reason
of the Executive's Disability or for Cause, or by the Executive for Good Reason,
shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice given by the Executive or by the Corporation or a Subsidiary, which shall
indicate the specific basis for termination and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for determination
of any payments under this Agreement; provided, however, that the Executive
shall not be entitled to give a Notice of Termination that he is terminating his
employment with the Corporation or a Subsidiary for Good Reason after the
expiration of six (6) months following the last to occur of the events claimed
by him to constitute Good Reason.
- 6 -
<PAGE> 7
(i) For purposes of this Agreement, "Date of Termination" shall mean (i)
if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such thirty (30) day
period) and (ii) if the Executive's employment is terminated for Cause or Good
Reason, the date specified in the Notice of Termination, which shall be not more
than ninety (90) days after such Notice of Termination is given. If within
thirty (30) days after any Notice of Termination is given, the party who
receives such Notice of Termination is given, the party who receives such Notice
of Termination notifies the other party that a "Dispute" (as defined in Section
2(j)) exists, the parties agree to pursue promptly the resolution of any such
Dispute with reasonable diligence. Pending the resolution of any such Dispute,
the Corporation or a Subsidiary shall make the payments and provide the benefits
provided for herein to the Executive. In the event that it is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected), that a challenged
termination by the Corporation or a Subsidiary by reason of the Executive's
Disability or for Cause was justified, or that a challenged termination by the
Executive for Good Reason was not justified, then all sums paid by the
Corporation or any Subsidiary to the Executive from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this Section 2(i) shall be repaid promptly by the Executive to the
Corporation, with interest at the base rate charged from time to time by the
Corporation's principal commercial bank. In the event that it is finally
determined that a challenged termination by the Corporation by reason of the
Executive's Disability or for Cause was not justified, or that a challenged
termination by the Executive for Good Reason was justified, then the Executive
shall be entitled to retain all sums paid to the Executive pending resolution of
the Dispute.
(j) For purposes of this Agreement, "Dispute" shall mean (i) in the case
of the Executive's termination as an Executive with the Corporation or a
Subsidiary for Disability or Cause, that the Executive challenges the existence
of Disability or Cause and (ii) in the case of the Executive's termination as an
Executive with the Corporation or a Subsidiary by the Executive for Good Reason,
that the Corporation or a Subsidiary challenges the existence of Good Reason.
(k) For purposes of this Agreement, "Disability" shall mean that, as a
result of the Executive's incapacity due to physical or mental illness, the
Executive has been absent from the full-time performance of his duties with the
Corporation for six (6) consecutive months and within thirty (30) days after
Notice of
- 7 -
<PAGE> 8
Termination is given to the Executive, he has not returned to the full-time
performance of his duties. Any question as to the existence of Disability shall
be determined by a qualified independent physician selected by the Executive
(or, if he is unable to make such selection, such selection shall be made by any
adult member of the Executive's family) and approved by the Corporation. The
written determination of such physician shall be final and conclusive for
purposes of this Agreement.
(l) For purposes of this Agreement, "Cause" shall mean the willful and
continued failure by the Executive to perform his duties for the Corporation
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure resulting
from termination by the Executive for Good Reason) after a written demand for
substantial performance is delivered to the Executive by the Board of Directors,
which demand specifically identifies the manner in which the Board of Directors
believes that the Executive has not substantially performed his duties, or (ii)
the willful engagement in conduct by the Executive which is demonstrably and
materially injurious to the Company, monetarily or otherwise, (iii) conviction
for a felony or other crime punishable by imprisonment for more than one (1)
year, or the entering of a plea of nolo contendere thereto.
Notwithstanding any of the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to the Executive a resolution duly adopted by the affirmative vote of not less
than a majority of the entire membership of the Board of Directors at a meeting
called and held for such purpose after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel, to be heard before the
Board of Directors, finding that in the good faith opinion of the Board of
Directors the Executive was guilty of conduct set forth above in clause (i),
(ii) or (iii) and specifying the particulars thereof in detail.
3. PAYMENTS UPON TERMINATION.
If within two (2) years after a Change in Control of the Corporation, the
Corporation or a Subsidiary shall terminate the Executive's employment other
than by reason of the Executive's death, Disability, Retirement or for Cause or
if the Executive shall terminate his employment for Good Reason then, in any
such event, and subject in each case to Section 2(j) hereof, the Corporation or
a Subsidiary will pay to the Executive as compensation for services rendered,
beginning not later than the fifth business day following completion of the
"Parachute Procedure" (as hereinafter defined) if the Corporation elects to
follow such procedure and not later than the fifteenth day after the Date of
Termination otherwise:
- 8 -
<PAGE> 9
(a) the Executive's Salary through the Date of Termination, any existing
fringe benefits (including medical benefits) and incentive compensation for the
fiscal year in which the termination occurs in accordance with any arrangements
then existing with the Executive and proportionate to the period of the fiscal
year which has expired prior to the termination; and
(b) a lump sum severance payment equal to one (1) times the Executive's
"Base Amount," as such term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") (subject to any applicable payroll or
other taxes and changes required to be withheld computed at the rate for
supplemental payments), provided that in no event shall "Total Payments" (as
hereinafter defined) exceed 2.99 times the Executive's Base Amount. The
Executive's Base Amount shall be determined in accordance with temporary or
final regulations promulgated under Section 280G of the Code then in effect, if
any. In the absence of such regulations, if the Executive were not employed by
the Corporation (or any corporation or partnership affiliated with the
Corporation (an "Affiliate") within the meaning of Section 1504 of the Code or a
predecessor of the Corporation) during the entire five calendar years (the "Base
Period") preceding the calendar year in which a Change in Control of the
Corporation occurred, the Executive's average annual compensation for the
purposes of such determination shall be the lesser of (i) the average of the
Executive's annual compensation for the complete calendar years during the Base
Period during which the Executive was so employed or (ii) the average of the
Executive's annual compensation for both complete and partial calendar years
during the Base Period during which the Executive was so employed, determined by
any compensation (other than nonrecurring items) includible in the Executive's
gross income for any partial calendar year or (iii) the annual average of the
Executive's total compensation for the Base Period during which the Executive
was so employed, determined by dividing such total compensation by the number of
whole and fractional years included in the Base Period. Compensation payable to
the Executive by the Corporation or any Affiliate or predecessor of the
Corporation shall include every type and form of compensation includible in the
Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G of the
Code. For purposes of this Section 3(b) a "change in control of the Corporation"
shall have the meaning set forth in Section 280G of the Code and any temporary
or final regulations promulgated thereunder, subject to the limitation stated in
Section 3(c) below; and
(c) (i) Notwithstanding anything to the contrary contained herein, in the
event that any portion of the aggregate payments and
- 9 -
<PAGE> 10
benefits (the "Total Payments") received or to be received by the Executive,
whether paid or payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Corporation, a Subsidiary or any other
person or entity, would not be deductible in whole or in part by the
Corporation, a Subsidiary or by such other person or entity in the calculation
of its federal income tax by reason of Section 280G of the Code, the Total
Payments payable shall be reduced by the least amount necessary so that no
portion of the Total Payments payable shall be reduced by the least amount
necessary so that no portion of the Total Payments would fail to be deductible
by reason of being an "excess parachute payment."
