-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I1SgdpyyWbKwd6hlYxo1TToEcLBod/jVfz+n0pcGiYmWalkRssYR4R6Kq2DjmAFu gO7a39YfcsbZz3VLYRxd0A== 0000950109-96-003991.txt : 19960625 0000950109-96-003991.hdr.sgml : 19960625 ACCESSION NUMBER: 0000950109-96-003991 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 48 FILED AS OF DATE: 19960621 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUBURBAN OSTOMY SUPPLY CO INC CENTRAL INDEX KEY: 0001016872 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 42675474 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-06621 FILM NUMBER: 96584265 BUSINESS ADDRESS: STREET 1: 75 OCTOBER HILL ROAD CITY: HOLLISTON STATE: MA ZIP: 01746 BUSINESS PHONE: 5084291000 MAIL ADDRESS: STREET 1: 75 OCTONBER HILL ROAD CITY: HOLLISTON STATE: MA ZIP: 01746 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- SUBURBAN OSTOMY SUPPLY CO., INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 5047 04-2675674 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 75 OCTOBER HILL ROAD HOLLISTON, MA 01746 (508) 429-1000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- HERBERT P. GRAY CHIEF EXECUTIVE OFFICER SUBURBAN OSTOMY SUPPLY CO., INC. 75 OCTOBER HILL ROAD HOLLISTON, MA 01746 (508) 429-1000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: JAMES WESTRA, ESQUIRE JOHN J. HUBER, ESQUIRE HUTCHINS, WHEELER & DITTMAR LATHAM & WATKINS A PROFESSIONAL CORPORATION SUITE 1300 101 FEDERAL STREET 1001 PENNSYLVANIA AVENUE, N.W. BOSTON, MASSACHUSETTS 02110 WASHINGTON, DC 20004 (617) 951-6600 (202) 637-2200 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are to be offered pursuant to a dividend or interest reinvestment plan, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE - --------------------------------------------------------------------------------- Common Stock, no par value per share....... 4,312,500 shares $14.50 $62,531,250 $21,563.00
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes an aggregate of 562,500 shares which the Underwriters have the option to purchase from the Company solely to cover over-allotments, if any. See "Underwriting." (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SUBURBAN OSTOMY SUPPLY CO., INC. CROSS-REFERENCE SHEET (PURSUANT TO ITEM 501 OF REGULATION S-K SHOWING THE LOCATION IN THE PROSPECTUS OF THE RESPONSES TO THE ITEMS IN PART I OF THE FORM S-1)
ITEM NUMBER AND HEADING ON FORM S-1 LOCATION IN PROSPECTUS ----------------------- ---------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus..... Outside Front Cover Page of Prospectus 2. Inside Front Cover and Outside Back Cover Pages of Prospectus.... Inside Front Cover and Outside Back Cover Pages of 3. Summary Information, Prospectus Risk Factors and Ratio of Earning to Fixed Charges................ Prospectus Summary; Risk Factors 4. Use of Proceeds....... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price......... Outside Front Cover Page of Prospectus; Underwriting 6. Dilution.............. Risk Factors; Dilution 7. Selling Security Holders................ Not Applicable 8. Plan of Distribution.. Outside Front Cover Page; Underwriting 9. Description of Securities to be Registered............. Capitalization; Description of Capital Stock 10. Interests of Named Experts and Counsel.... Not Applicable 11. Information with Respect to the Registrant............. Outside Front Cover Page of Prospectus; Prospectus Summary; Risk Factors; The Company; Recent Developments; Use of Proceeds; Dividend Policy; Capitalization; Dilution; Selected Consolidated Financial Data; Unaudited Combined Pro Forma Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal Stockholders; Description of Capital Stock; Shares Eligible for Future Sale; Consolidated Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities............ Not Applicable
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION Dated June 21, 1996 3,750,000 SHARES [LOGO OF SUBURBAN OSTOMY APPEARS HERE] COMMON STOCK ----------- All of the shares of Common Stock offered hereby (the "Shares") are being offered by Suburban Ostomy Supply Co., Inc. ("Suburban" or the "Company"). Prior to this offering, there has been no public market for the Common Stock. It is currently anticipated that the initial public offering price will be between $12.50 and $14.50 per share. See "Underwriting." The Company has applied to have the Shares approved for quotation on the Nasdaq National Market under the symbol "SOSC." ----------- SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING [PRICE TO] DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - ------------------------------------------------ PER SHARE $ $ $ TOTAL(3) $ $ $ - ------------------------------------------------ - ------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $800,000. (3) The Company has granted the several Underwriters a 30-day option to purchase up to an additional 562,500 shares of Common Stock to cover over- allotments, if any. If all such shares are purchased, the total price to public, underwriting discounts and commissions and proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ----------- The Shares are offered by the several Underwriters named herein when, as and if received and accepted by them, subject to their right to reject any order in whole or in part and subject to certain other conditions. It is expected that delivery of the Shares will be made in New York, New York, on or about , 1996. ----------- DEAN WITTER REYNOLDS INC. BEAR, STEARNS & CO. INC. WILLIAM BLAIR & COMPANY WHEAT FIRST BUTCHER SINGER , 1996 COVER FROM THE WINTER 1995 WHOLESALE CATALOG FEATURING HERBERT P. GRAY, CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF SUBURBAN, AND CERTAIN REPRESENTATIVE MEDICAL SUPPLIES FROM THE CATALOG. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. ---------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary................. 4 Risk Factors....................... 7 The Company........................ 11 Recent Developments................ 11 Use of Proceeds.................... 12 Dividend Policy.................... 13 Dilution........................... 14 Capitalization..................... 15 Selected Consolidated Financial Da- ta................................ 16 Unaudited Pro Forma Combined Financial Data.................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations......... 22
PAGE ---- Business......................... 29 Management....................... 39 Certain Transactions............. 43 Principal Stockholders........... 45 Description of Capital Stock..... 46 Shares Eligible for Future Sale.. 48 Underwriting..................... 50 Legal Matters.................... 51 Experts.......................... 51 Additional Information........... 51 Index to Consolidated Financial Statements...................... F-1
---------------- UNTIL , 1996 (25 DAYS FROM THE DATE OF THE PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 3 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, including the Consolidated Financial Statements and related notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus: (i) reflects a 3.67 for 1 stock split effected as of June 21, 1996 by means of a stock dividend; and (ii) assumes no exercise of the Underwriters' over-allotment option. See "Capitalization." References to a particular fiscal year of the Company are to the fiscal year of the Company which ends on the Saturday nearest to August 31 of such year. Unless the context requires otherwise, references to "Suburban" or the "Company" are to Suburban Ostomy Supply Co., Inc., and with respect to periods following their respective acquisitions, its subsidiaries, St. Louis Ostomy Distributors, Inc. ("St. Louis Ostomy") and Patient-Care Medical Sales ("Patient-Care"). THE COMPANY Suburban is a leading national direct marketing wholesaler of medical supplies and related products to the home health care industry. The Company sells products to over 20,000 customers, including: (i) independent suppliers of home health care products (principally home medical equipment dealers and local and chain pharmacies); (ii) national home health care chains and wholesalers; and (iii) managed care organizations. Through its direct sales and marketing programs, the Company markets a comprehensive selection of more than 5,000 stock keeping units ("SKUs"), comprised primarily of ostomy, incontinence, diabetic and wound care products. The Company's primary product lines fulfill its customers' needs to provide a complete line of products for their home health care patients. The Company believes that its success is attributable to the expertise gained from more than 17 years of focus on its product lines and its commitment to providing superior service and technical support to its customers. The Company has positioned itself as a high volume, cost-effective direct marketer of home health care products. The Company's direct marketing materials, particularly its industry-recognized catalog, offer a broad selection of products in an easy to use format, enabling the Company to offer its customers a single source for the Company's product lines. During fiscal 1995, the Company distributed over 500,000 pieces of direct mail, consisting of catalogs, flyers, trade press advertisements and package inserts. This marketing program is supplemented by telemarketing and frequent "fax specials" which provide customers competitive pricing and promotional information. The Company's 40 experienced, highly-trained service representatives located at its headquarters in Holliston, Massachusetts use the Company's proprietary software to fill customer orders, explore additional product needs and respond to customer inquiries. During fiscal 1995, the Company filled over 300,000 customer orders with an average order size of approximately $176. The Company imposes no annual purchase commitments or minimum order requirements. Suburban provides quick, cost-effective delivery on a national basis, enabling the Company to meet the needs of national home health care and managed care organizations as well as local independent suppliers. Its national distribution network enables the Company to ship over 95% of orders on the day of receipt, with a product fill rate of over 92%, and to deliver product to 94% of the U.S. population within 48 hours. The Company also provides customers with value- added services, such as the Company's stockless inventory program (the "Stockless Inventory Program") in which the Company ships products directly to its customers' patients and provides detailed utilization reporting to customers. The Stockless Inventory Program is designed to assist customers in reducing their inventory levels, controlling costs and managing utilization. The Company meets the changing needs of manufacturers and customers in the home health care market. Manufacturers are becoming increasingly dependent upon wholesalers to help reduce manufacturers' costs by assuming their small order distribution. The Company achieves volume discounts, rebates and promotional allowances from manufacturers by providing significant value added services to its suppliers through marketing support and information management. Suburban's high degree of service, technical support and outbound telemarketing complements the manufacturers' continuing product support. In addition, Suburban's direct marketing expertise enhances the manufacturers' ability to introduce new products and sustain on-going marketing campaigns. With respect to customers, cost containment efforts are prompting 4 many of the Company's customers to become "one stop shop" suppliers of home health care products. Suburban provides customers a comprehensive selection of products which, because of the relatively small volume of such products sold by these customers, are typically not stocked by them cost-effectively. The Company's national distribution network and management information systems ("MIS") enable it to fill a large quantity of the small and broken case orders typically placed by home health care providers and which many other wholesalers have difficulty filling efficiently. The Company believes that there are economic and demographic factors that will support the continued growth of home health care and the need for the Company's products. Ongoing efforts to reform the health care system have resulted in greater cost sensitivity on behalf of medical providers and payors. Home delivered health and medical services are increasingly recognized as viable, low-cost alternatives to inpatient care. Industry research indicates that the overwhelming majority of patients prefer home health care to institutional care, and that patients recover more quickly in the home environment with the close support of family and friends. Technological advancements have also enabled patients who previously would have required hospitalization to be treated at home. In addition, the elderly represent the largest and fastest-growing single consumer segment of health care in the United States. The Company believes that greater utilization of medical services by the elderly will drive growth in the use of medical supplies, including products used in the home setting. The Company's growth strategy is to increase sales and profitability by: (i) making strategic acquisitions of health care wholesalers; (ii) increasing sales to national home health care chains; (iii) adding contracts with managed care organizations; and (iv) increasing sales to independent suppliers. Consistent with the Company's acquisition strategy, the Company has recently completed two acquisitions of home health care wholesalers that have enhanced the Company's position as a leading national direct marketing wholesaler by increasing the number of its customers, expanding its geographic markets and product categories and leveraging its existing infrastructure. In January 1996, the Company acquired St. Louis Ostomy, which had approximately $17.0 million in sales in its fiscal 1995, expanding the Company's presence in the Midwest. In June 1996, the Company acquired Patient-Care, based in Santa Fe Springs, California, which had approximately $18.0 million in sales in its fiscal 1996. The Company believes that the acquisition of Patient-Care will expand the Company's market penetration in California as well as enhance its position in the incontinence market. THE OFFERING Common Stock Offered............ 3,750,000 shares Common Stock Outstanding After 11,117,525 shares(1) the Offering................... Use of Proceeds................. To repay an aggregate of $36,174,459 of senior and subordinated indebtedness, to redeem $7,408,747 in value of Suburban's outstanding Series A Redeemable Preferred Stock ("Redeemable Preferred Stock"), and for general corporate or working capital purposes. See "Use of Proceeds." Proposed Nasdaq National Market "SOSC" Symbol.........................
- -------- (1) Excludes: (i) 787,949 shares of Common Stock reserved for issuance under the Company's 1995 Stock Option Plan (the "Stock Option Plan") (of which options to purchase 741,340 shares of Common Stock have been granted and options to purchase 111,384 shares of Common Stock were exercisable at June 1, 1996); and (ii) 102,026 shares of Common Stock reserved for issuance under a warrant (the "Bank Warrant") exercisable on or before January 22, 2006, issued to The First National Bank of Boston (the "Bank") in connection with the Credit Agreement dated as of July 3, 1995, as amended as of January 22, 1996 and further amended as of June 14, 1996 (the "Credit Facility"). See "Use of Proceeds," "Management--Stock Option Plan" and "Certain Transactions." 5 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
FISCAL YEAR ENDED SEPTEMBER 2, 1995 FISCAL YEAR ENDED (1) (52 WEEKS) (1) (2) THIRTY-NINE WEEKS ENDED (1) --------------------------------------------- ------------------------ ------------------------------------ JUNE 3, 1995 JUNE 1, 1996 AUGUST 31, AUGUST 29, AUGUST 28, SEPTEMBER 3, ------------ ----------------------- 1991 1992 1993 1994 PRO FORMA PRO FORMA (52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS) ACTUAL AS ADJUSTED (3) ACTUAL ACTUAL AS ADJUSTED(3) ---------- ---------- ---------- ------------ ------- --------------- ------------ ------- -------------- CONSOLIDATED INCOME STATEMENT DATA: Net sales....... $32,571 $37,921 $42,738 $47,311 $52,667 $87,937 $39,324 $49,302 $70,462 Cost of goods sold........... 24,411 28,599 32,305 35,599 39,872 67,918 29,660 37,476 54,276 ------- ------- ------- ------- ------- ------- ------- ------- ------- Gross profit.... 8,160 9,322 10,433 11,712 12,795 20,019 9,664 11,826 16,186 Operating expenses....... 5,333 7,512 6,991 7,627 7,752 12,184 5,684 6,241 9,481 Depreciation and amortization... 267 268 265 270 266 932 195 387 716 Non-recurring executive compensation (4).. -- -- 2,111 2,237 -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- Operating income......... 2,560 1,542 1,066 1,578 4,777 6,903 3,785 5,198 5,989 Interest expense........ -- -- -- -- 370 30 7 1,841 22 Other expense (income), net.. (238) (224) (158) (132) (145) (261) (125) (14) (77) ------- ------- ------- ------- ------- ------- ------- ------- ------- Income before income taxes... 2,798 1,766 1,224 1,710 4,552 7,134 3,903 3,372 6,045 Provision for income taxes... 142 101 69 88 358 1,520 236 1,446 2,616 ------- ------- ------- ------- ------- ------- ------- ------- ------- Net income...... $ 2,656 $ 1,665 $ 1,155 $ 1,622 $ 4,194 $ 5,614 $ 3,667 $ 1,926 $ 3,429 ======= ======= ======= ======= ======= ======= ======= ======= ======= Net income applicable to common stockholders (5)............ $ 2,656 $ 1,665 $ 1,155 $ 1,622 $ 4,083 $ 5,614 $ 3,667 $ 1,419 $ 3,429 ======= ======= ======= ======= ======= ======= ======= ======= ======= Pro forma data (6): Provision for income taxes... 1,119 706 490 684 1,821 2,984 1,561 1,446 2,616 Net income...... 1,679 1,060 735 1,026 2,731 4,150 2,342 1,926 3,429 Net income applicable to common stockholders (5)............ $ 2,620 $ 4,150 $ 1,419 $ 3,429 ======= ======= ======= ======= Net income per share.......... $ .33 $ .35 $ .18 $ .29 ======= ======= ======= ======= Weighted average common shares outstanding.... 8,043 11,793 8,045 11,795 ======= ======= ======= ======= OPERATING DATA: Number of orders......... 203,573 223,418 247,469 276,056 307,525 228,028 295,949 Inventory turnover (7)... 8.7x 8.7x 8.4x 9.8x 11.8x 10.6x 10.9x
JUNE 1, 1996 ----------------------------------- PRO PRO FORMA ACTUAL FORMA (8) AS ADJUSTED (9) -------- --------- --------------- CONSOLIDATED BALANCE SHEET DATA: Working capital............................ $ 8,562 $ 9,783 $12,912 Total assets............................... 26,808 33,522 36,179 Long-term debt............................. 31,419 35,884 -- Redeemable preferred stock (2)............. 7,268 7,268 -- Total stockholders' (deficit) equity ...... (18,389) (18,389) 27,892
- ------- (1) The Company's fiscal year ends on the Saturday nearest to August 31, and is divided into four thirteen-week periods. (2) In connection with a recapitalization completed in July 1995 (the "Recapitalization"), the Company: (i) issued to certain investors $6.75 million in aggregate principal amount of 12% Junior Subordinated Notes due June 30, 2000 (the "Summit Notes") and $6.65 million stated value of Redeemable Preferred Stock which accretes a dividend of 10% per year; (ii) issued to certain executive officers $2.5 million in aggregate principal amount of 12% Junior Subordinated Promissory Notes (the "Management Notes"); and (iii) borrowed $13.5 million under the Credit Facility. (3) Pro forma data for the fiscal year ended September 2, 1995 and the thirty- nine weeks ended June 1, 1996 have been adjusted to reflect the acquisitions of St. Louis Ostomy and Patient-Care (the "Recent Acquisitions") and the sale of the 3,750,000 shares of Common Stock offered hereby, at an assumed price of $13.50 per share and the application of the net proceeds therefrom, as if such transactions had been effected September 4, 1994. In connection with the acquisition of St. Louis Ostomy in January 1996, the Company issued to the former sole stockholder of St. Louis Ostomy a $1.235 million 10% Junior Subordinated Promissory Note due January 22, 2001 (the "St. Louis Note"). See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Transactions." See "Unaudited Pro Forma Combined Financial Data." (4) Represents bonuses paid to certain executive officers to facilitate their purchase of stock prior to the Recapitalization. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Management." (5) Represents net income less the accretion of the Redeemable Preferred Stock during the period. (6) Prior to the Recapitalization, the Company elected to be taxed as a Subchapter S corporation for federal income tax purposes. Pro forma information has been computed as if the Company had been subject to federal income taxes and all applicable state corporate income taxes for each period presented. (7) "Inventory turnover" means the cost of goods sold for the period divided by the average inventory balance for the period (annualized data for the thirty-nine week periods). (8) Pro forma as adjusted to reflect the acquisition of Patient-Care as if it had occurred on June 1, 1996. (9) Pro forma further adjusted to reflect the sale of the 3,750,000 shares of Common Stock offered hereby at an assumed price of $13.50 per share and the application of the net proceeds therefrom, as if it had occurred on June 1, 1996. 