<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Amending Part I - Items 1 and 2 and Part 2 - Item 6)
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended December 31, 1997
Commission File No. 0-26288
CONTOUR MEDICAL, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 77-0163521
- ------------------------------ ----------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
6025 Shiloh Road,
Alpharetta, Ga 30005
----------------------------------------
(Address of Principal Executive Offices)
(770) 886-2600
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
There were 8,293,331 shares of the Registrant's $.001 par value Common Stock
outstanding as of December 31, 1997.
<PAGE> 2
CONTOUR MEDICAL, INC.
FORM 10-Q/A
INDEX
Part I: Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
------
<S> <C>
Consolidated Balance Sheets as of December 31, 1997
and June 30, 1997 3-4
Consolidated Statements of Operations for the Six
Months ended December 31, 1997 and 1996 5
Consolidated Statements of Operations for the Three
Months Ended December 31, 1997 and 1996 6
Consolidated Statement of Stockholder's Equity
for the Six Months Ended December 31, 1997 7-8
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1997 and 1996 9-10
Notes to Consolidated Financial Statements 11-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-18
</TABLE>
2
<PAGE> 3
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current:
Cash $ 128,777 $ 311,657
Accounts receivable
Related parties (Note 4) 8,156,936 5,135,189
Trade, net of allowance for bad
debts of $2,923,000 and $2,805,000
at December 31, 1997 and June 30,
1997, respectively. 10,954,452 7,811,635
Inventories 8,525,411 5,130,142
Refundable income taxes 559,209 572,875
Prepaid expenses and other 571,773 237,687
Due from parent (Note 4) 1,031,925 973,164
----------- -----------
Total Current Assets 29,928,483 20,172,349
----------- -----------
Property and Equipment, less
accumulated depreciation (Note 5) 2,603,849 1,492,918
----------- -----------
Other Assets:
Goodwill, net of accumulated
amortization of approximately
$400,000 and $251,000 at
December 31, 1997 and June 30,
1997, respectively 9,960,843 10,109,927
Deposit on equipment 0 311,453
Other 585,803 434,529
----------- -----------
Total Other Assets 10,546,646 10,855,909
----------- -----------
$43,078,978 $32,521,176
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 5,959,335 3,839,548
Accrued expenses 713,987 728,784
Current maturities of long-term
debt (Note 6) 13,607,339 6,079,086
---------- ----------
Total Current Liabilities 20,280,661 10,647,418
Long-term debt, less current
maturities (Note 6) 6,020,150 5,473,841
---------- ----------
Total Liabilities 26,300,811 16,121,259
Stockholders' Equity:
Preferred stock - Series A conver-
tible, $.001 par value, shares
authorized 1,265,000; issued
600,000, outstanding 135,000,
at aggregate liquidation preference 623,414 623,414
Common stock $.001 par - shares
authorized 76,000,000; issued and
outstanding 8,293,331 and 8,127,376
(net of $765 discount) 7,500 7,334
Additional paid-in capital 16,116,667 15,796,188
Retained earnings 30,586 (27,019)
---------- -----------
Total stockholders' equity 16,778,167 16,399,917
$43,078,978 $32,521,176
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended
December 31, December 31,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
SALES TO NON-RELATED PARTIES $21,243,689 $22,967,078
SALES TO RELATED PARTIES 5,827,045 2,948,238
----------- -----------
27,070,734 25,915,316
COST OF SALES 20,247,842 18,471,484
----------- -----------
GROSS PROFIT 6,822,892 7,443,832
OPERATING EXPENSES 6,309,061 6,141,502
OTHER INCOME (EXPENSES) (443,814) (1,133,391)
----------- -----------
INCOME BEFORE INCOME TAXES 70,017 168,939
INCOME TAX EXPENSE 12,412 64,197
----------- -----------
NET INCOME $ 57,605 $ 104,742
BASIC EARNINGS PER SHARE $ .01 $ .01
DILUTED EARNINGS PER SHARE $ .01 $ .01
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 8,210,354 5,838,369
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
SALES TO NON-RELATED PARTIES $10,320,899 $11,890,548
SALES TO RELATED PARTIES 2,965,000 1,112,238
----------- -----------
13,285,899 13,002,786
COST OF SALES 9,879,317 9,197,949
----------- -----------
GROSS PROFIT 3,406,582 3,804,837
OPERATING EXPENSES 3,399,641 2,957,419
OTHER INCOME (EXPENSES) (214,759) (305,741)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (207,818) 541,677
INCOME TAX EXPENSE 0 205,837
----------- -----------
NET INCOME (LOSS) $ (207,818) $ 335,840
BASIC EARNINGS PER SHARE $ (.03) $ .06
DILUTED EARNINGS PER SHARE $ (.03) $ .05
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 8,171,460 5,959,837
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE> 7
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Shares Amount Capital
----------- ----------- -----------
<S> <C> <C> <C>
Balance, June 30, 1997 8,127,376 $ 7,334 $15,796,188
Exercise of common stock
warrants 119,788 120 232,209
Non-qualified options exercised
for common stock 46,167 46 88,270
Balance, December 31, 1997 8,293,331 7,500 16,116,667
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE> 8
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Convertible
Preferred Stock
---------------------- Retained
Shares Amount Earnings(Deficit)
-------- -------- -----------------
<S> <C> <C> <C>
Balance, June 30, 1997 135,000 $623,414 $(27,019)
Net income -- -- 57,605
Balance, December 31, 1997 135,000 $623,414 $ 30,586
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
8
<PAGE> 9
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
December 31, December 31,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 57,605 $ 104,742
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Depreciation & Amortization 450,231 385,807
Tax benefit from NOL -- --
(Increase) decrease in accounts
receivable (6,164,564) (5,766,071)
(Increase) decrease in inventories (3,395,269) (3,632,562)
(Increase) decrease in other
current assets and other assets (471,694) (9,540,741)
Increase (decrease) in accounts
payable 2,119,787 1,191,503
Increase (decrease) in accrued
expenses and other liabilities (14,797) 539,984
------------ ------------
Net cash provided by
operating activities (7,418,701) (16,717,338)
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of equipment (1,412,078) (1,150,723)
Deposit on equipment 311,453 --
(Increase) decrease in due
from parent (58,761) (355,715)
------------ ------------
Net cash used by investing
activities (1,159,386) (1,506,438)
</TABLE>
See accompanying notes to consolidated financial statements
9
<PAGE> 10
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
December 31, December 31,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition Notes Issued $ -- $10,850,000
Convertible Debentures Issued -- 5,000,000
Net borrowing (payments) on loans 8,074,562 1,786,433
Proceeds from exercise of options 88,316 --
Payment of short-swing liability
by shareholder -- --
Exercise of Warrants 232,329 625,506
----------- -----------
Net cash provided by financing
activities 8,395,207 18,261,939
----------- -----------
NET INCREASE (DECREASE) IN CASH (182,880) 38,163
CASH BEGINNING OF PERIOD 311,657 146,219
----------- -----------
CASH END OF PERIOD $ 128,777 $ 184,382
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH
ACTIVITIES:
Cash paid for interest $ 609,707 $ 362,244
Cash paid for income tax $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 11
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation have been included. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
notes thereto included in the June 30, 1997, audited financial statements for
Contour Medical, Inc. The results of operations for the periods ended December
31, 1997 and 1996 are not necessarily indicative of the operating results for
the full year.
The consolidated financial statements include the accounts of Contour
Medical, Inc. ("CMI") and its wholly-owned subsidiaries, Contour Medical -
Michigan, Inc. (formerly Contour Fabricators, Inc.) ("CFI"), Contour Medical
of Central Florida, Inc. (formerly Contour Fabricators of Florida, Inc.)
("CFFI") and, since March 1, 1996, AmeriDyne Corporation ("AmeriDyne"), and
effective July 1, 1996 Atlantic Medical Supply Company, Inc. ("Atlantic")
collectively referred to as the Company. All material intercompany accounts
and transactions have been eliminated. CMI is a majority-owned subsidiary of
Retirement Care Associates, Inc. ("Parent").
On June 27, 1997, the Company sold all of its manufacturing assets,
including equipment, accounts receivable, customer lists, prepaid assets,
deposits, inventory and other assets. These assets were sold for $3,350,000 in
cash to an unrelated third party, RawCar, L.L.P. The Company retained all
liabilities related to the assets sold. Upon completion of this sale, the
Company ceased all manufacturing activity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income", which establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. There currently are no additional
disclosures in the financial statements of the Company that are expected to be
required by the provisions of this statement.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which changes the way
public companies report information about segments of their business in annual
financial statements and requires segment information in quarterly reports to
shareholders. SFAS 131 also requires that public companies report certain
information about their products and services, the geographic areas in which
they operate and their major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company has not determined what
additional disclosures may be required by the provisions of SFAS 131."
SFAS 128 - The Company has adopted SFAS 128 with respect to computing
earnings per share. The following table reflects items reconciling net income
for purposes of calculating basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997 December 31, 1996
==============================================================================================================================
Income Shares Per-Share Income Shares Per-Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (207,818) 335,840
Less: Preferred Stock Dividends 5,400 5,400
- ------------------------------------------------------------------------------------------------------------------------------
BASIC EPS
- ------------------------------------------------------------------------------------------------------------------------------
Income available to common stockholders (213,218) 8,171,460 (0.03) 330,440 5,959,837 0.06
- ------------------------------------------------------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------
Warrants 184,138
Options 233,475
- ------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
- ------------------------------------------------------------------------------------------------------------------------------
Income available to common stockholders (213,218) 8,171,460 (0.03) 330,440 6,377,450 0.05
==============================================================================================================================
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Six Month Ended
December 31, 1997 December 31, 1996
==============================================================================================================================
Income Shares Per-Share Income Shares Per-Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income 57,605 104,742
Less: Preferred Stock Dividends 10,800 31,571
- ------------------------------------------------------------------------------------------------------------------------------
BASIC EPS
- ------------------------------------------------------------------------------------------------------------------------------
Income available to common stockholders 46,805 8,210,354 0.01 73,171 5,838,369 0.01
- ------------------------------------------------------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------
Warrants 328,878 242,658
Options 354,714 249,184
- ------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
- ------------------------------------------------------------------------------------------------------------------------------
Income available to common stockholders 46,805 8,893,946 0.01 73,171 6,330,211 0.01
==============================================================================================================================
</TABLE>
Certain securities are not included in the calculation of diluted EPS as they
would be anti-dilutive. See the Company's 1997 annual report for a description
of securities which potentially could be dilutive in future periods.