(ii) At the option of the Corporation, no payments shall be made
pursuant to this Section 3 until the procedure described in this Section
3(c)(ii) is completed (the "Parachute Procedure"). If the Corporation elects to
comply with such procedure, the Corporation shall cause its independent auditors
to deliver to the Executive, within fifteen (15) days after the Date of
Termination, a statement which shall indicate whether payment to the Executive
of the Total Payments would cause any portion of the Total Payments not to be
deductible in whole or part in the calculation of federal income tax by reason
of section 280G of the Code, or would cause, directly or indirectly, an "excess
parachute payment" to exist within the meaning of Section 280G of the Code. Such
statement shall set forth the value, calculated in accordance with the
principles of Section 280G of the Code and any temporary or final regulations
promulgated thereunder, of any non-cash benefits or any deferred or contingent
payment or benefit payable pursuant to the terms of this Agreement or any other
plan, arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 280G of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 280G of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3 within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall
- 10 -
<PAGE> 11
constitute completion of the Parachute Procedure.
(d) The Corporation shall contest any improper assessment of an excise or
other tax imposed as a result of a determination that an "excess parachute
payment" has been made to the Executive within the meaning of Section 280G of
the Code. If it is established pursuant to a final determination of a court of
competent jurisdiction or an Internal Revenue Service proceeding that an "excess
parachute payment" does in fact exist, within the meaning of Section 280G of the
Code, then the Executive shall pay to the Corporation, upon demand, an amount
not to exceed the sum of (i) the excess of the aggregate Total Payments over the
aggregate Total Payments that would have been paid without any portion of such
payment being deemed an "excess parachute payment" within the meaning of Section
280G of the Code and (ii) interest on the amount set forth in clause (i) above
at the applicable federal rate specified in Section 1274(d) of the Code from the
date of receipt by the Executive of such excess until the date of such
repayment.
4. GENERAL.
(a) If litigation shall be brought to enforce or interpret any provision
contained herein, the Corporation shall indemnify the Executive for his
attorneys' fees and other fees and disbursements incurred in such litigation and
pay prejudgment interest on any money judgment obtained by the Executive
calculated at the base rate of interest charged from time to time from the date
that payment should have been made under this Agreement; provided, however, that
the Executive shall not have been found by the court to have had no cause to
bring the action, or to have acted in bad faith, which finding must be final
with the time to appeal therefrom having expired and no appeal having been
taken.
(b) The Corporation's obligation to pay the Executive the compensation and
to make the arrangements provided herein shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, any
setoff, counterclaim, recoupment, defense or other right which the Corporation
may have against the Executive or anyone else. All amounts payable by the
Corporation hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Corporation waives all rights it may now have or
may hereafter have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as otherwise
provided herein, each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover for any reason all or any
part of such payment from the Executive or any person entitled thereto. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment, and if Executive obtains such
other employment, any compensation earned by Executive pursuant thereto shall
not be applied to mitigate any payment made
- 11 -
<PAGE> 12
to the Executive pursuant to this Agreement.
(c) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by written
agreement to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. As used in this Agreement, the term
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement required by this Section 4(c), or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(d) For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Beatrice Scherer
98 Westgate Drive
Huntington, New York 11743
If to the Corporation:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attn: Irwin Selinger
Chairman of the Board
and Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(e) This Agreement shall constitute the entire agreement between the
Executive and the Corporation concerning the Executive's employment by the
Corporation and the termination of Executive's employment within two (2) years
after a Change in Control as provided herein, and performance of its obligations
hereunder by the Corporation shall constitute full settlement and release of any
claim or cause of action, of whatsoever nature, which the Executive might
otherwise assert or claim against the Corporation or any of its directors,
stockholders, officers or employees on account of such termination. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver,
- 12 -
<PAGE> 13
modification or discharge is agreed to in writing, signed by the Executive and
an authorized officer of the Corporation. No waiver by either party hereto at
any time of any breach by the other party hereto of compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provision or condition at
such same or at any prior or subsequent time. No assurances or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. However, this Agreement is in addition to and not in lieu of any
other plan providing for payments to or benefits for the Executive or any
agreement now existing or which hereafter may be entered into between the
Corporation and the Executive; provided that, notwithstanding anything to the
contrary contained in the terms of any such plan or agreement, in the event of
Executive's termination, within two years after a Change in Control as provided
herein, of the Executive's employment, this Agreement shall govern the rights
and the obligations of the Corporation and the Executive. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without giving effect to the provisions,
principles, or policies thereof relating to choice or conflict of laws.
(f) The invalidity or unenforceability of any provisions of this Agreement
in any circumstance shall not affect the validity or enforceability of such
provision in any other circumstance or the validity or enforceability of any
other provision of this Agreement, and except to the extent such provision is
invalid or unenforceable, this Agreement shall remain in full force and effect.
Any provision in this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating or affecting the
remaining provisions hereof in such jurisdiction, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement this
21st day of July, 1989.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By:/s/ Irwin Selinger
_________________________________
Name: Irwin Selinger
Title: Chairman of the Board,
Chief Executive Officer
EXECUTIVE
/s/ Beatrice Scherer
____________________________________
Beatrice Scherer
Vice President, Administration
- 14 -
<PAGE> 1
Exhibit 10.55
AGREEMENT
DATED AS OF JULY 21, 1989
BY AND BETWEEN
GRAHAM-FIELD HEALTH PRODUCTS, INC.
AND
IRWIN SELINGER
AGREEMENT, dated as of July 21, 1989 (the "Agreement"), by and between
Graham-Field Health Products, Inc., a Delaware corporation (the "Corporation"),
and Irwin Selinger, an individual residing at 73 Bacon Road, Old Westbury, New
York 11568.
W I T N E S S E T H :
WHEREAS, the Corporation has determined that it is in the best
interests of the Corporation and its stockholders for the Corporation to agree
to pay the Executive certain termination compensation in the event the Executive
should leave the employment of the Corporation under the circumstances described
in this Agreement; and
WHEREAS, the Corporation recognizes that the possibility of a proposal
from a third person, whether solicited by the Corporation or unsolicited,
concerning a possible business combination with the Corporation, including the
acquisition of a substantial share of the equity or voting securities of the
Corporation, is unsettling to the Executive and other key personnel of the
Corporation; and
WHEREAS, this Agreement is intended to help assure a continuing
dedication by the Executive to his duties to the Corporation notwithstanding the
occurrence of a business combination proposal; and
WHEREAS, the Corporation and the Executive believe it is imperative
that should the Corporation receive proposals from third parties with respect to
its future, the Executive should, without being influenced by the uncertainties
of his or her own situation, assess and advise the Board of Directors whether
such proposals would be in the best interest of the Corporation and its
stockholders and take such other action regarding such proposals as the Board of
Directors might determine to be appropriate;
NOW, THEREFORE, in view of the foregoing and in further consideration
of the Executive's continued dedicated employment with the Corporation and the
availability of the Executive's advice and counsel, and to reward the Executive
for his valuable and dedicated service to the Corporation, should his services
be terminated under any of the circumstances described below, and for other good
and valuable consideration, the receipt and sufficiency of which each party
hereby acknowledges, the Corporation and the Executive hereby agree as follows:
<PAGE> 2
1. EFFECTIVE DATE AND TERM OF EMPLOYMENT OF EMPLOYEE.
(a) Except as provided in Section 1(b) below, nothing in this Agreement
shall affect any right which the Executive may otherwise have to terminate his
employment from the Corporation or any subsidiary of the Corporation (a
"Subsidiary"). Nor shall anything in this Agreement affect any right which the
Corporation or any Subsidiary may have to terminate the Executives's employment
at any time in any lawful manner, subject to the provision that in the event of
termination of the Executive's employment under the circumstances specified in
Sections 2 and 3 below following a "Change in Control" (as defined in Section
1(c)), the Corporation will provide to the Executive the payments and benefits
described in Sections 2 and 3 of this Agreement.