6 RISK FACTORS Acquisition Strategy. The Company intends to expand its geographic and market penetration through acquisitions of health care wholesalers. The Recent Acquisitions are the Company's first actions in implementing this strategy as well as its first purchases of other businesses. In attempting to make acquisitions, the Company will compete with other potential acquirers, some of which have greater financial or operational resources than the Company. Competition for acquisitions may intensify due to the ongoing consolidation in the industry, which may increase the costs of capitalizing on such opportunities. There can be no assurance that the Company will be able to locate, negotiate, finance and integrate the acquisitions it desires. Acquisitions involve numerous short and long term risks, including diversion of management's attention, failure to retain key personnel and customers of the acquired businesses, inability to integrate management information systems of acquired businesses without material disruptions, amortization of acquired intangible assets and the effects of contingent earn-out payments. In addition, health care wholesalers which the Company may acquire may have product lines or operating assets not normally carried or proposed to be used by the Company. These product lines or assets may be difficult to sell, resulting in the Company incurring operating expenses, or writing off any such unsold inventory or unused assets in future periods. The Company may also incur one-time acquisition expenses. Consummation of acquisitions could result in the incurrence or assumption by the Company of additional indebtedness and the issuance of additional equity. There can be no assurance that the Company will be able to finance an acquisition, or if financing is available, that the terms will be favorable to the Company. The issuance of shares of Common Stock to acquire a wholesaler may also result in dilution to the Company's stockholders. See "Business--Growth Strategy." Changes in Health Care Industry and Changing Market Conditions. In recent years, the health care industry has undergone significant changes due in part to cost reduction efforts, trends towards managed care, reduction in Medicare reimbursement rates and other government-sponsored programs, collective purchasing arrangements by health care practitioners and potential health care reform. Government imposed limits on reimbursement of providers and cost constraints imposed by private third party reimbursement plans have significantly impacted spending budgets in certain markets. In response to cost containment pressures, third party payors are increasingly developing programs to reduce or control the prices paid for health care products and services. As a consequence of such cost containment efforts and other trends in the health care industry, the nature of the Company's customer base is changing. Independent home medical equipment dealers and pharmacies, which historically have accounted for the substantial majority of the Company's net sales, are consolidating. Sales of certain of the Company's products are dependent on the availability and amount of reimbursement to the Company's customers from third party payors. There can be no assurance that changes in the health care industry, including those affecting reimbursement for purchase and use of the Company's products, will not have a material adverse effect on the results of operations and financial condition of the Company. Reductions in reimbursement rates and the increased buying power of larger suppliers have resulted in competitive pricing pressures and lower gross margins on the part of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Industry Overview" and "-- Government Regulation." Competition. Suburban faces intense competition from a variety of local, regional and national wholesalers, a number of which have greater financial and other resources than the Company. Most of the Company's products are available from several sources, and the Company's customers often have relationships with several wholesalers. In addition, manufacturers could increase their efforts to sell directly to suppliers, thereby by-passing wholesalers such as the Company. Since barriers to entry in the home health care distribution industry are relatively low, there is substantial risk that current competitors will seek to expand their market presence and new competitors will enter the market. There is ongoing consolidation of home health care product wholesalers which could result in existing competitors increasing their market positions through acquisitions, joint ventures or exclusive supply relationships. In response to pressures from current or future competitors, the Company may be required to lower selling prices to maintain or increase market share. Such measures could have a material adverse effect on the results of operations or financial condition of the Company. See "Business--Customers" and "--Competition." 7 Risks of Business Growth. While the Company plans to increase sales and profitability by targeting existing and new customers, no assurance can be given that the Company's efforts will result in additional revenues or operating income. The Company's growth plans also could place significant demands upon the Company's management and financial resources. The failure by the Company to manage its growth could have a material adverse effect on the results of operations or financial condition of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Industry Overview" and "--Customers." Dependence on Manufacturers. The Company distributes more than 5,000 SKUs produced by approximately 200 manufacturers and is dependent on these manufacturers to supply product. Three manufacturers accounted for approximately 43.9% and 41.6% of the Company's total purchases for fiscal 1995 and for the thirty-nine weeks ended June 1, 1996, respectively, and the Company's top ten manufacturers accounted for approximately 67.2% and 65.1%, respectively, of the Company's total purchases during such periods. Substantially all of the ostomy products marketed by the Company, which accounted for 32.5% and 32.4% of the Company's net sales in fiscal 1995 and for the thirty-nine weeks ended June 1, 1996, respectively, are purchased from two manufacturers. The Company regularly searches for and evaluates new sources of supply, but the Company expects that its reliance on a small group of principal manufacturers will continue. While the Company has contracts with seven of its top ten manufacturers, it does not have contracts with the majority of its manufacturers. As a result, the Company may be subject to unanticipated changes in the terms of its arrangements with manufacturers, including pricing, minimum volume and dollar requirements, return policies and promotional allowances. Where the Company has a contract with a manufacturer, it is typically of short duration with a limited number of terms. If any of the Company's principal manufacturers were to experience financial difficulties, quality control problems or delays in the manufacture or delivery of products, or were to raise the price of products substantially, such events could have a material adverse effect on the results of operation or financial condition of the Company. There can be no assurance that the Company's principal manufacturers will not experience such events or that the Company will maintain good relationships with such manufacturers. See "Business--Purchasing." Reliance on Efficiency of Distribution Systems. The Company believes that its financial performance is dependent upon its ability to provide products to its customers in a timely, reliable and efficient manner. An interruption in one or more of the Company's computer, telephone, management information, warehouse or delivery systems could adversely affect its ability to receive, process and fill orders and therefore could have a material adverse effect on its results of operations or financial condition. Delivery of orders and marketing material, which is part of the Company's distribution system, is handled by third parties, such as United Parcel Service ("UPS"), the U.S. Postal Service and other common carriers. In fiscal 1995 and during the thirty-nine weeks ended June 1, 1996, substantially all of the Company's sales were delivered by UPS. Labor disruption or strikes by such carriers, particularly UPS, or significant cost increases in delivery expense could have a material adverse effect on the results of operations or financial condition of the Company. See "Business--Order Entry and Fulfillment; Customer Service and Technical Support." Government Regulation. The Company, its customers and manufacturers are subject to varying degrees of federal and state regulation. Legislative or regulatory changes which affect its customers or manufacturers may indirectly affect the Company. The Company cannot predict whether state or federal legislative or regulatory changes, such as health care reform, will occur and, if so, the effect that such changes would have on its acquisition strategy or its results of operations or financial condition. See "Business--Government Regulation." Dependence on Key Personnel. The success of the Company is dependent upon the efforts and abilities of its executive officers. In July 1995, the Company entered into an employment agreement with each of its executive officers for a term of five years. The loss of service of one or more of these persons could have a material adverse effect on the results of operations or financial condition of the Company. See "Management--Employment and Other Agreements." 8 Control by Current Stockholders. After the consummation of this offering, Summit Ventures III, L.P. ("Summit Ventures"), Summit Investors II, L.P. ("Summit Investors") and Summit Subordinated Debt Fund, L.P. ("Summit Debt Fund", and together with Summit Ventures and Summit Investors, "Summit") and the Company's executive officers will own 45.0% and 20.1%, respectively, of the outstanding Common Stock. In addition, two of the four members of the Board of Directors are representatives of Summit. As a result, Summit and the executive officers of the Company will be able to elect all of the Company's directors, to determine the outcome of all corporate actions requiring approval by the Board of Directors or stockholders and to control the business affairs of the Company. See "Management" and "Principal Stockholders." Benefits of Offering to Certain Stockholders. Approximately $16,800,580 of the net proceeds from the sale of the Shares offered hereby will be used to retire the Management Notes and Summit Notes and to redeem the Redeemable Preferred Stock issued in connection with the Recapitalization. See "Use of Proceeds" and "Certain Transactions." Dilution. The purchasers of the Shares will experience immediate and substantial dilution in net tangible book value of $12.00 per share of Common Stock as a result of the sale of 3,750,000 shares of Common Stock offered hereby. See "Dilution." Potential Adverse Impact of Shares Eligible for Future Sale. 7,367,525 shares representing 66.3% of the number of shares of Common Stock outstanding after the consummation of this offering are or will be eligible for future sale in the public market at prescribed times pursuant to Rule 144 or Rule 701 under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to the exercise of registration rights. Sales of such shares in the public market, or the perception that such sales may occur, could adversely affect the market price of the Common Stock or impair the Company's ability to raise additional capital in the future through the sale of equity securities. See "Dilution," "Description of Capital Stock," "Shares Eligible for Future Sale" and "Underwriting." No Prior Market; Potential Volatility. Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained after this offering. The initial public offering price will be determined by negotiations among the Company and the representatives of the Underwriters and may not be indicative of prices which may prevail in the trading market. See "Underwriting." There has been significant volatility in the stocks of health care and related companies that has often been unrelated to the operating performance of such companies. In addition, the Company believes that certain factors, including legislative and regulatory developments, the response by the investment community and by competitors to such developments, quarterly fluctuations in the actual or anticipated results of operations of the Company, lower revenues or earnings than those anticipated by securities analysts, the overall economy and the financial markets could cause the price of the Common Stock to fluctuate substantially. Anti-Takeover Provisions; Possible Issuance of Preferred Stock. The Company's Restated Articles of Organization, as amended ("Articles of Organization") and Amended and Restated Bylaws ("Bylaws") contain provisions that might diminish the likelihood that a potential acquiror would make an offer for the Common Stock, impede a transaction favorable to the interest of the stockholders or increase the difficulty of removing members of the Board of Directors or management. After the consummation of this offering, the Board of Directors will have the authority, without further stockholder approval, to issue up to 1,000,000 shares of preferred stock in one or more series and to determine the price, rights, preferences and privileges of those shares. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of shares of preferred stock, while potentially providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. The Company has no present plans to issue shares of preferred stock. Furthermore, certain provisions of the Articles of Organization, including provisions that provide for the Board of Directors to be divided into three classes to serve for staggered three-year terms, 9 may have the effect of delaying or preventing a change of control of the Company, which could adversely affect the market price of the Common Stock. In addition, the Company is subject to Chapters 110D and 110F of the Massachusetts General Laws, which prohibit the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of such provisions also could have the effect of delaying or preventing a change of control of the Company. Certain licenses and permits held by the Company also prohibit a change of control of the Company without applicable governmental or regulatory approval. See "Business--Government Regulation" and "Description of Capital Stock--Certain Articles of Organization, Bylaws and Statutory Provisions Affecting Stockholders." 10 THE COMPANY Suburban is a leading national direct marketing wholesaler of medical supplies and related products to the home health care industry. The Company sells products to over 20,000 customers, including: (i) independent suppliers of home health care products (principally home medical equipment dealers and local and chain pharmacies); (ii) national home health care chains and wholesalers; and (iii) managed care organizations. Through its direct sales and marketing programs, the Company markets a comprehensive selection of more than 5,000 SKUs, comprised primarily of ostomy, incontinence, diabetic and wound care products. The Company's primary product lines fulfill its customers' needs to provide a complete line of products for their home health care patients. The Company believes that its success is attributable to the expertise gained from more than 17 years of focus on its product lines and its commitment to providing superior service and technical support to its customers. The Company's first catalog was mailed in 1977, and Suburban was incorporated as a Massachusetts corporation in 1979 by Herbert P. Gray. On July 3, 1995, the Company effected the Recapitalization. In addition, the Company acquired St. Louis Ostomy in January 1996 and Patient-Care in June 1996 as part of its strategy to expand its business through the acquisition of wholesalers of health care products. See "Recent Developments" and "Certain Transactions." The Company's executive offices are located at 75 October Hill Road, Holliston, Massachusetts 01746, and its telephone number is (508-429-1000). RECENT DEVELOPMENTS As part of its growth strategy, Suburban recently completed two acquisitions designed to enhance its position as a leading national direct marketing wholesaler. In January 1996, the Company acquired St. Louis Ostomy for $12.4 million of which $11.2 million was paid in cash and $1.2 million was paid by the issuance of the St. Louis Note. The acquisition has been accounted for using the purchase method of accounting, with $10.9 million of costs in excess of assets acquired being amortized on a straight line basis over 25 years. This acquisition has enabled the Company to expand its market penetration in the Midwest. The Company has decided to consolidate the operations of St. Louis Ostomy with those of the Company effective July 1, 1996, which consolidation will result in the closing of the St. Louis distribution center and a reduction in duplicative corporate overhead. As part of the consolidation process, the Company aligned the pricing of Suburban and St. Louis Ostomy and is conducting outbound telemarketing to contact customers of St. Louis Ostomy. In June 1996, the Company acquired Patient-Care for $4.2 million, of which $3.8 million was paid at closing and $375,000 is payable on the first anniversary of the closing subject to offset with respect to any claims for indemnity which may be asserted by the Company. The acquisition will be accounted for using the purchase method of accounting resulting in $2.9 million of costs in excess of net assets acquired on a preliminary basis which is expected to be amortized on a straight line basis over 25 years. Suburban expects that the acquisition of Patient-Care will enable the Company to expand its market penetration in California and its position in the incontinence market. The Company is in the process of evaluating Patient-Care to determine whether any of its operations should be integrated with those of Suburban. 11 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the 3,750,000 shares of Common Stock offered hereby, based upon an assumed initial offering price of $13.50 per share, are estimated to be $46.3 million ($53.3 million if the Underwriters' over-allotment option is exercised in full). The Company intends to apply the net proceeds of this offering: (A) to repay all indebtedness and other obligations incurred in connection with the Recapitalization and the Recent Acquisitions as follows: (i) approximately $25.7 million will be used to repay all outstanding indebtedness incurred under the Credit Facility; (ii) approximately $9.4 million will be used to retire in full the Summit Notes and Management Notes; (iii) approximately $7.4 million will be used to redeem all outstanding shares of the Redeemable Preferred Stock; and (iv) approximately $1.3 million will be used to retire in full the St. Louis Note; and (B) to fund general corporate purposes and working capital. After giving effect to the application of the net proceeds of this offering, the Company will have no outstanding long term indebtedness. See "Certain Transactions." The Credit Facility provides that the Company may reborrow funds which it has previously borrowed and subsequently re-paid, up to the maximum amount of availability under the Credit Facility, which was $30.0 million as of June 14, 1996, and which amount of available borrowings declines as the Credit Facility approaches its scheduled maturity date of June 30, 2000. To secure the Company's obligations under the Credit Facility, the Company granted the Bank a first priority security interest in all of the Company's assets, including a lien on the stock of St. Louis Ostomy and Patient-Care. That portion of outstanding indebtedness under the Credit Facility which is less than the sum of (A) 80% of the Company's accounts receivable, plus (B) 50% of the Company's inventory (the "Threshold Amount"), accrues interest at an annual rate equal to, at the Company's option, either: (i) the London Interbank Offered Rate ("LIBOR") plus 200 basis points; or (ii) the higher of the annual rate of interest announced by the Bank as its base rate (the "Base Rate") or the overnight Federal Funds Effective Rate as published by the Board of Governors of the Federal Reserve System plus 1/2% (the "Federal Funds Effective Rate"). That portion of outstanding indebtedness under the Credit Facility which exceeds the Threshold Amount, accrues interest at an annual rate equal to, at the Company's option, either: (i) LIBOR plus 250 basis points; or (ii) the higher of the Bank's Base Rate plus 1/2% or the Federal Funds Effective Rate plus 1/2%. In connection with the Credit Facility, the Company issued the Bank Warrant. Prior to the consummation of this offering, the Company intends to enter into an amendment to the Credit Facility (the "Amended Credit Facility") with the Bank pursuant to which the Company will have maximum available borrowings thereunder of $30.0 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Pending such uses, the net proceeds of this offering will be invested in short-term interest-bearing securities. 12 DIVIDEND POLICY Other than the stock dividends declared in connection with the Company's 100 for 1 stock split pursuant to the Recapitalization, the 50 for 1 stock split effected April 10, 1996 and the 3.67 for 1 stock split effected June 21, 1996, the Company has not declared or paid dividends since the Recapitalization, nor does it intend to declare or pay any dividends on its Common Stock in the foreseeable future. The Company intends to retain all earnings for the operation and expansion of its business. The declaration and payment of future dividends will be at the sole discretion of the Board of Directors subject to such factors as the Board of Directors may deem relevant, including future earnings, results of operations, capital requirements, the general financial condition of the Company, general business conditions and contractual restrictions on the declaration and payment of dividends. The payment of cash dividends on Common Stock is restricted by the Credit Facility and will be restricted by the Amended Credit Facility. Prior to the Recapitalization, the Company elected to be treated as a Subchapter S corporation under Section 1361(a) of the Internal Revenue Code of 1986, as amended. In connection with the Company's status as a Subchapter S corporation, on September 3, 1994 and July 1, 1995, the Company distributed to each of its stockholders a proportionate share of the Company's income taxable to such stockholders for fiscal 1994 and fiscal 1995, respectively. The aggregate amount of the distributions were $428,000 in fiscal 1994 and $2.2 million in fiscal 1995. See "Certain Transactions." 13 DILUTION As of June 1, 1996, the Company had a net tangible book value of $(29.6) million, or $(4.02) per share of Common Stock. Net tangible book value per share is determined by dividing the number of outstanding shares of Common Stock into the net tangible book value of the Company. After giving effect to the sale of the 3,750,000 shares offered hereby and the receipt and application of net proceeds therefrom, the pro forma net tangible book value of the Company at June 1, 1996 would have been approximately $16.7 million, or $1.50 per share. This represents an immediate increase in pro forma net tangible book value of $5.52 per share to existing stockholders and an immediate dilution of $12.00 per share to new investors. The following table illustrates the per share dilution. Initial public offering price per share..................... $13.50 Net tangible book value per share at June 1, 1996.......... $(4.02) Increase in net tangible book value per share attributable to new investors........................................... 5.52 ------ Pro forma net tangible book value per share after the offer- ing........................................................ 1.50 ------ Dilution per share to new investors......................... $12.00 ======
The following table sets forth, on a pro forma basis, at June 1, 1996 the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by existing stockholders of Common Stock and by new investors purchasing shares of Common Stock offered hereby:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------ ------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- --------- Existing stockholders.......... 7,367,525 66.3% $ 161,607 -- % $ .02 New investors.................. 3,750,000 33.7 50,625,000 100.0 13.50 ---------- ----- ----------- ----- Total...................... 11,117,525 100.0% $50,786,607 100.0% ========== ===== =========== =====
- -------- The foregoing tables assume: (i) no exercise of outstanding options under the Stock Option Plan; and (ii) no exercise of the Bank Warrant. At June 1, 1996, there were outstanding options to purchase 741,340 shares of Common Stock at a weighted average exercise price of $0.71 per share. To the extent the Bank Warrant or outstanding or subsequently granted options are exercised, there could be further dilution to new investors. If the Bank Warrant and options outstanding at June 1, 1996 were exercised, new investors purchasing shares of Common Stock in this offering would incur additional dilution in net tangible book value per share of $0.06 per share. See "Management--Stock Option Plan" and Note 8 to the Consolidated Financial Statements. 14 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of June 1, 1996: (i) on an actual basis; (ii) on a pro forma basis assuming the acquisition of Patient-Care had occurred on June 1, 1996; and (iii) on a pro forma basis as adjusted to reflect the sale of the Shares offered hereby and the application of the estimated net proceeds therefrom as described under "Use of Proceeds" and assuming the acquisition of Patient-Care had occurred on June 1, 1996. This table should be read in conjunction with the Unaudited Pro Forma Combined Financial Data and the Consolidated Financial Statements and related notes thereto. See "Management's Discussion and Analysis of Financial Condition and Results of Operation."