Inventories are valued at lower of cost (first-in, first-out) or market.
AmeriDyne inventories are valued at the lower of average cost or market.
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets by accelerated methods for financial
reporting and income tax purposes.
Financial instruments held by the Company at December 31, 1997 include
cash, deposits and long-term debt. Management believes that, considering current
terms of similar financial instruments, the carrying value of the company's
financial instruments approximated their fair values at December 31, 1997.
The Company has classified as goodwill the cost in excess of fair value of
the net assets of Atlantic Medical and AmeriDyne acquired in purchase
transactions. Goodwill is being amortized on the straight-line method over 40
years. The Company periodically reviews goodwill to assess recoverability, and
any impairment would be recognized in operating results. Anticipated
undiscounted future cash flows of the underlying assets do not exceed the book
value of the goodwill and the underlying assets.
Fees, costs and expenses related to the issuance of long-term debt are
deferred and amortized over the term of the related debt using the straight-line
method.
Income taxes are accounted for using the asset and liability method for
financial accounting and reporting purposes. Accordingly, deferred tax assets
and liabilities are recognized for temporary differences between the financial
reporting basis of assets and liabilities an their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is provided for
deferred tax assets when management considers it more likely than not that some
portion or all of the asset will not be realized.
3. CHANGE IN METHOD OF ACCOUNTING FOR TAXES AND INCOME
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109") which
requires recognition of estimated income taxes payable or refundable on income
tax returns for the current year and for the estimated future tax effect
attributable to temporary differences and carry forwards. Measurement of
deferred income tax assets being reduced by available tax benefits not expected
to be realized.
4. RELATED PARTY TRANSACTIONS
During 1995, the Company began distributing medical supplies to health care
facilities owned, leased or managed by the Parent. Sales to these facilities
approximated $5,827,045 for the six month period ended December 31, 1997 and
$2,965,000 for the three month period ended December 31, 1997. Trade accounts
receivable of $8,156,936 and $5,135,189 were outstanding as of December 31, 1997
and June 30, 1997, respectively, as related to the sale of medical supplies to
the Parent. Additionally, the Company had an outstanding loan receivable due
from its Parent of $1,031,925 at December 31, 1997, which is due within 45 days
from the date of such loan and bears interest at the prime rate.
12
<PAGE> 13
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Useful Lives December 31, 1997 June 30, 1997
------------ ----------------- -------------
<S> <C> <C> <C>
Land & Land Improvements -- 16,004 $ 9,841
Building and Improvements 5-45 years 1,164 6,159
Machinery and equipment 3-7 years 1,628,650 1,442,614
Furniture and fixtures 5-7 years 996,147 498,876
Leasehold improvements 5 years 708,085 74,717
Vehicles 3-5 years 179,092 84,853
------------- -----------
3,529,138 2,117,060
Less accumulated depreciation (925,293) (624,142)
------------- -----------
$ 2,603,849 $ 1,492,918
</TABLE>
All property and equipment are pledged as collateral.
6. NOTES PAYABLE
Notes payable at December 31, 1997 and June 30, 1997 consisted of the
following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ ---------
<S> <C> <C>
Borrowings under $15,000,000 line of credit,
interest at 30 day libor plus 200bp (7.94%
at December 31, 1997), payable monthly,
collateralized by accounts receivable,
inventory and guarantees by Retirement
Care Associates, Inc. Principal due
October 31, 1998 13,294,090 5,886,545
Convertible debentures, interest at 9.00%
Payable monthly, principal due July 1, 2003,
Convertible into shares of common stock 5,000,000 5,000,000
Borrowings under $1,250,000 line of credit,
interest at prime (8.50% at December 31, 1997),
principal of $20,833 plus interest due monthly,
collateralized by accounts receivable,
inventory, furniture, fixtures, equipment,
machinery, bank accounts and guarantees
of Retirement Care Associates 1,250,000 750,000
Note payable to stockholder, interest at 10%,
principal and interest of $5,693, due monthly
through March 1999 79,955 109,252
Note payable to equipment company, interest at
14.0%, monthly installments of $405 including
interest. Matures October 1998 collataralized
by equipment 3,444 5,546
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C> <C>
Note payable to equipment company, interest at
11%, monthly installments of $533 including
interest. Matures December 1997,
collateralized by equipment -- 3,093
----------- -----------
$19,627,489 $11,552,927
Less current maturities (13,607,339) (6,079,086)
----------- -----------
$ 6,020,150 $ 5,473,841
</TABLE>
The Company's revolving line of credit and the provisions of indenture
relating to its 9% convertible debentures totaling $18,294,091 at December 31,
1997 contain certain restrictive financial covenants. Under the terms of the
agreement, the Company is required to maintain a debt to net worth ratio of no
more than 2.5, a current ratio of no less than 1.50 and an interest coverage
ratio of no less than 4.0. At December 31, 1997, the Company was out of
compliance with the interest coverage ratio requirements. The lending
institutions have waived those requirements as of December 31, 1997 and for the
quarter then ended.
The aggregate maturities of long-term debt are as follows as of December 31,
1997:
<TABLE>
<S> <C>
1998 $13,607,339
1999 270,143
2000 249,996
2001 249,996
2002 249,996
Thereafter 5,000,019
</TABLE>
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values for its financial instruments.
Fair value is defined as the price at which a financial instrument could be
liquidated in an orderly manner over a reasonable time period under present
market conditions. The rates of the Company's fixed obligations approximate
those rates of the adjustable loans. Therefore, the fair value of those loans
has been estimated to be approximately equal to their carrying value.
The Company's 9% convertible debentures are convertible into shares of the
Company's common stock from the date of issuance until the date that any
adjustment may occur at a conversion price of $5.00 per share of common stock.
The conversion price may be adjusted one time to seventy-five percent (75%) of
the average closing bid price of the common stock for the 21 consecutive trading
days following the Company's public press release of the 1997 fiscal year end
financial results if (y) the Company has failed to earn before taxes, a minimum
of $3,372,000, and (z) the average closing bid price of the common stock for the
21 consecutive trading days following the Company's public press release of the
1997 fiscal year end financial results is less than the then-existing conversion
price. If an adjustment is required, then the Company must furnish to the
holders of the debentures a statement, signed by the Chief Executive Officer of
the Company, of the facts creating such adjustment and specifying the resultant
adjusted conversion price then in effect. The adjustment will only be made to
adjust the conversion price to a price that is less than the then-existing
conversion price. As of December 31, 1997, the adjustment period expired and no
adjustment was required.
7. LEASE COMMITMENTS
The Company is obligated under various non-cancelable leases for equipment
and office space. Future minimum lease commitments under operating leases were
as follows as of December 31, 1997.
<TABLE>
<S> <C>
1998 $823,473
1999 759,080
2000 765,375
2001 627,044
2002 540,590
</TABLE>
Employment Agreement - The Company has entered into an employment agreement
with a key executive for a five-year period ending June 1998. The agreement
provides for annual base compensation of $100,000.
Litigation - During 1997 the Company was a defendant in a lawsuit filed by
one of its customers in a contractual dispute. On October 27, 1997 the Company
settled this suit for approximately $66,000.
-14-
<PAGE> 15
8. INCOME TAXES:
Income taxes are provided based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
As of June 30, 1997, the Company had net operating loss carry-forwards for
tax purposes, expiring at various dates ending July 30, 2012, of approximately
$1.1 million which includes approximately $516,000 attributable to Contour
Medical, Inc. for the period prior to January 1, 1993. Due to certain change of
ownership requirements of Section 382 of the Internal Revenue Code, utilization
of the Company's operating losses is expected to be limited to approximately
$414,000 per year. The deferred tax asset related to the tax benefit of these
losses has been offset by a valuation allowance due to uncertainty of
realization. The valuation allowance increased approximately $89,000 during
1997.
The income tax benefit arising from the utilization of the net operating
losses attributable to CMI will be credited to additional paid-in capital when
recognized.
9. YEAR 2000 DISCLOSURE:
The Company has reviewed all of its current computer applications with
respect to the date change from 1999 to the year 2000, as discussed in the
Securities and Exchange Commission Staff Legal Bulletin No. 5 (the "Year 2000
Problem"). The Company believes that certain of its applications are
substantially in compliance with the Year 2000 Problem and that any additional
costs with respect to compliance with the Year 2000 Problem will not be material
to the Company. The Company is currently unable to determine the effect of
compliance with the Year 2000 Problem by its customers and suppliers.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following should be read in conjunction with the attached Financial
Statements and Notes thereto of the Company.
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996
As a result of the factors discussed below, for the three months ended
December 31, 1997, the Company had a net loss of $(207,818) compared to net
income of $335,840 for the three months ended December 31, 1996.
Sales increased by $283,113 for the three months ended December 31, 1997 as
compared to the three months ended December 31, 1996. Revenues in the quarter
ended December 31, 1996 included sales from the Company's manufacturing
operations of approximately $1.4 million. The Company sold its manufacturing
assets and discontinued manufacturing operations in June, 1997. All of the
Company's sales generated in the quarter ended December 31, 1997 were
attributable to its distribution of medical supplies. The increase of
approximately $1.7 million was the result of an increase in sales to the
Company's parent.
