<PAGE> 1
FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
(MARK ONE)
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From ______________ to ________________
Commission file number 1-8801
GRAHAM-FIELD HEALTH PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2578230
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Rabro Drive East, Hauppauge, New York 11788
-------------------------------------------------
(Address of principal executive offices)
(516) 582-5900
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(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by the court.
Yes / / No / /
Applicable Only to Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, $.025 Par Value --- 31,181,140 shares as of May 13, 1998
<PAGE> 2
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
I N D E X
<TABLE>
<CAPTION>
Part I. Financial Information: Page
----
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 1998 (Unaudited) and December 31, 1997
(Audited) 3
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1998 and 1997
(Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 (Unaudited) 5-6
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-20
Part II. Other Information:
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Matters 22
Item 6. Exhibits and Reports on Form 8-K 22-23
</TABLE>
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
------------- -------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,136,000 $ 4,430,000
Accounts receivable - less allowances for doubtful
accounts of $13,642,000 and $13,199,000, respectively 99,747,000 91,451,000
Inventories 73,992,000 73,532,000
Other current assets 12,014,000 8,103,000
Recoverable and prepaid income taxes 4,314,000 4,422,000
Deferred tax assets 10,695,000 10,695,000
Asset held for sale -- 61,706,000
------------- -------------
TOTAL CURRENT ASSETS 203,898,000 254,339,000
PROPERTY, PLANT AND EQUIPMENT - net 36,961,000 35,955,000
EXCESS OF COST OVER NET ASSETS ACQUIRED - net of
accumulated amortization of $13,476,000 and
$11,512,000, respectively $238,608,000 $240,071,000
DEFERRED TAX ASSETS 2,254,000 3,044,000
OTHER ASSETS 14,716,000 13,709,000
------------- -------------
TOTAL ASSETS $496,437,000 $547,118,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Credit facility $ 19,780,000 $ 65,883,000
Current maturities of long-term debt 2,230,000 2,619,000
Accounts payable 36,451,000 33,888,000
Accrued expenses 43,647,000 54,331,000
------------- -------------
TOTAL CURRENT LIABILITIES 102,108,000 156,721,000
Long-term debt and Senior Subordinated Notes 107,544,000 107,733,000
Other long-term liabilities 14,284,000 13,816,000
------------- -------------
TOTAL LIABILITIES 223,936,000 278,270,000
STOCKHOLDERS' EQUITY:
Series A preferred stock -- --
Series B preferred stock 28,200,000 28,200,000
Series C preferred stock 3,400,000 3,400,000
Common stock 798,000 764,000
Additional paid-in capital 283,946,000 279,341,000
(Deficit) (43,932,000) (42,953,000)
Cumulative translation adjustment 89,000 96,000
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 272,501,000 268,848,000
COMMITMENTS AND CONTINGENCIES
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 496,437,000 $ 547,118,000
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
- 3 -
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------------
1998 1997
------------ -----------
<S> <C> <C>
NET REVENUES:
Medical equipment and supplies $ 97,727,000 $56,191,000
Interest and other income 415,000 144,000
------------ -----------
98,142,000 56,335,000
COSTS AND EXPENSES:
Cost of revenues 67,102,000 38,438,000
Selling, general and administrative 28,210,000 13,193,000
Interest expense 2,743,000 994,000
------------ -----------
98,055,000 52,625,000
---------- ----------
INCOME BEFORE INCOME TAXES 87,000 3,710,000
INCOME TAXES 800,000 1,527,000
------------ -----------
NET (LOSS) INCOME (713,000) 2,183,000
PREFERRED STOCK DIVIDENDS 266,000 --
------------ -----------
NET (LOSS) INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ (979,000) $ 2,183,000
============ ===========
PER SHARE DATA:
Common shares outstanding - basic 30,839,000 19,763,000
------------ -----------
Convertible preferred stock -- 4,435,000
Common equivalent shares outstanding -- 966,000
------------ -----------
Common shares outstanding - diluted 30,839,000 25,164,000
============ ===========
Basic (loss) earnings per share $ (.03) $ .11
Diluted (loss) earnings per share $ (.03) $ .09
</TABLE>
See notes to condensed consolidated financial statements.
- 4 -
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (713,000) $ 2,183,000
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation and amortization 3,872,000 1,472,000
Deferred income taxes 790,000 833,000
Provisions for losses on accounts receivable 443,000 177,000
Changes in operating assets and liabilities:
Accounts receivable (8,739,000) (5,212,000)
Inventories (460,000) (2,323,000)
Other current assets and
recoverable and prepaid income taxes (3,803,000) (573,000)
Accounts payable, accrued expenses and other liabilities (7,926,000) (8,740,000)
------------ ------------
NET CASH USED IN OPERATING
ACTIVITIES (16,536,000) (12,183,000)
------------ ------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,551,000) (900,000)
Proceeds from sale of asset held for sale 60,167,000 --
Acquisitions, net of cash acquired -- (616,000)
Increase in excess of cost over net assets acquired (501,000) --
Proceeds from sale of property, plant & equipment -- 24,000
Net decrease in other assets 169,000 14,000
------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES $ 57,284,000 $ (1,478,000)
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1998 1997
------------- ------------
<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds from credit facility and long-term debt $ 93,371,000 $ 61,929,000
Principal payments on credit facility and long-term debt (140,052,000) (42,798,000)
Proceeds from acceptances -- 3,500,000
Payments on acceptances -- (8,500,000)
Proceeds on exercise of stock options 4,639,000 203,000
------------- ------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (42,042,000) 14,334,000
------------- ------------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,294,000) 673,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,430,000 1,241,000
------------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 3,136,000 $ 1,914,000
============= ============
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 5,426,000 $ 895,000
============= ============
Income taxes paid $ -- $ 31,000
============= ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Investment in preferred stock received as
partial proceeds from sale of asset $ 1,539,000
=============
</TABLE>
See notes to condensed consolidated financial statements.
- 6 -
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
1. GENERAL
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
as of March 31, 1998 (unaudited), the results of operations for the three months
ended March 31, 1998 and 1997 (unaudited) and the statements of cash flows for
the three months ended March 31, 1998 and 1997 (unaudited).
Additionally, it should be noted that the accompanying financial
statements and notes thereto do not purport to be complete disclosures in
conformity with generally accepted accounting principles. While the Company
believes that the disclosures presented are adequate to make the information
contained herein not misleading, it is suggested that these financial statements
be read in conjunction with the financial statements and the notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Inventories at March 31, 1998 have been valued at standard cost for
manufactured goods and at average cost for other inventories based primarily on
perpetual records or the gross profit method.
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components, however, the adoption of this Statement had no impact
on the Company's net income or shareholders' equity. SFAS No. 130 requires
foreign translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income.
During the first quarter of 1998 and 1997, total comprehensive (loss)
income amounted to $(720,000) and $2,195,000, respectively. Accumulated other
comprehensive (loss) income, primarily related to foreign currency translation
adjustments amounted to $89,000 at March 31, 1998.
The results of operations for the three months ended March 31, 1998 and
1997 are not necessarily indicative of results for the full year.
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
2. EARNINGS PER SHARE
Earnings per share amounts are calculated in accordance with SFAS No. 128
"Earnings per Share." Diluted earnings per share is calculated for the quarter
ended March 31, 1997 assuming the conversion of the Series B and Series C
Cumulative Convertible Preferred Stock and elimination of the related dividends
and conversion of dilutive common equivalent shares outstanding using the
treasury stock method. Conversion of the preferred stock and common stock
equivalent shares was not assumed for the quarter ended March 31, 1998 since the
result would have been antidilutive.
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<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $15,730,000 $16,553,000
Work-in-process 7,182,000 6,735,000
Finished goods 51,080,000 50,244,000
----------- -----------
$73,992,000 $73,532,000
=========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Land and buildings $ 17,530,000 $ 17,323,000
Equipment 28,496,000 26,845,000
Furniture and fixtures 2,650,000 2,619,000
Leasehold improvements 2,779,000 2,668,000
Construction in progress 2,000,000 1,566,000
------------ ------------
53,455,000 51,021,000
Accumulated depreciation and
amortization (16,494,000) (15,066,000)
------------ ------------
$ 36,961,000 $ 35,955,000
============ ============
</TABLE>
5. INCOME TAXES
At March 31, 1998, the Company had aggregate net operating loss
carryforwards of approximately $25,600,000 for income tax purposes which expire
in 2011, which were acquired primarily in connection with the acquisition of
Everest & Jennings International Ltd. ("Everest & Jennings") and are limited as
to use in any particular year. In addition, 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 include
alternative minimum tax credits of $500,000 which have no expiration date.