(b) In the event any person or organization commences a tender or
exchange offer, circulates a proxy statement to the Corporation's stockholders,
or takes other steps designed to effect a Change in Control of the Corporation,
the Executive agrees that in order to receive the benefits provided by this
Agreement, he will not voluntarily leave the employ of the Corporation or any of
its Subsidiaries and will continue to perform his regular duties and to render
his services, until such person or organization has abandoned or terminated his
or its efforts to effect a Change in Control or until a Change in Control has
occurred. In the event the Executive voluntarily terminates his employment
before any such effort to effect a Change in Control of the Corporation has
commenced, or after any such effort has been abandoned or terminated without
effecting a Change in Control and no such effort is then in process, this
Agreement shall lapse and be of no further force or effect. In the event the
Executive voluntarily terminates his employment with the Corporation or any
Subsidiary during such time any person or organization has commenced, but has
not yet abandoned, any steps designed to effect a Change in Control of the
Corporation, but at a time when a Change in Control has not been effected, the
Executive shall not be entitled to receive any of the benefits of Sections 2 and
3 hereof.
(c) For purposes of this Agreement, a "Change in Control" of the
Corporation shall be deemed to have occurred upon the occurrence of any of the
following events:
(i) A change in control of the direction and administration of the
Corporation's business of a nature that if any securities of the Corporation
were registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported (a) in response to Item 6 (e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or (b)
Item 1(a) of Form 8-K under the Exchange Act as each is in effect on the date
hereof and any successor provision of such regulations under the Exchange Act,
whether or not the Corporation is then subject to such reporting requirement; or
- 2 -
<PAGE> 3
(ii) Any "person" or "group" (as such term is used in connection
with Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any employee
benefit plan of the Corporation or any "affiliate" or "associate" thereof (as
defined in Regulation 12b-2 under the Exchange Act) (a) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing fifty percent (50%)
or more of the combined voting power of the Corporation's outstanding securities
then entitled ordinarily (and apart from rights accruing under special
circumstances) to vote for the election of directors or (b) acquires by proxy or
otherwise 50% or more of the combined voting securities of the Corporation
having the right to vote for the election of directors of the Corporation, for
any merger or consolidation of the Corporation, for the election of directors of
the Corporation, for any merger or consolidation of the Corporation, for the
election of directors, or for any other matter; or
(iii) During any period of twenty-four (24) consecutive months, the
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at least
a majority thereof; or
(iv) There shall be consummated (A) any consolidation, merger or
recapitalization of the Corporation or any similar transactions involving the
Corporation, whether or not the Corporation is the continuing or surviving
Corporation, pursuant to which shares of the Corporation's common stock ("Common
Stock") would be converted into cash, securities or other property, other than a
merger of the Corporation in which the holders of Common Stock immediately prior
to the merger have the same proportion and ownership of common stock of the
surviving corporation immediately after the merger, (B) any sale, lease,
exchange or other transfer (in one transaction or a series or related
transactions) of all, or substantially all, of the assets of the Corporation or
(C) the adoption of a plan of complete liquidation of the Corporation (whether
or not in connection with the sale of all or substantially all of the
Corporation's assets) or a series of partial liquidations of the Corporation
that is a de jure or de facto part of a plan of complete liquidation of the
Corporation; provided, that the divestiture of less than substantially all of
the assets of the Corporation in one transaction or a series or related
transactions, whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a subsidiary or otherwise, or a transaction solely for the
purpose of reincorporating the Corporation in another jurisdiction, shall not
constitute a "Change-in-Control"; or
(v) The Board of Directors of the Corporation shall approve any
merger, consolidation, or like business combination or
- 3 -
<PAGE> 4
reorganization of the Corporation, the consummation of which would result in the
occurrence of any event described in clause (A), (B) or (C) or Section 1 (iv)
above.
2. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If a Change in Control of the Corporation shall have occurred at
any time that the Executive is employed by the Corporation, then the Executive
shall be entitled to the benefits provided in Section 3 hereof upon the
subsequent termination of his employment within the applicable period set forth
following such Change in Control, unless such termination is (i) due to the
Executive's death or "Retirement" (as defined in Section 2(e)) or (ii) by the
Executive other than for "Good Reason" (as such term is defined in Section 2(f))
or (iii) by the Corporation or a Subsidiary by reason of the Executive's
"Disability" (as defined in Section 2(k)) or for Cause (as defined in Subsection
2(1)).
(b) If, following a Change in Control, the Executive's employment is
terminated by reason of his death or Disability during the two (2) years
following a Change in Control, the Executive shall be entitled to death or
long-term disability benefits, as the case may be, from the Corporation no less
favorable than the most favorable benefits to which he would have been entitled
had the death or termination for Disability occurred at any time during the
period commencing one year prior to the initiation of actions that resulted in a
Change in Control. If prior to any such termination for Disability during the
two (2) years following a Change in Control, the Executive fails to perform his
duties as a result of incapacity due to physical or mental illness, he shall
continue to receive his "Base Salary" (as defined in Section 2(g)) less any
benefits as may be received by him under the Corporation's disability plan until
his employment is terminated for Disability, and shall be entitled to the most
favorable other benefits applicable under the Corporation's policies during the
period commencing one year prior to the initiation of actions that resulted in
the Change in Control.
(c) If, following a Change in Control, the Executive's employment shall
be terminated by the Corporation for Cause or by the Executive other than for
Good Reason during the two (2) years following a Change in Control, the
Corporation shall pay to the Executive his full Base Salary through the "Date of
Termination" (as defined in Section 2(i)) at the rate in effect at the time the
"Notice of Termination" (as defined in Section 2(h)) is given and any amounts to
be paid to the Executive pursuant to any deferred compensation or other employee
benefit plan or program, and the Corporation shall have no further obligations
to the Executive under this Agreement.
(d) For purposes of this Agreement, "Continuing Directors" shall mean
the directors of the Corporation in office on the date
- 4 -
<PAGE> 5
hereof and any successor to any such director and any additional director who
after the date hereof (i) was nominated or selected by a majority of the
Continuing Directors in office at the time of his nomination or selection and
(ii) who is not an "affiliate" or "associate" (as defined in Regulation 12b-2
under the Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the combined
voting power of the Corporation's outstanding securities then entitled
ordinarily to vote for the election of directors.
(e) For purposes of this Agreement, "Retirement" shall mean that the
Executive shall have retired after reaching the age of 65.