Gross profit for the three months ended December 31, 1997, was $3,406,582
or 25.6% of sales, as compared to $3,804,837 or 29.2% of sales, for the same
period of the previous year. The decrease in gross profit as a percentage of
sales is primarily the result of lower gross profit margins typically earned on
the distribution of bulk medical supplies as compared to the gross profit
margins historically earned by the Company's manufacturing enterprise, the
assets of which were sold in June, 1997. Following the sale of its manufacturing
assets, the Company ceased all manufacturing activities.
Operating expenses for the three month period ending December 31, 1997,
were $3,399,641 as compared to $2,957,419 in 1996. Operating expenses increased
$442,222 from the same period last year. Approximately $300,000 of the increase
relates to expenses incurred in the start-up of two new distribution centers in
Randolph, Massachusetts and Portland, Oregon. All the costs associated with the
start-up of these facilities were incurred in the three month period ending
December 31, 1997. The balance of the increase, or approximately $142,000,
relates to the additional costs incurred as a result of the consolidation of the
Company's administrative support functions to the new corporate office building
in Atlanta, Georgia. The largest components of operating expenses are indirect
labor (including sales salaries and commissions), occupancy expense,
depreciation and amortization, and insurance.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996
As a result of the factors discussed below, for the six months ended
December 31, 1997, the Company had net income of $57,605 compared to $104,742
for the six months ended December 31, 1996.
Sales increased by $1,155,418 for the six months ended December 31, 1997 as
compared to the six months ended December 31, 1996. Revenues in the six months
ended December 31, 1996 included sales from the Company's manufacturing
operation of approximately $2.5 million. The Company sold its manufacturing
assets and discontinued manufacturing operations in June 1997. All of the
Company's revenue in the six months ended December 31, 1997 were attributable to
16
<PAGE> 17
its distribution of medical supplies. The increase of approximately $3.6 million
was the result of an increase in sales to the Company's parent of approximately
$2.8 million, with the balance of the increase or approximately $800,000, due to
the expansion of the Company's customer base.
Gross profit for the six months ended December 31, 1997, was $6,822,892 or
25.2% of sales, as compared to $7,443,832 or 28.7% of sales, for the same period
of the previous year. The decrease in gross profit as a percentage of sales is
primarily the result of lower gross profit margins typically earned on the
distribution of bulk medical supplies as compared to the gross profit margins
historically earned by the Company's manufacturing enterprise, the assets of
which were sold in June, 1997. Following the sale of its manufacturing assets,
the Company ceased all manufacturing activities.
Operating expenses for the six month period ending December 31, 1997 were
$6,309,061 as compared to $6,141,502 in 1996. The operating expenses increased
from the same period last year as a result of expenses incurred in the start-up
of two new distribution centers in Randolph, Massachusetts and Portland, Oregon.
The costs associated with the start-up of these two facilities were incurred in
the three month period from October through November. The balance of the
increase relates to additional costs incurred as a result of the consolidation
of the Company's administrative support functions to the new corporate office
building in Atlanta, Georgia.
Indirect labor, including sales salaries and commissions were approximately
$3,153,487, an increase of $196,000 compared to the same period last year.
Occupancy expense, depreciation and amortization and insurance costs decreased
to approximately $1,550,891, a decrease of $16,000 compared to the same period
last year.
Other income and expenses are made up of interest expense, debts recovered
that were previously written off, service charge income, and gains and losses on
the disposition of assets. Interest expense for the six month period ending
December 31, 1997 was $608,144 compared to $686,000 for the same period last
year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $9,647,822 of working capital as
compared to $9,524,931 on June 30, 1997.
Operating activities for the six months ended December 31, 1997, utilized
cash of $7,418,701 as compared to operating activities during the six months
ended December 31, 1996, which utilized cash of $16,717,338. The decreased use
of cash was primarily due to the acquisition of Atlantic Medical Supply in 1996.
The cash flows utilized for investing activities of $1,159,386 during the
six months ended December 31, 1997, were a result of the acquisition of
additional equipment for two new distribution centers and costs associated with
the completion of the construction of the new corporate office.
Cash flow of $8,395,207 was provided from financing activities in 1997,
whereas in 1996, cash flows from financing activities provided cash of
$18,261,939. During the six months ended December 31, 1996, $5,000,000 was
provided from debenture borrowings, $10,850,000 was provided by acquisition
notes and $625,506 was provided by the exercise of stock warrants to fund the
acquisition of Atlantic.
17
<PAGE> 18
On October 31, 1997, $9.5 million under the line of credit was due for
repayment. The Company obtained a forebearance from Barnett Bank on the line of
credit until November 11, 1997, at which time, the line of credit was renewed
and increased to $15 million. The line of credit is due for repayment on
October 31, 1998. As of December 31, 1997, $13,294,091 had been borrowed
against the line for short-term working capital and expansion needs.
The Company's revolving line of credit and the provisions of indenture
relating to its 9% convertible debentures totaling $18,294,091 at December 31,
1997 contain certain restrictive financial covenants. Under the terms of the
agreement, the Company is required to maintain a debt to net worth ratio of no
more than 2.5, a current ratio of no less than 1.50 and an interest coverage
ratio of no less than 4.0. At September 30, 1997, the Company was out of
compliance with the interest coverage ratio requirements. The lending
institutions have waived those requirements as of December 31, 1997 and for the
quarter then ended.
On August 6, 1996, the Company acquired all of the outstanding stock of
Atlantic, a distributor of disposable medical supplies and a provider of
third-party billing services to the nursing home and home health care markets.
The acquisition was made retroactively to July 1, 1996. The Company paid $1.4
million in cash and promissory notes totaling $10.5 million (the "Atlantic
Promissory Notes") for the stock of Atlantic, and subsequently paid an
additional $50,000 in cash and issued a promissory note for $350,000 to acquire
a minority interest in a subsidiary of Atlantic . The cash for this transaction
came from the $5 million debenture placement that was completed on July 12,
1996. The Company paid the Atlantic Promissory Notes from the proceeds of a
$9.75 million loan from its parent, payable in accordance with the terms of a
promissory note that was convertible into shares of the Company's Common Stock
at the option of the note holder. The Company's parent simultaneously converted
this promissory note into 1,950,000 shares of Contour Common Stock. The balance
of the Atlantic Promissory Notes was paid by borrowing under the Company's lines
of credit.
As a result of the acquisition of Atlantic, Contour acquired Medicare and
trade receivables totaling more than $1.8 million that were deemed to be
uncollectible. The entire amount of these receivables was reserved at the date
of the acquisition. The remaining reserve for uncollectible accounts represents
approximately 16% of trade receivables.
The Company plans to open three additional distribution centers around the
United States during the next nine months. Total capital expenditures
anticipated to fund this expansion will approximate $1 million. The Company has
received commitments from leasing and financing organizations in amounts
sufficient to meet these anticipated needs.
The Company presently does not anticipate any commitments for any other
material capital expenditures.
SEASONALITY AND INFLATION
The Company's business is relatively consistent and stable on a monthly
basis, and has not indicated any seasonality over the prior three fiscal
periods.
In addition, the Company does not believe that inflation has had a material
effect on its results from operations during the past three fiscal years. There
can be no assurance, however, that the Company's business will not be affected
by inflation in the future.
PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Insert to Exhibit List for Contour Medical, Inc. 10-Q/A dated
December 31, 1997
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<S> <C> <C>
10.01 Form of Note and Loan Modification Filed herewith electronically
Assumption and Release Agreement by
and between Barnett Bank of Pinellas
County, Contour Medical, Inc.,
Subsidiaries and Retirement Care
Associates, Inc. dated November 11, 1997
</TABLE>
(b) REPORTS ON FORM 8-K.
The Company filed a Report on Form 8-K dated November 25, 1997, reporting
information under Item 5 - Other Events and Item 7 - Financial Statements, Pro
Forma Financial Information and Exhibits, concerning amendments to the
Agreement and Plan of Merger with Sun Healthcare Group, Inc. and a related
Option Agreement.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONTOUR MEDICAL, INC.