For financial reporting purposes, due to losses of Everest & Jennings
prior to the Company's acquisition 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, the Company has a valuation
allowance of approximately $1,167,000 against a portion of its remaining net
deferred tax assets 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.
- 8 -
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
The effective tax rate for the three months ended March 31, 1998 is in
excess of 100% primarily due to non-deductible goodwill amortization expense.
Deferred taxes have not been provided on the undistributed earnings of foreign
entities since it is management's intention to invest such earnings in the
entities indefinitely.
The effective tax rate for 1997 approximates the statutory rate after
adjustment for state taxes and non-deductible goodwill amortization expense.
6. ACQUISITION 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.
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
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<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
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 (a) $60,167,400
in cash, (b) an aggregate of 5,000 shares of Series A Preferred Stock of ITAC
with a stated value of $4,250,000 (which has been valued at $1,539,000), and
(c) 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 (a) by the
issuance of 23,156 shares of the Company Common Stock and (b) 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>
Three Months
Ended March 31, 1997
---------------------
<S> <C>
Net revenues:
Graham-Field $51,332,000
Medapex 5,003,000
-----------
Combined $56,335,000
===========
</TABLE>
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<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<S> <C>
Net income:
Graham-Field $2,084,000
Medapex 99,000
----------
Combined $2,183,000
==========
</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 $4.5 million 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.
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 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 U.S.$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
- 11 -
<PAGE> 12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
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, by and
among the Company, Everest & Jennings, Everest & Jennings Acquisition Corp., a
wholly-owned subsidiary of the Company and BIL (Far East Holdings) Limited
("BIL"), the majority stockholder of Everest & Jennings. The acquisition of
Everest & Jennings has been accounted for under the purchase method of
accounting and, accordingly, assets and liabilities were recorded at fair value
at the date of acquisition and the operating results of Everest & Jennings have
been included in the Company's consolidated financial statements since the date
of acquisition. The excess of the aggregate purchase price over the estimated
fair market value of the net assets acquired is approximately $65.5 million, as
adjusted.
The following summary presents unaudited pro forma consolidated results of
operations for the three months ended March 31, 1997 as if the acquisitions
described above occurred at the beginning of 1997. This information gives effect
to the adjustment of interest expense, income tax provisions, and to the assumed
amortization of fair value adjustments, including the excess of cost over net
assets acquired. The pro forma information does not include the write-off of
certain purchased in-process research and development costs of $3.3 million,
merger, restructuring and other related charges of $31,202,000 associated with
the Company's strategic restructuring initiatives recorded in the fourth quarter
ended December 31, 1997.
<TABLE>
<CAPTION>
Pro Forma
---------
Three Months Ended
March 31, 1997
--------------
<S> <C>
Net Revenues $88,503,000
===========
Income Before Income Taxes $ 3,746,000
Income Taxes 1,895,000
-----------
Net Income $ 1,851,000
===========
Net income per common share:
Net income $ 1,851,000
Preferred stock dividends - (a)
-----------
Net income available to common
shareholders $ 1,851,000
===========
Common shares outstanding - basic 30,160,000
-----------
Convertible preferred stock 4,435,000
Incremental shares using treasury stock
method 1,330,000
-----------
Common shares outstanding - diluted 35,925,000
===========
</TABLE>
- 12 -
<PAGE> 13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Basic earnings per share $ .06
Diluted earnings per share $ .05
</TABLE>
(a) Assumes conversion of the preferred stock and elimination of any
dividends relating to such preferred stock.
7. ACQUISITION INTEGRATION AND RESTRUCTURING PLAN
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 restructuring reserves of approximately
$23,470,000. The plan consists of 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 plans to
consolidate distribution facilities and other operations in an effort to improve
manufacturing, distribution and operating efficiencies.
Throughout 1998, the Company will continue to evaluate its Restructuring
Plan and additional restructuring charges may be necessary.
The following summarizes the activity in the restructuring reserves for
the first quarter of 1998:
<TABLE>
<CAPTION>
Merger and
Restructuring Reserve Reserve
charges Write-offs and Balances Balances
recorded in cash payments December 31, Provision/ March 31,
1997 in 1997 1997 Utilized Reallocation 1998
---- ------- ---- -------- ------------ ----
<S> <C> <C> <C> <C> <C> <C>
Exit costs $18,237,000 $(1,294,000) $16,943,000 $ (366,000) -- $16,577,000
Severance 650,000 -- 650,000 (31,000) -- 619,000
Merger related 4,583,000 (1,788,000) 2,795,000 (1,896,000) -- 899,000
----------- ----------- ----------- ----------- ---- -----------
Total reserves $23,470,000 $(3,082,000) $20,388,000 $(2,293,000) -- $18,095,000
=========== =========== =========== =========== ==== ===========
</TABLE>
8. 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 thirteen putative class action lawsuits filed primarily 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)
- 13 -
<PAGE> 14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
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 and 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 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.
- 14 -
<PAGE> 15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
At March 31, 1998, 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 amount 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 arising out of the conduct of its ordinary course of business,
including those relating to product liability and the sale and
- 15 -
<PAGE> 16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
(Unaudited)
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.
- 16 -
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
This report on Form 10-Q contains forward-looking statements as defined by
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
include plans and objectives of management for future operations, including
plans and objectives relating to the future economic performance and financial
results of the Company. The forward-looking statements relate to (i) the
expansion of the Company's market share, (ii) the Company's growth into new
markets, (iii) the development of new products and product lines to appeal to
the needs of the Company's customers, (iv) the opening of new distribution and
warehouse facilities, (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 Polimetal ("P.T. Dharma"), an Indonesian company, the ability of the
Company to maintain its gross profit margins, the ability to obtain additional
financing to expand the Company's business, the failure of the Company to
successfully compete with the Company's competitors that have greater financial
resources, the loss of key management personnel or the inability of the Company
to attract and retain qualified personnel, adverse litigation results, the
acceptance and quality of new software and hardware products which will enable
the Company to expand its business, the acceptance and ability to manage the
Company's operations in foreign markets, possible disruptions in the Company's
computer systems or distribution technology systems, possible increases in
shipping rates or interruptions in shipping service, the level and volatility of
interest rates and currency values, the impact of current or pending legislation
and regulation, as well as the risks described from time to time in the
Company's filings with the Securities and Exchange Commission, which include
this report on Form 10-Q, the Company's annual report on Form 10-K for the year
ended December 31, 1997, and 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.
Operating Revenues
Operating revenues for the quarter ended March 31, 1998 were $97,727,000
representing an increase of approximately 74% over the same period in the prior
year. Revenues for the first quarter of 1998 included revenues of approximately
$24.6 million attributable to the first full quarter of results for the Fuqua
entities acquired on December 30, 1997, as well as the revenues of five
additional companies acquired in 1997 (see Note 6 to the Condensed Consolidated
Financial Statements). The Company's revenues on a pro forma basis (as if all
acquisitions completed in 1997 were recorded as of January 1, 1997) increased
approximately 11%, as compared to the same period in the prior year. The
increase in operating revenues was primarily attributable to the six
acquisitions completed in 1997, the growth of the Company's "Graham-Field
Express" program and expansion of the Company's Consolidation Advantage
- 17 -
<PAGE> 18
Program ("CAP"). 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 Lumex and Temco patient aids, adult incontinence
products, Everest & Jennings wheelchairs, Smith & Davis homecare beds,
nutritional supplements and other freight and time sensitive products. As of
March 31, 1998, the Company had opened six (6) Graham-Field Express facilities
operating in the Bronx, New York; San Juan, Puerto Rico; Dallas, Texas;
Baltimore, Maryland; Cleveland, Ohio; and Bowling Green, Kentucky. The
Graham-Field Express facilities in Baltimore, Maryland; Cleveland, Ohio; and
Bowling Green, Kentucky were opened subsequent to March 31, 1997. Management
intends to moderate the growth of the Graham-Field Express program in 1998.
