U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number: 0-18109
December 31, 1996
Exact name of small business issuer as specified in its charter
BCAM INTERNATIONAL, INC.
State or other jurisdiction of IRS Employer
incorporation or organization: New York Identification No.: 13-3228375
Address of principal executive offices:
1800 Walt Whitman Road,
Melville, New York 11747
(516) 752-3550
Securities registered under Name of each exchange on
Section 12(b) of the Exchange Act: which registered:
Common Stock, $.01 par value Boston Stock Exchange
NASDAQ
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Common Stock Purchase Warrants
Units consisting of three common shares and
two redeemable Class A Warrants
Check whether the registrant (1) filed all reports to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No __
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ].
Registrant's revenues for its most recent fiscal year were $604,554.
The aggregate market value of the registrant's common stock held by
non-affiliates as of March 21, 1997, was $19,880,916, based on the average of
the bid and asked prices of such stock on March 21, 1997, as reported by NASDAQ.
The number of shares outstanding of the registrant's common stock as of
March 21, 1997, was 15,954,733.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 1997 Annual Meeting incorporated by reference
into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes __; No X_
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BCAM International Inc. (formerly Biomechanics Corporation of America
prior to a name change effected June 22, 1995), (the "Company") was organized in
1984 under the laws of the State of New York.
GENERAL
BCAM International, Inc. (the "Company") is a software technology
company, specializing in ergonomic (human factor) solutions for individuals,
government, and for major corporations. The Company commenced its restructuring
in 1995, by focusing on (I) accelerating the development and commercialization
of the Company's Intelligent Surface Technology ("IST"), (II) continuing its
development of proprietary software, which consists of the intelligent part of
IST, MQPro(TM) (formerly Mannequin(R)), the EARLY(R) process and
Back-to-Work(TM) methodology, and (III) in addition to the planned proprietary
software ("HumanCAD(R)") product sales of MQPro(TM), EARLY(R) and
Back-to-Work(TM), the Company will market Software Based Ergonomic Consulting
Services. The Company will also continue to provide its Traditional Ergonomic
Consulting Services in Ergonomic Product Assessment and Redesign and Ergonomic
Workplace Assessment, but with emphasis on broadening and strengthening long
term business relationships such as joint ventures, partnerships, licensees and
other alliances. The Company's collaborative research and development
relationships, such as the one with the State University of New York at Stony
Brook, provide valuable resources in strengthening the Company's capabilities in
ergonomic consulting.
The Company anticipates that the completion of the restructuring will
be the acquisition of a business which will provide a base for the
commercialization of IST in medical footwear. On March 19, 1997, the Company
signed a definitive agreement to acquire Drew Shoe Corporation ("Drew") of
Lancaster, Ohio, a 125 year-old leading designer, manufacturer and distributor
of medical footwear and orthotic products, for $4.6 million subject to
financing. The Company's acquisition of Drew and the related financing are
expected to be completed in the second quarter of 1997. Drew's 1996 sales were
approximately $15 million. Upon completion of IST, the Company hopes to
incorporate it into intelligent medical footwear and orthotic products.
The Company believes that its ergonomic consulting service is the
engine that drives new product ideas and with it, the potential for future
royalty streams, as well as new product and service offerings. During the course
of the Company's performance of ergonomic consulting services, the Company from
time to time develops certain know-how based upon data from its services which
it is able to embody into proprietary technologies. When this occurs, and it is
believed that the technology is a significant enhancement from the existing
technology, the Company files for patent protection under the laws of the United
States, and if warranted, internationally.
(I) INTELLIGENT SURFACE TECHNOLOGY
Since 1991, the Company has developed and patented seven issued
patents, one notice of allowance and four additional patent filings related to
its IST which empowers surfaces to automatically measure any part of the body
touching that surface and then, in real time, adjust themselves to conform to
that user's body to provide the ultimate in comfort and fit. Such a surface is
considered an intelligent surface because it is able to learn about the user and
recognize patterns of the user's activities through its sophisticated
proprietary software. The Company has identified applications for this
technology in the primary areas of seating, footwear and bedding. In addition,
the technology can be used for handtools, exercise equipment, helmets, etc.
Current Licensees
Textron. The Company and McCord Winn Textron, Inc., a subsidiary of
Textron, Inc., ("Textron") signed a Development and License Agreement in March
1993, amended in October 1993 and August 1996, whereby the Company granted an
exclusive worldwide license to Textron to use the IST patents and know-how in
the manufacture, use and sale of seats, and seating components for the
transportation industry, wheelchairs, office furniture applications and hospital
beds.
In 1996, Textron informed the Company that it expects a certain 1998
model automobile to be introduced in the fall of 1997, to incorporate IST in the
design of the driver and passenger seat. Textron is obligated to pay the Company
a royalty for the use of the Company's technology in the sale of the systems
which is expected to commence in 1997.
The August 1996 amendment obligated Textron to pay royalties to the
Company through December 31, 1999, for any products designed using the Company's
IST. After January 1, 2000, Textron shall be obligated to pay the Company
royalties only for any products designed which actually incorporate IST patents
and know-how transmitted to Textron by the Company after May 31, 1996. As of
today, the Company has disclosed to Textron that it has received four patents
and one "Notice of Allowance" after May 31, 1996.
Reebok. In January 1994, the Company and Reebok International Ltd.
("Reebok") signed a world-wide exclusive licensing and development agreement for
the use of IST footwear. In addition, Reebok has a right of first refusal to
obtain exclusive licenses to use IST on athletic, sport and fitness equipment
fields of use. The fields of medical equipment and orthopedic devices are
specifically excluded from the Reebok license.
The Company and Reebok are continuing to work closely in developing the
application of the Company's IST, which is expected to be introduced in Reebok's
footwear products in due course.
Lumex. The agreement signed in September 1994 between the Company and
Lumex, Inc. was terminated in April 1996. The fields relinquished by Lumex cover
operating room tables, medical rockers and medical procedure chairs.
Potential New Licensees
The Company has identified several fields that can benefit from its
technologies and ergonomic design expertise. The Company is in advanced
discussions with a recliner company, an office furniture company for seating
products, a company which manufactures operating room tables, a tool company
which manufactures jackhammers and a hand tool company. It is actively pursuing
the leading companies within these fields in order to increase the number of
licensees and generate additional revenue.
Sealy. In August 1996, the Company signed an agreement with Sealy, Inc.
to utilize the Company's IST, computer software, know-how and expertise towards
development of new Sealy products. Specifically, Sealy has an option agreement
to license IST for its adjustable bed and a right of first refusal as applied to
all bedding products (excluding medical bedding applications).
Revenue from IST accounted for 4% of revenue in 1996 versus 13% in 1995
and 23% in 1994. The 1996 revenue was generated from the Sealy and Lumex
licensing agreements, while the 1995 and 1994 revenue was generated from the
Reebok and Lumex agreements.
(II) PROPRIETARY SOFTWARE DEVELOPMENT
In addition to the IST software, the Company's other software
development efforts have always been focused in areas that support the Company's
Traditional Ergonomic Consulting Services, and beginning in 1997 the Software
Based Ergonomic Consulting Services. Since 1989, the Company has developed,
marketed, maintained, and continuously upgraded two proprietary software
packages: MQPro(TM) (formerly known as Mannequin(R)) and EARLY(R). Recently, the
Company has been identifying, testing, validating, and modifying software
technology for use in the Worker's Compensation area of "Back-to-Work(TM)"
products. These proprietary software products will be further developed and
marketed by the Company's HumanCAD(R) division.
MQPro(TM) (Formerly known as Mannequin(R))
The Company's HumanCAD(R) division started the marketing of MQPro(TM)
software on March 10, 1997. The software is compatible with CAD and other
graphic programs, and has motion capture capabilities useful for graphical
illustrations and motion analysis. The Company believes that many universities,
design organizations and government agencies, including NASA, are current users
of the earlier version of MQPro(TM) (formerly known as Mannequin(R)). The
results of a successful beta test of the new version of MQPro(TM), and
preliminary market survey confirmed that a substantial market exists, especially
among CAD users and industrial designers.
MQPro(TM) is a human modeling program that enables the user to render
3-dimensional scalable humanoid figures on a personal computer (PC). These
figures can be articulated into any position and then can be viewed from any
angle, distance or perspective. The result of that view can be printed, plotted
or exported to other graphics software for further enhancement of the image. The
figures can walk, bend, reach and grasp objects. A user can test the
functionality of the design of almost anything used by humans. The Company has
recently upgraded a Windows(R) version that processes in all Windows(R)
platforms.
The Company plans to extend its development and marketing effort of
MQPro(TM) from the current standard version to include: a Lite version, a
Plug-in version, a Companion version and a Heavy version.
EARLY(R)
The Company's EARLY(R) process (Ergonomic Assessment of Risk and
Liability) allows the ergonomist to integrate videotapes of tasks with the
assistance of sophisticated software to identify risk of Cumulative Trauma
Disorders and determine opportunities for ergonomic intervention in order to fit
the workplace better to the workers' capabilities. Currently, the Company's
EARLY(R) process is marketed on a service retail basis to industrial companies
and governments, and on a wholesale basis to insurance companies. See Ergonomic
Consulting Services.
The Company plans on developing and eventually marketing the EARLY(R)
process as a stand alone software with the ancillary Software Based Ergonomics
Consulting Services in addition to its traditional EARLY(R) workplace assessment
services.
Back-To-Work(TM) Technology
The Company is currently completing the testing and validation of a
diagnostic methodology which will, in a non-invasive way, measure the severity
of back injury of an individual who is already on Workers' Compensation, or an
individual who has filed a claim to be on Workers' Compensation. This diagnostic
analysis combines the measurement of the range of motion, with strength
calculation, in order to assess the functional capabilities of an individual.
This objective, non-invasive analysis should identify malingerers, and provide
doctors for employers and doctors for insurance companies with the objective
necessary information on all employees that are claiming Workers' Compensation.
In addition, medical providers can use this information to prescribe treatment
protocol, monitor progress of treatment and determine proper back-to-work
procedures. The Company intends to market this as a service to insurance
companies and other third-party administrators ("TPA").
The Company's testing and validating of a Back-to-Work(TM) methodology,
along with the necessary modifications, is to be completed in the near future.
The Company then plans to work with Risk Enterprise Management ("REM"), a 75%
owned subsidiary of Zurich Companies, to perform a pilot study, using a group of
REM's managed care providers. If the pilot study is successful, the Company
expects to roll out its new Back-to-Work diagnostic methodology some time in
1998. Several other large insurance companies have also been approached, and are
very interested in this diagnostic technology. See Marketing of Traditional
Ergonomic Consulting Services.
.
(III) ERGONOMIC CONSULTING SERVICES
The Company has restructured its ergonomic consulting services into two
areas: (i) Software Based Consulting Services, tailored to the implementation
and use of the HumanCAD(R) line of ergonomic software products, and (ii)
Traditional Ergonomic Consulting Services, in Ergonomic Product Assessment and
Redesign, and Ergonomic Workplace Assessment.
The Company believes that its ergonomic consulting service is the
engine that drives new product ideas and with it, the potential for future
royalty streams, as well as new product and service offerings. During the course
of the Company's performance of ergonomic consulting services, the Company from
time to time develops certain know-how based upon data from its services which
it is able to embody into proprietary technologies. When this occurs, and it is
believed that the technology is a significant enhancement from the existing
technology, the Company files for patent protection under the laws of the United
States, and if warranted, internationally.
Software Based Consulting Services
As part of the Company's restructuring, the Company will focus
resources for further development of its HumanCAD(R) ergonomic software product
line. The eventual product sales of the HumanCAD(R) software will create an
opportunity for the Company to provide a new consulting service based on
implementation and use of such proprietary software.
The Company anticipates that a portion of customers who will purchase
its HumanCAD(R) ergonomic software line will need the added expertise to help
them fully utilize the software products in order to meet their business
objectives, whether those objectives are making better products, bringing those
products to market more quickly, reducing product development costs or creating
a safer and more efficient workplace environment.
Traditional Ergonomic Consulting Services
Ergonomic Product Assessment and Redesign
The Company performs comprehensive subjective and objective ergonomic
testing on products that quantifies the product's relationship in terms of
comfort, fit, usability and user performance to human users. This knowledge is
used by product developers, manufacturers and industrial design firms to improve
existing products and/or develop new ones. In essence, the Company serves as the
"User's Representative", communicating user needs in terms that engineers and
industrial designers can apply in the design of their products. This analysis
provides substantial guidance and a strong foundation to the design process.
Ergonomic Product Assessment and Redesign Services provided 69% of the
Company's revenue in 1996, 60% of the Company's revenue in 1995 and 70% of the
Company's revenue in 1994.
Ergonomic Workplace Assessment
Workers' compensation coverage to employees cost U.S. employers over
$100 billion in 1996. It is also estimated that more than 2.5 million people
developed musculoskeletal disorders last year, and according to OSHA, each year
over $20 billion dollars is spent on repetitive stress injuries (or Cumulative
Traumatic Disorders). Many of these injuries involve lost duty time for
recuperation, reassignment of injured workers to other jobs, in addition to
medical treatment costs, thus escalating total workers' compensation costs.
The Company provides Ergonomic Workplace Assessment services to
industrial companies, government, and insurance companies, to reduce
musculoskeletal injuries, through its proprietary EARLY(R) services and custom
tailored consulting services. Other benefits are the potential for improved
productivity, enhanced product and service quality.
Ergonomic Workplace Assessment Services provided 26% of the Company's
revenues in 1996, 27% of the revenues in 1995 and 7% of the revenues in 1994.
SALES AND MARKETING
Marketing Strategy for Licensing IST
In order for the Company to obtain new licensees, the Company's
marketing strategy has focused on identifying organizations that:
- Are large,
- Are financially strong,
- Have marketing presence, and
- Have the financial resources to commercialize the technology
The Company will license the IST technology to organizations that meet
the above criteria and will assist those organizations in commercializing the
technology.
Marketing of Traditional Ergonomic Consulting Services
- - Ergonomics (human factors) originated in academia and was only recently
popularized by industry. As a result, the sales cycle is long. Since the
service is intangible, the Company's emphasis, therefore, is on building
long-term relationships with major organizations that may lead to new
product ideas and with it, potential royalty streams, as well as new
product and service offerings.
- - The Company is marketing and promoting its Traditional Ergonomic Consulting
Services in traditional ways, including referrals from existing clients,
publishing articles, speaking at seminars and conducting industry specific
seminars.
- - In addition to the above approaches to market the Traditional Ergonomic
Consulting Services, the Company is also attending and exhibiting at trade
shows, utilizing direct marketing techniques, and advertising in selected
trade publications, including on its Internet web site (www.bcamergo.com).
Pricing Policy
During 1995, the Company changed its pricing practices in its
Traditional Ergonomic Consulting Service business. Previously, the Company
charged only a consulting fee per project. The Company's new pricing formula
calls for, in addition to a consulting fee, a royalty which may be earned when
the Company's ergonomic product redesign change recommendations are
commercialized or a percentage of cost savings when major ergonomic workplace
assessment recommendations are implemented.
The following are some examples of the new pricing policy:
- - The Long Island Lighting Company ("LILCO") and the Company will work
together to market a "Lift Assist" for a Jackhammer, for which the Company
provided design recommendations as part of its workplace assessment. The
Company will share equally in the proceeds from an income stream in the
future.
- - Remington Arms Company, Inc. ("Remington"), pursuant to a Best-In-Class
assessment by the Company, was provided redesign recommendations related to
Remington's .22 caliber rifles. The contract signed with Remington states
that if the Company's recommendations are incorporated into their product,
royalties will be paid to the Company.
Business Relationship Strategy
During 1995 and 1996, the Company focused on building long-term
relationships with major organizations as a key part of its marketing strategy.
The Company's objective is to obtain repeat business from its clients (which the
Company has already started accomplishing in 1996).
The following are some examples, other than the IST licensing relationship,
where repeat business has occurred or is imminent:
- - In March 1996, the Company entered into a long-term relationship with REM
to provide EARLY(R) service. The relationship is expected to broaden in
1997 to include both prevention, EARLY(R) service and a pilot study, using
a group of REM's managed care providers. If the pilot study is successful,
the Company expects to roll out its new Back-To-Work(TM) diagnostic
methodology some time in 1988.
- - Multiple contracts with United Airlines relating to the interior redesign
of the plane, such as seating, have been entered into. In addition, the
Company identified causes and then made recommendations for the redesign of
food service carts on airplanes, specifically to reduce repetitive stress
injuries.
- - Multiple contracts with LILCO for Workplace Assessments, Product
Assessments and Redesign and a project whereby LILCO and the Company will
work together to market a "Lift Assist" for Jackhammers. The Company will
share in the profit from sales of the product.
- - After completing a Product Assessment and Redesign assignment for Stanley
Tools, a division of The Stanley Works, the Company received additional
Product Assessment and Redesign assignments from other divisions of Stanley
Works. More are expected.
- - Frisby Technologies, Inc. ("Frisby"), a leading technology company
established to develop, manage and commercialize innovative dual use and
environmental remediation technologies, and the Company entered into a
Business Referral Agreement. In the agreement, the Company has the
exclusive right to refer customers to Frisby relating to the following
products: bedding, recliners and heat stress reduction products for workers
at utilities. As of September 1996, LILCO awarded a grant to Frisby and to
the Company to develop "cool" gloves and "cool" sleeves to reduce heat
stress for linesmen.
Research and Development
The Company's research and development is focused on enhancing and
commercializing the Company's core technologies. The Company attempts to
minimize spending on research. Therefore, the Company typically will try to
acquire the rights to use an existing technology, if available, rather than
spend money and effort to invent a new technology. The Company will, however,
fund research for technology, when the needed technology is not available. For
example, in the case of certain components (i.e., a self-generating power supply
and an intelligent switch) which are necessary to employ IST for handtools and
footwear applications, the Company is seeking to acquire the rights to
technology to manufacture such components instead of trying to invent those
technologies. However, in the case of other control components (i.e., the
microvalve that will control the "air pressure"), the Company is devoting
resources to develop that technology, in order to be in a better position to
exploit the commercial opportunities of IST in a miniaturized environment. In
the area of development, the Company is focusing on software and application
engineering. Further software developments include IST, several versions of
MQPro(TM), Back-To-Work(TM), and fully automating the EARLY(R) process.
The Company uses its internal resources and subcontractors, as needed,
in its research and development activities. For example, the Company has
established a collaborative research and development relationships with the
State University of New York at Stony Brook, MCNC and the New Jersey Institute
of Technology, and plans to establish additional relationships with other
universities, and government laboratories, as necessary.
Competition
Management of the Company believes that its unique IST technology,
HumanCAD(R) software, methodologies and know-how give it a significant
competitive advantage.
Although there may be similar systems to the Company's IST, the Company
believes that its patents and know-how strongly protect its technology from
competition.
The Company believes that MQPro(TM) is the only software package of its
kind that will process on a PC with a minimum of resources, i.e., 8 MB of
memory. Therefore, MQPro(TM) has significant economic advantages over all other
competing software of its kind.
Although there are many competing sources for similar services to the
Company's offerings, the Company believes its EARLY(R) process, with the
accompanying EARLY(R) software provides significant advantages in cost, and
proven solutions in its data base, to its clients.
There are many sources of product design services, especially internal
designers of organizations. However, the Company believes that its unique
technology, proprietary software, know-how and methodologies, developed over the
last 12 years, which are continuously updated, provide significant advantages to
the Company's clients over other alternatives in cost, quality and faster
turnaround, thus reducing the design cycle.
Suppliers
The Company provides services, and the materials it uses in its
business may be obtained from numerous suppliers.
Government Regulation
The Company's present and proposed activities are not generally subject
to government regulation in the United States or other countries.
While the Company cannot predict the extent to which it may be affected
by legislative or other regulatory developments, it does believe that the
current policies of OSHA encourage the use of the Company's services. The
Company is also of the view that if OSHA continues to focus on ergonomic issues,
it will result in both industry and the general public becoming more aware of
the need for ergonomic services and products. Focus is also occurring at the FDA
to encourage more human factor engineering in the design of medical devices.
The costs and effects of complying with environmental laws by the
Company are not material.
Proprietary Information
The patent process is a major protection for the Company's intellectual
property. As of today, the Company has obtained seven patents (six in the United
States and one European) and one notice of allowance, and has filed four
additional United States patent applications relating to its IST. This notice of
allowance has special significance because it is a pending software patent filed
prior to the June 22, 1995, GATT Treaty, which means, when this patent is
issued, it will have a 17 year life from time of issue or 20 years from the date
of filing, whichever is greater. One of the four patents filed is also very
significant since it is for a critical component needed to miniaturize the
application of the IST. Such miniaturization will allow the Company to a)
accelerate the commercialization of many applications, b) enter the very large
and expanding medical footwear market with applications for diabetics,
arthritics and the aging population, and c) provide applications to other
industries, such as the hand tool industry. The Company also has five U.S.
patents in fields other than IST.