Date: March 11, 1998 By:/s/ Donald F. Fox
---------------------------------
Donald F. Fox, President,
Treasurer and Chief Financial
Officer
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
- ------- ----------- --------
<S> <C> <C>
10.01 Form of Note and Loan Modification Filed herewith electronically
Assumption and Release Agreement by
and between Barnett Bank of Pinellas
County, Contour Medical, Inc.,
Subsidiaries and Retirement Care
Associates, Inc. dated November 11,
1997
</TABLE>
<PAGE> 1
EXHIBIT 10.01
NOTE AND LOAN MODIFICATION, ASSUMPTION
--------------------------------------
AND RELEASE AGREEMENT
---------------------
THIS NOTE AND LOAN MODIFICATION, ASSUMPTION AND RELEASE AGREEMENT (the
"Agreement") is entered into this _______ day of November, 1997, by and between
BARNETT BANK, N.A., a national banking association, as successor by merger to
BARNETT BANK OF PINELLAS COUNTY, a Florida banking corporation (the "Lender"),
and CONTOUR MEDICAL, INC., a Nevada corporation, duly authorized to do business
in the States of Florida and Georgia ("Contour Medical"), CONTOUR MEDICAL OF
CENTRAL FLORIDA, INC., a Florida corporation, formerly known as CONTOUR
FABRICATORS OF FLORIDA, INC., a Florida corporation ("Contour Medical Central
Florida"), QUEST MEDICAL SUPPLY, INC., a Georgia corporation, duly authorized to
do business in the States of Florida, North Carolina, Oregon and Tennessee
("Quest Medical"), AMERIDYNE CORPORATION, a Tennessee corporation ("AmeriDyne"),
ATLANTIC MEDICAL SUPPLY COMPANY, INC., a Georgia corporation, duly authorized to
do business in the States of Florida and North Carolina ("Atlantic Medical"),
AMERICARE HEALTH SERVICES CORP., a Delaware corporation, duly authorized to do
business in the State of Georgia ("Americare Health"), AMERICARE GROUP
PURCHASING CORP., a Delaware corporation, duly authorized to do business in the
State of Florida ("Americare Group"), and FACILITY SUPPLY, INC., a Florida
corporation ("Facility"),jointly and severally (Contour Medical, Contour Medical
Central Florida, Quest Medical, AmeriDyne, Atlantic Medical, Americare Health,
Americare Group, and Facility will be sometimes collectively referred to below
as the "Borrowers"), and RETIREMENT CARE ASSOCIATES, INC., a Colorado
corporation, duly authorized to do business in the State of Florida (the
"Guarantor"), (the Borrowers and the Guarantor will be sometimes collectively
referred to below as the "Borrower Group"), and is made in reference to the
following facts:
ORIGINAL LOAN
-------------
(A) On or about September 20, 1996, the Lender made a revolving line of
credit loan to the Borrowers, excluding Quest Medical and including CONTOUR
MEDICAL -MICHIGAN, INC., a Michigan corporation, formerly known as CONTOUR
FABRICATORS, INC., a Michigan corporation ("Contour Fabricators") (collectively
the "Initial Borrowers") in the original principal amount of SEVEN MILLION AND
NO/100 DOLLARS ($7,000,000.00) (the "Initial Loan"). The Initial Loan was
evidenced by the following instruments and documents, all dated September 20,
1996:
(i) Revolving Line of Credit Note executed by the Initial
Borrowers in favor of the Lender in the principal amount of the Initial Loan
(the "Initial Note");
(ii) Guaranty Agreement executed by the Guarantor in favor of the
Lender (the "Initial Guaranty");
<PAGE> 2
(iii) Security Agreement executed by the Initial Borrowers in favor
of Lender (the "Security Agreement");
(iv) Ten (10) UCC-1 Financing Statements separately executed by
the Initial Borrowers, as applicable, as debtors, and Lender, as secured party,
which were filed with the Secretary of State of the States of Florida, Michigan,
Tennessee, and North Carolina, and with the Clerk of the Superior Court for
Columbia County, Georgia (collectively the "Initial UCCs");
(v) Loan Agreement executed by the Lender, the Initial Borrowers,
and the Guarantor (the "Loan Agreement");
(vi) Agreement Waiving Right to Jury Trial executed by Lender and
Borrower Group (the "Initial Jury Waiver");
(vii) Environmental Agreement executed by Lender and Borrowers (the
"Environmental Agreement"); and
(vi) Numerous other miscellaneous documents (collectively the
"Other Initial Documents").
The Initial Guaranty, Security Agreement, Initial UCCs, Loan Agreement, Initial
Jury Waiver, Environmental Agreement, and Other Initial Documents will be
sometimes collectively referred to below as the "Instruments of Security". The
Initial Note and the Initial Instruments of Security will be sometimes
collectively referred to below as the "Initial Loan Documents". The Initial
Instruments of Security encumbered the personal property owned by the Initial
Borrowers as described therein as a first lien thereon in favor of Lender
(collectively the "Initial Collateral").
(B) On or about May 27, 1997, the Lender modified the Initial Loan and
the Initial Loan Documents, to, among other things: (i) increase the original
principal amount of the Initial Loan from SEVEN MILLION AND NO/100 DOLLARS
($7,000,000.00) to TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) (the "First
Modified Loan"), increasing the original principal amount of the Initial Loan by
THREE MILLION AND NO/100 DOLLARS ($3,000,000.00); and (ii) modify the Initial
Instruments of Security so as to, among other things, secure the original
principal amount of the First Modified Loan (the "First Loan Modification
Transaction"). Incident to the First Loan Modification Transaction, the
following documents and instruments were executed to evidence the First Modified
Loan, all of which were dated on or about May 27, 1997:
(i) Revolving Line of Credit Note executed by the Initial
Borrowers in favor of the Lender in the principal amount of the First Modified
Loan (the "First Modified Loan Note");
2
<PAGE> 3
(ii) Guaranty Agreement executed by the Guarantor in favor of the
Lender (the "Guaranty Agreement");
(iii) Note and Loan Modification Agreement executed by the Lender,
the Initial Borrowers, and the Guarantor (the "First Modification Agreement");
(iv) One UCC-1 Financing Statement executed by the Contour
Medical, as debtor, and Lender, as secured party, which was recorded in the
County Records of Forsyth County, Georgia under File No. 58-1997-1564 (the
"Contour Medical Georgia UCC"); and
(v) Agreement Waiving Right to Jury Trial, dated May 27, 1997,
executed by Lender and Borrower Group (the "Jury Waiver");
(v) Numerous other miscellaneous documents (collectively the
"Other Modified Loan Documents").
The Guaranty Agreement, First Modification Agreement, Contour Medical Georgia
UCC, Jury Waiver and Other Modified Loan Documents will be sometimes
collectively referred to below as the "First Modified Loan Instruments of
Security".
(C) On or about June 20, 1997, the Lender, the Initial Borrowers, and
the Guarantor executed a letter agreement, which, among other things, modified
certain terms and provisions of the Loan Agreement (the "Second Modification
Agreement").
(D) On or about June 27, 1997, the Lender released all of the Initial
Collateral owned by Contour Fabricators (collectively the "Contour Fabricators
Released Collateral"), and a portion of the Initial Collateral owned by Contour
Medical Central Florida (collectively the "Contour Medical Central Florida
Released Collateral") (the Contour Fabricators Released Collateral and the
Contour Medical Central Florida Released Collateral will be sometimes
collectively referred to below as the "Released Collateral"), as evidenced by
the following documents and instruments, all of which were executed on or about
June 27, 1997:
(i) Letter agreement executed by Lender, the Initial Borrowers,
and the Guarantors (the "Third Modification Agreement");
(ii) UCC-3 Financing Statement (Release) executed by Lender, as
secured party, which released the Contour Fabricators Released Collateral, filed
with the Secretary of State of the State of Michigan (the "Contour Fabricators
UCC Release"); and
(iii) UCC-3 Financing Statement (Release) executed by Lender, as
secured party, which released the Contour Medical Central Florida Released
Collateral, filed with the Secretary of State of the State of Florida (the
"Contour Medical Central Florida UCC Release").
3
<PAGE> 4
The Third Modification Agreement, the Contour Fabricators UCC Release, and the
Contour Medical Central Florida UCC Release will be sometimes collectively
referred to below as the "Third Modification Instruments of Security").
The Initial Instruments of Security, as modified by and together with the First
Modification Instruments of Security, the Second Modification Agreement, and the
Third Modification Instruments of Security, will be sometimes collectively
referred to below as the "Instruments of Security". The First Modified Loan Note
and the Instruments of Security will be sometimes collectively referred to below
as the "Loan Documents". The Instruments of Security encumber the Remaining
Collateral as a first lien thereon in favor of the Lender.
(E) On or about the date hereof, the Lender has agreed to: (i) increase
the original principal amount of the First Modified Loan from TEN MILLION AND
NO/100 DOLLARS ($10,000,000.00) to FIFTEEN MILLION AND NO/100 DOLLARS
($15,000,000.00) (the "Loan"), increasing the original principal amount of the
First Modified Loan by FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) (the
"Principal Amount Increase"), and (ii) modify the Instruments of Security, so as
to, among other things: (i) secure the original principal amount of the Loan, as
increased by the Principal Amount Increase; (ii) release Contour Fabricators as
a co-borrower of all obligations, liabilities and responsibilities under the
Loan; (iii) permit the assumption of the Loan by Quest Medical as a co-borrower;
and (iv) to spread the lien of the Instruments of Security to encumber the Quest
Medical Collateral (as defined below) as a first lien thereon (collectively the
"Loan Modification Transaction").
(F) The Borrowers have requested the Lender to make the Loan and enter
into the Loan Modification Transaction, the Lender is agreeable to such, subject
to the terms and provisions of this Agreement.
NOW THEREFORE, for and in consideration of the premises and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE ONE - INTRODUCTION
1.1 Recitals. The statements contained in the recitals of fact set
forth above (the "Recitals") are true and correct, and the Recitals by this
reference are made a part hereof.
1.2 Exhibits. The exhibits that are attached to this Agreement are by
this reference made a part hereof.
1.3 Abbreviations and Definitions. The following abbreviations and
definitions will be used for purposes of this Agreement.
4
<PAGE> 5
(a) The abbreviations of the parties set forth in the Preamble
will be used for purposes of this Agreement.
(b) The abbreviations and definitions set forth in the Recitals
will be used for purposes of this Agreement.
(c) The term "Agreement" shall mean the Note and Loan
Modification, Assumption and Release Agreement between the parties set forth
below.
(d) The term "Collateral" means collectively the tangible and
intangible personal property owned by the Borrowers encumbered by the
Instruments of Security, as modified by this Agreement, in favor of Lender, as a
first lien thereon, as more particularly described in Exhibit "A" attached
hereto, which is comprised of the Remaining Collateral and the Quest Medical
Collateral (as defined below).
(e) The term "Convertible Debentures" shall mean the two
convertible debentures issued by Contour Medical, Contour Fabricators, Contour
Medical Central Florida, and AmeriDyne as of July 12, 1996, in the principal
amounts of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($2,500,000.00)
each, in favor of: (i) River Oaks Trust Company, FBO, and Renaissance Capital
Growth & Income Fund III, Inc., as to Debenture No. 1; and (ii) River Oaks Trust
Company, FBO, and Renaissance US Growth & Income Trust PLC, as to Debenture No.