JUNE 1, 1996 ------------------------------ (DOLLARS IN THOUSANDS) PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- --------- ----------- Long-term debt: Credit Facility............................... $21,058 $25,523 $ -- Summit Notes and Management Notes(1).......... 9,250 9,250 -- St. Louis Note(2)............................. 1,235 1,235 -- Redeemable Preferred Stock, redeemable; $.01 par value, 66,500 shares authorized(3); 66,500 shares outstanding(4).......................... 7,268 7,268 -- Stockholders' equity: Common Stock; no par value; 10,000,000 shares authorized(3); 2,007,500 actual shares issued and outstanding (7,367,525 Pro Forma as Ad- justed shares issued and outstanding)(5)..... 162 162 46,443 Additional paid-in capital...................... Retained earnings............................... (18,551) (18,551) (18,551) ------- ------- ------- Total stockholders' equity (deficit).......... (18,389) (18,389) 27,892 ------- ------- ------- Total capitalization.......................... $20,422 $24,887 $27,892 ======= ======= =======
- -------- (1) In connection with the Recapitalization, the Company issued the Summit Notes and the Management Notes. (2) In connection with the St. Louis Ostomy acquisition, the Company issued the St. Louis Note. (3) Immediately prior to the consummation of this offering, the Company will amend its Articles of Organization to increase the number of authorized shares of Common Stock to 40,000,000 and to provide for authorized shares of preferred stock of 1,000,000. See "Description of Capital Stock." (4) Represents an accreted value of the Redeemable Preferred Stock of $618,000. (5) Excludes: (i) 787,949 shares of Common Stock reserved for issuance under the Stock Option Plan (of which options to purchase 741,340 shares of Common Stock have been granted and options to purchase 111,384 shares of Common Stock were exercisable at June 1, 1996); and (ii) 102,026 shares of Common Stock reserved for issuance upon exercise of the Bank Warrant. See "Management--Stock Option Plan." 15 SELECTED CONSOLIDATED FINANCIAL DATA The following Selected Consolidated Financial Data as of and for each fiscal year in the five year period ended September 2, 1995 and for the thirty-nine weeks ended June 1, 1996 have been derived from the Consolidated Financial Statements. These financial statements have been audited by Arthur Andersen LLP, independent public accountants. The Selected Consolidated Financial Data of the Company as of and for the thirty-nine weeks ended June 3, 1995 are derived from unaudited consolidated financial statements of the Company and include, in the opinion of the Company, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data set forth herein. The results of operations for the thirty-nine weeks ended June 1, 1996 are not necessarily indicative of results that may be expected for any other interim period or for the full year. The data should be read in conjunction with the Unaudited Pro Forma Combined Financial Data, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes thereto included elsewhere in this Prospectus. 16 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
THIRTY-NINE FISCAL YEAR ENDED (1) WEEKS ENDED (1) ------------------------------------------------------------ ---------------- AUGUST 31, AUGUST 29, AUGUST 28, SEPTEMBER 3, SEPTEMBER 2, 1991 1992 1993 1994 1995 JUNE 3, JUNE 1, (52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (2) 1995 1996(2) ---------- ---------- ---------- ------------ -------------- ------- ------- CONSOLIDATED INCOME STATEMENT DATA: Net sales.............. $32,571 $37,921 $42,738 $47,311 $52,667 $39,324 $49,302 Cost of goods sold..... 24,411 28,599 32,305 35,599 39,872 29,660 37,476 ------- ------- ------- ------- ------- ------- ------- Gross profit........... 8,160 9,322 10,433 11,712 12,795 9,664 11,826 Operating expenses..... 5,333 7,512 6,991 7,627 7,752 5,684 6,241 Depreciation and amortization.......... 267 268 265 270 266 195 387 Non-recurring executive compensation (3)...... -- -- 2,111 2,237 -- -- -- ------- ------- ------- ------- ------- ------- ------- Operating income....... 2,560 1,542 1,066 1,578 4,777 3,785 5,198 Interest expense....... -- -- -- -- 370 7 1,841 Other expense (income), net................... (238) (224) (158) (132) (145) (125) (14) ------- ------- ------- ------- ------- ------- ------- Income before income taxes................. 2,798 1,766 1,224 1,710 4,552 3,903 3,372 Provision for income taxes................. 142 101 69 88 358 236 1,446 ------- ------- ------- ------- ------- ------- ------- Net income............. $ 2,656 $ 1,665 $ 1,155 $ 1,622 $ 4,194 $ 3,667 $ 1,926 ======= ======= ======= ======= ======= ======= ======= Net income applicable to common stockholders (4) ..... $ 2,656 $ 1,665 $ 1,155 $ 1,622 $ 4,083 $ 3,667 $ 1,419 ======= ======= ======= ======= ======= ======= ======= Pro forma data (5): Provision for income taxes................. 1,119 706 490 684 1,821 1,561 1,446 Net income............. 1,679 1,060 735 1,026 2,731 2,342 1,926 Net income applicable to common stockholders (4)...... $ 2,620 $ 1,419 ======= ======= Net income per common share................. $ .33 $ .18 ======= ======= Weighted average common shares outstanding.... 8,043 8,045 ======= ======= OPERATING DATA: Number of orders....... 203,573 223,418 247,469 276,056 307,525 228,028 295,949 Inventory turnover (6)................... 8.7x 8.7x 8.4x 9.8x 11.8x 10.6x 10.9x CONSOLIDATED BALANCE SHEET DATA: Working capital........ $ 6,337 $ 4,849 $ 6,491 $ 7,838 $ 7,467 $ 9,294 $ 8,562 Total assets........... 10,471 10,359 12,248 12,849 13,832 14,730 26,808 Long-term debt......... -- -- -- -- 21,830 -- 31,419 Redeemable preferred stock (2)............. -- -- -- -- 6,761 -- 7,268 Total stockholders' (deficit) equity...... 7,392 6,179 7,868 9,061 (19,926) 10,692 (18,389)
- -------- (1) The Company's fiscal year ends on the Saturday nearest to August 31, and is divided into four thirteen-week periods. (2) In July 1995, the Company effected the Recapitalization, in connection with which the Company: (i) issued $6.75 million in aggregate value of Summit Notes; (ii) issued $2.5 million in aggregate principal amount of Management Notes; (iii) issued $6.65 million in stated value of Redeemable Preferred Stock; and (iv) borrowed $13.5 million under the Credit Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Transactions." (3) Represents bonuses paid to certain executive officers to facilitate their purchase of stock prior to the Recapitalization. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Management." (4) Represents net income less the accretion of the Redeemable Preferred Stock during the period. (5) Prior to the Recapitalization, the Company elected to be taxed as a Subchapter S corporation for federal income tax purposes. Pro forma information has been computed as if the Company had been subject to federal income taxes and all applicable state corporate income taxes for each period presented. (6) "Inventory turnover" means the cost of goods sold for the period divided by the average inventory balance for the perod (annualized data for the thirty-nine week periods). 17 UNAUDITED PRO FORMA COMBINED FINANCIAL DATA The following Unaudited Pro Forma Combined Balance Sheet as of June 1, 1996 and Unaudited Pro Forma Combined Statements of Income for the year ended September 2, 1995 and for the thirty-nine weeks ended June 1, 1996, are based on the Consolidated Financial Statements and the notes related thereto. The Pro Forma Combined Balance Sheet is adjusted to give effect to (i) the acquisition of Patient-Care and (ii) the consummation of this offering and application of the estimated net proceeds therefrom as if these transactions had occurred on June 1, 1996. The unaudited Pro Forma Combined Statements of Operations are adjusted to give effect to: (i) the Recent Acquisitions; and (ii) the consummation of this offering and the application of the estimated net proceeds therefrom as if these transactions had occurred as of September 4, 1994. The Unaudited Pro Forma Combined Statements of Income combine the unaudited pro forma consolidated financial statements with the historical operations of the Recent Acquisitions prior to the dates the Company made such acquisitions, using the purchase method of accounting. The pro forma operating results are not necessarily indicative of the operating results that would have been achieved had the acquisitions actually occurred at September 4, 1994, nor do they purport to indicate the results of future operations. The Unaudited Pro Forma Combined Financial Data is based on the assumptions set forth in the notes to such statements and should be read in conjunction with the related Consolidated Financial Statements and notes thereto included elsewhere in this Prospectus. The pro forma adjustments are based on available information and certain adjustments that the Company believes are reasonable. In the opinion of the Company, all adjustments have been made that are necessary to fairly present the pro forma data. 18 PRO FORMA COMBINED BALANCE SHEET (DOLLARS IN THOUSANDS) AS OF JUNE 1, 1996
HISTORICAL ------------------------- ACQUISITION OFFERING PRO FORMA SUBURBAN PATIENT-CARE PRO FORMA PRO PRO FORMA AS JUNE 1,1996 MARCH 31,1996 ADJUSTMENTS (A) FORMA ADJUSTMENTS(B)(C) ADJUSTED ----------- ------------- --------------- -------- ----------------- --------- ASSETS Current Assets: Cash and cash equivalents........... $ 1,715 $ 84 $ (275) $ 1,524 $ 2,657 $ 4,181 Accounts receivable, net................... 7,192 1,894 -- 9,086 -- 9,086 Inventories............ 5,466 1,412 -- 6,878 -- 6,878 Prepaid expenses and other................. 243 252 -- 495 -- 495 Deferred income taxes.. 380 90 -- 470 -- 470 -------- ------ ------- -------- ------- ------- Total current assets.. 14,996 3,732 (275) 18,453 2,657 21,110 Fixed assets, at cost, net:................... 884 324 -- 1,208 -- 1,208 Other assets............ 194 27 -- 221 -- 221 Costs in excess of net assets acquired........ 10,734 -- 2,906 13,640 -- 13,640 -------- ------ ------- -------- ------- ------- $ 26,808 $4,083 $ 2,631 $ 33,522 $ 2,657 $36,179 ======== ====== ======= ======== ======= ======= LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current Liabilities: Current maturities of long term debt........ $ 124 $ 455 $ (275) $ 304 $ (124) $ 180 Bank line of credit.... -- 890 (890) -- -- -- Patient-Care deferred payment............... -- -- 375 375 -- 375 Accounts payable and accrued expenses...... 6,310 1,481 200 7,991 (348) 7,643 -------- ------ ------- -------- ------- ------- Total current liabilities.......... 6,434 2,826 (590) 8,670 (472) 8,198 Long-term Liabilities: Long-term debt, less current maturities.... 21,058 -- 4,465 25,523 (25,523) -- St. Louis Note......... 1,111 -- -- 1,111 (1,111) -- Management Notes....... 2,500 -- -- 2,500 (2,500) -- Summit Notes........... 6,750 -- -- 6,750 (6,750) -- Deferred income taxes.. 76 13 -- 89 -- 89 -------- ------ ------- -------- ------- ------- Total long-term liabilities.......... 31,495 13 4,465 35,973 (35,884) 89 Redeemable Preferred Stock, $.01 par value, $100 redemption value plus 10% cumulative return-- Authorized, issued and outstanding--66,500 shares................ 7,268 -- -- 7,268 (7,268) -- Stockholders' (deficit) equity: Common stock, no par value-- Authorized--40,000,000 shares issued and outstanding-- 7,367,525 actual shares at June 1, 1996 (11,117,525 shares outstanding for Pro Forma as Adjusted purposes) ...................... 162 5 -- 162 46,281 46,443 (Accumulated deficit) retained earnings..... (18,551) 1,239 (1,244) (18,551) -- (18,551) -------- ------ ------- -------- ------- ------- Total stockholders' (deficit) equity..... (18,389) 1,244 (1,244) (18,389) 46,281 27,892 -------- ------ ------- -------- ------- ------- Total liabilities and stockholders' (deficit) equity..... $ 26,808 $4,083 $ 2,631 $ 33,522 $ 2,657 $36,179 ======== ====== ======= ======== ======= =======
See Accompanying Notes 19 PRO FORMA COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) YEAR ENDED SEPTEMBER 2, 1995
ST. LOUIS OSTOMY PATIENT-CARE --------------------------------- ------------------------- YEAR ENDED JULY 29, 1995 YEAR ENDED JUNE 30, 1995 --------------------------------- ------------------------- HISTORICAL PRO FORMA PRO PRO FORMA PRO SUBURBAN HISTORICAL ADJUSTMENTS FORMA HISTORICAL ADJUSTMENTS(A) FORMA ---------- --------------- -------------- ------- ---------- -------------- ------- Net sales........ $52,667 $ 17,235 $ -- $69,902 $18,035 $ -- $87,937 Cost of goods sold............ 39,872 13,756 -- 53,628 14,290 -- 67,918 ------- --------------- ------------- ------- ------- ----- ------- Gross profit..... 12,795 3,479 -- 16,274 3,745 -- 20,019 Operating expenses........ 7,752 1,972 (758)(d) 8,966 3,218 -- 12,184 Depreciation and amortization.... 266 57 435 (d) 758 58 116 (d) 932 ------- --------------- ------------- ------- ------- ----- ------- Operating income.......... 4,777 1,450 323 6,550 469 (116) 6,903 Interest expense......... 370 91 1,165 (e) 1,626 114 431 (e) 2,171 Other expense (income), net... (145) (13) -- (158) (103) -- (261) ------- --------------- ------------- ------- ------- ----- ------- Income before income taxes.... 4,552 1,372 (842) 5,082 458 (547) 4,993 Pro Forma data (g): Provision for income taxes... 1,821 515 (163) 2,173 127 (173) 2,127 ------- --------------- ------------- ------- ------- ----- ------- Net income...... $ 2,731 $ 857 $ (679) $ 2,909 $ 331 $(374) $ 2,866 ======= =============== ============= ======= ======= ===== ======= Net income applicable to common stockholders (h)............ $ 2,620 $ 2,798 $ 2,755 ======= ======= ======= Net income per common share... $ .33 $ .35 $ .34 ======= ======= ======= Weighted average common shares outstanding.... 8,043 8,043 8,043 ======= ======= ======= OFFERING PRO FORMA PRO FORMA AS ADJUSTMENTS (B)(C) ADJUSTED ------------------ ----------- Net sales........ $ -- $87,937 Cost of goods sold............ -- 67,918 ------------------ ----------- Gross profit..... -- 20,019 Operating expenses........ -- 12,184 Depreciation and amortization.... -- 932 ------------------ ----------- Operating income.......... -- 6,903 Interest expense......... (2,141)(f) 30 Other expense (income), net... -- (261) ------------------ ----------- Income before income taxes.... 2,141 7,134 Pro Forma data (g): Provision for income taxes... 857 2,984 ------------------ ----------- Net income...... $1,284 $ 4,150 ================== =========== Net income applicable to common stockholders (h)............ $ 4,150 =========== Net income per common share... $ .35 =========== Weighted average common shares outstanding.... 11,793(i) =========== THIRTY-NINE WEEKS ENDED JUNE 1, 1996 ST. LOUIS OSTOMY PATIENT-CARE --------------------------------- ------------------------- FOR THE PERIOD SEPTEMBER 1, 1995 THIRTY-NINE WEEKS THROUGH JANUARY 22, 1996 (J) ENDED MARCH 31, 1996(J) ---------------------------- ------------------------- HISTORICAL PRO FORMA PRO PRO FORMA PRO SUBURBAN HISTORICAL ADJUSTMENTS FORMA HISTORICAL ADJUSTMENTS(A) FORMA ---------- --------------- -------------- ------- ---------- -------------- ------- Net sales........ $49,302 $ 7,511 $ -- $56,813 $13,649 $ -- $70,462 Cost of goods sold............ 37,476 5,969 -- 43,445 10,831 -- 54,276 ------- --------------- ------------- ------- ------- ----- ------- Gross profit..... 11,826 1,542 -- 13,368 2,818 -- 16,186 Operating expenses........ 6,242 1,043 (437)(d) 6,847 2,634 -- 9,481 Depreciation and amortization.... 387 22 167 (d) 576 53 87 (d) 716 ------- --------------- ------------- ------- ------- ----- ------- Operating income.......... 5,198 477 270 5,945 131 (87) 5,989 Interest expense......... 1,841 13 448 (e) 2,302 112 324 (e) 2,738 Other expense (income) net.... (14) (4) -- (18) (59) -- (77) ------- --------------- ------------- ------- ------- ----- ------- Income before income taxes.... 3,372 468 (178) 3,662 78 (411) 3,329 Provision for income taxes.... 1,446 187 (4) 1,629 31 (130) 1,530 ------- --------------- ------------- ------- ------- ----- ------- Net income....... $ 1,926 $ 281 $ (174) $ 2,033 $ 47 $(281) $ 1,799 ======= =============== ============= ======= ======= ===== ======= Net income applicable to common stockholders(h).. $ 1,419 $ 1,526 $ 1,292 ======= ======= ======= Net income per common share.... $ .18 $ .19 $ .16 ======= ======= ======= Weighted average common shares outstanding..... 8,045 8,045 8,045 ======= ======= ======= OFFERING PRO FORMA PRO FORMA AS ADJUSTMENTS(B)(C) ADJUSTED ------------------ ----------- Net sales........ $ -- $70,462 Cost of goods sold............ -- 54,276 ------------------ ----------- Gross profit..... -- 16,186 Operating expenses........ -- 9,481 Depreciation and amortization.... -- 716 ------------------ ----------- Operating income.......... -- 5,989 Interest expense......... (2,716)(f) 22 Other expense (income) net.... -- (77) ------------------ ----------- Income before income taxes.... 2,716 6,045 Provision for income taxes.... 1,086 2,616 ------------------ ----------- Net income....... $1,630 $ 3,429 ================== =========== Net income applicable to common stockholders(h).. $ 3,429 =========== Net income per common share.... $ .29 =========== Weighted average common shares outstanding..... 11,795(i) ===========
See Accompanying Notes 20 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA (a) Represents adjustments for the acquisition of Patient-Care based on a purchase price of $4.2 million including expenses of $200,000. The acquisition has been accounted for using the purchase method. The purchase price has been allocated on a preliminary basis, subject to revision to the net assets acquired based on the fair values of such assets which are estimated to equal their book value. The $2.9 million balance of the purchase price was allocated to costs in excess of assets acquired, which will be amortized on a straight-line basis over 25 years. The Company expects to perform a complete allocation of purchase price in the near future and does not anticipate material changes to the preliminary allocation. (b) Reflects the issuance of 3,750,000 shares of Common Stock offered hereby and the receipt and application of the net proceeds therefrom as follows:
(IN THOUSANDS) -------------- Gross proceeds from the offering............................. $ 50,625 Underwriting discounts and commissions....................... (3,544) Estimated expenses of the offering........................... (800) -------- Net proceeds................................................. 46,281 Repayment of long-term debt, including current portion, and Redeemable Preferred Stock and related accrued interest and dividend accretion.......................................... (43,624) -------- Net increase in cash and cash equivalents.................... $ 2,657 ========
(c) The non-recurring charge to write off deferred financing charges and related income tax effects have been excluded from the Offering Pro Forma Adjustments. Deferred financing charges amounted to approximately $192,000 and $162,000 at September 2, 1995 and June 1, 1996, respectively. Related income tax savings would have been approximately $77,000 and $65,000 for the year ended September 2, 1995 and the thirty-nine weeks ended June 1, 1996, respectively. (d) The adjustment to operating expenses represents a reduction for compensation paid to a former employee of St. Louis Ostomy which ended effective May 31, 1996 as well as a one time bonus paid to another St. Louis Ostomy employee during the period from September 1, 1995 through January 22, 1996 net of the amortization over a 25-year period of $13.8 million of costs in excess of net assets acquired by Suburban, as if the Recent Acquisitions occurred at September 4, 1994. (e) Represents interest expense on amounts borrowed to finance the Recent Acquisitions as if such borrowings had occurred at the beginning of the periods presented. Assumes the entire purchase prices and related transaction fees for St. Louis Ostomy ($12.8 million) and Patient-Care ($4.8 million) were financed with the St. Louis Note ($1.2 million) at an interest rate of 10% and the balance under the Credit Facility at an interest rate of 9.0%. (f) The adjustment to interest expense reflects the retirement of certain outstanding debt of the Company by applying a portion of the estimated net proceeds of the offering as described under "Use of Proceeds", as if such transaction had ocurred at September 4, 1994. (g) Prior to July 3, 1995, the Company elected to be taxed as a Subchapter S corporation for federal income tax purposes. Pro forma information has been subject to federal income taxes and all applicable state corporate income taxes for the period presented. (h) Represents net income less the accretion of the Redeemable Preferred Stock during the period. (i) Shares used in the computation of pro forma net income per share, as adjusted, give effect to the issuance and sale of the 3,750,000 shares of Common Stock offered hereby and the application of the net proceeds therefrom. See "Capitalization". Stock options and warrants granted within a 12-month period preceding the date of this Prospectus are included as if they were outstanding for all periods presented. The dilutive effect (703,158 shares and 677,053 shares at September 2, 1995 and June 1, 1996, respectively), of all options and warrants outstanding was calculated using the treasury stock method and the anticipated public offering price. See "Dilution." (j) The Company's results include the operations of St. Louis Ostomy from January 22, 1996, the date of acquisition. (k) Represents the thirty-nine week period ended March 31, 1996. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's consolidated financial condition and consolidated results of operations should be read in conjunction with the Unaudited Pro Forma Combined Financial Data and the Consolidated Financial Statements and related notes thereto included elsewhere in this Prospectus. OVERVIEW The Company is a leading national direct marketing wholesaler of medical supplies and related products to the home health care industry. While the Company's growth has historically been internally generated, the consolidation of the health care industry has created an opportunity for the Company also to grow through strategic acquisitions. A key component of the Company's growth strategy is to expand its geographic penetration and product lines through acquisitions of health care product wholesalers, and pursuant to this strategy, the Company has consummated the Recent Acquisitions. In January 1996, the Company acquired St. Louis Ostomy for $12.4 million, of which $11.2 million was paid in cash and $1.2 million was paid by the issuance of the St. Louis Note. In June 1996, the Company acquired Patient-Care for $4.2 million, of which $3.8 million was paid at closing, and $375,000 is payable on the first anniversary of the closing, subject to offset with respect to any claims for indemnity which may be asserted by the Company. The Company borrowed $11.5 million and $5.0 million under the Credit Facility to fund the cash payments made in connection with the acquisitions of St. Louis Ostomy and Patient-Care, respectively, and to fund the payment of related transactional expenses. The Company intends to repay the entire outstanding balance of the Credit Facility and the St. Louis Note with a portion of the net proceeds of this offering. The Company operates in an environment impacted by cost containment efforts and consolidation of health care companies. This environment has led to the Company's strategic decision to price its products competitively and offer volume based pricing programs to its customers. As a result, while the Company's gross profit increased from $8.2 million in fiscal 1991 to $12.8 million in fiscal 1995 and to $11.8 million for the thirty-nine weeks ended June 1, 1996, the Company's gross profit as a percentage of net sales ("gross margin") decreased from 25.1% in fiscal 1991 to 24.3% in fiscal 1995 and to 24.0% for the thirty-nine weeks ended June 1, 1996. The Company has sought to mitigate the decline in gross margins through: (i) the negotiation of volume discounts, rebates, promotional allowances and other favorable terms with suppliers; (ii) the application of the Company's MIS capabilities to enhance its inventory management; and (iii) regular evaluation of alternate suppliers to ensure it receives competitive pricing and quality products. The Company expects that as it continues to increase its net sales, its ability to negotiate volume based incentives with suppliers will be enhanced. While the Company believes that it will continue to experience downward pressure on its gross margins, it also believes that the utilization of the foregoing programs will mitigate the effects of these pressures such that the Company will not experience any further significant decreases in its gross margins from their current levels. Notwithstanding this belief, there can be no assurance that the Company will be able to maintain or increase its gross margins. The Company has successfully implemented a business strategy which has enabled it to increase operating income as a percentage of net sales from 7.9% in fiscal 1991 to 9.1% in fiscal 1995 and to 10.5% for the thirty-nine weeks ended June 1, 1996 through decreasing operating expenses as a percentage of net sales. Suburban's operating expenses decreased as a percentage of net sales from 16.4% in fiscal 1991 to 14.7% in fiscal 1995 and to 12.7% for the thirty-nine weeks ended June 1, 1996, although such expenses have increased in total dollar amount due to the support required for higher sales volume over this period. The principal components of the Company's strategy to improve its operating income margin include leveraging its existing operating infrastructure over a larger base of sales and the establishment of the Company's budget and expense programs designed to control expense levels. The Company has historically offered management incentives for the achievement of cost reduction goals and intends to continue to offer such incentives, as well as invest additional funds in its MIS infrastructure. In addition, operating expenses decreased due to the reduction in compensation levels related to the Recapitalization. The Company believes that it can increase sales significantly without the need to make material investments in additional distribution facilities. 22 As part of its acquisition strategy, after the Company completes an acquisition, it typically operates the acquired company for a period of time as a subsidiary. During this period, the Company decides whether, and under what conditions, any of the acquired company's operations, including MIS functions, should be integrated with those of the Company. The Company may incur costs, such as additional rental costs, while operating an acquired company prior to possible consolidation with the Company. Consistent with this strategy, the Company has operated St. Louis Ostomy as a subsidiary since its acquisition. During the first five months of calendar 1996, the Company incurred the expense of additional rent for the St. Louis Ostomy facility and additional personnel and overhead expenses in connection with the St. Louis Ostomy acquisition. The Company decided to implement the consolidation of the operations of St. Louis Ostomy with those of the Company effective July 1, 1996. As part of this consolidation process, the Company is adjusting the prices of its products and those of St. Louis Ostomy to reflect competitive market conditions. Implementation of this strategy may adversely affect gross margins. The Company will also incur significant costs associated with the integration of St. Louis Ostomy with the Company, such as severance payments, the elimination of redundant corporate overhead and the closing of the St. Louis distribution center. The Company charged $109,000 to expense in the second and third quarters of fiscal 1996 for inventory and receivable write- offs. In addition, $225,000 of costs associated with the closure of the St. Louis distribution center were reserved as of the date of the St. Louis Ostomy acquisition. The Company estimates that further consolidation costs of approximately $75,000 will be expensed in the fourth quarter of fiscal 1996. The acquisition of St. Louis Ostomy has been accounted for using the purchase method of accounting, and accordingly, the results of operations of St. Louis Ostomy are included within those of the Company subsequent to the dates of its acquisition. In connection with the acquisition of St. Louis Ostomy the Company recorded $10.9 million of costs in excess of net assets acquired which is being amortized on a straight line basis over 25 years and which has resulted in a significant increase in the Company's amortization expense beginning in the second quarter of fiscal 1996. In connection with the acquisition of Patient-Care, the Company expects to record $2.9 million of costs in excess of net assets acquired which will be amortized on a straight line basis over 25 years. Prior to the Recapitalization, the Company elected to be treated as a Subchapter S corporation for income tax purposes and accordingly did not pay federal and certain state income taxes during such period. In addition, the amount of certain compensation and other expenses incurred prior to the Recapitalization are not expected to be made in similar amounts following the Recapitalization. RESULTS OF OPERATIONS The following table sets forth for the periods indicated information derived from the consolidated statements of income of the Company expressed as a percentage of net sales. The Company's past operating results are not necessarily indicative of future operating results. PERCENTAGE OF NET SALES
THIRTY-NINE YEAR ENDED WEEKS ENDED ------------------------------------ --------------- AUGUST 28, SEPTEMBER 3, SEPTEMBER 2, JUNE 3, JUNE 1, 1993 1994 1995 1995 1996 ---------- ------------ ------------ ------- ------- Net sales................ 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold....... 75.6 75.2 75.7 75.4 76.0 ----- ----- ----- ----- ----- Gross profit............. 24.4 24.8 24.3 24.6 24.0 Operating expenses....... 16.4 16.1 14.7 14.5 12.7 Depreciation and amorti- zation.................. 0.6 0.6 0.5 0.5 0.8 Non-recurring compensa- tion expense............ 4.9 4.7 -- -- -- ----- ----- ----- ----- ----- Operating income......... 2.5 3.4 9.1 9.6 10.5 Interest expense......... -- -- 0.7 -- 3.7 Other (income) expense, net..................... (0.4) (0.2) (0.2) (0.3) -- ----- ----- ----- ----- ----- Pre-tax (pro forma)...... 2.9 3.6 8.6 9.9 6.8 Net income (pro forma)... 1.7 2.2 5.2 6.0 3.9