Interest and Other Income
Interest and other income for the three month period ended March 31, 1998
was $415,000, as compared to $144,000 for the same period in the prior year. The
increase is primarily due to interest of approximately $40,000 earned on an
advance to P.T. Dharma (see Liquidity and Capital Resources), dividends of
$44,000 earned on preferred stock acquired in connection with the sale of the
Leather Operations, and net sublease income of approximately $98,000
attributable to certain Fuqua properties.
Cost of Revenues
Cost of revenues as a percentage of operating revenues was 68.7% for the
three months ended March 31, 1998, as compared to 68.4% recorded in the prior
year. The Fuqua entities and LaBac contributed higher gross profit margins,
partially offset by operating inefficiencies incurred at the Company's Temco
manufacturing facility due to the close-down of that facility which is expected
to be completed by the end of 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of operating
revenues for the three month period ended March 31, 1998 was 28.9% as compared
to 23.5% recorded in the same period in the prior year. The increase is
primarily attributable to higher corporate office and administrative overhead to
absorb and integrate the acquisitions completed in 1997, and the contribution of
revenue by the Fuqua entities and LaBac at a higher percentage of selling,
general and administrative expenses.
Interest Expense
Interest expense for the three month period ended March 31, 1998 increased
to $2,743,000, as compared to $994,000 for the same period in the prior year.
The increase is primarily due to increased borrowings attributable to the
Company's growth, expansion of the Graham-Field Express Program, and the sale of
the Company's $100 million Senior Subordinated Notes (the "Senior Subordinated
Notes") in August 1997.
Net Income
Income before income taxes for the three months ended March 31, 1998 was
$87,000, as compared to $3,710,000 for the same period in the prior year.
The decrease is primarily due to increased selling, general and
administrative expenses as a percentage of operating revenue, and the increase
in interest expense.
- 18 -
<PAGE> 19
The Company had a net loss for the period ended March 31, 1998 of $713,000
as compared to net income of $2,183,000 for the same period last year. The
Company recorded income tax expense of $800,000 for the three months ended March
31, 1998, as compared to $1,527,000 for the same period last year. The increase
in the effective tax rate for the three month period ended March 31, 1998 is
attributable to the non-deductible goodwill associated with acquisitions in
relation to the level of pre-tax income. Deferred taxes have not been provided
on the undistributed earnings of the foreign entities as it is management's
intention to invest such earnings in the entities indefinitely. As of March 31,
1998, the Company had net deferred tax assets, a portion of which was acquired
in connection with acquisitions. A full valuation allowance has been recognized
to offset the net deferred asset related to certain of the acquired tax
attributes. When realized, the tax benefit for those items will be recorded as a
reduction of the excess of cost over net assets acquired.
The Company's business has not been materially affected by inflation.
Liquidity and Capital Resources
The Company had net working capital of $101,790,000 at March 31, 1998, as
compared to $97,618,000 at December 31, 1997. The increase in working capital is
primarily attributable to working capital generated from operations of
$3,949,000, comprised of the net loss of $713,000, adjusted for $3,872,000 of
depreciation and amortization expense and $790,000 of deferred tax provisions;
plus proceeds of $4,639,000 from the exercise of stock options, offset by
payments of $2,551,000 for the purchase of property, plant and equipment and by
the receipt of preferred stock (a long-term asset) valued at $1,539,000 as a
component of the proceeds from the sale of the Leather Operations.
Cash used in operations for the three months ended March 31, 1998 was
$16,536,000, as compared to $12,183,000 in the same period in the prior year.
The principal reason for the increase in cash used in operations was an increase
in accounts receivable of $8,739,000, other assets of $3,803,000, and inventory
of $460,000. The increase in accounts receivable is due to changes in
reimbursement patterns and slowing payments resulting in an increased number of
days outstanding for accounts receivable.
The increase in other assets is due to the advance in February 1998 of
$3.5 million to P.T. Dharma, the Company's supplier of commodity wheelchairs, 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 is 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 if a purchase
transaction is ultimately consummated. In the event the Company and P.T. Dharma
are unable to agree upon the terms of the transaction, the advance is to be
returned to the Company.
The Company periodically evaluates recoverability of its tangible and
intangible assets in accordance with SFAS No. 121. In addition, based on
projected results for the remainder of 1998, the Company believes that it will
be in compliance with the financial covenants contained in its Senior Secured
Revolving Credit Facility, as amended (the "Credit Facility"), arranged by IBJ
Schroder Business Credit Corporation ("IBJ Schroder"). The Company anticipates
that its cash flow from operations, together with its current cash balance, and
the proceeds from its Credit Facility will be sufficient to meet its working
capital requirements. However, actual results and performance could differ.
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 March 31, 1998) or 2.25% above LIBOR, 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
- 19 -
<PAGE> 20
respect to the repayment or prepayment of principal on subordinated debt,
including the Senior Subordinated 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 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, taxes, depreciation and
amortization 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. At March 31,
1998, the Company was in compliance with the financial covenants contained in
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 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 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 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.
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
- 20 -
<PAGE> 21
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.
- 21 -
<PAGE> 22
Part II. Other Information
Item 1. Legal Proceedings
See Note 8 to the Condensed Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Matters
On April 17, 1998, the Company, J.B. Fuqua, J. Rex Fuqua and certain
members of the Fuqua family and other entities controlled by the Fuqua family
(collectively, the "Fuqua Family Stockholders") terminated that certain
Stockholders Agreement dated as of September 5, 1997 (the "Fuqua Stockholder
Agreement"), by and among the Company, BIL, BIL Securities (Offshore) Ltd. and
the Fuqua Family Stockholders, and entered into a new agreement dated as of
April 17, 1998 (the "New Fuqua Agreement"), which incorporates certain of the
provisions of the Fuqua Stockholder Agreement. Simultaneously with the execution
of the New Fuqua Agreement, J. Rex Fuqua resigned from the Board of Directors to
pursue his many other interests. Under the terms of the New Fuqua Agreement, the
Fuqua Family Stockholders were permitted within a two week period following
April 17, 1998 to purchase a number of shares of the Company Common Stock in the
open market (the "Permitted Purchases") equal to the greater of (i) 370,000
shares and (ii) a number of shares which, when added to the Fuqua Family
Stockholders' current holdings, will not exceed 10% of the outstanding voting
power of the capital stock of the Company. The New Fuqua Agreement provides, for
among other things, that the Fuqua Family Stockholders will not purchase or
acquire any additional shares of the Company Common Stock (other than the
Permitted Purchases, and in connection with stock splits, stock dividends and
similar transactions applicable to all stockholders of the Company generally).
In addition, the New Fuqua Agreement provides that the Fuqua Family Stockholders
will not engage in proxy contests, hostile tender offers or other similar
transactions currently prohibited by the Existing Fuqua Stockholders Agreement;
provided that the Fuqua Family Stockholders shall be free to tender their shares
in connection with a third party tender offer for the Company regardless of
whether such tender offer is recommended by the Board of Directors of the
Company. The New Fuqua Agreement also provides that the Fuqua Family
Stockholders will continue to vote their shares of the Company Common Stock
consistent with the requirements contained in the Existing Fuqua Stockholders
Agreement through and including the 1998 Annual Meeting of stockholders of the
Company, after which time they shall be free to vote their shares in their
absolute discretion.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
1. Employment Agreement dated as of April 17, 1998, by and between
Graham-Field Health Products, Inc. and Andrew A. Giordano.
2. Employment Agreement dated as of April 17, 1998, by and between
Graham-Field Health Products, Inc. and Richard S. Kolodny.
3. Employment Agreement dated as of April 17, 1998, by and between
Graham-Field Health Products, Inc. and Ralph Liguori.
4. Employment Agreement dated as of April 17, 1998, by and between
Graham-Field Health
- 22 -
<PAGE> 23
Products, Inc. and Peter Winocur.