2 (collectively the "Debenture Lenders").
(f) The term "Locations" or "Property" shall mean the present
locations in various states on which the Collateral is located from time to
time, including those present locations as described in Exhibit "B" attached,
together with those locations approved by Lender from time to time hereafter
during the term of the Loan.
(g) The term "Quest Medical Collateral" shall mean the Collateral
owned by Quest Medical, as described in Exhibit "A", and, as applicable, located
on the Property.
1.4 Outstanding Indebtedness. The unpaid principal balance of the Note
as of the date of this Agreement is TEN MILLION AND NO/100 DOLLARS
($10,000,000.00).
ARTICLE TWO - WARRANTIES AND REPRESENTATIONS
2.1 Warranties and Representations of the Borrower. The Borrower
warrants and represents to the Lender as follows:
(a) Contour Medical is a corporation duly formed, validly
existing and in good standing under the laws of the State of Nevada, and is duly
authorized to do business in the State of Florida. Contour Medical Central
Florida is a corporation duly formed, validly existing and in good standing
under the laws of the State of Florida. Quest Medical is a
5
<PAGE> 6
corporation, duly formed, validly existing and in good standing under the laws
of the State of Georgia, and is duly authorized to do business under the laws of
the States of Florida, North Carolina, Oregon and Tennesse. AmeriDyne is a
corporation, duly formed, validly existing and in good standing under the laws
of the State of Tennessee. Atlantic Medical is a corporation, duly formed,
validly existing and in good standing under the laws of the State of Georgia.
Americare Health is a corporation duly formed, validly existing and in good
standing under the laws of the State of Delaware, and is duly authorized to do
business in the State of Georgia. Americare Group is a corporation duly formed,
validly existing and in good standing under the laws of the State of Delaware,
and is duly authorized to do business in the State of Florida. Facility is a
corporation duly formed, validly existing and in good standing under the laws of
the State of Florida. The Guarantor is a corporation duly formed, validly
existing and in good standing under the laws of the State of Colorado, and is
duly authorized to do business in the State of Florida.
(b) All required corporate action exists or has been accomplished
so as to duly authorize the officers of the Borrower Group set forth below to
execute this Agreement on behalf of the Borrower Group, so as to fully and
legally bind the Borrower to the terms and provisions of this Agreement;
(c) Consummation of the transactions contemplated hereunder will
not violate or result in a breach of or constitute a default under any provision
of any contract, lien, instrument, order, judgment, decree, ordinance,
regulation or other restriction of any kind by which the Borrower Group is bound
or affected;
(d) No representation or warranty by the Borrower Group in this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein not misleading;
(e) The Loan Documents are current in all respects, and no
defaults exist thereunder, except for waiver granted by Lender for the interest
coverage ratio for June 30, 1997; and
(f) The Convertible Debentures are current in all respects, and
no defaults exist thereunder.
(g) All leases affecting the Property and Locations are current
in all respects, and no defaults exist thereunder.
ARTICLE THREE - MODIFICATION, ASSUMPTION AND RELEASE
3.1 Assumption of First Modified Loan. As of the date of this
Agreement, Quest Medical hereby assumes all liabilities, obligations and
responsibilities under the First
6
<PAGE> 7
Modified Loan and the Loan Documents, as modified in this Agreement, as a
co-borrower. As such, following the date of this Agreement, Quest Medical shall
be fully liable for all obligations under the First Modified Loan and Loan
Documents, as modified by this Agreement, jointly and severally with the other
Borrowers.
3.2 Release of Contour Fabricators. As of the date of this Agreement,
Contour Fabricators is hereby released of all liabilities, obligations and
responsibilities under the First Modified Loan and Loan Documents, with the
Borrowers, jointly and severally, remaining fully liable, obligated and
responsible under the First Modified Loan and the Loan Documents, as modified by
this Agreement.
3.3 Modification of First Modified Note. As of the date of this
Agreement the First Modified Note is hereby modified, amended, and supplemented
as follows:
(i) The original principal amount of the First Modified Note is
hereby increased by the Principal Increase Amount from TEN MILLION AND NO/100
DOLLARS ($10,000,000.00) to FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00).
(ii) The term of the Note is extended through and including
October 31, 1998.
(iii) The Interest Rate (as defined in the First Modified Note) is
hereby amended as set forth in Section 3.4(e) below.
(iv) The terms and provisions of the First Modified Note are
hereby amended, modified and restated as set forth in Exhibit "C" attached
hereto (the "Note").
3.4 Modification of Instruments of Security. The Instruments of
Security are hereby modified, amended and supplemented, as of the date of this
Agreement, as follows:
(a) Security for Note. The Instruments of Security, as modified
by this Agreement, shall secure the Note, as modified by and defined in this
Agreement.
(b) Property/Locations. The listing of the Locations comprising
the Property upon which the Collateral is located from time to time as set forth
in the Loan Documents, is hereby amended as set forth in Exhibit "A" attached
hereto, which includes two (2) additional Locations of Quest Medical: (i)
Meadows V, 6025 Shiloh Road, Alpharetta, Georgia 30005, and (ii) 14135 NE
Airport Way, Portland, Oregon 97230, and such additional Locations for the
Borrowers, as approved by Lender from time to time, in its sole discretion,
including without limitation those in: (i) Randolph, Massachusetts, (ii)
Sacramento, California, (iii) Ontario, California, (iv) Dallas, Texas, and (v)
Davie, Florida.
(c) Collateral. The Instruments of Security and specifically the
Security Agreement are hereby modified so as to encumber the Collateral owned by
the Borrowers as
7
<PAGE> 8
described in Exhibit "A" attached, located at the Property and Locations,
including those set forth in Exhibit "B" attached, as a first lien thereon, as
security for the Note, as modified by this Agreement.
(d) Eligible Inventory.
(i) The definition and term of "Eligible Inventory" as
defined and described in Section 1.3 (j) (iii) of the Loan Agreement, as
modified by this Agreement, is hereby amended to read as follows:
The term "Eligible Inventory" shall mean all of Borrowers' finished
goods and merchandise held by Borrowers for immediate sale or other
disposition to third party purchasers, including documents of title,
wherever located, including but not limited to on or at the Property.
Additionally, Eligible Inventory shall not include any inventory
encumbered by or otherwise subject to a purchase money or third party
lien or security interest, the net inventory number at AmeriCare Health
Services (Medicare), and the "Nurses" inventory at Locations of
Atlantic Medical. Finally, Eligible Inventory shall not include
personal property that is customer owned, rental inventory,
demonstration inventory, loaner inventory, slow moving inventory,
obsolete inventory, inventory in which the Lender does not have a first
perfected security interest, inventory where no landlord's waiver has
been obtained, consignment inventory or proprietary inventory (all as
determined by Lender in its sole discretion), or inventory not
maintained on Borrowers' Property, and such other items as determined
by Lender's Asset Based Lending Department in its sole and absolute
discretion.
(ii) At all times during the term of the Loan and Loan
Documents, as modified by this Agreement, there shall be a borrowing cap on
Eligible Inventory for the Borrowers in the aggregate of $6,000,000.00.
(e) Definitions for Establishment of Interest Rate under Note.
The definitions as set forth in the Loan Agreement, as previously modified,
which shall be utilized in connection with the establishment and payment of the
Interest Rate (as defined in the Note) on and after the date of this Agreement
during the term of the Loan are hereby amended and restated as follows:
(i) "Adjusted LIBOR Rate" for each Interest Period (as
defined below) shall mean a daily rate of interest accruing on the
outstanding principal balance under the Note from time to time, as
follows:
(A) To the extent the Leverage is greater than 1.50:1.0,
the Adjusted LIBOR Rate shall be two and 25/100 percent
(2.25%) over the applicable LIBOR Rate.
8
<PAGE> 9
(B) To the extent the Leverage is equal to or less than
1:50:1.0 but equal to or greater than 1.25:1.0, the Adjusted
LIBOR Rate shall be two and no/100 percent (2.00%) over the
applicable LIBOR Rate.
(C) To the extent the Leverage is less than 1:25:1.0 but
equal to or greater than 1.00:1.0, the Adjusted LIBOR Rate
shall be one and 75/100 percent (1.75%) over the applicable
LIBOR Rate.
(D) To the extent the Leverage is less than 1.00:1.0, the
Adjusted LIBOR Rate shall be one and 50/100 percent (1.50%)
over the applicable LIBOR Rate.
(ii) "Borrower's Quarterly Financials" mean the Borrowers'
quarterly internally prepared financial statements, certified in
favor of Lender by the appropriate chief financial officers of the
Borrowers, which must be provided to Lender in accordance with the
Loan Documents, as modified by this Agreement, no later than
forty-five (45) days following the end of each fiscal quarter of
the Borrowers (which is the same for all Borrowers) during the term
of the Loan.
(iii) "Business Banking Day" means each day, other than a
Saturday, Sunday or any holiday on which commercial banks in
Jacksonville, Florida are closed for business.
(iv) "Default" means any event or condition which, with the
giving or receipt of notice or lapse of time or both, would
constitute an Event of Default hereunder or under the Loan
Documents.
(v) "Dollars" and the symbol "$" means dollars constituting
legal tender for the payment of public and private debts in the
United States of America.
(vi) "Interest Period" means each interest period of a LIBOR
Loan, which shall commence on the date of the Note through and
including next Interest Rate Determination Date (as defined below),
and thereafter, commencing on each applicable Interest Rate
Adjustment Date through and including each applicable Interest Rate
Determination Date; provided however, no Interest Period for a
LIBOR Loan as determined in the manner provided for herein shall
include or extend beyond the Maturity Date of the Loan (as defined
in the Note).