23 THIRTY-NINE WEEKS ENDED JUNE 1, 1996 AND JUNE 3, 1995 Net sales increased by $10.0 million, or 25.4%, to $49.3 million for the thirty-nine weeks ended June 1, 1996 from $39.3 million for the thirty-nine weeks ended June 3, 1995. The number of customer orders filled increased 29.8% to approximately 296,000 orders for the thirty-nine weeks ended June 1, 1996 from approximately 228,000 orders for the thirty-nine weeks ended June 3, 1995. Of the $10.0 million increase in net sales, $7.0 million, or 70.0%, was attributable to the acquisition of St. Louis Ostomy, and $3.0 million, or 30.0%, was attributable to same store growth, representing a same store growth rate for the thirty-nine weeks ended June 1, 1996 of 7.6%. Same store growth in net sales was primarily attributable to increases in sales to national home health care chains and managed care organizations. The average order size decreased to $171 for the thirty-nine weeks ended June 1, 1996 from $176 for the same period ended June 3, 1995, primarily as a result of the lower order size of sales made to customers of St. Louis Ostomy. Gross profit increased by $2.2 million, or 22.4%, to $11.8 million for the thirty-nine weeks ended June 1, 1996 from $9.7 million for the thirty-nine weeks ended June 3, 1995, while gross margin decreased to 24.0% from 24.6% over the same period. The decrease in gross margin was primarily attributable to competitive pricing of products sold by the Company to maintain or increase market share, particularly with respect to volume based pricing programs offered by the Company. Operating expenses increased by $557,000, or 9.8%, to $6.2 million for the thirty-nine weeks ended June 1, 1996 from $5.7 million for the thirty-nine weeks ended June 3, 1995, and, as a percentage of net sales, decreased to 12.7% from 14.5% during the same period. The increase in operating expenses was due to the support required for higher sales volume and the costs associated with the operations of St. Louis Ostomy. The decrease in operating expenses as a percentage of net sales was primarily attributable to the leveraging of the Company's operating infrastructure over a larger base of sales and the effect of Company's established budget and expense programs. Depreciation and amortization expense increased by $192,000 to $387,000 for the thirty-nine weeks ended June 1, 1996 from $195,000 for the thirty-nine weeks ended June 3, 1995 due to the amortization of expenses associated with the acquisition of St. Louis Ostomy. Operating income increased by $1.4 million, or 37.4%, to $5.2 million for the thirty-nine weeks ended June 1, 1996 from $3.8 million for the thirty-nine weeks ended June 3, 1995. Operating income increased as a percentage of net sales to 10.5% for the thirty-nine weeks ended June 3, 1996 from 9.6% for the thirty-nine weeks ended June 1, 1995. The increase in operating income as a percentage of net sales was primarily attributable to increased sales and decreased operating expenses as a percentage of net sales, offset by declining gross margins. Interest expense for the thirty-nine weeks ended June 1, 1996 was $1.8 million, due to borrowings to fund in part the Recapitalization and the acquisition of St. Louis Ostomy. The Company did not have any interest expense for the thirty-nine weeks ended June 3, 1995. Income taxes increased by $1.2 million to $1.5 million, or 42.9% of pre-tax income, for the thirty-nine weeks ended June 1, 1996 from $236,000, or 6.0% of pre-tax income, for the thirty-nine weeks ended June 3, 1995. This increase is primarily attributable to the fact that prior to July 3, 1995, the Company operated as a Subchapter S corporation. YEARS ENDED SEPTEMBER 2, 1995 (52 WEEKS) AND SEPTEMBER 3, 1994 (53 WEEKS) Net sales increased by $5.4 million, or 11.3%, to $52.7 million in fiscal 1995 from $47.3 million in fiscal 1994. The number of customer orders filled increased 11.6% to approximately 308,000 orders in fiscal 1995 from approximately 276,000 orders in fiscal 1994. The net sales growth in fiscal 1995 was primarily attributable to increased sales to independent home health care suppliers pursuant to volume based pricing programs and increased penetration of national home health care chains. The average order size remained constant in fiscal 24 1994 and fiscal 1995 at approximately $176, due to a larger volume of small dollar amount orders under the Stockless Inventory Program in fiscal 1995 which offset the effect of price increases and inflation. Gross profit increased by $1.1 million, or 9.2%, to $12.8 million in fiscal 1995 from $11.7 million in fiscal 1994, while gross margin decreased to 24.3% from 24.8% over the same period. The decrease in gross margin was primarily attributable to competitive pricing of products sold by the Company to maintain or increase market share, particularly with respect to volume based pricing programs offered by the Company. Operating expenses increased by $125,000, or 1.6%, to $7.8 million in 1995 from $7.6 million in fiscal 1994, and, as a percentage of net sales, decreased to 14.7% from 16.1% for the same period. The decrease in operating expenses as a percentage of net sales was primarily attributable to the reduction in compensation levels related to the Recapitalization. There was no non-recurring compensation expense in fiscal 1995, as compared to non-recurring compensation expense of $2.2 million in fiscal 1994 representing 4.7% of net sales in fiscal 1994. Operating income increased by $3.2 million, or 202.7%, to $4.8 million for fiscal 1995 from $1.6 million for fiscal 1994. The increase in operating income was primarily attributable to the absence of bonus payments of $2.2 million in fiscal 1995 and is also attributable to increased sales and decreased operating expenses as a percentage of net sales, offset by declining gross margins. Excluding the effect of the non-recurring compensation, operating income would have increased to $4.8 million in fiscal 1995 from $3.8 million in fiscal 1994, representing 9.1% of net sales in fiscal 1995 and 8.1% of net sales in fiscal 1994. Interest expense for fiscal 1995 was $370,000 due to the incurrence of debt under the Management Notes, the Summit Notes and the Credit Facility in connection with the Recapitalization, including $188,000 of interest under the Management Notes and Summit Notes and $176,000 of interest under the Credit Facility. Income taxes increased by $270,000 to $358,000 in fiscal 1995 from $88,000 in fiscal 1994, representing 7.9% of pre-tax income in fiscal 1995. Prior to July 3, 1995, the Company operated as a Subchapter S corporation and accordingly was not responsible for federal and certain state income taxes. If the Company had not elected Subchapter S corporation status for this period, the Company's pro forma income tax expense for would have been $684,000 and $1.8 million for fiscal 1994 and fiscal 1995, respectively. YEARS ENDED SEPTEMBER 3, 1994 (53 WEEKS) AND AUGUST 28, 1993 (52 WEEKS) Net sales increased by $4.6 million, or 10.7%, to $47.3 million in fiscal 1994 from $42.7 million in fiscal 1993. The number of customer orders filled increased by approximately 29,000, or 11.7%, to approximately 276,000 orders in fiscal 1994 from approximately 247,000 orders in fiscal 1993. The net sales growth in fiscal 1994 was primarily attributable to increased penetration of national home health care chains and to increased sales to home medical equipment dealers pursuant to volume based pricing programs. Gross profit increased by $1.3 million, or 12.3%, to $11.7 million in fiscal 1994 from $10.4 million in fiscal 1993, while gross profit increased to 24.8% from 24.4% over the same period. The increase in gross profit was primarily attributable to selective forward buying of product by the Company, effective price management, especially with respect to products sold by the Company in broken case orders, and more favorable pricing that became available from suppliers pursuant to volume based incentives. Operating expenses increased $636,000, or 9.1%, to $7.6 million in fiscal 1994 from $7.0 million in fiscal 1993, and as a percentage of net sales decreased to 16.1% from 16.4% for the same period. The increase in expenses was primarily attributable to additional personnel hired to support the increased level of sales. The Company incurred a non-recurring compensation expense of $2.2 million in fiscal 1994 and $2.1 million in fiscal 1993. 25 Operating income increased by $512,000, or 48.0%, to $1.6 million for fiscal 1994 from $1.1 million for fiscal 1993. Operating income as a percentage of net sales increased to 3.3% for fiscal 1994 from 2.5% for fiscal 1993. The increase in operating income was primarily attributable to the increased sales and gross margins offset by increased operating expenses as a percentage of net sales. Income taxes increased to $88,000 in fiscal 1994 from $69,000 in fiscal 1993. During both periods the Company operated as a Subchapter S corporation and accordingly was not responsible for federal and certain state income taxes. If the Company had not elected Subchapter S corporation status for these periods, the Company's pro forma income tax expense for fiscal 1994 and fiscal 1993 would have been $684,000 and $490,000, respectively. QUARTERLY RESULTS The following table sets forth summary unaudited quarterly financial information for each quarter in fiscal 1994 and 1995 and the fiscal quarters ended December 2, March 2 and June 1, 1996. In the opinion of the Company, such information has been prepared on the same basis as the audited Consolidated Financial Statements appearing elsewhere in this Prospectus and reflects all necessary adjustments (consisting of only normal, recurring adjustments) for fair presentation of such unaudited quarterly results when read in conjunction with the audited financial statements and related notes. The operating results for any quarter are not necessarily indicative of results for any future period, and there can be no assurance that any trends reflected in such results will continue in the future. The Company does not believe that its business is seasonal.
FISCAL 1996 FISCAL 1994 PERIOD ENDED FISCAL 1995 PERIOD ENDED PERIOD ENDED ---------------------------------- ---------------------------- --------------------- 11/27/93 2/26/94 5/28/94 9/3/94(1) 12/3/94 2/9/95 5/3/95 9/2/95 12/2/95 3/2/96 6/1/96 -------- ------- ------- --------- ------- ------ ------ ------ ------- ------ ------ (DOLLARS IN MILLIONS) Net sales............... $11.1 $11.5 $11.7 $13.0 $12.9 $13.4 $13.0 $13.3 $13.5 $16.5 $19.3 Cost of goods sold...... 8.4 8.6 8.8 9.8 9.7 10.1 9.8 10.2 10.2 12.6 14.6 Gross profit............ 2.7 2.9 2.9 3.2 3.2 3.3 3.2 3.1 3.3 3.8 4.7 Operating expenses...... 1.7 1.8 1.8 2.3 1.9 1.9 1.9 2.1 1.6 2.0 2.6 Depreciation and amortization........... 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 Operating income........ 0.9 (0.1) 1.0 (0.3) 1.2 1.3 1.3 1.0 1.6 1.7 1.8 Interest expense........ -- -- -- -- -- -- -- 0.4 0.5 0.6 0.7 Pre-tax (pro forma)..... 0.9 * 1.0 (0.3) 1.2 1.4 1.3 0.6 1.1 1.1 1.1 Net income (pro forma).. 0.6 * 0.6 (0.2) 0.7 0.8 0.8 0.4 0.7 0.7 0.6
- -------- (1) Fourth quarter of fiscal 1994 consists of 14 weeks. * Under $49,000. LIQUIDITY AND CAPITAL RESOURCES Prior to the Recapitalization, the Company's principal cash requirements were to fund working capital in order to support growth of net sales and to fund dividends required as a result of the Company's Subchapter S corporation status. The Company funded such working capital and dividend requirements principally with cash generated from operations. Cash flows generated from operations were $900,000, $1.5 million, and $4.1 million for fiscal 1993, 1994 and 1995, respectively. For the thrity-nine weeks ended June 1, 1996, the Company used cash of $31,000. On July 3, 1995, the Company effected the Recapitalization pursuant to which the Company redeemed an aggregate of 70.0% of the shares of Common Stock then outstanding for total consideration of $29.5 million, of which $27.0 million was paid in cash and $2.5 million was paid in the form of the Management Notes. To finance the Recapitalization, the Company issued an aggregate of $6.7 million Redeemable Preferred Stock and issued the Summit Notes in the aggregate principal amount of $6.75 million. The Company also entered into the Credit Facility with the Bank and borrowed $13.5 million thereunder. See "Certain Transactions." These transactions resulted in a significant increase in the Company's interest expense beginning in the fourth quarter of fiscal 1995. 26 Following the Recapitalization, the Company's principal cash requirements have been to fund acquisitions and debt service and provide working capital to support growth of net sales. The Company has funded these requirements with cash generated from operations and with borrowings under the Credit Facility. Borrowing capacity under the Credit Facility is $30.0 million, and borrowings bear interest at either the Bank's Base Rate or LIBOR plus an applicable margin, depending on the Company's earnings. The outstanding borrowings under the Credit Facility are secured by substantially all of the assets of the Company, including a pledge of all of the capital stock of its subsidiaries. The Credit Facility contains covenants which require the Company to maintain certain financial ratios and impose certain limitations and prohibitions on the Company with respect to: (i) incurring additional indebtedness; (ii) the creation of security interests on the assets of the Company; and (iii) the payment of cash dividends on the Common Stock. At June 1, 1996, the Company was in compliance with such covenants. The terms of the Credit Facility provide for reductions in the amount available for borrowing thereunder at six month intervals until such time as availability reaches $17.75 million at June 30, 2000, the maturity date of the Credit Facility. Borrowings outstanding under the Credit Facility were $12.6 million at September 2, 1995 as compared to $21.0 million at June 1, 1996. Prior to the consummation of this offering, the Company intends to enter into the Amended Credit Facility which will provide the Company with a maximum borrowing availability of $30.0 million. The entire $30.0 million of revolving credit will be available for borrowing by the Company upon consummation of this offering to fund working capital needs and acquisitions. Interest on amounts borrowed under the Amended Credit Facility will bear interest, at the Company's option, at either the Bank's Base Rate or at LIBOR plus an applicable margin, depending upon the Company's earnings. All obligations under the Amended Credit Facility will be required to be repaid by June 30, 2000. The Amended Credit Facility will contain customary covenants, including, restrictions on the incurrence of indebtedness and liens, capital expenditures, certain mergers and acquisitions, certain distributions on the Company's capital stock and transactions with affiliates. The Amended Credit Facility will also require that the Company satisfy certain financial covenants. The ability of the Company to meet its debt service requirements and to comply with such financial covenants will be dependent upon the Company's future performance, which is subject to financial, economic, competitive and other factors affecting the Company, some of which are beyond its control. The Company's obligations under the Amended Credit Facility will be secured by a first priority security interest in substantially all of the assets and properties of the Company, including a pledge of all of the stock of St. Louis Ostomy and Patient-Care. The Company expects that upon maturity of the Amended Credit Facility, indebtedness thereunder will be repaid with borrowings under a replacement credit facility or with proceeds of future equity or debt financings. The net proceeds of this offering will be used to repay in full the Management Notes, the Summit Notes, the St. Louis Note, the Redeemable Preferred Stock and borrowings under the Credit Facility. See "Use of Proceeds." As a result, after giving effect to this offering and the application of the net proceeds therefrom, the Company will have no long-term indebtedness other than amounts which the Company may reborrow under the Amended Credit Facility in order to fund working capital and future acquisitions. In connection with the repayment of this debt, the Company will write-off approximately $162,000 of deferred financing costs associated with the incurrence of the obligations which are being repaid, which write-off will be reflected in the fourth quarter of fiscal 1996. The Company made capital expenditures totaling $213,000, $136,000, $293,000 and $209,000 in fiscal 1993, 1994, 1995 and for the thirty-nine weeks ended June 1, 1996, respectively. The Company expects to make total capital expenditures of $350,000 in fiscal 1996 and $450,000 in fiscal 1997, primarily to expand its MIS capabilities. Such amounts may be increased due to acquisitions and other expenditures required to expand the Company's operations. 27 Other expenses of the Company include the cost of carrying inventory. During the Company's last five fiscal years, the Company had negligible inventory write-offs. At June 1, 1996, the Company maintained an investment in inventory of approximately $5.5 million, of which approximately $526,000 (9.6%) was over 120 days. The Company's inventory turnover was approximately 11.8 times during fiscal 1995, as compared to 9.8 times in fiscal 1994, and was 10.9 times for the thirty-nine weeks ended June 1, 1996, as compared to 10.6 times for the comparable period in fiscal 1995. Following consummation of this offering, the Company's long-term liquidity needs will consist of working capital and capital required to fund future acquisitions. The Company believes that the net proceeds from this offering, together with funds generated from its operations and borrowings available under the Amended Credit Facility, will be sufficient to fund its operations and possible acquisitions through fiscal 1997. In the event the Company requires additional funds for such purposes, it intends to raise such funds through future equity or debt financings. The Company does not believe inflation had a material adverse effect on the financial statements for the periods presented. 28 BUSINESS GENERAL Suburban is a leading national direct marketing wholesaler of medical supplies and related products to the home health care industry. The Company sells products to over 20,000 customers, including: (i) independent suppliers of home health care products (principally home medical equipment dealers and local and chain pharmacies); (ii) national home health care chains and wholesalers; and (iii) managed care organizations. Through its direct sales and marketing programs, the Company markets a comprehensive selection of more than 5,000 SKUs, comprised primarily of ostomy, incontinence, diabetic and wound care products. The Company's primary product lines fulfill its customers' needs to provide a complete line of products for their home health care patients. The Company believes that its success is attributable to the expertise gained from more than 17 years of focus on its product lines and its commitment to providing superior service and technical support to its customers. Through its product knowledge and ability to efficiently process a high volume of orders without a minimum order amount, the Company fills an important need in the fragmented and diverse home health care industry. INDUSTRY OVERVIEW Home Health Care Market. Home health care encompasses a broad spectrum of both health and social services and products which can be delivered to the recovering, disabled or chronically ill person in the home. The Company believes that the following economic and demographic factors will support the continued growth of home health care and the need for the Company's products: . Cost-Containment Efforts. Ongoing efforts to reform the health care system in light of increasing medical costs have resulted in greater cost sensitivity on behalf of medical providers and payors. Home health care services are increasingly recognized as viable, cost-effective alternatives to inpatient health care. . Patient Preference/Increased Acceptance. Industry research indicates that the overwhelming majority of patients prefer home health care to institutional care, and that patients recover more quickly in the home environment with the close support of family and friends. In addition, the Company believes that people today are more health conscious than prior generations, and that they more readily acknowledge their medical conditions, home health care needs and their use of the products which the Company markets. . Technological Advances. Technological advancements enable patients who previously would have required hospitalization to be treated at home. For example, advances in wound care products enable many persons with chronic wounds to be treated at home, rather than in a hospital. The use of minimally invasive surgical procedures has also reduced the length of hospital stays and increased the incidence and length of recovery in the home setting. . Changing Demographics. The elderly represent the largest and fastest- growing single consumer segment of health care in the United States. The Company believes that greater utilization of medical services by the elderly will drive the growth in the use of medical supplies, including products used in the home setting. Home Health Care Products Distribution Channels. The home health care distribution industry is highly fragmented, with a large number of local and a limited number of national wholesalers carrying a broad range of products and serving similar customers. Increasingly, local and regional wholesalers are consolidating in response to pressure from both customers and manufacturers. To minimize costs while maintaining high service levels, health care payors have demonstrated a preference for home health care chains which serve as a cost-effective "one stop shop" source of a comprehensive range of home health products and services. Due to the complexity of supporting the wide variety of home health care products and the geographically dispersed nature of home health care patients, the Company believes that such national home health care 29 chains are seeking wholesalers which can quickly and efficiently provide supplies for all of their patients on a nationwide basis. In addition to such pressures from their own customers, home health care wholesalers face increasing pressure from manufacturers which, to reduce their distribution costs, prefer to sell higher volumes of product to a reduced number of larger wholesalers. This evolving marketplace provides an opportunity for wholesalers with national distribution capabilities and sophisticated management information systems to offer value added services to meet the needs of manufacturers and customers. BUSINESS STRENGTHS The Company believes its position as a leading national direct marketer to the home health care industry is principally attributable to the following factors: National Distribution Network. The Company's distribution network provides quick, cost-effective delivery on a national basis. This network enables the Company to meet the needs of national home health care chains and managed care organizations, as well as local independent suppliers. The Company's MIS is designed to coordinate inventory with order fulfillment so that the Company is able to fill orders from any of its five regional distribution centers. Its national distribution network enables the Company to ship over 95% of orders on the day of receipt, with a product fill rate of over 92%, and to deliver product to 94% of the U.S. population within 48 hours. Given existing capacity, the Company believes that it can increase sales significantly without the need to make material investments in additional facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Liquidity and Capital Resources." Superior Customer Service and Technical Support. The Company provides superior customer service and technical support through extensive training and systems support. All of the Company's new service representatives receive at least four continuous weeks of specialized training, two of which precede any customer contact. In addition, the Company regularly conducts sales and product training to ensure that all service representatives and marketing and purchasing staff have current knowledge of products and their applications. Service representatives are available to offer technical advice and support to customers to assist them in product selection. Additionally, the Company performs daily outbound telemarketing to welcome new customers, including those added through acquisitions, to extend special pricing to customers and to implement new programs with chain customers. To augment its service representatives, the Company also employs two registered nurses, including an enterostomal therapist, who are available to respond to more complex inquiries about the Company's products. The Company provides a toll-free number and uses its call center and automated call routing technology to process an average of 2,500 calls per day during the hours of 8:00 a.m. and 7:00 p.m. eastern time, with service representatives answering 95% of calls within thirty seconds. Utilizing the Company's proprietary software, service representatives have access to the customer's profile which includes information on product availability, prices, order history, shipping address and billing information. The software assists service representatives in fulfilling customer orders, as well as in exploring additional, complementary product needs and handling customer inquiries. Comprehensive Catalog and Direct Marketing. The Company's direct marketing program is designed to provide customers with frequent access to the Company's products. The Company believes that direct marketing is the most cost- effective and convenient distribution method to reach the Company's customers. In fiscal 1995, the Company's marketing staff produced in-house and distributed to the Company's customers over 500,000 pieces of direct mail, consisting of catalogs, flyers, trade press advertisements and package inserts. This marketing program is supplemented by direct telemarketing and frequent "fax specials" which provide its customers timely pricing and promotional information. Suburban's comprehensive wholesale product catalog has been continually published since 1977 and is published two or three times a year. This catalog strengthens the Company's position as a leader in its markets by serving as a valuable reference source for its products, facilitating the ordering process and providing a complete description of products and a listing of manufacturers and prices for all ordering quantities. In addition, Suburban publishes and sells a retail catalog to its customers which can be customized with their name and logo for use in marketing the Company's products. The Company has also developed and maintains a proprietary customer and product 30 database which it uses to target its direct mailings. The Company believes that this database, which contains the names of more than 20,000 customers and 13,000 prospects, provides a significant competitive advantage to Suburban. This database contains detailed information about each customer, including purchase history by product, pricing history, shipping address and billing information. Focused Product Offering. The Company's broad product offering within its ostomy, incontinence, diabetic and wound care product categories enables Suburban to provide "one stop shopping" within these lines. In addition, the Company sells a large assortment of other products for use in home health care and which are frequently used by purchasers of its principal products. The Company continually evaluates new product lines within the home health care market to meet the evolving needs of its customers and to take advantage of changes in medical technologies. Stockless Inventory Program. The Company markets its Stockless Inventory Program to its customers to enhance their service capability and to promote their ability to be a "one stop shop" provider to managed care organizations. This is accomplished by shipping products on the customer's behalf directly to the customer's patients. The transaction is transparent to the patient as only the names of the Company's customer and the recipient of the product appear in the shipping materials received. Because its customers, particularly the national home health care chains, do not have to carry product inventory, this program eliminates the customer's inventory costs for the product and reduces its handling costs, improving the customer's cash flow and space utilization. The program also provides to the customer the benefits of detailed utilization reporting and accelerated billing cycles. GROWTH STRATEGY The Company's strategy is to expand sales to existing and new customers by continuing to focus on its business strengths and by implementing the following growth strategy: Acquisitions. The Company believes that the consolidation in the home health care industry provides an opportunity for the Company to expand its business through acquisitions. The Company intends to enhance its position as a leading national direct marketing wholesaler by increasing its number of customers, expanding its geographic markets and product categories and leveraging its existing infrastructure. As part of this strategy, the Company has completed the Recent Acquisitions. The Company's acquisition of St. Louis Ostomy enabled the Company to expand its presence in the Midwest, and the Patient-Care acquisition enabled the Company to expand its presence in California, as well as increase its sales of incontinence products. After making an acquisition, the Company operates the acquired company as a subsidiary for a period of time, which allows the Company to decide whether to consolidate any of the operations of the acquired company with those of Suburban. Where appropriate, the Company will consolidate the operations of an acquired company with its own and may close facilities of acquired businesses and transfer operations to the Company's facilities. Consistent with this strategy, the Company has decided to close the St. Louis Ostomy facility effective July 1, 1996 and fully integrate its operations with those of Suburban. See "Management's Discussion and Analysis of Financial Condition and Results of Operation." Increase Sales to National Home Care Chains. With the continued growth of national home health care chains, the Company has increasingly focused on marketing to these larger, national companies. The Company has supply arrangements with 22 national chains, including exclusive supply arrangements with two of these chains. Sales to national home health care chains were $6.8 million for fiscal 1995 and $7.6 million for the thirty-nine weeks ended June 1, 1996, representing approximately 15% of net sales for each period. Suburban believes its Stockless Inventory Program is particularly attractive to national home health care chains. Suburban intends to establish additional relationships with national home health care chains to become their preferred or exclusive provider of specialty product lines. Add Contracts with Managed Care Organizations. The Company believes that there are significant growth opportunities in marketing its products to managed care organizations. Sales of products to managed 31 care organizations accounted for less than 1% of the Company's net sales in fiscal 1995 and increased to 1.9% of the Company's net sales for the thirty- nine weeks ended June 1, 1996. To meet the cost containment and informational needs of managed care organizations, the Company has developed a detailed reporting and utilization system which allows for reduced product acquisition costs and better management and control of utilization. Expand Penetration of Independent Provider Base. The Company believes that there exists an opportunity to leverage its existing customer relationships and to expand the number of independent suppliers to which it sells products. In fiscal 1995, the Company sold products to over 20,000 independent home medical equipment dealers and local and chain pharmacies. The Company believes there are approximately 50,000 additional such suppliers to which it does not currently sell its products. The Company intends to expand its penetration of the independent provider base by: (i) implementing its acquisition strategy; (ii) expanding the Company's outbound telemarketing effort, direct mail coverage and frequent "fax specials" program; and (iii) expanding the Company's product line offering. See "Business--Customers." PRODUCTS The Company supplies more than 5,000 SKUs, primarily in the ostomy, incontinence, diabetic and wound care categories. These four product categories accounted for approximately 81.5% of Suburban's net sales for the thirty-nine weeks ended June 1, 1996.