5. Stockholders Agreement dated as of April 17, 1998, by and between
Graham-Field Health Products, Inc., certain entities of the Fuqua
family, Irwin Selinger, BIL (Far East Holdings) Limited and BIL
Securities (Offshore) Ltd.
Reports on Form 8-K:
The Company's Current Report on Form 8-K dated as of February 11, 1998
(Date of Event: January 27, 1998).
- 23 -
<PAGE> 24
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
(Registrant)
Date: May 14, 1998 /s/Irwin Selinger
--------------------------------------
Irwin Selinger
Chairman of the Board and
Chief Executive Officer
Date: May 14, 1998 /s/Paul Bellamy
--------------------------------------
Paul Bellamy
Vice President - Finance
Principal Financial Officer
- 24 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AS INCLUDED IN THE FORM
10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,136
<SECURITIES> 0
<RECEIVABLES> 99,747
<ALLOWANCES> 0
<INVENTORY> 73,992
<CURRENT-ASSETS> 203,898
<PP&E> 36,961
<DEPRECIATION> 0
<TOTAL-ASSETS> 496,437
<CURRENT-LIABILITIES> 102,098
<BONDS> 107,544
0
31,600
<COMMON> 798
<OTHER-SE> 240,103
<TOTAL-LIABILITY-AND-EQUITY> 496,437
<SALES> 97,727
<TOTAL-REVENUES> 98,142
<CGS> 67,102
<TOTAL-COSTS> 67,102
<OTHER-EXPENSES> 28,210
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,743
<INCOME-PRETAX> 87
<INCOME-TAX> 800
<INCOME-CONTINUING> (713)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (713)
<EPS-PRIMARY> .03<F1>
<EPS-DILUTED> .03
<FN>
<F1> REPRESENTS EPS-BASIC.
</FN>
</TABLE>
<PAGE> 1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of April 17, 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 ANDREW A. GIORDANO, residing at 1811 South 24th Street,
Arlington, Virginia 22202-1534 (the "Executive").
W I T N E S S E T H:
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; 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 April 17, 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
<PAGE> 2
provided herein) (the "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,
perform such executive and administrative duties and functions as may from time
to time be appropriate to and consistent with his position as President and
Chief Operating 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 Three Hundred Fifty Thousand Dollars
($350,000) 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 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
-3-
<PAGE> 4
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.
(ii) During the original Term, the Company may
terminate the Executive's employment hereunder without Cause 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
-4-
<PAGE> 5
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 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)(i), (iii), (iv) or (v) 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, and 4 to the date of such termination.
c. Upon any termination of the Executive's employment under
Section 5(a)(ii) 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, 3.4, and
-5-
<PAGE> 6
4 to the date of such termination plus (i) a lump sum payment equal to the sum
of the aggregate amount of Base Salary that would have been paid to the
Executive from the date of such termination through the end of the original Term
but for such early termination, and (ii) all amounts and benefits to be paid or
provided by the Company under Sections 3.3, 3.4, and 4 from the date of
termination through the end of the original Term but for such early 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 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
-6-
<PAGE> 7
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 and prosecute any proceedings
in any court of competent jurisdiction, either in law or equity, for such relief
as it deems appropriate.
-7-
<PAGE> 8
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. General.
7.1 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 Agreement were conducted in New York State and
that this Agreement has been executed by both parties in New York State.
7.2 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 7.2 shall be deemed to limit or waive any
right of the
-8-
<PAGE> 9
parties to remove any dispute to federal court which might otherwise properly be
removed to such court.
7.3 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.
7.4 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
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.
7.5 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 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
-9-
<PAGE> 10
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:
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. Andrew A. Giordano
1811 South 24th Street
Arlington, Virginia 22202-1534
Any party may change its address for the purpose of receiving
notices by a written notice given to the other party.
7.6 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.
7.7 Waiver. No reliance upon or waiver of one or more
provisions of this Agreement shall constitute a waiver of any other provisions
hereof.
7.8 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
-10-
<PAGE> 11
party shall voluntarily assign any rights hereunder, or delegate any duties
hereunder, except upon the prior written consent of the other.
7.9 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.
7.10 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.
7.11 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.
7.12 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.
-11-
<PAGE> 12
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:
-----------------------------------
Name: Richard S. Kolodny
Title: Vice President,
General Counsel
--------------------------------------
ANDREW A. GIORDANO
-12-
<PAGE> 1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of April 17, 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 RICHARD KOLODNY, residing at 44 Spring Court, Muttontown, New
York 11791 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the Executive as its Vice
President and General Counsel 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 April 17, 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
<PAGE> 2
provided herein) (the "Term") as its Vice President and General Counsel, 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 and
General Counsel 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 Thousand Dollars ($200,000) 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
contained
-2-
<PAGE> 3
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 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
-3-
<PAGE> 4
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.
(ii) During the original Term, the Company may terminate
the Executive's employment hereunder without Cause 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
-4-
<PAGE> 5
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 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)(i), (iii), (iv) or (v) 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, and 4 to the date of such termination.
c. Upon any termination of the Executive's employment under
Section 5(a)(ii) 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, 3.4, and
-5-
<PAGE> 6
4 to the date of such termination plus (i) a lump sum payment equal to the sum
of the aggregate amount of Base Salary that would have been paid to the
Executive from the date of such termination through the end of the original Term
but for such early termination, and (ii) all amounts and benefits to be paid or
provided by the Company under Sections 3.3, 3.4, and 4 from the date of
termination through the end of the original Term but for such early 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 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
-6-
<PAGE> 7
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 and prosecute any proceedings
in any court of competent jurisdiction, either in law or equity, for such relief
as it deems appropriate.
-7-
<PAGE> 8
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. General.
7.1 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 Agreement were conducted in New York State and
that this Agreement has been executed by both parties in New York State.
7.2 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 7.2 shall be deemed to limit or waive any
right of the
-8-
<PAGE> 9
parties to remove any dispute to federal court which might otherwise properly be
removed to such court.
7.3 Survival. The parties hereto agree that the covenants
contained in Sections 5(b) and 5(c) and in Section 6 hereof shall survive any
termination of employment by the Executive and any termination of this
Agreement.
7.4 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
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.
7.5 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 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
-9-
<PAGE> 10
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:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attention: Irwin Selinger
Chairman of the Board,
Chief Executive Officer
If to the Executive:
Richard S. Kolodny, Esq.
44 Spring Court
Muttontown, New York 11791
(516) 677-9117
Any party may change its address for the purpose of receiving
notices by a written notice given to the other party.
7.6 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.
7.7 Waiver. No reliance upon or waiver of one or more
provisions of this Agreement shall constitute a waiver of any other provisions
hereof.
7.8 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
-10-
<PAGE> 11
party shall voluntarily assign any rights hereunder, or delegate any duties
hereunder, except upon the prior written consent of the other.
7.9 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.
7.10 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.
7.11 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.
7.12 Entire Agreement. Except for the Agreement dated as of
August 16, 1993 between the Executive and the Company (the "Change in Control
Agreement") relating to payments to be made to the Executive in the event of the
termination of the Executive's employment with the Company within two years
following a Change in Control (as defined therein), this Agreement constitutes
the entire
-11-
<PAGE> 12
understanding and agreement of the parties with respect to the subject matter of
this Agreement, and any and all prior agreements (other than the Change in
Control Agreement), understandings or representations are hereby terminated and
canceled in their entirety; provided that notwithstanding anything to the
contrary contained in Section 4(e) of the Change in Control Agreement, in the
event that the amount payable under Section 5(c) of this Agreement to the
Executive upon the termination of his employment following a Change in Control
is greater than the amount payable to the Executive under the Change in Control
Agreement as a result of such termination, the Executive shall be entitled to
the amount payable under Section 5(c) of this Agreement in lieu of the amount
payable to the Executive under the Change in Control Agreement.
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:
---------------------------------
Name: Irwin Selinger
Title: Chairman of the Board,
Chief Executive Officer
------------------------------------
RICHARD S. KOLODNY
-12-
<PAGE> 1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of April 17, 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 RALPH LIGUORI, residing at 699 Tower Mews, Oakdale, New York
11769 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the Executive as its
Executive Vice President of Operations 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 April 17, 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 Executive Vice President of
Operations, and the Executive does hereby accept such employment.
