<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
================================================================================
(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 29, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
---------------
TO
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Commission File No.0-12744
SUNRISE MEDICAL INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3836867
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2382 FARADAY AVENUE, SUITE 200
CARLSBAD, CA 92008
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 930-1500
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [_]
--- ---
Number of shares of common stock outstanding at April 30, 1996: 18,839,949
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 29, June 30,
1996 1995
----------- -----------
(unaudited) (restated)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 2,390 $ 1,740
Trade receivables, net 125,226 123,007
Installment receivables, net 17,260 18,549
Inventories 85,014 81,941
Other current assets 30,753 11,865
-------- --------
Total current assets 260,643 237,102
Property, plant and equipment net of
accumulated depreciation of $72,534 and $66,350 85,257 89,133
Goodwill and other intangible assets, net 295,385 270,478
Other assets, net 1,978 1,196
-------- --------
Total assets $643,263 $597,909
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current installments of long-term debt $ 6,742 $ 2,328
Trade accounts payable 40,567 36,096
Accrued compensation and other expenses 87,801 72,485
Income taxes 9,908 1,102
-------- --------
Total current liabilities 145,018 112,011
Long-term debt, less current installments 208,471 182,029
Deferred income taxes 4,931 4,376
Stockholders' equity:
Preferred stock, $1 par. Authorized 5,000 shares; none issued -- --
Common stock, $1 par. Authorized 40,000 shares; 18,826 and
18,597 shares, respectively, issued and outstanding 18,826 18,597
Additional paid-in capital 195,768 189,955
Retained earnings 68,672 86,276
Cumulative foreign currency translation adjustment 1,577 4,665
-------- --------
Total stockholders' equity 284,843 299,493
-------- --------
Total liabilities and stockholders' equity $643,263 $597,909
======== ========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
2
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SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Thirteen Thirty-nine
Weeks Ended Weeks Ended
March 29, March 29,
1996 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Net sales $169,574 $500,456
Cost of sales 113,370 335,395
-------- --------
Gross profit 56,204 165,061
Marketing, selling and administrative expenses 38,739 119,020
Research and development expenses 3,721 11,414
Corporate expenses 2,768 7,385
Amortization of goodwill and other intangibles 2,194 6,458
Unusual items -- 34,771
-------- --------
47,422 179,048
Corporate operating income (loss) 8,782 (13,987)
-------- --------
Other (expenses) income:
Interest expense ( 4,455) (12,121)
Other income and expense, net 553 1,625
-------- --------
( 3,902) (10,496)
-------- --------
Income (loss) before income taxes 4,880 (24,483)
Income taxes (benefit) 2,186 ( 6,879)
-------- --------
Net income (loss) $ 2,694 $(17,604)
======== ========
Net income (loss) per share $ .14 $( .94)
======== ========
Weighted average number of shares outstanding 18,987 18,799
======== ========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
3
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Thirteen Thirty-nine
Weeks Ended Weeks Ended
March 29, March 29,
1996 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,694 $(17,604)
Non-cash items 7,416 25,370
Changes in assets and liabilities, net of effect of acquisitions
Receivables, net 4,714 5,704
Inventories ( 490) 2,599
Other current assets 1,120 (15,594)
Accounts payable and other liabilities ( 4,504) 14,455
-------- --------
Net cash provided by operating activities 10,950 14,930
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment ( 3,525) (15,520)
Proceeds from sale of air therapy rental business net assets 6,004 6,004
Net cash invested in acquisition of businesses -- (23,072)
-------- --------
Net cash provided by (used for) investing activities 2,479 (32,588)
-------- --------
Cash flows from financing activities:
Borrowings of long-term debt 26,300 137,819
Repayments of long-term debt (42,923) (119,670)
Proceeds from issuance of common stock 7 115
-------- --------
Net cash (used for) provided by financing activities (16,616) 18,264
-------- --------
Effect of exchange rate changes on cash 33 44
-------- --------
Net (decrease) increase in cash and cash equivalents ( 3,154) 650
Cash and cash equivalents at beginning of period 5,544 1,740
-------- --------
Cash and cash equivalents at end of period $ 2,390 $ 2,390
======== ========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
4
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The information contained in the consolidated financial statements and footnotes
is condensed from that which would appear in the annual consolidated financial
statements. Accordingly, the condensed consolidated financial statements
included herein should be reviewed in conjunction with the consolidated
financial statements and related notes thereto contained in the Annual Report on
Form 10-K/A Amendment No. 1 for the fiscal year ended June 30, 1995 filed by
Sunrise Medical Inc. (the "company") with the Securities and Exchange
Commission. The unaudited condensed consolidated financial statements as of
March 29, 1996 and for the thirteen-week and thirty-nine week periods then ended
include all adjustments (consisting of normal recurring adjustments and the
unusual items described in Note 3) considered necessary for a fair presentation.
The results of operations for interim periods are not necessarily indicative of
the results which may be expected for the entire year. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
On January 4, 1996 the company reported the results of an internal investigation
into accounting practices at its Bio Clinic subsidiary. The company reported
that it had determined that net sales, operating income and assets at its Bio
Clinic subsidiary had been overstated and liabilities had been understated as a
result of actions by a small group of employees in the subsidiary's finance and
management information systems departments who falsified accounting entries and
computer reports, thereby circumventing the company's internal accounting
controls and avoiding detection. Accordingly, the company has restated its
financial statements for the years ended June 30, 1995 and July 1, 1994. Because
it is not practicable to reconstruct reliable accounting records at its Bio
Clinic subsidiary for interim periods during those years, it is not possible to
allocate accurately to individual quarters the full year restatement adjustments
for any financial statement item other than net sales. Accordingly, no interim
financial statements for the thirteen-week and thirty-nine week periods ended
March 31, 1995 are presented herein and previously reported interim results for
fiscal 1995 should be disregarded.
2. Inventories
Certain inventories are stated at the lower of last-in, first-out (LIFO) cost or
market value. All other inventories are stated at the lower of the first-in,
first-out (FIFO) cost or market value. Inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
March 29, June 30,
1996 1995
--------- --------
<S> <C> <C>
Raw material $33,811 $35,126
Work-in-progress 9,041 8,490
Finished goods 42,162 38,325
------- -------
$85,014 $81,941
======= =======
</TABLE>
Interim period inventory classifications involve a degree of estimation due to
the timing of physical inventories throughout the fiscal year.
5
<PAGE>
3. Unusual Items
During the quarter ended December 29, 1995, the company recorded pre-tax charges
of $34.8 million. These charges include: $13.1 million for costs of the
internal investigation, restatement, and reissuance of historical financial
statements and the estimated attorneys' fees associated with defending related
litigation; $10.7 million for the write-down of assets at Bio Clinic and Comfort
Clinic to reflect revised estimates of net asset realizations, including
goodwill associated with the company's air therapy rental business (and
including immaterial items related to periods prior to fiscal 1994); and $11.0
million related to the company's reorganization and cost reduction program,
including severance costs, facility closing costs, and write-downs associated
with discontinuance of low-volume products.
