UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ____________ TO ___________
COMMISSION FILE NUMBER 0-28566
HENLEY HEALTHCARE, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0335587
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
120 INDUSTRIAL BOULEVARD, SUGAR LAND, TEXAS 77478
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
713-276-7000
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer: (i) filed all reports required 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 (ii) has been
subject to such filing requirements for the past 90 days. Yes [X] No[ ]
As of August 13, 1999, the issuer had 5,823,726 shares of common stock
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I. FINANCIAL INFORMATION
This report includes "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. All statements other than statements of
historical fact included in this report are forward looking statements. Such
forward looking statements include, without limitation, statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" regarding the Company's estimate
of sufficiency of existing capital resources and its ability to raise additional
capital to fund cash requirements for future operations and acquisitions.
Although the Company believes the expectations reflected in such forward looking
statements are reasonable, it can give no assurance that such expectations
reflected in such forward looking statements will prove to have been correct.
The ability to achieve the Company's expectations is contingent upon a number of
factors which include (i) securing sufficient financing at terms which will
allow the Company to continue its operations, (ii) the Company's ability to
manufacture and market its products profitably, (iii) the effect of any current
or future competitive products, (iv) ongoing cost of research and development
activities, (v) timely approval of the Company's product candidates by
appropriate governmental and regulatory agencies, (vi) the retention of key
personnel and (vii) capital market conditions. This Report may contain
trademarks and service marks of other companies.
ITEM 1. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set forth in
the "Index to Financial Statements."
INDEX TO FINANCIAL STATEMENTS
PAGE
------
Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998................................................ 3
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the Six Months Ended June 30, 1999 and 1998........... 4
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the Three Months Ended June 30, 1999 and 1998......... 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998..................................... 6
Notes to Consolidated Financial Statements.......................... 7
2
<PAGE>
HENLEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 490,444 $ 490,649
Accounts receivable, net of allowance for doubtful
accounts of $1,039,755 and $1,470,026, respectively .............. 10,384,507 11,172,228
Inventory ........................................................... 7,670,126 8,494,276
Prepaid expenses .................................................... 552,983 132,190
Other current assets ................................................ 152,000 203,000
------------ ------------
TOTAL CURRENT ASSETS ................................................ 19,250,060 20,492,343
PROPERTY, PLANT AND EQUIPMENT, net ...................................... 5,886,729 6,607,631
GOODWILL, net ........................................................... 4,896,679 5,272,666
INTANGIBLE AND OTHER ASSETS, net ........................................ 16,024,320 18,671,480
------------ ------------
TOTAL ASSETS ........................................................ $ 46,057,788 $ 51,044,120
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit ...................................................... $ 8,442,146 $ 9,185,425
Current maturities of long-term debt ................................ 6,422,507 5,297,388
Accounts payable .................................................... 7,285,203 8,248,460
Accrued expenses and other current liabilities ...................... 4,646,367 6,370,655
------------ ------------
TOTAL CURRENT LIABILITIES ........................................... 26,796,223 29,101,928
INTEREST PAYABLE ........................................................ 264,200 243,200
LONG-TERM DEBT, net of current maturities ............................... 5,334,555 7,514,504
OTHER LONG-TERM LIABILITIES ............................................. 3,816,000 4,611,000
------------ ------------
TOTAL LIABILITIES ................................................... 36,210,978 41,470,632
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Preferred stock - $.10 par value; 5,000 shares
authorized; 1,570 and 2,500 shares issued and outstanding ......... 1,302,956 2,257,614
Series B Preferred stock - $.10 par value; 8,000 shares
authorized; 4,700 shares issued and outstanding ................... 4,080,332 4,080,332
Series C Preferred stock - $.10 par value; 750 shares
authorized, issued and outstanding ................................ 452,473 --
Common stock - $.01 par value; 20,000,000 shares authorized;
6,102,726 and 5,712,205 issued; 5,823,726 and 5,433,205 outstanding 61,027 57,121
Additional paid-in capital .......................................... 22,685,879 21,445,025
Cumulative translation adjustment ................................... (294,889) 441,156
Accumulated deficit ................................................. (18,214,789) (18,481,581)
Treasury stock, at cost, 279,000 common shares ...................... (226,179) (226,179)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY .......................................... 9,846,810 9,573,488
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 46,057,788 $ 51,044,120
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
HENLEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
NET SALES ................................................. $ 25,147,907 $ 15,488,719
COST OF SALES ............................................. 15,612,776 9,488,117
------------ ------------
GROSS PROFIT .............................................. 9,535,131 6,000,602
OPERATING EXPENSES:
Selling, general and administrative .................... 7,092,196 5,798,488
Research and development ............................... 423,031 223,766
Depreciation and amortization .......................... 1,336,979 867,655
------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS .................. 682,925 (889,307)
INTEREST EXPENSE .......................................... 920,254 765,771
GAIN ON INVOLUNTARY CONVERSION AND OTHER, net ............. (777,219) (19,972)
------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS, before taxes .... 539,890 (1,635,106)
PROVISION FOR INCOME TAXES ................................ 96,000 --
------------ ------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS .............. 443,890 (1,635,106)
DISCONTINUED OPERATIONS:
Loss from Operations of Homecare Division .............. -- (301,978)
Extraordinary Item-Loss on Disposal of Homecare Division -- (952,052)
------------ ------------
NET INCOME (LOSS) ......................................... $ 443,890 ($ 2,889,136)
============ ============
Preferred Stock Dividends ................................. (591,270) (672,917)
------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS ........ $ (147,380) ($ 3,562,053)
============ ============
==============================================================================================
NET INCOME (LOSS) PER COMMON SHARE INFORMATION:
BASIC
Income (loss) from Continuing Operations ............... ($ 0.03) ($ 0.50)
Loss from Operations of Homecare Division .............. -- (0.06)
Loss from Disposal of Homecare Division ................ -- (0.21)
------------ ------------
Net Income (loss) per Common Share - basic ............ ($ 0.03) ($ 0.77)
============ ============
Shares used in computing basic earnings per share ...... 5,672,109 4,652,609
============ ============
==============================================================================================
COMPREHENSIVE INCOME (LOSS):
Net income (loss) ...................................... $ 443,890 ($ 2,889,136)
Foreign currency translation adjustment ................ (736,045) --
------------ ------------
Total Comprehensive Loss ............................... ($ 292,155) ($ 2,889,136)
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
HENLEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
NET SALES ................................................... $ 11,809,891 $ 9,064,935
COST OF SALES ............................................... 7,245,447 5,740,745
------------ ------------
GROSS PROFIT ................................................ 4,564,444 3,324,190
OPERATING EXPENSES:
Selling, general and administrative ....................... 3,751,289 3,979,406
Research and development .................................. 158,632 176,188
Depreciation and amortization ............................. 674,042 559,580
------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS .................... (19,519) (1,390,984)
INTEREST EXPENSE ............................................ 452,626 432,876
GAIN ON INVOLUNTARY CONVERSION AND OTHER, net ............... (759,205) 48,492
------------ ------------
INCOME FROM CONTINUING OPERATIONS, before taxes ............. 287,060 (1,872,352)
PROVISION FOR INCOME TAXES .................................. 96,000 --
------------ ------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS ................ 191,060 (1,872,352)
DISCONTINUED OPERATIONS:
Loss from Operations of Homecare Division ................. -- (156,742)
Extraordinary Item - Loss on Disposal of Homecare Division -- (952,052)
------------ ------------
NET INCOME (LOSS) ........................................... $ 191,060 ($ 2,981,146)
============ ============
Preferred Stock Dividends ................................... (524,029) (621,141)
------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS .......... $ (332,969) ($ 3,602,287)
============ ============
================================================================================================
NET INCOME (LOSS) PER COMMON SHARE INFORMATION:
BASIC
Income (loss) from Continuing Operations .................. ($ 0.06) ($ 0.46)
Loss from Operations of Homecare Division ................. -- (0.03)
Loss from Disposal of Homecare Division ................... -- (0.18)
------------ ------------
Net Income (loss) per Common Share - basic ............... ($ 0.06) ($ 0.67)
============ ============
Shares used in computing basic earnings per share ......... 5,805,081 5,383,205
============ ============
================================================================================================
COMPREHENSIVE INCOME (LOSS):
Net income (loss) ......................................... $ 191,060 ($ 2,981,146)
Foreign currency translation adjustment ................... (267,045) --
------------ ------------
Total Comprehensive Loss .................................. ($ 75,985) ($ 2,981,146)
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
HENLEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ................................................... $ 443,890 ($2,889,136)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization expense .......................... 1,336,979 867,655
Interest expense imputed on notes payable ...................... 21,000 79,332
Provision for doubtful accounts ................................ 128,988 590,846
Issuance of common stock for services .......................... 32,500 --
Gain on involuntary conversion ................................. (729,518) --
Loss on sale of Homecare division .............................. -- 952,052
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ..................... 908,733 (1,940,059)
Decrease in inventory .......................................... 533,062 760,142
(Increase) decrease in prepaid expenses and other current assets (369,793) 155,956
Decrease in other assets ....................................... 66,000 7,842
Decrease in accounts payable and accrued liabilities ........... (2,608,399) (219,649)
----------- -----------
Total adjustments ........................................... (680,448) 1,254,117
----------- -----------
Net cash used in operating activities .......................... (236,558) (1,635,019)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired .................................. -- 548,524
Capital expenditures ................................................ (14,806) (1,682,102)
----------- -----------
Net cash used in investing activities .......................... (14,806) (1,133,578)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock and warrants .......... 623,750 2,249,875
Payments of dividends on preferred stock ............................ (424,637) --
Proceeds from involuntary conversion, net of expenses ............... 904,735 --
Net proceeds from (payments on) lines of credit ..................... (296,279) 698,955
Proceeds from long-term debt ........................................ -- 1,260,000
Principal payments of long-term debt and other liabilities .......... (572,830) (236,874)
----------- -----------
Net cash provided by financing activities ...................... 234,739 3,971,956
EFFECT OF TRANSLATION EXCHANGE RATE CHANGES ON CASH ........................ 16,420 --
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................... (205) 1,203,359
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................... 490,649 123,620
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................. $ 490,444 $ 1,326,979
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest ............................ $ 868,254 $ 701,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
HENLEY HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying unaudited interim consolidated financial statements of Henley
Healthcare, Inc. (the "Company"), have been prepared in accordance with
generally accepted accounting principles and the rules of the Securities and
Exchange Commission (the "SEC"), and should be read in conjunction with the
audited consolidated financial statements and notes thereto contained in the
Company's latest Annual Report filed with the SEC on Form 10-KSB, as amended. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
consolidated financial statements, which would substantially duplicate the
disclosure contained in the audited consolidated financial statements for the
most recent fiscal year, as reported in the Company's 1998 Form 10-KSB, have
been omitted.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company incurred
significant losses prior to 1999 and had a working capital deficit at June 30,
1999, of $7.5 million. As of June 30, 1999, and through August 13, 1999, the
Company was in technical default of certain financial and other covenants under
its bank line of credit which expires August 15, 1999. The Company also has yet
to make an approximate $1.5 million loan payment to Maxxim Medical which was due
May 1, 1999. These factors raise substantial doubt about the Company's ability
to continue as a going concern. As previously disclosed in the Company's Form
10-KSB for the year ended December 31, 1998, as filed with the Securities and
Exchange Commission, the opinion of Arthur Andersen LLP, the independent public
accountants for the Company, included an explanatory fourth paragraph stating
that the Company's continued operations are dependent upon its ability to obtain
additional financing to meet its obligations as they become due. The Company is
currently pursuing additional financing, although there can be no assurance that
the Company will be successful in its financing efforts. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
2. FINANCINGS:
In April 1999, the Company sold 750 units consisting of (i) one share of the
Company's Series C Convertible Preferred Stock, par value $.10 per share,
convertible into shares of the Company's common stock, and (ii) a warrant to
acquire 166.667 shares of common stock. The units were sold for a purchase price
of $1,000 per unit, resulting in $623,750 of net proceeds to the Company. The
Company allocated $136,875 of the proceeds received to the value of the warrants
based on the estimated fair value of the warrants at issue date. The Series C
Preferred Stock bears no dividends and is convertible into common stock at a per
share price equal to the lesser of (i) $2.875 or (ii) the product of 0.87 and
the average of the closing bid prices for the Company's common stock for any
three consecutive trading days during the twenty day period immediately prior to
the conversion date. Initial terms of the Series C Preferred Stock contained a
conversion floor price that could be removed if the Company did not attain
certain financial milestones. On June 30, 1999 it was determined that the
Company did not achieve one of said milestones. As a result of the guaranteed
discount created by the removal of the conversion floor price, the Company will
incur a deemed dividend in the future for the conversion of the Series C
Preferred Stock. This aggregate discount amount of $184,864 has been treated as
a deemed dividend to the holders of the Series C Preferred Stock. The proceeds
were used primarily to repay penalties and accrued dividends outstanding related
to the Series A Preferred Stock. Pursuant to the issuance of the Series C
Preferred Stock, the Company amended its agreement with the holders of the
Series B Preferred Stock to reduce the conversion price and to reduce the
exercise price of warrants sold in connection with the Series B Preferred Stock.
Specifically, the conversion price ceiling was lowered from approximately $5.81
to $4.00 per share. Additionally, the exercise price on the warrants held by the
Series B Preferred shareholders was reduced from $5.90 per share to $2.64. This
reduction of the exercise price on the warrants held by the Series B
shareholders represents a deemed dividend for the incremental value of the
warrants with the new exercise price versus the previous exercise price.
Accordingly, the deemed dividend is reflected as a reduction of income available
to common shareholders on the accompanying statements of operations for the
three and six months ended June 30, 1999. The deemed divident of $229,308 was
computed based on values calculated by a Black-Scholes option pricing model.
3. NET INCOME PER COMMON SHARE:
Basic earnings per common share is based on the weighted average number of
common shares outstanding during the period, while diluted earnings per common
share considers the dilutive effect of stock options and warrants reflected
under the treasury stock method. The Company has other securities, including
convertible debt and convertible preferred stock, that could potentially dilute
basic earnings per share in the future that were not included in the computation
of diluted earnings per share because to do so would have been antidilutive for
the periods presented.