(f) For purposes of this Agreement, "Good Reason" shall mean:
(A) The assignment by the Corporation or a Subsidiary to the
Executive of duties which (i) are inconsistent with, or require travel
significantly more time-consuming or extensive than, the Executives's duties and
business travel obligations immediately prior to the Change in Control, or (ii)
result, without the Executive's express written consent, in a significant
reduction in the Executive's authority and responsibility when compared to the
highest level of authority and responsibility assigned to the Executive at any
time during the six (6) month period prior to the Change in Control, or (iii)
require the Executive, without his express written consent, to report directly
or through one or more intermediaries, to a person or group other than the
person or group to whom or which the Executive reported, directly or thorough
one or more intermediaries, immediately prior to the Change of Control; or
(B) A reduction by the Corporation or any Subsidiary of the
Executive's Base Salary as the same may be increased from time to time
hereafter; or
(C) A change of the Executive's assigned site location without the
Executive's express written consent, or in the event of any relocation of the
Executive with his express written consent, the failure by the Corporation to
pay (or reimburse the Executive for) all reasonable moving expenses incurred by
the Executive and relating to a change of his principal residence, and to
indemnify the Executive against any loss realized by the Executive and/or the
Executive's spouse in the sale of the Executive's principal residence in
connection with any such change or residence, all to the effect that the
Executive shall incur no loss on an after-tax basis; or
(D) The failure of the Corporation to continue to provide the
Executive with substantially the same level of retirement and welfare benefits
(which for purposes of this Agreement shall mean benefits under all welfare
plans as that term is defined in Section 3(1) of the Executive Retirement Income
- 5 -
<PAGE> 6
Security Act of 1974, as amended) and perquisites (including participation on a
comparable basis in the Corporation's retirement plans, stock option plans,
incentive plans, group life insurance plans, medical, health, accident,
disability and other plan in which employees of the Corporation of comparable
title and salary grade participate), as were provided to the Executive
immediately prior to such Change in Control, or with a package of retirement and
welfare benefits and perquisites that, though one or more such benefits or
perquisites (including participation on a comparable basis in the Corporation's
or a Subsidiary's retirement plans, stock option plans, incentive plans, group
life insurance plans, medical, health, accident, disability and other plans) may
vary from those provided before such Change in Control, is substantially
comparable in all material respects when taken as a whole to such retirement and
welfare benefits and perquisites provided prior to the Change in Control; or
(E) The failure by the Corporation to obtain the express written
assumption of and agreement to perform this Agreement by any successor as
contemplated in Section 4(c) hereof; and
For purposes of this Section 2(f), no act, or failure to act, on
the Executive's part shall be considered "willful" unless done, or omitted to be
done, by him knowing and with the intent that such action or inaction would not
be in the best interests of the Corporation or otherwise was done or omitted to
be done in bad faith.
(g) For purposes of this Agreement, "Base Salary" shall mean the First
Year Salary or the Salary, as the case may be, paid to the Executive immediately
prior to the Change in Control of the Corporation (provided that such amount
shall in no event be less than the First Year Salary or the Salary paid to the
Executive during the one (1) year period immediately prior to the Change in
Control).
(h) Any purported termination of employment by the Corporation by
reason of the Executive's Disability or for Cause, or by the Executive for Good
Reason, shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice given by the Executive or by the Corporation or a Subsidiary,
which shall indicate the specific basis for termination and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
determination of any payments under this Agreement; provided, however, that the
Executive shall not be entitled to give a Notice of Termination that he is
terminating his employment with the Corporation or a Subsidiary for Good Reason
after the expiration of six (6) months following the last to occur of the events
claimed by him to constitute Good Reason.
- 6 -
<PAGE> 7
(i) For purposes of this Agreement, "Date of Termination" shall mean
(i) if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such thirty (30) day
period) and (ii) if the Executive's employment is terminated for Cause or Good
Reason, the date specified in the Notice of Termination, which shall be not more
than ninety (90) days after such Notice of Termination is given. If within
thirty (30) days after any Notice of Termination is given, the party who
receives such Notice of Termination is given, the party who receives such Notice
of Termination notifies the other party that a "Dispute" (as defined in Section
2(j)) exists, the parties agree to pursue promptly the resolution of any such
Dispute with reasonable diligence. Pending the resolution of any such Dispute,
the Corporation or a Subsidiary shall make the payments and provide the benefits
provided for herein to the Executive. In the event that it is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected), that a challenged
termination by the Corporation or a Subsidiary by reason of the Executive's
Disability or for Cause was justified, or that a challenged termination by the
Executive for Good Reason was not justified, then all sums paid by the
Corporation or any Subsidiary to the Executive from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this Section 2(i) shall be repaid promptly by the Executive to the
Corporation, with interest at the base rate charged from time to time by the
Corporation's principal commercial bank. In the event that it is finally
determined that a challenged termination by the Corporation by reason of the
Executive's Disability or for Cause was not justified, or that a challenged
termination by the Executive for Good Reason was justified, then the Executive
shall be entitled to retain all sums paid to the Executive pending resolution of
the Dispute.
(j) For purposes of this Agreement, "Dispute" shall mean (i) in the
case of the Executive's termination as an Executive with the Corporation or a
Subsidiary for Disability or Cause, that the Executive challenges the existence
of Disability or Cause and (ii) in the case of the Executive's termination as an
Executive with the Corporation or a Subsidiary by the Executive for Good Reason,
that the Corporation or a Subsidiary challenges the existence of Good Reason.
(k) For purposes of this Agreement, "Disability" shall mean that, as a
result of the Executive's incapacity due to physical or mental illness, the
Executive has been absent from the full-time performance of his duties with the
Corporation for six (6) consecutive months and within thirty (30) days after
Notice of
- 7 -
<PAGE> 8
Termination is given to the Executive, he has not returned to the full-time
performance of his duties. Any question as to the existence of Disability shall
be determined by a qualified independent physician selected by the Executive
(or, if he is unable to make such selection, such selection shall be made by any
adult member of the Executive's family) and approved by the Corporation. The
written determination of such physician shall be final and conclusive for
purposes of this Agreement.
(l) For purposes of this Agreement, "Cause" shall mean the willful and
continued failure by the Executive to perform his duties for the Corporation
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure resulting
from termination by the Executive for Good Reason) after a written demand for
substantial performance is delivered to the Executive by the Board of Directors,
which demand specifically identifies the manner in which the Board of Directors
believes that the Executive has not substantially performed his duties, or (ii)
the willful engagement in conduct by the Executive which is demonstrably and
materially injurious to the Company, monetarily or otherwise, (iii) conviction
for a felony or other crime punishable by imprisonment for more than one (1)
year, or the entering of a plea of nolo contendere thereto.
Notwithstanding any of the foregoing, the Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to the Executive a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting called and held for such purpose after reasonable notice to the
Executive and an opportunity for the Executive, together with his counsel, to be
heard before the Board of Directors, finding that in the good faith opinion of
the Board of Directors the Executive was guilty of conduct set forth above in
clause (i), (ii) or (iii) and specifying the particulars thereof in detail.