4. Acquisitions
On July 19, 1995 the company acquired Coopers Healthcare Plc, a United Kingdom-
based manufacturer of patient aids, for 222,266 shares of its common stock
(valued at $5.8 million) and cash of $2.5 million. On October 6, 1995 the
company acquired Parker Bath Group, a U.K. manufacturer and distributor of
bathing systems and patient lifters, for cash and notes amounting to $30.2
million. These transactions have been accounted for as purchases. Pro forma
results of operations, assuming the acquisitions had been made at the beginning
of fiscal 1996, would not be materially different from the results reported.
5. Contingencies
Following the announcement by the company on October 26, 1995 of its internal
investigation into accounting practices at its Bio Clinic Corporation subsidiary
(see Note 1), the company and certain of its current and former officers,
directors and employees were named as defendants in a number of stockholder
class action lawsuits, each alleging violations of the federal securities laws
and seeking unspecified damages. These lawsuits have been consolidated in a
single action filed in the U.S. District Court for the Southern District of
California. In addition, a number of derivative actions seeking unspecified
damages have been filed against the company and certain of its current and
former officers, directors and employees in California and Delaware state
courts. The company is vigorously defending this litigation.
The Securities and Exchange Commission (the "SEC") has entered a formal order of
private investigation into the circumstances underlying the restatement of the
company's 1995 and 1994 financial results. The company is cooperating fully
with the SEC in its investigation.
6
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the first three quarters of fiscal 1995 were not affected by the
restatement described in Note 1 of Notes to Condensed Consolidated Financial
Statements. However, it is not practicable to determine the effect on other
items in the company's consolidated financial statements for those periods (see
Note 1). The quarterly trend in net sales may not be indicative of any similar
trend with respect to other aspects of the company's consolidated financial
statements. Accordingly, the following discussion involves only limited
quarterly comparisons, and includes comparisons of profit contribution for all
divisions of the company other than the two divisions (Bio Clinic and Comfort
Clinic) affected by the restatement. Profit contribution is an internal
measurement used by the company to measure divisional, product line and group
performance; it does not include any allocations of unusual items, corporate
office expense, goodwill amortization, interest, or income taxes.
Thirteen Weeks ended March 29, 1996
- -----------------------------------
Net sales for the third quarter of fiscal 1996 were $169.6 million, an increase
of 14% over net sales of $148.6 million in the third quarter of fiscal 1995. The
company's base business accounted for 1% of the sales growth and acquisitions
contributed 13% to the sales increase.
Net sales of support surfaces (Bio Clinic and Comfort Clinic) were $19.2 million
during the third quarter, a decline of 36% from last year's level of $29.9
million. Their combined loss (based on profit contribution) decreased to $2.9
million from $6.1 million in the second quarter of fiscal 1996, reflecting the
impact of the profit improvement program implemented at the end of the second
quarter.
The company's other operating divisions, exclusive of the support surfaces
business, had sales growth of 27% to $150.4 million in the third quarter of
fiscal 1996, from $118.7 million in the comparable quarter last year. Internal
growth represented 10% and acquisitions added 17%. Profit contribution,
exclusive of support surfaces, was $16.6 million, 9% higher than the third
quarter of last year. This increase occurred despite $1.7 million in increased
expenses associated with the launch in February 1996 of SunMed Service (SMS).
SMS is integrating the order entry, customer service and delivery functions for
standard products from all U.S. manufacturing divisions. Through its new
national network of eight distribution centers, SMS will improve service levels
for both large national accounts and independent homecare providers. Once all
U.S. divisions are distributing standard products through SMS, scheduled for
June 1996, revenue benefits should begin to offset the incremental expense
of this new customer service capability.
During the third quarter of fiscal 1996, net sales of Rehabilitation Products
were $86.2 million, an increase of 13% compared to net sales of $76.0 million in
the prior year's third quarter. Wheelchair sales showed continued strong growth
in
7
<PAGE>
Europe. Patient aids sales grew from last year on the positive impact of
Coopers, a U.K. ambulatory aids manufacturer acquired in July 1995. The group
profit contribution increased in line with sales growth in the third quarter
compared to the same period of fiscal 1995.
Respiratory Products net sales were $34.1 million in the third quarter of 1996,
an increase of 5% over sales of $32.3 million in the third quarter of fiscal
1995. Product demand in the United States continued to be negatively influenced
by Congressional actions intended to cut the Medicare reimbursement rate for
oxygen equipment. However, respiratory sales in Europe continued to grow. The
group's profit contribution in the third quarter declined slightly from the
prior year, as the impact of pressure on domestic prices and gross margins was
substantially offset by international growth.
Recovery Products net sales for the thirteen weeks ended March 29, 1996 were
$49.3 million compared to $40.3 million in the comparable fiscal 1995 period, an
increase of 22%. Excluding support surfaces, this group's third quarter net
sales of $30.1 million grew 191% from $10.4 million in the same period last
year. The related profit contribution growth rate was even greater. Both net
sales and profit contribution were positively impacted by recent acquisitions;
the group's results now include those of Corona, a French bed manufacturer, and
Parker Bath, a U.K. institutional bathing and lifting products company, acquired
in April and October 1995, respectively.
Interest expense for the quarter was $4.5 million. The average amount borrowed
increased compared to the prior year period as a result of additional debt used
to finance acquisitions made in the previous 12 months. During the third
quarter, the company paid down $17 million in long-term debt by generating $11
million from operating activities (including a tax refund of $5 million received
during the quarter relating to the company's amended U.S. federal income tax
return for 1995) and $6 million in cash proceeds from the sale of the air
therapy rental business.
The company's effective tax rate for the third quarter of fiscal year 1996 was
44.8%. The net income for the quarter was $2.7 million or $.14 per share.
Thirty-Nine Weeks ended March 29, 1996
- --------------------------------------
Net sales for the thirty-nine week period ended March 29, 1996 were $500.5
million, an increase of 15% over net sales of $436.1 million in the
corresponding period of fiscal 1995. Acquired businesses accounted for 13% of
the total increase in net sales, while base business growth contributed 1% and
foreign currency translation added 1%.
Net sales of support surfaces were $65.0 million in the first nine months of
fiscal 1996 compared to $94.4 million in the comparable period of 1995. This
business incurred a loss of $11.6 million at the division contribution level
during the same 1996 period. This loss was due primarily to the impact of
escalating raw material costs which were not matched by price increases
initiated during the third quarter. Sales of the company's other operating
divisions, exclusive of support surfaces, grew 27%, increasing to $435.5 million
in the 1996 period from $341.7 million in the first thirty-nine weeks of fiscal
1995. Internal growth was 9%, while acquisitions and foreign currency
translation contributed 16 and 2 percentage points, respectively, to the total
sales growth. The profit contribution of these other divisions was $46.3 million
or 10% higher when compared to $42.0 million in the prior year period.
Sales of Rehabilitation Products were $263.6 million, an increase of 20%
compared to net sales of $218.8 million in the first nine months of fiscal 1995.