4. SEGMENT REPORTING:
The Company has two continuing reportable segments: Henley Healthcare, Inc., in
the United States (Henley, U.S.) and its wholly
7
<PAGE>
owned subsidiary Enraf-Nonius, which is based in The Netherlands. Both Henley,
U.S., and Enraf-Nonius specialize in the development, manufacture and sale of
medical products. The two entities are managed separately due to geographic
considerations. Intersegment revenues are not significant. The only significant
noncash items reported in the respective segments' profit or loss are
depreciation and amortization.
Enraf-Nonius was acquired in May 1998. There were no identifiable segments of
the Company's continuing operations prior to the acquisition of Enraf-Nonius.
The following table summarizes certain financial information for each of the
Company's reportable segments for the six months ended June 30, 1999:
<TABLE>
<CAPTION>
HENLEY, U.S. ENRAF-NONIUS CONSOLIDATED
--------------- --------------- ----------------
<S> <C> <C> <C>
Revenues from unaffiliated customers.. $10,920,907 $14,227,000 $25,147,907
Net Income............................ 156,890 287,000 443,890
</TABLE>
5. STOCKHOLDERS' EQUITY:
During the three months ended June 30, 1999, the Company issued approximately
33,000 shares of common stock pursuant to earn-out agreements, payments of debt
and conversion of preferred stock. None of these transactions involved
additional proceeds to the Company.
6. PRO FORMA FINANCIAL INFORMATION:
Assuming that the Enraf-Nonius acquisition closed on January 1, 1998, sales, net
loss from continuing operations and net loss from continuing operations per
common share would have approximated $27,001,219, ($4,126,606) and ($1.03),
respectively, for the six months ended June 30, 1998.
7. INVOLUNTARY CONVERSION:
During the first week in April 1999 the Company had a fire at its Sugar Land
manufacturing facility. The fire was contained within the area where the Company
manufactures its Fluidotherapy machines. However, smoke from the fire permeated
the entire building which houses the Company's executive offices as well as the
warehouse that included the Fluidotherapy manufacturing area. The entire
inventory of Fluidotherapy machines and parts on hand were lost to the fire and
the Company was unable to produce Fluidotherapy machines for approximately 10
weeks. Additionally, certain fixed assets and other inventory were damaged by
smoke from the fire which negatively impacted the Company's ability to
manufacture products and service its customers from its Sugar Land facility. All
of the damage caused by the fire, including business interruption, is fully
covered by insurance. Any assets damaged in the fire have been written off to
expense and charged against insurance proceeds received. The Company has filed
all necessary claims and has received approximately $1.2 million in proceeds
through June 30, 1999, from the insurance carrier with respect to claims for the
building and its contents. The Company is currently negotiating with the insurer
to determine the total amount of the claim to be paid for business interruption.
The Company has accrued approximately $400,000 of additional proceeds in the
accompanying financial statements based on assessments by management and its
independent consultant.
8. INCOME TAXES:
The Company has recorded a provision for income taxes related to net income
earned by its Enraf-Nonius, B.V. subsidiary. At the May 1998 acquisition date
Enraf-Nonius had net operating loss carryforwards available to offset future
income. However, due to Enraf-Nonius' history of incurring operating losses a
valuation allowance was established, at acquisition, to fully offset the
available net operating loss carryforwards. The provision for income taxes does
not represent an income tax liability due to the expected usage of the available
net operating loss carryforwards. Since the net operating loss carryforwards
have been fully reserved, the provision for income taxes has been reflected as a
reduction of goodwill associated with the acquisition of Enraf-Nonius.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company's principal business strategies are to (i) expand distribution
channels and explore new markets, (ii) consolidate the highly-fragmented
physical therapy and rehabilitation industry by pursuing strategic acquisitions
that complement existing product lines and increase market share, (iii) maximize
the utilization of existing manufacturing facilities for increased productivity,
(iv) improve profitability, (v) reduce long-term indebtedness, and (vi) obtain
market clearance from the FDA for the MicroLight 830(TM).
The Company has pursued a strategy of consolidating the highly-fragmented
physical therapy and rehabilitation industry. Since that time, the Company has
grown significantly as a result of additional acquisitions. All acquisitions
were accounted for under the purchase method of accounting for business
combinations and accordingly, the results of operations for such acquisitions
are included in the Company's financial statements only from the applicable date
of acquisition. As a result, the Company believes that its historical results of
operations for the periods presented may not be directly comparable. The Company
believes the historical results of operations do not fully reflect the operating
efficiencies and improvements that are expected to be achieved by integrating
the acquired businesses and product lines.
The Company intends to continue its evaluation of acquisitions, and a period of
rapid growth could place a significant strain on the Company's management,
operations and other resources. There can be no assurance that the Company will
continue to be able to identify attractive or willing acquisition candidates, or
that the Company will be able to acquire such candidates on economically
acceptable terms. The Company's ability to grow through acquisitions and manage
such growth will require the Company to continue to invest in its operational,
financial and management information systems and to attract, retain, motivate
and effectively manage its employees. The inability of the Company's management
to manage growth effectively would have a material adverse effect on the
financial condition, results of operations and business of the Company. As the
Company pursues its acquisition strategy in the future, its financial position
and results of operations may fluctuate significantly from period to period.
The Company's operating results may fluctuate significantly in the future as a
result of a variety of factors, some of which are outside of the Company's
control. These factors include general economic conditions, specific economic
conditions in the pain management and rehabilitation industries, seasonal trends
in sales, capital expenditures, new acquisitions and other costs relating to the
expansion of operations, the introduction of new products or services by the
Company or its competitors, the mix of the products and services sold and the
channels through which they are sold and pricing changes. As a strategic
response to a changing competitive environment, the Company may elect from time
to time to make certain pricing, service or marketing decisions or acquisitions
that could have a material adverse effect on the Company's business, results of
operations and financial condition. Due to all of the foregoing factors, it is
possible that in some future quarter, the Company's operating results may be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock may be materially adversely affected.
During the first week in April 1999, the Company had a fire at its Sugar Land
manufacturing facility. The fire was contained within the area where the Company
manufactures its Fluidotherapy machines. However, smoke from the fire permeated
the entire building which houses the Company's executive offices as well as the
warehouse that included the Fluidotherapy manufacturing area. The entire
inventory of Fluidotherapy machines and parts on hand were lost to the fire and
the Company was unable to produce Fluidotherapy machines for approximately 10
weeks. Additionally, certain fixed assets and other inventory were damaged by
smoke from the fire which negatively impacted the Company's ability to
manufacture products and service its customers from its Sugar Land facility. All
of the damage caused by the fire, including business interruption, is fully
covered by insurance. Any assets damaged in the fire have been written off to
expense and charged against insurance proceeds received. The Company has filed
all necessary claims and has received approximately $1.2 million in proceeds
from the insurance carrier with respect to claims for the building and its
contents. The Company is currently negotiating with the insurer to determine the
total amount of the claim to be paid for business interruption. The Company has
accrued approximately $400,000 of such proceeds in the accompanying financial
statements based on assessments by management and its independent consultant.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and other detailed information contained
in the Company's Annual Report for fiscal year 1998 filed with the SEC on Form
10-KSB.
RESULTS OF OPERATIONS
Since the acquisition of Enraf-Nonius in May 1998, the Company has operated
Enraf-Nonius as a distinct separate unit, apart from the Company's operations in
the United States. Accordingly, the following discussion of results of
operations is presented separately for Henley Healthcare, Inc. -- U.S. and
Enraf-Nonius. Additionally the results of operations exclude all amounts related
to the Homecare division which was sold during August 1998 and has been
reflected as discontinued operations in the comparative financial statements for
the three and six months ended June 30, 1998.
9
<PAGE>
CONTINUING OPERATIONS
HENLEY HEALTHCARE, INC. -- US
SIX MONTHS ENDED JUNE 30, 1999 VS. SIX MONTHS ENDED JUNE 30, 1998
During the six months ended June 30, 1999 the segment recorded net sales of
approximately $10,921,000 reflecting a decrease of approximately $1,516,000 or
12.2% from the amount reported for the six months ended June 30, 1998. The
decrease was due primarily to the fire in April 1999 and the segment 's change
in its marketing strategy from one emphasizing direct sales to one emphasizing
dealer network sales. Sales to dealers are made at a discount to full retail but
require less commissions and selling expenses. As a result, gross sales and
gross profit as a percentage of sales are reduced. This reduction in gross
profit is offset by a decrease in commissions and selling expenses. The segment
completed its move towards a dealer network sales effort during the second
quarter of 1998. Additionally, the segment has lost some sales as a result of
consolidating its Garvey and Med-Quip facilities into its existing Akron
warehouse location. However, the loss of revenues has been somewhat mitigated by
a significant reduction in operating costs related to the closing of the
facilities.
The segment's gross profit for the six months ended June 30, 1999 was
approximately $4,394,000 compared to approximately $4,745,000 for the six months
ended June 30, 1998. Gross profit as a percentage of sales in 1999 increased to
40.2 percent from 38.2 percent in 1998. The decrease in gross profit dollars is
a result of the fire in April 1999 and the change in the segment 's sales and
marketing strategy from direct sales to dealer network sales. The increase in
gross profit percentage is related to significant adjustments and non-recurring
expenses recorded during the six months ended June 30, 1998. These adjustments
included an $800,000 write-down of Cybex inventory to its net realizable value
and approximately $1.1 million of integration costs related to relocating Cybex
manufacturing to the Company's facility in Belton, Texas.
Selling, general and administrative expenses decreased by approximately
$1,491,000, from approximately $5,132,000 in 1998 to approximately $3,641,000 in
1999, a decrease of approximately 29.1%. Selling, general and administrative
costs decreased as a percentage of revenues from approximately 41.3% for 1998 to
approximately 33.3% for 1999. This decrease was due primarily to: a reduction of
commissions and selling expenses in connection with the segment's change in
marketing strategy from one emphasizing direct sales to one emphasizing dealer
network sales; removal of infrastructure related to the closure of the Garvey
and Med-Quip facilities; and consolidation of the human resources and payroll
functions during 1999. Selling, general and administrative expenses also
decreased as a result of certain cost reduction initiatives the segment
undertook beginning in June 1998 in order to improve profitability. These
reductions included an 8% pay reduction for all employees, a reduction in staff
levels, an increase in employee contributions into health benefits,
discontinuance of the Company 401(k) matching contribution, plus other various
internal cost cuts.
Research and development expense remained relatively constant between the
periods.
Depreciation and amortization expense decreased $76,000 from $727,000 for the
six months ended June 30, 1998 to $651,000 for the six months ended June 30,
1999 primarily as a result of certain non-competition agreements becoming fully
amortized.
Interest expense for the six months ended June 30, 1999 amounted to
approximately $657,000 compared to approximately $698,000 in 1998. The decrease
in interest expense was primarily due to the conversion of $4,000,000 from debt
to equity in February and March 1998 offset by a three percent increase on the
interest rate charged on the segment's bank debt.
Other income increased $764,000 from $56,000 for the six months ended June 30,
1998 to $820,000 for the six months ended June 30, 1999 primarily as a result of
the recording of $729,000 of other income (net of related expenses) pursuant to
insurance claims related to the fire in April 1999.
As a result of the foregoing, the segment reported net income from continuing
operations of approximately $157,000 for the six months ended June 30, 1999
compared to a net loss of approximately $1,872,000 for the same period in 1998.
THREE MONTHS ENDED JUNE 30, 1999 VS. THREE MONTHS ENDED JUNE 30, 1998
During the quarter ended June 30, 1999 the segment recorded net sales of
approximately $4,798,000 reflecting a decrease of approximately $1,299,000 or
27.1% from the amount reported for the quarter ended June 30, 1998. The decrease
was due primarily to the fire in April 1999 and, to a lesser extent, the
segment's change in marketing strategy from one emphasizing direct sales to one
emphasizing dealer network sales, as previously discussed. Additionally, the
segment has lost some sales as a result of consolidating its Garvey and Med-Quip
facilities into its existing Akron warehouse location, as previously discussed.
However, the loss of revenues has been somewhat offset by a significant
reduction in operating costs related to the closing of the facilities.
The segment's gross profit for the quarter ended June 30, 1999 was approximately
$2,052,000 compared to approximately $1,542,000 for quarter ended June 30, 1998.
Gross profit as a percentage of sales in 1999 increased to 42.8% from 25.3% in
1998. The increase in
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<PAGE>
gross profit percentage is related to significant adjustments and non-recurring
expenses recorded during the quarter ended June 30, 1998. These adjustments
included an $800,000 write-down of Cybex inventory to its net realizable value
and approximately $0.55 million of integration costs related to relocating Cybex
manufacturing to the Company's facility in Belton, Texas. The overall growth in
gross profit and gross profit percentage was offset somewhat by the fire in
April 1999 and, to a lesser extent, the change in the segment's sales and
marketing strategy from direct sales to dealer network sales.
Selling, general and administrative expenses decreased by approximately
$453,000, from approximately $2,557,000 in 1998 to approximately $2,104,000 in
1999, a decrease of approximately 21.5%. This decrease was due primarily to (i)
a reduction of commissions and selling expenses in connection with the change in
the segment's marketing strategy from one emphasizing direct sales to one
emphasizing dealer network sales and (ii) removal of infrastructure related to
the closure of Garvey and Med-Quip facilities. Selling, general and
administrative expenses also decreased as a result of certain cost reduction
initiatives the segment undertook beginning in June 1998 in order to improve
profitability. These reductions included an 8% pay reduction for all employees,
a reduction in staff levels, an increase in employee contribution into health
benefits, discontinuance of the Company 401(k) matching contribution, plus other
various internal cost cuts. Selling, general and administrative costs increased
as a percentage of revenues from approximately 41.9% for 1998 to approximately
43.9% for 1999. This increase as a percentage of sales is due primarily to
lowered sales as a result of the fire in April 1999.
Research and development expense remained relatively constant between the
periods.
Depreciation and amortization expense decreased $86,000 from $419,000 for the
quarter ended June 30, 1998 to $333,000 for the quarter ended June 30, 1999
primarily as a result of certain non-competition agreements becoming fully
amortized.
Interest expense for the quarter ended June 30, 1999 amounted to approximately
$325,000 compared to approximately $319,000 in 1998. The increase in interest
expense was primarily due to a three percent increase in the interest rate on
the segment 's bank debt which was somewhat offset by a lower outstanding debt
balance during the 1999 period.