3. PAYMENTS UPON TERMINATION.
If within two (2) years after a Change in Control of the Corporation,
the Corporation or a Subsidiary shall terminate the Executive's employment other
than by reason of the Executive's death, Disability, Retirement or for Cause or
if the Executive shall terminate his employment for Good Reason then, in any
such event, and subject in each case to Section 2(j) hereof, the Corporation or
a Subsidiary will pay to the Executive as compensation for services rendered,
beginning not later than the fifth business day following completion of the
"Parachute Procedure" (as hereinafter defined) if the Corporation elects to
follow such procedure and not later than the fifteenth day after the Date of
Termination otherwise:
- 8 -
<PAGE> 9
(a) the Executive's Salary through the Date of Termination, any
existing fringe benefits (including medical benefits) and incentive compensation
for the fiscal year in which the termination occurs in accordance with any
arrangements then existing with the Executive and proportionate to the period of
the fiscal year which has expired prior to the termination; and
(b) a lump sum severance payment equal to one (1) times the Executive's
"Base Amount," as such term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") (subject to any applicable payroll or
other taxes and changes required to be withheld computed at the rate for
supplemental payments), provided that in no event shall "Total Payments" (as
hereinafter defined) exceed 2.99 times the Executive's Base Amount. The
Executive's Base Amount shall be determined in accordance with temporary or
final regulations promulgated under Section 280G of the Code then in effect, if
any. In the absence of such regulations, if the Executive were not employed by
the Corporation (or any corporation or partnership affiliated with the
Corporation (an "Affiliate") within the meaning of Section 1504 of the Code or a
predecessor of the Corporation) during the entire five calendar years (the "Base
Period") preceding the calendar year in which a Change in Control of the
Corporation occurred, the Executive's average annual compensation for the
purposes of such determination shall be the lesser of (i) the average of the
Executive's annual compensation for the complete calendar years during the Base
Period during which the Executive was so employed or (ii) the average of the
Executive's annual compensation for both complete and partial calendar years
during the Base Period during which the Executive was so employed, determined by
any compensation (other than nonrecurring items) includible in the Executive's
gross income for any partial calendar year or (iii) the annual average of the
Executive's total compensation for the Base Period during which the Executive
was so employed, determined by dividing such total compensation by the number of
whole and fractional years included in the Base Period. Compensation payable to
the Executive by the Corporation or any Affiliate or predecessor of the
Corporation shall include every type and form of compensation includible in the
Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G of the
Code. For purposes of this Section 3(b) a "change in control of the Corporation"
shall have the meaning set forth in Section 280G of the Code and any temporary
or final regulations promulgated thereunder, subject to the limitation stated in
Section 3(c) below; and
(c) (i) Notwithstanding anything to the contrary contained herein, in
the event that any portion of the aggregate payments and
- 9 -
<PAGE> 10
benefits (the "Total Payments") received or to be received by the Executive,
whether paid or payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Corporation, a Subsidiary or any other
person or entity, would not be deductible in whole or in part by the
Corporation, a Subsidiary or by such other person or entity in the calculation
of its federal income tax by reason of Section 280G of the Code, the Total
Payments payable shall be reduced by the least amount necessary so that no
portion of the Total Payments payable shall be reduced by the least amount
necessary so that no portion of the Total Payments would fail to be deductible
by reason of being an "excess parachute payment."
(ii) At the option of the Corporation, no payments shall be made
pursuant to this Section 3 until the procedure described in this Section
3(c)(ii) is completed (the "Parachute Procedure"). If the Corporation elects to
comply with such procedure, the Corporation shall cause its independent auditors
to deliver to the Executive, within fifteen (15) days after the Date of
Termination, a statement which shall indicate whether payment to the Executive
of the Total Payments would cause any portion of the Total Payments not to be
deductible in whole or part in the calculation of federal income tax by reason
of section 280G of the Code, or would cause, directly or indirectly, an "excess
parachute payment" to exist within the meaning of Section 280G of the Code. Such
statement shall set forth the value, calculated in accordance with the
principles of Section 280G of the Code and any temporary or final regulations
promulgated thereunder, of any non-cash benefits or any deferred or contingent
payment or benefit payable pursuant to the terms of this Agreement or any other
plan, arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 280G of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 280G of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3 within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall
- 10 -
<PAGE> 11
constitute completion of the Parachute Procedure.
(d) The Corporation shall contest any improper assessment of an excise
or other tax imposed as a result of a determination that an "excess parachute
payment" has been made to the Executive within the meaning of Section 280G of
the Code. If it is established pursuant to a final determination of a court of
competent jurisdiction or an Internal Revenue Service proceeding that an "excess
parachute payment" does in fact exist, within the meaning of Section 280G of the
Code, then the Executive shall pay to the Corporation, upon demand, an amount
not to exceed the sum of (i) the excess of the aggregate Total Payments over the
aggregate Total Payments that would have been paid without any portion of such
payment being deemed an "excess parachute payment" within the meaning of Section
280G of the Code and (ii) interest on the amount set forth in clause (i) above
at the applicable federal rate specified in Section 1274(d) of the Code from the
date of receipt by the Executive of such excess until the date of such
repayment.
4. GENERAL.
(a) If litigation shall be brought to enforce or interpret any
provision contained herein, the Corporation shall indemnify the Executive for
his attorneys' fees and other fees and disbursements incurred in such litigation
and pay prejudgment interest on any money judgment obtained by the Executive
calculated at the base rate of interest charged from time to time from the date
that payment should have been made under this Agreement; provided, however, that
the Executive shall not have been found by the court to have had no cause to
bring the action, or to have acted in bad faith, which finding must be final
with the time to appeal therefrom having expired and no appeal having been
taken.
(b) The Corporation's obligation to pay the Executive the compensation
and to make the arrangements provided herein shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
any setoff, counterclaim, recoupment, defense or other right which the
Corporation may have against the Executive or anyone else. All amounts payable
by the Corporation hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Corporation waives all rights it may now have or
may hereafter have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as otherwise
provided herein, each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover for any reason all or any
part of such payment from the Executive or any person entitled thereto. The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment, and if Executive obtains such
other employment, any compensation earned by Executive pursuant thereto shall
not be applied to mitigate any payment made
- 11 -
<PAGE> 12
to the Executive pursuant to this Agreement.
(c) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by written
agreement to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. As used in this Agreement, the term
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement required by this Section 4(c), or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(d) For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Irwin Selinger
73 Bacon Road
Old Westbury, New York 11568
If to the Corporation:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attn: Irwin Selinger
Chairman of the Board
and Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(e) This Agreement shall constitute the entire agreement between the
Executive and the Corporation concerning the Executive's employment by the
Corporation and the termination of Executive's employment within two (2) years
after a Change in Control as provided herein, and performance of its obligations
hereunder by the Corporation shall constitute full settlement and release of any
claim or cause of action, of whatsoever nature, which the Executive might
otherwise assert or claim against the Corporation or any of its directors,
stockholders, officers or employees on account of such termination. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver,
- 12 -
<PAGE> 13
modification or discharge is agreed to in writing, signed by the Executive and
an authorized officer of the Corporation. No waiver by either party hereto at
any time of any breach by the other party hereto of compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provision or condition at
such same or at any prior or subsequent time. No assurances or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. However, this Agreement is in addition to and not in lieu of any
other plan providing for payments to or benefits for the Executive or any
agreement now existing or which hereafter may be entered into between the
Corporation and the Executive; provided that, notwithstanding anything to the
contrary contained in the terms of any such plan or agreement, in the event of
Executive's termination, within two years after a Change in Control as provided
herein, of the Executive's employment, this Agreement shall govern the rights
and the obligations of the Corporation and the Executive. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without giving effect to the provisions,
principles, or policies thereof relating to choice or conflict of laws.
(f) The invalidity or unenforceability of any provisions of this
Agreement in any circumstance shall not affect the validity or enforceability of
such provision in any other circumstance or the validity or enforceability of
any other provision of this Agreement, and except to the extent such provision
is invalid or unenforceable, this Agreement shall remain in full force and
effect. Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof in such jurisdiction, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement this
21st day of July 1989.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Richard S. Kolodny
-------------------------------
Name: Richard S. Kolodny
Title: Vice President, General Counsel
EXECUTIVE
/s/ Irwin Selinger
----------------------------------
Irwin Selinger
Vice President of
Information Systems
- 14 -
<PAGE> 1
EXHIBIT 10.56
/ /
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF IN THE
ABSENCE OF REGISTRATION UNDER SAID ACT AND THE RULES AND
REGULATIONS THEREUNDER OR AN EXEMPTION THEREFROM.