Wheelchair sales grew nicely on strong European demand. Patient aids sales were
positively affected by the inclusion of Coopers,
8
<PAGE>
a U.K. business acquired in July 1995. Profit contribution from Rehabilitation
Products increased in the first nine months of fiscal 1996 compared to the same
period of fiscal 1995, but at a slightly lower rate than the increase in sales.
Respiratory Products sales were $93.3 million in the first thirty-nine weeks of
1996, an increase of 3% over sales of $90.9 million in the corresponding period
of fiscal 1995. Product demand in the United States was weak, attributable
primarily to uncertainty as to Medicare reimbursement rates for oxygen
equipment. However, this weakness was partially offset by continued sales growth
in Europe. This group's profit contribution declined compared to the prior year
period as a result of increasing pressure on domestic pricing.
Recovery Products sales increased by 14% to $143.6 million in the first nine
months of fiscal 1996 from $126.4 million in the same period of fiscal 1995.
Significantly lower sales at Bio Clinic and Comfort Clinic were more than offset
by the strong growth in the bed and bath divisions. The latter growth reflects
the positive impact of Corona, acquired in April 1995, and Parker Bath, acquired
in October 1995, as well as solid internal growth. Excluding support surfaces,
the group's profit contribution growth rate was greater than the sales growth
rate.
In December 1995 the company completed an intensive review of its operations and
businesses and initiated Operation Rebound, a corporate-wide profit improvement
plan. This plan involved four major elements: the consolidation of the company's
U.S. sales forces from twelve to six; the integration of a number of the
company's smaller divisions operating within the same country or market; the
establishment of profit improvement programs at all divisions; and the sale of
Bio Clinic's air therapy rental business.
Related to the actions discussed above, the company recorded pretax charges from
unusual items of $34.8 million in the second quarter of fiscal 1996. These
charges include: $13.1 million for costs of the internal investigation,
restatement, and reissuance of historical financial statements and the estimated
attorneys' fees associated with defending related litigation; $10.7 million for
the write-down of assets at Bio Clinic and Comfort Clinic to reflect revised
estimates of net asset realizations, including goodwill associated with the
company's air therapy rental business (and including immaterial items related to
periods prior to fiscal 1994); and $11.0 million related to the company's
reorganization and cost reduction program, including severance costs, facility
closing costs, and product line discontinuance expenses. Of the total charges of
$34.8 million, approximately $21.3 million will require cash payments ($11.3
million of which was paid out during the period and $10.0 million of which is
expected to be paid primarily before fiscal year end), while $13.5 million
represent non-cash charges.
Interest expense for the thirty-nine week period was $12.1 million. The
average amount borrowed increased compared to the corresponding period in fiscal
1995 as a result of additional debt used to finance recent acquisitions.
For the period the company recognized a tax benefit at an effective tax rate of
only 28% due to nondeductible goodwill comprising a relatively large portion of
the loss before income taxes.
As a result of the unusual items, the company incurred a loss before income
taxes of $24.5 million in the first nine months of fiscal 1996. The net loss
for the period was $17.6 million or $.94 per share. Before unusual items, net
income was $4.6 million or $.24 per share during this same period.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1996, the company's working capital
decreased by $9.5 million to $115.6 million, primarily as a result of accruals
for the portion of unusual charges requiring future cash payments. Net cash
generated by operating activities reached $14.9 million in the first nine months
of fiscal 1996, funding capital expenditures, net of disposals, of $9.5 million
during this period. Capital expenditures were made primarily for new product
tooling, building improvements, machinery and other equipment to improve
efficiency or to expand capacity. Net cash used in the purchase of two
businesses was $23.1 million. This amount was financed by additional borrowings
under the company's bank credit facility and free cash flow.
On May 2, 1996 the company amended its five and one-half year multi-currency
bank credit facility. The amended credit facility provides for maximum
borrowings of $250 million, and requires the company to comply with certain
amended covenants such as maintenance of leverage ratio, tangible net worth,
interest coverage and certain restrictions on acquisitions.
IMPACT OF INFLATION
The company attempts to minimize or offset the impact of inflationary pressures
on labor and raw materials costs through increased sales volume, improved
productivity and active cost control measures. The company believes that
inflationary material cost increases may continue and that the markets in which
it sells its products will remain price-sensitive, thereby limiting its ability
to offset higher costs with pricing actions.
FORWARD-LOOKING STATEMENTS
Any statements contained in this Form 10-Q which are not historical facts are
forward-looking statements that involve risks and uncertainties. The company
wishes to caution the reader that forward-looking statements, such as the future
impact of SunMed Service on company profitability, are only predictions; actual
events or results may differ materially as a result of risks facing the company.
These risks include, but are not limited to: the impact of competitive products
and pricing pressures; the costs of raw materials; future product demand and
market acceptance risks; the effect of economic conditions in the U.S. and
abroad; product development, commercialization and technological difficulties;
shifts in industry distribution channels; acceleration of the current trend of
consolidation of the company's customer base; governmental regulation of medical
device design and manufacturing (such as by the F.D.A. in the U.S.); and other
risks referenced in this and other Securities and Exchange Commission filings of
the company.
10
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Description
------ -----------
3.1 Amendment to Bylaws to reduce the number of directors to eight.
10.1 Amended and Restated Stock Option Plan for Key Associates.
(Incorporated herein by reference to the 1990 Definitive Proxy
Statement of the company)
10.2 1993 Stock Option Plan. (Incorporated herein by reference to the 1993
Definitive Proxy Statement of the company)
10.3 Management Incentive Bonus Plan. (Incorporated herein by reference to
the company's Registration Statement No. 2-86314 filed with the
Securities and Exchange Commission)
10.4 Special Bonus Plan. (Incorporated herein by reference to the
company's fiscal 1992 Form 10-K)
10.5 First Amended and Restated Credit Agreement dated as of September 29,
1995 among Sunrise Medical Inc. and certain subsidiary borrowers and
guarantors, Bank of America as agent and other lenders. (Incorporated
herein by reference to the company's Form 10-K/A for the year ended
June 30, 1995)
10.6 First Amendment to Second Amended and Restated Credit Agreement and
Waiver dated as of May 2, 1996 among Sunrise Medical Inc. and certain
subsidiary borrowers and guarantors, Bank of America as agent and
other lenders.
27 Financial Data Schedule.
(b) Reports on Form 8-K
On January 4, 1996, the company filed a Current Report on Form 8-K relating to a
press release announcing the results of an internal investigation into financial
reporting irregularities at one of its subsidiaries and discussing other
corporate developments.
11
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SUNRISE MEDICAL INC. AND SUBSIDIARIES
SIGNATURES
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.
SUNRISE MEDICAL INC.
Date: May 10, 1996 /s/ Ted N. Tarbet
-------------------------------------
Ted N. Tarbet
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 10, 1996 /s/ John M. Radak
-------------------------------------
John M. Radak
Vice President and Controller
(Principal Accounting Officer)
12
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EXHIBIT 3.1
Resolutions Adopted at the January 30, 1996 Meeting of the
Board of Directors of Sunrise Medical, Inc.