<PAGE> 2
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 Executive Vice
President of Operations 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 Twenty Thousand Dollars ($220,000)
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 contained herein shall be deemed to obligate the Company to increase the
Base Salary at any time.
-2-
<PAGE> 3
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 Automobile Allowance. The Company recognizes that the
Executive will require the use of an automobile for business purposes.
Therefore, the Company will lease for Executive's exclusive benefit a Cadillac
Seville or such other comparable vehicle. 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
-3-
<PAGE> 4
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.
(ii) During the original Term, the Company may terminate
the Executive's employment hereunder without Cause 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.
-4-
<PAGE> 5
(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 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)(i), (iii), (iv) or (v) 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, and 4 to the date of such termination.
c. Upon any termination of the Executive's employment under
Section 5(a)(ii) 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, 3.4, and 4 to the date of such termination plus (i) a lump
sum payment equal to the sum of the aggregate amount of Base Salary that would
have
-5-
<PAGE> 6
been paid to the Executive from the date of such termination through the end of
the original Term but for such early termination, and (ii) all amounts and
benefits to be paid or provided by the Company under Sections 3.3, 3.4, and 4
from the date of termination through the end of the original Term but for such
early 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 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-
<PAGE> 7
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 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
-7-
<PAGE> 8
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. General.
7.1 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 Agreement were conducted in New York State and
that this Agreement has been executed by both parties in New York State.
7.2 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 7.2 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-
<PAGE> 9
7.3 Survival. The parties hereto agree that the covenants
contained in Sections 5(b) and 5(c) and in Section 6 hereof shall survive any
termination of employment by the Executive and any termination of this
Agreement.
7.4 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
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.
7.5 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 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
-9-
<PAGE> 10
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. Ralph Liguori
699 Tower Mews
Oakdale, New York 11769
Any party may change its address for the purpose of receiving
notices by a written notice given to the other party.
7.6 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.
7.7 Waiver. No reliance upon or waiver of one or more
provisions of this Agreement shall constitute a waiver of any other provisions
hereof.
7.8 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
-10-
<PAGE> 11
any duties hereunder, except upon the prior written consent of the other.
7.9 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.
7.10 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.
7.11 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.
7.12 Entire Agreement. Except for the Agreement dated as of
January 1, 1997 between the Executive and the Company (the "Change in Control
Agreement") relating to payments to be made to the Executive in the event of the
termination of the Executive's employment with the Company within two years
following a Change in Control (as defined therein), this Agreement constitutes
the entire understanding and agreement of the parties with respect to the
-11-
<PAGE> 12
subject matter of this Agreement, and any and all prior agreements (other than
the Change in Control Agreement), understandings or representations are hereby
terminated and canceled in their entirety; provided that notwithstanding
anything to the contrary contained in Section 4(e) of the Change in Control
Agreement, in the event that the amount payable under Section 5(c) of this
Agreement to the Executive upon the termination of his employment following a
Change in Control is greater than the amount payable to the Executive under the
Change in Control Agreement as a result of such termination, the Executive shall
be entitled to the amount payable under Section 5(c) of this Agreement in lieu
of the amount payable to the Executive under the Change in Control Agreement.
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:
-----------------------------------
Name: Richard S. Kolodny
Title: Vice President,
General Counsel
--------------------------------------
RALPH LIGUORI
-12-
<PAGE> 1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of April 17, 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 PETER WINOCUR, residing at 14 Woodlee Road, Cold Spring Harbor,
New York 11724 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the Executive as its
Executive Vice President of Sales and Marketing 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 April 17, 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 Executive Vice President of
<PAGE> 2
Sales and Marketing, 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 Executive Vice
President of Sales and Marketing 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 Thirty Thousand Dollars ($230,000)
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 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
-3-
<PAGE> 4
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.
(ii) During the original Term, the Company may terminate
the Executive's employment hereunder without Cause 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
-4-
<PAGE> 5
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 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)(i), (iii), (iv) or (v) 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, and 4 to the date of such termination.
c. Upon any termination of the Executive's employment under
Section 5(a)(ii) 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, 3.4, and
-5-
<PAGE> 6
4 to the date of such termination plus (i) a lump sum payment equal to the sum
of the aggregate amount of Base Salary that would have been paid to the
Executive from the date of such termination through the end of the original Term
but for such early termination, and (ii) all amounts and benefits to be paid or
provided by the Company under Sections 3.3, 3.4, and 4 from the date of
termination through the end of the original Term but for such early 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 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
-6-
<PAGE> 7
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 and prosecute any proceedings
in any court of competent jurisdiction, either in law or equity, for such relief
as it deems appropriate.
-7-
<PAGE> 8
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. General.
7.1 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 Agreement were conducted in New York State and
that this Agreement has been executed by both parties in New York State.
7.2 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 7.2 shall be deemed to limit or waive any
right of the
-8-
<PAGE> 9
parties to remove any dispute to federal court which might otherwise properly be
removed to such court.
7.3 Survival. The parties hereto agree that the covenants
contained in Sections 5(b) and 5(c) and in Section 6 hereof shall survive any
termination of employment by the Executive and any termination of this
Agreement.
7.4 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
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.
7.5 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 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
-9-
<PAGE> 10
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:
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. Peter Winocur
14 Woodlee Road
Cold Spring Harbor, New York 11724
Any party may change its address for the purpose of receiving
notices by a written notice given to the other party.
7.6 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.
7.7 Waiver. No reliance upon or waiver of one or more
provisions of this Agreement shall constitute a waiver of any other provisions
hereof.
7.8 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
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<PAGE> 11
party shall voluntarily assign any rights hereunder, or delegate any duties
hereunder, except upon the prior written consent of the other.
7.9 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.
7.10 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.
7.11 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.
7.12 Entire Agreement. Except for the Agreement dated as of
October 31, 1995 between the Executive and the Company (the "Change in Control
Agreement") relating to payments to be made to the Executive in the event of the
termination of the Executive's employment with the Company within two years
following a Change in Control (as defined therein), this Agreement constitutes
the entire
-11-
<PAGE> 12
understanding and agreement of the parties with respect to the subject matter of
this Agreement, and any and all prior agreements (other than the Change in
Control Agreement), understandings or representations are hereby terminated and
canceled in their entirety; provided that notwithstanding anything to the
contrary contained in Section 4(e) of the Change in Control Agreement, in the
event that the amount payable under Section 5(c) of this Agreement to the
Executive upon the termination of his employment following a Change in Control
is greater than the amount payable to the Executive under the Change in Control
Agreement as a result of such termination, the Executive shall be entitled to
the amount payable under Section 5(c) of this Agreement in lieu of the amount
payable to the Executive under the Change in Control Agreement.
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:
---------------------------------
Name: Irwin Selinger
Title: Chairman of the Board,
Chief Executive Officer
------------------------------------
PETER WINOCUR
-12-
<PAGE> 1
This AGREEMENT dated as of April 17, 1998 is made and entered
into by and between Graham-Field Health Products, Inc., a Delaware corporation
(the "Company"), and each of the stockholders of the Company listed on the
signature pages hereto (the "Fuqua Family Stockholders").
WHEREAS, the Company and the Fuqua Family Stockholders have
entered into a Stockholders Agreement, dated as of September 5, 1997, by and
among the Company, the Fuqua Family Stockholders, Irwin Selinger, BIL (Far East
Holdings) Limited and BIL Securities (Offshore) Ltd. (the "Stockholders
Agreement");
WHEREAS, the Company and the Fuqua Family Stockholders have
entered into a Registration Rights Agreement, dated as of September 5, 1997 (the
"Registration Rights Agreement"); and
WHEREAS, the Company and the Fuqua Family Stockholders wish to
terminate the Stockholders Agreement and to enter into alternative arrangements;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. Except as otherwise specifically indicated,
the following terms have the following meanings for all purposes of this
Agreement:
"Affiliate" shall have the meaning assigned thereto in Rule
405, as presently promulgated under the Securities Act.
"beneficially owns" (or comparable variations thereof) has the
meaning set forth in Rule 13d-3 promulgated under the Exchange Act.