Other income increased $740,000 from $62,000 for the quarter ended June 30, 1998
to $802,000 for the quarter ended June 30, 1999 primarily as a result of the
recording of $729,000 of other income (net of related expenses) pursuant to
insurance claims related to the fire in April 1999.
As a result of the foregoing, the segment reported net income from continuing
operations of approximately $22,000 for the three months ended June 30, 1999
compared to a net loss of approximately $1,759,000 for the same period in 1998.
ENRAF-NONIUS
Prior to acquisition by the Company, Enraf-Nonius was part of a larger entity
and did not prepare stand alone financial statements on a monthly basis.
Enraf-Nonius did provide financial statements for the six month period ended
June 30, 1998 for inclusion in the Company's registration statement filed in
August 1998. Information for the three month period ended June 30, 1998 would be
impractical to acquire. Accordingly, the following analysis compares the six
months ended June 30, 1999 to the pro forma results for the six months ended
June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1999 VS. PRO FORMA SIX MONTHS ENDED JUNE 30, 1998
Net sales during the six months ended June 30, 1999 were $14,227,000, down
$338,000 or 2.3% from $14,565,000 for the six months ended June 30, 1998. The
decrease in sales is due primarily to the Company divesting of certain
operations in Belgium and Germany subsequent to the acquisition of Enraf-Nonius
in May 1998.
Operating costs, including direct costs and selling, general and administrative
costs, decreased by $3,304,000 or 20.5% from approximately $16,156,000 for the
six months ended June 30, 1998 to $12,852,000 for the six months ended June 30,
1999. Similarly, operating costs decreased from 110.9% to 90.4% as a percentage
of net sales from 1998 to 1999. This significant decrease in operating costs was
related to the Company's management executing its cost reduction plans with
respect to Enraf-Nonius. Specifically, the Company: (1) reduced excessive
research and development, marketing and consulting costs from which Enraf-Nonius
had not been generating an adequate return; (2) reallocated certain technical
expertise included in Enraf-Nonius' workforce to enhance the continued
development of certain of Henley, U.S.'s core products; (3) disposed of certain
operations of Enraf-Nonius which had historically incurred operating losses; and
(4) received approximately $250,000 in research and development subsidies from
the Dutch government.
The Company has recorded a provision for income taxes related to net income
earned by its Enraf-Nonius, B.V. subsidiary. At the May 1998 acquisition date
Enraf-Nonius had net operating loss carryforwards available to offset future
income. However, due to Enraf-Nonius' history of incurring operating losses
carryforwards. The provision for income taxes does not represent an income tax
liability due to the expected usage of the available net operating loss
carryforwards. Since the net operating loss carryforwards have been fully
reserved, the provision for income taxes has been reflected as a reduction of
goodwill associated with the acquisition of Enraf-Nonius.
Management believes that the continued successful implementation of cost
reductions and the potential synergies to be gained by combining Henley, U.S.'s
product manufacturing capabilities with Enraf-Nonius' international distribution
system will enable Enraf-Nonius to continue to generate positive cash flow to
sustain its operations and to service the related acquisition debt.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's current sources of liquidity consist primarily of (i) funds from
operations, (ii) funds held at June 30, 1999, and (iii) the amounts, if any,
available under the Amended Loan Agreement with Comerica Bank -- Texas
("Comerica") and the revolving credit facility entered into in connection with
the Enraf-Nonius acquisition. At June 30, 1999, the Company had cash and cash
equivalents in the amount of $490,000 as compared to $491,000 at December 31,
1998. At June 30, 1999, the Company had no material capital expenditure
commitments.
The Company's Amended Loan Agreement with Comerica Bank provides for (i) a
revolving loan ("Line of Credit"), which permits borrowings up to $6,000,000
expiring on August 15, 1999, and (ii) three term loans in the original amounts
of $1,430,000 ("Term Note A"), $1,616,000 ("Term Note B") and $1,260,000 ("Term
Note C"). Term Note A, Term Note B and Term Note C (collectively the "Term
Notes") are payable in monthly installments of $23,833, $8,978 and $7,000,
respectively, plus interest through September 2002, May 2011 and February 2013,
respectively. The Line of Credit also includes a $250,000 letter of credit
facility. Interest on the Line of Credit and the three term loans is payable
monthly and is calculated at a rate equal to the Prime Rate plus three percent
per annum. Term Note B is callable by Comerica beginning on the fifth
anniversary of the Amended Loan Agreement. All of the borrowings from Comerica
are secured by substantially all of the assets of the Company. As of June 30,
1999, the Company had no availability under the Line of Credit. The total amount
available for borrowing under the Line of Credit is the lesser of (i) $6,000,000
and (ii) a variable borrowing base calculated based on the amount and type of
outstanding accounts receivable and the value of certain items of inventory. The
Amended Loan Agreement contains a number of affirmative covenants, negative
covenants and financial covenants with which the Company must comply including a
minimum tangible net worth, leverage ratio, working capital ratio, fixed charge
ratio and interest coverage ratio. At December 31, 1998, the Company was in
default of certain of these financial and non-financial covenants. While the
bank has not demanded payment of the revolving loan for the related term notes
as of August 13, 1999, such debt has been classified as a current liability in
the accompanying balance sheet as of June 30, 1999.
Additionally, the Company has yet to make a scheduled loan payment of
approximately $1,500,000 due on May 1, 1999 under one of its debt agreements
with Maxxim Medical, Inc. As a result, at June 30, 1999, the Company had a
working capital deficit of $7,546,000 and a current ratio of 0.72 to 1 as
compared to a working capital deficit of $8,610,000 and a current ratio of 0.70
to 1 at December 31, 1998. The Company is seeking to replace its current bank
financing with a different source and expects to have a new credit facility in
place within the next few months.
In connection with an agreement entered into in April 1996 with Maxxim Medical,
Inc. ("Maxxim"), the Company issued to Maxxim a convertible subordinated
promissory note in the principal amount of $7 million (the "Note"). Among other
terms, the Note is subordinated to the Line of Credit and Term Notes with
Comerica, and is subject to mandatory redemption in annual principal
installments of $1.4 million commencing on May 1, 1999 at premiums starting at 7
percent and decreasing 1 percent each year. The Company is currently in
negotiations with Maxxim concerning this initial principal payment. The Company
is also required to redeem 40 percent of the Note upon the completion of a
public offering.
In connection with the acquisition of Enraf-Nonius in May 1998, the Company
entered into a revolving credit facility with a Netherlands bank (the
"Enraf-Nonius Credit Facility"). The agreement provides for aggregate borrowings
up to $7,500,000, subject to a revised borrowing base calculation derived from
Enraf-Nonius' eligible accounts receivable and inventory. The Enraf-Nonius
Credit Facility had an outstanding balance of $2,443,000 at June 30,1999, and is
subject to interest, payable monthly, at the rate of AIBOR plus 1 percent per
annum. The Enraf-Nonius Credit Facility is secured by Enraf-Nonius' accounts
receivable, inventory and certain fixed assets and renews annually. At June 30,
1999, approximately $384,000 was available under this revolving credit facility.
In April 1999, the Company sold 750 units consisting of (i) one share of the
Company's Series C Convertible Preferred Stock, par value $.10 per share,
convertible into shares of the Company's common stock, and (ii) a warrant to
acquire 166.667 shares of common stock. The units were sold for a purchase price
of $1,000 per unit, resulting in $623,750 of net proceeds to the Company. The
Company allocated $136,875 of the proceeds received to the value of the warrants
based on the estimated fair value of the warrants at issue date. The Series C
Preferred Stock bears no dividends and is convertible into common stock at a per
share price equal to the lesser of (i) $2.875 or (ii) the product of 0.87 and
the average of the closing bid prices for the Company's common stock for any
three consecutive trading days during the twenty day period immediately prior to
the conversion date. Initial terms of the Series C Preferred Stock contained a
conversion floor price that could be removed if the Company did not attain
certain financial milestones. On June 30, 1999 it was determined that the
Company did not achieve one of said milestones. As a result of the guaranteed
discount created by the removal of the conversion floor price, the Company will
incur a deemed dividend in the future for the conversion of the Series C
Preferred Stock. This aggregate discount amount of $184,864 has been treated as
a deemed dividend to the holders of the Series C Preferred Stock. The proceeds
were used primarily to repay penalties and outstanding accrued dividends related
to the Series A Preferred Stock. Pursuant to the issuance of the Series C
Preferred Stock, the Company amended its agreement with the holders of the
Series B Preferred Stock to reduce the conversion price and to reduce the
exercise price of warrants sold in connection with the Series B Preferred Stock.
Specifically, the conversion price ceiling was lowered from approximately $5.81
to $4.00 per share. Additionally, the conversion price on the warrants held by
the Series B Preferred shareholders was reduced from $5.90 per share to $2.64.
This reduction of the exercise price on the warrants held by the Series B
shareholders represents a deemed dividend for the incremental value of the
warrants with the new exercise price versus the previous exercise price.
Accordingly, the deemed dividend is reflected as a reduction of income available
to common shareholders on the accompanying statements of operations for the
three and six months ended June 30, 1999. The deemed dividend of $229,308 was
computed based on values calculated by a Black-Scholes option pricing model.
The Company is seeking to replace its current credit facility with a different
source of funding and expects to have a new credit facility in place within the
next few months. In addition, the Company is attempting to reschedule the loan
payment due under the
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Note to Maxxim. However, there can be no assurance that the Company will be able
to obtain a sufficient replacement credit facility or reschedule the loan
payment due under the Note on terms favorable to the Company or at all. If the
Company is unable to extend the term of its Line of Credit and reschedule the
loan payment due under the Note, the Company will be in default under both
agreements. In this event, there would be substantial doubt as to the Company's
ability to continue as a going concern.
If the Company is successful in obtaining a sufficient replacement credit
facility and rescheduling the loan payment to Maxxim, management believes that
(i) its current resources (ii) the anticipated positive cash flows from
operations for the remainder of 1999, and (iii) funds available under the
expected new credit facility and the Enraf-Nonius Credit Facility will be
sufficient to eliminate the working capital deficit that existed at June 30,
1999 and to satisfy the Company's capital requirements for its existing
operations for the immediate future. However, the Company will need to obtain
additional capital to finance its acquisition strategy. If the Company's
operating cash flows are inadequate or if the Company is unable to attract
sufficient financing, there can be no assurance that the Company will be able to
successfully fund its current operations or implement its acquisition strategy.
The Company believes that its success in obtaining the necessary financing will
depend upon, among other factors, successfully operating the recently acquired
businesses. Sources of additional financing may include additional bank debt or
the public or private sale of equity or debt securities. There can be no
assurance that the Company will be successful in arranging such financing at all
or on terms commercially acceptable to the Company.
INTERNATIONAL CURRENCY FLUCTUATIONS AND EURO CONVERSION
The Company has arrangements with several foreign distributors to distribute
products in Europe, Southeast Asia, the Far East, Central America and South
America. In addition, the Company obtains certain supplies from foreign
suppliers. The acquisition of Enraf-Nonius has also significantly expanded the
Company's foreign operations. International transactions subject the Company to
several potential risks, including fluctuating exchange rates (to the extent the
Company's transactions are not in U.S. dollars), varying economic and political
conditions, cultures and business practices in different countries or regions,
regulation of fund transfers by foreign governments, overlapping or differing
tax structures, and United States and foreign export and import duties and
tariffs. Fluctuations in the exchange rates between the U.S. dollar and the
currencies of the other countries in which the Company operates will affect the
results of the Company's international operations reported in U.S. dollars. It
is anticipated that approximately one-half of the Company's total sales for 1999
will be in currencies other than U.S. dollars. In addition, the Company may make
loans to and/or receive dividends and loans from certain of its foreign
subsidiaries and may suffer a loss as a result of adverse exchange rate
movements between the relevant currencies. There can be no assurance that any of
the foregoing will not have a material adverse effect upon the business of the
Company.
On January 1, 1999, 11 of the 15 member countries of the European Union adopted
the Euro as their common legal currency. Subsequent to the introduction of the
Euro, the local currencies are scheduled to remain legal tender in the
participating countries until January 1, 2002. During this transition period,
goods and services may be paid for using either the Euro or the participating
country's local currency. Thereafter, the local currencies will be canceled and
the Euro currency will be used for all transactions between the eleven
participating members of the European Union. The Euro conversion raises
strategic as well as operational issues. The conversion is expected to result in
a number of changes, including the stimulation of cross-border competition by
creating cross-border price transparency. The Company is assessing Euro issues
related to its product pricing, contract, treasury operations and accounting
systems. Although evaluation of these items is still in process, the Company
believes that the hardware and software systems it uses internally will
accommodate this transition and any required policy or operating changes will
not have a material adverse effect on future results.
YEAR 2000 COMPLIANCE
The Year 2000 (the "Y2K") issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment, software and other devices with imbedded technology that are
time-sensitive, such as products, alarm systems and telephone systems, may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, temporary inability to process data,
and may materially impact the Company's financial condition.
The Company has undertaken various initiatives intended to ensure that it is
prepared for the Y2K issue. The Company is in the process of assessing its state
of readiness. Presently, the Company is reviewing its scientific equipment,
computer systems and related software to identify and determine the Y2K
readiness of the Company's systems. This review is being performed by internal
teams from various disciplines within the Company. These teams are currently
evaluating the Company's Y2K issues, and, if necessary, developing remediation
plans. As a part of this review, the Company will determine the known risks
related to the consequences of a failure to correct any Y2K deficiencies. The
Company has initiated formal communications with material third parties to
determine the extent to which the Company may be vulnerable to those third
parties' failure to remediate their Y2K problems. The Company is presently not
aware of any Y2K issues that have been encountered by any third party, which
could materially affect the Company's operations.
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If necessary, during 1999, the Company will develop a contingency plan to
address potential Y2K issues. This contingency plan will likely address problems
that the Company identifies during the course of its remediation efforts and
reasonably foreseeable problems that may arise as a result of Y2K, including,
but not limited to the performance of the Company's computer system. The
contingency plan will be continually refined, as additional information becomes
available. However, it is unlikely that any contingency plan can fully address
all events that may arise.
The Company estimates that the costs associated with the Y2K issue will not be
material, and as such will not have a significant impact on the Company's
financial position or operating results. However, the failure to correct a
material Y2K problem could result in an interruption in the Company's normal
business activities or operations. Such failure could materially and adversely
affect the Company's results of operation, liquidity and financial condition.