(vii) "Interest Rate Adjustment Date" means the day
immediately following each applicable Interest Rate Determination
Date (as defined below).
9
<PAGE> 10
(viii) "Interest Rate Determination Date" means each
applicable date for calculating the Adjusted LIBOR Rate for
purposes of determining the Interest Rate in respect of an Interest
Period, which date shall be the date of receipt of each applicable
Borrowers' Quarterly Financials during the term of the Loan.
(ix) The term "Leverage" means the following definition as
presently set forth in the Loan Agreement, as previously modified,
as to the financing information, requirements, and covenants to be
maintained by Borrower during the term of the Loan: "Borrowers'
Total Debt less $5,000,000 Convertible Debentures divided by
Tangible Net Worth plus $5,000,000 Convertible Debentures of the
Borrowers, on a consolidated basis, as defined by GAAP, not to
exceed 1.75:1.0, as measured quarterly during the term of the
Loan."
(x) The term "Leverage Calculation" means Lender's
calculation of the Leverage based upon the information contained in
each applicable Borrower's Quarterly Financials. Provided however,
Lender may, in its sole discretion, utilize the annual audited
financial statements of the Borrowers to be provided to Lender
pursuant to the terms of the Loan Agreement, as modified by this
Agreement, in addition to the Borrowers' Quarterly Financials, as
to Lender's Leverage Calculation.
(xi) "LIBOR Loan" means a loan for which the rate of
interest is determined by reference to the LIBOR Rate.
(xii) "LIBOR Rate" means for any LIBOR Loan, in respect of
the Interest Period, the rate for deposits in Dollars in the London
Interbank market, which appears on the LIBOR Rate Reference Page as
of 11:00 A.M. (London time) on the day that is two (2) London
Banking Days (defined below) preceding the first Business Banking
Day of the Interest Period, prior to the commencement of the
applicable Interest Period in an amount approximately equal to the
principal amount of, and for a period comparable to the Interest
Period for, such LIBOR Loan. If at least two (2) such offered rates
appear on the LIBOR Rate Reference Page, the rate will be the
arithmetic mean of such offered rates. Notwithstanding the
provisions of this paragraph, Lender may, in its sole discretion,
use rate quotations for daily or annual periods in lieu of
quotations for substantially equivalent monthly periods.
(xiii) "LIBOR Rate Reference Page" means either (a) the
Reuters Screen LIBOR Page, (b) the Dow Jones Telerate Page 3750 or
(c) such other nationally recognized source, as either may from
time to time to be
10
<PAGE> 11
used by Lender in its sole discretion as a reference for
determining any applicable LIBOR Rate.
(xiv) "Loan" means the Loan evidenced by the Note.
(xv) "London Banking Day" shall mean each day other than a
Saturday, a Sunday or any holiday on which commercial banks in
London, England are closed for business.
(xvi) "Regulation D" means Regulation D of the Board of
Governors of the Federal Reserve System, as the same may be amended
or supplemented from time to time.
(xvii) "Regulatory Change" means any change effective after
the date of this Agreement in United States Federal or state laws
or regulations (including Regulation D and capital adequacy
regulations) or foreign laws or regulations or the adoption or
making after such date of any interpretations, directives or
requests applying to a class of banks which includes the Lender,
under any United States Federal or state or foreign laws or
regulations (whether or not having the force of law) by any court
or governmental or monetary authority charged with the
interpretation or administration thereof.
(f) Determination of Interest Rate. Notwithstanding anything
contained in this Agreement or the other Loan Documents, as modified by this
Agreement, to the contrary, the Lender shall determine the Adjusted LIBOR Rate
for each ensuing Interest Period (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) on each applicable
Interest Rate Determination Date by determining the Leverage based upon the
Leverage Calculation by Lender utilizing the information contained in the
Borrowers' Quarterly Financials, which must be provided to Lender in accordance
with the Loan Documents, as modified by this Agreement, no later than forty-five
(45) days following the end of each fiscal quarter of Borrowers (which shall be
the same date for all Borrowers) during the term of the Loan. Principal
remaining outstanding from time to time under the Note shall bear interest
during the term of the Loan at the Adjusted LIBOR Rate in effect during each
applicable Interest Period as determined on the applicable Interest Rate
Determination Date immediately preceding the applicable Interest Rate Adjustment
Date for each such ensuing Interest Period. Each adjustment to the Interest Rate
in the manner set forth herein will be mandatory and automatic and not require
the further consent or agreement of the Borrower hereunder. Provided however,
the Borrowers shall promptly execute such instruments as Lender may require in
its sole discretion to signify Borrower's agreement to each Adjusted LIBOR Rate.
Adjustments to the Interest Rate shall not made more frequently than once per
quarter during the term of the Loan. If the Borrowers' Quarterly Financials are
not received when due (which is the Interest Rate Determination Date), then
interest shall accrue on the outstanding principal balance due under the Note
from the Interest Rate Determination Date until the date of Lender's receipt of
the
11
<PAGE> 12
Borrowers' Quarterly Financials at the highest Adjusted LIBOR Rate, as set forth
in Section 3.4(e)(i)(A) above.
(g) Loans. The Borrower Group shall not make any loans to any
person, firm or corporation, nor become a guarantor or surety, nor pledge its
credit in any manner, directly or indirectly, except to Lender or under the
Convertible Debentures; provided however, the Lender shall permit the making of
loans by the Borrower Group to any other parties, related or unrelated, which in
the aggregate shall not exceed ONE MILLION AND NO/100 DOLLARS ($1,000,000.00).
(h) Reaffirmation of Guaranty Agreement. The Guarantor hereby
reaffirms its guarantee of the Loan, as modified in this Agreement, and agrees
that the Guaranty Agreement shall remain in full force and effect and shall be
strictly complied with by the Guarantor, as modified by this Agreement.
(i) Reaffirmation of Loan Agreement. The Borrower Group hereby
reaffirms their respective liabilities, obligations, and responsibilities under
the Loan Agreement, as modified by this Agreement, and agree that the Loan
Agreement, as modified by this Agreement, shall remain in full force and effect
and shall be strictly complied with by the Borrower Group.
(j) Reaffirmation of Jury Waiver. The Borrower Group hereby
reaffirms their respective liabilities, obligations, and responsibilities under
the Jury Waiver, as modified by this Agreement, and agrees that the Jury Waiver
shall remain in full force and effect and shall be strictly complied with by the
Borrower Group, as modified by this Agreement.
(k) Reaffirmation of Environmental Agreement. The Borrowers
hereby reaffirms their respective liabilities, obligations, and responsibilities
under the Environmental Agreement, as modified by this Agreement, and agrees
that the Environmental Agreement shall remain in full force and effect and shall
be strictly complied with by the Borrowers, as modified by this Agreement.
(l) Reaffirmation of Other Instruments of Security. The Borrower
Group hereby reaffirm their respective liabilities, obligations, and
responsibilities under the Instruments of Security, as applicable, as modified
by this Agreement, and agrees that the Instruments of Security shall remain in
full force and effect and shall be strictly complied with by the Borrower Group,
as modified by this Agreement. The Environmental Agreement is hereby modified to
include all Locations set forth on Exhibit "B" attached.
(m) Account Maintenance. At all times during the term of the Loan
and Loan Documents, as modified by this Agreement, the Borrower Group shall
maintain their primary depository relationship with Lender.
12
<PAGE> 13
3.5 Financial Information and Requirements. In addition to the
financial documentation and other requirements currently contained in the Loan
Documents, as modified in this Agreement, the Borrower Group hereby agrees to
provide the following financial information and reporting to Lender and fulfil
the following financial requirements within the time periods indicated, during
the term of the Loan:
(a) No later than ninety (90) days following each fiscal year end
of the Borrowers during the term of the Loan, the Borrowers shall continue to
provide to Lender their respective annual audited financial statements, prepared
on a consolidated and consolidating basis, that are prepared by a certified
public accountants acceptable to Lender in its sole discretion, in comparative
form from the preceding fiscal year, which shall be accompanied by a management
letter prepared by such certified public accountants in favor of the Lender
setting forth such information as to the respective Borrowers' management of the
Property and Locations, and the Collateral as located thereon, in form and
content satisfactory to Lender in its sole discretion.
(b) No later than forty-five (45) days following the end of each
fiscal quarter of the Borrowers during the term of the Loan, the Borrowers shall
provide to Lender their respective internally prepared quarterly financial
statements, prepared on a consolidated and consolidating basis, which have been
reviewed and executed by the appropriate chief financial officers of the
Borrower, in comparative form from the preceding calendar quarter, and in form
and content satisfactory to Lender in its sole discretion.
(c) The Guarantor shall provide to Lender copies of its audited
annual financial statements (prepared on a consolidated and consolidating
basis), and 10-K Reports, together with all supporting documentation therefor,
all within ninety (90) days following the end of each fiscal year of the
Guarantor during the term of the Loan, in comparative form from the preceding
fiscal year, and in form and content satisfactory to Lender in its sole
discretion.
(d) The Guarantor shall provide to Lender copies of its 10-Q
reports (prepared on a consolidated and consolidating basis), together with all
supporting documentation therefor, within forty-five (45) days following the end
of each fiscal quarter of the Guarantor during the term of the Loan, and in form
and content satisfactory to Lender in its sole discretion.
(e) Borrowers shall provide to the Lender the monthly
consolidated Borrowing Base Certificate, accompanied by individual accounts
receivable aging reports for each operating entity comprising the Borrowers and
inventory certificates for each operating concern of the Borrowers certified by
the respective chief financial officers of the Borrowers, and in form and
content acceptable to Lender in its sole discretion, within twenty (20) days
following the end of each calendar month during the term of the Loan.