The Company protects its proprietary written material, know-how,
computer software and technology, which it has or may develop, through the use
of United States copyrights, common-law trade secret protection, trademarks and
service marks, and contractual arrangements. In addition, the Company enters
into confidentiality arrangements with its employees, consultants and customers,
and implements various measures to maintain "trade secret" protection for its
products
Major Customers
During the year ended December 31, 1996, L.A. Rumbold Ltd., LILCO, and
Stanley Tools, Inc. accounted for 38%, 18% and 18% respectively, and 74% in the
aggregate, of net revenue. During the year ended December 31, 1995, BE
Aerospace, Inc., Remington, and Reebok accounted for 29%, 12% and 11%,
respectively, and 52%, in the aggregate, of net revenue. During the fiscal year
ended December 31, 1994, an Indonesian government agency, Aircraft Industry of
Indonesia ("IPTN"), Reebok and Lumex accounted for 59%, 17% and 9%,
respectively, and 85%, in the aggregate, of net revenue. Because the Company is
often retained to consult with respect to particular problems or to present
particular seminars or training sessions, it is usually retained for limited
periods of time and may not perform services pursuant to long-term contracts and
its services may not typically be needed by clients after the completion of
particular assignments. No assurance can be given that the Company will continue
to be retained by any of its major clients beyond the current period or that
such clients will find additional tasks to be performed by the Company in the
future.
Employees
As of December 31, 1996, the Company had 13 employees and two part-time
positions. The functions include six in technical staff, two in sales and
marketing, and two senior management members, with the rest being accounting and
administrative staff. In addition, the Company established a collaborative
research & development relationship with the State University of New York at
Stony Brook, with plans to establish additional relationships with other
universities, government laboratories, and other sub-contractors.
The Company has been able to attract and retain skilled employees by
offering competitive salaries and benefits. None of the Company's employees are
represented by a labor union and the Company believes that its relationship with
its employees is good.
Forward-Looking Statements
Information set forth in this Form 10-KSB regarding the Company's plans
for future operations constitutes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Any forward-looking
statements should be considered in light of the factors set forth in the
"Factors That May Affect Future Results" section of this Form 10-KSB.
ITEM 2. DESCRIPTION OF PROPERTY
Since 1990, the Company has leased office space at 1800 Walt Whitman
Road, Melville, New York. The Company's lease expires on March 31, 2000. The
current annualized lease rate for this space is approximately $138,000, which is
subject to annual increases. The facility, which contains approximately 8,400
square feet, includes biomechanics research laboratories and a comprehensive
ergonomic library as well as offices. The laboratories are used both for testing
and for the redesign of products. The facilities are believed to be adequate for
the Company's operations into the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is quoted primarily on the NASDAQ Small
Cap Market under the symbol BCAM. It is also traded on the Boston Stock Exchange
under the symbol BAM.
The following table sets forth the high and low closing bid quotations
for the Common Stock as reported by NASDAQ and the Boston Stock Exchange for
each calendar quarter during 1996 and 1995. The NASDAQ Small Cap market
quotations reflect inter-dealer prices without retail markup, markdown or
commission and do not necessarily represent actual transactions.
NASDAQ
1996 High Bid Low Bid
First Quarter 1 1/4 29/32
Second Quarter 1 5/16 29/32
Third Quarter 1 23/32 15/16
Fourth Quarter 1 7/16 13/16
1995 High Bid Low Bid
First Quarter 1 1/16 3/4
Second Quarter 1 9/32 7/8
Third Quarter 1 21/32 31/32
Fourth Quarter 2 1
Boston Stock Exchange
1996 High Bid Low Bid
First Quarter 1 7/32 3/4
Second Quarter 1 1/4 7/8
Third Quarter 1 19/32 1 3/8
Fourth Quarter 1 7/16 7/8
1995 High Bid Low Bid
First Quarter 1 1/32 11/16
Second Quarter 1 1/8 1/2
Third Quarter 1 19/32 13/16
Fourth Quarter 1 23/32 1
Holders
There were approximately 363 record holders of the Company's Common
Stock as of March 21, 1997.
Dividends
The Company has paid no cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Except for the historical information contained herein, the following
discussion contains forward looking statements that involve risk and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below in Factors That May
Affect Future Results
Overview
BCAM International, Inc. (the "Company") is a software technology
company, specializing in ergonomic (human factor) solutions for individuals,
government, and for major corporations. The Company commenced its restructuring
in 1995, by focusing on (I) accelerating the development and commercialization
of the Company's Intelligent Surface Technology ("IST"), (II) continuing its
development of proprietary software, which consists of the intelligent part of
IST, MQPro(TM) (formerly Mannequin(R)), the EARLY(R) process and
Back-to-Work(TM) methodology, and (III) upgrading and marketing its proprietary
software ("HumanCAD(R)") products of MQPro(TM), EARLY(R) and Back-to-Work(TM),
and marketing Software Based Ergonomic Consulting Services. The Company is also
committed to continue to provide its Traditional Ergonomic Consulting Services
in Ergonomic Product Assessment and Redesign and Ergonomic Workplace Assessment,
with emphasis on broadening and strengthening long term business relationships
such as joint ventures, partnerships, licensees and other alliances.
The anticipated acquisition of Drew will complete the restructuring
that began in 1995. The Company will then focus on the core business which will
include incorporating IST in seating products, exploitation of the medical
footwear market and marketing HumanCAD(R) software and Software Based Consulting
Services, and place less emphasis on the non-core business of Traditional
Ergonomic Consulting Services.
Results Of Operations - 1996 vs. 1995
Management anticipates a significant contribution from software sales
and Software Based Ergonomic Consulting Services in the future starting with
1997. Software sales and Software Based Ergonomic Consulting Service contributed
minimal revenue in 1996 and 1995. The Company's Traditional Ergonomic Consulting
Services provided virtually all revenue to the Company from contracts providing
for a fixed price or a fixed hourly rate. In setting its price for services, the
Company seeks to estimate the man hours that will be required to provide the
services. To the extent that the Company underestimates the man hours that will
be required, or the expenses it will incur in performing a contract, the Company
could realize a loss on any particular contract. The Company's policy is to
recognize revenue based on a percentage of completion method as costs are
incurred. Net revenue decreased by $147,523 in 1996 from 1995.
Net revenue includes the following:
Year Ended December 31,
--------------------------
1996 1995
---------- ----------
Intelligent Surface Technology(IST) $ 28,030 $ 96,473
Ergonomic Product Assessment and Redesign services 415,160 451,508
Ergonomic Workplace Assessment services 161,364 204,096
---------- ----------
$ 604,554 $ 752,077
========== ==========
Revenue from IST includes the initial payments for licensing the IST as
well as fees associated with the development of the prototypes for the specific
applications. Revenue from IST in 1996 includes $15,000 connected with the Sealy
option and development agreement signed in 1996. In 1996, $12,500 of revenue
from the 1994 Lumex agreement was written off after the termination of that
agreement. IST revenue declined $68,443 in 1996 from 1995 and accounted for 5%
of net revenue in 1996 versus 13% in 1995. The majority of 1995 revenue is
attributable to the licensing and development agreements with Reebok for
Intelligent Footwear and Athletic Sport and Fitness Equipment and Lumex.
Due to the one-time nature of many of the Company's consulting
contracts, revenue from Ergonomic Product Assessment and Redesign services, and
Ergonomic Workplace Assessment services (Traditional Ergonomic Consulting
Services) fluctuates from year to year. Ergonomic Product Assessment and
Redesign services revenue decreased by $36,348 in 1996 from 1995 and provided
69% of the Company's revenue in 1996 compared to 60% in 1995. Revenue from
Ergonomic Workplace Assessment services decreased $42,732 in 1996 from 1995 and
accounted for 26% of net revenue in 1996 versus 27% in 1995. Both of these
decreases reflect a change in the strategy to focus on industries where the
Company has significant expertise, and to build long-term relationships for
future integration of our technology in these companys' products.
Direct costs include salaries, equipment purchases for contracts,
consulting fees and certain other costs. Gross profit may fluctuate from period
to period. Factors influencing fluctuations include the nature and volume of
services provided to individual customers which affect contract pricing, the
Company's success in estimating contract costs (principally professional time),
the timing of hiring new professionals, who may require training before gaining
experience, efficiencies and meeting customer demands.
Direct costs decreased $325,290, to $272,980 in 1996 from $598,270 in
1995 primarily due to: (i) a more favorable mix of internal versus outside
resources in 1996 as compared to 1995, and (ii) the elimination in 1996 of a
reserve for $149,000 for Textron development, previously recorded in 1994,
representing estimated expenses for providing additional development services to
Textron. Under the agreed amendment with Textron, signed in August 1996, Textron
may receive a credit for $150,000 from any royalties that may be earned by the
Company and will be proportional over a four-year period commencing in the first
year when royalties become payable.
Gross profit, as set forth in the table below, increased by $ 177,767
in 1996 as compared to 1995. The increase was due to the reduction in direct
costs which more than offset the decline in net revenue.
Year Ended December 31,
--------------------------
1996 1995
---------- ----------
Net Revenue $ 604,554 $ 752,077
Direct Costs 272,980 598,270
---------- ----------
Gross Profit $ 331,574 $ 153,807
========== ==========
Gross Profit Percentage 55% 20%
Since taking over in 1995, a key objective of the new management team
has been to reduce selling, general and administrative expenses and redirect
such cash savings in the development of core business such as IST and
HumanCAD(R) software. Selling, general and administrative expenses were
$1,801,915 in 1996, which included approximately $355,000 in certain
non-recurring and unusual expenses (including severance and other items)
incurred as a result of the Company's restructuring. Without these non-recurring
and unusual expenses the selling, general and administrative costs in 1996 would
have been $1,446,653. Therefore, excluding these 1996 non-recurring and unusual
expenses, selling, general and administrative expenses were $1,446,653 in 1996,
$1,831,494 in 1995 (which includes approximately $193,000 of non-recurring
expenses) and $2,339,225 in 1994, demonstrating management's commitment to lower
these expenses and redirect cash into the core technology.
The Company's research and development costs decreased $87,965 to
$97,854 in 1996 from $185,819 in 1995. This decrease is primarily due to the
capitalization of $85,191 of development expenditures in 1996 relating to the
upgrade of the Company's MQPro(TM) software, released in March 1997. In prior
years, these costs were R&D in nature and accordingly were expensed in the
period they were incurred. The remaining costs reflect the development of
several components relating to certain applications of the IST. During 1996 and
1995, the Company made significant progress in the development of the necessary
components relating to certain applications of the IST, such as a microvalve
(patent filed in June 1996), a self-generating power supply and an intelligent
switch.
Net interest income decreased $119,971 to $54,055 in 1996 from $174,026
in 1995. The decrease is primarily attributable to a decrease in cash available
for investment from 1995 to 1996 utilized for operating activities.
Due to the net losses and the accounting rules in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting for
Income Taxes", there was no provision for income taxes in 1996 and 1995.
As a result of all of the above, the net loss in 1996 decreased
$175,340 to $1,514,140 from $1,689,480 in 1995.
Liquidity And Capital Resources
Cash, cash equivalents and held-to-maturity securities decreased by
$1,682,514 to $526,344 at December 31, 1996, from $2,208,858 at December 31,
1995. Net cash used in operating activities, mainly to cover the 1996 net loss,
was $1,602,237 for the year ended December 31, 1996, compared to $2,010,346 in
the year ended December 31, 1995. Financing activities used $74,246 in cash for
the year ended December 31, 1996, compared to $59,299 for the year ended
December 31, 1995. This consisted mainly of uses of cash for stock registration
and issuance costs.
Accounts receivable, net of the allowance for doubtful accounts,
decreased to $22,537 at December 31, 1996, from $135,995 at December 31, 1995.
Three customers comprised 84% of gross accounts receivable at December 31, 1996.
Prepaid expenses and other current assets increased to $333,477 at
December 31, 1996, from $233,585 at December 31, 1995. Other current assets
principally include profits and expenses for services rendered but are not yet
billed. Also included in the 1996 amount are approximately $185,000 of costs
related to the acquisition of Drew.
Accounts payable, accrued expenses and sundry liabilities decreased to
$285,065 at December 31, 1996, from $422,671 at December 31, 1995. The decrease
of $137,606 resulted primarily from the elimination of an accrual for $149,000
relating to the Textron licensing agreement.
Consequently, working capital decreased $1,558,474 to $597,293 at
December 31, 1996, from $2,155,767 at December 31, 1995.
The Company has no material commitments for any future capital
expenditures.
The Company expects that its working capital, together with revenue
from operations, the proceeds from a private placement (see below), and
potential exercise of its Class B and Class E Warrants, will be sufficient to
meet liquidity and capital requirements through 1997. Longer term cash
requirements are dictated by a number of external factors, which include, among
others, further development of and royalties from IST, further development and
product sales of HumanCAD(R) software and the Company's ability to introduce new
competitive products and services.
On March 19, 1997, the Company entered into an agreement with the
owners of Drew whereby, the Company will purchase all of the Common Stock of
Drew for $4,600,000 subject to financing. Drew, of Lancaster Ohio, is a 125
year-old leading designer, manufacturer and distributor of medical footwear and
orthotic products This acquisition will complete the Company's restructuring.
Drew represents an opportunistic and synergistic vehicle for the Company to
incorporate IST into medical footwear and orthotic products, for diabetics,
arthritics, and the aging population.
On March 10, 1997, at the National Design Engineering Show in Chicago,
Illinois, the Company, through its HumanCAD(R) Systems division, introduced
MQPro(TM), a PC-based human modeling and ergonomics design program that creates
accurate, three-dimensional humanoids with point-and-click simplicity. MQPro(TM)
will be the first ergonomic product in its series of computer-aided human
ergonomic software.
On January 15, 1997, the Company offered a minimum of 400,000 Units,
each consisting of one share of the Company's Common Stock and a non-redeemable
Class AA Warrant, which entitles the holder to purchase one share of the
Company's Common Stock at a price of $1.10 per share, until March 31, 1999. The
offering was completed on March 28, 1997, and 1,075,000 units have been sold
raising $1,075,000 for the Company.
On December 20, 1996, the Company extended the expiration date of the
Company's Class B Warrants and Class E Warrants from January 17, 1997, to
January 17, 1998, and of the Company's Class C Warrants from January 17, 1997,
to March 18, 1997. The conversion of the Warrants is a potential source of
additional capital. The Class C Warrants expired and were not converted.
The Company's net revenue was $604,554 in 1996. Revenue is expected to
be higher in 1997 than in 1996 because it will include sales of its HumanCAD(R)
software, the start of royalties from Textron (Textron informed the Company in
1996 that certain 1998 model automobiles will be introduced in the fall of 1997
incorporating IST in the design of the drivers' and front passenger's seats) and
continued revenues from the Company's Traditional Ergonomic Consulting Services
as well as the new Software Based Ergonomic Consulting Services.
.
Factors That May Affect Future Results
The Company's future operating results are dependent on the Company's
ability to (i) successfully further develop IST and increase the number of
licensees, and the commercialization of IST by its licensees, (ii) further
develop and sell its HumanCAD(R) software consisting of MQPro(TM), EARLY(R)
process and Back-To-Work(TM) methodology, (iii) successfully market and sell its
new Software Based Consulting Services and its Traditional Ergonomic Consulting
Services and (iv) complete the Company's acquisition of Drew, future
profitability of Drew and introduction of IST in medical footwear and orthotic
products.
ITEM 7. FINANCIAL STATEMENTS
The response to Item 7 is submitted as a separate section of this
Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Pursuant to General Instruction E(3) for Form 10-KSB, the information
required by Item 405 of Regulation S-B is hereby incorporated by reference from
the Company's definitive proxy statement, to be filed pursuant to Regulation 14A
within 120 days after the end of the last fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
Pursuant to General Instruction E(3) for Form 10-KSB, the information
required by this Item 10 is hereby incorporated by reference from the Company's
definitive proxy statement, to be filed pursuant to Regulation 14A within 120
days after the end of the last fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Pursuant to General Instruction E(3) for Form 10-KSB, the information
required by this Item 11 is hereby incorporated by reference from the Company's
definitive proxy statement, to be filed pursuant to Regulation 14A within 120
days after the end of the last fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction E(3) for Form 10-KSB, the information
required by this Item 12 is hereby incorporated by reference from the Company's
definitive proxy statement, to be filed pursuant to Regulation 14A within 120
days after the end of the last fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1 Restated Certificate of Incorporation(1)
3.2 Restated and Amended By-Laws(1)
4.1 Underwriter's Unit Purchase Option(4)
4.2 Finder's Unit Purchase Option(4)
4.3 Warrant Agreement(4)
4.4 Form of Senior Secured Convertible Promissory Note (5)
4.5 Form of Class C common Stock Purchase Warrant(5)
4.6 Form of Class D Common Stock Purchase Warrant(5)
4.7 Revised Form of Amendment No. 1 to Warrant Agreement(7)
4.8 Revised Form of Class E Common Stock Purchase Warrant(7)
10.1 Stock Redemption Agreement(1)
10.2 1989 Stock Option Plan(1)
10.3 Employment Agreement with Dr. Clifford M. Gross(1)
10.4 Employment Agreement with Arthur Fein(1)
10.5 Bridge Warrant(1)
10.6 Bridge Note and Related Loan Agreement(1)
10.7 Consulting Agreement with Lear Siegler Seating
Corporation(1)
10.8 Extension Agreement to Redemption Agreement (Exhibit
10.1)
10.9 Consulting Agreement dated August 1, 1988 with NRC
Resources Group, Inc.(1)
10.10 General Release of NRC Resources Group, Inc.(1)
10.11 Mortgage Note and Related Loan Agreement and
Mortgage and Security Agreement(1)
10.12 Second Extension Agreement to Redemption Agreement(4)
10.13 Merger and Acquisition Agreement with D.H. Blair &
Co., Inc.(4)
10.14 1989 Nonstatutory Stock Option Plan(2)
10.15 Consulting Agreement with D.H. Blair & Co., Inc.(4)
10.16 Consulting Agreement with Steelcase, Inc.(2)
10.17 License and Manufacturing Agreement with MicroComputer
Accessories, Inc.(4)
10.18 Employment Agreement with Cynthia Roth(4)
10.19 Employment Agreement with Kenneth Goodman(4)
10.20 Form of Employment Agreement with Ava Stern(4)
10.21 Form of Employment Agreement with William G. Sirois(4)
10.22 Lease of Premises at 1800 Walt Whitman Road,
Melville, New York(4)
10.23 Consulting Agreement dated as of February 1, 1990, with
NRC Resources Group, Inc.(4)
10.24 Underwriting Agreement (for IPO) with D.H. Blair &
Co., Inc.(4)
10.25 Securities Purchase Agreement dated June 25, 1991, among
the Company, the Purchasers and D.H. Blair & Co., Inc.(5)
10.26 Security Agreement dated as of June 25, 1991 between the
Company and D.H. Blair & Co., Inc., as Purchasers'
Representative(5)
10.29 Employment Agreement dated as of June 20, 1991 between
David A. Deutsch and the Company(5)
10.30 Letter of Understanding between Kenneth A. Goodman and
the Company(5)
10.31 Employment Agreement dated as of August 1, 1991 between
Joel Sher and the Company(5)
10.32 Amendment to 1989 Stock Option Plan(5)
10.33 Distributor Agreement with Techexport, Inc.(3)
10.34 Partnership Agreement dated December 28, 1992, for
Ergonomic Solutions Group (ESG)(8)
10.35 License Agreement dated December 28, 1992, between the
Company and ESG (8)
10.36 Development and Licensing Agreement dated March 5, 1993,
between the Company and McCord Winn Textron, Inc. (8)
10.37 Agreement dated August 22, 1992, between the Company and
PT Industry Pesawat Terbang Nusantara (IPTN) (8)
10.38 Further Amendments to 1989 Stock Option Plan (8)
10.39 Amendment to Development and Licensing Agreement dated
October 27, 1993, between the Company and McCord Winn
Textron. (10)
10.40 Investors Consulting Agreement with Strategic Growth
International Inc. (9)
10.41 Agreement dated December 22, 1993 between the Company and
PT Industri Pesawat Terbank Nusantara (IPTN)(9)
10.42 Agreement dated September 29, 1993, between the Company,
McCord Winn Textron, Inc. and Lear Seating Company. (9)
10.43 Development and Licensing Agreement dated January 4,1994,
between the Company and Reebok International Ltd. (9)
10.44 Development and License Agreement dated September 28,
1994, between the Company and Lumex, Inc. (11)
10.45 Employment Agreement dated October 13, 1994, between
Michael Strauss and the Company (10)
10.46 Letter Agreement dated February 15, 1996, between the
Company and McCord Winn Textron, Inc. to extend the
Development and License Agreement dated March 5, 1993(14)
10.47 Amendment to Employment Agreement between Michael Strauss
and the Company (13)
10.48 1995 Stock Option Plan (13)
10.49 Amendment letter of agreement dated August 15, 1996
between the Company and McCord Winn Textron, Inc. (Filed
Herewith)
10.50 Letter of agreement terminating the September 28, 1994,
Development and License Agreement between the Company and
Lumex, Inc.(Filed Herewith)
10.51 Letter of Agreement with Josephberg & Grosz to provide
the Company investment banking services (Filed Herewith)
10.52 Stock Purchase Agreement between the Company and the
owners of Drew Shoe Corporation (Filed Herewith)
21.00 Subsidiaries of the Company (12)
(1) Filed as an Exhibit to Registrant's Registration Statement on Form S-18
(file no. 33-31282) and incorporated herein by reference thereto.
(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (file no. 0-18109) and incorporated
herein by reference thereto.
(3) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (file no. 0-18109) and
incorporated herein by reference thereto.
(4) Filed as an Exhibit to Registrant's Registration Statement on Form S-1
(file no. 33-38204) and incorporated herein by reference thereto.
(5) Filed as an Exhibit to Post Effective Amendment No. 1 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(6) Filed as an Exhibit to Post Effective Amendment No. 2 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(7) Filed as an Exhibit to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-1 (file no. 33-38204) and incorporated
herein by reference thereto.
(8) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1992 (file no. 0-18109) and
incorporated herein by reference thereto.