The Enraf-Nonius computer system has been reviewed with regard to the Y2K issue.
The findings of this review resulted in a plan of action and financial systems
are presently being updated by in-house staff. Total cost in this regard is
expected to be between $10,000 and $15,000. The review showed that the impact of
the Y2K issue on the Company's order processing system is likely to be minimal
and no additional actions have been taken.
The embedded software in the Enraf-Nonius products has also been reviewed and
the Company believes that the products currently being sold or still being
serviced will not be affected by the Y2K issue.
14
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
The following sales of unregistered securities occurred during the three months
ended June 30, 1999, in private transactions in which the Company relied on the
exemption from registration available under Section 4(2) of the Securities Act
of 1993, as amended, and Rule 506 of Regulation D promulgated thereunder:
(1) During the three months ended June 30, 1999 the Company issued
approximately 33,000 shares of common stock pursuant to earn-out
agreements, payments of debt and conversion of preferred stock. None of
these transactions involved additional proceeds to the Company.
(2) On April 12, 1999, the Company sold to Zannett Lombardier, Ltd. in a
private placement 750 Series C units as described in Note 2 to the
consolidated financial statements in Part I of this Quarterly Report.
Zannett Securities Corporation served as placement agent for the placement
of the Series C units and received a commission of 9.5% and warrants to
acquire 62,500 shares of the Company's common stock with the same terms as
the Series C warrants sold to Zannett Lombardier, Ltd.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following exhibits, from which schedules and exhibits have been omitted
and will be furnished to the Commission upon its request, are filed with
this Current Report on Form 10-QSB:
EXHIBIT
NO. DESCRIPTION
------- -------------
*3.1 -- Statement of Designation of Rights
and Preferences of the Series C
Convertible Preferred Stock of the Company.
*3.2 -- Articles of Amendment to the Company's Articles of
Incorporation amending the Statement of Designation
of Rights and Preferences of the Series B
Convertible Preferred Stock.
*4.1 -- Registration Rights Agreement dated
as of April 12, 1999, by and among the
Company, Zanett Lombardier, Ltd.
and Zanett Securities Corporation.
*4.2 -- Form of Series C Warrant.
*4.3 -- Amendment and Exchange Agreement dated as of
April 12, 1999, between the Company,
Zanett Lombardier, Ltd., Goldman Sachs
Performance Partners, L.P., Golman Sachs
Performance Partners (Offshore), L.P. and
Zanett Securities Corporation.
*4.4 -- Form of Replacement Series B Warrant.
*10.1 -- Securities Purchase Agreement dated
as of April 12, 1999, between the
Company and Zanett Lombardier, Ltd.
*10.2 -- Placement Agency Agreement dated as of
April 12, 1999 between the Company and
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<PAGE>
Zanett Securities Corporation.
10.3 -- Contract between the Ministry of Health of the
Republic of Indonesia and Enraf-Nonius B.V.
Project Division (ENP) for the development of
medical rehabilitation services in Indonesia.
27.1 -- Financial Data Schedule for the six
months ended June 30, 1999.
- -----------
* Incorporated herein by reference to the Company's Current Report on Form 8-K
filed on April 20, 1999.
(B) REPORTS ON FORM 8-K
(1) Current Report on Form 8-K dated April 20, 1999 relating to the private
placement of 750 Series C units.
(2) Current Report on Form 8-K dated July 14, 1999 relating to the selection of
Enraf-Nonius, B.V. by the Indonesian government as a contractor to provide $30
million in medical equipment and services to Indonesia.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HENLEY HEALTHCARE, INC.
(Registrant)
Date: August 16, 1999 By: /s/ DAN D. SUDDUTH
Dan D. Sudduth
Executive Vice President,
Chief Financial Officer and Secretary
(on behalf of the Company and as
Chief Accounting Officer)
16
EXHIBIT 10.3
CONTRACT BETWEEN
THE MINISTRY OF HEALTH OF THE REPUBLIC OF INDONESIA
AND
ENRAF NONIUS B.V. PROJECT DIVISION (ENP)
FOR
THE DEVELOPMENT OF MEDICAL REHABILITATION SERVICES IN
INDONESIA
NO: PL.00.01.5.2.440
February 5, 1999
This Contract, (hereinafter, together with all appendices attached hereto and
forming an integral part hereof called the "Contract") is made and entered on
between:
1. Name : Dr. Sri Astuti S. Suparmanto, MscPH
Position : Director General for Medical Care of the
Ministry of Health
Address : JI. H.R Rasuna Said Blok x-5
Kav. No. 4-9, Jakarta 12950
Representing the Ministry of Health of the Republic of Indonesia for the project
Development of Medical Rehabilitation Services in Indonesia Decree No. 78/
Menkes/II/1999 dated February 3, 1999 for and on behalf of the Government of the
Republic of Indonesia on the one part.
2. a. Name : Len de Jong
Position : Managing Director
Company : Enraf Nonius, BV
Address : Delft, The Netherlands
b. Name : Gerrit van der Schouw
Position : Director
Company : Enraf Nonius Project Division (ENP)
Address : Delft, The Netherlands
on the other part.
For the supply and installation of The Development of Medical Rehabilitation
Services in Indonesia in the selected hospitals of the Republic of Indonesia;
THE DEVELOPMENT OF MEDICAL REHABILITATION SERVICES IN INDONESIA - 1 -
<PAGE>
Whereas the project is financed by a buyer's credit to be obtained by the
Republic of Indonesia from ABN AMRO Bank (hereinafter called Credit Agreement")
in the amount of NLG 62,840,397.94 (in words sixty two million eight hundred
forty thousand three hundred ninety seven Dutch Guilders and ninety four cents).
Whereas the Ministry of Health has agreed to engage the Contractor on the basis
of its offer which has been approved by the Ministry of Health Decree No.
78/Menkes/II 1999 dated February 3, 1999.
Now, therefore in consideration of the mutual covenants herein contained it is
hereby agreed by and between the parties hereto as follows:
THE DEVELOPMENT OF MEDICAL REHABILITATION SERVICES IN INDONESIA - 2 -
<PAGE>
TABLE OF CONTENTS
Page No.
Article I : Definitions
Article II : Basis of the Contract
Article III : Contract Documents
Article IV : Subject Of Contract
Article V : Project Formation
Article VI : Price
Article VII : Scope Of Work
1. General
2. Supply of Equipment
a. Prior Inspection
b. Packing and Shipping
c. Transport and Insurance
d. Site Preparation
e. Installation Works
f. Functional Tests
g. Training for the Hospital Staff
h. Four Year Maintenance Program
i. Equipment Manuals
Article VIII: Implementation Of Works
1. Inspection and Delivery
2. Quality Inspection
3. Transfer of Title for Equipment
4. Compliance with the Technical Specification
5. Standards
6. Labels and Plates
7. Packing and Marking
8. Temporary Facilities
9. Warranty and Guarantee
THE DEVELOPMENT OF MEDICAL REHABILITATION SERVICES IN INDONESIA - 3 -
<PAGE>
10. Access to the site
11. Test arid Inspections
12. Spare Parts
13. Operation Manuals and Service Manuals
14. Certificate/License for Operation
15. Submittal
16. Records and Reports
Article IX : Completion Of Work
- Time Of Completion
- Effective Date
- Certificate Of Acceptance and partial handing over
- Certificate Of Handing Over
- Certificate by rights
- Default
Article X : Contract Price And Payment
1. Contract Price
2. Validity Price
3. No Price Escalation
4. Method of payment
Article XI : Performance Bond and bank guarantee
Article XII : Variation Of Order
Article XIII: Laws And Regulations
1. Laws and Regulation for Works
2. Disputes and Arbitration
3. Force Majeure
4. Assignment and Subletting
5. Commencement of Validity of Contract
6. Early Termination of Contract
Article XIV : Tax And Duties
1. Stamp Duties
2. Non Indonesia Taxes.
3. Local Taxes And Duties
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Article XV : Others
1. Responsibility of the Purchaser
2. Language, Measurements and Calendar
3. Interpretation
4. General End-user software license
5. Liquidated Damage, Delay and Liability
6. Introduction of the Euro
7. Dispatch of Supplier/Manufacturer's Personnel
8. Miscellaneous
9. Copies of Contract
10. Notice
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ARTICLE XVI
DEFINITIONS
Unless the Contract otherwise requires the following terms whenever used in this
Contract shall have the following meanings;
1. Government : shall mean the Government of the Republic of
Indonesia and shall include competent government
authorities.
2. Ministry : shall mean the Ministry of
Health of the Republic of Indonesia
represented by the Director General of
Medical Care.
3. Project : shall mean the supply and installation of
Development of Medical Rehabilitation Services in
Indonesia in the hospitals of; RSUP Cipto
Mangunkusumo, RSUP Kariadi, RSUP
Malalayang, RSUP Hasan Sadikin RSUD Dr.
Soetomo, RSUP Persahabatan, RSUD Dr. Syaiful
Anwar, RSUP Fatmawati, RSUP Dr. Sardjito, RSUP
H Adam Malik, RSUP Palembang, RSUP Wahidin S.
Husodo, RSUD W. Z. Yohannes, RSUP Ulin, RSU
M. Haulussy, RSUP Sanglah, RSU H. Abdoel
Moeloek, RSU Dr. Zaenul Abidin, RSUP
Dr. M Djamil, RSUD Jayapura, RSU Pekanbaru,
RSU Serang, RSUD Soppeng, RSUD Pangkep,
RSUD Maros, RSUD Wlingi, RSUD Wonosobo,
RSUD Sukohardjo, RSUD Karang Anyar, RSUD
Banjarnegara, RSUD Nganjuk, RSUD Tulung Agung,
RSUD Magetan, RSUD Pare, RSUD Jombang, RSUD
Sragen, RSUD Madiun, RSUP Bengkulu, RSU
Balikpapan, RSUD A. Muchtar, RSUD Padang
Panjang, RSUD Ciawi, RSUD Jember, RSUD
Tasikmalaya, RSU Mataram, RSUD Gorontalo, RSU
Purwokerto, RSU Tangerang, RSUD Dr. Soedarso,
RSU Undata, RSU Langsa, RSU Pematang
Siantar, RSU Dr. Moewardi.
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4. Contract : shall mean the written agreement
entered into by the Ministry and the
contractor.
5. Purchaser : shall mean the Ministry of health of the Republic
or Buyer of Indonesia and shall include any person authorized
by the Ministry.
6. Project : shall mean the person duly authorized by the
Officer Ministry in connection with the execution of the
project.
7. Receiving : shall mean the team designated by the project officer
Committee to receive, inspect and issue Certificate of the
Acceptance (COA) for the works performed by the
Contractor.
8. Contractor : shall mean Enraf Nonius B.V., Project Division
or Seller: (ENP) Rontgenweg 1, 2600 AV Delft, The
Netherlands.
9. Manufacturer : shall mean the firm(s) which
produced the equipment to be supplied by
the Contractor under the Contract to the
purchaser.
10. Specifications: shall mean general and specific technical data
specified in the lists of equipment which form an
integral part the Contract document and any
addendum or changes issued with respect hereto.
11. Services : shall mean the work to be performed by the
Contractor such as Site Preparation, installation (pre-
installation, installation), training, commissioning,
maintenance and consumables.
12. Contract : shall mean the price payable to the Contractor under
Price this Contract for the full and proper performance of
its Contractual obligations.
13. Delivery Time : shall mean the number of calendar days starting
from the Effective Date of the Contract to the
completion of the functional test, confirmed by the
Certificate of Acceptance (COA1).
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14. Site : shall mean the necessary work to be executed by the
Preparation contractor for the installation of the equipment
Work supplied bythe Contractor.
15. Installation : shall mean all efforts to
install, put into operation, demonstrate
the performance of every unit delivered by
the Contractor including functional test.
16. Functional
Test : shall mean the testing of
the technical performance in full capacity
of each individual equipment by the
Contractor and supervised by the appointed
official.
17. Training : shall mean the training of Indonesian hospital and
Ministry of Health personnel in the management,
knowledge, operation and technical, to be conducted in
Indonesia and Netherlands or outside Indonesia.
According to the training program submitted by the
Contractor.
18. Certificate
of Acceptance : shall mean a written statement issued by the
receiving (COA) committee mentioning that a certain
stage of the works have been completed. COAs shall be
issued separately for the equipment for each project
site.
COA 0 : shall be issued after the completion of the site
preparation at each project site.
COA 1 : shall be issued after the completion of the
installation and functional test at each project site.
COA 2 : shall be issued after the completion of training for
the hospital staffs performed by the Contractor at
each project site.
COA 3a : shall be issued after the completion of the first phase
of the five years maintenance program.
COA 3b : shall be issued after the completion of he second
phase of the five years maintenance program.
COA 3c : shall be issued after the completion of the third phase
of the five years maintenance program.
COA 3d : shall be issued after the completion of the fourth
phase of the five years maintenance program.
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19. Certificate of: shall mean a written statement issued by the Purchaser
Handling Over 1 mentioning that supply, installation and functional
(COHO1) test of all the equipment has been completed and shall
be signed by the Contractor and the project officer.
20. Certificate of: shall mean a written statement issued by the
Handling Over 2 Purchaser mentioning that the training
(COHO 2) program to be performed by the Contractor has been
completed and shall be signed by the Contractor and the
project officer.
21. Certificate of: shall mean a written statement issued by the
Handling Over 3 Contractor mentioning all works be performed by
(COHO 3) the Contractor have been completed and shall
be signed by the Contractor and the project officer.
22. Warranty
Period : shall be 12 (twelve) months after the issuance of
each COA 1.
23. Effective
Date : shall mean the date on which all conditions specified
in Article X have been fulfilled.
24. Completion
Date : shall mean the date on which the Ministry issues the
COHO 1 in accordance to the Contract.
25. Local Partner : shall mean the local partner of the Contractor
namely PT. Rifa Jaya Mulia, address: Gedung Rifa
6th Floor, JI. Prof. Dr. Satrio Blok C4 Kav. 6-7,
Jakarta 12950, appointed by the Contractor for the
execution of the works in Indonesia. The local partner
shall sign this agreement as a witness.
26. Project Sites : shall mean the selected hospitals where the works and
services are to be performed by the Contractor as
stipulated in Annex IA and IB.
27. Works : shall mean the supply of the equipment and services.
28. Regulations : shall mean the regulations, which are in force in
Indonesia.