13
<PAGE> 14
(f) Borrowers, on a consolidated basis, as defined by GAAP (as
defined in the Loan Agreement), will maintain during the term of the Loan
Earnings Before Interest and Taxes divided by Interest Expense of no less than
2.0:1.0, as measured quarterly during the term of the Loan.
To the extent the requirements set forth above in this Section 3.5 are in
conflict with the provisions of the Loan Documents, the Loan Documents are
hereby amended and modified so as to be in compliance with this Section 3.5.
3.6 Other Provisions. Except as modified herein, all other terms and
provisions of the Loan Documents shall remain in full force and effect and shall
be fully complied with by the Borrower.
ARTICLE FOUR - WAIVER AND RELEASE
4.1 Waiver of Defenses. The Borrowers hereby waive in favor of Lender
and its successors and assigns any claims or defenses which the Borrowers have
or may have with respect to the Loan Documents, or this Agreement, and further
agree not to raise any such claims or defenses, if any, against Lender or it
successors or assigns in any civil proceedings or otherwise.
4.2 Release. The parties hereto, except the Lender, hereby, for
themselves, and their legal representatives, successors, predecessors, heirs and
assigns, and their officers, directors, stockholders, agents, servants,
employees release, acquit and forever discharge the Lender and its officers,
directors, stockholders, agents, servants, employees, legal representatives,
successors and assigns of and from any and all claims, demands, debts, actions
and causes of action, which they now have or might hereafter have against the
Lender and its officers, directors, stockholders, agents, servants, employees,
legal representatives, successors and assigns, by reason of any act, matter,
contract, agreement or thing whatsoever up to the date hereof.
ARTICLE FIVE - CONCLUSION
5.1 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision hereof shall be prohibited or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity only, without invalidating the remainder of such
provision or of the remaining provisions of this Agreement.
5.2 Default. Any default under the terms and provisions of this
Agreement or any instrument set forth herein or contemplated hereby shall be and
is a default under every other instrument set forth herein or contemplated
hereby.
14
<PAGE> 15
5.3 Florida Contract. This Agreement shall be deemed a Florida contract
and construed according to the laws of such state, regardless whether this
Agreement is being executed by any of the parties hereto in other states or
otherwise. This Agreement shall be construed without regard to any presumption
or other rule requiring construction against the party causing the Agreement to
be drafted. If any words or phrases in this Agreement shall have been stricken
out or otherwise eliminated, whether or not any of the words or phrases have
been added, this Agreement shall be construed as if the words or phrases so
stricken out or otherwise eliminated. All terms and words used in this Agreement
regardless of the number or gender in which they are used, shall be deemed to
include any other number and any other gender as the context may require.
5.4 Waiver. No failure of the Lender to exercise any power given to
Lender hereunder or to insist upon strict compliance by the Borrowers in their
obligations hereunder, and no custom or practice of the parties in variance with
the terms hereof, shall constitute a waiver of the Lender's right to demand
exact compliance with the terms hereof.
5.5 Cumulative Rights. All rights, powers and privileges conferred
hereunder upon the Lender, unless otherwise provided herein, shall be cumulative
and not restricted by those given in law.
5.6 Binding Effect. This Agreement shall bind the successors and
assigns of the parties hereto; it constitutes the entire understanding of the
parties, and it may not be modified except in writing.
5.7 Execution. This Agreement shall not be effective nor shall it have
any force and effect whatsoever until all of the parties hereto have duly
executed this Agreement.
5.8 Indemnification. The Borrowers, and each entity or person
comprising the Borrowers, jointly and severally, hereby agree to indemnify and
hold Lender harmless from and against any and all loss, damage, cost and
expense, including attorney's fees, that the Lender may incur or sustain by
reason of the assertion of a claim or ruling by a governmental entity that
documentary stamp tax, intangible tax or any penalties or interest associated
therewith must be paid by reason of the execution and delivery of the Note or
this Agreement, or any subsequent renewals, modifications or amendments of the
Note or this Agreement.
5.9 Headings. The headings of the paragraphs contained in this
Agreement are for convenience of reference only and do not form a part hereof
and in no way modify, interpret or construe the meaning of the parties hereto.
5.10 Florida Documentary Stamps. The Note and this Agreement were made,
executed and delivered outside the State of Florida, and no Florida Documentary
Stamps tax is due on the Note in accordance with F.A.C. 12B-4.053(35).
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, and shall be deemed to have executed such, on the day and year first
above written.
Signed, sealed and delivered
in the presence of: BARNETT BANK, N.A., a national banking
association, as successor by merger to BARNETT
BANK OF PINELLAS COUNTY, a Florida
banking corporation
By:
- ---------------------------------- -------------------------------------
SIGNATURE SIGNATURE
- ---------------------------------- -------------------------------------
NAME LEGIBLY PRINTED, NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED TYPEWRITTEN OR STAMPED
- ---------------------------------- Its ____________ President
SIGNATURE
(CORPORATE SEAL)
- ----------------------------------
NAME LEGIBLY PRINTED
TYPEWRITTEN OR STAMPED
16
<PAGE> 17
As to Lender
STATE OF )
---------------------------
COUNTY OF )
--------------------------
The foregoing instrument was acknowledged before me this
________ day of November, 1997, by ___________________________, the ____________
President of BARNETT BANK, N.A., a national banking association, as successor by
merger to BARNETT BANK OF PINELLAS COUNTY, a Florida banking corporation, on
behalf of the association.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
--------------
TYPE OF IDENTIFICATION PROVIDED
--------------------------
-------------------------------------
SIGNATURE
-------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
Signed, sealed and delivered CONTOUR MEDICAL, INC.,
in the presence of: a Nevada corporation, duly authorized
to do business in the States of Florida
and Georgia
By:
- ---------------------------------- -------------------------------------
SIGNATURE DONALD F. FOX,
Its President
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
- ----------------------------------
SIGNATURE
(CORPORATE SEAL)
- ----------------------------------
NAME LEGIBLY PRINTED
TYPEWRITTEN OR STAMPED
17
<PAGE> 18
As to Contour Medical
STATE OF )
---------------------------
COUNTY OF )
--------------------------
The foregoing instrument was acknowledged before me this
________ day of November, 1997, by DONALD F. FOX the President of CONTOUR
MEDICAL, INC., a Nevada corporation, duly authorized to do business in the
States of Florida and Georgia, on behalf of the corporation.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
---------------
TYPE OF IDENTIFICATION PROVIDED
---------------------------
----------------------------------------
SIGNATURE
----------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
18
<PAGE> 19
Signed, sealed and delivered
in the presence of: CONTOUR MEDICAL OF CENTRAL
FLORIDA, INC., a Florida corporation, formerly
known as CONTOUR FABRICATORS OF
FLORIDA, INC., a Florida corporation
By:
- ---------------------------------- -------------------------------------
SIGNATURE DONALD F. FOX,
Its President
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
- ----------------------------------
SIGNATURE
(CORPORATE SEAL)
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to Contour Medical Central Florida
STATE OF )
--------------------------
COUNTY OF )
--------------------------
The foregoing instrument was acknowledged before me this ____
day of November, 1997, by DONALD F. FOX, the President of CONTOUR MEDICAL OF
CENTRAL FLORIDA, INC., a Florida corporation, formerly known as CONTOUR
FABRICATORS OF FLORIDA, INC., a Florida corporation, on behalf of the
corporation.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
--------------
TYPE OF IDENTIFICATION PROVIDED -------------------------
----------------------------------------
SIGNATURE
----------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
19
<PAGE> 20
Signed, sealed and delivered
in the presence of: QUEST MEDICAL SUPPLY, INC., a Georgia
corporation, duly authorized to do
business in the States of Florida, North
Carolina, Oregon and Tennessee
By:
- ---------------------------------- -------------------------------------
SIGNATURE DONALD F. FOX,
Its President
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
- ----------------------------------
SIGNATURE
(CORPORATE SEAL)
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to Quest Medical
STATE OF )
--------------------------
COUNTY OF )
--------------------------
The foregoing instrument was acknowledged before me this ____
day of November, 1997, by DONALD F. FOX, the President of QUEST MEDICAL SUPPLY,
INC., a Georgia corporation, duly authorized to do business in the States of
Florida, North Carolina, Oregon and Tennessee, on behalf of the corporation.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
-------------
TYPE OF IDENTIFICATION PROVIDED -------------------------
----------------------------------------
SIGNATURE
----------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
20
<PAGE> 21
Signed, sealed and delivered AMERIDYNE CORPORATION,
in the presence of: a Tennessee corporation
By:
- ---------------------------------- -------------------------------------
SIGNATURE DONALD F. FOX,
Its President
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
- ----------------------------------
SIGNATURE
(CORPORATE SEAL)
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to AmeriDyne
STATE OF )
--------------------------
COUNTY OF )
--------------------------
The foregoing instrument was acknowledged before me this ____
day of November, 1997, by DONALD F. FOX, the President of AMERIDYNE CORPORATION,
a Tennessee corporation, on behalf of the corporation.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
-------------
TYPE OF IDENTIFICATION PROVIDED -------------------------
----------------------------------------
SIGNATURE
----------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
21
<PAGE> 22
Signed, sealed and delivered ATLANTIC MEDICAL SUPPLY COMPANY,
in the presence of: INC., a Georgia corporation, duly
authorized to do business in the States
of Florida and North Carolina
By:
- ---------------------------------- -------------------------------------