(9) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993 (file no. 0-18109) and
incorporated by reference thereto.
(10) Filed as an Exhibit to Registrant's Form 10-QSB/A filed December 5,
1994 amending the Form 10-QSB for quarterly period ended September 30,
1994 (file no. 0-18109) and incorporated by reference thereto.
(11) Filed as an Exhibit to Registrant's Form 10-QSB/A for the fiscal
year ended December 31, 1993 (file no. 0-18109) and incorporated by
reference thereto.
(12) Filed as an Exhibit to Registrant's Form 10-KSB for the fiscal
year ended December 31, 1994 (file no. 0-18109) and incorporated by
reference thereto.
(13) Filed as an Exhibit to Registrant's Form 10-QSB for the quarter
ended June 30, 1995 (file no. 0-18109) and incorporated by
reference thereto.
(14) Filed as an Exhibit to Registrant's Form 10-KSB for the fiscal
year ended December 31, 1995 (file no. 0-18109) and incorporated by
reference thereto.
AVAILABLE INFORMATION
Registrant will furnish any exhibits listed but not contained herein to
any beneficial owner of its securities upon receipt of a written request from
such person. Requests should be directed to Shareholder Relations Department,
BCAM International, Inc., 1800 Walt Whitman Road, Melville, New York 11747.
(b) During the fourth quarter of the period covered by this Report, the
Company filed no reports on Form 8-K.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
BCAM International, Inc.
By: /s/ Michael Strauss
---------------------
Michael Strauss
Chairman of the Board of Directors
Chief Executive Officer
(Principal Executive Officer)
Date: April 11, 1997
By: /s/ Robert P. Wong
----------------------
Robert P. Wong
Vice Chairman,
Chief Technology Officer and
Acting Chief Financial Officer
(Acting Principal Accounting Officer)
Date: April 11, 1997
<PAGE>
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ Michael Strauss Chairman of the Board April 11, 1997
- ----------------------- of Directors
Michael Strauss and Chief Executive Officer
(Principal Executive Officer)
/s/ Robert P. Wong Director, Vice Chairman, April 11, 1997
- ----------------------- Chief Technology Officer and
Robert P. Wong Acting Chief Financial Officer
(Acting Principal Accounting Officer)
/s/ Norman Friedland Corporate Secretary April 11, 1997
- -----------------------
Norman Friedland
/s/ Julian H. Cherubini Director April 11, 1997
- -----------------------
Julian H. Cherubini
/s/ Joel L. Gold Director April 11, 1997
- -----------------------
Joel L. Gold
Director April __, 1997
- -----------------------
Glenn F. Santmire
<PAGE>
Annual Report On Form 10-KSB
Item 7, Item 13(a) and (b)
List Of Financial Statements
Certain Exhibits
Consolidated Financial Statements
Year ended December 31, 1996
BCAM International, Inc.
Melville, New York
<PAGE>
Form 10-KSB - Item 13(a) and (b)
BCAM International, Inc.
Index of Financial Statements
The following consolidated financial statements of BCAM International, Inc are
included in Item 7:
Report of Independent Auditors........................................ F-1
Consolidated balance sheet-December 31, 1996.......................... F-2
Consolidated statements of operations-
Years ended December 31, 1996 and 1995.............................. F-3
Consolidated statements of common shareholders' equity-
Years ended December 31, 1996 and 1995............... .............. F-4
Consolidated statements of cash flows-
Years ended December 31, 1996 and 1995 ............................. F-5
Notes to consolidated financial statements............................ F-6
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
BCAM International, Inc.
We have audited the accompanying consolidated balance sheet of BCAM
International, Inc., as of December 31, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BCAM
International, Inc. at December 31, 1996, and the consolidated results of their
operations and cash flows for each of the two years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Melville, New York
February 27, 1997, except for
Note 10, as to which the date
is March 28, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
BCAM International, Inc.
Consolidated Balance Sheet
December 31, 1996
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 526,344
Accounts receivable - trade, less allowance for doubtful accounts
of $11,245 22,537
Prepaid expenses and other current assets 333,477
-------------------
Total current assets 882,358 Property, plant and equipment, at cost:
Furniture and fixtures 220,318
Equipment 593,542
Leasehold improvements 50,519
-------------------
864,379
Less accumulated depreciation and amortization 670,591
-------------------
193,788
Other assets, principally patents (net of accumulated amortization
of $263,874) 228,535
-------------------
Total assets $ 1,304,681
===================
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 118,501
Accrued expenses and sundry liabilities 166,564
-------------------
Total current liabilities 285,065
Other liabilities 4,289
Commitments and contingencies -
Acquisition preferred stock, par value $.01 per share--authorized 750,000
shares, no shares issued or outstanding -
Common shareholders' equity:
Common stock, par value $.01 per share--authorized 40,000,000 shares, 15,642,915
shares issued and 14,879,733 shares outstanding 156,429
Paid-in surplus 14,959,288
Deficit (13,201,290)
-------------------
1,914,427
Less 763,182 treasury shares (899,100)
-------------------
1,015,327
===================
Total liabilities and shareholders' equity $ 1,304,681
===================
See accompanying notes.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
BCAM International, Inc.
Consolidated Statements of Operations
Year ended December 31
1996 1995
--------------------------------------
<S> <C> <C>
Net revenue $ 604,554 $ 752,077
Costs and expenses:
Direct costs of revenue 272,980 598,270
Selling, general and administrative 1,801,915 1,831,494
Research and development 97,854 185,819
--------------------------------------
2,172,749 2,615,583
--------------------------------------
Net loss from operations (1,568,195) (1,863,506)
Interest income, net of interest expense of $14,579 in 1996 54,055 174,026
======================================
Net loss $ (1,514,140) $ (1,689,480)
======================================
Net loss per share $ (0.10) $ (0.11)
======================================
Weighted average number of common shares and
common equivalent shares outstanding 14,868,128 14,818,055
======================================
See accompanying notes.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
BCAM International, Inc.
Consolidated Statements of Common Shareholders' Equity
Common Stock $.01 par value Shares held
--------------------------- Paid-in in
Shares Amount surplus Deficit Subtotal Treasury Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 15,520,415 $155,204 $14,994,058 $ (9,997,670) $ 5,151,592 $(899,100) $ 4,252,492
Shares issued in connection
with conversion of BCA
Services, Inc. stock 100,000 1,000 99,000 - 100,000 - 100,000
Registration and issuance
costs - - (59,299) - (59,299) - (59,299)
Net loss - - - (1,689,480) (1,689,480) - (1,689,480)
------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 15,620,415 156,204 15,033,759 (11,687,150) 3,502,813 (899,100) 2,603,713
Exercise of common stock
warrants 22,500 225 20,520 - 20,745 - 20,745
Registration and issuance
costs - - (94,991) - (94,991) - (94,991)
Net loss - - - (1,514,140) (1,514,140) - (1,514,140)
------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 15,642,915 $156,429 $14,959,288 $(13,201,290) $ 1,914,427 $(899,100) $ 1,015,327
======================================================================================================
See accompanying notes.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
BCAM International, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1996 1995
------------------------------------
<S> <C> <C>
Operating activities
Net loss $ (1,514,140) $ (1,689,480)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for doubtful accounts - 34,726
Depreciation 86,220 103,479
Amortization 103,895 63,648
Interest accreted on held-to-maturity securities - (114,370)
Changes in operating assets and liabilities:
Accounts receivable 113,458 (50,866)
Prepaid expenses and other current assets (99,892) (3,105)
Other assets (150,618) (49,492)
Accounts payable, accrued expenses and sundry liabilities (137,606) (277,998)
Other liabilities (3,554) (26,888)
------------------------------------
Net cash used in operating activities (1,602,237) (2,010,346)
------------------------------------
Investing activities
Purchases of property, plant and equipment (6,031) (5,188)
Proceeds from sale of equipment - 1,200
Purchases of held-to-maturity securities - (2,799,782)
Proceeds from sale of held-to-maturity securities 1,507,172 4,535,000
------------------------------------
Net cash provided by investing activities 1,501,141 1,731,230
------------------------------------
Financing activities
Proceeds from note payable 400,000 -
Repayment of note payable (400,000) -
Net proceeds from exercise of stock options 20,745 -
Payment of stock registration and issuance costs (94,991) (59,299)
------------------------------------
Net cash used in financing activities (74,246) (59,299)
------------------------------------
Decrease in cash and cash equivalents (175,342) (338,415)
Cash and cash equivalents at beginning of year 701,686 1,040,101
====================================
Cash and cash equivalents at end of year $ 526,344 $ 701,686
====================================
See accompanying notes.
</TABLE>
F-5
<PAGE>
BCAM International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. Description of Business and Principles of Consolidation
BCAM International, Inc. (the "Company") is a software technology company,
specializing in ergonomic (human factor) solutions for individuals, government,
and for major corporations. The Company commenced a restructuring in 1995 by
focusing on (i) accelerating the development and commercialization of the
Company's Intelligent Surface Technology ("IST"), (ii) continuing its
development of proprietary software, which consists of IST, MQPro(R) (formerly
Mannequin(R)), the EARLY(TM) process and Back-to-Work(TM) methodology, and (iii)
upgrading and marketing its proprietary software products, and marketing
Software Based Ergonomic Consulting Services. The Company also provides its
Traditional Ergonomic Consulting Services in Ergonomic Product Assessment and
Redesign and Ergonomic Workplace Assessment, with emphasis on broadening and
strengthening long-term business relationships such as joint ventures,
partnerships, licensees and other alliances.
The consolidated financial statements include the accounts of BCAM
International, Inc. and its subsidiaries, BCA Services, Inc., and BCAM
Technologies, Inc., collectively referred to as the "Company". BCA Services,
Inc. was established in December 1993 to directly focus on providing
comprehensive ergonomic laboratory assessment services to U.S. manufacturing and
service industries for measuring the potential risk of muscoloskeltal injury.
The operations of BCAM Technologies, Inc., formed in December 1992, which were
not significant, were terminated in December 1993.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
at December 31, 1996 consist of demand and money market accounts with U.S. banks
($56,759) and a money market account with a U.S. investment institution
($469,585).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and footnotes. Actual
results could differ from those estimates.
F-6
<PAGE>
BCAM International, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Revenue
Revenue is recognized based on the percentage of completion method as costs are
incurred, no significant obligations remain outstanding and collection of the
accounts receivable, in management's estimation, is deemed probable.
Property, Plant and Equipment
Depreciation is computed using the straight-line method at rates based on the
estimated useful lives of the related assets. The estimated useful lives for
furniture and fixtures is 10 years and equipment is 7 years. Leasehold
improvements are amortized over the lease term or estimated useful life of the
improvements, whichever is shorter.
Other Assets
Patents, trademarks and other intellectual properties are initially capitalized
at cost. This amount ($143,344 at December 31, 1996) is being amortized using
the straight-line method over the estimated useful lives of the underlying
assets of approximately 5 years.
In 1996, the Company capitalized software development costs of $85,191. These
costs will be amortized over two years using the straight-line method commencing
when the software is deemed available for sale.
Research and Development
Research and development costs are charged to operations in the period incurred.
Income Taxes
The Company accounts for income taxes using Financial Accounting Standards Board
("FASB") Statement No. 109, "Accounting for Income Taxes." At December 31, 1996,
the Company has net operating loss carryforwards of approximately $13,741,000
for income tax purposes, expiring through 2011.
F-7
<PAGE>
2. Summary of Significant Accounting Policies (continued)
At December 31, 1996 and 1995, deferred tax assets approximating $4,672,000 and
$4,129,000, respectively, arising from the future availability of net operating
loss carryforwards have been offset in full by valuation allowances in
accordance with FASB Statement No. 109.
Net Loss Per Share
Net loss per share has been computed on the basis of the weighted average number
of common shares outstanding. Common stock equivalents have been excluded
because their effect is antidilutive.
Stock-Based Compensation
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." In acordance with the standard, the Company elected to continue
to account for its stock-based compensation under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations (APB 25). Under APB 25, because the exercise price of the
Company's stock options granted equals the market price of the underlying stock
on the date of the grant, no compensation expense is required to be recognized.
Accounting Change
In 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. This adoption had no effect on the
consolidated financial statements.
Reclassification
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
F-8
<PAGE>
3. Acquisition Preferred Stock
The Company is authorized to issue 750,000 shares of its acquisition preferred
stock, $.01 par value, none of which are presently issued and outstanding. The
acquisition preferred stock is only permitted to be issued as consideration
pursuant to (i) a statutory merger or consolidation as to which the Company is
the surviving entity, (ii) the acquisition by the Company of substantially all
the assets or business of another entity or (iii) the acquisition by the Company
of 50% or more of the voting securities of another entity. The acquisition
preferred stock is issuable from time to time in one or more series. The Board
of Directors is authorized to fix, before issuance, the voting powers, if any,
the designations, preferences and any other rights, qualifications, limitations
and restrictions applicable to each series of acquisition preferred stock,
including, without limitation, dividend rates and conditions, dividend
preferences, conversion and redemption rights and liquidation preferences.
4. Common Shareholders' Equity
On January 24, 1990, the Company issued and sold 1,100,000 units for $4.00 per
unit in connection with a public offering. The net proceeds, after accounting
for direct expenses of the offering, were approximately $3,397,000. On February
26, 1990, the underwriter issued and sold an additional 165,000 units at $4.00
per unit resulting from the exercise of the overallotment option and the Company
received net proceeds of $574,200. Each unit consists of three shares of common
stock and two Class A warrants. Each Class A warrant is exercisable to purchase
one share of common stock and one Class B warrant at a price of $2.00, subject
to adjustment, commencing one year from the date of the Prospectus (January 17,
1990) until January 17, 1997 (extended from January 16, 1995) subject, in
certain circumstances, to earlier redemption by the Company. As a result of the
dilutive effects of private placements (see Note 7) and the Discounted Warrant
Plan (see below), the number of shares issuable under and the exercise price of
the Company's Class B warrants, which may be exercised commencing upon issuance
until January 17, 1998 (extended from January 17, 1997), have been adjusted such
that each Class B warrant, as adjusted, entitles the holder to purchase one and
two tenths (1.2) shares (originally one share) of Common stock at an adjusted
price that varies from $2.69 to $3.23 to January 17, 1997 and $1.50 per share
thereafter (originally $3.33 to $4.67). As a result of the issuance of
approximately 1,717,000 Class E warrants pursuant to the Discounted Warrant
Plan, each Class A warrant remaining unexercised entitles the holder thereof to
purchase one and two-tenth (1.2) (originally one share) shares of common stock
and one Class B warrant at an adjusted price per share, subject to further
adjustment, of $1.72. Since the Company has satisfied the condition of
redemption,
F-9
<PAGE>
4. Common Shareholders' Equity (continued)
namely the closing bid price of common stock of the Company exceeding $2.67 for
a period of 30 consecutive business days, the remaining Class A Warrants were
called effective November 19, 1993. The Company extended the redemption date to
December 20, 1993 and 807,659 Class A Warrants were exercised resulting in the
issuance of 969,191 shares of common stock and 807,659 Class B Warrants
exercisable to purchase 969,191 shares of common stock and receipt by the
Company of net proceeds of $1,667,008.
In connection with the public offering, the Company sold 110,000 Unit Purchase
Options (the "Unit Options") to the underwriter and a finder on January 24, 1990
for a nominal consideration. The units purchasable upon exercise of the Unit
Options are identical to the units sold in the public offering, except that the
warrants included therein are not redeemable. The Unit Options are exercisable
at 130% of the public offering price subject to certain antidilution
adjustments. The Unit Options are exercisable during the five-year period
(originally three-years) commencing two years from the date of the public
offering, expiring January 17, 1997. As a result of the dilutive effects of the
private placement, the number of Unit Options has been increased to 127,547 and
the unit price adjusted to $4.35 per unit (originally $5.20 per unit). Pursuant
to a settlement agreement certain Unit Purchase Option holders surrendered for
exercise in full 30,369 units in a cashless transaction that provided them with
85,674 shares of common stock representing the excess of the fair market value
of the common stock and Class A warrants, over the exercise price of the Unit.
At December 31, 1996, there were 97,178 units (underwriter) and 1,568 units
(finder) outstanding.
In October 1991, the Board of Directors of the Company approved a Discounted
Warrant Plan, providing for 1) a reduction in the price of each Class A warrant
which was exercised during the Class A Limited Exercise Period (expired in 1992)
from $2.00 to the discounted price of $1.50 per share of common stock, and 2)
the issuance to each holder who exercised a discounted Class A warrant during
the Class A Limited Exercise Period, a Class E warrant, in lieu of a Class B
warrant, which has the same terms and conditions as the Class B warrants, except
that the price of each Class E warrant was reduced to the discounted price of
$1.25 per share of common stock until the expiration date on January 17, 1998
(extended from January 16, 1995).
Pursuant to the Discounted Warrant Plan, approximately 1,717,000 Class A
warrants were exercised resulting in the issuance of approximately 1,717,000
shares of common stock and 1,717,000 Class E warrants exercisable to purchase
approximately 1,888,700 shares of
F-10
<PAGE>
4. Common Shareholders' Equity (continued)
common stock and the receipt by the Company of net proceeds of approximately
$2,500,000. During the year ended December 31, 1993, 1,022,825 Class E warrants
were exercised resulting in an issuance of 1,125,109 shares of common stock and
receipt by the Company of net proceeds of $1,406,464. In connection with the
exercise of the E warrants, options to purchase 38,508 unregistered shares of
common stock exercisable at prices ranging from $3.31 through $3.44 per share
were issued to two registered brokerage houses, as an inducement for their
exercise of the aforementioned Class E warrants. The options were exercisable
for 18 months from the dates of exercise of the Class E warrants (October 1993).
In addition, through December 31, 1992, 202,588 Class E warrants were exercised
resulting in the issuance of approximately 223,000 shares of common stock and
the receipt by the Company of net proceeds of approximately $280,000. In
connection with the Discounted Warrant Plan, the Board of Directors issued in
1992 an aggregate of 166,154 restricted shares of common stock of the Company to
two registered brokers, in full payment of the compensation due them for
soliciting the exercise of the Class A warrants.
In June 1991, Class D warrants exercisable over a five-year term to purchase
176,250 shares of common stock at $2.00 per share and Class C warrants
exercisable over a five and one-half year term (originally five-year term) to
purchase 200,000 shares of common stock at $1.00 per share were issued in
connection with the private placement (see Note 7). As a result of the exercise
of Class E warrants and pursuant to provisions for adjustment of the exercise
price of the Company's Class D warrants, each Class D warrant entitles the
holder to purchase approximately two and three-tenths (2.3) (originally one
share) shares of common stock at an adjusted price per share, subject to further
adjustment, of approximately $.88 per share and each Class C warrant to purchase
228,571 (originally 200,000) shares of common stock at $.88 per share. Through
December 31, 1996, 173,750 Class D warrants have been exercised resulting in an
issuance of 397,143 shares of common stock and the receipt by the Company of
$347,500 and 63,334 Class C warrants have been exercised resulting in an
issuance of 72,334 shares of common stock and the receipt by the Company of
$63,344. The Class C warrants still outstanding which were to expire on January
17, 1997 were extended to March 18, 1997 and the price was reduced to $.75 per
share. Such warrants expired unexercised.
Effective June 22, 1995, the Company's shareholders voted to increase the number
of authorized common stock from 20 million shares to 40 million shares.
F-11
<PAGE>
4. Common Shareholders' Equity (continued)
Common shares reserved for future issuance as of December 31, 1996 are
approximately as follows:
Units sold in public offering in 1990:
Class B warrants 969,000
Class E warrants 541,000
Third party options (Note 5) 500,000
Unit Options 766,000
1989 Stock Option Plan (Note 5) 432,000
1989 Nonstatutory Plan (Note 5) 100,000
1995 Stock Option Plan 1,761,000
Warrants issued in private placement in 1991 (Note 7): 0
Class C warrants 156,000
Class D warrants 6,000
===============
5,231,000
===============
5. Stock Options
In June 1995, the shareholders of the Company approved the adoption of the 1995
Stock Option Plan (the "1995 Plan"). The 1995 Plan provides for the granting of
incentive stock options ("ISOs") and/or nonqualified stock options to employees,
directors or consultants of the Company to purchase an aggregate of 2,000,000
shares of the Company's common stock. The option price per share for ISOs
granted under the 1995 Plan shall not be less than the fair market value of the
Company's common stock on the date of grant. Furthermore, the option price per
share shall be determined by the Board of Directors. Options vest based on
certain provisions related principally to future services. Options are
exercisable over various periods up to ten years from the date of grant. No
option may be granted under the 1995 Plan after June 2005. At December 31, 1996,
there were 219,500 shares available for granting of future options. The 1995
Plan replaced all prior option plans and no further options will be granted
under the prior option plans.
In 1989, the shareholders of the Company approved the adoption of a 1989 Stock
Option Plan (the "1989 Plan"). The 1989 Plan provided for the granting of
incentive stock options and/or nonqualified stock options to key employees and
consultants to purchase shares of the Company's common stock at a price per
share not less than the fair market value on the date
F-12
<PAGE>
5. Stock Options (continued)
of grant. In 1992, the Plan was amended to (a) increase the number of shares to
1,565,957, (b) permit the granting of nonqualified stock options at a price per
share less than the fair market value of the Company's common stock on the date
of grant and (c) permit options to be exercised up to two years after
termination of employment under certain circumstances. Options vest based on
certain provisions related principally to future services. Options are
exercisable over various periods up to six years from the date of grant.
Pursuant to the terms of the 1995 Plan, no options may be granted under the 1989
Plan subsequent to June 22, 1995.