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ARTICLE XVII
BASIS OF THE CONTRACT
The Contract comprises of two volumes, forming an integral part hereof:
2.1. Letter of intent dated, October 27, 1998 from ABN AMRO (Amsterdam Office)
preceding the Credit Agreement.
2.2. Invitation to offer dated, November 13, 1998.
2.3. Contractor offer dated December 7, 1998.
2.4. The official report on Price Negotiation no. PL. 00.03.1.2.2.07 dated
December 11th 1998.
2.5 Ministry of Health Decree No. 78/menkes/II/1999 dated February 3, 1999.
ARTICLE XVIII
CONTRACT DOCUMENTS
The Contract comprises the following documents, forming an integral part hereof:
1 - The Contract
2 - Annexes consisting of:
I. Bidding documentation PL.00.03.1.2.2.01
II. Pre-installation Requirements, Site Preparation
III. Training program
IV. Maintenance Program
V. Installation and commissioning
VI. Forms of Guarantees
VII. Forms of Acceptance Certificates
VIII. End user license
IX. Delivery Consumables
X. Project Organization Chart
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ARTICLE XIX
SUBJECT OF CONTRACT
The Contractor agrees to sell and deliver to the Purchaser and the Purchaser
agrees to buy and to receive from Contractor the supply of equipment and
services for the Development of Medical Rehabilitation Service in Indonesia in
the selected teaching hospitals of; RSUP. Dr. Cipto Mangunkusumo, RSUP Dr.
Kariadi, RSUP Malalayang, RSUP Dr. Hasan Sadikin, RSUD Dr. Soetomo, RSUP
Persahabatan, RSUD Dr. Syaiful Anwar, RSUP Fatmawati, RSUP Dr. Sardijito, RSUP
H. Adam Malik, RSUM Haulussy, RSUP Sanglah, RSU H. Abdoel Moeloek, RSU Zainoel
Abidin, RSUP M. Djamil, RSUD Jayapura, RSU Pekanbaru, RSUD Serang, RSUD Soppeng,
RSUD Pangkep, RSUD Maros, RSUD Wlingi, RSUD Wonosobo, RSUD Sukohardjo, RSUD
Karang Anyuar, RSUD Banjarnegara, RSUD Nganjuk, RSUD Tulung Agung, RSUD Magetan,
RSUD Pare, RSUD Jombang, RSUD Sragen, RSU Madiun, RSU Bengkulu, RSU Balikpapan,
RSU Achmad Muchtar, RSUD Padang Panjang, RSUD Ciawi, RSU Jember, RSU
Tasikmalaya, RSU Mataram, RSU Gorontalo, RSU Purwokerto, RSU Tangerang, RSUD Dr.
Soedarso, RSU Undata, RSUD Langsa, RSU Pematang Siantar, RSU Dr. Moewardi.
TIME SCHEDULE
The Contractor shall complete the delivery, installation, functional test and
training at the latest 78 months after the Effective Date. However in the event
an extension of time for the completion of the works becomes necessary due to
causes beyond he control and responsibility of the Contractor or to cause not
imputable to the Purchaser, the extension of time shall be negotiated between
the parties hereto excluding events mentioned in Article XIII paragraph 3.
The time schedule for works to be carried out by the Contractor is shown in
Annex I which will be amended in accordance to the Effective Date.
SUPPLY OF EQUIPMENT
1. The delivery of the equipment to the hospitals in Indonesia shall be
completed within 18 months from the Effective Date of the Contract.
2. The installation and functional test of the equipment shall be completed
within 18 months after the Effective Date of the Contract.
3. The training of the hospital staff in the operation and maintenance of the
equipment shall be completed within 78 months after the Effective Date of
the Contract.
4. Five Years Maintenance including 12 months warranty period program:
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a. The first phase shall be completed within 24 months after the
issuance of Certificate of Acceptance-1.
b. The second phase shall be completed within 36 months after the
issuance of Certificate of Acceptance-1.
c. The third phase shall be completed within 48 months after the
issuance of Certificate of Acceptance-1.
d. The fourth phase shall be completed within 60 months after the
issuance of Certificate of Acceptance-1.
ARTICLE XX
PROJECT FORMATION
All parties involved in this project are:
1. PURCHASER
a. Project Director; directing, policy maker and decision maker
b. Project Manager
Project Manager is responsible for overall coordination of the
entire project within the Ministry of Health and other government
institutions in Indonesia which are directly or indirectly connected
with the project implementation.
c. Project Officer
Project Officer is responsible for the implementation of the entire
project which are directly connected with the respective project
Site.
d. Hospital Director
The hospital director is responsible for Supervising, reporting
appointing of the receiving committee and preparing all matters
related to the implementation of the works at the respective project
Site.
e. Receiving Committee
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The team duly authorized by the hospital director to evaluate and
check all performances of the equipment. One receiving committee
shall be appointed for each project site.
f. The Organization chart - annex X
2. CONTRACTOR
a. PROJECT MANAGER
The Contractor project manager shall be a person with sound
knowledge of healthcare/rehabilitation medicine infrastructure and
will be fluent in English language. The organization chart as per
Annex I will be the basis for the final organization structure. The
Contractor to the Purchaser shall submit the final organization
chart within two months after the Effective Date.
b. LOCAL PARTNER
The local partner will undertake the following:
o provision of local official licenses
o execution of local administrative procedures
o coordination and monitoring of custom clearance and handling
of goods in the port of discharge
o coordination and monitoring of delivery of goods to the site
o coordination and monitoring of pre-installation/installation
work, training and maintenance of the equipment
ARTICLE XXI
PRICE
5.1 The total price of this Contract is NLG (DUTCH GUILDERS)
62,840,397.94 (words sixty two million eight hundred forty thousand
three hundred ninety seven Dutch Guilders and ninety-four cents).
5.2 Price shall be quoted DUTCH Guilders comprising of:
- Total FOB price
- Transportation Cost (freight, handling & inland cost)
- Insurance cost
- Installation cost
- Training cost
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- 4 years Maintenance cost
- Consumables price
- Site Preparation
ARTICLE XXII
SCOPE OF WORK
1. GENERAL
The works to be performed by the Contractor under the Contract consists of
the following work categories;
a. Supply of equipment and services CIF selected the Hospitals of: RSUP
Dr. Cipto Mangunkusumo, RSUP Dr. Kariadi, RSUP Malalayang, RSUP Dr.
Hasan Sadikin, RSUD Dr. Soetomo, RSUP Persahabatan, RSUD Dr. Syaiful
Anwar, RSUP Fatmawati, RSUP Dr. Sardjito, RSUP H. Adam Malik, RSUP
Palembang, RSUP Dr. Wahidin S. Husodo, RSUD W.Z. Yohannes, RSUP
Ulin, RSU M. Haulussy, RSUP Sanglah, RSU H Abdoel Moeloek, RSU
Zainoel Abidin, RSUP M. Djamil, RSUD Jayapura, RSU Pekanbaru, RSUD
Serang, RSUD Soppeng, RSUD Pangkep, RSUD Maros, RSUD Wlingi, RSUD
Wonosobo, RSUD Sukohardjo, RSUD Karang Anyar, RSUD Banjarnegara,
RSUD Nganjuk, RSUD Tulung Agung, RSUD Magetan, RSUD Pare, RSUD
Jombang, RSUD Sragen, RSU Madiun, RSU Bengkulu, RSU Balikpapan, RSU
Achmad Muchtar, RSUD Padang Panjang, RSUD Ciawi, RUS Jember, RSU
Tasikmalaya, RSU Mataram, RSU Gorontalo, RSU Purwokerto, RSU
Tangerang, RSUD Dr. Doedarso, RSU Undata, RSUD Langsa, RSU Pematang
Siantar, RESU Dr. Moewardi.
b. Site Preparation
c. Training of Indonesian hospital and Ministry of Health staff in:
- Management Training (Overseas)
- Knowledge training - TOT approach (Overseas & Local)
- Operation Training (Local)
- Technical (Maintenance) Training (Local)
d. All ocean and inland transport CIF selected hospital site and
Insurance. Insurance for the equipment against "all risks" up to the
issuance of COA-1
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e. Provision of operation 1 (one) set of manual per equipment in
English and/or if available in Indonesian language, provision of
maintenance manuals and installation manuals in English. All manuals
will be supplied in 2 (two) sets.
f. The Execution of one year warranty and four years maintenance
program.
g. Delivery of consumables
2. SUPPLY OF EQUIPMENT
Under the Contract, the Contractor undertakes the delivery and services of
equipment to the Purchaser which includes: the design, manufacturing,
purchasing, overseas transportation and insurance, unpacking,
pre-installation, installation, functional test, commissioning, manuals
and the execution of one years warranty.
The above mentioned supply and services shall cover:
Delivery of Equipment.
a. Prior Inspection:
Prior to shipment to the project site the Purchaser reserves the
right to inspect all items at the premises of manufacturer.
Therefore the Contractor shall give notice by facsimile or telex to
the Purchaser within 15 (fifteen) days prior to the shipment of the
equipment to the final destination.
b. Packing and Shipping
1. All equipment shall be packed in scaworthy and tropical
packing suitable for export. Such packing must be sufficient
to assure full protection unit arrival at destination sites,
adequately covering such overseas hazards as handling and
possible corrosion due to exposure to salt atmosphere and salt
spray.
2. All loose items required for joining shall be carefully packed
in wooden cases, crates or boxes.
3. The Contractor shall be held responsible for all damages due
to improper preparation and packing for shipment. Where
necessary heavy items shall be mounted on skids, so that cable
slings for handling can be readily attached. When it is unsafe
to apply external sling to a package, attached slings or
lifting devices shall be provided, and shall connect through
the crate, so that attachment can be readily made.
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4. The content of each crate shall be itemized (name and code
number of each item, specified in the equipment) on a detailed
packing list.
5. One copy or the detailed packing list in a waterproof envelope
shall be enclosed in each crate to be shipped. In one of the
crates, a master crate list, summarizing and identifying each
individual crate, which is a part of the shipment, shall be
enclosed.
6. The case number in which the master Packing list is contained
should be shown on each packing list. The cases shall be
numbered in the following manner:
XXX XXX
------------------------ ------------------------
Case code number Hospital number
7. Each bale, bundle, package, case, crate or any other type of
the container delivered under the Contract shall carry the
shipping mark:
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HOSPITAL EQUIPMENT
DEPARTMENT KESEHATAN R.I.
PROJECT : Development of Medical rehabilitation Services
in Indonesia
CONTRACT NO. : _________________________________________
L/C No. : _________________________________________
PORT OF DESTINATION OR : (Indonesia Airport & Seaport).
AIRPORT DESTINATION
CITY : _________________________________________
HOSPITAL NAME : _________________________________________
CASE No. : _________________________________________
NET WEIGHT : _________________________________________
GROSS WEIGHT : _________________________________________
DIMENSIONS : L (_________) X (__________) X (__________)
8. Each project site shall be provided with: - Set of manual as
described in Article VI/3. - The set of manuals shall be
included In the equipment crate.
c. Transport and Insurance
1. All equipment shall be delivered to the project sites within
18(eighteen) months after the Effective Date, except minor
supplies (i.e. sundry supplies).
2. The Contractor after finalization of all functional test shall
provide functional test reports of the individual equipment
approved by the receiving committee.
3. It is imperative that all goods imported must be examined by
Directorate General of Custom, Ministry of Finance or its
agents.
4. The Contractor shall execute the handling of the equipment and
custom clearance in the port of destination. The Purchaser
will provide the necessary documents on time.
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5. The Contractor shall insure and keep insured the equipment
from the Contractor's premises at the designated sites with a
Dutch or Indonesian insurance company, to its 110% (One
hundred and ten percent) of the Contract price on a
competitive basis under policies of on site covering "ALL
RISKS" until the issuance of Certificate of Acceptance-1.
6. The Contractor shall inspect the consignment for probable
transport damage, and shall be responsible for transport
insurance claims.
d. Site Preparation Works
The Site Preparation works of the equipment shall cover:
1. Contractor shall submit to the Purchaser (or their
representative) technical data/documentation which are
required for the finalization of the Site Preparation works
within 4 (four) months after the Effective Date.
The documents shall be made in 4 (four) copies, comprising of:
- Technical data/drawings installation layout
- Electrical power connection diagrams
- Civil/construction requirements design (foundations,
ceiling hanger)
2. The Contractor shall check the coordination of all aspects in
connection with the installation of the equipment, e.g.: civil
works, mechanical as well as electrical installation.
3. The Contractor will carry out the Site Preparation works
e. Installation Works
1. The Contractor shall take care the equipment installation
meets the requirements of manufacturer, equipment installation
drawing as well as national and local regulations.
2. The installation of the equipment supplied by the Contractor
shall be according to the International installation
regulations.
3. The Contractor shall transport/distribute all equipment to the
designated hospitals.
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4. Should any installation work differ from installation drawing
the Contractor shall consult the Purchaser.
5. The whole installation works as laid down in the scope of this
Contract should be completely carried out by the Contractor at
the latest of 18 (eighteen) months after the Effective Date.
f. Functional Test
The functional test of each individual equipment shall cover:
1. The Contractor shall execute the functional test for
individual equipment under full operational conditions
according to the designed procedures and specifications.
2. The Contractor in the presence of the hospital staff in charge
shall execute the functional test of the equipment.
3. All equipment shall be installed and functionally tested
within 18 (eighteen) months after the Effective Date.
4. Completion of the Functional Test.
Upon the completion of the functional test the Certificate of
Acceptance-1 shall be issued be the Purchaser after the
finalizing of all installation works.
g. Training for the Hospital Staff (Medical Rehabilitation Specialist,
Therapist, Orthotic/Prosthetic Engineer and Medial Engineer)
To assure proper Site Preparation, calibration, use and application
of the equipment, the program will provide training for Medical
Rehabilitation Specialist, Therapist and Engineer. Training general
covers:
1. Technical training for the hospital engineers will allow for
proper failure reporting and efficient repair.
2. Application training by Medical Rehabilitation Team will be
followed by sequential updates over the project.
3. Medical training is planned, executed and monitored in the
framework of International Medical Rehabilitation Program.
Full responsibility remains with the institutions involved.