"Board of Directors" means the Board of Directors of the
Company.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or series of related
transactions, of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3)
<PAGE> 2
of the Exchange Act) other than an Exempt Person, (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than an Exempt Person, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of 50% or more of the Voting Securities of
the Company (measured by Voting Power rather than number of shares), (iv) during
any period of 12 consecutive months after the date of this Agreement,
individuals who at the beginning of any such 12-month period constituted the
Board of Directors of the Company, together with any Continuing Directors, cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; and (v) the Company consolidates with, or merges with or into,
any Person or sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which any of the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where the Voting Securities of the Company
outstanding immediately prior to such transaction is converted into or exchanged
for Voting Securities of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving or
transferee Person (immediately after giving effect to such issuance), but only
if the condition specified in clause (iv) also has occurred.
"Continuing Director" means (i) any individual serving as a
member of the Board of Directors at the time of this Agreement for so long as
such individual is a member of the Board of Directors, and (ii) any individual
who is recommended or elected to serve as a member of the Board of Directors by
at least a majority of the Continuing Directors then in office, for so long as
such individual is a member of the Board of Directors.
"DGCL" means the General Corporation Law of the State of
Delaware.
"Equity Securities" means Voting Securities, Convertible
Securities and Rights to Purchase Voting Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated
2
<PAGE> 3
thereunder.
"Exempt Person" means the Company or any employee benefit plan
or stock ownership plan of either the Company or any of its subsidiaries.
"Liens" means any lien, claim, mortgage, encumbrance, pledge,
security interest, equity or charge of any kind.
"Person" means any individual, corporation, partnership,
trust, other entity or group (within the meaning of Section 13(d)(3) of the
Exchange Act).
"Representatives" of any entity means such entity's directors,
officers, employees, legal, investment banking and financial advisors,
accountants and any other agents and representatives of such entity.
"Restricted Group" means (i) any Fuqua Family Stockholder,
(ii) any and all Persons directly or indirectly controlled by or under common
control with any Fuqua Family Stockholder, (iii) if such Fuqua Family
Stockholder is an individual, (a) any member of such Fuqua Family Stockholder's
family (including any spouse, parent, sibling, child, grandchild or other lineal
descendant, including adoptive children), (b) the heirs, executors, personal
representatives and administrators of any of the foregoing persons, (c) any
trust established for the benefit of any of the foregoing persons and (d) any
charitable foundations established by any of the foregoing persons, and (iv) any
and all groups (within the meaning of Section 13(d)(3) of the Exchange Act) of
which any Fuqua Family Stockholder or any Person directly or indirectly
controlling, controlled by or under common control with such Fuqua Family
Stockholder is a member, other than any such group not acting for the purpose of
acquiring, holding or beneficially owning Equity Securities.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Subsidiary" means any Person in which the Company or the
Fuqua Family Stockholders, as the case may be, directly or indirectly through
Subsidiaries or otherwise, beneficially owns more than fifty percent (50%) of
either the equity interest in, or the Voting Power of, such Person.
"Voting Power" means, with respect to any Outstanding Voting
Securities, the highest number of votes that the holders of all such Outstanding
Voting Securities would be entitled to cast for the election of directors or on
any other matter (except to the extent such voting rights are dependent upon
events of
3
<PAGE> 4
default or bankruptcy), assuming, for purposes of this computation, the
conversion or exchange into Voting Securities of Convertible Securities (whether
presently convertible or exchangeable or not) and the exercise of Rights to
Purchase Voting Securities (whether presently exercisable or not), in either
case to the extent that any such action would increase the number of such votes.
"Voting Securities" means the Company Common Stock and any
other securities of the Company of any kind or class having power generally to
vote for the election of directors; "Convertible Securities" means securities of
the Company which are convertible or exchangeable (whether presently convertible
or exchangeable or not) into Voting Securities; "Rights to Purchase Voting
Securities" means options and rights issued by the Company (whether presently
exercisable or not) to purchase Voting Securities or Convertible Voting
Securities; and "Outstanding Voting Securities" means at any time the then
issued and outstanding Voting Securities, Convertible Securities (which shall be
counted at the maximum number of Voting Securities for which they can be
converted or exchanged) and Rights to Purchase Voting Securities (which shall be
counted at the maximum number of Voting Securities for which they can be
exercised).
2. Termination of Stockholders Agreement; Continuation of
Registration Rights Agreement. The Stockholders Agreement is hereby terminated
in all respects. The Registration Rights Agreement will continue in full force
and effect in accordance with its terms. In connection with any transaction
permitted pursuant to this Agreement, the Company shall or shall cause any
legend not otherwise required by applicable law to be promptly removed from
certificates evidencing Equity Securities.
3. Board of Directors. Effective as of the date of this
Agreement, J. Rex Fuqua hereby resigns his seat on the Board of Directors and
the Fuqua Family Stockholders relinquish their entitlement, pursuant to the
Stockholders Agreement, to a seat on the Board of Directors; provided that J.
Rex Fuqua is not prohibited from becoming a director of the Company in the
future following a Change in Control.
4. Press Release. Prior to the opening of the New York Stock
Exchange on April 20, 1998, the Company will issue a press release in the form
of Exhibit A attached hereto (the "Press Release").
5. Purchases of Company Common Stock. Commencing on the second
business day following the issuance of the Press Release, the Fuqua Family
Stockholders intend, subject to market
4
<PAGE> 5
conditions and to the extent permitted by applicable laws, to initiate, within a
two-week period (the "Purchase Period"), the purchase in the open market of up
to a number of shares of common stock, par value $.025 per share, of the Company
(the "Company Common Stock"), equal to the greater of (i) 370,000 shares of
Company Common Stock and (ii) a number of shares of Company Common Stock which,
when added to the Fuqua Family Stockholders current holdings, will not exceed
10% of the Voting Power of the Outstanding Voting Securities (the "Stock
Purchases").
6. Limitation on Acquisition of Equity Securities. For a
period of five (5) years from the date of this Agreement, other than any Stock
Purchases completed during the Purchase Period, no Fuqua Family Stockholder
shall, directly or indirectly, purchase or acquire, or make any offer to or
agree to purchase or acquire, beneficial ownership of any additional Equity
Securities if, after giving effect to such purchase or acquisition, the
beneficial ownership of Company Common Stock by the Fuqua Family Stockholders
would exceed ten percent (10%) of the Voting Power of the Outstanding Voting
Securities, except for acquisitions by way of stock dividends, stock splits or
other distributions or offerings made available to holders of Company Common
Stock generally.
7. Standstill. For a period of five (5) years from the date of
this Agreement, but only during such periods as members of the Restricted Group
own in the aggregate five percent (5%) of the Voting Power of the Outstanding
Voting Securities, no member of the Restricted Group will, and they will not
assist or encourage others (including by providing financing) to, directly or
indirectly (i) acquire or agree, offer, seek or propose (whether publicly or
otherwise) to acquire ownership (including but not limited to beneficial
ownership) of any substantial portion of the assets or Equity Securities of the
Company, whether by means of a negotiated purchase of assets, tender or exchange
offer, merger or other business combination, recapitalization, restructuring or
other extraordinary transaction (a "Business Combination"), or (ii) engage in
any "solicitation" of "proxies" (as such terms are used in the proxy rules
promulgated under the Exchange Act, but disregarding clause (iv) of Rule 14
1(1)(2) and including any exempt solicitation pursuant to Rule 14a-2(b)(1) or
(2)), or form, join or in any way participate in a "group" (as defined under the
Exchange Act), other than a group consisting solely of members of the Restricted
Group, with respect to any Equity Securities; provided that the Fuqua Family
Stockholders will be free to (x) tender their shares of Company Common Stock in
connection with a third party tender or exchange offer for the Company
regardless of whether such tender offer is recommended by the Board of
Directors, (y) participate in any other offer made generally to
5
<PAGE> 6
holders of any class of Equity Securities and (z) conduct a "solicitation" of
"proxies" of other members of the Restricted Group. No member of the Restricted
Group will request the Company or any of its Representatives to amend or waive
any provision of this paragraph (including this sentence) or Section 5. Nothing
contained in this Section 7 is intended to or shall limit the rights of the
Fuqua Family Stockholders to purchase additional Equity Securities as permitted
by Section 6, to vote their Equity Securities as provided in Section 8(b) or to
dispose of their Equity Securities to a person engaged in activities described
in clause (i) or (ii) above or otherwise.