Exhibit A
---------
BD1996.19 AMENDMENT TO THE BY-LAWS
------------------------
RESOLVED, that the first sentence of Article III, Section 1 be amended
to read:
"The number of directors which shall constitute the whole Board shall
be eight (8)."
<PAGE>
EXHIBIT 10.6
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT AND WAIVER
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AND WAIVER (this "First Amendment") is made and dated as of May 2, 1996, among
SUNRISE MEDICAL, INC., a Delaware corporation (the "Borrower"), the subsidiaries
of Borrower signatory hereto as "Subsidiary Borrowers" or "Guarantors", the
lenders (the "Lenders") party to the Second Amended and Restated Credit
Agreement referred to below, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent (the "Agent") and amends that certain Second Amended and
Restated Credit Agreement dated as of September 29, 1995 among the parties
hereto (the "Agreement").
RECITALS
--------
A. By letter dated April 25, 1996, the Borrower requested that the
Total Commitment be reduced by $25,000,000 to $250,000,000, effective upon the
effectiveness of this First Amendment and, pursuant to Section 2.10(a) of the
Agreement, requested that such reduction be applied towards the scheduled
reductions of the Total Commitment required by Section 2.10(b) in order of
occurrence.
B. The Borrower has requested that the Lenders agree to amend certain
covenants in the Agreement and to waive prior defaults under other covenants,
and the Lenders and the Agent are willing to agree thereto on the terms and
conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All terms used herein shall have the same meanings as in
-----
the Agreement unless otherwise defined herein. All references to the Agreement
herein, in the Agreement, in the Notes and in any other Loan Documents shall
mean the Agreement as hereby amended.
2. Amendments to Agreement. The Loan Parties, the Lenders and the
-----------------------
Agent hereby agree that the Agreement is amended as follows:
2.1 The definition of "Amortization Date" in Section 1.01 of the
Agreement is amended and restated in its entirety as follows:
- 1 -
<PAGE>
"'Amortization Date' means, subject to Section 2.10(b),
-----------------
July 15, 1997, January 15, 1999 and January 15 of each year
thereafter."
2.2 The chart in the definition of "Applicable Margin" in Section
1.01 of the Agreement is amended and restated in its entirety as follows:
<TABLE>
<CAPTION>
Eurocurrency
Rate Advance Base Rate Commit-
Margin and LC Advance ment
Leverage Ratio Fee Margin Fee
- --------------------------- -------------- ---------- --------
<S> <C> <C> <C>
greater than 1.75:1 0.450% 0.000% 0.150
less than 1.75:1 but greater than 2.25:1 0.550 0.000 0.175
less than 2.25:1 but greater than 2.75:1 0.625 0.000 0.200
less than 2.75:1 but greater than 3.25:1 0.750 0.000 0.250
less than 3.25:1 but greater than 3.50:1 1.000 0.000 0.300
</TABLE>
2.3 The definition of "Applicable Margin" in Section 1.01 of the
Agreement is further amended by inserting the following at the end thereof
before the period:
"provided, however, for the period from the First Amendment Closing
-------- -------
Date until Agent's receipt of the Compliance Certificate for the
Fiscal Quarter ending December 27, 1996, the Applicable Margin for
Eurocurrency Rate Advances and fees for Standby Letters of Credit
shall be 1.25% per annum, the Applicable Margin for Base Rate Advances
shall be 0% and the Applicable Margin for the Commitment fee shall be
0.375% per annum."
2.4 The definition of "Consolidated Tangible Net Worth" in Section
1.01 of the Agreement is amended and restated in its entirety as follows:
"'Consolidated Tangible Net Worth' means, as of any date of
-------------------------------
determination, Shareholders' Equity of the Borrower and its
Subsidiaries on that date, excluding the cumulative translation
---------
adjustment reported for each applicable Fiscal Quarter, commencing
with the Fiscal Quarter ending March 29, 1996, minus the Adjusted
-----
Dollar Equivalent of any Intangible Assets of Borrower and its
Subsidiaries on that date."
2.5 The definition of "Interest Coverage Ratio" in Section 1.01 of
the Agreement is amended by inserting the following at the end before the
period:
"; provided, however, that for purposes of calculating the Interest
-------- -------
Coverage Ratio, all components of Adjusted
- 2 -
<PAGE>
Cash Flow and the Interest Charges component of Debt Service for the
Fiscal Quarters ending March 29, 1996, June 28, 1996 and September 27,
1996 shall be annualized using the following conventions: (i) with
respect to the Fiscal Quarter ending on March 29, 1996, Adjusted Cash
Flow and Interest Charges for the Fiscal Quarter ending March 29, 1996
only shall be used and then multiplied by four, (ii) with respect to
the Fiscal Quarter ending on June 28, 1996, Adjusted Cash Flow and
Interest Charges for the Fiscal Quarters ending on March 29, 1996 and
June 28, 1996 only shall be used and then multiplied by two, and (iii)
with respect to the fiscal period ending on September 27, 1996,
Adjusted Cash Flow and Interest Charges for the Fiscal Quarters ending
on March 29, 1996, June 28, 1996 and September 27, 1996 only shall be
used and then multiplied by four-thirds."
2.6 The definition of "Leverage Ratio" in Section 1.01 of the
Agreement is amended by inserting the following at the end before the period:
"; provided, however, that for purposes of calculating the Leverage
-------- -------
Ratio, Consolidated EBITDA for the Fiscal Quarters ending March 29,
1996, June 28, 1996 and September 27, 1996 shall be annualized using
the following conventions: (i) with respect to the Fiscal Quarter
ending on March 29, 1996, Consolidated EBITDA for the Fiscal Quarter
ending March 29, 1996 only shall be used and then multiplied by four,
(ii) with respect to the Fiscal Quarter ending on June 28, 1996,
Consolidated EBITDA for the Fiscal Quarters ending on March 29, 1996
and June 28, 1996 only shall be used and then multiplied by two, and
(iii) with respect to the fiscal period ending on September 27, 1996,
Consolidated EBITDA for the Fiscal Quarters ending on March 29, 1996,
June 28, 1996 and September 27, 1996 only shall be used and then
multiplied by four-thirds."
2.7 The following new definitions are inserted in Section 1.01 of the
Agreement in proper alphabetical order as follows:
"'Adjusted Dollar Equivalent' means, with respect to Intangible
--------------------------
Assets acquired in Acquisitions completed on or prior to December 29,
1995, the Dollar equivalent of such assets utilized by the Company in
its books and records as of December 29, 1995; and, with respect to
Intangible Assets acquired in Acquisitions completed after December
29, 1995, the Dollar equivalent of such assets utilized by the Company
in its books and records as of the date such Intangible Asset was
acquired. In
- 3 -
<PAGE>
each case, for purposes of this Agreement, no subsequent adjustments
shall be made to the Dollar equivalent of Intangible Assets as a
result of subsequent fluctuations in foreign currency exchange rates
used to translate Intangible Assets denominated in foreign
currencies."