In 1989, the Company also adopted a Nonstatutory Stock Option Plan (the "1989
Nonstatutory Plan") for directors. Under the 1989 Nonstatutory Plan, the Company
could grant options for the purchase of an aggregate of 355,000 shares of common
stock at not less than fair market value at the date of grant. The options
expire at various dates. Pursuant to the terms of the 1995 Plan, no options may
be granted under the 1989 Nonstatutory Plan subsequent to June 22, 1995.
Option activity during each of the two years ended December 31, 1996 for the
1989 Plan and the 1989 Nonstatutory Plan is summarized as follows:
<TABLE>
<CAPTION>
1989 Nonstatutory Plan 1989 Plan
Shares Under Option Shares Under Option
------------------------------------------------------------------------
Weighted
Number Average Number
Option price per of Option price Exercise of
share Shares per share Price Shares
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 190,833 988,008
Granted - $ .92 119,000
Cancelled/expired $1.13 to $2.56 (90,833) $.92 to $3.47 (655,008)
---------------
Balance at December 31,1995 100,000 $1.95 452,000
Exercised - $ .92 $ .92 (2,500)
Cancelled - $.92 to $3.13 $2.18 (17,500)
------- ---------------
Balance at December 31,1996 100,000 $1.94 432,000
======= ===============
</TABLE>
F-13
<PAGE>
5. Stock Options (continued)
Option activity during during each of the two years ended December 31, 1996 for
the 1995 Plan is summarized as follows:
<TABLE>
<CAPTION>
1995 Plan
Shares Under Option
--------------------------------------------------------
Weighted Number
Option price per Average of
share Exercise Price shares
--------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1995 -
Granted $0.92 to $1.68 1,962,500
Cancelled/expired $0.92 (30,000)
-----------------
Balance at December 31, 1995 $1.04 1,932,500
-----------------
Granted $0.95 to $1.20 $1.09 198,000
Cancelled/expired $0.92 $1.09 (350,000)
Exercised $0.92 $0.92 (20,000)
-----------------
Balance at December 31, 1996 1,760,500
=================
</TABLE>
During 1996, the Company granted 100,000 fully vested nonstatutory stock options
at fair market value to a third party, which are exercisable for a period of ten
years at a price of $1.17 per share. In addition, during 1995, the Company
granted 300,000 fully vested nonstatutory stock options at fair market value to
a third party, which are exercisable for a period of eighteen months at a price
of $1.05 per share, and 5,000 nonstatutory stock options at fair market value to
a third party, which were cancelled in 1996. Further, in 1994 the Company
granted 100,000 nonstatutory stock options at fair market value to a third
party, which vest ratably over two years and are exercisable for a period of
five years at a price of $1.69 per share. At December 31, 1996, 500,000 of these
options are outstanding.
* * * * * * * *
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based compensation" which requires
that the information be determined as if the Company has accounted for its stock
options granted
F-14
<PAGE>
5. Stock Options (continued)
subsequent to December 31, 1994 under the fair value method of that statement.
The fair value for these options was estimated at the date of the grant using a
Black-Scholes option pricing model. The Company's pro forma information follows:
December 31
1996 1995
----------------- ----------------
Pro forma net loss $ (1,861,660) $ (1,876,559)
Pro forma loss per share $ (.13) $ (.13)
The fair value of these options at the date of the grant was estimated with the
following weighted average assumptions for 1996 and 1995: risk free interest
rates ranging from 5.7% to 7.1%, no dividend yield, volatility factor of the
expected market price of the Company's common stock of 49%, and a weighted
average expected life of the options ranging from six to eight years. Because
Statement 123 is applicable only to options granted subsequent to December 31,
1994 and employee stock options granted vest over a period from one to four
years, its pro forma effect will not be fully reflected in pro forma net income.
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------- -----------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Outstanding Average
Exercise at December Contractual Exercise at December Exercise
Price 31, 1996 Life Price 31, 1996 Price
----------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$0.92-$1.00 495,500 8.0 years $0.92 157,250 $0.92
$1.01-$2.00 1,589,000 6.8 years $1.12 708,375 $1.12
$2.01-$3.22 208,000 0.2 years $2.64 205,000 $2.65
----------- ----------- ----------- -------- ----------- ---------
$0.92-$3.22 2,292,500 2.5 years $1.22 1,070,625 $1.38
=========== =========== =========== ======== =========== =========
The weighted average fair value of all stock options granted in 1996 was $.70
per share.
</TABLE>
F-15
<PAGE>
6. Leases
The Company leases its office space for a term extending through March 31, 2000.
In August, 1996, this lease was modified to reflect a reduction in leased space.
Additionally, the Company has entered into various operating leases for
equipment. Future minimum payments under noncancellable operating leases for
years ending December 31 are as follows:
1997 $150,674
1998 155,146
1999 155,865
2000 39,316
=================
$501,001
=================
Rent expense in 1996 and 1995, under all operating leases, was approximately
$168,000 and $179,000, respectively.
7. Private Placements
On June 25, 1991, the Company completed a private placement, for which D.H.
Blair and Co. Inc. ("Blair") acted as placement agent, of $1,762,500 of its
securities, consisting of $1,101,562 of Senior Secured Convertible Promissory
Notes (the "Notes") convertible into Common Stock at $1.00 per share, 660,937
shares of common stock at $1.00 per share and 176,250 Class D warrants
exercisable over a five-year term at $.88 per share (originally $2.00 per share)
for 402,731 shares (originally 176,250 shares) of common stock. These securities
had been sold pursuant to a Securities Purchase Agreement among the Company, the
purchasers and Blair as purchasers' representative (the "Purchase Agreement"),
in a total of 35.25 Units of $50,000 each, consisting of a $31,250 Note, 18,750
shares of common stock and 5,000 Class D warrants. The Company paid Blair a fee
of $176,250 and expenses of $56,750 and issued to Blair, Class C warrants
exercisable over a five-year term to purchase 228,571 shares (originally 200,000
shares) of common stock at $.88 (originally $1.00 per share). All of the Notes
were converted or redeemed in 1992.
During the period commencing in June 1993 and ending in September 1993, the
Company completed four separate private placements ("Private Placements"), of an
aggregate of 1,843,873 shares of the Company's common stock at prices ranging
from $1.10 to $1.15 per
F-16
<PAGE>
7. Private Placements (continued)
share for net proceeds of $2,039,925. The Company paid commissions in the amount
of $35,075 to an individual, granted 100,000 shares of unregistered common stock
and options to purchase an additional 425,000 shares of common stock at prices
ranging from $1.31 to $3.47 per share, in consideration of services rendered in
connection with the Private Placements.
8. Deferred Revenue
On December 27, 1993, the Company sold 100,000 shares (2.4% interest) of its
subsidiary BCA Services, Inc. to Polaris Partners for the sum of $100,000
resulting in the Company recording such amount as deferred revenue. Pursuant to
an exchange agreement dated April 6, 1995, the Company agreed to exchange the
100,000 shares of BCA Services, Inc. for 100,000 shares of BCAM International,
Inc., at which time $99,000 of the deferred revenue was credited to paid-in
surplus and $1,000 was credited to common stock.
9. Significant Customers
The Company generated a significant percentage of its revenue from a small
number of customers. In 1996, revenue from three customers comprised
approximately 74% of total revenue (38%, 18% and 18%). In 1995, revenue from
four customers comprised approximately 62% of total revenue (29%, 12%, 11% and
10%).
At December 31, 1996, three customers accounted for approximately 84% of the
Company's gross accounts receivable. Consistent with industry standards,
receivables are generally payable within 90 to 120 days and collateral is not
required.
10. Subsequent Events
On March 19, 1997 the Company entered into an agreement with another company
(the "acquiree") to purchase all of the common stock of the acquiree for
approximately $4,600,000. This commitment is contingent upon the Company
obtaining the necessary financing to fund the purchase. The Company does not
have any obligations under this agreement should management be unable to obtain
this financing.
F-17
<PAGE>
10. Subsequent Events (continued)
On January 15, 1997, the Company offered a minimum of 400,000 units, each
consisting of one share of the Company's common stock and a non-redeemable Class
AA warrant which entitles the holder to purchase one share of the Company's
Common Stock at a price of $1.10 per share, until March 31, 1999. The offering
was completed on March 28, 1997, and the Company sold 1,075,000 units for
$1,075,000. The funds will be used for the advancement of various technologies
as well as for working capital.
F-18
Exhibit Index
Exhibit Description Page No.
10.49 Amendment letter of agreement dated August E-1
15, 1996 between the Company and McCord
Winn Textron, Inc.
10.50 Letter of agreement terminating the September E-2
28, 1994, Development and License Agreement
between the Company and Lumex, Inc.
10.51 Letter of agreement with Josephberg & Grosz E-3
to provide the Company investment banking
services
10.52 Stock Purchase Agreement with Drew Shoe E-4
Corporation
27.00 Financial Data Schedule E-5
<PAGE>
Exhibit 10.49
Second Amendment
To
Development And License Agreement
THIS SECOND AMENDMENT made as of 15 day of August 1996 by and between BCAM
International, Inc. (formerly known as Biomechanics Corporation of America)
("BCAM") and McCord Winn Textron Inc. ("Textron").
A. BCAM and Textron entered into that certain Development and
License Agreement dated as of March 5, 1993, as amended as of
October 27, 1993, (herein, the "Agreement") wherein BCAM
granted an exclusive license to Textron for the use of certain
patents and know-how relating to an interactive feedback
system for evaluating and controlling load bearing surfaces
such as seats;
B. In light of certain disputes which have arisen, BCAM and
Textron desire to further amend the Agreement, as hereinafter
set forth, to resolve such disputes,
Accordingly, in consideration of the premises and mutual promises and
covenants herein contained BCAM and Textron mutually agree to amend the
Agreement as follows:
2. Section 1.3 "Intelligent Seat Technology" shall be amended
to read as follows:
Section 1.3 "Intelligent Seat Technology" shall mean (i) Patents and
(ii) Know-How for an interactive feedback system that evaluates and
controls a load bearing surface to provide improved comfort.
3. Section 1.4 "Know-How" shall be amended to read in its
entirety as follows:
Section 1.4 "Know-How" shall mean all trade secrets, technical
information and data unpatented inventions, whether in documentary form
or otherwise, now possessed or hereafter developed or acquired by BCAM
related to or used in connection with products incorporating Patents;
provided, however, that Know-How shall not include any information,
inventions or data which: (i) is or becomes a part of the public domain
through no breach of this Agreement by Textron; (ii) is available from
third parties; (iii) was known to Textron at the time of disclosure
thereof by BCAM; or (iv) is independently developed by Textron without
reference to any Know-How or breach of this Agreement by Textron.
4. Section 1.6 "Patents" of the Agreement shall be amended to
include "U.S. Patent No. 5,283,735 issued February 1, 1994 (from Serial Number
07/986,094 filed December 4, 1992)".
5. Article IV, "Payments" of the Agreement shall be amended to
read in its entirety as follows:
Article IV
Royalties and Payments
4.1 BCAM acknowledges it received from Textron the sum of
Five Hundred Fifty Thousand Dollars ($550,000) (herein, the "Fixed
Fee") for certain development services and licenses related to the
Intelligent Seat Technology.
4.2 In consideration of the payment of the Fixed Fee,
Textron's obligation to pay royalties for any products designed as of
the date hereof relating to Patents and Know-How transmitted or
disclosed on or before May 30, 1996 and sold in commercial quantities
shall expire on December 31, 1999. From and after January 1, 2000,
Textron shall pay Royalties for products which actually incorporate
Patents and Know-How transmitted to Textron by BCAM after May 31, 1996
and sold in commercial quantities by Textron or its sublicensee, as
the case may be; provided however, that Textron shall not pay
Royalties with respect to any products sold to Lear Corporation to the
extent such products incorporate Patents or Know-How to which Lear
Corporation ("Lear") has a right and license pursuant to that certain
Agreement dated September 29, 1993 ("Lear Agreement") and further
provided that Textron shall pay Royalties with respect to products
sold to Lear which incorporate BCAM patents, technology and know-how
to which Lear has no right or license pursuant to the Lear Agreement.
The Royalties payable shall be: (i) with respect to Transportation
industry products, the amount per unit as set forth on Exhibit 4.2
hereto; and (ii) with respect to each unit of product designed for
wheelchairs, hospital beds and office furniture applications,
Royalties equal to five percent (5%) of the net selling price of each
unit of product. For purposes of this Agreement, "net sales price"
means the sales price less discounts, sales or other taxes, shipping,
insurance, packaging, duties, commissions, purchased components and
allowances for returned products.
4.3 Notwithstanding the provisions of Section 4.2 hereof, no
Royalties shall be due or payable with respect to: (i) products
incorporating Intelligent Seat Technology for which a sales commission
is payable to BCAM pursuant to this Agreement; or (ii) any products
for which Textron is granted a license under this Agreement which are
not produced in commercial quantities.
4.4 It is expressly understood and agreed that Textron shall
receive a credit for a portion of the Fixed Fee in the aggregate
amount of $150,000 (the "Credit") against any Royalties due and
payable hereunder, such amount to be credited proportionately over a
four (4) year period (the "Period") commencing in the first year when
Royalties become payable; provided however, that in no event shall the
Credit exceed the Royalties due in any one year during such period. If
the accrued Royalties do not equal the Credit in any given year, such
remainder Credit shall be rolledover and added the next year's
proportion of the Credit. If at the end of the Period there is still
outstanding any portion of the Credit, then the Credit shall be
carried forward for an additional period of one (1) year, after which
time the Credit, if not used, shall be extinguished.
4.4 Royalties payable hereunder shall be paid within 31 days
after the end of each calendar quarter with respect to sales by
Textron of products subject to Royalties during such quarter.
4.5 The Fixed Fee and Royalties set forth in this Article IV
shall be the entire compensation payable by Textron for the License
and BCAM's obligations under this Agreement.
6. Except as specifically amended herein, all other terms and
conditions of the Agreement shall remain the same and unchanged.
IN WITNESS WHEREOF, each party hereto has caused this Amendment to be
signed by its authorized representative as of the date first
BCAM International Inc.
Attest:
/s/ Allan Tepper By: /s/ Michael Strauss
- ----------------- --------------------
Assistant Secretary Michael Strauss
President
McCord Winn Textron Inc.
Attest:
/s/ M A Ross By: /s/ George Daniels
- -------------- --------------------
Assistant Secretary George Daniels
President
Textron agrees to work with BCAM throughout the term of this Agreement and
intends to incorporate future developments and improvements to Patents and
Know-How into Textrons products where those developments and improvements meet
the competitive market requirements of the customers, including cost, quality
and performance objectives. /s/ MS
------
/s/ GD
------
E-1
<PAGE>
June 4 1996
Mr. Eugene L. Ryan
Executive Vice President
Lumex, Inc.
100 Spence Street
Bay Shore, New York 11706-2290
Dear Gene:
I received your letter dated April 22, 1996 regarding relinquishing Lumex's
exclusive rights to BCAM's Intelligent Surface Technology.
I take this as a request by Lumex to terminate the license agreement between
BCAM International, Inc. (formerly Biomechanics Corporation of America) and
Lumex, Inc., which was dated September 28, 1994, and a request for a release
from BCAM of all of Lumex's obligations under that Agreement. We accept these
requests, and also agree to waive any necessary time periods, and, therefore,
consider Lumex's termination effective as of the date of your April 22, 1996
letter.
Just so that we are clear on our respective obligations, we are further agreeing
that the only provisions of the agreement which will survive termination are
those relating to our mutual respect of certain confidential information
exchanged or provided under the agreement. What I mean by that, is that other
termination provisions of the Agreement (like the phase out provision) are not
applicable, and each party is releasing the other of all claims which arose or
may have arose under the Agreement. Furthermore, my understanding is that Lumex
is forfeiting its exclusive worldwide license to use, market, sell and/or
manufacture products utilizing BCAM's Technology.
I assume that you agree with the above and would, therefore, appreciate it if
you could indicate your agreement to the above by signing below and also having
an officer of Fuqua Enterprises Inc. do likewise.
<PAGE>
Mr. Euguen L. Ryan
June 4, 1996
Page 2
I am also grateful for the information that you provided us on Tanis, a French
health care company, that is interested in our technology, and that Lumex would
be pleased to act as a positive reference for BCAM and its capabilities. I plan
to follow up on this lead very shortly.
Although I am very disappointed with your decision, I appreciate the opportunity
to work with you and Skip and wish you and your team the best of luck.
Once again, it was nice working with you and I look forward to seeing you in the
near future.
Best regards.
Sincerely,
/s/ M Strauss
-------------
Concurred: /s/ Robert B. Senn
------------------
President
Lumex Medical Products.
Concurred: /s/ John Huntz
--------------
Officer:
Title: EVP
Fuqua Enterprises, Inc.
MS/kjt
E-2
<PAGE>
Josephberg Grosz & Co., Inc.
Investment Bankers
810 Seventh Avenue o New York, NY 10019
(212) 974-3326 Fax (212) 397-5832
December 2, 1996
Michael Strauss
Chairman, CEO
BCAM International, Inc.
1800 Walt Whitman Road
Melville, NY 11747
Dear Mike:
I. The purpose of this letter is to set forth the terms of our agreement (the
"Agreement") with respect to the compensation which Josephberg Grosz & Co., Inc.
or its designees ("JGC") is to receive for assisting and advising BCAM
International, Inc. or related entities, direct or indirect (the "Company"), on
its acquisition of Drew Shoe Corporation ("DS") and in obtaining a capital
infusion of equity, debt, letter or line of credit, lease financing or other
types of financial transactions, including any transactions of financial value
as it relates to DS and the Company (the "Financing"). Our focus will be on
advising the Company and providing Financing of $8,500,000 (less any dollar
amount raised by the Company through the conversion of its warrants and also
before JGC's fees) for your acquisition of Drew Shoe Corporation and capital for
your Company after the acquisition. With senior debt already in place of
approximately $2,500,000, the capital will probably be in the form of equity or
subordinated debt, including a special class of convertible preferred stock.
Based on the representations you have made on DS financials, the Company's
future business and joint venture prospects ant the projected use of proceeds,
we are highly confident that the following general terms for the Financing will
be acceptable to the Investor: an 8% cumulative convertible preferred stock: the
preferred will be convertible twelve months from the anniversary date of the
investment at a 25% discount to the average bid / ask price over the preceding
10 day period; the 8% dividend would be offered at the end of the 12 month
period in cash or stock (we should decide) but could, depending on negotiations,
be due earlier. At the end of the 12 month period, put / call provisions may be
negotiated along with additional holding periods with negotiated conversion
prices. Piggy-back and registration rights (if at least 2/3 of the investment
group request it) in addition to dilution provisions are also key factors to be
addressed. Obviously, we will attempt to minimize dilution and not strap the
Company's cash flow. We also understand that it is the Company's objective to
close the acquisition and have the Financing in place prior to February 1, 1997.
II. To assist and advise the Company in the acquisition and obtaining Financing,
the Company agrees to engage JGC as its investment advisor with respect to
Financing sources, direct or indirect, (the "Investor"). When such Financing
from the Investor (other than a Financing in the nature of one described in
paragraphs III & IV below) is provided, JGC will be compensated
<PAGE>
Michael Strauss
December 2, 1996
Page Two
by the Company, in full, at the closing of the Financing, by receiving a total
fee of 8%, including both a cash fee of 6% and a fee of 2% in the form of common
stock of the Company, the total fees (8%) equal to the total gross dollar value
received or to be received (including any form of equity, stock, convertible
securities or subordinated debt Financing) by the Company. Any and all common
stock to be received by JGC as a fee shall have appropriate piggy-back-rights
and be priced at the closing of the Financing based on the same valuation as the
Financing (i.e. $8,500,000 Financing provided; JGC receives a cash fee of 6%, to
be $510,000 and a 2% fee equal to $170,000 in the form of common stock of the
Company). In addition, JGC will have the right to invest in the Company by
receiving a five year warrant for a total dollar amount equal to 10% of the
total Financing provided by the Investor at the same price as the Investor and
the same rights as the Investor.
III. For senior debt, credit facilities, guarantees; lease financing and letter
or line of credit Financing, JGC's cash fee, if such is provided by an Investor
introduced by JGC, directly or indirectly, shall be 2.0% of the total dollar
value received or made available to the Company.
IV. In the event the Company enters into a merger, acquisition or joint venture
with an Investor, introduced by JGC, directly or indirectly, JGC will be
compensated by the Company, in full, at the closing thereof, in accordance with
the 5/4/3 Formula, (i.e. by receiving a cash fee of 5% of the first $1,000,000
of Value received by the Company or the Investor, whichever is applicable, 4% of
the second $1,000,000 and 3% of all Value received in excess of $3,000,000).
While not all inclusive, Value shall include total cash, notes, debt, stock,
consulting, non-compete, earn-out, sales and royalty agreements.
V. The fees in paragraphs II, III and IV above are totally independent of one
another and are based upon the type or types of transactions JGC arranges.
VI. In addition, if JGC is successful in obtaining such Financing, (i.e., the
fees in paragraphs II), JGC shall receive, at closing, a 1% cash expense
reimbursement, (i.e. $8,500,000 total Financing provided or made available, JGC
receives 1%, to be $85,000). In addition, JGC shall be reimbursed for all
out-of-pocket expenses from the date of the execution of this Agreement until
its termination. However, all expenses to be reimbursed must be approved by the
Company in advance.