NET SALES FOR PERCENTAGE THIRTY-NINE OF NET WEEKS SALES FOR ENDED THIRTY-NINE JUNE 1, 1996 WEEKS NO. OF SKUS (DOLLARS IN ENDED AT PRODUCT CATEGORIES THOUSANDS) JUNE 1, 1996 JUNE 1, 1996 - ------------------ ------------- ------------ ------------ Ostomy.................................. $16,539 33.5% 1,562 Incontinence............................ 9,344 19.0 1,021 Diabetic Care........................... 6,824 13.8 109 Wound Care.............................. 7,503 15.2 671 Other................................... 9,092 18.5 1,665 ------- ----- ----- Total................................... $49,302 100.0% 5,028 ======= ===== =====
Ostomy Products. Suburban has developed an expertise in the ostomy market and markets a broad spectrum of related products, primarily one and two piece ostomy appliances, accessories, adhesives, pastes, skin barriers and odor control products. A common reason for ostomy surgery is cancer. An ostomy is usually conducted when a patient's condition requires that a surgeon disconnect or remove part or all of the patient's colon. The surgeon constructs a new elimination route to replace the function of the colon. The surgeon brings a portion of the patient's intestine through the abdominal wall, folds it over, and sutures it to the skin, forming a stoma. The stoma provides an exit for waste material that is drained into a disposable pouch, commonly referred to as an ostomy appliance. Ostomy appliances come in numerous shapes and sizes, including one-piece and two-piece models, and reusable or disposable systems. Depending on the manufacturer and the system, patients may replace their ostomy dressing as frequently as daily, or as infrequently as once per week. According to a leading industry source, in 1995 there were an estimated 750,000 to 1,000,000 ostomates (persons with an ostomy) living in the U.S. and Canada. Based upon industry data, the Company estimates that in 1996 the wholesale market for ostomy and related products in the U.S. was approximately $228.0 million. Industry sources estimate that there are approximately 95,000 ostomy surgeries each year, 60% resulting in temporary stomas, which typically range from one to six months, and 40% resulting in permanent stomas. In response to its customers' individual needs and preferences, the Company offers a large number of SKUs within the ostomy category which the Company believes acts as a barrier to entry to those competitors unable to stock a complete assortment of these products on a cost-effective basis. 32 The market for ostomy products is closely related to that for incontinence/urological and wound/skin care products. Due to the nature of their condition, ostomates commonly purchase incontinence products in conjunction with ostomy supplies. In addition, ostomates also purchase wound care products. Since the fecal discharge has not been subject to enzyme neutralization, which would normally occur in the colon, the area surrounding the stoma can become irritated and damaged if left unprotected, and therefore must be cared for as a wound. Incontinence Products. The Company markets a broad selection of incontinence and urological products, including disposable and reusable adult diapers and undergarments, irrigation trays, intermittent and external catheters, and drainage and leg bags. According to industry statistics, urinary incontinence ("UI") affects 15%-30% of non-institutionalized persons over the age of 60. UI can be caused by pathologic, anatomic, or physiologic factors affecting the urinary tract as well as by external factors. The UI market is generally segmented into three distinct usage categories--light, moderate and severe. The severely incontinent tend to use 50% more product than either other segment and are usually older than those in the other two categories. The severely incontinent generally prefer to purchase in an easy and discreet manner, and generally purchase in case quantity rather than by the package. Diabetic Care Products. The American Diabetes Association estimates that there were 11.0 million diabetics in the U.S., 1.1 million of whom must test themselves four to seven times daily to control the potentially degenerative effects of diabetes. The Company markets a broad selection of products for the treatment of diabetes, including test strips, blood-glucose meters, lancets and accessories. Based on the American Diabetes Association's estimates and the average price of monitoring devices prevailing in the market, the Company estimates that the annual wholesale market for blood glucose monitoring products will be approximately $1.4 billion in calendar 1996. Wound Care Products. According to industry sources, approximately five million Americans suffered from chronic wounds in 1995 that required wound care. Based on industry statistics, the Company believes that the total U.S. market for wound care and related products was approximately $400 million in 1995. Wound care products marketed by the Company include traditional tapes, gauze, bandages and sponges and advanced dressings such as hydrocolloid, calcium alginates, hydrogel and transplant dressings. The most common types of treatable chronic wounds are venous stacis ulcers, pressure sores, vessel disease wounds, surgery wound breakdown, spinal injury wounds, burns as a result of radiation treatment and chemical wounds, usually resulting from chemotherapy. Since wound treatment programs have improved technologically and become more individualized, the number of SKUs which the Company carries relating to wound care has increased to 671 SKUs as of June 1, 1996. Other Products. The Company sells a large assortment of products for home health care other than those in its principal four product categories. These products are frequently ordered by its customers and include respiratory, convalescent care, skin care, home diagnostic and enteral feeding products. The Company continually evaluates new product categories within the home health care market to meet the evolving needs of its customers and to take advantage of changes in medical technologies. CUSTOMERS The Company's three market segments consist of over 20,000 customers, including: (i) independent suppliers of home health care products, principally home medical equipment dealers and local and chain pharmacies; (ii) national home health care chains and wholesalers; and (iii) managed care organizations. Sales to independent suppliers, national home health care chains and wholesalers and managed care organizations accounted for approximately 86.4%, 12.9% and 0.7%, respectively, of net sales in fiscal 1995, and 83.0%, 15.2% and 1.8%, respectively, of net sales for the thirty-nine weeks ended June 1, 1996. While the number of independent home medical equipment dealers and pharmacies continues to decline due to consolidation, the Company continues to add new customers in this market. Of Suburban's broad customer base, only two customers accounted for more than 1% of the Company's net sales for each of fiscal 1995 and the thirty-nine 33 weeks ended June 1, 1996, and the twenty largest customers accounted, in the aggregate, for less than 13.1% and 16.2% of net sales for fiscal 1995 and for the thirty-nine weeks ended June 1, 1996, respectively. See "Business--Sales and Marketing." SALES AND MARKETING The Company's direct marketing program is designed to provide its customers with frequent exposure to the Company's comprehensive product categories on a cost-effective basis. The Company's direct marketing program consists of the following components: (i) a wholesale catalog for customer orders; (ii) a retail catalog sold to customers for their use as a marketing tool; (iii) monthly flyers; (iv) frequent "fax specials" to targeted customer segments; (v) package inserts; (vi) general advertising; (vii) trade press literature; and (viii) trade show materials. The components of this program enable the Company to determine the market acceptance of new products prior to the Company making a significant inventory investment or including such products in its catalog. The Company continually evaluates these direct marketing components to arrive at the optimal mix of marketing techniques. The Company's comprehensive wholesale catalog has been continually published since 1977 and is published two or three times a year. This catalog strengthens the Company's position as a leader in its markets by serving as a valuable reference tool for the its products, facilitating the ordering process and providing a complete description of products and listing of manufacturers and prices for all ordering quantities. In fiscal 1995, the Company circulated approximately 120,000 wholesale catalogs. Unlike most wholesalers, the Company produces each component of the direct marketing program using its in-house marketing staff, which provides the Company with greater flexibility in timing its production and updates and enables it to control quality and reduce production costs. The Company has invested in desk- top publishing hardware and software to produce direct marketing materials and maintains a library of product photos that can be varied in size and color. The costs of the Company's direct marketing programs are partially offset by cooperative advertising support from manufacturers which have their products included in the catalog. The Company also publishes and sells a retail catalog to its customers which can be customized with their name and logo for use in marketing the Company's products. The Company publishes retail catalogs approximately every eighteen months and has sold 250,000 of its most recent catalog since its date of publication. The Company has also developed and maintains a proprietary customer and prospect database. The Company believes this database, which contains the names of more than 20,000 customers and 13,000 prospects, provides a significant competitive advantage to Suburban. The customer database contains detailed information about each customer, including purchase history by product, pricing history, shipping address and billing information. Using this proprietary database, the Company cost-effectively targets its directed mailings of monthly flyers, frequent "fax specials" and package inserts. ORDER ENTRY AND FULFILLMENT; CUSTOMER SERVICE AND TECHNICAL SUPPORT Order Entry and Fulfillment. Suburban makes purchasing its products as convenient as possible. All of the Company's service operations are centralized at its Holliston facility. Because the substantial majority of orders are placed by telephone, the efficient and timely handling of calls is key to the Company's business. The Company provides a toll-free number and uses its call center and automated call routing technology to process an average of 2,500 calls per day between 8:00 a.m. and 7:00 p.m. eastern time, with service representatives answering approximately 95% of all calls within thirty seconds. The Company's 40 service representatives use the Company's proprietary software to fill customer orders, explore additional product needs and respond to customer inquiries. Each service representative has access to the customer's profile, which contains information on product availability, prices, order history, shipping address and billing information. Service representatives are also trained and incentivized to cross-sell selected products, to suggest the purchase of complementary products and to highlight special product promotions sponsored by manufacturers. Senior service representatives assume the additional responsibility of managing certain large 34 volume customers and are incentivized to exceed specified sales and margin goals. In addition, the Company has a four person team which focuses primarily on large, national accounts, particularly home health care chains and managed care organizations. Members of this team visit customer locations, exhibit products at trade shows and develop and negotiate contracts with leading home health care companies. Outbound programs involve all 40 representatives and consist primarily of follow-up with new customers, including those obtained through acquisitions, national chain customer contact and new program introductions. Once an order is entered into the system, a credit check is performed, and if the credit is approved, the order is electronically sent to the appropriate distribution center where a packing slip and invoice are printed for order fulfillment. Approximately 85% of the Company's customers purchase on an open- account basis, while the remainder are cash on delivery and credit card purchases. For each of the Company's past five fiscal years, the Company's bad debt experience has not exceeded 1/2 of 1% of net sales. Each of the Company's distribution centers is a full-service facility capable of receiving, preparing and shipping orders for customers. Given existing capacity, the Company believes that it can increase sales significantly without the need to make material investments in additional facilities. The Company's order placement policy includes no minimum requirements and free freight for orders over a specified dollar amount. The Company's MIS and national distribution network enable the Company to ship over 95% of orders on the day of receipt, with a product fill rate of over 92%, and to deliver product to 94% of the U.S. population within 48 hours. In the event that an item is not in stock at one distribution center, the Company's MIS immediately discloses to the service representative the product's availability at an alternate distribution center. Once the order is filled and packaged, substantially all orders are shipped by UPS. For orders shipped through the Stockless Inventory Program, customers are invoiced for merchandise promptly after shipment. CUSTOMER SERVICE AND TECHNICAL SUPPORT The Company provides its customers with a high level of customer service and technical support, the principal bases of which are accurate and complete order fulfillment and prompt product delivery. All new service representatives receive at least four weeks of consecutive, specialized training, two of which precede any customer contact. Thereafter, service representatives regularly receive at least three hours per week of sales and product training. In addition to in-house training, sales representatives regularly receive from manufacturers technical training regarding various products. To augment its service representatives, the Company employs two registered nurses, including an enterostomal therapist, who are accessible to respond to more complex customer inquiries regarding the Company's products. The Company markets its Stockless Inventory Program to all its customers to enhance their service capability and to promote their ability to be a "one stop shop" provider. This is accomplished by shipping products on the customer's behalf directly to the customer's patients. The transaction is transparent to the patient as only the names of the Company's customer and the recipient of the product appear in the shipping materials received. Because the customer does not have to carry product inventory, this program eliminates the customer's inventory costs for these products and reduces its handling costs, improving the customer's cash flow and space utilization. The Stockless Inventory Program also enables both the Company and the customer to record a sale at the time the order is shipped by the Company. The Company shipped 7.6% and 8.4% of its net sales through its Stockless Inventory Program for fiscal 1995 and the thirty-nine weeks ended June 1, 1996, respectively. National home health care chains have been the most frequent users of the Stockless Inventory Program. With the Stockless Inventory Program, the Company also provides additional value-added services for its larger customers, such as detailed reporting with respect to the patient's payor and clinician as well as the products shipped to the patient's home. This type of in-depth reporting is particularly helpful in managed care settings where there is frequently limited data available on utilization and patient populations of ostomy, diabetic and incontinent members. Within this reporting system is a Medicare compatibility database that assists the customer with its billing efforts. While the Company does no third party billing, it does have an extensive support database that ties all 5,000 SKUs for which reimbursement is available to the correct Health 35 Care Financing Administration code and reimbursement information. This is particularly helpful to suppliers under on-going pressure to manage costs. MANAGEMENT INFORMATION SYSTEMS The Company operates a sophisticated proprietary management information system that allows centralized management of key functions, including: (i) accounts receivable and inventory management; (ii) communication links between distribution centers; (iii) customized customer reporting; (iv) purchasing; (v) pricing; (vi) order entry and fulfillment; (vii) mail list management; and (viii) the preparation of daily management reports which provide timely information regarding key aspects of the business. The system enables the Company to ship customer orders on a same-day basis and respond to order changes and supports a high level of customer service. See "Management Discussion and Analysis of Financial Results and Operations--Liquidity and Capital Resources." PURCHASING The Company purchases products from over 200 manufacturers and regularly evaluates its relationships and considers alternative suppliers to ensure competitive costs and product quality. The Company's top ten manufacturers accounted for approximately 67.2% and 65.1%, of the Company's total purchases in fiscal 1995 and the thirty-nine weeks ended June 1, 1996, respectively. Three of these manufacturers, Hollister Incorporated, Convatec, a division of Bristol Meyers Squibb, and Lifescan, Inc., a subsidiary of Johnson & Johnson, accounted for 18.5%, 15.7% and 9.7%, respectively, of the Company's total purchases in fiscal 1995. These three manufacturers accounted for 18.6%, 15.6% and 7.3%, respectively of the Company's total purchases for the thirty-nine weeks ended June 1, 1996, as compared to 18.5%, 15.9% and 9.6%, respectively, for the thirty-nine weeks ended June 3, 1995. The Company is able to achieve volume discounts, rebates and promotional allowances from manufacturers by providing significant value added services through marketing support and information management. While the Company has contracts with seven of its top ten manufacturers, it does not have contracts with the majority of its manufacturers, and instead relies on terms contained in purchase orders. As a result, the Company may be subject to unanticipated changes in its arrangements with manufacturers, including pricing, minimum volume and dollar requirements, return policies and promotional allowances. Where the Company has a contract with a manufacturer, it is typically of short duration with a limited number of terms. See "Risk Factors--Dependence on Manufacturers." The Company's purchasing function is centralized at its corporate headquarters in Holliston, Massachusetts and includes a manager and four buyers, each of whom is responsible for approximately 50 vendor relationships, plus expediting special orders. Each buyer's performance is measured periodically against goals set for inventory turns, service level and gross margins. Purchases from the Company's primary vendors occur on a weekly basis, while purchases from smaller vendors occur bi-weekly or on an as needed basis. Forward purchasing decisions are made on a selected, limited basis, such as when the price discount exceeds the cost of carrying incremental inventory. Forward purchasing typically is a function of expectations of price increases, taking advantage of promotions and return on the Company's invested capital. Purchasing is closely tied to the inventory management controls of the Company. Due to the Company's effective inventory management, the Company's inventory write-offs during the last five fiscal years have been negligible. COMPETITION Suburban faces intense competition from a variety of local, regional and national wholesalers. In addition to home health care wholesalers, Suburban's competition includes drug wholesalers and distributors to hospitals and long term care providers. Most of the Company's products are available from several sources, and the Company's customers often have relationships with several wholesalers. Since barriers to entry in the 36 home health care distribution industry are relatively low, there is substantial risk that current competition will expand their market presence and new competitors will enter the market. Certain of the Company's current competitors have substantially greater capital resources, sales and marketing experience and distribution capabilities than the Company. The ongoing consolidation of home health care wholesalers could result in existing competitors improving their market positions through acquisitions or joint ventures. In addition, the Company faces competition from manufacturers that may increase their efforts to sell directly to suppliers, thus bypassing wholesalers such as Suburban. In response to competitive pressures from current or future competitors, the Company may be required to lower selling prices to maintain or increase market share. Such measures could have a material adverse effect on the results of operations or the financial condition of the Company. See "Management Discussion and Analysis of Financial Condition and Results of Operation." The Company competes on the basis of its: (i) order and delivery capabilities; (ii) product knowledge; (iii) product breadth; (iv) technical support; (v) customer relationships with service representatives; and (vi) price. The Company believes that its customers base their purchasing decisions upon such factors and that the Company competes favorably with respect to each of these factors. In particular, the Company believes that it differentiates itself from other wholesalers with which it competes on the basis of a high fill rate of its product line, knowledgeable service representatives, the Stockless Inventory Program and its MIS capabilities. GOVERNMENTAL REGULATION Suburban is subject to regulation under the Federal Food, Drug and Cosmetic Act, as well as under certain state regulations, because of its storage and handling of certain medical devices and products. The amount of sales of products that are subject to such regulation is not material to the Company's results of operations. The Company believes that it is in compliance with all applicable federal and state requirements and that it possesses all licenses and permits required for the conduct of its business. In addition, certain licenses and permits of the Company prohibit a change of control without relevant regulatory approval. PRODUCT LIABILITY INSURANCE The Company maintains product liability insurance of $5.0 million, and is named as an additional insured under policies maintained by approximately 95% of its manufacturers whose products represent approximately 98% of the Company's net sales. While the Company believes that such coverage will be adequate, no assurance can be given that such coverage will be adequate to cover all future claims or will be available in adequate amounts or at a reasonable cost or that such indemnification agreements will provide adequate protection to the Company. STATE SALES TAX The Company collects sales tax or other similar tax only with respect to those states in which the Company maintains facilities. Although various other state agencies have attempted to impose on direct marketers the burden of collecting state sales taxes on the sale of products shipped to residents of these states, no state has initiated any action to collect state sales taxes from the Company. The Company does not believe that state sales tax collection is material to the Company, in part because substantially all products marketed by the Company are purchased for resale and in part because a large portion of its products are exempt from state sales tax. PROPRIETARY RIGHTS The Company holds a service mark for the name "Home Health Direct" which it uses in certain of its direct marketing programs. EMPLOYEES As of June 1, 1996, the Company had 120 full time employees and 13 part time employees. There are 47 employees within the sales, marketing and customer service area, 32 employees within the financial, administrative and purchasing area, and 54 employees within the distribution, operations and MIS area. 37 The Company considers its employee relations to be good. None of the Company's employees are covered by a collective bargaining agreement. PROPERTIES The Company currently conducts its operations from six leased distribution centers. See Note 7 to Consolidated Financial Statements. The Holliston, Massachusetts location also serves as the Company's corporate headquarters. The Company's leases include:
LOCATION SQUARE FOOTAGE EXPIRATION DATE -------- -------------- ------------------ Holliston, MA(1)......................... 58,000 December 31, 2006 Atlanta, GA (1).......................... 48,000 August 4, 2006 Dallas, TX............................... 24,000 July 1, 2001 South Bend, IN(1)........................ 30,000 July 31, 2003 Rancho Cucamonga, CA..................... 23,000 September 30, 2000 Santa Fe Springs, CA..................... 33,500 May 31, 1998
- -------- (1) See "Management--Certain Transactions." As a result of the acquisition of St. Louis Ostomy, the Company leases 20,000 square feet in St. Louis, Missouri, which space it does not currently intend to use as a distribution center. The annual rental payment on this lease, which expires on March 31, 1997, is $90,000. LEGAL MATTERS The Company is party to certain claims and litigation in the ordinary course of business. The Company is not involved in any legal proceeding that it believes will result, individually or in the aggregate, in a material adverse effect on its financial condition or results of operations. 38 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
NAME AGE POSITION WITH THE COMPANY ---- --- ------------------------- Herbert P. Gray......... 62 Chairman of the Board of Directors; Chief Executive Officer Donald H. Benovitz...... 55 President; Chief Operating Officer and Director Stephen N. Aschettino... 46 Vice President; Chief Financial Officer and Treasurer Patrick Bohan........... 40 Vice President--Sales and Marketing John G. Manos........... 39 Vice President--MIS and Operations Martin J. Mannion....... 36 Director Joseph F. Trustey....... 33 Director
Herbert P. Gray has served as the Chairman of the Board of Directors and Chief Executive Officer of Suburban since 1979. Mr. Gray, who was a practicing pharmacist before forming Suburban's predecessor in 1962, has delivered numerous seminars and lectures in the home health care industry. Donald H. Benovitz has served as Suburban's President and Chief Operating Officer since 1987. Prior to that time, Mr. Benovitz, a pharmacist with over 25 years experience in the distribution of health care products, worked for Medi-Mart Drug Stores, a regional drug store chain, serving in various capacities, including Vice President of Corporate Pharmacy Operations and President. Stephen N. Aschettino has served as Chief Financial Officer of Suburban since 1991 and as Vice President and Treasurer since 1992. Prior to that time, he served as Vice President and General Manager for Woodcraft Supply Company, a national direct marketer and distributer of specialty woodworking tools and equipment. Patrick Bohan has served as Vice President--Sales and Marketing since 1990. Prior to that time, Mr. Bohan was the Vice President-Sales and Marketing for H.L. Moore, a national direct marketing wholesaler of pharmaceuticals, over- the-counter and home health care products. John G. Manos has served as Vice President--MIS and Operations since 1992. Prior to that time, he served as Director of Management Information Systems at National Medical Care, a division of W.R. Grace. Martin J. Mannion has served as a director of the Company since July 1995. Since 1985, Mr. Mannion has been employed by Summit Partners, where he has been a general partner since 1987. Mr. Mannion currently serves and has served as a director of numerous private companies. Joseph F. Trustey has served as a director of the Company since July 1995. Mr. Trustey has been employed by Summit Partners since June 1992, where he has been a Vice President from December 1994 to January 1996 and as general partner since January 1996. Prior to that time, Mr. Trustey was a strategy consultant with Bain & Co., Inc., a management consultant firm. Mr. Trustey also serves as a director of Home Health Corporation of America, Inc. and Wilmar Industries, Inc. 39 EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth the total compensation paid or accrued by the Company, for services rendered during the fiscal year ended September 2, 1995, to the Company's Chief Executive Officer and certain other officers whose total 1995 salary and bonus exceeded $100,000 during such year.