"'First Amendment Closing Date' means the date the First
----------------------------
Amendment to Second Amended and Restated Credit Agreement and Waiver
is declared effective by the Agent."
"'Permitted Acquisitions' means Acquisitions of the stock or
----------------------
assets of a Person engaged in business of the same general type as
that of the Borrower and its Subsidiaries (a) which do not violate
Section 7.04 and (b) with respect to which no Default or Event of
Default exists before and after giving effect thereto."
2.8 Section 1.05(b) of the Agreement is amended by deleting the
second sentence in its entirety.
2.9 Section 2.07(a) of the Agreement is amended by inserting the
following at the end thereof:
"provided, further, that no Bid Borrowings may be requested nor be
--------
available prior to the Agent's receipt of the financial statements and
the Compliance Certificate for the Fiscal Quarter ended December 27,
1996 as required by Sections 6.01(a) and (l)."
2.10 Section 2.10(c) of the Agreement is amended by deleting "October
14, commencing October 14, 1996, nor later than November 14" and inserting
"March 14, commencing March 14, 1996, nor later than April 15" in lieu thereof.
2.11 Section 5.05 of the Agreement is amended by inserting "as
restated February 21, 1996" after "Such financial statements" in the second
sentence.
2.12 Section 7.03 of the Agreement is amended by deleting "and" at the
end of subsection (d), and amending and restating subsection (e) and the last
paragraph as three new subsections as follows:
"(e) Acquisitions of Parker Bath Company Ltd. and its
Subsidiaries, and Coopers Health Care PLC and its Subsidiaries;
"(f) Permitted Acquisitions where the purchase price paid
therefor, and the Indebtedness assumed therein, do not exceed
$7,000,000 in the aggregate; and
- 4 -
<PAGE>
"(g) Additional Permitted Acquisitions, where:
(i) the purchase price paid for, and the Indebtedness
assumed in, all such Permitted Acquisitions during any
calendar year, do not exceed 12.5% of Shareholders' Equity
calculated as of the end of the most recently ended Fiscal
Quarter (adjusted to exclude the effect of all such
Permitted Acquisitions completed during such calendar year);
and
(ii) after giving effect to all Permitted Acquisitions
in any Fiscal Quarter:
(A) the Leverage Ratio, calculated as of the end
of the most recently ended Fiscal Quarter (adjusted to
include all Consolidated Funded Indebtedness incurred
in any completed Permitted Acquisitions since the most
recently ended Fiscal Quarter), shall be less than 3.25
to 1.00; and
(B) Consolidated Tangible Net Worth, calculated as
of the end of the most recently ended Fiscal Quarter
(adjusted to include the Adjusted Dollar Equivalent of
all Intangible Assets acquired in any completed
Permitted Acquisitions since the most recently ended
Fiscal Quarter) shall exceed $5,000,000;
provided, further, that no Permitted Acquisitions shall be made
-------- -------
pursuant to this subsection (g) prior to the Agent's receipt of
the financial statements and the Compliance Certificate for the
Fiscal Quarter ended December 27, 1996 as required by Sections
6.01(a) and (l)."
2.13 Section 7.06(e) of the Agreement is amended and restated in its
entirety as follows:
"(e) Other Liens securing Indebtedness not exceeding 10% of
Shareholders' Equity at any time."
2.14 Sections 7.09, 7.10 and 7.11 of the Agreement are amended and
restated in their entirety as follows:
"SECTION 7.09 Leverage Ratio. Commencing with the Fiscal
--------------
Quarter ending March 29, 1996, permit the
- 5 -
<PAGE>
Leverage Ratio, as of the end of any Fiscal Quarter, to exceed the
following ratio:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Maximum Ratio
--------------------- -------------
<S> <C>
3/29/96 3.65 to 1.00
6/28/96 through 3/28/97 3.50 to 1.00
6/27/97 and thereafter 3.25 to 1.00
</TABLE>
"SECTION 7.10 Minimum Consolidated Tangible Net Worth. Permit
---------------------------------------
at the end of any Fiscal Quarter Consolidated Tangible Net Worth to be
less than (a) -$19,000,000 plus (b) 50% of Consolidated Net Income for
----
each fiscal quarter ending after December 29, 1995 (not to be reduced
by any losses incurred) plus (c) 50% of the net proceeds from the
----
issuance of any equity securities of the Borrower after December 29,
1995 less (d) 50% of the Adjusted Dollar Equivalent of Intangible
----
Assets related to Acquisitions completed after December 27, 1996.
"SECTION 7.11 Interest Coverage Ratio. Permit the Interest
-----------------------
Coverage Ratio, as of the end of any Fiscal Quarter, to be less than
1.75 to 1.00."
2.15 Section 7.14 of the Agreement is amended by amending and
restating subsection (a) in its entirety as follows:
"(a) Restricted Junior Payments that in the aggregate do not
exceed, during any 12-month period, an amount equal to the lesser of
(i) 10% of Shareholders' Equity calculated as of the end of the most
recently ended Fiscal Quarter and (ii) 50% of Consolidated Net Income
during such period; provided, however, that after giving effect to
-------- -------
such Restricted Junior Payment (a) the Leverage Ratio, calculated as
of the end of the most recently ended Fiscal Quarter (adjusted to give
effect to such Restricted Junior Payment) shall be less than 3.25 to
1.00, and (b) no Default or Event of Default shall exist; provided,
--------
further, that no Restricted Junior Payments shall be made pursuant to
-------
this subsection (a) prior to the Agent's receipt of the financial
statements and the Compliance Certificate for the Fiscal Quarter ended
December 27, 1996 as required by Sections 6.01(a) and (l)."
2.16 Schedule 1.01(b) to the Agreement is amended and restated in its
entirety as set forth in Schedule 1.01(b) to this First Amendment.
- 6 -
<PAGE>
2.17 Exhibit I (Compliance Certificate) to the Agreement is amended
and restated in its entirety as set forth in Exhibit I to this First Amendment.
3. Certain Waivers. The Lenders and the Agent hereby waive any
---------------
Defaults or Events of Default that may have occurred under Sections 4.02(i) of
the Agreement, by reason of its reference to Borrower representing and
warranting that Section 5.05 of the Agreement was true and correct at each
Borrowing, and Sections 7.09, 7.10 and 7.11 of the Agreement on or prior to the
date hereof. For all purposes of the Agreement, (i) the adjustments to the
Borrower's financial statements for the fiscal periods ended June 30, 1995,
September 29, 1995 and December 29, 1995 shall not be deemed to constitute a
Material Adverse Effect, and (ii) certain shareholder litigation disclosed to
the Agent and the Lenders prior to the date hereof shall not be deemed to have
resulted in an Material Adverse Effect to the date hereof based on the current
status of such litigation.
4. Representations and Warranties. Each of the Loan Parties
------------------------------
represent and warrant to Lenders and Agent:
4.1 Authorization. The execution, delivery and performance of this
-------------
First Amendment have been duly authorized by all necessary corporate action by
each of them and has been duly executed and delivered by each of them.