VII. Upon the execution of this Agreement, the Company agrees to pay JGC a fee
of $13,000 and an additional $12,000 thirty days from the signing of this
Agreement, for a total of $25,000. Such fee is to advise the Company on its
acquisition of Drew and to provide
<PAGE>
Michael Strauss
December 2, 1996
Page Three
Financing for the Drew acquisition and capital for the Company. JGC will also
advise the Company on its Business Plan for the Financing of the Drew
acquisition and capital for the Company.
VIII. This Agreement may be terminated or amended by the Company on January 10,
1997 or anytime thereafter with ten days prior written notice. Termination of
this Agreement shall not release the Company of its obligation to compensate JGC
for its services rendered including the completion of the Financing as it
relates to this Agreement, including paragraphs two, three and four. In other
words JGC shall be compensated if any party introduced as it relates to this
Agreement, enters into a transaction or provides Financing as long as the
transaction (transactions) or Financing (Financings) was provided by those
parties within one year after termination of this Agreement.
IX. It is understood and agreed that you shall have the right to accept or
reject in your judgement the terms of any Financing or transaction proposed by
any Financing Sources, Investors, strategic partners and/or corporations
presented to you. If such Financing is provided by the Investor to the Company
and accepted, the Company agrees to represent to the Investor prior to the
closing of the transaction that the fees due and payable to JGC as they apply to
this Agreement will be paid to JGC at the closing of the transaction.
X. This Agreement shall be governed and construed in accordance with the laws of
the State of New York. In the event of any dispute between us regarding the
subject matter of this Agreement, such dispute shall be submitted to arbitration
before a single arbitrator in New York City in accordance with the rules of the
American Arbitration Association. Any decision or award shall be final and
binding upon the parties hereto. All legal fees and expenses shall be paid to
the prevailing party by the losing party.
Sincerely,
Josephberg Grosz & Co., Inc.
By: /s/ Richard A. Josephberg 12/2/96
-----------------------------------
Richard A. Josephberg Date
Chairman
AGREED AND ACCEPTED:
BCAM International, Inc.
By: /s/Michael Strauss 12/4/96
---------------------- -----------
Michael Strauss Date
Chairman
E-3
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
BCAM INTERNATIONAL, INC.
CHARLES SCHUYLER
AND
FRANK SHYJKA
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 PURCHASE AND SALE OF SHARES. . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale of Sellers Shares. . . . . . . . . . . . . . . . . 1
ARTICLE 2 PURCHASE PRICE AND TERMS OF PAYMENT. . . . . . . . . . . . . . . 1
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Cash Purchase Price Adjustment - Inventory . . . . . . . . . . . . . 2
2.3 Cash Purchase Price Adjustment - Taxes . . . . . . . . . . . . . . . 3
ARTICLE 3 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 4 OBLIGATIONS AT CLOSING . . . . . . . . . . . . . . . . . . . . . 4
4.1 Obligations of Shareholders at Closing . . . . . . . . . . . . . . . 4
4.2 Obligations of Purchaser at Closing. . . . . . . . . . . . . . . . . 5
4.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.4 Full Performance . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS . . . . . . . . . 6
5.1 Organization and Good Standing of Seller . . . . . . . . . . . . . . 6
5.2 Capacity to Execute Agreement and Enforceability . . . . . . . . . . 7
5.3 Effect of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 7
5.4 Capitalization and Ownership of Capital Stock. . . . . . . . . . . . 7
5.5 Government and Other Consents. . . . . . . . . . . . . . . . . . . . 7
5.6 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 No Subsidiaries or Investments . . . . . . . . . . . . . . . . . . . 8
5.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 8
5.9 Title to Properties; Encumbrances. . . . . . . . . . . . . . . . . . 9
5.10 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.11 Business Practices . . . . . . . . . . . . . . . . . . . . . . . . .10
5.12 Officers, Directors and Key Employees. . . . . . . . . . . . . . . .10
5.13 Employment Arrangements. . . . . . . . . . . . . . . . . . . . . . .10
5.14 Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . .10
5.15 Contracts and Liabilities. . . . . . . . . . . . . . . . . . . . . .11
5.16 Operation of Drew. . . . . . . . . . . . . . . . . . . . . . . . . .13
5.17 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . .15
5.18 Related-Party Transactions . . . . . . . . . . . . . . . . . . . . .15
5.19 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . .16
5.20 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
5.21 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . .17
5.22 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . .18
5.23 Product Warranty . . . . . . . . . . . . . . . . . . . . . . . . . .19
5.24 Permits, Licenses, Compliance with Laws. . . . . . . . . . . . . . .19
5.25 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
i
<PAGE>
5.26 Consigned Merchandise. . . . . . . . . . . . . . . . . . . . . . . .20
5.27 Notes and Accounts Receivable . . . . . . . . . . . . . . . . . . .20
5.28 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
5.29 Product Liability. . . . . . . . . . . . . . . . . . . . . . . . . .20
5.30 Banks, Safe Deposit Boxes; Powers of Attorney. . . . . . . . . . . .20
5.31 Material Information; Full Disclosure. . . . . . . . . . . . . . . .21
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PURCHASER. . . . . . . . . . .21
6.1 Organization and Good Standing of Purchaser. . . . . . . . . . . . .21
6.2 Authorization of Agreement and Enforceability. . . . . . . . . . . .21
6.3 Effect of Agreement. . . . . . . . . . . . . . . . . . . . . . . . .21
6.4 Government and Other Consents. . . . . . . . . . . . . . . . . . . .22
6.5 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
6.6 Material Information; Full Disclosure. . . . . . . . . . . . . . . .22
6.7 SEC Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
6.8 Schuyler Common Shares . . . . . . . . . . . . . . . . . . . . . . .23
ARTICLE 7 COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . .23
7.1 Conduct of the Business Prior to Closing . . . . . . . . . . . . . .23
7.2 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
7.3 Non Union Pension Plan . . . . . . . . . . . . . . . . . . . . . . .27
7.4 Drew's 1996 Financial Statements . . . . . . . . . . . . . . . . . .27
7.5 Covenant Relating to Books and Records . . . . . . . . . . . . . . .27
ARTICLE 8 CONDITION PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . .28
8.1 Conditions Precedent to Purchaser's Obligations. . . . . . . . . . .28
8.2 Conditions Precedent to the Selling Shareholders' Obligations. . . .29
ARTICLE 9 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . .30
9.1 Indemnification by Shareholders. . . . . . . . . . . . . . . . . . .30
9.2 Indemnification by Purchaser . . . . . . . . . . . . . . . . . . . .31
9.3 Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . .31
9.4 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
9.5 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . .31
ARTICLE 10 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
10.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
10.2 Sales, Transfer and Documentary Taxes, etc . . . . . . . . . . . . .33
10.3 Survival of Representations and Warranties . . . . . . . . . . . . .33
10.4 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . .33
10.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
10.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .34
10.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
10.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
ii
<PAGE>
10.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
10.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
10.11 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
10.12 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
10.13 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . .35
10.14 No Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . .35
10.15 Construction of Agreement. . . . . . . . . . . . . . . . . . . . . .35
iii
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT ("Agreement"), made as of the 20th day of March, 1997, by and
among BCAM INTERNATIONAL, INC., ("Purchaser") a New York corporation with its
principal place of business at 1800 Walt Whitman Road, Melville, New York 11746
("Purchaser"), CHARLES SCHUYLER ("Schuyler"), residing at 129 W. Broadway,
Granville, Ohio 43023 and FRANK SHYJKA ("Shyjka" and together with Schuyler, the
"Shareholders" or "Selling Shareholders") residing at 112 N. Ardmore Road,
Bexley, Ohio 43209. Purchaser and Shareholders are sometimes referred to
collectively herein as the "Parties" and individually as a "Party."
WITNESSETH:
WHEREAS, each of the Shareholders is the record and beneficial owner of
eight hundred fifty-four and 91445/100000 (854.91445) shares of the Common
Stock, without par value (all such one thousand seven hundred nine and
82890/100000 (1,709.82890) shares hereafter called the "Sellers Shares") of DREW
SHOE CORPORATION, an Ohio corporation ("Drew" or the "Corporation"), which
shares constitute all of the issued and outstanding shares of capital stock of
Drew; and
WHEREAS, Purchaser desires to purchase the Sellers Shares from the
Shareholders and the Shareholders desire to sell Sellers Shares to Purchaser,
upon the terms and conditions set forth in this Agreement, so that, following
consummation of the transaction contemplated hereby, Purchaser shall be the
record and beneficial owner of the Sellers Shares, which constitute all of the
issued and outstanding shares of capital stock of Drew.
NOW, THEREFORE, in consideration of the premises and of the representations
and warranties, covenants and agreements hereinafter contained, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SELLERS SHARES
1.1 Purchase and Sale of Shares. Subject to and upon the terms and
conditions set forth in this Agreement at the Closing (as hereinafter defined),
each of the Shareholders shall sell, assign, transfer and deliver the Sellers
Shares and all right, title and interest therein to Purchaser free and clear of
all liens, claims, encumbrances and restrictions of any kind, and Purchaser
shall purchase the Sellers Shares from the Shareholders.
ARTICLE 2
PURCHASE PRICE AND TERMS OF PAYMENT
2.1 Purchase Price. In consideration of the sale, assignment, transfer and
delivery of the Sellers Shares by the Shareholders and all right, title and
interest therein to Purchaser, and in reliance upon the representations,
warranties, covenants and agreements made herein by the Shareholders to
Purchaser, Purchaser agrees to pay Shareholders at Closing the purchase price
("Purchase Price") of Four Million Six Hundred Eighty-Four Thousand ($4,684,000)
Dollars, as follows:
<PAGE>
(a) to deliver to Shareholders the sum of Four Million Three Hundred
Thousand and 00/100 ($4,300,000.00) Dollars ("Cash Purchase Price") by wire
transfer or good certified check drawn on New York Clearing House funds, and
(b) to deliver to Schuyler the additional sum of Three Hundred Thousand
($300,000) Dollars in the form of no par value common stock ("Schuyler Common
Shares") of the Purchaser. The number of Schuyler Common Shares to be delivered
shall be determined by dividing into Three Hundred Thousand ($300,000) Dollars
the average of the closing bid and asked prices of the Purchaser's common stock
in the over-the-counter market for the ten trading days preceding the Closing.
(c) to deliver to each of the Shareholders a promissory note (collectively
the "Note") in the face amount of Forty-Two Thousand ($42,000) Dollars) (total
Eight-Four Thousand ($84,000) Dollars) in the form annexed hereto as Exhibit A.
2.2 Cash Purchase Price Adjustment - Inventory.
(a) The Cash Purchase Price shall be adjusted at Closing ("Inventory
Adjustment") to reflect the difference between:
(i) the pre-audit inventory (exclusive of any inventory valuation reserve
or adjustments reflecting physical inventories taken at certain retail stores
prior to December, 1996) on Drew's books as of December 31, 1996 determined on a
basis consistently applied throughout the calendar year 1996; and
(ii) the extended physical inventory (exclusive of any inventory valuation
reserve except as deemed required by Deloitte & Touche LLP) at December 31, 1996
as audited by Deloitte & Touche LLP, Drew's independent auditors, and determined
on a basis consistent with prior years and methodology applied throughout 1996.
(b)1. If the inventory determined in (ii) above is less than the inventory
determined in (i) above by less than $500,000, then the purchase price shall be
adjusted upward by fifty percent of the difference.
2. If the inventory as determined in (ii) above exceeds the inventory as
determined in (i) above, the purchase price shall be adjusted upward by $250,000
plus fifty percent of the positive difference in the two inventory values. If
the inventory as determined in (i) above exceeds the inventory as determined in
(ii) above by more than $500,000 but less than $1,000,000, then the purchase
price shall be adjusted downward by fifty percent of the difference. To the
extent that the difference exceeds $1,000,000, the purchase price shall be
adjusted downward by 100% of the difference in excess of $1,000,000. This
adjustment is in addition to the fifty percent adjustment for the difference
between $500,000 and $1,000,000.
2
<PAGE>
(c) Any adjustment to the Cash Purchase Price shall be equally divided
between Schuyler and Shyjka.
2.3 Cash Purchase Price Adjustment - Taxes.
(a) The Cash Purchase Price shall be adjusted at such time after the
Closing as Drew's December 31, 1996 financial statement audit is complete and
Drew's accountants, Deloitte & Touche LLP, have prepared Drew's federal and
state income tax returns for 1996, including the preparation of federal tax
forms K-1 for the Shareholders. The amount of income tax liability attributable
to the Shareholders from these tax returns shall be calculated pursuant to
Section 7.1(d). This income tax liability shall be compared to the cumulative
amounts previously distributed, with respect to 1996 taxable income, in
accordance with Section 7.1(d). If this income tax liability exceeds the
aggregate amount previously distributed to the Shareholders with respect to 1996
taxable income, then the Purchase Price shall be increased by the difference. If
this income tax liability is less than the aggregate amount previously
distributed to the Shareholders with respect to 1996 taxable income, then the
Purchase Price shall be reduced by the difference. The adjustment required by
this Section 2.1(c) shall be paid by Purchaser to the Shareholders, or by the
Shareholders to Purchaser, within thirty (30) days after the receipt of written
notification from Drew of such final determination. The Vice President - Finance
shall perform such calculations and Drew shall notify both Purchaser and the
Shareholders of his determination within thirty (30) days of the receipt of
Drew's 1996 federal and state income tax returns from its accountants. Such
determination of income taxes shall apply the methodology and be consistent with
past practices.
(b) The Cash Purchase Price shall be further adjusted at such time as
Drew's December 31, 1997 financial statement audit is complete and Drew's
accountants have prepared Drew's federal and state income tax returns for 1997,
including the preparation of federal tax forms K-1 for the Shareholders. The
amount of income tax liability attributable to the Shareholders from these tax
returns shall be calculated pursuant to Section 7.1(d). This income tax
liability shall be compared to the cumulative amounts previously distributed,
with respect to 1997 taxable income, in accordance with Section 7.1(d). If this
income tax liability exceeds the aggregate amount previously distributed to the
Shareholders with respect to 1997 taxable income, then the Purchase Price shall
be increased by the difference. If this income tax liability is less than the
aggregate amount previously distributed to the Shareholders with respect to 1997
taxable income, then the Purchase Price shall be reduced by the difference. The
adjustment required by this Section 2.1(d) shall be paid by Purchaser to the
Shareholders, or by the Shareholders to Purchaser, within thirty (30) days after
the receipt of written notification from the Vice President Finance of Drew of
such final determination. The Vice President - Finance shall perform such
calculations, and notify both Purchaser and the Shareholders of his
determination, within thirty (30) days of the receipt of Drew's 1997 federal and
state income tax returns from its accountants.
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(c) The adjustments described in subsections 2.3(a) and 2.3(b) hereof
including distributions made pursuant to subsection 7.1(d) hereof are herein
called the "Income Tax Adjustment."
ARTICLE 3
CLOSING
Subject to Section 7.4 hereof, the closing of the transactions hereunder
(the "Closing") shall take place at the offices of Ruskin, Moscou, Evans &
Faltischek, P.C., 170 Old Country Road, Mineola, New York 11501, counsel to
Purchaser, on such business day prior to March 28, 1997, as Purchaser shall
notify Sellers at least five (5) days prior thereto. The day on which the
Closing actually takes place is herein sometimes referred to as the "Closing
Date."
ARTICLE 4
OBLIGATIONS AT CLOSING
4.1 Obligations of Shareholders at Closing. At Closing, Shareholders shall
deliver, or cause to be delivered, to Purchaser the following:
(a) valid stock certificates representing the Sellers Shares, duly endorsed
in blank at Closing by each of the Shareholders as to the Sellers Shares owned
by him;
(b) an employment agreement between Drew and Schuyler (the "Schuyler
Employment Agreement"), duly executed by Schuyler in the form annexed hereto as
Exhibit B;
(c) an employment agreement between Drew and Shyjka (the "Shyjka Employment
Agreement"), duly executed by Shyjka in the form annexed hereto as Exhibit C;
(d) a non-competition undertaking duly executed by Schuyler in the form
annexed hereto as Exhibit D;
(e) a non-competition undertaking duly executed by Shyjka in the form
annexed hereto as Exhibit E;
(f) a true and complete copy of Drew's Articles of Incorporation (and any
amendments thereto), certified as of a recent date by the Secretary of State of
Ohio;
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(g )a written opinion of Messrs. Vorys, Sater, Seymour and Pease, counsel
for Shareholders, dated the Closing Date in the form annexed hereto as Exhibit F
("Shareholders Counsel Opinion");
(h) the resignation of Schuyler and Shyjka as directors of Drew;
(i) an investment undertaking of Schuyler with respect to the Schuyler
Common Shares in the form annexed hereto as Exhibit G; and
(j) any and all such other documents, agreements, certificates and
instruments required under this Agreement to be executed and/or delivered by
Shareholders to Purchaser; and
(k) agreement terminating the Close Corporation Agreement ("Close
Corporation Agreement") among Shyjka, Schuyler and Drew dated December 31, 1986.
4.2 Obligations of Purchaser at Closing. At Closing, Purchaser shall
deliver, or cause to be delivered, to Shareholders the following:
(a) the sum of Two Million One Hundred Fifty Thousand ($2,150,000) Dollars
to Schuyler by wire transfer or good certified check, subject to Inventory
Adjustment and Income Tax Adjustment;
(b )the sum of Two Million One Hundred Fifty Thousand ($2,150,000) Dollars
to Shyjka by wire transfer or good certified check, subject to Inventory
Adjustment and Income Tax Adjustment;
(c) the Notes each in the face amount of Forty-Two Thousand ($42,000)
Dollars;
(d) the Schuyler Common Shares;
(e) the Schuyler Employment Agreement, duly executed by Drew;
(f) the Shyjka Employment Agreement, duly executed by Drew;
(g )the Piggyback Registration Rights Agreement, a copy of which is annexed
hereto as Exhibit H ("Registration Rights Agreement");
(h) a certificate, dated the Closing Date, of the Secretary of Purchaser
certifying as true and correct the resolutions adopted by the Board of Directors
of Purchaser approving the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby;
(i) a written opinion of Ruskin, Moscou, Evans & Faltischek, P.C., counsel
for Purchaser dated the Closing Date in the form annexed hereto as Exhibit I
("Purchaser's Counsel Opinion");
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(j) a certificate, dated the Closing Date, of the Secretary of Drew
certifying as true and correct the resolutions adopted by the Board of Directors
of Drew approving the execution and delivery of the Schuyler Employment
Agreement, the Shyjka Employment Agreement, the Martin Employment Agreement, the
Recchi Employment Agreement, the Williams Employment Agreement and the Chapman
Employment Agreement (the latter four of which agreements are described in
subsection 8.1(k) hereof; and
(k) any and all such other documents, agreements, certificates and
instruments required under this Agreement to be executed and/or delivered by
Purchaser, and all payments required to be made, pursuant to the terms and
provisions of this Agreement.
4.3 Further Assurances. At any time and from time to time after the
Closing, at Purchaser's request and without further consideration, Shareholders
will execute and deliver such other instruments of sale, transfer, assignment
and delivery and take such action as Purchaser may reasonably deem necessary or
desirable in order to more effectively transfer, assign and deliver to Purchaser
and to confirm Purchaser's title to the Sellers Shares.
4.4 Full Performance.
(a) This Agreement is subject to and conditioned upon full performance by
both Schuyler and Shyjka and Purchaser shall have no obligation to purchase
Sellers Shares from one of the Shareholders if the other of them defaults in
performance hereunder. Similarly, Purchaser agrees that it will not purchase any
of the Sellers Shares without purchasing all of them.
(b) Delivery of the agreements, documents, funds and securities, as in this
Agreement provided, will take place as part of a simultaneous transaction, and
no event or action will be deemed complete until all of the events and actions
have occurred or have been duly waived by the party entitled to do so.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Shareholders, jointly and severally, represent and warrant to Purchaser as
follows:
5.1 Organization and Good Standing of Seller. Drew is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio. Drew has all requisite corporate power and authority, licenses, permits
and franchises to own, lease and operate its properties and assets and to carry
on its business as currently conducted except where the failure to do so would
not have a material adverse effect on its business, properties or assets. Drew
is qualified and in good standing to do business as a foreign corporation in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to so qualify would not have a material adverse effect
on its business, properties or assets. There has heretofore been delivered to
Purchaser Schedule 5.1 which is a true and complete list of all states in which
Drew has qualified to do business.
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5.2 Capacity to Execute Agreement and Enforceability. The Shareholders have
full power and capacity to execute, deliver and perform their obligations under
this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Shareholders
and (assuming the valid execution and delivery of the Agreement by Purchaser)
constitutes a legal, valid and binding obligation of the Shareholders,
enforceable against them in accordance with its terms except to the extent that
enforcement thereof may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws of general
application relating to or affecting the enforcement of the rights of creditors
and the application of general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
5.3 Effect of Agreement. Except as set forth on Schedule 5.3 heretofore
delivered to Purchaser by Shareholders, neither the execution, delivery and
performance of this Agreement by the Shareholders, nor the consummation by the
Shareholders of the transactions contemplated hereby will (a) conflict with or
result in a breach of any provision of the Articles of Incorporation or By-laws
of Drew, true and correct copies of which have heretofore been delivered to
Purchaser; (b) constitute or result in the breach of, conflict with or give rise
to a right of forfeiture, termination, cancellation or acceleration with respect
to, any term, condition or provision of, any note, bond, mortgage, indenture,
license or other contract or obligation to which Drew or the Shareholders are a
party or by which Drew or the Shareholders are subject, except for such
conflicts, breaches or defaults as to which written waivers or consents, which
are listed in Schedule 5.3 previously delivered to Purchaser, have been
obtained, or (c) violate any law, statute, regulation, judgment, order, writ,
injunction, or decree applicable to Drew or the Shareholders, its business,
properties or assets.