8. Ownership and Voting of Company Shares. (a) Each Fuqua
Family Stockholder represents and warrants to the Company that
such Stockholder owns, beneficially and of record, as of the
date hereof, the number of shares of Company Common Stock
listed on Schedule I hereto (collectively, the "Company
Shares"), subject to no rights of others and free and clear of
all Liens. Such Fuqua Family Stockholder's right to vote or
assign, pledge, hypothecate or otherwise transfer or dispose
of (" Dispose" or a "Disposition") of the Company Shares
beneficially owned by such Fuqua Family Stockholder is not
subject to any voting trust, voting agreement, voting
arrangement or proxy and such Fuqua Family Stockholder has not
entered into any contract, option or other arrangement or
undertaking with respect thereto. The representations and
warranties in this Section 8(a) are subject to the rights,
Liens and arrangements relating to Fuqua Holdings--I, L.P.,
The Jennifer Calhoun Fuqua Trust, The Lauren Brooks Fuqua
Trust and The J.B. Fuqua Foundation, Inc.
(b) Each Fuqua Family Stockholder will, with respect to those
Company Shares that such Stockholder either owns of record on the record date
for voting at the 1998 Annual Meeting of Stockholders of the Company (the "1998
Annual Meeting") or special meeting of Company stockholders prior to the 1998
Annual Meeting or for granting any written consent in connection with the
solicitation of written consents in lieu of such a meeting or with respect to
which such Fuqua Family Stockholder otherwise controls the vote, vote or cause
to be voted such shares (or execute written consents with respect to such
shares) (x) for the nominees recommended by the Board of Directors, (y) on all
other proposals of the Board of Directors, as the Restricted Group determines in
its sole discretion and (z) on all proposals of any other stockholder of the
Company, in accordance with the recommendation of the Board of Directors.
Notwithstanding the foregoing, (i) to the extent that any member of the
Restricted Group holds or is empowered to vote or to effect the voting of
6
<PAGE> 7
Voting Securities in a fiduciary or comparable capacity and, in the exercise of
such duties, such member of the Restricted Group determines that it is not
appropriate to vote such Voting Securities in accordance with the recommendation
of the Board of Directors as contemplated by clause (z) above, then such member
of the Restricted Group may vote such Voting Securities in such manner as he or
she determines is appropriate. The provisions of this paragraph (b) shall
terminate after the 1998 Annual Meeting, after which time the Restricted Group
shall be free to vote their shares in their absolute discretion.
9. No Litigation. (a) The Fuqua Family Stockholders will not
commence any lawsuits against the Company or any of its former, current or
future officers, directors or Affiliates arising out of or related to matters
occurring on or prior to the date of this Agreement and will not become active
participants in any of the class action lawsuits currently pending against the
Company at the date of this Agreement (the "Current Class Action Lawsuits") or
any class action lawsuits that may be filed arising out of circumstances leading
or related to the Current Class Action Lawsuits; provided that the Fuqua Family
Stockholders (i) may participate in any recovery to which they are entitled in
such class action lawsuits as stockholders of the Company, (ii) may participate
in depositions or interrogatories or otherwise act as witnesses or otherwise
participate to the extent required by applicable law, regulation or legal
process and (iii) may assert affirmative defenses and, to the extent they
determine in good faith that the Company's directors' and officers' insurance
and ability to provide indemnity will not be sufficient to hold them harmless in
the event of any litigation in which they are named as defendants, bring
counterclaims, cross-claims, claims for contribution and other assertions of
claims against the Company or any of its former, current or future officers,
directors or Affiliates if and when, as to any such counterclaims, cross-claims,
claims for contribution and other assertions of claims, it becomes necessary to
do so in light of applicable rules of procedure, statutes of limitation or other
time bars.
(b) Nothing contained in the immediately preceding paragraph
is intended to or shall limit or impair the existing contractual arrangements of
the Company or any of its Affiliates with the Fuqua Family Stockholders or the
right of any Fuqua Family Stockholder to share in the proceeds of the Company's
or its Affiliates' directors' and officers' insurance or benefit from rights to
indemnity provided under any state corporation law or the Company's or any
Affiliate's Certificate of Incorporation or Bylaws or other contractual
arrangements, or to limit or impair the right of any Fuqua Family Stockholder to
enforce or seek redress for the breach of any of the foregoing rights.
7
<PAGE> 8
(c) The Company will not commence any lawsuits against any
Fuqua Family Stockholder or any of their former, current or future officers,
directors, partners, trustees or Affiliates arising out of or related to matters
occurring on or prior to the date of this Agreement; provided that nothing in
this paragraph in intended to or shall limit or impair the Fuqua Family
Stockholders' contractual arrangements with the Company or any of its Affiliates
or to limit or impair the right of the Company to enforce or seek redress for
the breach of any of such contractual arrangements.
10. Non-Disparagement. The Company and the Fuqua Family
Stockholders will not hereafter make any oral or written statements or reveal
any information to any person, company or agency which is disparaging or
damaging to the reputation or business of the Company and/or any of its
Affiliates (and their respective former, current or future directors and
officers) or the Fuqua Family Stockholders, respectively; provided that the
foregoing will not restrict any statement or revelation required by applicable
law, regulation or judicial process.
11. Fuqua Family Stockholders' Schedule 13D. The Fuqua Family
Stockholders will either (i) replace their existing Schedule 13D filing with a
Schedule 13G filing or (ii) amend their Schedule 13D filing to reflect the terms
of and transactions contemplated by this Agreement and will set forth in Item 4
of such Schedule 13D that the Fuqua Family Stockholder hold their shares of
Company Common Stock as a "passive investor" for investment purposes only and
that they have no plans or proposals that would result in any of the events
listed in sections (a) through (j) of Item 4 of Schedule 13D. Similar statements
will be made in any other regulatory filings required in connection with the
Stock Purchases.
12. Amendment and Waiver. (a) This Agreement may be amended,
supplemented or modified only by a written instrument duly executed by or on
behalf of each party hereto.
(b) Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by law or otherwise afforded, will be cumulative and not
alternative.
8
<PAGE> 9
13. Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to any Fuqua Family Stockholder, to:
c/o Fuqua Capital Corporation
One Atlantic Center
1201 West Peachtree Street
Suite 500
Atlanta, GA 30309
Facsimile No.: (404) 815-4528
Attn: J. Rex Fuqua
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022-3903
Facsimile No.: (212) 715-8066
Attn: Thomas E. Constance, Esq.
If to the Company, to:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Facsimile No.: (516) 582-5608
Attn: Richard S. Kolodny, Esq.
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005
Facsimile No.: (212) 530-5219
Attn: Robert S. Reder, Esq.
9
<PAGE> 10
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other parties hereto.
14. Irrevocable Appointment of Agent. By the execution and
delivery of this Agreement, including counterparts hereof, each Fuqua Family
Stockholder hereby irrevocably constitutes and appoints J. Rex Fuqua as the true
and lawful agent and attorney-in-fact of each such Fuqua Family Stockholder
(such individual, or such other individual as Fuqua Family Stockholders who own
a majority of the aggregate Equity Securities then owned by all the Fuqua Family
Stockholders (the "Requisite Stockholders") shall designate in writing to the
Company from time to time, is herein referred to as the "Agent"), to do or
refrain from doing all such further acts and things, and to execute all such
documents, as the Agent shall deem necessary or appropriate in connection with
this Agreement. Unless there is no existing person that has been designated to
act as Agent by the Requisite Stockholders, all rights of the Fuqua Family
Stockholders under this Agreement shall be exercised by the Fuqua Family
Stockholders only through or by the Agent in his or her capacity as agent of the
Fuqua Family Stockholders hereunder, and the Company shall not be required to
take directions from any other Stockholder for so long as such Agent continues
to serve and has not otherwise been removed as Agent pursuant to notice to the
Company from the Requisite Stockholders. If at any time no Person is serving as
Agent, the Company shall not be required to take action except upon the
direction of the Requisite Stockholders.