4.2 Binding Obligation. This First Amendment is the legally valid
------------------
and binding obligation of each Loan Party, enforceable in accordance with its
terms against each of them respectively, except as such enforcement may be
limited by Debtor Relief Laws or equitable principles relating to the granting
of specific performance and other equitable remedies as a matter of judicial
discretion.
4.3 No Legal Obstacle to Agreement. Neither the execution of this
------------------------------
First Amendment, the making by any Borrower of any borrowing under the
Agreement, nor the performance of the Agreement has constituted or resulted in
or will constitute or result in a breach of the provisions of any Contractual
Obligation to which any Loan Party is a party, or the violation of any
Requirement of Law, or result in the creation under any agreement or instrument
of any security interest, lien, charge, or encumbrance upon any of the assets of
any of them. No approval or authorization of any Governmental Agency is
required by any Loan Party to permit the execution, delivery or performance by
any Loan Party of this First Amendment, the Agreement, or the transactions
contemplated hereby or thereby, or the making of any borrowing under the
Agreement.
- 7 -
<PAGE>
4.4 Incorporation of Certain Representations. The representations
----------------------------------------
and warranties set forth in Article 5 of the Agreement, as amended hereby, are
true and correct in all material respects on and as of the date hereof as though
made on and as of the date hereof except to the extent any such representation
or warranty is made as of any other date. As of the First Amendment Closing
Date, and after giving effect to this First Amendment, no event or circumstance
has occurred since June 30, 1995 that constitutes a Material Adverse Effect, it
being understood that certain shareholder litigation disclosed to the Agent and
the Lenders prior to the date hereof shall not be deemed to have resulted in an
Material Adverse Effect to the date hereof based on the current status of such
litigation.
4.5 Default. Except as waived herein, no Event of Default under the
-------
Agreement has occurred and is continuing.
5. Conditions, Effectiveness. The effectiveness of this First
-------------------------
Amendment shall be subject to the delivery of the following to the Agent in form
and substance satisfactory to the Agent:
5.1 Corporate Resolutions. A copy of a resolution or resolutions
---------------------
passed by the Board of Directors of Borrower authorizing the amendments to the
Agreement herein provided for, certified by the respective Secretary or an
Assistant Secretary of such entity as being in full force and effect on the date
hereof.
5.2 Authorized Signatories. A certificate, signed by a Senior
----------------------
Officer of Borrower dated the date hereof, as to the incumbency of the person or
persons authorized to execute and deliver this First Amendment and any
instrument or agreement required hereunder on behalf of such entity.
5.3 Fees. An amendment fee equal to 0.20% of the Total Commitment,
----
after giving effect to the reduction in the Total Commitment provided for in
Section 6.1 of this First Amendment, for the benefit of each Lender in
accordance with its Pro Rata Share, and an arrangement fee for the sole use and
benefit of Bank of America and Arranger in an amount agreed upon by the
Borrower, Bank of America and Arranger.
5.4 Other Evidence. Such other evidence with respect to any Loan
--------------
Party or any other person as the Agent or any Lender may reasonably request to
establish the consummation of the transactions contemplated hereby, the taking
of all corporate action in connection with this First Amendment and the
Agreement and the compliance with the conditions set forth herein.
- 8 -
<PAGE>
6. Miscellaneous.
-------------
6.1 Reduction in Total Commitment. As requested by Borrower in its
-----------------------------
letter dated April 25, 1996 to the Agent, the Total Commitment is reduced to
$250,000,000 effective as of the date hereof, and the revised Commitment of each
Lender is set forth in the amended and restated Schedule 1.01(b) attached
hereto. As directed by the Borrower, such reduction shall be applied towards
the scheduled reductions of the Total Commitment required by Section 2.10(b) of
the Agreement in order of occurrence.
6.2 Effectiveness of the Agreement and Notes. Except as hereby
----------------------------------------
expressly amended, the Agreement and the Notes shall remain in full force and
effect, and are hereby ratified and confirmed in all respects.
6.3 Waivers. This First Amendment is specific in time and in intent
-------
and does not constitute, nor should it be construed as, a waiver of any other
right, power or privilege under the Agreement or the Notes, or under any
agreement, contract, indenture, document or instrument mentioned in the
Agreement; nor does it preclude any exercise thereof or the exercise of any
other right, power or privilege, nor shall any future waiver of any right,
power, privilege or default hereunder, or under any agreement, contract,
indenture, document or instrument mentioned in the Agreement or the Notes,
constitute a waiver of any other default of the same or of any other term or
provision. This First Amendment supersedes all prior waivers and agreements.
6.4 Counterparts. This First Amendment may be executed in any number
------------
of counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument. This First Amendment shall not become
effective until each Loan Party, the Lenders and the Agent shall have signed a
copy hereof, whether the same or counterparts, and the same shall have been
delivered to the Agent.
6.5 Jurisdiction. This First Amendment, and any instrument or
------------
agreement required hereunder, shall be governed by and construed under the laws
of the State of California.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered as of the date first written above.
SUNRISE MEDICAL, INC.
By: __________________________
Ted N. Tarbet
Senior Vice President
and Chief Financial
Officer
BIO CLINIC CORPORATION
DEVILBISS HEALTH CARE, INC.
GUARDIAN PRODUCTS, INC.
JAY MEDICAL LTD.
JOERNS HEALTHCARE, INC.
QUICKIE DESIGNS, INC.
SUNMED FINANCE, INC.
SUNMED SERVICE, INC.
SUNRISE MARIN HOLDINGS, INC.
By: __________________________
Ted N. Tarbet
Treasurer
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent
By: __________________________
Charles Graber
Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Lender
By: __________________________
Gina West
Vice President
(Signatures continue)
- 10 -
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By: __________________________
Name: ________________________
Title: _______________________
ABN AMRO BANK, Los Angeles
International Branch
By: __________________________
Name: ________________________
Title: _______________________
UNION BANK
By: __________________________
Name: ________________________
Title: _______________________
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: __________________________
Name: ________________________
Title: _______________________
DEUTSCHE BANK AG, Los Angeles
Branch and/or Cayman Islands Branch
By: __________________________
Name: ________________________
Title: _______________________
By: __________________________
Name: ________________________
Title: _______________________
PNC BANK, N.A.
By: __________________________
Name: ________________________
Title: _______________________
- 11 -
<PAGE>
SCHEDULE 1.01(B)
Commitment and Pro Rata Share
-----------------------------
<TABLE>
<CAPTION>
Lender Commitment Pro Rata Share
------ --------------- --------------
<S> <C> <C>
Bank of America National Trust
and Savings Association $61,363,636.36 24.545454545%
NationsBank of Texas, N.A. 45,454,545.45 18.181818182%
ABN AMRO Bank, N.V. 45,454,545.45 18.181818182%
Union Bank 36,363,636.36 14.545454545%
Deutsche Bank AG 20,454,545.46 8.181818182%
Morgan Guaranty Trust
Company of New York 20,454,545.46 8.181818182%
PNC Bank, N.A. 20,454,545.46 8.181818182%
=============== ===========
$250,000,000 100%
</TABLE>
- 1 -
<PAGE>
EXHIBIT I
---------
COMPLIANCE CERTIFICATE
----------------------
TO: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
Reference is made to that certain Second Amended and Restated Credit
Agreement dated as of September 29, 1995, by and among Sunrise Medical Inc., a
Delaware corporation (the "Borrower"), the Subsidiary Borrowers, the Guarantors,
the Lenders party thereto (the "Lenders"), and Bank of America National Trust
and Savings Association, as Agent for the Lenders (as amended, further restated,
supplemented or otherwise modified from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement and not otherwise defined in this
Compliance Certificate ("Certificate") shall have the meanings assigned thereto
in the Credit Agreement.