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h. Five Years Maintenance Program
1. A maintenance contract for preventive and corrective
maintenance will include:
* spare parts
* labor
* expenses
A comprehensive maintenance contract of 5 years including 1
(one) year warranty period is effective for the equipment
delivered under the project.
2. Corrective maintenance
3. The Preventive maintenance shall be carried out twice a year
or in accordance with the manufacturers instructions set forth
in the respective service manuals.
4. The Contractor shall provide annual report to Purchaser,
Certificate of Acceptance 3 shall be issued by Purchaser after
the Contractor has finalized each maintenance year.
5. In the event the execution of the project is delayed for 6 or
more consecutive months after shipment of equipment, parties
will mutually agree and redefine the duration of the warranty
period.
g. Equipment Manuals
Manual of equipment shall cover:
1. The Contractor shall provide the operation manuals of the
equipment supplied under this Contract in the English language
or if available in Indonesian.
2. Printing quality should be made in the best quality. Drawings,
pictures, diagram should be clear and easy it be read Paper
should be from the best quality for the tropical Conditions.
3. Any damage or shortage of manuals shall be replaced by the
Contractor not later than 2 (two) months after checking report
by the receiving committee.
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ARTICLE VIII
IMPLEMENTATION OF WORKS
1. Inspection Delivery
a. Inspection of Import Equipment by Purchaser
The Purchaser may visit the Contractor in The Netherlands to
inspect the imported equipment before shipping, the Purchaser
shall, in advance, notify the Contractor of such inspection
visit by at least 14 (fourteen) days before shopping with the
information such as number and names of the inspectors,
inspection items and inspection schedule. The Contractor shall
make necessary arrangement for such inspection and take care
of the inspectors during the period of inspection go that the
inspector can carry out the inspection smoothly and properly
according to shipment ready.
b. It is imperative that all goods imported to Indonesia must be
examined by the Directorate General of Customs, Ministry of
Finance or its agents.
c. Preservation of Equipment by purchaser
After delivery of equipment to the hospital, the hospital
shall provide preservation of the delivered equipment.
However, notwithstanding the above, the Contractor shall be
responsible for the preservation of equipment and the damage
to the equipment solely caused by Contractor under his
Contractual obligations.
The Contractor shall not be responsible for the storage and
preservation of the equipment in case of any project delay for
a period longer than 6 Consecutive months beyond the control
and responsibility of the Contractor
d. Variation
Should any deviation and/or variations from the specifications
be found, the Contractor must report and obtain the approval
of the Purchaser thereof.
The Purchaser will have the right to reject any equipment or
materials which do not meet the requirements stipulated in the
technical specifications, unless the deviation is proposed by
the manufacturer due to the discontinuation of an approved
equipment. Reports signed by thc Purchaser attesting that
items
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inspected meet the specifications shall be included in the
report as further required in Article IX hereafter.
2. Quality Inspection
Test and inspections shall be performed as per the following
procedures:
a. All items of the equipment to be supplied under these
technical specifications shall be subject to the quality test
and inspection by the Contractor prior to their shipment from
the origin country. Should any deviation and/or variations
from the specifications be found, the Contractor must report
and obtain the approval of the Purchaser thereof. The
Purchaser will have the right to reject any equipment or
materials which do not meet the requirenients stipulated in
the technical specifications
b. The Contractor shall conduct functional test of the equipinent
and shall chcck the accessories, in order to ensure that their
conditions are good and adequate for proper operations and
maintenance.
3. Transfer of Title for Equipment
The title of all equipment to be supplied under this Contract shall
be transferred to the Purchaser from the Contractor after all
payments have been made. However notwithstanding delivery of
equipment to the Purchaser (hospital), the Contractor shall be
responsible the damage to equipment during the installation,
testing, testing and commissioning to be canried out under his
control and responsibility until the completion of work.
4. Compliance with the Technical Specifications
All equipment to be supplied under the Contract shall be brand new,
of latest generation, unused, free of faulty workmanship/materials
shall meet/comply with the technical specifications.
5. Standards
a. All the equipment and works shall conform to the approved
standards of the origin country and the following standards
wherever applicable and shall meet Indonesian national and
local regulation which are inverse at the moment of the
installation.
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b. Even if some codes and standard are designated in the
technical specifications, the other codes and standards not
shown therein are also applicable instead of the designated
codes and standards and meet the requirements thereof.
c. Code and General Standards.
All works performed under this Contract shall be completed
with all necessary equipment for its satisfactory operation,
control, maintenance and safety under all International
standard of services.
d. All the electrically operated equipment shall be 220 V/380 V
(+/-10%), 50 Hz, or otherwise specified.
6. Labels and Plates
The equipment shall be provided with a sticker label except those
identified by the Purchaser as being impossible to stick on these
labels shall specify the manufacturer's model name and serial
numbers etc.
7. Packing and Marking
The equipment shall bc packed for seaworthy shipment. Such packing
shall be sufficient to ensure full protection against severe
tropical conditions until arrival at the destination. These
equipment shall be shipped by container vessel to the designated
site Shipping marking shall be made in accordance with Article IX.
The Contractor shall mark each bundle, bale, package, case or any
other type or container, and deliver them as per Contractual
obligations. Truck and railway transportation is also allowed for
local transportation.
8. Temporary Facilities
In case a part of the Purchaser's facilities is necessary to
be occupied by tbe Contractor he shall submit to the
Purchaser or the hospital lor his approval the plan showing
such occupation as well as protection of facilities against
any damage and theft. Arrangement of the temporary
facilities shall be done by the local partner.
9. WARRANTY AND GUARANTEE
a. The Contractor shall warranty and guarantee brand new
equipment and the proper functioning of the equipment for a
period of 12 (twelve) months from the date of Certificate of
Acceptance 1 (COA I). If any part of the equipment
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breakdown or fails due to faulty of improper design,
materials, workmanship, manufacturer or
fabrications/instruction, or fails to meet the requirements of
the technical specifications, then the Contractor upon
notification in writing from the Purchaser shall, as promptly
as possible thereafter, repair or replace at Contractors sole
option every such defective or improper part of the equipment.
If the equipment becomes defective due to non fault of the
Contractor such as voltage fluctuations, misuse and
negligence, the Contractor shall be indemnified by the
Purchaser in respect of repair or replace thereof.
b. The Purchaser shall promptly notify the Contractor and the
Contractor shall, within 30 (thirty) days rectify or replace
the defective parts, components of equipment at no cost to the
Purchaser, Defective spare-parts become the property of the
Contractor as soon as they have been replaced.
c. The Contractor shall guarantee the availability of all
spare-parts, replacement materials of the equipmcnt supplied
with the shortest delivery time for a period of 5 (five) years
after the Certificate of Handling Over 1 (COHO 1).
d. The Contractor shall ensure the goods and materials, provide
their standard guarantee for works under all sections of the
specifications. However, such guarantees shall be in addition
to and not in lieu of all other responsibilities and
liabilities of the Contractor.
e. The warranty shall not include lamps, tubes, crystals
semiconductors, rectifier, vibrators and batteries or other
parts being subject to unavoidable wear and tear.
f. During the period of warranty the Contractor shall have the
right of access, at all reasonable working hours, at his own
risk and expense, by himself or his duly authorized local
representative whose name shall have previously been
communicated in writing to the Purchaser, to all parts of the
works for the purpose of inspecting the work and taking notes
of performance. Subject to the Purchaser's approval, which
shall not be reasonably withheld, the Contractor may at his
own risk and expense make any test which he considers
advisable.
g. All other claims of or whatsoever kind which may be put
forward by the Purchaser are excluded.
10. ACCESS TO THE SITE
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a. The Purchaser shall give the Contractor access to the
designated site during the period of validity of Contract
unless otherwise provided. Should any delay take place in
giving the Contractor access to the designated site or should
such access be suspended or is considered inadequate, the
delay, suspension of inadequacy shall be deemed not to
constitute a breach of the Contract but the Contractor will
receive an extension of time for the completion of the works,
if so requested in writing by Contractor.
b. The Contractor shall give a notice to the Purchaser at least
15 (fifteen) days before commencing field works at the
site(s), in cases where such works are required.
c. The Contractor shall at all times consult with the Purchaser
and obtain 14 (fourteen) days prior approval for any action
likely to interfere with the user's operations. The Purchaser
shall reply to any such request within 7 (seven) days.
11. TESTS AND INSPECTIONS
a. In addition to the provisions of the scope of works in Article
VII of the Contract, the Contractor shall, in the presence of
the Purchaser and/or the authorized personnel of the Purchaser
execute the work, and inspect and test the equipment in
accordance with the technical specifications. Any defect
discovered during such inspection and test shall be corrected
promptly by the Contractor at his own expense to the
satisfaction of the Purchaser and/or the authorized personnel
of the Purchaser.
All Contractor instruction must be strictly observed and
adhered to with respect to Site Preparation,
installation/setting up and commissioning of the supplied
equipment.
b. The Contractor shall make records of the results of each
inspection and test and submit them to the Purchaser.
12. SPARE PARTS
The Contractor shall provide the Purchaser with a documentary
guarantee of the equipment to be supplied, making available for sale
to the Purchaser such as spares and accessories as maybe necessary
for the operation of the equipment for a period of 5 (five) years
from the date of Certificate of Handing Over I (COHO 1). This
document shall be submitted within 1 (one) month before COHO 1.
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13. OPERATION MANUALS AND SERVICE MANUALS
Prior to the installation/setting up of equipment the Contractor
shall provide to the hospital.
a. 2 (two) copies of operation manuals written in English
language and/or if available by the manufacturer in Indonesian
language.
b. 1 (one) copy of installation/service manuals written in
English for all of the equipment.
14. CERTIFICATE/LICENSE FOR OPERATION
The Contractor assisted by the local partner shall obtain the
necessary certificate/license for the importation of equipment to be
supplied under this Contract according to the prevailing applicable
rules and regulations of the Indonesian Government.
15. SUBMITTALS
a. The Contractor shall prepare and submit the following papers
in English to the Purchaser within 3 (three) months after the
receipt of notification of the Effective Date.
1. Work Schedule
The Contractor shall submit to the Purchaser for
approval a complete work schedule providing for the
orderly performance of the works together with a
detailed breakdown of the proposed schedule for the
performance of each item of the works which indicates
the following:
a. L/C arrangement
b. The Effective Date
c. Supply of equipment
- equipment schedule
- shipping
- installation works
- functional test
d. Training for the hospital staffs
e. 48 months maintenance program
2. Organization Set Up
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- Project Team of Contractor
3. Execution Plan
- Basic details of each activities
- Project procedure (correspondence, reporting
authorization invoicing, inspection, etc.)
b. The Contractor shall submit the following papers in English to
the Purchaser
1. Within 3 (three) months after the Effective Date of the
Contract
a. List of recommended spare parts of item for
the project
b. Required pre-installation drawings for
the project
2. Within 4 (four) months after the Effective Date of the
Contract for approval
- Training program = 4 sets
3. Within 6 (six) months after the Effective Date of the
Contract for approval
- 48 months maintenance program = 4 sets
c. The contractor shall submit the following papers to the
Purchaser upon completion of the works in 4 sets each.
1. List of the equipment supplied & supplies
2. List of recommend spare-parts
3. Results of the tests and inspection of the equipment
supplied as the requirement of Article VII
4. As built drawing of equipment installation for any
relevant hospital sites.
16. RECORDS AND REPORTS
The Contractor shall submit from time to time to the Purchaser,
notices and other documents as specified in the Instruction to the
supplier as well as records and report which shall include but not
limited to the following, in 4 set each.
a. Installation with illustration and/or relevant photographs
if necessary
b. Three monthly report, on the execution of the works as
follows:
Within the first 10 (ten) days of each three months during the
performance of the works under the Contract, the Contractor
shall submit to the Purchaser
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2 (two) copies of a type-written report covering the works
planned for the succeeding month in detail using the forms
acceptable to the Purchaser. Such a report shall include among
others:
1. Physical progress for the three months and estimated
progress for the succeeding three month.
2. Completion schedule (target and actual)
3. Photographs showing the dominant works progress
performed at each hospital.
4. Any delay and its reasons.
5. Necessary pictures/photo taken from particular event of
works.
ARTICLE IX
COMPLETION OF WORKS
Time of Completion
The Contractor shall complete all the works exclusive 48 months maintenance
program at the latest 78 (seventy eight) months after the Effective Date.
However in the event that an extension of time for completion of the works
becomes necessary due to causes beyond the control and responsibility of the
Contractor or to cause not iniputable to the Purchaser, excluding events
mentioned in Force Majeur clause XIII paragraph 3, the extension of time shall
be negotiated between the parties hereto:
Effective Date :
a. This Contract shall come into force automatically at the time of
fulfillment of the following events
1) Signature of the present Contract.
2) Issuance of the Minister of health Decree No.
78/menkes/II/1999 dated February 3, 1999.
3) Signature of the Credit Agreement between ABN AMRO and MOF RI
containing the stipulations that it shall enter into force
upon effectiveness of this Contract.
4) Issuance of all necessary authorizations from the Indonesian
and Contractor authorities.
5) Opening of L/C through Bank of Indonesia in favor of the
Contractor/effectiveness of L/C.
6) Notification by the Contractor of fulfillment of the preceding
events.
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b. The notification by the Contractor shall be issued on the same day
of receiving the advance payment in 3 (three) copies. One copy will
be sent to the Director General of Medical Care, one copy to the
project officer and one copy to local partner. The date of
notification shall be considered as the Effective Date.
Certificate of Acceptance and partial handing over
a. Completion of site preparation
After completion of the site preparation, the completion of the
works will be substantiated by the issuance of the Certificate of
Acceptance 0 (COA 0) by the receiving committee.
b. Completion of works for supply and installation of equipment.
After installation and functional tests, the completion of the work
will be substantiated by the issuance of the Certificate of
Acceptance I (COA I) for the equipment by the receiving Committee.
If the Certificate of Acceptance (COA I) has not been issued within
2 (two) weeks after the functional test, the Contractor shall make
records of the result of functional test and submit them by
registered letter to the project officer without undue delay. Within
1 (one) week upon receipt of such registered letter, purchaser is
obliged to issue the COA 1 to Contractor.
c. Completion of Training for the Hospital Staff and partial acceptance
During training phase, the completion of the work will be
substantiated by the issuance of Certificate of Acceptance 2 (COA 2)
for the equipment by the receiving committee.