15. Entire Agreement. This Agreement supersedes all prior
discussions and agreements among the parties hereto with respect to the subject
matter hereof, and contains, together with the Registration Rights Agreement,
the sole and entire agreement among the parties hereto with respect to the
subject matter hereof.
16. No Third Party Beneficiary. The terms and provisions of
this Agreement are intended solely for the benefit
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<PAGE> 11
of each party hereto, and it is not the intention of the parties to confer
third-party beneficiary rights upon any other Person.
17. No Assignment; Binding Effect. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned by any parties
hereto without the prior written consent of the other party hereto and any
attempt to do so will be void. Subject to the preceding sentence, this Agreement
is binding upon, inures to the benefit of and is enforceable by the parties
hereto and their respective successors and assigns and legal representatives.
18. Specific Performance; Legal Fees. The parties acknowledge
that money damages are not an adequate remedy for violations of any provision of
this Agreement and that any party may, in such party's sole discretion, apply to
a court of competent jurisdiction for specific performance for injunctive or
such other relief as such court may deem just and proper in order to enforce any
such provision or prevent any violation hereof and, to the extent permitted by
applicable law, each party waives any objection to the imposition of such
relief. The parties hereto agree that, in the event that any party to this
Agreement shall bring any legal action or proceeding to enforce or to seek
damages or other relief arising from an alleged breach of any term or provision
of this Agreement by any other party, the prevailing party in any such action or
proceeding shall be entitled to an award of, and the other party to such action
or proceeding shall pay, the reasonable fees and expenses of legal counsel to
the prevailing party.
19. Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
20. Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (i) such provision will be
fully severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof
and (iii) the remaining provisions of this Agreement will remain in full force
and effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom.
21. Governing Law. Except to the extent that the DGCL is
mandatorily applicable to the rights and obligations of the parties, this
Agreement shall be governed by and construed in accordance with the laws of the
State of New York applicable to a
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<PAGE> 12
contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
22. Consent to Jurisdiction and Service of Process. Each party
hereby irrevocably submits to the exclusive jurisdiction of the United States
District Court for the Southern District of New York or any court of the State
of New York located in the Borough of Manhattan in the City of New York in any
action, suit or proceeding arising in connection with this Agreement, agrees
that any such action, suit or proceeding shall be brought only in such court
(and waives any objection based on forum non conveniens or any other objection
to venue therein to the extent permitted by law), and agrees to delivery of
service of process by any of the methods by which notices may be given pursuant
to Section 13, with such service being deemed given as provided in such Section;
provided, however, that such consent to jurisdiction is solely for the purpose
referred to in this Section 22 and shall not be deemed to be a general
submission to the jurisdiction of said courts or in the State of New York other
than for such purpose. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the other in any other jurisdiction.
23. Counterparts. This Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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<PAGE> 13
IN WITNESS WHEREOF, each party hereto has signed this
Agreement, or caused this Agreement to be signed by its officer thereunto duly
authorized, as of the date first above written.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: __________________________
Name:
Title:
___________________________________
J. B. FUQUA
___________________________________
J. REX FUQUA
FUQUA HOLDINGS - I, L.P.
By: FUQUA HOLDINGS, INC., its
General Partner
By: _____________________
Name: J. Rex Fuqua
Title: President
THE JENNIFER CALHOUN FUQUA TRUST
By: __________________________
Name: J. B. Fuqua
Title: Trustee
THE LAUREN BROOKS FUQUA TRUST
By: __________________________
Name: J. B. Fuqua
Title: Trustee
13
<PAGE> 14
THE J. B. FUQUA FOUNDATION, INC.
By: __________________________
Name: J. B. Fuqua
Title: Chairman, President
14
<PAGE> 15
SCHEDULE I
Company Shares Owned by the Fuqua Family Stockholders
<TABLE>
<CAPTION>
Stockholder Number
----------- ------
<S> <C>
J. B. Fuqua 781,687
J. Rex Fuqua 651,299
Fuqua Holdings - I, L.P. 768,600
The Jennifer Calhoun Fuqua Trust 337,770
The Lauren Brooks Fuqua Trust 337,768
The J. B. Fuqua Foundation, Inc. 146,366
</TABLE>
<PAGE> 16
EXHIBIT A
Press Release
FOR IMMEDIATE RELEASE Contacts: Andrew A. Giordano
President and Chief
GRAHAM-FIELD HEALTH PRODUCTS, INC. Operating Officer
(516) 582-5900
400 RABRO DRIVE EAST
Richard S. Kolodny
HAUPPAUGE, NEW YORK 11788 Vice President and
General Counsel
(516) 582-5900
GRAHAM-FIELD ANNOUNCES AGREEMENT TO
ALLOW FUQUA FAMILY TO PURCHASE
ADDITIONAL SHARES OF COMMON STOCK OF
GRAHAM-FIELD IN THE OPEN MARKET
HAUPPAUGE, NEW YORK, April 20, 1998 - Graham-Field Health Products, Inc.
(NYSE-GFI), a manufacturer and supplier of healthcare products, today reported
that the Fuqua family has informed the Company that it intends to purchase
additional shares of common stock of Graham-Field in the open market based on
current market prices in an amount not to exceed the greater of 370,000
additional shares of common stock of the Company or such amount which, when
added to the Fuqua family's current holdings, will not exceed 10% of the voting
power of the Company's outstanding stock. Currently, the Fuqua family owns
shares of common stock representing approximately 9% of the voting power of the
Company's outstanding stock. In order to facilitate the Fuqua family's open
market purchases, the Graham-Field Board of Directors has approved termination
of the Stockholders Agreement with the Fuqua family and entry into another
agreement incorporating certain of the provisions of such agreement so as to
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enable the Fuqua family to purchase additional shares in the open market. In
addition, Graham-Field announced that J. Rex Fuqua has resigned from the Board
of Directors.
Irwin Selinger, Chairman of the Board and Chief Executive Officer stated that
"J. Rex Fuqua has decided to leave our Board of Directors in order to give him
more time to pursue his many other interests. We will miss his wisdom and
foresight. I admire and respect J.B. Fuqua and J. Rex Fuqua, and look forward to
their continued participation as major stockholders of Graham-Field. I am
pleased the Fuqua family is interested in increasing their ownership in our
Company."
On December 30, 1997, Graham-Field acquired Fuqua Enterprises, Inc, which
included the medical products business of Lumex, Basic American and Prism, all
leading companies in their respective markets. The Fuqua acquisition has
positioned Graham-Field as one of the leading suppliers of durable medical
products in North America.
Graham-Field maintains distribution and manufacturing facilities throughout
North America. Graham-Field manufactures, markets and distributes more than
45,000 healthcare and rehabilitation products for hospital, long-term care,
assisted living, physician and home use to home healthcare, physician, hospital
supply and pharmaceutical distributors, retailers and wholesalers.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-
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looking statements. This press release contains forward-looking statements based
on current expectations that could be affected by the risks and uncertainties
involved in Graham-Field's business. These risks and uncertainties include, but
are not limited to, the effect of economic and market conditions, the impact of
the consolidation of health care practitioners, the impact of health care
reform, opportunities for acquisitions and Graham-Field's ability to effectively
integrate acquired companies, the acceptance and quality of software products,
the ability to manage operations in foreign markets, possible disruptions in
Graham-Field's computer systems or telephone systems, possible increases in
shipping rates or interruptions in shipping service, the level and volatility of
interest rates and currency values, the impact of current or pending legislation
and regulation, as well as the risks described from time to time in
Graham-Field's reports to the Securities and Exchange Commission, which include
Graham-Field's Annual Report on Form 10-K for the year ended December 31, 1997
and Graham-Field's Registration Statement on Form S-4 dated as of December 19
1997. Any actual purchases of common stock will depend on numerous factors
beyond Graham-Field's control, including market conditions. Subsequent written
or oral statements attributable to Graham-Field or persons acting on its behalf
are expressly qualified in their entirety by the cautionary statements in this
press release and those in Graham-Field's reports previously filed with the
Securities and Exchange Commission.
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