This Certificate is delivered in accordance with Section 6.01(l) of the
Credit Agreement.
All balance sheet items are as of the date of the attached financial
statements.
Certain Definitions:
-------------------
"Annualized" means, for each fiscal period indicated below, multiplying the
applicable item for the indicated Test Period by the applicable annualization
factor:
Applicable Test Multiplied by
For Fiscal Period is Fiscal Annualization
Period Ended Quarter(s) Ended Factor
- -------------------- ------------------------- -------------
3/29/96 3/29/96 4
6/28/96 3/29/96, 6/28/96 2
9/27/96 3/29/96, 6/28/96, 9/27/96 4/3
12/27/96 and
Thereafter Subject Period None
"Prior Fiscal Quarter" means the Fiscal Quarter ending before the Fiscal
Quarter or Fiscal Year ending as of the date of the attached financial
statements.
I - 1
<PAGE>
"Subject Period" means the fiscal period consisting of the Fiscal Quarter
ending on the date of the attached financial statements and the three
immediately preceding Fiscal Quarters.
A. COMPLIANCE WITH FINANCIAL COVENANTS
-----------------------------------
Computations showing compliance with Sections 7.03, 7.09, 7.10, 7.11 and
7.14 of the Credit Agreement are as follows:
1. 7.03; Investments and Acquisitions. As of the date of the attached
----------------------------------
financial statements:
A. The following Acquisitions were made during the Fiscal Quarter ending
on the date of the attached financial statements (also list and
indicate Permitted Acquisitions, whenever completed, included in
$7,000,000 basket):
(C)
Purchase
(B) Price/
(A) Completion Indebtedness
Acquisition Date Assumed
----------- ----------- ------------
1. _____________________________ ___________ $___________
2. _____________________________ ___________ ___________
3. _____________________________ ___________ ___________
4. Total for Acquisitions in Fiscal Quarter
(Total of Column C): $___________
5. Prior period Acquisitions since
First Amendment Date: $___________
6. Acquisitions permitted under Section 7.03(g)
(the greater of (i) $0 and (ii)
Lines 4 + 5 less $7,000,000): $
---- ===========
Subsection 1.B below is to be computed only for additional Permitted
Acquisitions permitted under Section 7.03(g) of the Agreement.
B. Leverage Ratio after giving effect to
Acquisitions during Fiscal Quarter:
1. Consolidated Funded Indebtedness as
of end of Prior Fiscal Quarter: $_________
2. Total of Column C in above table: $_________
3. Consolidated Funded Indebtedness after
giving effect to above Acquisitions
(Lines B1 + B2): $_________
I - 2
<PAGE>
4. Consolidated EBITDA for four quarters
ending with the Prior Fiscal Quarter: $_________
5. Adjusted Leverage Ratio
(Line B3 / by Line B4): to 1:00
======
Leverage Ratio for this covenant shall be less
than 3.25 to 1.00
Subsection 1.C below is to be computed only for additional Permitted
Acquisitions permitted under Section 7.03(g) of the Agreement.
C. Consolidated Tangible Net Worth after giving
effect to Acquisitions during Fiscal Quarter:
1. Consolidated Tangible Net Worth as
of end of Prior Fiscal Quarter: $_________
2. Increase in Shareholders' Equity due
to such Acquisitions: $_________
3. Adjusted Dollar Equivalent of
Intangible Assets attributable to such
Acquisitions per Generally
Accepted Accounting Principles: $_________
4. Adjusted Consolidated Tangible Net Worth
(Line C1 plus Line C2 less Line C3): $_________
---- ----
Minimum required Consolidated Tangible Net Worth required for this
covenant: exceed $5,000,000
Subsection 1.D below is to be computed only for additional Permitted
Acquisitions permitted under Section 7.03(g) of the Agreement.
D. The following information relates to Acquisitions made during the
calendar year or portion thereof covered by the attached financial
statements:
1. Shareholders' Equity as of end of Prior
Fiscal Quarter: $_________
2. 12.5% of such Shareholders' Equity
(Line D1 x 12.5%): $_________
3. Aggregate purchase prices and Indebtedness
assumed in Acquisitions completed during
the calendar year to date less (the portion
----
of Acquisitions permitted in Section 7.03(f)
I - 3
<PAGE>
(the $7,000,000 basket) and completed
during the calendar year to date: $_________
Line D2 to exceed Line D3.
Note: No Acquisitions in excess of $7,000,000 permitted prior to Agent's
receipt of financial statements and Compliance Certificate for year ended
December 27, 1996.
2. 7.09; Leverage Ratio. As of the date of the attached financial
--------------------
statements, the Leverage Ratio was ____:1.00, computed as follows:
A. Consolidated Funded Indebtedness:
1. Principal amount of all obligations
and liabilities for borrowed money: $_________
2. Portion of obligations with respect
to capital leases which is capitalized
in the consolidated balance sheet: $_________
3. All Contingent Obligations for Persons
other than Borrower and its Subsidiaries
(without duplication): $_________
4. Consolidated Funded Indebtedness
(Lines A1+A2+A3): $
=========
B. Annualized Consolidated EBITDA:
1. Consolidated Net Income for Test Period: $_________
2. Interest Charges for Test Period: $_________
3. Taxes on Consolidated Net Income
for Test Period: $_________
4. Depreciation and amortization
for Test Period: $_________
5. Consolidated EBITDA for Test Period
(Lines Bl+B2+B3+B4): $
=========
6. Line B5 Annualized: $
=========
C. Leverage Ratio (Line A4 / by Line B6): to 1:00
======
I - 4
<PAGE>
D. Maximum Permitted Leverage Ratio:
Fiscal Quarter Ending Maximum Ratio
--------------------- -------------
3/29/96 3.65 to 1.00
6/28/96 through 3/28/97 3.50 to 1.00
6/27/97 and thereafter 3.25 to 1.00
3. 7.10; Minimum Consolidated Tangible Net Worth.