LONG-TERM ANNUAL COMPENSATION COMPENSATION -------------------- ------------ OTHER SECURITIES FISCAL ANNUAL UNDERLYING ALL OTHER NAME YEAR SALARY ($) BONUS ($) COMPENSATION OPTIONS (#) COMPENSATION ($)(1) - ---- ------ ---------- --------- ------------ ------------ ------------------- Herbert P. Gray......... 1995 324,722 -- -- 220,200 -- Donald H. Benovitz...... 1995 192,907 -- -- 146,800 -- Stephen N. Aschettino... 1995 115,000 -- -- 183,500 -- Patrick Bohan........... 1995 130,000 -- -- -- -- John Manos.............. 1995 100,000 300,000(2) -- 183,500 --
- -------- (1) Does not include other benefits that did not exceed in the aggregate $50,000 or 10% of total annual salary and bonus reported for the named executive officer. (2) Includes a $300,000 bonus paid by the Company to Mr. Manos at the time of the Recapitalization with proceeds from capital contributions from certain stockholders. The following table sets forth certain information regarding the option grants made during the fiscal year ended September 2, 1995, to each of the Company's officers named in the Summary Compensation Table above:
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR INDIVIDUAL GRANTS OPTION TERM(1)(3) ------------------------------------------------------------- --------------------- NUMBER OF SECURITIES UNDERLYING PERCENT OF TOTAL OPTIONS OPTIONS GRANTED TO EXERCISE OR BASE GRANTED EMPLOYEES IN FISCAL PRICE ($) PER EXPIRATION NAME (1) (#) YEAR (%) SHARE (1), (2) DATE 5% ($) 10% ($) - ---- ---------- ------------------- ---------------- ------------- ---------- ---------- Herbert P. Gray......... 220,200 30% $0.68 June 30, 2005 4,461,252 6,859,230 Donald H. Benovitz...... 146,800 20% $0.68 June 30, 2005 2,974,168 4,572,820 Stephen N. Aschettino... 183,500 25% $0.68 June 30, 2005 3,717,710 5,716,025 John Manos.............. 183,500 25% $0.68 June 30, 2005 3,717,710 5,716,025
- -------- (1) After giving effect to the Company's 50 for 1 split of its Common Stock on April 10, 1996 and its 3.67 for 1 split of Common Stock on June 21, 1996. (2) All options were granted at exercise prices equal to the fair market value of a Common Stock on the date of grant. (3) Potential realizable value is based on the difference between the option exercise price and the initial public offering price of the Common Stock (based upon an assumed initial offering price to the public of $13.50) multiplied by the number of shares of Common Stock underlying the option. These assumed annual rates of appreciation were used in compliance with the rules of the Securities and Exchange Commission and are not intended to forecast future price appreciation of the Common Stock or to take into account the immediate increase in potential realizable value that will occur. The actual value realized from the options could be higher or lower than the values reported above, depending on the future appreciation or depreciation of the Common Stock during the option period and the timing of exercise of the options. 40 Year End Option Table. The following table sets forth information regarding exercise of options and the number and value of options held at September 2, 1995, by each of the officers named in the Summary Compensation Table above. No options were exercised during fiscal 1995 by such executives. AGGREGATE UNEXERCISED OPTIONS AND YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED SHARES AT IN-THE-MONEY OPTIONS ACQUIRED YEAR END (#) AT YEAR-END ($)(1) ON VALUE -------------------------------- ------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- -------- -------- ------------- --------------- ----------- ------------- Herbert P. Gray......... -- -- 7,354 212,846 94,278 2,728,686 Donald H. Benovitz...... -- -- 4,903 141,897 62,856 1,819,120 Stephen N. Aschettino... -- -- 6,128 177,372 78,561 2,273,909 Patrick Bohan........... -- -- -- -- -- -- John Manos.............. -- -- 6,128 177,372 78,561 2,273,909
- -------- (1) Value is based on the difference between the option exercise price and the initial public offering price of the Common Stock (based upon an initial offering price to the public of $13.50) multiplied by the number of shares of Common Stock underlying the option. No market existed for the Common Stock prior to this offering. EMPLOYMENT AGREEMENTS Effective July 3, 1995, the Company entered into five year employment agreements with each of Messrs. Gray, Benovitz, Aschettino, Bohan and Manos. Mr. Gray's agreement provides for his employment as Chairman of the Board of Directors and Chief Executive Officer at a base annual salary of $150,000. Mr. Benovitz' agreement provides for his employment as President and Chief Operating Officer of Suburban at a base annual salary of $195,000. Mr. Aschettino's agreement provides for his employment as Vice President, Chief Financial Officer, Treasurer and Clerk of Suburban at a base annual salary of $115,000. Mr. Bohan's agreement provides for his employment as Vice President--Sales and Marketing of Suburban at a base annual salary of $130,000. Mr. Manos' agreement provides for his employment as Vice President-- MIS and Operations of Suburban at an annual base salary of $100,000. Each of the foregoing agreements provides for annual salary increases (i) to reflect increases in the applicable consumer price index and (ii) in such other amounts, if any, as determined by the Compensation Committee. In addition, Messrs. Gray, Benovitz, Aschettino, Bohan and Manos are eligible to receive bonuses upon the achievement by the Company of certain financial targets determined by the Compensation Committee. Each of the employment agreements extends until July 1, 2000, with annual renewals thereafter unless terminated prior thereto in accordance with their respective terms. STOCK OPTION PLAN Under the Stock Option Plan, which was adopted in July 1995, 815,474 shares are reserved for issuance upon exercise of stock options. The Stock Option Plan is designed to attract, retain and motivate key employees and investors. The Board of Directors is responsible for the administration and interpretation of the Stock Option Plan and is authorized to grant options thereunder to all eligible employees and directors of the Company, except that no director who is not also an employee of the Company is eligible to receive incentive stock options (as defined in Section 422 of the Internal Revenue Code). COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee was established July 3, 1995 and currently consists of Messrs. Gray, Mannion and Trustey. Mr. Gray participated in deliberations of the Compensation Committee regarding compensation of other executive officers, but did not participate in deliberations relating to his own compensation. See "Certain Transactions." 41 LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company has entered into separate indemnification agreements with its directors and officers. These agreements require the Company, among other things, to indemnify the directors and officers of the Company against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from actions not taken in good faith or in a manner the indemnitee believed to be opposed to the best interests of the Company or arising from certain other actions taken by the indemnitee), to advance their expenses incurred as a result of any proceedings against them as to which they could be indemnified and to obtain directors' insurance if available on reasonable terms. The Company believes that the indemnification agreements are necessary to attract and retain qualified persons as directors and officers. The Articles of Organization limit the personal liability of directors to the Company, and the Bylaws provide that the Company shall indemnify the Company's directors and officers, in each case, to the full extent permitted by the Massachusetts General Laws. See "Description of Capital--Certain Articles of Organization, Bylaws and Statutory Provisions Affecting Stockholders." 42 CERTAIN TRANSACTIONS RECAPITALIZATION The Company completed the Recapitalization on July 3, 1995 to provide liquidity to Messrs. Aronson, Gray, Benovitz, Aschettino and Bohan (collectively, the "Recapitalization Participants"). By aligning the organizational and capital structure of the Company with that of other private companies with professional investors, the Recapitalization was intended to allow the Company to (i) attract experienced and qualified outside directors such as Mr. Trustey and Mr. Mannion, who could assist management with operational as well as strategic advice, and (ii) facilitate raising additional capital, if necessary, by making the Company more attractive to other professional investors who would not ordinarily invest in a closely-held company. Pursuant to the Recapitalization, the Company redeemed an aggregate of 70.0% of the then outstanding shares of Common Stock from the Recapitalization Participants for total consideration of $29,500,000, which was allocated to the Recapitalization Participants in the following amounts: Mr. Gray ($11,800,000), Mr. Aronson ($11,800,000), Mr. Benovitz ($4,425,000), Mr. Aschettino ($737,500) and Mr. Bohan ($737,500). Of such amount, $27,000,000 was paid in cash and $2,500,000 was paid in Management Notes. Each of the Recapitalization Participants received a pro rata share of the cash and note consideration. To finance these redemptions and related expenses, the Company: (i) issued an aggregate of $6,650,000 of Redeemable Preferred Stock to Summit Ventures ($6,323,544), Summit Investors ($129,052) and The Bear Stearns Companies, Inc. ("BSC") ($197,404), an affiliate of which served as the Company's financial advisor in connection with the Recapitalization; (ii) issued an aggregate of $100,000 of Common Stock at a price of $.02 per share to Summit Ventures ($83,113), Summit Investors ($1,948), Summit Debt Fund ($12,343) and BSC ($2,596); (iii) issued an aggregate of $6,750,000 in principal amount of Summit Notes to Summit Debt Fund ($6,615,000) and Summit Investors ($135,000); and (iv) borrowed $13,500,000 under the Credit Facility. See "Use of Proceeds." In connection with the Recapitalization, the Company issued the Bank Warrant to purchase 102,026 shares of Common Stock. Messrs. Mannion and Trustey, who are general partners of Summit, became members of the Board of Directors at the time of the Recapitalization. In connection with the Recapitalization, the Company entered into a Shareholders' Agreement dated July 3, 1995 (the "Shareholders' Agreement") which will be terminated upon consummation of this offering, and a Registration Rights Agreement dated July 3, 1995 (the "Registration Rights Agreement") with Summit and the Recapitalization Participants. The Shareholders' Agreement provides for, among other things, restrictions on transfer of shares, rights of first refusal, rights of participation in sales, take along rights and election of directors. Pursuant to the Registration Rights Agreement, holders of at least 25% of the shares of Common Stock subject to the Registration Rights Agreement may require the Company to effect the registration of shares of Common Stock held by such parties for sale to the public on any two occasions, subject to certain conditions and limitations. In addition, under the terms of the Registration Rights Agreement, if the Company proposes to register any of its securities under the Securities Act whether for its own account or otherwise, the parties to the Registration Rights Agreement are entitled to receive notice of such registration and to include their shares therein, subject to certain conditions and limitations. The Company has agreed to pay the fees, costs and expenses of any registration effected on behalf of the parties to the Registration Rights Agreement (other than underwriting discounts and commissions.) All rights to register Common Stock in connection with this offering have been waived by the parties to the Registration Rights Agreement. See "Shares Eligible for Future Sale--Registration Rights." Also in connection with the Recapitalization, Messrs. Gray and Aronson each made a $150,000 capital contribution to the Company which was used to pay a one-time bonus to Mr. Manos. AFFILIATED LEASES The Company leases a distribution center in Atlanta, Georgia from the Suburban Grayson Atlanta Partnership, a Georgia general partnership in which Messrs. Gray and Aronson each has a 50.0% interest. In May 1995, the Company exercised an option to renew the lease covering this property through August 4, 2006. The monthly rent payable under the lease is $13,333. See "Business-- Properties." 43 The Company leases its distribution center in Holliston, Massachusetts from the GBA Realty Trust, a Massachusetts realty trust in which Messrs. Gray, Aronson and Benovitz have a 40%, 40% and 20% interest, respectively. This lease, which expires in December 31, 2006, provides for monthly rental payments equal to 110% of the amounts due and payable each month under a promissory note between GBA Realty Trust and United of Omaha Life Insurance, provided that the minimum annual rent is $329,037. The rent paid to GBA Realty Trust was $330,000 during fiscal 1995 and $247,500 for the thirty-nine weeks ended June 1, 1996. Such promissory note is the obligation solely of GBA Realty Trust and is not guaranteed by, or otherwise an obligation of, the Company. See "Business--Properties." In addition, the Company leases its South Bend, Indiana distribution center from GBA Realty Corp., an Indiana corporation in which Messrs. Gray, Aronson, Benovitz, Aschettino and Bohan and Mr. Doug Gray own 20%, 30%, 20%, 10%, 10%, and 10%, respectively, of the outstanding capital stock. The lease, which expires on July 31, 2003, provides for an annual rent of $108,000, subject to periodic adjustments, at the option of GBA Realty Corp. The rent paid to GBA Realty Corp was $108,000 in fiscal 1995 and $81,000 for the thirty-nine weeks ended June 1, 1996. The Company believes that the terms of the leases with each of the affiliated real estate entities are comparable to those which would be available from an unaffiliated entity on the basis of an arms-length negotiation. OTHER RELATED PARTY ARRANGEMENTS The Company provides general business insurance to GBA Realty Corp. GBA Realty Trust and Suburban Grayson Atlanta Partnership under its umbrella policy. LIFE INSURANCE POLICIES On June 30, 1995, life insurance policies in the amount of $2.5 million for each of Messrs. Gray and Aronson, which had previously been carried by the Company were transferred to each of them. In the event of either individual's death, the proceeds of this insurance were to be used to repurchase the individual's stock in the Company at book value. In return for the transfer of the insurance, the executives exchanged certain notes payable to them from the Company and issued notes payable to the Company of $129,520, an amount equal to the difference between the old notes payable and the cash surrender value of the insurance, plus prepaid insurance premiums at the date of transfer. These notes were paid in full by Messrs. Gray and Aronson on September 2, 1995. See Note 11 to the Consolidated Financial Statements. The Company maintains life insurance policies in the amount of $1.0 million on each of Messrs. Gray and Benovitz. Under the terms of the Credit Facility, in the event of either individual's death, the proceeds from the applicable policy must be used to pay down outstanding principal under Credit Facility. AUTOMOBILE PURCHASE In December, 1995, Mr. Gray bought an automobile from the Company for a purchase price of $20,000. 44 PRINCIPAL STOCKHOLDERS The following table sets forth information with respect to the beneficial ownership of the Company's outstanding Common Stock as of June 1, 1996 and as adjusted to reflect the sale of the Common Stock offered hereby by: (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock; (ii) each director or executive officer of the Company who beneficially owns any shares, of Common Stock; and (iii) all directors and executive officers of the Company as a group. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of Common Stock owned by them.