5.4 Capitalization and Ownership of Capital Stock. The presently
authorized, issued and outstanding shares of capital stock of Drew and the names
and addresses of the record and beneficial owners thereof are as set forth on
Schedule 5.4 heretofore delivered to Purchaser by Shareholders and certified as
true and correct by the President of Drew. Each of such persons is the lawful
record and beneficial owner of the number of shares set forth opposite his name,
free and clear of any liens, claims, encumbrances or restrictions of any kind.
Except for this Agreement and the Close Corporation Agreement, there are no
outstanding subscriptions, options, warrants, calls, contracts, demands,
commitments, convertible securities or other agreements or arrangements of any
character or nature whatsoever under which Drew or the Shareholders are or may
become obligated to issue, assign or transfer any shares of the capital stock of
Drew.
5.5 Government and Other Consents. Except as set forth on Schedule 5.5
heretofore delivered by Shareholders to Purchaser, no consent, order,
authorization, qualification, or approval of, or exemption by, or filing with
any governmental, public, or regulatory body or authority is required in
connection with the execution, delivery and performance by the Shareholders of
this Agreement.
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5.6 Books and Records. All financial, business and accounting books,
ledgers, accounts and official and other records relating to Drew have been
properly and accurately kept and completed in all material respects, and there
are no material inaccuracies or discrepancies of any kind contained or reflected
therein.
5.7 No Subsidiaries or Investments. Drew does not own capital shares or
other equity or ownership or proprietary interest in any corporation, limited
liability company, partnership, association, trust, joint venture or other
entity.
5.8 Financial Statements.
(a) The Shareholders have previously delivered to Purchaser copies of the
following financial statements of Drew (collectively, the "Financial
Statements"): (i) balance sheets dated as at December 31, 1993, December 31,
1994 and December 31, 1995 and the related statements of income and cash flow
for the respective twelve (12) months then ended, all of which have been audited
by Deloitte & Touche LLP, Drew's independent auditors, and (ii) unaudited
balance sheet ("Unaudited Balance Sheet") as at November 30, 1996 (the "Balance
Sheet Date") and unaudited statements of income for the eleven months then
ended. Each of the said balance sheets is hereafter called "Balance Sheet." The
Financial Statements correctly and completely in all material respects reflect
Drew's books and records, fairly present the financial position and results of
operations of Drew as of the dates and for the periods indicated and have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis.
(b) Except for such claims, debts and liabilities as are reflected or
reserved against on the applicable Balance Sheet, Drew does not have any
outstanding indebtedness for money borrowed and is not subject to any claims or
liabilities, contingent or otherwise as of the date of such Balance Sheet, (i)
other than obligations incurred in the ordinary course of business since the
date of such Balance Sheet, in amounts usual and normal, individually and in the
aggregate, and (ii) other than as may not have been required under GAAP to be
disclosed or reserved as contingencies as of the date of such Balance Sheet [but
which are referred to in Schedule 5.8(b) heretofore delivered to Purchaser by
the Shareholders.]
(c) Except as described in Schedule 5.8(c), all of the accounts receivable
(trade or otherwise) reflected in the applicable Balance Sheet, result from the
sale of inventory in the ordinary course of business and, subject to the reserve
therefor on the Balance Sheet, the Shareholders have no knowledge that such
accounts receivable are not collectible in full in the ordinary course of
business. Except as shown in the Financial Statements (including the footnotes
thereto), all such accounts receivable are owned by Drew free and clear of all
liens, claims, charges, encumbrances and other interests of third parties.
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(d) Except as set forth in Schedule 5.8(d) heretofore delivered to
Purchaser since the Balance Sheet Date, there has not been any material adverse
change in the condition, financial or otherwise, of the business, assets,
properties, liabilities or results of operations of Drew, and no fact or
condition exists or to our knowledge has been threatened which might cause any
such change at any time in the future. Since the Balance Sheet Date, Drew has
conducted its business only in the ordinary course.
5.9 Title to Properties; Encumbrances. Other than as set forth in Schedule
5.9 heretofore delivered to Purchaser and certified as true and correct by the
President of Drew, Drew does not own any real property or have any lease or
other interest in real property. Drew does not use any real estate or have an
interest in real estate, including, without limitation, any building, office,
plant, factory, retail store, warehouse, improvement or structure in connection
with its business other than as identified on Schedule 5.9. Except as disclosed
on Schedule 5.9, Drew has good title to all of its properties and assets,
including, without limitation, all of the properties and assets reflected in the
unaudited Balance Sheet (except for properties and assets sold since the Balance
Sheet Date in the ordinary course of business and consistent with past
practices), and all of the properties or assets purchased by it since the
Balance Sheet Date. Except as set forth on Schedule 5.9, none of such properties
or assets is subject to any mortgage, pledge, lien, security interest,
encumbrance or charge of any kind except (a) liens shown on the unaudited
Balance Sheet as securing specified liabilities or obligations with respect to
which no default exists; (b) liens arising in the ordinary course of business,
consistent with past practice since the Balance Sheet Date and liens arising by
operation of law or minor imperfections of title, if any, none of which is
substantial in amount, materially detracts from the value or materially impairs
the use of the property subject thereof, or materially impairs Drew's operations
and (c) liens for current taxes not yet due, or, if due, that are being
contested in good faith in the ordinary course of business as described on
Schedule 5.9 hereof. Except as disclosed on Schedule 5.9, Drew does not use in
its business any assets owned by a shareholder or affiliate of Drew. For
purposes of this Agreement, "affiliate" shall have the same meaning as it is
defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as
amended.
5.10 Leases. Schedule 5.10 heretofore delivered to Purchaser and certified
as true and correct by the President of Drew, contains an accurate and complete
list and description of the terms of all leases to which Drew is a party (as
lessee or lessor), copies of which have been previously delivered to Purchaser.
Except as disclosed on Schedule 5.10, each lease set forth in Schedule 5.10 (or
required to be set forth in Schedule 5.10) is in full force and effect; all
rents and additional rents due to date on each such lease have been paid; in
each case, the lessee has been in peaceable possession since the commencement of
the original term of such lease and is not in default thereunder and no waiver,
indulgence or postponement of the lessee's obligations thereunder has been
granted by the lessor; and there exists no event of default or event,
occurrence, condition or act (including the purchase of the Sellers Shares
hereunder) which, with the giving of notice, the lapse of time or the happening
of any further event or condition, would become a breach under such lease.
Except as disclosed on Schedule 5.10, Drew has not violated any of the terms or
conditions under any such lease in any material respect which could give
landlord the right of termination thereof, and to the knowledge of the
Shareholders, all of the covenants to be performed by any other party under any
such lease have been fully performed.
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5.11 Business Practices. Neither Drew nor the Shareholders have made,
offered or agreed to offer anything of value to any government official,
political party or candidate for government office nor have any of them taken
any action which would be in violation of the Foreign Corrupt Practices Act of
1977 or any anti-boycott or export laws.
5.12 Officers, Directors and Key Employees. Schedule 5.12 heretofore
delivered to Purchaser and certified as true and correct by the President of
Drew sets forth a complete and correct list of (i) the officers and directors of
Drew prior to the transaction contemplated by this Agreement; the name, position
and total compensation for 1996 and 1995, including bonuses, of each officer and
director of Drew, (ii) the name of each other employee, consultant, independent
contractor, agent or other representative of Drew who received $50,000 per annum
or more in any form of compensation from Drew since January 1, 1995, and (iii)
all wage or salary increases or bonuses received by any such person since the
Balance Sheet Date, and any accruals for or commitment or agreement by Drew to
pay such increases or bonuses. Except as set forth in Schedule 5.12, none of
such persons has, in writing or (to the knowledge of the Shareholders) verbally,
threatened, informed or otherwise indicated to Drew or either Shareholder or any
officer or director of Drew that he or she plans to cancel or otherwise
terminate his or her relationship with Drew for any reason, including, without
limitation, the consummation of the transaction contemplated hereby.
5.13 Employment Arrangements. Except as set forth in Schedule 5.13
heretofore delivered to Purchaser, Drew does not have any obligation, contingent
or otherwise, under any employment agreement, collective bargaining or other
labor agreement, any agreement containing severance or termination pay
arrangements, deferred compensation agreement, retainer or consulting
arrangement, pension or retirement plan, bonus or profit-sharing plan, stock
option or purchase plan or other employee contract or non-terminable (whether
with or without penalty) arrangement, group, life, health, medical or
hospitalization insurance plan or program or other employee or fringe benefit
plan, including vacation plans or programs and sick leave plans or programs
heretofore delivered to Purchaser and certified as true and correct by the
President of Drew, true and complete copies of which have heretofore been
delivered to Purchaser. Drew has performed in all material respects all of its
obligations required to be performed by it under all such agreements, plans and
arrangements, and to the best knowledge of Shareholders, no party thereto is in
breach of or in default or arrears under any of the provisions thereof.
5.14 Employee Relations. To the best knowledge of Shareholders, Drew is in
compliance with all Federal, state or other applicable laws, domestic or
foreign, respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not and is not engaged in any unfair
labor practice. No unfair labor practice complaint against Drew is pending
before the National Labor Relations Board. Except as set forth in Schedule 5.14
heretofore delivered to Purchaser, no labor strike, picket, dispute, slowdown,
stoppage or other labor trouble has, within the previous five years, occurred or
is pending or, to the best knowledge of Shareholders, is threatened against or
involving Drew. No union representation question exists respecting the employees
of Drew. No grievance or any arbitration proceeding is pending, and to the best
knowledge of Shareholders, no claim with respect thereto has been asserted in
writing or, to the best knowledge of Shareholders, is threatened. No collective
bargaining agreement is currently being negotiated by Drew. Except as disclosed
on Schedule 5.14, no claim of discrimination or harassment is pending or, to the
best knowledge of Shareholders, threatened before the Equal Employment
Opportunity Commission, or any other judicial or administrative body or agency.
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5.15 Contracts and Liabilities.
(a) Schedule 5.15 heretofore delivered to Purchaser and certified as true
and correct by the President of Drew, sets forth all of the following contracts,
commitments and obligations of, or which relate to the business of, Drew,
written or otherwise, which have a duration of at least one year or which
require the purchase or delivery of goods or services of the value of $100,000
or more, or to which it or its assets or properties are bound or subject which
are not listed in any Schedule described in this Agreement and delivered to
Purchaser, including, without limitation the following:
(i) contracts, commitments and other agreements with any current or former
officer, director, employee, independent contractor, consultant, agent or other
representative (including the Shareholders);
(ii) contracts and other agreements with any labor union or association
representing any employee;
(iii) contracts, commitments and other agreements for the sale of any of
its assets or properties other than in the ordinary course of business or for
the grant to any person of any preferential rights to purchase any of Drew's
assets or properties;
(iv) joint venture or other agreements involving sharing of profits or
joint ownership of assets or sharing of obligations or liabilities;
(v) contracts or other agreements under which Drew agrees to indemnify any
party or to share tax liability of or with any Party;
(vi) loan, indenture, factoring, credit line, security, collateral
assignment or pledge agreement, guaranty, subordination or similar type
agreements;
(vii) contracts, commitments and other agreements with customers or
suppliers for the sharing of fees, the rebating of charges or other similar
arrangements;
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(viii) contracts, commitments and other agreements containing obligations
or liabilities of any kind to or with either of the Shareholders as such;
(ix) contracts and other agreements containing covenants of Drew not to
compete in any line of business or with any person in any geographical area (or
not to solicit or accept any business) or covenants of any other person not to
compete with Drew in any line of business or in any geographical area (or not to
solicit or accept any business);
(x) contracts and other agreements relating to the pending or consummated
acquisition by Drew of (a) the capital shares of any other person; or (b) any
operating business including the assumption of any lease and acquisition by
consignment of any inventory;
(xi) options for the purchase of any asset, tangible or intangible;
(xii) contracts and other agreements requiring the payment to any person of
an override, finders fee, referral fee or similar commission or fee;
(xiii) contracts and other agreements for the payment of fees or other
consideration to any officer or director of Drew or to any other entity in which
any of the foregoing has a direct or indirect interest;
(xiv) contracts and other agreements relating to the borrowing of money;
(xv) purchase orders, contracts and commitments for the purchase or sale of
any goods or services to or by Drew, except for those orders, contracts and
commitments which are less than $100,000 in amount or which cannot be canceled
at will by Drew without penalty or premium;
(xvi)other contracts or business arrangements which are not made in the
ordinary course of business;
(xvii) Close Corporation agreement among Shareholders and Drew;
(xviii) agreement, arrangements or understanding with any local, state or
federal agency or authority, including agencies administering medicare or
medicaid concerning payment or reimbursement to Drew or its designee from the
sale of any of its products or services; and
(xix) Indenture Agreement.
(b) Except as set forth in Schedule 5.15, all such contracts are valid,
binding and enforceable and in full force and effect except to the extend that
enforcement thereof may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws of general
application relating to or affecting the enforcement of the rights of creditors
and the application of general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). Except as set forth
in Schedule 5.15, Drew is not in default which would give rise to a right of
termination by the other party under any such contract and, to the best
knowledge of Shareholders, there have been no claims of default and there are no
existing factors or conditions which with the passage of time or giving of
notice or both would constitute such a default or in any case in which such
default would give rise to a right of termination by the other party thereto or
which would result in any material cost, expense or penalty to Drew.
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(c) Shareholders have delivered to Purchaser complete and correct copies of
all of the written contracts and documents constituting commitments set forth on
Schedule 5.15.
5.16 Operation of Drew. Except as provided on Schedule 5.16 heretofore
delivered to Purchaser and certified as true and correct by the President of
Drew, since the Balance Sheet Date, Drew has conducted its business and
operations only in the ordinary and usual course of business, consistent with
past practices, has (i) reasonably preserved intact its business, (ii) made a
good faith effort to maintain its relationships with all customers and
suppliers, and (iii) used commercially reasonable efforts to keep available the
services of its officers and employees. Except as set forth on Schedule 5.16,
since the Balance Sheet Date, Drew has not:
(a) amended its Articles of Incorporation or By-Laws or merged with or into
or consolidated with any other person, subdivided or in any way reclassified any
of its shares of capital stock or changed or agreed to change in any manner the
rights of any shares of its capital stock or the character of Drew;
(b) issued or sold or purchased, or issued options or rights to subscribe
to, or entered into any contracts or commitments to issue or sell or purchase,
any shares of its capital stock or any other securities;
(c) entered into or amended any employment agreement, entered into or
amended any agreement with any labor union or association representing any
employee, adopted, entered into, or amended any employee benefit plan, or made
any change in the actuarial methods or assumptions used in funding any defined
benefit pension plan, or made any change in the assumption or factors used in
determining benefit equivalencies thereunder;
(d) incurred any indebtedness for borrowed money;
(e) declared or paid any dividends or declared or made any other
distributions of any kind to its shareholders, or made any direct or indirect
redemption, retirement, or any purchase or other acquisition of any shares of
its capital stock or any other securities convertible into shares of its capital
stock;
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(f) reduced its cash or short-term investments or their equivalents, other
than to meet cash needs arising in the ordinary course of business, consistent
with past practices;
(g) made any change in its accounting methods or practices or made any
change in depreciation or amortization policies or rates adopted by it;
(h) changed in any material respect any of its business policies in any
respect, including, without limitation, advertising, marketing, pricing,
purchasing, credit, personnel, sales, returns, budget or product acquisition
policies;
(i) except in the ordinary course of business, consistent with past
practices, made any wage or salary increase or paid any bonus, or increase any
direct or indirect compensation, for or to any of its officers, directors,
employees, consultants, agents or other representatives, or any accrual for or
commitment or agreement to make or pay the same;
(j) made any loan, advance or guarantee to any of its shareholders,
officers, directors, employees, consultants, agents or other representatives
(other than travel advances made in the ordinary course of business), or made
any other loan, advance or guarantee otherwise than in the ordinary course of
business;
(k) made any payment or commitment to pay any severance or termination pay
to any of its officers, directors, employees, consultants, agents or other
representatives, other than payments or commitments to pay persons other than
officers, directors or shareholders made in the ordinary course of business;
(l) except in the ordinary course of business; entered into any lease (as
lessor or lessee); sold, abandoned or made any other disposition of any of its
assets or properties; granted or suffered any lien or other encumbrance on any
of its assets or properties; entered into or amended any contract or other
agreement to which it is a party, or by or to which it or its assets or
properties are bound or subject, or pursuant to which it agrees to indemnify any
party or to refrain from competing with any party;
(m) except in the ordinary course of business, incurred or assumed any
liability;
(n) made any acquisition of all or any part of the assets, properties,
capital shares or business of any other person;
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(o) paid, directly or indirectly, any liabilities or obligations before the
same became due in accordance with its terms or otherwise than in the ordinary
course of business or consistent with prior practice or deferred the payment of
any liability or obligation;
(p) suffered or incurred any damage, destruction or loss (whether or not
covered by insurance) which materially adversely affected the business,
properties or assets of Drew;
(q) collected or billed any accounts receivable in advance of the dates on
which payments were due other than in the ordinary course of business or
consistent with prior practice;
(r) gave or agreed to give any of its customers any discounts or special
payment terms or arrangements which were not consistent with prior practice or
which were outside the ordinary course of business;
(s) other than in the ordinary course of business, made any change in the
type, nature or composition of its products, or made any change relating to its
charges, commissions or other changes or terms for its products;
(t) terminated or failed to renew, or received any information, written or
otherwise, threatening to terminate or not to renew, any contract or other
agreement that materially affects the assets, properties, business, operations
or condition (financial or otherwise) of Drew; or
(u) except in the ordinary course of business, entered into any other
contract, agreement or transaction.
5.17 Insurance Policies. Schedule 5.17 heretofore delivered to Purchaser
and certified as true and correct by the President of Drew, contains a complete
and correct list and description of all insurance polices with respect to the
business, properties, assets and employees of Drew. Such policies are in full
force and effect. No notice of cancellation, expiration or non-renewal of any
such policy has been received by Drew and Drew does not know of the existence of
any cause for such termination.
5.18 Related-Party Transactions. Except as disclosed in Schedule 5.18
heretofore delivered to Purchaser and certified as true and correct by the
President of Drew, none of Drew, the Shareholders, nor any person controlling,
controlled by or under common control with any of the foregoing or any relative
or spouse of any of the foregoing has any interest, financial or otherwise, in
any business, corporate or otherwise (the value of which equals or exceeds
$2,000 per annum), which is a party to, or has an interest in any property which
is the subject of, or has business relationships or arrangements of any kind
with Drew, including, without limitation, any customer, supplier, competitor, or
potential competitor or lessor.
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5.19 Compliance with ERISA.
(a) Schedule 5.19 heretofore delivered to Purchaser and certified as true
and correct by the President of Drew, sets forth a complete and correct list of
all "employee pension benefit plans" and "employee welfare benefit plans" as
defined respectively in Sections 3(2) and 3(i) of ERISA, including
"multiemployer plans" as defined in Section 3(37) of ERISA, and any other
pension, profit sharing, retirement, deferred compensation, vacation, severance,
disability, hospitalization, medical insurance or other employee benefit plan or
program, if any, which Drew or any other entity which constitutes part of a
"controlled group" (within the meaning of Section 4001(b) of ERISA and/or
Sections 414(b)-(o) of the Code and the Treasury Regulations proposed
thereunder) which Drew maintains or to which Drew has any present or future
obligation to contribute (collectively, the "Drew Plans"). Shareholders have
caused Drew to deliver to Purchaser true and complete copies of all Drew Plans
(including other instruments relating thereto), if any, as they may have been
amended to the date hereof, embodying, relating to or summarizing the Drew
Plans. Shareholders have made available to Purchaser, where applicable, the most
recent annual report (Form 5500) filed (including audited financial statement)
and the most recent summary plan description with respect to each Drew Plan.
(b) Other than those employee pension benefit plans set forth on Schedule
5.19, Drew maintains no "employee pension benefit plan" as defined in ERISA
Section 3(2) for the benefit of Drew's employees and has maintained no such plan
during any part of the past five (5) years.
(c) Drew has no current obligation, nor has Drew ever in the past had any
obligation, to contribute to any "multiemployer" plan, as defined in Section
3(37) of ERISA.
(d) Drew is in compliance in all material respects with the requirements
prescribed by any and all statutes, orders, governmental rules or regulations
applicable to the Drew Plans and all reports and disclosures relating to the
Drew Plans required to be filed with or furnished to governmental agencies,
participants or beneficiaries prior to the date of this Agreement have been
filed in accordance with applicable law.
(e) There are no actions, audits, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of the Shareholders,
threatened, against any of the Drew Plans or any fiduciary of any of the Drew
Plans or against the assets of any of the Drew Plans.
(f) The consummation of the transactions contemplated hereby will not
accelerate any liability under any of the benefit plans because of an
acceleration of any rights or benefits to which employees or any of them may be
entitled thereunder.
(g) With respect to any Drew Plan that is an "employee welfare benefit
plan" within the meaning of Section 3(1) of ERISA ("Drew Welfare Plan") (i) each
such Drew Welfare Plan, the contributions to which are claimed as a deduction
under any provision of the Code, is in compliance in all material respects with
all applicable requirements pertaining to such deduction, (ii) with respect to
any "welfare benefit fund" within the meaning of Section 419 of the Code that
comprises part of a Drew Welfare Plan, there is no disqualified benefit within
the meaning of Section 4976(a) of the Code, (iii) any such Drew Welfare Plan
that is a "group health plan" within the meaning of Section 5000(b)(1) of the
Code meets all of the requirements of Section 4980B(f) of the Code.