$2,500,000 November 14, 1997
FOR VALUE RECEIVED, Irwin Selinger, an individual residing at
73 Bacon Road, Old Westbury, New York (the "Borrower"), hereby promises to pay
to the order of Graham-Field Health Products, Inc., a Delaware corporation
("GFHP"), or such holder's permitted assigns (collectively, the "Holder"), the
principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000), subject
to increase in the manner described below, and to pay to the Holder interest on
the unpaid principal amount of this Note (as modified and supplemented and in
effect from time to time, this "Note"), all in the manner described below. The
outstanding principal amount of this Note shall be payable on November 14, 2004
(the "Principal Payment Date"). Interest shall accrue on the unpaid principal
amount of this Note outstanding from time to time, commencing with the date of
issuance hereof (the "Issue Date") through but excluding the date such principal
amount is paid in full, at a rate per annum equal to the interest rate in effect
from time to time under GFHP's Revolving Credit and Security Agreement dated as
of December 10, 1996 with IBJ Schroder Bank & Trust Company, as lender and
agent, as the same may be amended from time to time, or such other replacement
credit facility as GFHP may designate from time to time as its principal credit
facility (the "Borrowing Rate"). Accrued interest shall be payable in arrears on
each December 1 following the date hereof (each, an "Interest Payment Date")
commencing December 1, 1998, and on the Principal Payment Date. Notwithstanding
the foregoing, on each Interest Payment Date, in lieu of a cash payment by the
Borrower, interest accrued through, but not including, such Interest Payment
Date shall instead be added to the outstanding principal amount of this Note
(each such addition on an Interest Payment Date, a "Capitalized Interest
Payment"). The interest on this Note shall be computed on the basis of a year of
360 days consisting of twelve 30-day months.
ARTICLE I
PAYMENTS AND PREPAYMENTS; PLEDGE AGREEMENT
Section 1.1 Payments Generally. All payments of principal and
interest (other than Capitalized Interest Payments)
<PAGE> 2
on this Note shall be made in United States dollars, in immediately available
funds, by wire transfer to such account at a commercial bank located in the
United States of America identified in a notice from the Holder to the Borrower
prior to the date of such payment. Any payment received later than 11:00 a.m.
Eastern time on the date on which such payment shall become due shall be deemed
to have been made on the next succeeding Business Day (as defined below). If the
Principal Payment Date would otherwise fall on a day that is not a Business Day,
such due date shall be extended to the next succeeding Business Day, and
interest shall be payable on any principal so extended for the period of such
extension. All amounts payable by the Borrower in respect of this Note shall be
paid free and clear of, and without reduction by reason of, any deduction,
set-off or counterclaim. All payments received by the Holder in respect of this
Note shall be applied first to any accrued and unpaid interest on, and then to
the outstanding principal amount of, this Note. "Business Day" shall mean a day
other than Saturday, Sunday or any other day on which banks in the State of New
York are authorized or required by law to remain closed.
Section 1.2 Prepayments. The Borrower may at any time and from
time to time, at its option, prepay the outstanding principal amount of this
Note, in whole or in part, without penalty or premium, together with accrued
interest on the principal amount being prepaid (the date on which any such
optional or any mandatory prepayment described below is to be made is referred
to herein as a "Prepayment Date"). In addition, the Borrower shall immediately
prepay this Note in full or in part, as the case may be, as follows:
(a) On the date on which the Borrower is scheduled to receive
any cash bonus from GFHP in respect of the Borrower's employment with
GFHP, the Holder shall apply such portion of the amount of such cash
bonus (less any amounts to be withheld by GFHP in respect of income
taxes) as shall be determined by the Stock Option and Compensation
Committee of the Board of Directors of GFHP (or by any successor
committee thereto or, if there is no such committee in existence, by
the Board of Directors of GFHP) to the outstanding principal amount of
this Note and accrued and unpaid interest thereon, without the giving
of notice or the taking of any other action on the part of the Holder
being required.
(b) In the event of the death of the Borrower, this Note shall
continue in full force, in accordance with its terms and, upon the
first anniversary of the date of the death of the Borrower, the
aggregate outstanding principal amount of this Note and accrued and
unpaid interest thereon shall become due and payable in full, without
the giving of any notice or the taking of any other action on the part
of the Holder being required.
-2-
<PAGE> 3
(c) In the event of the termination of employment of the
Borrower with GFHP for any reason, the aggregate outstanding principal
amount of this Note and accrued and unpaid interest thereon shall
become due and payable in full on the 180th day following the date of
such termination, without the giving of any notice or the taking of any
other action on the part of the Holder being required.
Section 1.3 Late Payments. If any principal or accrued
interest hereunder is not paid on the Principal Payment Date in accordance with
Section 1.1 hereof or on a Prepayment Date in accordance with Section 1.2 hereof
or on such other date as the principal amount of this Note shall become due and
payable in accordance with the terms hereof, the Borrower shall pay interest on
demand of the Holder from time to time at a rate per annum equal to the
Borrowing Rate plus 2% on any overdue payment of principal and, to the extent
permitted by law, on any overdue interest.
Section 1.4 Right to Offset. The Borrower agrees that, in
addition to (and without limitation of) any right of set-off the Holder may
otherwise have, the Holder shall be entitled, at its option, to offset amounts
owing by the Holder to the Borrower (regardless of whether such amounts are then
due to the Borrower), against any amount payable by the Borrower to the Holder
in respect of this Note that is not paid when due; provided that nothing
contained herein shall require the Holder to exercise any such right.
Section 1.5 Pledge Agreement. The Borrower's obligation to pay
the principal amount of this Note and accrued and unpaid interest thereon is
secured pursuant to the terms of the Pledge Agreement dated as of November 14,
1997 between GFHP and the Borrower.
ARTICLE II
EVENTS OF DEFAULT
2.1 Events of Default. The occurrence of one or more of the
following events shall constitute an "Event of Default" for the purposes of this
Note:
(a) the Borrower fails to pay any amount owing under this Note
when due (whether at stated maturity, by acceleration, in
connection with a required prepayment or otherwise); or
(b) the Borrower shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian,
trustee, examiner or liquidator of all or a substantial part
of his assets or property, (ii) make a general assignment for
the benefit of
-3-
<PAGE> 4
creditors, (iii) commence a voluntary case under the Federal
Bankruptcy Code, (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency
or adjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition
filed against him in an involuntary case under the Federal
Bankruptcy Code, or (vi) generally fail to pay his debts as
they come due; or
(c) a proceeding or case shall be commenced, without the
application or consent of the Borrower, in any court of
competent jurisdiction, seeking (i) the appointment of a
receiver, custodian, trustee, examiner, liquidator or the like
of all or any substantial part of his assets or property, or
(ii) similar relief in respect of the Borrower under any law
relating to bankruptcy, insolvency or adjustment of debts, and
such proceeding or case shall continue undismissed, or an
order, judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in
effect, for a period of sixty (60) or more days; or an order
for relief against the Borrower shall be entered in an
involuntary case under the Federal Bankruptcy Code.
Section 2.2 Acceleration of Maturity; Rescission and
Annulment. If any Event of Default specified in paragraph (b) or (c) of Section
2.1 hereof occurs, the principal of this Note and accrued interest thereon shall
automatically become due and payable immediately without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower. If any Event of Default specified in paragraph (a) of
Section 2.1 hereof occurs and is continuing, then and in every such case the
Holder may declare the principal of this Note and accrued interest thereon to be
due and payable immediately, by a notice in writing to the Borrower, and upon
any such declaration such principal and interest shall become due and payable
immediately without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Borrower.
Notwithstanding the foregoing, at any time after such a
declaration of acceleration has been made and before a judgment or decree for
payment of the money due has been obtained, the Holder may rescind and annul
such declaration and its consequences if it so notifies the Borrower of its
desire to do so. Upon and to the extent of any such rescission or annulment,
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 Note, but no such
rescission or annulment shall extend to any subsequent or other default or
impair any right consequent thereon.