PERCENT AFTER NAME OF BENEFICIAL OWNER(1)(2) NUMBER OF SHARES(1) PERCENT BEFORE OFFERING OFFERING - ------------------------------ ------------------- ----------------------- ------------- Herbert P. Gray......... 781,717 10.5% 7.0% Melvin Aronson(3)....... 440,400 6.0% 4.0% Donald H. Benovitz(4)... 362,111 4.9% 3.2% Stephen N. Aschettino... 94,814 1.3% * Patrick Bohan(5)........ 152,917 2.0% 1.4% John Manos.............. 39,764 * * Summit Partners(6)(7)... 5,004,614 67.9% 45.0% Martin J. Mannion(6)(7).......... 5,004,614 67.9% 45.0% Joseph F. Trustey(6)(7).......... 5,004,614 67.9% 45.0% All directors and execu- tive officers as a group (7 persons)...... 6,435,937 84.7% 56.7%
- -------- * Less than one percent (1) Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission (the "Commission") and includes general voting power or investment power with respect to securities. Shares of Common Stock subject to options and warrants currently exercisable or exercisable within sixty (60) days of June 14, 1996 are deemed outstanding for computing the percentage of the person holding such options, but are not deemed outstanding for computing the percentage of any other person. Except as otherwise specified below, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. (2) Unless otherwise indicated, the address of each of the beneficial owners identified is 75 October Hill Road, Holliston, MA 01746. See "Management-- Executive Officers and Directors," "Management--Employment Agreements and Certain Transactions" for a discussion of any material relationship which any person named in the table has had with the Company for the last three years. (3) The address for this stockholder is 25 Dartmouth Drive, Framingham, MA 01701. (4) Includes 19,909 shares of Common Stock held in trust for Mr. Benovitz's daughter for which Mr. Benovitz retains general voting power and investment power. (5) Includes options currently exercisable to purchase 97,867 shares of Common Stock. (6) Reflects the following shares held by Summit: Summit Ventures (4,270,340 shares), Summit Investors (100,091 shares) and Summit Debt Fund (634,183 shares). Messrs. Mannion and Trustey, as general partners of these funds may be deemed to be beneficial owners of such shares, but disclaim beneficial ownership of these shares. (7) The address of this stockholder is 600 Atlantic Avenue, Suite 2800, Boston, MA 02210. 45 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 10,000,000 shares of Common Stock, no par value, and 66,500 shares of Redeemable Preferred Stock, par value $.01 per share. As of June 1, 1996, an aggregate of 7,367,525 shares of Common Stock were held of record by fifteen stockholders, and 66,500 shares of Redeemable Preferred Stock were outstanding and held of record by three stockholders. The Company will redeem all shares of Redeemable Preferred Stock upon the consummation of this offering. See "Use of Proceeds." Copies of the proposed Articles of Organization and Bylaws have been filed as exhibits to the Registration Statement and are incorporated by reference herein. Prior to the effectiveness of this offering, the Company will amend its Articles of Organization to authorize 1,000,000 shares of preferred stock and increase the number of authorized shares of Common Stock to 40,000,000. COMMON STOCK All outstanding shares of Common Stock are, and the shares of Common Stock offered hereby will be, fully paid and nonassessable. The holders of Common Stock are entitled to one vote for each share held of record on all matters voted upon by stockholders and may not cumulate votes. Subject to the rights of holders of any future series of undesignated preferred stock where defined which may be designated, each share of the outstanding Common Stock is entitled to participate equally in any distribution of net assets made to the stockholders in the liquidation, dissolution or winding up of the Company and is entitled to participate equally in dividends as and when declared by the Board of Directors. There are no redemption, sinking fund, conversion or preemptive rights with respect to the shares of Common Stock. All shares of Common Stock have equal rights and preferences. PREFERRED STOCK The net proceeds of this offering will be used, in part, to redeem all of the Redeemable Preferred Stock as soon as is practicable after the consummation of the offering. See "Use of Proceeds." After the consummation of this offering, the Board of Directors will have the authority, without further stockholder approval, to issue 1,000,000 shares of preferred stock in one or more series and to fix the relative rights, preferences, privileges, qualifications, limitations and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series. The issuance of preferred stock, while potentially providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Common Stock at a premium over the market price of the Common Stock and may adversely affect the market price of, and the voting and other rights of the holders of the Common Stock. No shares of preferred stock will be outstanding immediately following the consummation of this offering. The Company has no present plans to issue any shares of preferred stock. See "Risk Factors--Anti-takeover Provisions; Possible Issuance of Preferred Stock." CERTAIN ARTICLES OF ORGANIZATION, BYLAWS AND STATUTORY PROVISIONS AFFECTING STOCKHOLDERS Classified Board and Other Matters. The Board of Directors will be divided into three classes, each of which, after a transitional period, will serve for three years, with one class being elected each year. Under the Massachusetts General Laws, in the case of a corporation having a classified board of directors, stockholders may remove a director only for cause. In order for a stockholder to bring business properly before a meeting of stockholders, such stockholder must provide the Clerk of the Company sixty days' prior written notice with respect to a general or special meeting in lieu of annual meeting of stockholders or ten days' prior written notice with respect to a special meeting in lieu of annual meeting of stockholders. The Articles of Organization provide that special meetings of stockholders of the Company may be called only by the Board of Directors, the Chairman of the Board of Directors or the President. The Articles of Organization as well as applicable provisions of the Massachusetts General Law provide that no action required or permitted to be taken at any annual or special meeting of the stockholders of the Company may be taken without a meeting, unless the unanimous consent of stockholders entitled to vote thereon is obtained. The affirmative vote of the holders of at least 80% of the combined voting power of then outstanding voting stock of the Company will be required to alter, amend or repeal the foregoing provisions that might diminish the likelihood that a potential acquiror 46 would make an offer for the Common Stock, impede a transaction favorable to the interest of the stockholders or increase the difficulty of removing Board of Directors or management. See "Risk Factors--Anti-Takeover Provisions; Possible Issuance of Preferred Stock." Chapters 110D and 110F of Massachusetts General Laws. The Company is subject to the provisions of Chapter 110F of the Massachusetts General Laws, an anti- takeover law. In general, this statute prohibits a publicly held Massachusetts corporation with sufficient ties to Massachusetts from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless either: (i) the interested stockholder obtains the approval of the board of directors prior to becoming an interested stockholder; (ii) the interested stockholder acquires 90% of the outstanding voting stock of the corporation (excluding shares held by certain affiliates of the corporation) at the time he becomes an interested stockholder; or (iii) the business combination is approved by both the board of directors and two- thirds of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder). An "interested stockholder" is a person who, together with affiliates and associates, owns (or at any time within the prior three years did own) 5% or more of the corporation's voting stock. A "business combination" includes mergers, stock and asset sales and other transactions resulting in a financial benefit to the stockholder. Holders of a majority of the Company's voting stock may at any time amend the Articles of Organization or Bylaws to elect not to be governed by Chapter 110F, but such an amendment would not be effective for twelve months after the date of the amendment and would not apply to a business combination with any person who became an interested stockholder prior to the date of the amendment. The Company is also subject to the provisions of Chapter 110D of the Massachusetts General Laws, entitled "Regulation of Control Share Acquisitions." This statute provides, in general, that any stockholder who acquires 20% or more of the outstanding voting stock of a corporation subject to this statute may not vote that stock unless the stockholders of the corporation so authorize. In addition, Chapter 110D permits a corporation to provide in its articles of organization or bylaws that the corporation may redeem (for fair value) all the shares thereafter acquired in a control share acquisition if voting rights for those shares were not authorized by the stockholders or if no control share acquisition statement was delivered. The Bylaws include a provision which permits the Company to effect such redemptions. See "Risk Factors--Anti-Takeover Provisions; Possible Issuance of Preferred Stock." Directors Liability. The Articles of Organization provide that no director shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for: (i) any breach of the directors's duty of loyalty to the Company or its stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct; (iii) pursuant to Chapter 156B, Section 61 or Section 62 of The Massachusetts General Laws; or (iv) any transaction from which such director derives improper personal benefit. The effect of this provision is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (iv) above. The limitations summarized above, however, do not affect the ability of the Company or its stockholders to seek non-monetary based remedies, such as an injunction or rescission, against a director for breach of his fiduciary duty nor would such limitations limit liability under the federal securities laws. The Articles of Organization provide that the Company shall, to the full extent permitted by the Massachusetts General Laws as currently in effect, indemnify and advance expenses to each of its currently acting and former directors, officers, employees and agents arising in connection with their acting in such capacities. See "Management--Limitation of Liability; Indemnification of Directors and Officers." TRANSFER AGENT The transfer agent and registrar of the Common Stock is Boston EquiServe Limited Partnership. 47 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the Common Stock, and no prediction can be made as to the effect, if any, that market sales of shares or the availability of such shares for sale will have on the market price of the Common Stock. Nevertheless, sales of substantial amounts of Common Stock in the public market may have an adverse impact on such market price. Upon consummation of this offering, the Company will have 11,117,525 shares of Common Stock outstanding, based upon the number of shares outstanding as of June 1, 1996. Of these shares, the 3,750,000 shares sold in this offering (4,312,500 shares if the Underwriters' over-allotment option is exercised in full) will be freely tradeable without restriction or further registration under the Securities Act, except for any shares purchased by "affiliates" of the Company, as that term is defined under the Securities Act ("Affiliates"). SALES OF RESTRICTED SHARES There are 7,367,525 shares of Common Stock (the "Restricted Shares"), which are deemed "restricted securities" under Rule 144 under the Securities Act and may not be sold unless they are registered under the Securities Act or unless an exemption, such as the exemption provided by Rule 144, is available. All Restricted Shares are subject to the agreements with the Underwriters, pursuant to which certain principal stockholders and executive officers agree not to sell or otherwise transfer any shares of Common Stock or options to purchase Common Stock for a period of 180 days following the consummation of the offering (the "No-Sale Period") described below (the "Agreements with Underwriters Regarding Restrictions on Sales"). All of these shares may be eligible for sale in the public market in accordance with Rule 144 under the Securities Act, subject to the terms of the agreements with Underwriters. Certain stockholders have the right to have their Restricted Shares registered by the Company under the Securities Act as described below. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an Affiliate, who has beneficially owned Restricted Shares for at least two years, is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of (i) one percent of the then outstanding shares of Common Stock (approximately 111,175 shares after this offering) or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks preceding the date on which notice of such sale is filed with the Commission. In addition, under Rule 144(k), a person who is not an Affiliate and has not been an Affiliate for at least three months prior to the sale and who has beneficially owned the Restricted Shares for at least three years may resell such shares without compliance with the foregoing requirements. In meeting the two and three year holding periods described above, a holder of Restricted Shares can include the holding periods of a prior owner who was not an Affiliate. The Commission has proposed to amend the holding periods under Rule 144 by reducing the two year period referred to above to one year, the three year period referred to above to two years. The proposed amendments have not yet been adopted by the Commission. OPTIONS As of June 1, 1996, options to purchase a total of 741,340 shares of Common Stock were outstanding. Of these shares, 706,475 shares are subject to agreements pursuant to which certain of the Company's stockholders agree not to sell or otherwise transfer their shares of Common Stock for a period of 180 days following the consummation of this offering. Options to purchase the remaining 34,865 shares were granted to various employees of the Company. An additional 19,084 shares are available for future grants under the Stock Option Plan. Pursuant to Rule 701 under the Securities Act, persons who purchase shares upon exercise 48 of options granted prior to the Company becoming subject to the provisions of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and which were otherwise granted pursuant to Rule 701 are entitled to sell such shares in reliance upon Rule 144 commencing 90 days after the date of this offering without regard to the holding period, volume limitations or other restrictions of Rule 144, if such persons are not Affiliates, and without regard to the holding period requirements of Rule 144, if such persons are Affiliates. [Additionally, the Company intends to file one or more registration statements on Form S-8 under the Securities Act to register all shares of Common Stock subject to then outstanding stock options and Common Stock issuable pursuant to the Stock Option Plan. The Company expects to file these registration statements promptly following the consummation of this offering, and such registration statements are expected to become effective upon filing. Shares covered by these registration statements will thereupon be eligible for sale in the public markets, subject to the Agreements with Underwriters Regarding Restrictions on Sale, to the extent applicable. See "Management." BANK WARRANT In connection with the Credit Facility, the Company issued to the Bank the Bank Warrant. The exercise price of the Bank Warrant is $0.68 per share. The Warrant grants the Bank the right to cause the Company to redeem the Bank Warrant upon the repayment in full of all borrowings under the Credit Facility and expires on January 22, 2006. AGREEMENTS WITH UNDERWRITERS REGARDING RESTRICTIONS ON SALE The Company and holders of all 7,367,525 outstanding shares of Common Stock of the Company as of June 1, 1996, and options to purchase 706,475 shares of Common Stock, have agreed, not to directly or indirectly, without the prior written consent of Dean Witter Reynolds Inc., offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock, or any securities exercisable for or convertible into Common Stock for a period of 180 days following the date of consummation of this offering. REGISTRATION RIGHTS The holders of an aggregate of 7,340,000 shares of Common Stock will be entitled to certain rights with respect to the registration of such shares under the Securities Act. Under the terms of a Registration Rights Agreement, if the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of other securityholders exercising registration rights, such holders are entitled to notice of such registration and are entitled to include such shares of Common Stock in the registration. The rights are subject to certain conditions and limitations. In connection with this offering, the rights of the holders to have shares of Common Stock registered under the Securities Act as part of this offering were waived pursuant to the terms of the Registration Rights Agreement. No predictions can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sales, will have on the prevailing market price for the Common Stock. Sales of substantial amounts of Common Stock, or the perception that such sales could occur, could adversely affect prevailing market prices for the Common Stock and could impair the Company's future ability to obtain capital through an offering of equity securities. See "Risk Factors--Potential Adverse Impact of Shares Eligible for Future Sale." 49 UNDERWRITING The Underwriters named below, for whom Dean Witter Reynolds Inc., Bear, Stearns & Co. Inc., William Blair & Company, L.L.C. and Wheat, First Securities, Inc. are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement (a copy of which has been filed as an exhibit to the Registration Statement), to purchase from the Company the number of shares of Common Stock set forth opposite their respective names in the table below:
NUMBER NAME OF SHARES ---- --------- Dean Witter Reynolds Inc........................................... Bear, Stearns & Co. Inc............................................ William Blair & Company, L.L.C..................................... Wheat, First Securities, Inc....................................... --- Total.......................................................... ===
The Underwriting Agreement provides that the obligations of the several Underwriters thereunder are subject to approval of certain legal matters by counsel and to various other conditions. The nature of the Underwriters' obligation is such that they must purchase all of the shares (other than those subject to the over-allotment option) if any are purchased. Prior to this offering, there has been no public market for the Common Stock. The initial public offering price for the Common Stock will be determined through negotiations between the Company and the Representatives. Among the factors to be considered in making such determination are prevailing market conditions, the market capitalization of publicly traded companies which the Company and the Representatives believe to be comparable to the Company, the revenues and earnings of the Company in recent periods, the experience of the Company's management, the economic characteristics of the business in which the Company competes, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. The Underwriters have advised the Company that they propose to offer the shares of Common Stock directly to the public at the initial offering price set forth on the cover page of this Prospectus and to certain dealers (who may include the Underwriters) at such public offering price less a concession not to exceed $ per share. Such dealers may reallow a concession not to exceed $ per share to other dealers. After the initial public offering, the public offering price may be reduced and concessions and reallowances to dealers may be changed by the underwriters. The Representatives have informed the Company that the Underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. The Representatives intend to make a market in the Common Stock after consummation of this offering. The Company has granted to the Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to an additional 562,500 shares of Common Stock at the initial public offering price, less underwriting discounts and commissions to cover over-allotments, if any. After the commencement of this offering, the Underwriters may confirm sales subject to the over-allotment option. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. Bear, Stearns & Co. Inc., an affiliate of BSC, served as the Company's financial advisor in connection with the Recapitalization. In consideration of its financial advisory services, BSC received a fee of $450,000 from the Company of which $250,000 was paid in cash and the balance was paid in the form of 133,932 (post-April 10, 1996 and June 21, 1996 stock splits) shares of Common Stock and 1,974.04 shares of Redeemable Preferred Stock. The Company also reimbursed the financial advisor for its out-of-pocket expenses. See "Certain Transactions." 50 The Company, certain principal Stockholders and the executive officers and directors of the Company have agreed that they will not offer, sell, or otherwise dispose of any shares of Common Stock for a period of 180 days from the date of this Prospectus without the prior written consent of the Representative except, in the case of the Company, under certain limited circumstances. At the Company's request, the Representative has reserved up to 183,750 shares of Common Stock for sale at the initial public offering price to the Company's employees and other persons having certain business relationships with the Company. The number of shares of Common Stock available for sale to the general public will be reduced to the extent these persons purchase such reserved shares. Any reserved shares not purchased will be offered by the Underwriters to the general public on the same terms as the other shares offered hereby. Reserved shares purchased by individuals will, except as restricted by applicable securities laws, be available for resale following this offering. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Hutchins, Wheeler & Dittmar, A Professional Corporation. Certain legal matters relating to the offering will be passed upon for the Underwriters by Latham & Watkins. EXPERTS The consolidated financial statements included in this Prospectus and the selected supplemental schedule of the Company incorporated by reference in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports thereto, are included herein in reliance upon the authority of said firm as experts in giving said reports. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 (together with all amendments, exhibits and schedules thereto, the "Registration Statement") under the Securities Act with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement. For further information with respect to the Company and the Shares offered hereby, reference is hereby made to such Registration Statement. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or document field as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. Copies of the Registration Statement may be obtained from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: Seven World Trade Center, New York, New York 1004, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained from the public reference section of the Commission at its Washington address upon payment of the fees prescribed by the Commission, or may be examined without charge at the offices of the Commission. 51 SUBURBAN OSTOMY SUPPLY CO., INC. INDEX TO FINANCIAL STATEMENTS SUBURBAN OSTOMY SUPPLY CO., INC. Report of Independent Public Accountants................................ F- 2 Consolidated Balance Sheets at September 3, 1994, September 2, 1995 and June 1, 1996........................................................... F- 3 Consolidated Statements of Income for the Years Ended August 28, 1993, September 3, 1994, September 2, 1995 and the Thirty-Nine Weeks Ended June 1, 1996........................................................... F- 4 Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years Ended August 28, 1993, September 3, 1994 and September 2, 1995 and the Thirty-Nine Weeks Ended June 1, 1996...................... F- 5 Consolidated Statements of Cash Flows For the Years Ended August 28, 1993, September 3, 1994, September 2, 1995 and the Thirty-Nine Weeks Ended June 1, 1996..................................................... F- 6 Notes to Consolidated Financial Statements.............................. F- 7 ST. LOUIS OSTOMY DISTRIBUTORS, INC. Report of Independent Public Accountants................................ F-19 Balance Sheets at July 30, 1994 and July 29, 1995....................... F-20 Statements of Income For the Years Ended July 31, 1993, July 30, 1994 and July 29, 1995 and the Period from July 30, 1995 through January 22, 1996................................................................... F-21 Statements of Changes in Stockholders' (Deficit) Equity for the Years Ended July 31, 1993, July 30, 1994 and July 29, 1995 and the Period from July 30, 1995 through January 22, 1996............................ F-22 Statements of Cash Flows for the Years Ended July 31, 1993, July 30, 1994 and July 29, 1995 and the Period from July 30, 1995 through January 22, 1996....................................................... F-23 Notes to Financial Statements........................................... F-24 PATIENT-CARE MEDICAL SALES Report of Independent Public Accountants................................ F-28 Balance Sheets at March 31, 1995 and 1996............................... F-29 Statements of Income for the Years Ended March 31, 1994, 1995 and 1996.. F-30 Statements of Changes in Stockholders' Equity for the Years Ended March 31, 1994, 1995 and 1996................................................ F-31 Statements of Cash Flows for the Years Ended March 31, 1994, 1995 and 1996................................................................... F-32 Notes to Financial Statements........................................... F-33