When the respective training have been completed, the receiving
committee will issue immediately a Certificate of Acceptance (COA
2). If the Certificate of Acceptance 2 (COA 2) has not been issued
within 2 (two) weeks after the completion of the training the
Contractor shall make records of the results of the training and
submit them by registered letter to the project officer without
undue delay.
d. Completion of 12 months Maintenance Program
1. During the completion of the first year of the 48 months
maintenance program the Contractor shall make the reports
receiving committee substantiated by Certificate of Acceptance
3a (COA 3a).
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2. During the completion of the second year of the four years of
maintenance program the Contractor shall make the reports
receiving committee substantiated by Certificate of Acceptance
3b (COA 3b).
3. During the completion of the third year of the four years
maintenance program the Contractor shall make the reports
receiving committee substantiated by Certificate of Acceptance
3c (COA 3c).
4. During the completion of the fourth year of the four years
maintenance program the Contractor shall make the reports
receiving committee substantiated by Certificate of Acceptance
3d (COA 3d)
5. If any of the COA 3a, COA 3b, COA 3c, and COA 3d have not been
issued within 2 (two) weeks after the completion of each
maintenance year promptly by the receiving committee after
proper completion of each maintenance year the Contractor
shall make records of the result of the maintenance year and
submit them by registered letter to the project officer
without undue delay.
6. During the 48 months maintenance program the Contractor shall
issue regular reports from the performed
visits/repairs/maintenance, including recommendations and
suggestions to be found necessary to report to the Purchaser.
e. Completion of consumables and spare parts - see annex IX
Certificate Handing Over
a. Handing Over 1 (COHO 1)
Upon successful completion of functional test confirmed by the
Certificate of Acceptance 1 of the equipment, the project officer
shall issue the Certificate of Handing Over 1 within 15 (fifteen)
days after issuance of the last Certificate of Acceptance 1 and
obtain a letter of warranty and guarantee to be issued by the
Contractor.
If the Certificate of Handing Over 1 has not been issued within
these 15 (fifteen) days the Contractor shall make records of the
result of the installation works and submit them by registered
letter to the project officer without undue delay.
b. Handing Over 2 (COHO 2)
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Upon successful completion of training confirmed by the Certificate
of Acceptance 2 of the equipment, the project officer shall issue
the Certificate of Handing Over 2 within 15 (fifteen) days after
issuance of the last Certificate of Acceptance 2.
If the Certificate of Handing Over 2 has not been issued within
these 15 (fifteen) days the Contractor shall make records of the
result of the training works and submit them by registered letter to
the project officer without undue delay.
c. Handing Over 3 (Final)
Upon successful completion of all works including the four years
maintenance program the Contractor shall inform the Purchaser in
writing by registered letter that all the works under the Contract
have been completed.
Within 15 (fifteen) days after such notice, the Purchaser shall
issue a Certificate of Handing Over 3 (final to the Contractor which
relieves the Contractor of all Contractual obligations.
Certificate by Rights
If any Certificate of Acceptance or Certificate of Handing Over have not been
issued within 30 (thirty) days after the date of registered letter from
Contractor to project officer, submitting records of the corresponding work or
works, and if the project officer has not raised any objections, the Certificate
of Acceptance or Certificate of Handling Over will be automatically considered
as effective by rights.
DEFAULT
If the Contractor after being notified three times in writing by Purchaser fails
to meet any serious Contractual obligation for a specific part of the works, he
shall be deemed to be in default and Purchaser may declare after granting
Contractor an in advance agreed upon time, to remedy the faults or to meet the
obligations, the forfeit of the Contract for the specific part of works under
dispute:
1. Contract fails to observe serious obligations, terms and conditions or
stipulations contained in the Contract without any justified reason and
after been notified three times by Purchaser to do so.
2. Contractor suspends, without justifiable reason, the performance of the
works wholly or substantially before completion thereof.
3. Contractor fails to proceed with the works with due diligence and in a
competent manner.
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The Contractor shall be liable only for all direct damages caused by liquidation
under the terms of the Contract, including increased costs to complete relevant
works and increased administrative costs, suffered by the Purchaser as result of
the Contractors default. The Contractors liability is limited as per article XV
paragraph 5.
ARTICLE X
CONTRACT PRICE AND PAYMENT
1. Contract Price
The Purchaser shall pay to the Contractor for the scope of works
stipulated in the Article VII which is performed by the Contractor under
the Contract, the sum of:
NLG: 62,840,397.94 (in words sixty two million eight hundred
forty thousand three hundred ninety seven Dutch Guilders and ninety
four cents)
2. Validity Price
The above price is firm for a Contract having come into force before May
1, 1999.
3. NO PRICE ESCALATION
Any increased cost incidental to the execution of the works due to any
economic dislocation either in Netherlands or the Republic of Indonesia or
to any other causes such as currency restriction, price like of materials
and supply, minimum wages like for labor and reevaluation of the currency,
can not be claimed by the Contractor or the Purchaser.
However in the case for reason beyond the Contractor's control the
completion of the work and/or issuance of the Certificate of Acceptance is
delayed beyond 20 months, the unpaid part of the price shall be adjusted
if such adjustment can be justified by the Contractor.
4. METHOD OF PAYMENT
a. The payment to the Contractor shall be in accordance with the
proceedings of the Credit Agreement concluded between the ABN AMRO
Bank N.V., of Amsterdam and the Government of Indonesia.
b. Payment to the Contractor shall be made in accordance with the
manner and procedure as set forth hereunder:
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1. The Ministry shall establish an irrevocable divisible and
confirmed Letter of Credit, under which partial shipments will
be allowed, by Bank Indonesia in favor of the Contractor, via
the ABN AMRO Bank N.V. at Amsterdam, immediately after the
signing of the Credit Agreement. The letter of credit shall be
valid for a maximum period of 21 (twenty-one) months after the
Effective Date.
2. The said Letter of Credit shall cover an aggregate amount of
NLG 62,840,397.94 (in words sixty two million eight hundred
forty thousand three hundred ninety seven Dutch Guilders and
ninety four cents) and shall be payable to the Contractor on
an installment basis against the Contractor's submission of
the necessary documents, except for the advance payment, which
shall be made as follows:
A. ADVANCE PAYMENT
The Purchaser shall pay to the Contractor the sum of NLG
12,568,079.59 (in words twelve million five hundred
sixty eight thousand seventy nine Dutch Guilders and
fifty nine cents) as an advance payment equivalent to
20% (twenty percent) of the total amount of the Contract
price for the supply and services under the said Letter
of Credit, upon presentation of a simple receipt.
The advance payment shall be fully set off by deducting
the sum of 20% (twenty percent) of the CIF price of the
equipment, installation works, Site preparation,
training, consumables and maintenance.
The Contractor shall furnish the Ministry with an
advance payment bond issued by an accredited Indonesian
bank or Indonesian State owned bank of the same amount.
The amount of the advance payment bond shall
automatically be reduced proportionally per invoice
under said letter of credit.
This advance payment bond shall remain in force until
the advance payment is fully set off and shall be null
and void after the last invoice under said letter of
credit has been sent.
B. PAYMENT FOR SUPPLY OF EQUIPMENT, CONSUMABLES AND
TECHNICAL SHARE PARTS
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The Purchaser shall pay to the Contractor NLG
40,963,805.60 (in words Forty million nine hundred sixty
three thousand and eight hundred five Dutch Guilders and
sixty cents) the equivalent of 100% (one hundred
percent) of the total FOB supply Contract price consist
of equipment equivalent NLG 35,563,414.15, consumable
equivalent NLG 4,032,254.81 and technical parts
equivalent NLG 1,368,136.73, after deduction of the
respective 20% advance payment. Therefore the Contractor
shall receive NLG 32,771,044.55 (in words thirty two
million seven hundred seventy one thousand and forty
four Dutch Guilders and fifty five cents) out of the
letter of credit against presentation of the following
documents:
o Respective invoice of the Contractor
o Packing list and weight list
o Full set of bills of lading made out to order, blank
endorsed marked "freight prepaid" and/or airway bill
o Insurance certificate/policy
o Certificate of origin
o Copy of a duly issued bank guarantee (article XI)
C. PAYMENT FOR OCEAN FREIGHT, INSURANCE PREMIUM, HANDLING
COSTS, INLAND TRANSPORTATION AND INSURANCE COSTS
The Purchaser shall pay pro rata based on the invoiced
value of the shipped equipment (meant under paragraph 4
B supra), to the Contractor an aggregate amount of NLG
3,308,817.50 (in words three million three hundred eight
thousand eight hundred seventeen Dutch Guilders and
fifty cents) the equivalent of 100% (one hundred
percent) of the total ocean freight, insurance premium,
handling costs, inland transportation and insurance
costs after deduction of the respective 20% advance
payment.
Therefore the Contractor shall receive NLG 2,647,054.00
(in words two million six hundred forty seven thousand
fifty four Dutch Guilders) out of the letter of credit
against presentation of the following documents:
o respective invoice of the Contractor;
o insurance certificate/policy
o freight notes
D. PAYMENT FOR INSTALLATION AND COMMISSIONING
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The Purchaser shall pay pro rata based on the services
performed as specified in Annex V, to the Contractor the
aggregate amount of NLG 2,374,475.00 (in words two
million three hundred seventy four thousand four hundred
seventy five Dutch Guilders) the equivalent of 100% (one
hundred percent) of the installation and commissioning
Contract price after deduction of the respective 20%
(twenty percent) advance payment. Therefore the
Contractor shall receive NLG 1,899,580.00 (in words one
million eight hundred ninety nine thousand five hundred
eighty Dutch Guilders) out of the letter of credit
against presentation of the following documents:
o certificate of acceptance (COA 1)
o invoice of the Contractor
E. PAYMENT OF SITE PREPARATION
The Purchaser shall pay pro rata based on the services
performed to the Contractor the amount of NLG
3,697,687.50 (in words three million six hundred
ninety-seven thousand six hundred eighty seven Dutch
Guilders and fifty cents) the equivalent of 100% (one
hundred percent) of the Site preparation Contract price
after deduction of the respective 20% (twenty percent)
advance payment. Therefore the Contractor shall receive
NLG 2,958,150.00 (in words two million nine hundred
fifty-eight thousand one hundred fifty Dutch Guilders)
out of the letter of credit against presentation of the
following documents:
o certificate of acceptance 0 (COA 0)
o invoice of the Contractor
F. PAYMENT OF TRAINING
The Purchaser shall pay for services as specified in
Annex III, to the Contractor the amount of NLG
6,177,862.25 (in words six million one hundred seventy
seven thousands and eight hundred sixty two Dutch
Guilders) and twenty five cents) the equivalent of 100%
(one hundred percent) of the training, maintenance
Contract and consumables Contract price after deduction
of the respective 20% (twenty percent) advance payment.
Therefore the Contractor shall receive, however not
earlier than 16 (sixteen) months after the Effective
Date NLG 4,942,289.80 (in words four million nine
hundred forty two thousands two hundred eighty nine
Dutch Guilders
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and eighty cents) our of the letter of credit against
presentation of the following documents:
o Copy of a duly issued bank guarantee (article XI);
o invoice of the Contractor
G. PAYMENT OF MAINTENANCE CONTRACT
The purchaser shall pay for services as specified in
Annex IV, to the Contractor the amount of NLG
6,317,750.00 (in words Six million three hundred
seventeen thousands seven hundred fifty Dutch Guilder)
the equivalent of 100% (one hundred percent) of the
maintenance and consumables contract price after
deduction of the respective 20% (twenty percent) advance
payment. Therefore the contractor shall receive, however
not earlier than 16 (sixteen) months after the Effective
Date NLG 5,054,200.00 (in words five million fifty four
thousands and two hundred Dutch Guilder) out of the
letter of credit against presentation of the following
documents:
o Copy of duly issued bank guarantee (article XI);
o Invoice of the contractor
ARTICLE XI
PERFORMANCE BOND AND BANK GUARANTEE
1. PERFORMANCE BOND
For the purpose of guaranteeing satisfactory performance of the obligations by
the Contractor in compliance with the terms and conditions of this Contract, the
Contractor shall submit a performance bond at the time of signing the Credit
Agreement in the form of bond draft/guarantee to the Purchaser amounting to 5%
(five percent) of the Contract price.
The performance bond shall be issued by a first class bank in The Netherlands
and endorsed by an accredited Indonesian Bank or Indonesian state owned bank in
the Republic of Indonesia, both must be acceptable to the Purchaser, provided
always that the bank guarantee shall be of format approved by the Purchaser.
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2. BANK GUARANTEE
For the purpose of guaranteeing the satisfactory compliance of the obligations
with respect to training, maintenance and consumables of this Contract, the
Contractor shall submit a bank guarantee at the time as stated in article X
paragraph 4.
The bank guarantee shall be issued by a first class bank in The Netherlands and
endorsed by an accredited Indonesian Bank or Indonesian state owned bank in the
Republic of Indonesia, both must be acceptable to the Purchaser, provided always
that the bank guarantee shall be of a format approved by the Purchaser.
The maximum amount of the guarantee, i.e., NLG 16,527,867.06 (in words sixteen
million five hundred twenty seven thousand eight hundred sixty seven Dutch
Guilders and six cents) shall be reduced according to the following
reduction-schedule.
It is noted that the value of consumables delivered, inspected and accepted by
MOH will be deducted from the aforementioned maximum amount.
o 18 months after the Effective Date to a maximum of
NLG 16,527,867.06 (in words sixteen million five
hundred twenty seven thousand eight hundred sixty
seven Dutch Guilders and six cents);
o 30 months after the Effective Date to a maximum of
NLG 13,222,293.65 (in words thirteen million two
hundred twenty two thousand two hundred ninety three
Dutch Guilders and sixty five cents);
o 42 months after the Effective Date to a maximum of
NLG 9,916,720.24 (in words nine million nine hundred
sixteen thousand seven hundred twenty Dutch Guilders
and twenty four cents);
o 54 months after the Effective Date to a maximum of
NLG 6,611,146.82 (in words six million six hundred
eleven thousand one hundred forty six Dutch Guilders
and eighty two cents);
o 66 months after the Effective Date to a maximum of
NLG 3,305,573.41 (in words three million three
hundred five thousand five hundred seventy three
Dutch Guilders and forty one cents);
o 78 months after the Effective Date to nil Dutch
Guilders.