-4-
<PAGE> 5
Section 2.3 Preservation of Remedies. If any Event of Default
shall occur and be continuing, the Holder may proceed to protect and enforce its
rights under this Note by exercising such remedies as are available to the
Holder in respect thereof under applicable law, either by suit in equity or by
action at law, or both, whether for specific performance of any covenant or
other agreement contained in this Note or in aid of the exercise of any power
granted in this Note. No remedy conferred in this Note is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise. No
delay or omission of the Holder to exercise any right or remedy with respect to
this Note will impair, or constitute a waiver of, any such right or remedy.
ARTICLE III
WAIVER AND AMENDMENT
Section 3.1 Amendment. No amendment of this Note shall be
effective unless in writing and signed by the Holder and the Borrower.
Section 3.2 Waiver. No waiver of any provision of this Note
shall be effective against the Holder unless in writing and signed by the
Holder.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Notices. All notices and other communications in
respect of this Note (including, without limitation, any modifications of, or
requests, waivers or consents under, this Note) shall be given or made in
writing (including, without limitation, by telecopy) to the Borrower or the
Holder, as the case may be, at the applicable "Address for Notices" specified on
the signature page hereof, or at such other address as shall be designated by
either party in a notice to the other party. Except as otherwise provided in
this Note, all such communications shall be deemed to have been duly given when
transmitted by telecopier or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid.
Section 4.2 Governing Law. This Note shall be governed by, and
construed in accordance with, the law of the State of New York without regard to
the conflicts of laws principles thereof.
Section 4.3 Successors. All agreements of the
-5-
<PAGE> 6
Borrower in this Note shall bind his heirs, executors, administrators and
assigns. This Note shall inure to the benefit of the Holder and its successors,
transferees and assigns.
Section 4.4 Severability. In case any provision in this Note
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 4.5 Headings, etc. The headings of the Articles and
Sections of this Note have been inserted for convenience of reference only, are
not to be considered a part hereof, and shall in no way modify or restrict any
of the terms or provisions hereof.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Borrower has executed this Note as of
the date first above written.
/s/ Irwin Selinger
------------------------------
Irwin Selinger
Address for Notices:
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Facsimile No.: (516) 582-5608
ACCEPTED BY THE HOLDER:
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Richard S. Kolodny
----------------------------
Name: Richard S. Kolodny
Title: Vice President, General
Counsel and Secretary
Address for Notices:
400 Rabro Drive East
Hauppauge, New York 11788
Facsimile No.: (516) 439-5635
Attention: Vice President,
General Counsel
and Secretary
-7-
<PAGE> 1
EXHIBIT 10.57
/ /
PLEDGE AGREEMENT dated as of November 14, 1997
between Irwin Selinger, an individual residing at 73 Bacon
Road, Old Westbury, New York (the "Pledgor"), and Graham-Field
Health Products, Inc., a Delaware corporation (the "Secured
Party").
Reference is made to the Note dated November 14, 1997 (the
"Note") between the Pledgor and the Secured Party. Capitalized terms used herein
and not otherwise defined herein shall have the meanings set forth in the Note.
The Secured Party has agreed to extend credit to the Pledgor
pursuant to, and subject to the terms and conditions specified in, the Note. The
Secured Party has conditioned its willingness to extend credit under the Note
upon, among other things, the execution and delivery by the Pledgor of this
Agreement to secure the due and punctual payment by the Pledgor of the principal
amount of, and accrued and unpaid interest on, the Note, when and as due,
whether at maturity, by acceleration, upon one or more dates set for prepayment
or otherwise (each of the foregoing obligations being collectively called the
"Secured Obligations").
Accordingly, the Pledgor and the Secured Party agree as
follows:
Section 1. The Pledge. As collateral security for the payment
of the Secured Obligations, Pledgor hereby pledges and grants to the Secured
Party a security interest in and to all of Pledgor's right, title and interest
in the following property (all being collectively referred to herein as
"Collateral"):
(a) the smallest number of round lots of shares of Common
Stock, par value $.025 par value per share, of the Secured Party (the
"Shares") owned by Pledgor, together with any certificates representing
the same and any additional Shares delivered pursuant to Section 2(c)
below, the "Pledged Capital Stock"), the aggregate Market Value (as
defined below) of which as of the date hereof exceeds $3,000,000;
(b) all shares, securities, or property representing a
dividend on any of the Pledged Capital Stock, or representing a
distribution or return of capital upon or in respect of the Pledged
Capital Stock, or resulting from a split-up, revision, reclassification
or other like change of the Pledged Capital Stock, or otherwise
received in exchange therefor, and any subscription warrants, rights or
options issued to the holders of, or otherwise in respect of, the
Pledged Capital Stock; provided , that, subject to the provisions of
Section 3(a) below, ordinary cash dividends declared by the Board of
Directors of the Secured Party shall not be included for purposes of
this paragraph (b);
<PAGE> 2
-2-
(c) in the event of any consolidation or merger in which the
Secured Party is not the surviving corporation, all shares of each
class of the capital stock of the successor corporation formed by or
resulting from such consolidation or merger paid or exchanged in
respect of the Pledged Capital Stock; and
(d) all Shares (together with the certificates for such Shares
duly endorsed in blank or accompanied by undated stock powers duly
executed in blank) delivered to the Secured Party by the Pledgor
pursuant to Section 2(c) below.
For purposes of this Agreement, "Market Value" shall mean, as of any date, the
average daily closing sales price of one Share as reported on the New York Stock
Exchange Composite Transactions list (as reported by the Wall Street Journal or,
if not reported thereby, any other authoritative source reasonably selected by
the Secured Party) for the 10 consecutive trading days ending at the close of
trading on the second trading day immediately preceding such date.
Section 2. Representations, Warranties and Covenants.
The Pledgor hereby represents, warrants and covenants to and
with the Secured Party that:
(a) Ownership. Except for the security interest granted
hereunder (the "Security Interest"), the Pledgor (i) is and will at all times
continue to be the direct owner, beneficially and of record, of the Pledged
Capital Stock, (ii) holds the same free and clear of all liens, adverse claims,
levies, charges or other encumbrances of any kind (collectively, "Liens"), and
(iii) will make no assignment, pledge, hypothecation or transfer of or create
any security interest in or Lien upon the Collateral.
(b) Perfection and Priority. Pledgor shall take such actions
as shall be requested by the Secured Party to cause the Security Interest to
constitute a first priority perfected pledge and security interest in and to all
of the Collateral. With respect to any shares, securities, or property
constituting Collateral in the possession of or later received by Pledgor,
Pledgor shall either (i) transfer and deliver to the Secured Party such shares
or securities (together with the certificates for any such shares and securities
duly endorsed in blank or accompanied by undated stock powers duly executed in
blank), or (ii) take such other action as the Secured Party shall deem necessary
or appropriate duly to record the Security Interest therein created hereby.
Without limiting the foregoing, Pledgor shall give, execute, deliver, file
and/or record any financing statement, notice, instrument, document, agreement
or other papers that may be necessary to create, preserve, perfect or
<PAGE> 3
-3-
validate the Security Interest or to enable the Secured Party to exercise and
enforce its rights hereunder, including, without limitation, causing any or all
of the Collateral to be transferred of record into the name of the Secured Party
or its nominee.