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(h) Except as disclosed on Schedule 5.19 hereto or as may be required under
Section 4980B(f) of the Code, Drew has no obligation to any retired or former
employee under any disability (long or short term), hospitalization, medical,
dental or life insurance plans (whether insured or self-insured) or other
employee welfare benefit plan as defined in ERISA Section 3(1) which is
maintained by Drew.
5.20 Tax Matters.
Filing of Tax Returns; Payment of Taxes; No Audits, Investigations or
Claims.
(a) Shareholders have heretofore delivered to Purchaser true, complete and
correct copies of all Federal, state and local tax returns filed by Drew for
each of the three (3) immediately preceding taxable years of Drew ended December
31, 1995, any statement of audit adjustments applicable thereto and all Federal,
state and local returns of estimated taxes filed during 1996. Drew has duly and
timely filed all federal, state, local and other tax and information returns
required to be filed by it with regard to any income, sales, use, gross
receipts, property, employment and other taxes, charges, levies or other
assessments related to its business, properties or assets, and has duly paid in
full or made adequate provision for all taxes and other charges shown as due on
such returns or which otherwise have been accrued or have become due prior to
the date hereof whether or not shown on any such return. Drew has received no
written notice of any claim or claims for additional taxes which are claimed to
be due from it by Federal, state, local or foreign taxing authorities in
connection with such reports or returns. There are no liens for Federal, state,
local or foreign taxes, assessments or government charges or levies upon any of
Drew's properties or assets. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any income tax or
other return of Drew for any period and there are not, nor have there been, any
audits of Drew by any Federal, state or local governmental tax authority and no
notice of any audit has been received by Drew.
(b) Shareholders have filed all personal federal and state income tax
returns through 1995 and have paid all income taxes shown as due thereon.
5.21 Intellectual Property. Schedule 5.21 heretofore delivered to Purchaser
and certified as true and correct by the President of Drew, contains a list of
all Intellectual Property ("Intellectual Property") of Drew. To the best
knowledge of the Shareholders, Drew has full ownership right, title and interest
in and to the Intellectual Property and the Intellectual Property constitutes
valid and enforceable rights of Drew. Except as set forth in Schedule 5.21, Drew
has not received any notice and has no reason to believe that the validity of
the Intellectual Property or Drew's interest therein can be or is being
challenged by any third party. Drew has not heretofore granted any licenses or
conveyed any other rights or interests to any of the Intellectual Property. To
the best knowledge of the Shareholders, the operation of Drew as currently
conducted does not infringe upon any patents or other intellectual property
rights of any third party.
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5.22 Environmental Matters.
(a) Except as set forth on Schedule 5.22 heretofore delivered to Purchaser,
Drew has not received any notice from any governmental agency or private or
public entity advising that it is potentially responsible for response costs or
other costs with respect to a release or threatened release of any Hazardous
Substance. No administrative, civil or criminal actions, including without
limitation third-party actions for personal injury or property damage, are
pending or to the best knowledge of Shareholders, threatened against Drew or its
properties with respect to Environmental Laws or related to the business of
Drew. No judgements, consent orders, consent decrees, stipulations, or other
restrictions have been entered or applied with respect to Environmental Laws or
related to the business, properties or assets of Drew. Except as set forth on
Schedule 5.22 heretofore delivered to Purchaser, Drew neither received nor is
aware of any governmental orders, notifications, notices of violation, or
requests for information relating to environmental or health and safety
conditions at or related to the business, properties or assets of Drew, nor are
the Shareholders aware of any past (within the preceding five years) or current
violations of any Environmental Law related to the business, properties or
assets of Drew or of environmental conditions related to the business,
properties or assets of Drew.
(b For purposes of this Agreement, (i) "Environmental Laws" shall mean
statute, law, ordinance or regulation of any federal, state, county, local or
foreign governmental authority relating to the environment, including air, water
or noise pollution, emissions or discharges, the environment, public health,
employee health, safety or welfare, land use or the production, processing,
distribution, use, storage, labeling, handling, transportation, treatment or
disposition of any Hazardous Substance; and (ii) "Hazardous Substance" shall
mean asbestos, paints, solvents, ureaformaldehyde, polychlorinated biphenyls,
nuclear fuel or material, chemicals, waste products, radioactive material,
explosives, known carcinogens, biologic or organic products, petroleum products
and by-products and other dangerous, toxic, infectious or hazardous pollutants,
contaminants, chemicals, materials, wastes or substances listed or identified
in, or regulated by, any Environmental Laws.
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(c) The sale and delivery of the Sellers Shares are not subject to review
or approval by any State of municipal authority with respect to compliance by
Drew with applicable "Environmental Laws."
5.23 Product Warranty. Each product manufactured, sold, or delivered by
Drew has been in conformity with all applicable contractual commitments and all
express and implied warranties, and Drew does not have any liability (and there
is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against Drew giving rise to
any liability of Drew) for replacement or repair thereof or other damages in
connection therewith. Drew maintains adequate reserves against product warranty
claims including product returns and allowances. No product manufactured, sold,
or delivered by Drew is subject to any guaranty, warranty, or other indemnity
beyond the applicable standard terms and conditions of sale. Schedule 5.23
heretofore delivered to Purchaser and certified by the President of Drew
includes copies of the standard terms and conditions of sale for Drew
(containing applicable guaranty, warranty, and indemnity provisions).
5.24 Permits, Licenses, Compliance with Laws. Drew has all permits,
licenses, orders, consents and approvals (collectively "Permits") of federal,
state, local or foreign governmental or regulatory bodies that are required in
order to permit Drew to carry on its business as currently conducted except to
the extent that the failure to have the same would not have a materially adverse
effect on Drew. Schedule 5.24 heretofore delivered to Purchaser and certified as
true and correct by the President of Drew, sets forth a correct and complete
list of all such Permits, all of which are in full force and effect, and which
will automatically remain in full force and effect immediately after
consummation of the transactions contemplated by this Agreement, and no
suspension or cancellation of any of them is, to the best knowledge of
Shareholders, threatened, and no cause exists for such suspension or
cancellation. The business of Drew has been and is being conducted in accordance
and in compliance with all applicable federal, state, local or foreign laws,
codes, ordinances, rules and regulations except that failure of compliance had
not and will not have a materially adverse effect on Drew.
5.25 Litigation.
(a) Except as set forth in Schedule 5.25 heretofore delivered to Purchaser,
there is no claim, action, suit, proceeding, arbitration, investigation or
inquiry pending before any federal, state, local, or other court or
governmental, administrative, or self-regulatory body or agency, or any private
arbitration tribunal, or to the best knowledge of Shareholders, threatened
against Drew relating to the business of Drew, any of the properties or assets
of Drew or the transactions contemplated by this Agreement; nor to the best
knowledge of Shareholders, is there any basis for any such claim, action, suit,
proceeding, arbitration, investigation or inquiry. Drew is not in default under
any order, license, regulation or demand of any federal, state or local, or
other court or governmental, administrative or self-regulatory body or agency
provided that the existence of such default has not and will not have a
materially adverse effect on Drew.
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(b Except as set forth in Schedule 5.25, there are no judgements, pending
lawsuits or pending claims by Drew against any third party.
(c) Shareholders and Drew have directed counsel to Shareholders hereinafter
named to disclose to Shareholders all pending claims against Drew or the
Shareholders relating to Drew about which such counsel has been consulted.
5.26 Consigned Merchandise. Drew has within its custody and control items
of merchandise ("Consigned Merchandise") received in connection with the
purchase by Drew of businesses at various retail locations, all as listed on
Schedule 5.26 hereof. Schedule 5.26 is a true and correct list by location of
such Consigned Merchandise at December 31, 1996. Drew does not have title to
such Consigned Merchandise, nor is it reflected in the inventories of Drew shown
on the applicable Balance Sheet. There has been no reduction in the quantity of
Consigned Merchandise other than through sales which have been reported to the
consignor and the Consigned Merchandise at the respective locations is in the
same condition as received from the consignor.
5.27 Notes and Accounts Receivable. Except as set forth in Schedule 5.27
hereof, all notes and accounts receivable of Drew shown on the Balance Sheet and
all notes and accounts receivable acquired or arising after the Balance Sheet
Date have arisen in the ordinary course of business and have been collected or
are collectible in the aggregate recorded amounts thereof, less the applicable
reserves set up on the books of Drew.
5.28 Broker. No broker, finder, agent or other intermediary has acted on
behalf of the Shareholders or Drew or otherwise assisted in bringing about the
transactions contemplated by this Agreement and no broker, finder, agent or
other intermediary is entitled to any commission or finder's fee in respect
thereof based in any way on agreements, understandings or arrangements with or
the conduct of Drew or the Shareholders.
5.29 Product Liability. Except as set forth in Schedule 5.29 heretofore
delivered to Purchaser, Drew has no liability and to the best knowledge of
Shareholders, there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
Drew giving rise to any liability arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
manufactured, sold, or delivered by Drew for which there is not adequate
available insurance.
5.30 Banks; Safe Deposit Boxes; Powers of Attorney. Shareholders have
heretofore delivered to Purchaser a true and correct schedule 5.30 setting forth
(i) the name of each bank in which Drew has an account or safe deposit box and
the names of all persons authorized to draw thereon or to have access thereto,
and (ii) the names of all persons, firms, associations, corporations or business
organizations holding general or special powers of attorney from Drew and a
summary of the terms thereof.
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5.31 Material Information; Full Disclosure.
(a) This Agreement and any other certificate, document, agreement or
information furnished (including, without limitation, any schedule hereto) or to
be furnished pursuant to this Agreement by the Shareholders to Purchaser does
not contain and will not contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statement
herein or therein not misleading.
(b) For purposes of this Agreement, knowledge by either Shareholder of an
event, fact or circumstance shall be deemed to be knowledge by both Shareholders
thereof.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Shareholders as follows:
6.1 Organization and Good Standing of Purchaser. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York. Purchaser has all requisite corporate power and authority to
make the representations, warranties and agreements made hereunder, to own,
lease and operate its properties and assets and to carry on its business as
currently conducted, to execute and deliver this Agreement and to perform its
obligations under this Agreement.
6.2 Authorization of Agreement and Enforceability. Purchaser has full
corporate power and authority to execute and deliver this Agreement of even date
herewith between Drew and each of the Shareholders and to perform its
obligations hereunder. This Agreement has been duly and validly authorized,
executed and delivered by Purchaser and (assuming the valid execution and
delivery of the Agreement by Shareholders) constitutes the legal, valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms except to the extent that enforcement thereof may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws of general application relating to or affecting the
enforcement of the rights of creditors and the application of general principles
of equity (regardless of whether enforcement is sought in a proceeding at law or
in equity).
6.3 Effect of Agreement. Neither the execution, delivery and performance of
this Agreement by Purchaser, nor the consummation by Purchaser of the
transactions contemplated hereby will (a) conflict with or result in a breach of
any provision of Purchaser's Certificate of Incorporation or By-Laws, (b)
constitute or result in the breach of, conflict with or give rise to a right of
termination, cancellation or acceleration with respect to, any term, condition
or provision of, any note, bond, mortgage, indenture, license or other contract
or obligation to which Purchaser is a party or by which it or any of its
properties or assets may be bound, except for such conflicts, breaches or
defaults as to which written waivers or consents have been obtained, or (c)
violate any law, statute, regulation, judgment, order, writ, injunction, or
decree applicable to Purchaser or any of its properties or assets.
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6.4 Government and Other Consents. No consent, order, authorization,
qualification, or approval of, or exemption by, or filing with any governmental,
public, or regulatory body or authority is required in connection with the
execution, delivery and performance by Purchaser of this Agreement.
6.5 Broker. No broker, finder, agent or other intermediary has acted on
behalf of Purchaser or otherwise assisted in bringing about the transactions
contemplated by this Agreement and no broker, finder, agent or other
intermediary is entitled to any commission or finder's fee in respect thereof
based in any way on agreements, understandings or arrangements with or the
conduct of Purchaser.
6.6 Material Information; Full Disclosure. This Agreement and any other
certificate, document, agreement or information furnished (including, without
limitation, any schedule hereto) or to be furnished pursuant to this Agreement
by the Purchaser to the Shareholders does not contain and will not contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statement herein or therein not misleading.
6.7 SEC Filings.
(a) Purchaser has filed and made available to the Shareholders all forms,
reports and documents required to be filed by Purchaser with the Securities and
Exchange Commission ("SEC") since January 1, 1995 (collectively, the
"Purchaser's SEC Reports"). The Purchaser's SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
the case may be; and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Purchaser's SEC Reports or necessary
in order to make the statements in such Purchaser's SEC Reports, in the light of
the circumstances under which they were made, not misleading.
(b) Since the date of filing of the last Purchaser's SEC Report, there has
not been any material adverse change in the assets, liabilities, financial
condition or results of operations of Purchaser.
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6.8 Schuyler Common Shares. The Schuyler Common Shares to be delivered to
Schuyler pursuant to subsection 2.1(b) hereof when delivered will be validly
issued, fully paid and non-assessable.
ARTICLE 7
COVENANTS AND AGREEMENTS
7.1 Conduct of the Business Prior to Closing. Except as set forth in
Schedule 7.1 heretofore delivered to Purchaser by Shareholders, the Selling
Shareholders, jointly and severally covenant and agree that, except as otherwise
consented to in writing by Purchaser, pending the Closing:
(a) The business of Drew will be conducted only in the ordinary course.
(b) No change will be made in the Articles of Incorporation or by-laws of
Drew.
(c) No change will be made in the authorized or issued capital stock of
Drew, nor shall any additional shares, or any rights, warrants or options
relating thereto, be issued.
(d) Except as set forth in Schedule 7.1(d) previously delivered to
Purchaser, no dividend or other distribution or payment will be declared, set
aside, paid or made on or in respect of the capital stock of Drew nor will Drew
directly or indirectly redeem, retire, purchase or otherwise acquire any of such
stock. Notwithstanding any other provision of this Agreement, Drew may declare
and pay distributions prior to the Closing in an amount equal to the highest
marginal federal individual income tax rate (39.6%), plus the highest Ohio
individual income tax rate (7.004%), multiplied by the total taxable income
reported by Drew to the Shareholders (on their respective federal tax forms K-1
and Drew's form 1120s, Schedule K) for (i) the tax year ended December 31, 1996,
and (ii) the tax year ended the day immediately prior to Closing, on a
cumulative basis (net of prior distributions related to the Shareholders' income
taxes for such tax years). The amount of these distributions is to be determined
in good faith by Drew's Vice President - Finance in consultation with Drew's
accountants, Deloitte & Touche LLP.
(e) Drew will use its best efforts to preserve the business organization of
Drew intact, to keep available to Purchaser the services of the present
officers, employees, distributors and agents of Drew and to preserve for
Purchaser the good will of suppliers, customers and others having business
relations with Drew and keep in force all contracts, agreements or arrangements
in existence on the date hereof.
(f) No increase will be made in the compensation or rate of compensation or
commissions payable or to become payable by Drew to any director, officer,
salaried employee earning $30,000 per annum or more, salesman, distributor or
agent, nor will there be made any general increase in compensation or rate of
compensation payable or to become payable to hourly employees or salaried
employees earning less than $7,500 per annum ("general increase" shall mean any
increase generally applicable to a class or group of employees and shall not
include increases granted to individual employees for merit, length of service,
change in position or responsibility or other reasons applicable to specific
employees and not generally to a class or group thereof), nor will any employee
be hired at a salary in excess of $30,000 per annum, and no bonus, profit
sharing or other extraordinary compensation will be paid by Drew and no employee
benefit arrangements of any kind will be adopted or entered into, or be amended,
modified or changed in any respect.
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(g) No contract, agreement, obligation, lease, license or commitment or
extension or amendment of the same will be entered into or assumed by or on
behalf of Drew, except for normal and ordinary contracts, agreements or
commitments not involving payments or receipts by Drew of more than $100,000 in
the case of any single commitment for the purchase of raw materials, supplies or
other products or utilities or for the sale of products; nor will Drew enter
into, permit to be imposed or assume any lien, encumbrance, mortgage,
conditional sale or other title retention agreement, pledge, or charge of any
kind upon any of its properties or assets whether now owned or hereafter
acquired, or create or assume any obligation for borrowed money, or make any
loan or advance to or assume, guarantee, endorse or otherwise become liable with
respect to the obligations, stock or dividends of any person, firm, association,
corporation or business organization, or purchase or otherwise acquire any
stocks, bonds or other securities of, or any proprietary interest in, any
person, firm, association, corporation or business organization, or sell, lease,
abandon, assign, transfer, license or otherwise dispose of any real property,
machinery, equipment or other operating properties, patent, trademark, trade
name, brand name or copyright (or pending application for any patent, trademark
or copyright), invention, process, know-how, formula, trade secret or other
intangible asset.
(h) Drew will not merge, amalgamate or consolidate with any other
corporation or acquire all or substantially all of the stock or the business or
assets of any other person, firm, association, corporation or business
organization except those previously contracted and as are disclosed in Schedule
5.15 hereof.
(i) All buildings, offices, shops and other structures and all machinery,
equipment, tools, dies, fixtures, motor vehicles and other properties owned or
leased by Drew (whether under its control or the control of others) will be kept
and maintained in good operating condition and repair.
(j )Drew will duly and timely file all reports or returns required to be
filed with federal, state, local, foreign, state, local, foreign and other
authorities and will promptly pay all federal, state, local and foreign taxes,
assessments and governmental charges lawfully levied or assessed upon it or any
of its properties, and will duly observe and conform to all lawful requirements
of any governmental authority relative to any of its properties or to the
operation and conduct of its business and to all terms and conditions upon or
under which any of the properties are held. Except as set forth on Schedule
7.1(j), Drew will not enter into any agreements, waivers or other arrangements
providing for an extension or time with respect to the filing of any tax returns
or the payment or assessment of any tax or deficiency; provided that Drew may
contest in appropriate proceedings any and all such taxes and assessments which
may be contested in good faith and for which adequate provision has been made.
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(k) No change will be made affecting the banking and safe deposit
arrangements and powers of attorney referred to in Section 5.31 hereof, no new
bank accounts or safe deposit boxes will be opened and no new powers of attorney
will be granted.
(l) Drew will continue to maintain in full force and effect all policies of
insurance now in effect or renewals thereof, will take out such additional
insurance as may be reasonably requested by Purchaser and will give all notices
and present all claims under all policies of insurance in due and timely
fashion. Notwithstanding the foregoing, Drew shall have the right to substitute
policies of insurance of equal amount and coverage provided that notice hereof
together with copies of such new policies is promptly delivered to Purchaser.
(m) From and after the date hereof, Drew will give to Purchaser's counsel,
accountants, investment bankers, commercial bankers and consultants, full access
during normal business hours throughout the period prior to the Closing to
Drew's plants, offices, properties, books, contracts, commitments, records and
affairs for purposes of inspection and audit and will provide, without cost or
expense, copies of all documents and information concerning the properties and
affairs of Drew as Purchaser may reasonably request. Drew will also give to (i)
engineers and other representatives of Purchaser reasonable access at reasonable
times during normal business hours to each of Drew's plants; and (ii)
Purchaser's accountants the opportunity to examine Deloitte & Touche LLP's audit
workpapers with respect to the audits for 1995 and 1996.
(n)(i) Shareholders shall give Purchaser and its representatives the right
to inspect all premises owned or leased by Drew (the "Premises") (including the
taking of soil, water and other samples), at Purchaser's expense, to determine
the existence of pollutants including, without limitation, asbestos, hazardous
materials or so-called BTX compounds. If any pollutants are suspected or found
or if a Phase II study shall be recommended and is completed by Purchaser,
Purchaser shall deliver a copy of its inspection report and Phase II study to
the Shareholders. If Purchaser, in its sole discretion, shall determine that the
aforesaid conditions at the Premises are materially adverse as to create
substantial future financial risk to Purchaser or Drew following Closing, then
Purchaser shall have the right, at its option, upon notice to the Shareholders,
to cancel this Agreement whereupon this Agreement shall be null and void and of
no further force or effect. Purchaser's sole remedy in respect of the foregoing
is limited to the right of cancellation set forth therein.
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(ii) If prior to Closing any of the Premises shall be affected by a
discharge, dispersal, release or escape onto, over or beneath the Premises,
whether sudden and accidental or over the course of time, which may be deemed by
any governmental or public authority having or asserting jurisdiction to be an
environmental hazard of any nature or which may require the development or
implementation of a remedial program (collectively and individually "Hazardous
Materials"), Shareholders shall promptly give notice to Purchaser which shall
contain detailed information about such hazard and remedial program, information
as to the nature and extent of Drew's insurance coverage, if any, and the cost
to be incurred by Drew above available insurance coverage. If Purchaser, in its
sole discretion, shall determine that the aforesaid conditions at the Premises
are materially adverse as to create substantial future financial risk to
Purchaser or Drew following Closing, then Purchaser shall have the right, at its
option, upon notice to the Shareholders, to cancel this Agreement whereupon this
Agreement shall be null and void and of no further force or effect. Purchaser's
sole remedy in respect of the foregoing is limited to the right of cancellation
set forth therein.