RELEASE OF THE PERFORMANCE BOND AND THE BANK GUARANTEE
a. Performance Bond
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The Purchaser shall release the Performance bond against the submission
of:
- Certificate of Handing Over 1 7 copies
- Note of Receipt of Original
Bank Guarantee Letter (1 original, 6 copies)
b. Bank guarantee
The Purchaser shall release the Bank guarantee against the submission of:
* Certificate of Handling Over 3 (COHO 2) 7 copies
ARTICLE XII
VARIATION OF ORDER
Any variation of the Contract requires both parties written consent. If the
Purchaser consider it desirable to make any variations of the Contract, the
Purchaser may by written notice informing the Contractor of such variation. The
execution of such variation is based on mutual agreement by both parties. No
such variation shall in any way violate or invalidate the Contract and the total
value of the Contract.
ARTICLE XIII
LAWS AND REGULATIONS
1. LAWS AND REGULATIONS FOR WORKS
a. The Contractor shall make its best effort to ensure that the
personnel of the Contractor and their dependents, while staying in
the Republic of Indonesia, shall respect and abide by the law and
regulation of the Republic of Indonesia.
b. All the operation of the Contractor for the works shall be conducted
in compliance with all applicable laws, regulations, codes and
standard and the terms and conditions of the Credit Agreement. The
Contractor shall protect, absolve and indemnify the Purchasers, and
the representatives from any claims, loss or damage arising from any
non-compliance proved, without claiming them for payment.
c. The Contractor shall also make his best efforts to conform to the
requirement of all laws, regulations, standards, ordinance and to
the lawful requirements of local government and other authorities in
the Republic of Indonesia affecting in any way or applicable to the
Works, the performance of the works, and the safety of the person on
or in the vicinity of the designated sites.
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d. The Contractor shall also make his best efforts to conform in all
respects with the provisions of the regulations or by laws of any
local or other duly constitute authority which may be applicable to
the works.
2. DISPUTES AND ARBITRATION
Should any disputes controversies or differences arise between the parties
hereto, out of or in connection with this Contract, either party shall as
soon as possible, give to the other party a notice in writing of the
existence of such disputes, controversies or differences, specifying the
nature and point of issue, and both parties hereto shall first endeavor to
solve such disputes, controversies or difference, in an amicable manner.
If the parties hereto fail to reach an agreement, such disputes,
controversies or differences shall be finally settled by arbitration to be
held in London, The United Kingdom by three arbiters under the rules of
Conciliation and Arbitration of the International Chamber of Commerce
(latest version of ICC rules Paris, France). The language of arbitration
shall be English, applicable law shall be the laws of the United Kingdom.
The award rendered by the arbitrators shall be final and binding for both
parties.
3. FORCE MAJEURE
a. In the event of the occurrence of force majeure, each party hereto
shall be entitled to suspend the performance of its obligations
under this Contract for the duration of prevention or delay caused
by such force majeure without being held liable for any loss or
damage resulting therefrom to the other party.
b. The expression "force majeure" includes any circumstances or event
beyond Contractor's reasonable control in consequence of which
Contractor cannot perform or cannot reasonably be required to
perform its obligations so prevented or delayed, such as war,
hostilities, invasion, act of foreign enemies, rebellion or
revolution, insurrection of military or usurped power, civil war,
riot, commotion or disorder, strikes or labor troubles,
non-availability of transport, freight embargoes, inability to
procure after due and timely diligence, shortage of equipment parts,
raw materials or other deliverables due on the part of Contractor's
suppliers, any operation of the forces of nature such as
earthquakes, cyclones, storms or floods, non-availability of any
permits, license, authorizations and/or administrative requirements
and/or governmental regulations.
c. If the period of prevention or delay caused by force majeure lasts
six (6) consecutive months, the Parties shall agree upon a revised
basis for continuing this Contract.
4. ASSIGNMENT AND SUBLETTING
THE DEVELOPMENT OF MEDICAL REHABILITATION SERVICES IN INDONESIA - 39 -
<PAGE>
The Contractor shall not assign the Contract or any part thereof, or any
benefit or interest therein and thereunder, other than by a charge in
favor of the Contractor's Banker of any money due to or become due under
this Contract, without the prior written consent of the Purchaser, which
shall not be unreasonably withheld.
However, Contractor is entitled to assign or delegate wholly or partially
its rights and/or obligations pursuant to this Contract to any company
within its group of companies or to its subcontractors or sub suppliers.
For the performance of its obligations under any part of this Contract,
Contractor shall be entitled to appoint one or more subcontractors and/or
sub suppliers. However, any subcontracting and/or sub supplying under this
Contract shall not relieve Contractor from any obligation under this
Contract.
5. COMMENCEMENT OF VALIDITY OF CONTRACT
The Contract shall come into force on the Effective Date. The Contractor
shall commence the works immediately after the Effective Date of the
Contract and shall proceed with the same with due expedition and without
delay.
6. EARLY TERMINATION OF CONTRACT
a) should either party default in the execution of its substantial
contractual obligations, the other party shall give the defaulting
party notice in writing to remedy such default in a mutually agreed
upon time.
b) failure of the defaulting party in taking corrective measure as
required by the other party within 60 (sixty) days of the receipt of
such notice shall constitute a sufficient cause for the other party
to terminate this Contract, provided always that such termination
under this paragraph shall be subject to the approval of the
Purchaser and the Contractor.
c) the Purchaser may terminate the Contract upon 30 (thirty) days
written notice to the Contractor should the Contractor not fulfill
his substantial contractual obligations as stipulated in the
Contract for more than 60 (sixty) consecutive days.
d) the Contractor may terminate this Contract upon 30 (thirty) days
written notice to the Purchaser, should the Purchaser delay the
payment without any reason, stipulated in Article X, Contract price
and payment of the Contract for more than 60 (sixty) consecutive
days.
e) in the event of termination of the Contract for the reason of
sub-clause (a) and (b) above, the Contractor shall be paid by the
Purchaser for this works including other contractual obligations
related to the Contract carried out up to the termination date.
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<PAGE>
f) in the event that any party terminates this Contract in whole or in
part as provided in this clause, the parties will try to establish
by mutual agreement a liquidation settlement.
ARTICLE XIV
TAX AND DUTIES
1. STAMP DUTIES
According to the prevailing regulations, Stamp Duties of this Contract
shall be borne by the Contractor and paid on the date of signing the
Contract.
2. NON INDONESIA TAXES
The Contractor shall pay all non-Indonesian taxes, such as sales, income,
and other taxes and duties, such as tariffs and import duties lawfully
assessed abroad against the contractor in connection with the work covered
in the Contract, and the Contractor shall not receive any additional
reimbursement from the Purchaser in respect on changes in such tariffs,
duties, or other taxes paid by the Contractor.
3. LOCAL TAXES AND DUTIES
a. The Contractor shall be exempted from all customs, duties, taxes,
levies, fees handling charges, commissions, and other impositions of
any authority in the Republic of Indonesia in connection with the
performance of the Contractor's obligations under the Contract,
which include internal, stamp and other duties concerning the
Contract, corporation tax, business tax, income tax, and other taxes
and levies of any nature whatsoever in respect of:
1. Any payments made to the Contractor for the performance of the
obligation under the Contract.
2. Any equipment, tools and materials brought by the Contractor
into the Republic of Indonesia for the performance of the
works which will, after having been brought into the Republic
of Indonesia be subsequently withdrawn there from after the
completion of the works.
3. Any property brought into the Republic of Indonesia by the
Contractor for their use or consumption which will, after
having been brought into the Republic of Indonesia, be
subsequently withdrawn there from if not consumed at the time
of departure.
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<PAGE>
Additionally, the Contractor shall re-export under the same
condition at his own expense all defective spare-parts during
the Contract period.
b. For which the Purchaser shall take measures necessary for the
aforementioned clause, the Contractor shall submit the list of
expatriates personnel, 7 (seven) days before the arrival of the
personnel to be dispatched to Indonesia for the purpose of the
works, starting their names, ages, sex, and address in their
countries, approximate duration of stay.
c. The Purchaser will provide the Contractor immediately after the
Effective Date a letter declaring full and unconditional
tax-exemption for any and all shipments related to the execution of
this Contract, copy if this letter will be sent by Purchaser to the
customs authorities and the Ministry of Finance of the Republic
Indonesia.
ARTICLE XV
OTHERS
1. RESPONSIBILITY OF THE PURCHASER
a. The Purchaser shall assist promptly unloading and customs clearance
at the port of disembarkation in the Republic of Indonesia of the
equipment to be supplied under the Contract.
b. The Purchaser shall assist the Contractor and his expatriate staffs
to obtain necessary entry and exit visas, working permit, residence
permit, foreign exchange permit and travel document required during
their stay in the Republic of Indonesia.
c. The Purchaser shall perform their obligations in relation to the
execution of the local works such as construction of the building
including the standard mechanical and electrical requirements, the
installation of clean air and air conditioning system, the
installation of all electrical system and automatic doors, and the
provisions of all pre- installation works.
d. The Purchaser shall provide the availability and the use of
electricity, water and drainage and other incidental facilities
related to the works.
e. The Purchaser shall assure that the Hospital concerned will be ready
for Site Preparation as in Annex ....
THE DEVELOPMENT OF MEDICAL REHABILITATION SERVICES IN INDONESIA - 42 -
<PAGE>
f. The Purchaser shall provide free of charge space for the proper
storage of the untracked equipment at the hospital sites.
2. LANGUAGE, MEASUREMENTS AND CALENDER
a. All documents and correspondences related to the Contract shall be
in English.
b. All measurements shall be in metric units unless otherwise
specified.
c. All dates and terms referred to this Contract shall be related to
Gregorian Calender.
3. INTERPRETATION
All general language or requirements embodies in the technical
specification are intended to amplify, explain and implement the
requirements of this Contract.
However, in the event that any language or requirements so embodied permit
and interpretation inconsistent with any provision of this Contract, then
in each of every such event, the applicable provision of this Contract
shall prevail and govern.
4. GENERAL END-USER SOFTWARE LICENSE
Software included in or accompanying the delivered equipment shall remain
the property of Contractor. Contractor hereby grants to Purchaser and
Purchaser accepts from Contractor a non-exclusive and non-transferable
right for its own use of such software and documentation and Purchaser
shall not reproduce, modify, divulge the software and documentation to any
third party without Contractors prior written consent, as further set
forth in Annex ... (general end-user software license) attached hereto.
5. LIQUIDATED DAMAGES, DELAY AND LIABILITY
5.1. The Contractor shall pay the Purchaser as liquidated damages a sum
equivalent to 0.10% of the amount of the undelivered goods, works
and services per day of delay for the site or the sites delayed.
5.2. The total liquidated damages payable to the Purchaser shall not in
any case exceed 5% (five percent) of the Contractual value of the
unit of equipment, works or services for which delivery or
completion was delayed. The Contractor is liable only for direct
damages caused by his personnel or equipment supplied under this
Contract and only during the Contract period. The total liability
shall be limited to the amount of the performance bond.
5.3. During the term of the Contract, Contractor accepts liability only
for personnel injury and Contractor will indemnify and hold
Purchaser harmless, up to a maximum of
THE DEVELOPMENT OF MEDICAL REHABILITATION SERVICES IN INDONESIA - 43 -
<PAGE>
NLG 1,000,000.00 (one million Dutch Guilders) per whole event, to
the extent such injury are the direct cause of Contractor's willful
misconduct or gross negligence or of persons providing maintenance
services on Contractor's behalf, as well as to the extent such
injury or damages are the direct cause of proven defects in faulty
workmanship in equipment supplied by Contractor.
Contractor shall not be liable for any consequential or other
special or indirect or punitive damages nor for any loss of
whatsoever nature and howsoever arising other than those for which
contractor has expressly assumed liability herein and contractor's
liability shall in no event include any patent liabilities or patent
indemnification.
6. INTRODUCTION OF THE EURO
As from the date that the Dutch Guilder ceases to be legal tender within
the Netherlands, at the latest envisaged to be July 1, 2002, in accordance
with article 109 L (4) of the Treaty establishing the Europe Economic
Community, as amended by the Treaty on the European Union (The Maastricht
Treaty), this Contract will be performed in Euro and all orders and
invoices will be sent in Euro and all payment obligations under this
Contract shall be satisfied in Euro and all denominations in Dutch Guilder
shall be substituted by the denominations in Euro, according to the
conversion rate of the Dutch Guilder against the Euro fixed in accordance
with aforesaid article 109 L (4). Parties hereto affirm and agree that the
conversion of the obligations under this Contract from Dutch Guilder into
Euro shall in no way be a reason for early termination or revision or
amendment of this Contract. This clause prevails over any Force Majeure.
7. DISPATCH OF SUPPLIER/MANUFACTURER'S PERSONNEL
a. The Contractor shall dispatch an appropriate and sufficient number
of personnel to site to perform works. The Contractor shall submit
the personnel records, qualification and relevant professional
experience of the said personnel to the project officer.
b. The Contractor shall dispatch engineers to the designated site who
have sufficient experience in the works of installation/setting up,
repair works commissioning and testing of the equipment as well as
on site training to the hospital personnel concerned.
8. MISCELLANEOUS
Any matter or circumstances not provided for herein shall be settled by
agreement among the Purchaser and the Contractor.
THE DEVELOPMENT OF MEDICAL REHABILITATION SERVICES IN INDONESIA - 44 -
<PAGE>
9. COPIES OF CONTRACT
5 (five) identical copies of this Contract will be signed of which
Purchaser will receive 3 (three) and Contractor 2 (two) copies.
10. NOTICE
Any and all notice and communications in connection with this Contract
shall be deemed to be duly given or made when it shall have been delivered
by hand, mail, telex, or cable to the party to which it is required to be
given the following address or such other address as either party may from
time to time specify in writing.
Notice to the Purchaser : THE MINISTRY OF HEALTH OF
THE REPUBLIC OF INDONESIA
Directorate General for Medical Care
Jl. H.R. Rasuna Said Block X5 Kav. 4-9
Jakarta - Indonesia
Telp. 62-21-520-1594/-5
62-21-520-4395/-6
Notice to the Contractor: ENRAF NONIUS,BV
PROJECT DIVISION (ENP)
RONTGENWEG 1, 2600 AV DELFT
THE NETHERLAND
THE DEVELOPMENT OF MEDICAL REHABILITATION SERVICES IN INDONESIA - 45 -
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