SIGNATURE DONALD F. FOX,
Its President
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
- ----------------------------------
SIGNATURE
(CORPORATE SEAL)
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to Atlantic Medical
STATE OF )
--------------------------
COUNTY OF )
--------------------------
The foregoing instrument was acknowledged before me this ___
day of November, 1997, by DONALD F. FOX, the President of ATLANTIC MEDICAL
SUPPLY COMPANY, INC., a Georgia corporation, duly authorized to do business in
the States of Florida and North Carolina on behalf of the corporation.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
-------------
TYPE OF IDENTIFICATION PROVIDED -------------------------
----------------------------------------
SIGNATURE
----------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
22
<PAGE> 23
Signed, sealed and delivered AMERICARE HEALTH SERVICES CORP.,
in the presence of: a Delaware corporation, duly authorized to
do business in the State of Georgia
By:
- ---------------------------------- -------------------------------------
SIGNATURE DONALD F. FOX,
Its President
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
- ----------------------------------
SIGNATURE
(CORPORATE SEAL)
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to Americare Health
STATE OF )
--------------------------
COUNTY OF )
--------------------------
The foregoing instrument was acknowledged before me this ____
day of November, 1997, by DONALD F. FOX, the President of AMERICARE HEALTH
SERVICES CORP., a Delaware corporation, duly authorized to do business in the
State of Georgia, on behalf of the corporation.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
-------------
TYPE OF IDENTIFICATION PROVIDED -------------------------
----------------------------------------
SIGNATURE
----------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
23
<PAGE> 24
Signed, sealed and delivered AMERICARE GROUP PURCHASING CORP.,
in the presence of: a Delaware corporation, duly authorized
to do business in the State of Florida
By:
- ---------------------------------- -------------------------------------
SIGNATURE DONALD F. FOX,
Its President
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
- ----------------------------------
SIGNATURE
(CORPORATE SEAL)
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to Americare Group
STATE OF )
--------------------------
COUNTY OF )
--------------------------
The foregoing instrument was acknowledged before me this ___
day of November, 1997, by DONALD F. FOX, the President of AMERICARE GROUP
PURCHASING CORP., a Delaware corporation, duly authorized to do business in the
State of Florida, on behalf of the corporation.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
-------------
TYPE OF IDENTIFICATION PROVIDED
-------------------------
----------------------------------------
SIGNATURE
----------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
24
<PAGE> 25
Signed, sealed and delivered FACILITY SUPPLY, INC.,
in the presence of: a Florida corporation
By:
- ---------------------------------- -------------------------------------
SIGNATURE DONALD F. FOX,
Its President
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
- ----------------------------------
SIGNATURE
(CORPORATE SEAL)
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
As to Facility
STATE OF )
--------------------------
COUNTY OF )
--------------------------
The foregoing instrument was acknowledged before me this ____
day of November, 1997, by DONALD F. FOX, the President of FACILITY SUPPLY, INC.,
a Florida corporation, on behalf of the corporation.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
-------------
TYPE OF IDENTIFICATION PROVIDED
-------------------------
----------------------------------------
SIGNATURE
----------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
25
<PAGE> 26
Signed, sealed and delivered RETIREMENT CARE ASSOCIATES, INC.,
in the presence of: a Colorado corporation, duly authorized
to do business in the State of Florida
By:
- ---------------------------------- -------------------------------------
SIGNATURE CHRIS BROGDON,
Its President
- ----------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
- ----------------------------------
SIGNATURE
(CORPORATE SEAL)
- ----------------------------------
NAME LEGIBLY PRINTED
TYPEWRITTEN OR STAMPED
As to Guarantor
STATE OF )
---------------------------
COUNTY OF )
--------------------------
The foregoing instrument was acknowledged before me this
________ day of November, 1997, by CHRIS BROGDON, the President of RETIREMENT
CARE ASSOCIATES, INC., a Colorado corporation, duly authorized to do business in
the State of Florida, on behalf of the corporation.
PERSONALLY KNOWN OR PRODUCED IDENTIFICATION
-------------
TYPE OF IDENTIFICATION PROVIDED
-------------------------
----------------------------------------
SIGNATURE
----------------------------------------
NAME LEGIBLY PRINTED,
TYPEWRITTEN OR STAMPED
(SEAL) NOTARY PUBLIC
My Commission Expires:
26
<PAGE> 27
DESCRIPTION OF COLLATERAL
The following tangible and intangible personal property of Borrowers, wherever
located, and whether now owned or hereafter acquired, and all parts,
accessories, attachments, additions, replacements, substitutions, increases,
profits, proceeds, including insurance proceeds, and products thereto in any
form, together with all records relating thereto:
(a) Inventory, including without limitation, any and all goods, wares,
merchandise and other tangible personal property, including raw
materials, work in process, supplies, components and finished goods,
whether held by Borrowers for sale or other disposition, and also
including any returned or repossessed inventory or inventory detained
from or rejected for entry into the United States by governmental
authorities, and including documents of title, whether negotiable or
non-negotiable, representing any of the foregoing, and proceeds
thereof, including insurance proceeds (collectively the "Inventory").
(b) Accounts, accounts receivable, general intangibles, documents,
instruments and chattel paper, tax refunds, and all products thereof in
any form, including without limitation, all of Borrowers' rights to
acquire and obtain goods and/or services with respect to the
manufacture, processing, storage, sale, shipment, delivery or
installation of any of the Inventory or other Collateral, all liens,
guaranties, letters of credit, securities, rights, remedies and
privileges pertaining to any of the Collateral, including the right of
stoppage in transit, and all other forms of obligations owing to
Borrowers, and proceeds thereof, including insurance proceeds
(collectively the "Receivables").
(c) Accounts or deposit accounts.
(d) Books, records, documents and ledgers pertaining to any or all of the
foregoing, including, without limitation, all customer lists, credit
files, computer records and all media upon which any of the foregoing
may be stored or located.
(e) All right, title and interest of Borrowers in and to that certain cash
collateral account, together with all proceeds thereof, established
with the Lender in the name of the Borrowers, whether or not in
connection with the lock box arrangement between the Borrowers and the
Lender.
(f) All proceeds of the foregoing, including insurance proceeds.
EXHIBIT "A"
PAGE 1 OF 2
<PAGE> 28
LESS AND EXCEPT THE COLLATERAL OWNED BY CONTOUR MEDICAL OF CENTRAL FLORIDA, A
FLORIDA CORPORATION, FORMERLY KNOWN AS CONTOUR FABRICATORS OF FLORIDA, INC., A
FLORIDA CORPORATION ("CFFI"), DESCRIBED AS FOLLOWS:
1. All furniture, trade fixtures, equipment, and tools of CFFI used in its
manufacturing business and/or located at 3340 Scherer Drive, St.
Petersburg, Florida;
2. All of the current and usable manufacturing inventory of CFFI, as the
same shall exist as of the close of business on June 27, 1997;
3. All of the accounts receivable of CFFI relating to its manufacturing
business only, as the same shall exist as of the close of business on
June 27, 1997;
4. All of the rights, benefits, and interest of CFFI under all contracts
and agreements, written or oral, relating to its manufacturing business
only;
5. All registered and unregistered trademarks, trade names, copyrights,
patents, 510k's, service marks and service names, and applications
therefor; all technology and technological processes, all research and
development, know-how, trade secrets, formulae and all other
intellectual property of CFFI used in connection with its manufacturing
business only;
6. All prepaid expenses of CFFI relating to its manufacturing business
only;
7. All books, records, documents and other writings of CFFI used in
connection with its manufacturing business only;
8. All permits, licenses, certificates, and governmental authorizations,
approvals, license applications or related certifications of CFFI
obtained in connection with its manufacturing business only;
9. All data processing programs, software programs, computer printouts,
data bases and hardware and related items of CFFI used in the conduct
of its manufacturing business only, including accountings, invoices,
auditing, pension, and data processing bases and programs;
10. Goodwill of CFFI as a going concern, all telephone numbers and yellow
page advertisements, and the right to the use of the name "Contour
Fabricators of Florida, Inc.";
11. All other assets, tangible or intangible, of CFFI used in connection
with the operation of its manufacturing business, except as set forth
below:
Note: Specifically excluded from the foregoing descriptions is the
following:
A. All insurance policies relating the business of CFFI;
B. All minute books and stock books of CFFI; and
C. All cash, bank deposits, certificates of deposit,
commercial paper, treasury bills, marketable
securities and other cash equivalents of CFFI.
EXHIBIT "A"
PAGE 2 OF 2
<PAGE> 29
LOCATIONS OF COLLATERAL
<TABLE>
<S> <C> <C> <C>
1. Contour Medical of Central Florida, Inc., 8. Atlantic Medical Supply Company, Inc.
formerly known as Contour Fabricators Meadows V, 6025 Shiloh Road
of Florida, Inc. Alpharetta, Georgia 30005
3360 Scherer Drive
St. Petersburg, Florida 33716
2. Quest Medical Supply, Inc. 9. Quest Medical Supply, Inc.
3360 Scherer Drive Meadows V, 6025 Shiloh Road
St. Petersburg, Florida 33716 Alpharetta, Georgia 30005
3. Americare Group Purchasing Corp. 10. Americare Health Services Corp.
3360 Scherer Drive Meadows V, 6025 Shiloh Road
St. Petersburg, FL 33716 Alpharetta, Georgia 30005
4. AmeriDyne Corporation 11. Contour Medical, Inc.
231 Bobrick Drive Meadows V, 6025 Shiloh Road,
Jackson, Tennessee 38301 Alpharetta, Georgia 30202
5. Quest Medical Supply, Inc. 12. Facility Supply, Inc.
231 Bobrick Drive 2525 Davie Road, Suite 322
Jackson, Tennessee 38301 Davie, Florida 33317
6. Atlantic Medical Supply Company, Inc. 13. Quest Medical Supply, Inc.
4401 Distribution Drive 2525 Davie Road, Suite 322
Fayetteville, North Carolina 28301 Davie, Florida 33317
7. Quest Medical Supply, Inc. 14. Quest Medical Supply, Inc.
4401 Distribution Drive 14135 NE Airport Way
Fayetteville, North Carolina 28301 Portland, Oregon 97230
</TABLE>
EXHIBIT "B"