---------------------------------------------
A. Actual Consolidated Tangible Net Worth:
1. Shareholders' Equity: $_________
2. Cumulative translation adjustment
to Shareholders' Equity reported for
each applicable Fiscal Quarter,
commencing with Fiscal Quarter ending
March 29, 1996: $_________
3. Adjusted Shareholders' Equity
(Line A1 less Line A2): $_________
----
4. Intangible Assets per Generally
Accepted Accounting Principles: $_________
5. Change in translated Dollar value of
Intangible Assets denominated in
foreign currencies as calculated in
accordance with the definition of
"Adjusted Dollar Equivalent": $_________
6. Adjusted Dollar Equivalent of Intangible
Assets (Line A4 less Line A5, if increase;
----
Line A4 + Line A5, if decrease): $_________
7. Consolidated Tangible Net Worth for
covenant (Lines A3 less Line A6): $
---- =========
B. 50% of Consolidated Net Income for each fiscal
quarter ending after December 29, 1995
(no reduction for losses): $_________
C. 50% of the net proceeds from issuance
of equity securities of Borrower
after December 29, 1995: $_________
D. 50% of Adjusted Dollar Equivalent of
Intangible Assets related to Acquisitions
completed after December 27, 1996: $_________
I - 5
<PAGE>
E. Minimum required Consolidated Tangible Net
Worth (Lines B + C less Line D
----
plus -$19,000,000): $_________
----
F. Excess (Deficient) Consolidated Tangible
Net Worth (Line A7 less Line E):
---- $_________
4. 7.11; Interest Coverage Ratio. As of the date of the attached
-----------------------------
financial statements, the Interest Coverage Ratio was _____:1.00, computed as
follows:
A. Adjusted Cash Flow for the Test Period:
1. As computed below: $_________
2. Line 4A.1 Annualized: $
=========
B. Debt Service for Test Period:
1. Interest Charges: $_________
2. Line B.1 Annualized: $_________
3. Current Maturities of Long Term Debt: $_________
4. Debt Service (Line B2+B3): $
=========
C. Interest Coverage Ratio (Line A2 / line B4): :1.00
-------
D. Minimum Requirement: 1.75:1.00
I - 6
<PAGE>
INTEREST COVERAGE RATIO - ADJUSTED CASH FLOW COMPUTATION
--------------------------------------------------------
In the computation of Interest Coverage Ratio, "Adjusted Cash Flow" is
computed as follows, without duplication, and, in the case of depreciation,
amortization, deferred taxes and other non-Cash expenses, including non-Cash
amounts relating to non-recurring charges to the extent that such charges will
not result in future cash outflows, and Interest Charges, in each case only to
the extent deducted from revenues to arrive at Consolidated Net Income for Test
Period:
<TABLE>
<CAPTION>
Most First Second Third
Recent Preceding Preceding Preceding
Fiscal Fiscal Fiscal Fiscal
For Test Period Quarter Quarter/1/ Quarter/1/ Quarter/1/ Total
<S> <C> <C> <C> <C> <C>
Consolidated Net Income $ $
------- ------- ------- ------- -------
plus depreciation and amortization $ $
------- ------- ------- ------- -------
plus deferred taxes $ $
------- ------- ------- ------- -------
plus other non-Cash expenses, $ $
------- ------- ------- ------- -------
including non-Cash amounts relating
to non-recurring charges to the
extent that such charges will not
result in future cash outflows
plus Interest Charges expensed $ $
------- ------- ------- ------- -------
minus Capital Expenditures made by $ $
Borrower or any Subsidiary ------- ------- ------- ------- -------
minus the aggregate dividends made $ $
by Borrower to its shareholders and ------- ------- ------- ------- -------
by any Subsidiary which is not a
wholly-owned subsidiary to its
minority shareholders
equals Adjusted Cash Flow $ $
------- ------- ------- ------- -------
</TABLE>
- ------------------------------------
/1/ See definition of "Annualized" on page one of this Compliance Certificate
to determine whether this quarter's actual results are to be used or subsequent
quarters' results are to be annualized in accordance with the such definition.
I - 7
<PAGE>
5. 7.14; Restricted Junior Payments.
--------------------------------
A. Restricted Junior Payments made during
Subject Period: $_________
B. 10% of Shareholders' Equity
(Line 3A.1 x 10%): $_________
C. 50% of Consolidated Net Income during
Subject Period: $_________
D. Leverage Ratio after giving effect to Restricted
Junior Payments made during Fiscal Quarter:
1. Consolidated Funded Indebtedness as
of end of Prior Fiscal Quarter: $_________
2. Consolidated Funded Indebtedness
incurred to make such Restricted
Junior Payments: $_________
3. Consolidated Funded Indebtedness after
giving effect to Restricted Junior
Payments made during Fiscal Quarter
(Lines D1 + D2): $_________
4. Consolidated EBITDA for Test Period: $_________
5. Adjusted Leverage Ratio
(Line D3 / by Line D4): to 1:00
======
After giving effect to all Restricted Junior Payment during Subject Period: (a)
Line 5A to be less than lesser of (i) Line 5B and (ii) Line 5C and (b) adjusted
Leverage Ratio to be less than 3.25 to 1.00.
Note: No Restricted Junior Payments of above type permitted prior to
Agent's receipt financial statements and compliance certificate for
December 27, 1996.
E. Amount of purchases and redemptions in
clause (c) of Section 7.14: $_________
Maximum Permitted: $200,000
B. PERFORMANCE OF OBLIGATIONS
--------------------------
A review of the activities of Borrower and its Subsidiaries during the
fiscal period covered by the attached financial statements has been made under
my supervision with a view to determining whether during such fiscal period
Borrower and its respective Subsidiaries performed and observed all of their
respective Obligations under the Loan Documents. Except as described in an
attached document (which includes the response
I - 8
<PAGE>
thereto which Borrower has taken or proposes to take) or in an earlier
Compliance Certificate, to the best of my knowledge, as of the date of this
Compliance Certificate there is no Default or Event of Default.
C. NO MATERIAL ADVERSE CHANGE.
--------------------------
To the best of my knowledge, except as described in an attached document or
in an earlier Compliance Certificate, no Material Adverse Effect has occurred
since the date of the most recent Compliance Certificate delivered to the
Lenders.
Dated: ________________, 19___
SUNRISE MEDICAL, INC.
By: ____________________________
Title: ________________________
I - 9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 29, 1996 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 29, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-28-1996
<PERIOD-END> MAR-29-1996
<CASH> 2,390
<SECURITIES> 0
<RECEIVABLES> 152,884
<ALLOWANCES> 10,398
<INVENTORY> 85,014
<CURRENT-ASSETS> 260,643
<PP&E> 157,791
<DEPRECIATION> 72,534
<TOTAL-ASSETS> 643,263
<CURRENT-LIABILITIES> 145,018
<BONDS> 208,471
0
0
<COMMON> 18,826
<OTHER-SE> 266,017
<TOTAL-LIABILITY-AND-EQUITY> 643,263
<SALES> 500,456
<TOTAL-REVENUES> 500,456
<CGS> 335,395
<TOTAL-COSTS> 335,395
<OTHER-EXPENSES> 179,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,121
<INCOME-PRETAX> (24,483)
<INCOME-TAX> (6,879)
<INCOME-CONTINUING> (17,604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,604)
<EPS-PRIMARY> (.94)
<EPS-DILUTED> (.94)
</TABLE>