(c) Adjustment of Collateral. On the first Business Day (as defined
below) of each calendar quarter commencing on January 1, 1999, the Secured Party
shall determine the aggregate Market Value of the Pledged Capital Stock as of
the close of business on the last Business Day of the preceding calendar quarter
(each such Business Day, a Recalculation Date"). If, as of any Recalculation
Date, the aggregate Market Value of the Pledged Capital Stock does not exceed
120% of the outstanding principal amount of the Note (including amounts
theretofore added thereto in respect of Capitalized Interest Payments, the
"Principal Balance"), Pledgor shall transfer and deliver to the Secured Party,
within five (5) Business Days, the smallest number of round lots of Shares
(together with the certificates for such Shares duly endorsed in blank or
accompanied by undated stock powers duly executed in blank) the aggregate Market
Value of which as of such Recalculation Date, if added to the aggregate Market
Value of the Pledged Capital Stock as of such Recalculation Date, exceeds 120%
of the Principal Balance.
(d) Further Assurances. Pledgor agrees that, from time to time upon the
written request of the Secured Party, he will execute and deliver such further
documents and do such other acts and things as the Secured Party may reasonably
request in order fully to effect the purposes of this Agreement.
Section 3. Remedies; Etc.
(a) Right to Receive Dividends. If Pledgor shall default in
the prompt payment when due (whether at stated maturity or otherwise) of any of
the Secured Obligations (an "Event of Default"), then so long as such Event of
Default shall continue, and whether or not the Secured Party seeks or pursues
any other relief or remedy available to it under applicable law or under this
Agreement or any other agreement relating to the Secured Obligations, then all
dividends and other distributions on the Collateral shall be paid directly to
and retained by the Secured Party as part of the Collateral, subject to the
terms of this Agreement, and, if the Secured Party shall so request in writing,
Pledgor shall execute and deliver to the Secured Party appropriate additional
dividend, distribution and other orders and documents to that end.
(b) Remedies under Uniform Commercial Code. If an Event of
Default shall have occurred and be continuing, the Secured Party:
<PAGE> 4
-4-
(i) shall have all of the rights and remedies with respect to
the Collateral of a secured party under the Uniform Commercial Code in
effect in the State of New York (the "UCC"), whether or not the UCC is
in effect in the jurisdiction where the rights and remedies are
asserted, and such additional rights and remedies to which a secured
party is entitled under the laws in effect in any jurisdiction where
any rights and remedies hereunder may be asserted, including, without
limitation, the right, to the maximum extent permitted by law, to
exercise all voting, consensual and other powers of ownership
pertaining to the Collateral as if the Secured Party were the sole and
absolute owner thereof;
(ii) in its discretion may demand, sue for, collect or receive
any money or property at any time payable or receivable on account of
or in exchange for any of the Collateral, but shall be under no
obligation to do so; and
(iii) may, upon 10 days' prior written notice to Pledgor of
the time and place, with respect to the Collateral or any part thereof,
sell, lease, assign or otherwise dispose of all or any part of such
Collateral at such place or places as the Secured Party deems best, and
for cash or for credit or for future delivery (without thereby assuming
any credit risk), at public or private sale, without demand of
performance or notice of intention to effect any such disposition or of
the time or place thereof (except such notice as is required above or
by applicable statute and cannot be waived), and the Secured Party or
anyone else may be the purchaser or recipient of any or all of the
Collateral so disposed of at any public sale (or, to the extent
permitted by law, at any private sale) and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including
any right or equity of redemption (statutory or otherwise), of Pledgor,
any such demand, notice and right or equity being hereby expressly
waived and released.
<PAGE> 5
-5-
(c) Preservation of Rights. The Secured Party shall not be
required to take steps necessary to preserve any rights against prior parties to
any of the Collateral.
(d) Application of Proceeds. The proceeds of any collection,
sale or other realization of all or any part of the Collateral pursuant hereto
shall be applied by the Secured Party: first, to the payment of the costs and
expenses of such collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Secured Party and the reasonable fees
and expenses of its agents and counsel; next, to the payment in full of the
Secured Obligations; and finally, to the payment to Pledgor or his heirs,
executors, administrators, successors or assigns, or as a court of competent
jurisdiction may direct, of any surplus then remaining.
(f) Attorney-in-Fact. Upon the occurrence and during the
continuance of any Event of Default or any default in the performance by Pledgor
of any of its obligations hereunder, the Secured Party is hereby appointed the
attorney-in-fact of Pledgor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instruments that the
Secured Party may deem necessary or advisable to accomplish the purposes hereof,
which appointment as attorney-in-fact is irrevocable and coupled with an
interest.
Section 4. Miscellaneous.
(a) Waiver. No failure on the part of the Secured Party to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
(b) Notices. All notices and other communications in respect
of this Agreement (including, without limitation, any modifications of, or
requests, waivers or consents under, this Agreement) shall be given or made in
writing (including, without limitation, by telecopy) to the Pledgor or the
Secured Party, as the case may be, at the applicable "Address for Notices"
specified on the signature page hereof, or at such other address as shall be
designated by either party in a notice to the other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopier or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
<PAGE> 6
-6-
(c) Amendment, Modification or Waiver. No provision of this
Agreement may be amended, modified or waived except by an instrument in writing
signed by Pledgor and the Secured Party.
(d) Successors and Assigns. This Agreement shall be binding
upon Pledgor and his heirs, executors, administrators and permitted assigns.
This Agreement shall inure to the benefit of the Secured Party and its
successors and permitted assigns.
(e) Assignments. Neither party hereto may assign or delegate
any of its rights or obligations hereunder without the prior consent of the
other party, except that the Secured Party may assign its rights hereunder in
connection with a transfer or assignment of the Note.
(f) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be identical and all of which, taken
together, shall constitute one and the same instrument, and each of the parties
hereto may execute this Agreement by signing any such counterpart.
(g) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York applicable to a
contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof or of any other jurisdiction.
<PAGE> 7
-7-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
/s/ Irwin Selinger
--------------------------------
Irwin Selinger
Address for Notices:
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Facsimile No.: (516) 582-5608
GRAHAM-FIELD HEALTH PRODUCTS, INC.,
By: /s/ Richard S. Kolodny
-----------------------------
Name: Richard S. Kolodny
Title: Vice President, General
Counsel and Secretary
Address for Notices:
400 Rabro Drive East
Hauppauge, New York 11788
Facsimile No.: (516) 439-5635
Attention: Vice President,
General Counsel
and Secretary
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8, No. 333-43493, No. 333-43567, and No. 333-43499 and Forms S-3, No.
333-34815, No. 333-29637, No. 333-45345 and No. 333-24799) of our report dated
March 23, 1998 (except for Note 7, as to which the date is April 13, 1998) with
respect to the consolidated financial statements and schedule of Graham-Field
Health Products, Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 1997.
/s/ Ernst & Young LLP
Melville, New York
April 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1997 and the Consolidated Statement
of Operations for the year ended December 31, 1997 as included in the Form 10K
for the year ended December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,430
<SECURITIES> 0
<RECEIVABLES> 91,451
<ALLOWANCES> 0
<INVENTORY> 73,532
<CURRENT-ASSETS> 254,339
<PP&E> 35,955
<DEPRECIATION> 0
<TOTAL-ASSETS> 547,118
<CURRENT-LIABILITIES> 156,721
<BONDS> 107,733
0
31,600
<COMMON> 764
<OTHER-SE> 236,484
<TOTAL-LIABILITY-AND-EQUITY> 547,118
<SALES> 261,981
<TOTAL-REVENUES> 263,143
<CGS> 188,695
<TOTAL-COSTS> 188,695
<OTHER-EXPENSES> 97,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,260
<INCOME-PRETAX> (30,228)
<INCOME-TAX> (7,335)
<INCOME-CONTINUING> (22,893)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,893)
<EPS-PRIMARY> (1.16)<F1>
<EPS-DILUTED> (1.16)
<FN>
<F1> REPRESENTS BASIC EPS
</FN>
</TABLE>