(o) Shareholders shall give Purchaser and its representatives the right to
inspect the Premises for engineering, mechanical, electrical, plumbing, sewage
and structural deficiencies, at Purchaser's expense. If Purchaser, in its sole
discretion, shall determine that the aforesaid conditions at the Premises are
materially adverse as to create substantial future financial risk to Purchaser
or Drew following Closing, then Purchaser shall have the right, at its option,
upon notice to the Shareholders, to cancel this Agreement whereupon this
Agreement shall be null and void and of no further force or effect. Purchaser's
sole remedy in respect of the foregoing is limited to the right of cancellation
set forth therein.
(p) To fund the Purchase Price and to obtain expansion capital, the
Purchaser intends to offer its securities in a private placement through its
investment bankers. Shareholders undertake and agree to make themselves
available following execution of the Agreement to discuss Drew with investment
bankers and prospective investors in the private placement. Notwithstanding the
foregoing, Purchaser can provide no assurance that such private placement will
be completed. If such private placement is not completed by March 28, 1997 then
either Purchaser or Shareholders upon notice to the other party shall have the
right to cancel this Agreement whereupon such Agreement shall be null and void
and of no further force or effect.
(q) At or prior to Closing, Drew will purchase additional key person life
insurance insuring the lives of Schuyler (up to an aggregate of $4 million) and
Shyjka (up to an aggregate of $1 million) and each of Schuyler and Shyjka agree
to complete such insurance applications and submit to physical examinations if
required, to procure such insurance. Schuyler and Shyjka represent that they
have no knowledge of any cause that would prevent the purchase of such life
insurance.
(r )Drew shall have the right to pay a bonus (up to $7,700 each) consistent
with prior bonuses of this nature to each of the Shareholders who are officers
to facilitate the repayment of certain obligations paid by Drew for the officers
and shall deduct payroll taxes and the amount of the obligations owed to Drew
and remit a net payroll check of $0 to such Shareholders.
26
<PAGE>
7.2 Consents. Except as set forth on Schedule 7.2 heretofore delivered to
Purchaser by Shareholders, Shareholders covenant and agree to procure consents
of persons having leases or other contracts with Drew, which consents are
necessary to prevent such leases or other contracts from being in default as a
result of the purchase of Sellers Shares.
7.3 Non Union Pension Plan. Shareholders covenant and agree in regard to
Drew's existing defined benefit Pension Plan ("Non Union Plan") to execute and
deliver to Purchaser immediately prior to Closing, an agreement in form and
substance reasonably satisfactory to counsel to the Purchaser executed by all
necessary parties to enable Drew to immediately discontinue, (i) accruing
additional benefits, (ii) adding additional participants and, (iii) if
permissible, making additional contributions under the Non Union Plan and to
delay payment under the Plan to Shyjka for five (5) years following Closing.
Shareholders shall also use best efforts, together with Purchaser, following
execution of this Agreement, to extend the commencement date for payment of
vested benefits to Harry Prince.
7.4 Drew's 1996 Financial Statements. Shareholders covenant and agree to
promptly deliver to Purchaser by March 15, 1997, or as soon thereafter as they
shall become available, the financial statements of Drew consisting of a Balance
Sheet at December 31, 1996 and Statements of Income and Cash Flow for the year
then ended, audited by Deloitte & Touche LLP. If delay shall occur in the
delivery of such financial statements beyond March 15, 1997, Purchaser shall
have the right to delay the Closing beyond March 28, 1997 by an equal amount of
time.
7.5 Covenant Relating to Books and Records. Purchaser hereby covenants and
agrees that in the event that Drew becomes subject to an audit by the Internal
Revenue Service or any state taxing authority, Purchaser will cooperate with the
Shareholders and make available to the Shareholders and their representatives
the books and records of Drew and/or copies thereof (at Shareholders' expense).
27
<PAGE>
ARTICLE 8
CONDITIONS PRECEDENT TO CLOSING
8.1 Conditions Precedent to Purchaser's Obligations. All obligations of
Purchaser under this Agreement are subject, at Purchaser's option, to the
fulfillment, prior to or at the Closing, of each of the following conditions:
(a) All representations and warranties contained in this Agreement and in
any statement (including financial statements), deed, certificate, schedule or
other document delivered pursuant hereto or in connection with the transactions
contemplated hereby, shall be true and accurate in all material respects as of
the date when made and shall be deemed to be made again at and as of the time of
the Closing and shall then be true and accurate in all material respects.
(b) The Selling Shareholders shall each have performed and complied with
all covenants, agreements and conditions required by this Agreement to be
performed or complied with by them prior to or at the Closing.
(c) Each of the Selling Shareholders shall have delivered to Drew a
certificate dated the date of Closing, certifying to the fulfillment of the
conditions set forth in Section 8.1(a) and 8.1(b) hereof.
(d) Selling Shareholders have caused to be delivered to Purchaser
Shareholders Counsel Opinion dated the date of the Closing.
(e) All actions, corporate proceedings, instruments, and documents required
to carry out this Agreement, or incidental thereto, and all other related legal
matters, shall have been approved by Ruskin, Moscou, Evans & Faltischek, P.C.,
counsel for Purchaser.
(f) The Selling Shareholders shall have delivered to Purchaser, or caused
to be delivered to Purchaser, executed employment agreements and non-competition
undertakings in the forms annexed hereto as Exhibits B, Exhibit C, Exhibit D and
Exhibit E.
(g No suit, action, investigation, inquiry or proceeding by any
governmental body, or other legal or administrative proceeding shall have been
instituted or threatened which questions the validity or legality of this
Agreement or any of the transactions contemplated hereby, or which seeks to
enjoin the consummation thereof.
(h) Selling Shareholders shall have delivered to Purchaser resignations of
Schuyler and Shyjka as directors of Drew.
28
<PAGE>
(i)(i) Bank One shall have waived any default under its existing loan
agreement with Drew resulting from the transaction contemplated hereby, (ii)
Deloitte & Touche LLP shall deliver to Purchaser an opinion that the financial
statement of Drew based upon its December 31, 1996 audit, will not result in a
default under the Bank One loan agreement, a copy of which has heretofore been
delivered to Purchaser, and (iii) Ernst & Young LLP shall deliver to Purchaser a
preliminary pro forma balance sheet as of December 31, 1996, giving effect to
the purchase of Sellers Shares hereunder accompanied by its opinion
substantially to the effect that on the basis thereof Drew would not be in
default under the Bank One loan agreement.
(j) Drew shall have entered into employment agreements in form and
substance satisfactory to Purchaser with the following persons currently
employed by Drew, as follows: Larry R. Martin, Mark Recchi, Scott Williams and
Robert Chapman.
(k) Drew shall have delivered to Purchaser actuarial reports relating to
the Drew Plans providing that there has not been a material reduction in the
assets covered by either of the Drew Plans since December 31, 1995 as would give
rise to a liability of Drew that would have a material adverse effect upon the
financial condition of Drew.
8.2 Conditions Precedent to the Selling Shareholders' Obligations. All
obligations of the Selling Shareholders under this Agreement are subject, at the
Selling Shareholders' option, to the fulfillment, prior to or at the Closing, of
each of the following conditions:
(a) All representations and warranties of Purchaser contained in this
Agreement and in any statement (including financial statements), certificate,
schedule, or other document delivered pursuant hereto or in connection with the
transactions contemplated hereby shall be true and accurate in all material
respects as of the date when made and shall be deemed to be made again at the
time of the Closing and shall then be true and accurate in all material
respects.
(b) Purchaser shall have performed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or at the Closing.
(c) Purchaser shall have delivered to Selling Shareholders a certificate
dated the date of closing, certifying the fulfillment of the conditions set
forth in Section 8.2(a) and 8.2(b) hereof.
(d) All actions, corporate proceedings, instruments, and documents required
to carry out this Agreement or incidental thereto, and all other related legal
matters, shall have been approved by Vorys, Sater, Seymour and Pease, counsel
for Selling Shareholders.
29
<PAGE>
(e) The Employment agreements to each of Schuyler and Shyjka shall have
been duly executed and delivered by Drew.
(f) The Shyjka Stock Option Agreement shall have duly executed and
delivered by Purchaser.
(g) The Registration Rights Agreement shall have been duly executed and
delivered by Purchaser.
(h) The aggregate unpaid principal balance of certain debentures currently
in the amount of $911,712, together with interest to the Closing, shall be paid
in full against receipt by Purchaser of such debentures duly endorsed in blank
with signature guarantee by a bank or New York Stock Exchange member firm. In
addition, Purchaser shall pay $51,500 as a premium required by the Shareholders
to be paid to the debenture holders in five (5) equal annual installments of
$10,300, without interest, commencing on the anniversary date of the Closing.
(i) Delivery of the Notes duly executed by Purchaser.
(j) Purchaser shall have caused to be delivered to selling Shareholders
Purchasers Counsel Opinion dated the date of Closing.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by Shareholders. The Shareholders, jointly and
severally, agree that, notwithstanding the Closing, the sale of the Sellers
Shares provided for herein and regardless of any investigation at any time made
by or on behalf of Purchaser or of any information Purchaser may have in respect
thereof, the Shareholders, jointly and severally, will indemnify and hold
Purchaser and Drew harmless from and against any damage, liability, loss or
deficiency (including, without limitation, reasonable attorneys' fees and other
costs and expenses incident to any suit, action or proceeding) arising out of or
resulting from: (a) any inaccuracy in any representation or the breach of any
warranty made by the Shareholders herein or in any agreement, instrument or
document delivered pursuant to this Agreement, (b) any failure of the
Shareholders duly to perform or observe any term, provision, covenant,
agreement, or condition herein or in any agreement, instrument or document
delivered pursuant to this Agreement on the part of Shareholders to be performed
or observed, and (c) any liability or obligation arising with respect to Drew's
assets or the conduct of the Drew business prior to the Closing except as
hereafter disclosed hereunder including any Schedule hereafter delivered to
Purchaser in accordance with this Agreement. Notwithstanding anything herein to
the contrary, neither Purchaser nor Drew may bring a claim for indemnification
under this Section if the applicable statute of limitations with respect to such
claim has expired.
30
<PAGE>
9.2 Indemnification by Purchaser. The Purchaser agrees that,
notwithstanding the Closing, the sale of the Sellers Shares provided for herein
and regardless of any investigation at any time made by or on behalf of
Shareholders or of any information Shareholders may have in respect thereof, the
Purchaser will indemnify and hold Shareholders harmless from and against any
damage, liability, loss or deficiency (including, without limitation, reasonable
attorneys' fees and other costs and expenses incident to any suit, action or
proceeding) arising out of or resulting from: (a) any inaccuracy in any
representation or the breach of any warranty made by the Purchaser herein or in
any agreement, instrument or document delivered pursuant to this Agreement, and
(b) any failure of the Purchaser duly to perform or observe any term, provision,
covenant, agreement, or condition herein or in any agreement, instrument or
document delivered pursuant to this Agreement on the part of Purchaser to be
performed or observed. Notwithstanding anything herein to the contrary,
Shareholders may not bring a claim for indemnification under this Section if the
applicable statute of limitations with respect to such claim has expired.
9.3 Limitation of Liability. None of the Parties shall assert any claim for
indemnification under Sections 9.1 or 9.2 unless the aggregate amount of all
claims of such party against the other party under this Agreement, on a
cumulative basis, exceeds Fifty Thousand ($50,000) Dollars, in which case the
indemnification shall be for that aggregate amount in excess of $50,000. Under
no circumstances shall the liability of the Shareholders in the aggregate
pursuant to this Article 9 exceed Four Million Six Hundred Thousand ($4,600,000)
Dollars as adjusted pursuant to Sections 2.3 and 2.4 hereof.
9.4 No Waiver. No failure or delay on the part of Purchaser in exercising
any right, power or remedy under this Agreement, or available to Purchaser at
law or in equity shall operate as a waiver of such right, power or remedy, nor
shall any single or partial exercise of any such right, power or remedy preclude
any or further exercise thereof or the exercise of any other right, power or
remedy available to Purchaser. Subject to the limitations of Section 9.3, the
remedies provided in this Agreement are cumulative and not exclusive of any
remedies available to any Party at law or equity.
9.5 Third Party Claims.
(a) In case of the assertion in writing of any claim initiated or asserted
by any person, firm, governmental authority or corporation other than Purchaser
or any affiliate of Purchaser (a "Third Party Claim") against Drew or the
commencement of any litigation asserting a Third Party Claim which may give rise
to any indemnification obligation of Shareholders (each an "Indemnitor") to
Purchaser or Drew under the provisions of this Article, Purchaser shall give
notice thereof as provided hereunder as promptly as practicable after
Purchaser's receipt of such written assertion or the commencement of such
litigation unless the failure to give such notice would not materially prejudice
Shareholders, such notice to be given by Purchaser not later than would
materially prejudice Shareholders if they chose to defend such litigation as
hereinafter provided. If Indemnitor demonstrates to Purchaser that Indemnitor
will be able to pay the full amount of potential liability in connection with
31
<PAGE>
any Third Party Claim, Indemnitor may at its sole cost and expense, upon written
notice given to Purchaser within fifteen (15) days after its receipt of
Purchaser's notice under this Section 9.5, assume the defense, with counsel
reasonably satisfactory to Purchaser, of any such Third Party Claim or
litigation, provided that Indemnitor admits in writing to Purchaser its
liability solely as between it and Purchaser with respect to all material
elements thereof. If Indemnitor assumes the defense of any such claim or
litigation, the obligations of Indemnitor hereunder as to such claim or
litigation shall be limited to taking all steps necessary in the defense or
settlement thereof and to holding Purchaser harmless from and against any and
all losses, liabilities, expenses and damages caused by or arising out of any
settlement approved by Indemnitor or any judgment in connection with such claim
or litigation, and Purchaser shall make available or cause to be made available
to Indemnitor such books and records in Drew's possession as Indemnitor may
reasonably require in connection with such defense. Except with the express
prior written consent of Purchaser, Indemnitor shall not consent to the
settlement or entry of any judgment arising from any such claim or litigation
which in each case does not include as an unconditional term thereof the giving
by the claimant or plaintiff, as the case may be, to Purchaser of an
unconditional release from all liability in respect thereof unless Indemnitor
shall have actually paid the full amount of any such settlement or judgment.
Purchaser shall be entitled to be consulted about (but not control) the defense
of, and receive copies of all pleadings and other material papers in connection
with, any such claim or litigation. If Indemnitor does not assume the defense of
any such claim or litigation, Purchaser may defend the same in such manner as it
may deem appropriate, including but not limited to settling such claim or
litigation after giving reasonable notice of the same to Indemnitor on such
terms as Purchaser may deem appropriate, and Indemnitor will promptly reimburse
Purchaser in accordance with the provisions of this Section 9.5, provided that
Purchaser furnish Indemnitor with copies of all pleadings and other material
documents in connection with any such claim or litigation and that Indemnitor is
consulted about (albeit not in control of) such litigation. Anything contained
in this Section 9.5 to the contrary notwithstanding, (i) Indemnitor shall not be
entitled to assume the defense of any such claim or litigation if the Third
Party Claim seeks an order, injunction or other equitable relief against
Purchaser which, if successful, might materially interfere with, or adversely
affect, the operation of its business by Purchaser or Drew; and (ii) Purchaser
or Drew may defend any Third Party Claim to which Purchaser or Drew may have a
defense or counterclaim which Indemnitor is not entitled to assert to the extent
necessary to assert and maintain such defense or counterclaim provided that
Purchaser provide or cause to be provided to Indemnitor copies of all pleadings
and other material documents in connection with any such claim or litigation and
that Indemnitor is consulted about (albeit not in control of) such litigation.
(b) In case of the assertion in writing of any Third Party Claim or the
commencement of any litigation asserting a Third Party Claim which may give rise
to any obligation of Purchaser to Shareholders under the provisions of this
Section, Shareholders shall have the rights, duties and obligations of Purchaser
under Section 9.5 and Purchaser shall have the right, duties and obligations of
Shareholders.
32
<PAGE>
ARTICLE 10
GENERAL
10.1 Expenses. Shareholders shall cause Drew to pay their counsel,
accountants and other advisors' fees and expenses arising in connection with the
negotiation and preparation of this Agreement, the consummation of the
transactions contemplated hereby and the preparation of the Shareholders tax
returns for 1996 and 1997. The counsel and accounting fees shall be limited to
$60,000 and $75,000, respectively.
10.2 Sales, Transfer and Documentary Taxes, etc. Shareholders shall pay all
sales, transfer and documentary taxes, if any, due as a result of the sale of
the Sellers Shares to Purchaser and all other fees applicable to Shareholders
directly relating to the transfer of the Sellers Shares to Purchaser.
10.3 Survival of Representations and Warranties. Each of the Parties
covenants and agrees that all of the representations warranties, covenants, and
agreements set forth in this Agreement shall survive the Closing for two and one
half (2 1/2) years except that:
(a) the representation in subsection 5.1 as it related to due organization
in Ohio and the entire representations in subsections 5.2 and 5.4 will survive
without limitation, and
(b) the representation in subsection 5.20 will survive for the period of
the applicable statute of limitations.
None of the representations and warranties shall be merged into any instruments
of transfer or other documents delivered by any of the Parties at Closing or at
any other time.
10.4 No Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the Parties or their
respective heirs, successors and assigns any rights, remedies, obligations, or
other liabilities under or by reason of this Agreement.
10.5 Notices. All notices permitted or required under this Agreement shall
be in writing and shall be either (a) delivered by personal service, (b)
delivered by courier service, (c) telecopied and confirmed immediately in
writing by a copy mailed by registered or certified mail, postage prepaid,
return receipt requested, or (d) sent by certified or registered mail, postage
prepaid, return receipt requested, to the parties hereto at their addresses set
forth below or at such other addresses which may be designated in writing by the
parties:
33
<PAGE>
If to Schuyler to:129 W. Broadway
Granville, Ohio 43023
(614)587-1730
If to Shyjka to:112 N. Ardmore Rd.
Bexley, Ohio 43209
(614) 252-0112
With a copy to:Vorys, Sater, Seymour and Pease
52 East Gay Street
Columbus, Ohio 43215
(614) 464-6317
Attn: Russell Gertmenian, Esq.
(614) 464-6317
If to Purchaser to:BCAM International, Inc.
1800 Walt Whitman Road
Melville, New York 11747
Attn: Michael Strauss, President
Telecopier No. (516) 752-3558
With a copy to:Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attn: Raymond S. Evans, Esq.
Telecopier No.: (516) 663-6640
Such notices shall be effective upon receipt in the case of personal or courier
service or telecopier delivery and on the third (3rd) day after posting in the
U.S. mail.
10.6 Entire Agreement. This Agreement (including the Schedules hereto)
supersedes all prior agreements and understandings, oral and written, between
the parties with respect to the subject matter, and this Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof.
10.7 Headings. The article, section and other headings contained in this
Agreement are for reference purposes only and shall not be deemed to be a part
of this Agreement or to affect the meaning or interpretation of this Agreement.
10.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original,
and all of which together shall be deemed to be one and the same instrument.
34
<PAGE>
10.9 Governing Law. This Agreement shall be construed as to both validity
and performance and governed by and enforced in accordance with the laws of the
State of Ohio, without giving effect to the choice of law principles.
10.10 Severability. If any term, covenant, condition, or provision of this
Agreement or the application thereof to any circumstance shall be invalid or
unenforceable to any extent, the remaining terms, covenants, conditions, and
provisions of this Agreement shall not be affected and each remaining term,
covenant, condition, and provision of this Agreement shall be valid and shall be
enforceable to the fullest extent permitted by law. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
10.11 Amendments. This Agreement may not be modified or changed except by
an instrument or instruments in writing signed by all Parties.
10.12 Assignment. None of the Parties shall assign its rights or
obligations under this Agreement without the prior written consent of the other
Parties, except that Purchaser may assign this Agreement to any Affiliate of
Purchaser without the consent of Shareholders.
10.13 Successors and Assigns. The covenants, agreements, and conditions
contained or granted shall be binding upon and shall inure to the benefit of
Purchaser and Shareholders and their respective heirs, successors and permitted
assigns.
10.14 No Joint Venture. The Parties, by entering into this Agreement and
consummating the transactions contemplated in this Agreement, shall not be and
shall not be considered a partner or joint venturer of one another.
10.15 Construction of Agreement. This Agreement was negotiated at arm's
length by the Parties and their respective counsel. This Agreement shall not be
construed as having been "drafted" by any one Party and shall not be construed
against any Party as a drafting party.
35
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
BCAM INTERNATIONAL, INC.
By:/s/ Michael Strauss
------------------------
Michael Strauss, President
/s/ Charles Schuyler
----------------------
CHARLES SCHUYLER
/s/ Frank Shyjka
--------------------
FRANK SHYJKA
36
E-4
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Condensed Consolidated Balance Sheet, Condensed
Consolidated Statements of Operations and Condensed Consolidated
Statements of Cash Flows, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000856143
<NAME> BCAM International, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 526,344
<SECURITIES> 0
<RECEIVABLES> 33,782
<ALLOWANCES> 11,245
<INVENTORY> 0
<CURRENT-ASSETS> 882,358
<PP&E> 864,379
<DEPRECIATION> 670,591
<TOTAL-ASSETS> 1,304,681
<CURRENT-LIABILITIES> 285,065
<BONDS> 0
0
0
<COMMON> 156,429
<OTHER-SE> 858,898
<TOTAL-LIABILITY-AND-EQUITY> 1,304,681
<SALES> 0
<TOTAL-REVENUES> 604,554
<CGS> 0
<TOTAL-COSTS> 272,980
<OTHER-EXPENSES> 1,899,769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,579
<INCOME-PRETAX> (1,514,140)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,514,140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,514,140)
<EPS-PRIMARY> (0.010)
<EPS-DILUTED> (0.010)
</TABLE>