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Suburban Ostomy Supply Co., Inc.: We have audited the accompanying consolidated balance sheets of Suburban Ostomy Supply Co., Inc. (a Massachusetts corporation) as of September 3, 1994, September 2, 1995 and June 1, 1996, and the related consolidated statements of income, changes in stockholders' equity (deficit) and cash flows for the years ended August 28, 1993, September 3, 1994, September 2, 1995 and for the thirty-nine weeks ended June 1, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Suburban Ostomy Supply Co., Inc. as of September 3, 1994, September 2, 1995 and June 1, 1996, and the results of its operations and its cash flows for the years ended August 28, 1993, September 3, 1994, September 2, 1995, and for the thirty-nine week period ended June 1, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts June 21, 1996 F-2 SUBURBAN OSTOMY SUPPLY CO., INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 3, SEPTEMBER 2, JUNE 1, 1994 1995 1996 ------------ ------------ ------------ ASSETS Current Assets: Cash and cash equivalents............ $ 4,133,807 $ 3,970,113 $ 1,714,889 Accounts receivable, net of allowance for doubtful accounts of $25,000 in 1994 and 1995 and $175,000 in 1996.. 4,243,810 4,766,991 7,191,679 Merchandise inventory................ 3,082,047 3,659,499 5,465,948 Prepaid expenses and other........... 165,162 153,145 242,946 Deferred income taxes................ -- 50,750 380,137 ----------- ------------ ------------ Total current assets................ 11,624,826 12,600,498 14,995,599 ----------- ------------ ------------ Fixed assets, at cost: Equipment and fixtures............... 1,234,792 1,270,335 1,501,528 Leasehold improvements............... 72,994 206,918 245,531 ----------- ------------ ------------ 1,307,786 1,477,253 1,747,059 Less--Accumulated depreciation...... 600,205 739,630 863,230 ----------- ------------ ------------ Total fixed assets, net.............. 707,581 737,623 883,829 ----------- ------------ ------------ Other Assets: Costs in excess of net assets ac- quired.............................. -- -- 10,734,163 Other assets......................... 516,157 494,189 194,583 ----------- ------------ ------------ Total other assets.................. 516,157 494,189 10,928,746 ----------- ------------ ------------ Total assets........................ $12,848,564 $ 13,832,310 $ 26,808,174 =========== ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current portion of St. Louis Note payable............................. -- -- $ 123,500 Accounts payable and accrued ex- penses.............................. $ 2,876,501 $ 3,302,710 5,244,725 Notes payable to officers............ 221,926 -- -- Accrued compensation and related items............................... 676,769 370,791 328,369 Accrued common stock dividends pay- able................................ -- 900,000 -- Accrued interest..................... -- 329,235 348,267 Income taxes payable................. 12,011 230,448 388,786 ----------- ------------ ------------ Total current liabilities........... 3,787,207 5,133,184 6,433,647 ----------- ------------ ------------ Long-term Liabilities: Long-term debt....................... -- 12,580,000 21,058,450 Subordinated debt to related par- ties................................ -- 6,750,000 6,750,000 Notes payable to officers............ -- 2,500,000 2,500,000 St. Louis Note payable, less current portion............................. -- -- 1,111,500 Deferred income taxes................ -- 34,719 76,475 ----------- ------------ ------------ Total long-term liabilities......... -- 21,864,719 31,496,425 ----------- ------------ ------------ Redeemable Preferred Stock: $.01 par value, $100 redemption value plus 10% cumulative return-- Authorized, issued and outstanding-- 66,500 shares....................... -- 6,760,833 7,267,893 Stockholders' Equity (Deficit): Authorized--10,000,000 shares Issued and outstanding--22,000 shares in 1994, 7,340,000 shares in 1995 and 7,367,525 shares in 1996........ 2,402,700 142,857 161,607 Additional paid-in capital........... 21,772 -- -- Retained earnings (accumulated defi- cit)................................ 6,636,885 (20,069,283) (18,551,398) ----------- ------------ ------------ Total stockholders' equity (defi- cit)............................... 9,061,357 (19,926,426) (18,389,791) ----------- ------------ ------------ Total liabilities and stockholders' equity (deficit)................... $12,848,564 $ 13,832,310 $ 26,808,174 =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 SUBURBAN OSTOMY SUPPLY CO., INC. CONSOLIDATED STATEMENTS OF INCOME
THIRTY-NINE YEAR ENDED YEAR ENDED YEAR ENDED WEEKS AUGUST 28, SEPTEMBER 3, SEPTEMBER 2, ENDED JUNE 1, 1993 1994 1995 1996 ---------- ------------ ------------ ------------- Net Sales.................. $42,737,715 $47,310,992 $52,667,379 $49,301,866 Cost of Goods Sold......... 32,304,359 35,598,531 39,872,671 37,475,443 ----------- ----------- ----------- ----------- Gross profit........... 10,433,356 11,712,461 12,794,708 11,826,423 Operating Expenses......... 6,990,928 7,627,408 7,752,234 6,241,450 Depreciation and Amortization.............. 266,212 269,990 265,771 386,561 Non-recurring Executive Compensation.............. 2,110,530 2,236,857 -- -- ----------- ----------- ----------- ----------- Operating income....... 1,065,686 1,578,206 4,776,703 5,198,412 Interest Expense, net...... -- -- 369,575 1,840,885 Other Expense (Income), Net....................... (158,912) (131,662) (144,582) (14,648) ----------- ----------- ----------- ----------- Income before income taxes................. 1,224,598 1,709,868 4,551,710 3,372,175 Provision for Income Taxes..................... 69,252 88,128 357,422 1,446,010 ----------- ----------- ----------- ----------- Net income............. 1,155,346 1,621,740 4,194,288 1,926,165 Accretion of Preferred Stock..................... -- -- 110,833 507,060 ----------- ----------- ----------- ----------- Net income applicable to common stockholders.......... $ 1,155,346 $ 1,621,740 $ 4,083,455 $ 1,419,105 =========== =========== =========== =========== Net Income Per Share....... $ 0.18 =========== Pro Forma: Income before income taxes................... $ 1,224,598 $ 1,709,868 $ 4,551,710 $ 3,372,175 Provision for income taxes................... 489,840 683,947 1,820,684 1,446,010 ----------- ----------- ----------- ----------- Net income............... $ 734,758 $ 1,025,921 $ 2,731,026 $ 1,926,165 =========== =========== =========== =========== Net income applicable to common stockholders..... $ 734,758 $ 1,025,921 $ 2,620,193 $ 1,419,105 =========== =========== =========== =========== Net income per share..... $ .33 $ 0.18 =========== =========== Weighted Average Common Shares Outstanding........ 8,043,157 8,044,578 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 SUBURBAN OSTOMY SUPPLY CO., INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
RETAINED TOTAL COMMON ADDITIONAL EARNINGS STOCKHOLDERS' STOCK, NO PAR PAID-IN (ACCUMULATED TREASURY EQUITY VALUE CAPITAL DEFICIT) STOCK (DEFICIT) ------------- ---------- ------------ --------- ------------- Balance, August 29, 1992................... $ 98,000 $ 21,772 $ 6,591,020 $(532,000) $ 6,178,792 Net income............ -- -- 1,155,346 -- 1,155,346 Treasury stock retired.............. (95,000) -- (437,000) 532,000 -- Shares issued under Stock Option Plan.... 1,200,000 -- -- -- 1,200,000 Dividends paid ($.32 per share of common stock)............... -- -- (666,392) -- (666,392) ----------- -------- ------------ --------- ------------ Balance, August 28, 1993................... 1,203,000 21,772 6,642,974 -- 7,867,746 Shares retired........ (300) -- (1,199,700) -- (1,200,000) Shares issued under Stock Option Plan.... 1,200,000 -- -- -- 1,200,000 Dividends on common stock ($.21 per share)............... -- -- (428,129) -- (428,129) Net income............ -- -- 1,621,740 -- 1,621,740 ----------- -------- ------------ --------- ------------ Balance, September 3, 1994................... 2,402,700 21,772 6,636,885 -- 9,061,357 Shares retired........ (300) -- (1,199,700) -- (1,200,000) Dividends on common stock ($1.09 per share)............... -- -- (2,199,929) -- (2,199,929) Capital contribution.. -- -- 300,000 -- 300,000 Redemption of 1,988,000 shares of common stock......... (2,359,543) (21,772) (27,689,994) -- (30,071,309) Issuance of 1,400,000 shares of common stock................ 100,000 -- -- -- 100,000 Accretion of preferred stock................ -- -- (110,833) -- (110,833) Net income............ -- -- 4,194,288 -- 4,194,288 ----------- -------- ------------ --------- ------------ Balance, September 2, 1995................... 142,857 -- (20,069,283) -- (19,926,426) Shares issued under stock option plan.... 18,750 -- -- -- 18,750 Capital contribution.. -- -- 98,780 -- 98,780 Accretion of preferred stock................ -- -- (507,060) -- (507,060) Net income............ -- -- 1,926,165 -- 1,926,165 ----------- -------- ------------ --------- ------------ Balance, June 1, 1996... $161,607 $ -- $(18,551,398) $ -- $(18,389,791) =========== ======== ============ ========= ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 SUBURBAN OSTOMY SUPPLY CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTY-NINE YEAR ENDED YEAR ENDED YEAR ENDED WEEKS AUGUST 28, SEPTEMBER 3, SEPTEMBER 2, ENDED JUNE 1, 1993 1994 1995 1996 ---------- ------------ ------------ ------------- Cash Flows from Operating Activities: Net income............. $1,155,346 $1,621,740 $ 4,194,288 $ 1,926,165 Adjustments to reconcile net income to net cash provided by (used in) operating activities-- Depreciation and amortization........ 266,212 269,990 265,771 386,561 Provision for bad debt losses......... -- 25,000 -- 45,058 Net loss on sale of fixed assets........ -- 50,959 34,056 21,102 Deferred income tax benefit, net........ -- -- (16,031) (92,116) Change in assets and liabilities net of effects from purchase of St. Louis Ostomy-- Accounts receivable........ (187,021) (901,139) (523,181) (684,184) Merchandise inventory......... (593,462) 1,082,488 (577,452) (963,574) Prepaid expenses and other......... 82,150 (86,226) 12,017 (89,801) Accounts payable and accrued expenses.......... 200,369 (593,334) 667,903 (580,202) ---------- ---------- ------------ ------------ Net cash provided by (used in) operating activities...... 923,594 1,469,478 4,057,371 (30,991) ---------- ---------- ------------ ------------ Cash Flows from Investing Activities: Purchase of fixed assets................ (213,447) (135,828) (293,421) (228,701) Proceeds from sale of fixed assets.......... -- 3,484 9,563 109,968 Payment for purchase of St. Louis Ostomy, net of cash acquired...... -- -- -- (10,709,366) (Increase) decrease in other assets.......... (99,617) (35,671) (53,760) 317,433 ---------- ---------- ------------ ------------ Net cash used in investing activities...... (313,064) (168,015) (337,618) (10,510,666) ---------- ---------- ------------ ------------ Cash Flows from Financing Activities: Net decrease in notes receivable from officers.............. 3,995 21,706 -- 129,520 Capital contribution from shareholders..... -- -- 300,000 98,780 Issuance of common stock................. 1,200,000 1,200,000 100,000 18,750 Issuance of preferred stock................. -- -- 6,650,000 -- Dividends paid to stockholders.......... (666,392) (428,129) (1,299,929) -- Repurchase and retirement of common stock................. -- (1,200,000) (28,200,000) -- Capitalization of financing costs....... -- -- (192,209) -- Expenses of recapitalization...... -- -- (571,309) -- Proceeds from issuance of long-term bank debt.................. -- -- 13,580,000 12,517,517 Principal repayment of long-term bank debt... -- -- (1,000,000) (4,478,134) Proceeds from issuance of subordinated debt.. -- -- 6,750,000 -- ---------- ---------- ------------ ------------ Net cash provided by (used in) financing activities...... 537,603 (406,423) (3,883,447) 8,286,433 ---------- ---------- ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents............. 1,148,133 895,040 (163,694) (2,255,224) Cash and Cash Equivalents, beginning of period............... 2,090,634 3,238,767 4,133,807 3,970,113 ---------- ---------- ------------ ------------ Cash and Cash Equivalents, end of period.................. $3,238,767 $4,133,807 $ 3,970,113 $ 1,714,889 ========== ========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-6 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 1, 1996 (1) ORGANIZATION AND RECAPITALIZATION Suburban Ostomy Supply Co., Inc. (the "Company") is a leading national direct marketing wholesaler of home health care products. The Company's principal location is in Holliston, Massachusetts, with additional distribution centers in Atlanta, Georgia; Los Angeles, California; Dallas, Texas; and South Bend, Indiana. The Company has a subsidiary operation in St. Louis, Missouri (see Note 3). On July 3, 1995, the Company completed a series of transactions to effect a recapitalization of the Company (the "Recapitalization"). The terms and provisions of the Recapitalization are set forth in the Stock Purchase and Redemption Agreement dated July 3, 1995 (the "Stock Purchase and Redemption Agreement"). The Company sold for $100,000 cash 5,138,000 shares of its common stock to Summit Ventures III, L.P., Summit Ventures II, L.P., Summit Subordinated Debt Fund, L.P. (collectively, "Summit") and The Bear Stearns Companies, Inc. ("BSC"), and borrowed $6.75 million in exchange for subordinated debt (the "Summit Notes"). The terms of this debt are discussed in Note 4 to the consolidated financial statements. The Company also issued to Summit and BSC 66,500 shares of Series A Redeemable Preferred Stock, $.01 par value, for $6.65 million (the "Redeemable Preferred Stock"). The Company may redeem, at any time, all or a portion of the Redeemable Preferred Stock for an amount equal to $100 per share plus a 10% cumulative annual return since the July 3, 1995 issuance date through the redemption date (the "Redemption Price"). Notwithstanding the Company's redemption option, one third of the shares outstanding on July 1, 2000 will be mandatorily redeemed on July 1 of each of the years 2000, 2001 and 2002. The occurrence of a liquidity event (as defined in the Stock Purchase and Redemption Agreement) would require 100% redemption of the outstanding stock at the redemption price. Annually, the Company accretes the value of the Redeemable Preferred Stock by charging retained earnings/accumulated deficit until the Redeemable Preferred Stock reaches its redemption value. The Company entered into a $16.0 million credit agreement (the "Credit Facility") with The First National Bank of Boston (the "Bank"), of which $13.5 million was drawn down to facilitate the stock repurchase discussed below. The terms of the Credit Facility are further discussed in Note 4 to the consolidated financial statements. The proceeds of the above transactions were used by the Company to repurchase 1,988,000 shares or 70% of the then outstanding shares of common stock from certain stockholders for a total purchase price of $29.5 million. An amount of $27.0 million was paid in cash and $2.5 million in notes were issued to the stockholders (the "Management Notes"). The Management Notes carry a 12% annual rate of interest which is payable quarterly in arrears. Principal repayment is due on June 30, 2000, and mandatory prepayment of the Management Notes is required upon the occurrence of a liquidity event. The Company incurred approximately $571,000 in professional fees related to the above stock repurchase transactions, which have been reflected as a reduction of retained earnings. Of these professional fees, $450,000 was paid to BSC, $250,000 of which was paid in cash and $200,000 of which was paid in the form of 133,384 shares of Common Stock and 1,974.04 shares of Redeemable Preferred Stock. Costs incurred in connection with obtaining debt financing of approximately $192,000 have been capitalized as deferred financing costs. They are included in other assets in the accompanying consolidated balance sheets and are being amortized over the lives of the underlying respective debt agreements. Accumulated amortization at September 2, 1995 and June 1, 1996 is approximately $3,000 and $30,000, respectively. Subsequent to the above transactions, the Company effected a 100-for-1 common stock split. In April 1996, the Company further effected a 50-for-1 common stock split. On June 21, 1996, the Company further effected a 3.67-to-1 common stock split. For periods subsequent to the Recapitalization all references to common shares in the consolidated financial statements, including these accompanying notes, retroactively reflects these splits. F-7 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year The Company's fiscal year ends on the Saturday nearest to August 31. The year ending September 3, 1994 contains 53 weeks and the years ending August 28, 1993, and September 2, 1995 contain 52 weeks. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Disclosure of Fair Value of Financial Instruments The Company's consolidated financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable, notes payable and debt. The carrying amounts of the Company's cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. Certain of the Company's debt bears interest at a variable market rate, and thus has a carrying amount that approximates fair value. The remainder of the debt carries a fixed rate of interest which also approximates fair value based on rates available to the Company for debt with similar terms and maturities. Accounting for Stock-Based Compensation The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that an entity account for employee stock compensation under a fair value-based method. However, SFAS 123 also allows an entity to continue to measure compensation cost for employee stock-based compensation plans using the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Effective for fiscal years beginning after December 15, 1995, entities electing to remain with accounting under APB 25 are required to make pro forma disclosures of net income and net income per share as if the fair value-based method of accounting under SFAS 123 had been applied. The Company will continue to account for employee stock-based compensation under APB 25 and will make the pro forma disclosures required under SFAS 123. Merchandise Inventory Inventory is stated at the lower of cost or market and is accounted for using the weighted moving-average cost method, which approximates the first- in, first-out (FIFO) method. Fixed Assets The cost of property and equipment is depreciated and amortized over the estimated useful lives of the related assets, as follows: Equipment, computers and fixtures................. 5-7 years Straight-line Leasehold improvements............................ 4-5 years Straight-line
Repairs and maintenance are expensed as incurred. F-8 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Long-Lived Assets During 1995, the Company adopted the provisions of Statement of Financial Accounting Standards, No. 121, "Accounting for the Impairment of Long-Lived Assets" ("SFAS 121"). SFAS 121 requires, among other things, that an entity review its long-lived assets and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. As a result of its review, the Company does not believe that any impairment currently exists related to its long- lived assets. Cash and Cash Equivalents For the accompanying consolidated statements of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. Other Assets Other assets include an intangible asset for an agreement not to compete, which is being amortized on a straight-line basis over the 82-month agreement life, which expired in January 1996. Accumulated amortization as of September 2, 1995 and June 1, 1996 amounted to approximately $238,000 and $256,000, respectively. Income Taxes Effective July 3, 1995, the Company's tax status changed from a Subchapter S corporation to a C corporation, and accordingly, it is subject to federal and state income taxes. The Company accounts for taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which is an asset and liability method. Under the asset and liability method, deferred taxes are established for the temporary differences between the financial reporting and tax bases of the Company's assets and liabilities at currently enacted tax laws and rates. Net Income Per Share Net income per share is calculated based on the weighted average number of common shares outstanding during the period, plus, in periods in which they have a dilutive effect, the effect of common shares contingently issuable from stock options and warrants using the treasury-stock method. Additionally, stock, options and warrants issued within one year prior to the anticipated filing of the Registration Statement (see Note 12) are considered issued and outstanding for the periods presented using the treasury stock method. Net income per share for the fiscal years 1993, 1994 and 1995 has not been presented as it is not meaningful due to the Company's Subchapter S corporation status and the Recapitalization on July 3, 1995. Pro Forma Net Income Per Share Prior to the Recapitalization on July 3, 1995, the Company elected to be taxed as a Subchapter S corporation, and accordingly, was not subject to federal income taxes and certain state income tax jurisdictions. F-9 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Pro Forma net income per share for the year ended September 2, 1995 has been calculated as if the Company had been subject to federal and state income taxes for the period based upon an effective tax rate indicative of statutory rates in effect during the period and as if the Recapitalization occurred on September 4, 1994. Supplemental Pro Forma Net Income Per Share (Unaudited) Supplemental pro forma net income per share has been calculated as if the Company had repaid the long-term debt, subordinated debt to related parties, notes payable to officers, St. Louis Note payable and related accrued interest thereon at the beginning of fiscal 1995 utilizing the net proceeds ($46,281,000) from its sale of Common Stock. The weighted average number of shares (11,793,158 and 11,794,578 as of September 2, 1995 and June 1, 1996, respectively) is the actual weighted average number of common shares and common share equivalents outstanding effected for the Recapitalization as if it had occurred September 4, 1994, plus the impact of the 3,750,000 shares of Common Stock that are expected to be sold (see Note 12). Supplemental pro forma net income per share has been calculated as follows (in thousands):
THIRTY-NINE WEEKS YEAR ENDED ENDED SEPTEMBER 2, JUNE 1, 1995 1996 ------------ ----------- Historical income before taxes..................... $ 4,552 $ 3,372 Pro forma income taxes............................. (1,821) (1,446) ------- ------- Pro forma net income............................... 2,731 1,926 Reversal of interest charges and amortization of deferred financing costs relating to debt treated as being repaid, net of tax....................... 224 1,871 ------- ------- Supplemental pro forma net income.................. $ 2,955 $ 3,797 ======= ======= Supplemental pro forma net income per share........ $ .25 $ .32 ======= ======= Supplemental pro forma weighted average shares out- standing.......................................... 11,793 11,795 ======= =======
Stock Splits The Company effected a 100-for-1 common stock split in July 1995. In April 1996, the Company further effected a 50-for-1 common stock split. On June 21, the Company further effected a 3.67-for-1 common stock split. All references to common shares in the consolidated financial statements, including these accompanying notes retroactively reflect these splits for periods subsequent to the Recapitalization. Reclassifications Certain reclassifications have been made to the 1993, 1994 and 1995 consolidated financial statements to conform to the 1996 presentation. F-10 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (3) ACQUISITION On January 22, 1996, the Company acquired all of the outstanding common stock of St. Louis Ostomy Distributors, Inc., a Missouri corporation ("St. Louis Ostomy"), for an aggregate purchase price, including expenses, of approximately $12,364,000, of which $1,235,000 was paid through the issuance of a subordinated promissory note (the "St. Louis Note") (see Note 4). The acquisition was accounted for as a purchase and, accordingly, the results of operations of St. Louis Ostomy are included in the consolidated financial statements from January 22, 1996. The purchase price was allocated to the net assets acquired and identified based on their respective estimated fair values, which resulted in approximately $10,888,000 of costs in excess of net assets acquired (which is being amortized over 25 years). The acquisition was financed using bank debt (see Note 4). On an unaudited pro forma basis, assuming St. Louis Ostomy had been acquired at September 3, 1995, the Company's net sales, net income and net income per share applicable to common stockholders would have been approximately $56,813,000, $1,526,000 and $.70, respectively. Had the acquisition occurred on September 4, 1994, the Company's unaudited pro forma net sales, net income and net income per share applicable to common stockholders would have been approximately $69,900,000, $2,798,000 and $1.27, respectively. (4) DEBT Debt consisted of the following at September 2, 1995 and June 1, 1996:
1995 1996 ----------- ----------- Secured loans, payable to The First National Bank of Boston, interest rates at June 1, 1996 ranging from 7.5% to 8.75%......................................... $12,580,000 $21,058,450 Summit Notes due June 30, 2000, interest payable quar- terly at 12% ......................................... 6,750,000 6,750,000 Management Notes due June 30, 2000, interest payable quarterly at 12%...................................... 2,500,000 2,500,000 St. Louis Note......................................... -- 1,235,000 ----------- ----------- $21,830,000 $31,543,450 =========== ===========
The Company had no debt at September 3, 1994. On July 3, 1995, the Company entered into the Credit Facility with the Bank for $16,000,000. Of the $13,580,000 initial drawdown by the Company, $13,500,000 was used to repurchase certain outstanding common stock in connection with the Recapitalization (discussed in Note 1), and $80,000 represents the Bank's facility fee. In January 1996, the Credit Facility was increased by $9,000,000 to facilitate the Company's acquisition of St. Louis Ostomy (see Note 3). In connection with the Credit Facility amendment, the Company provided the Bank with warrants to purchase 102,026 shares of the Company's common stock at $.68 per share. The warrants may also be converted into a certain number of shares of common stock which are determined using a market price-based formula set forth in the Credit Facility Agreement. Should the Company prepay the outstanding borrowings and terminate the related Credit Facility Agreement, the Bank may request that the Company redeem the warrants from the Bank for $90,000. The warrants expire in January 2006. The outstanding borrowings are secured by substantially all of the assets of the Company. Advances made under the Credit Agreement bear interest at either the Bank's base rate (8.25% at June 1, 1996) plus 1/2%, or the LIBOR rate (5 21/32% at June 1, 1995) plus an applicable margin. The applicable margin for the LIBOR advances ranges from 2.0% to 2.5% based on the amount of the borrowings relative to the Company's eligible accounts receivable and inventory (as defined in the Credit Facility Agreement). Interest is payable monthly in arrears. The average daily unused line bears a commitment fee of .375% per annum payable quarterly. The total commitment may be irrevocably reduced by the Company at any time in an F-11 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (4) DEBT (CONTINUED) amount equal to $250,000 or an integral multiple of $100,000 in excess thereof. If not accelerated by option of the Company, the commitment reduces in approximate six-month intervals to $17,750,000 until the June 30, 2000 maturity date. Subsequent to June 1, 1996, the Credit Facility Agreement was further amended to provide for an additional $5,000,000 of borrowings to facilitate the Company's acquisition of Patient-Care Medical Sales (see Note 12). On July 3, 1995, the Company issued at face value, the Summit Notes. The proceeds were used to fund the Recapitalization, as discussed in Note 1. The Summit Notes are subordinate to the Bank debt and are secured by substantially all of the assets of the Company. Principal repayment is due on June 30, 2000, and early payments may be made from time to time at the option of the Company without penalty. Interest of 12% per annum is payable quarterly in arrears beginning September 30, 1995. Also in connection with the Recapitalization, the Company issued the Management Notes for the repurchase of a portion of their outstanding stock. The Management Notes carry a 12% annual rate of interest which is payable quarterly in arrears. Principal repayment is due on June 30, 2000, optional prepayments may be made without penalty, and mandatory prepayment of the notes is required upon the occurrence of a liquidity event (as defined in the Stock Purchase and Redemption Agreement). In connection with the acquisition of St. Louis Ostomy (see Note 3), the Company issued the St. Louis Note. The St. Louis Note bears interest at 10% per annum and requires annual principal payments of approximately $123,500 in each of January 1997 and 1998 and approximately $329,400 in each of January 1999, 2000 and 2001. The Company is required to comply with a number of affirmative and negative covenants under the Credit Facility Agreement and the terms of the Summit Notes. Among other things, the Company is required to satisfy certain financial tests and ratios (including debt service coverage, minimum net income and leverage ratio). As of June 1, 1996, the Company is in full compliance with all debt covenants. Should the Company not make any optional principal prepayments on its indebtedness, aggregate minimum maturities would be as follows at June 1, 1996:
AMOUNT ----------- June 1 through August 31, 1996... $ -- 1997............................. 123,500 1998............................. 181,950 1999............................. 2,329,333 2000............................. 28,579,333 2001............................. 329,334 ----------- $31,543,450 ===========
(5) INCOME TAXES Effective July 3, 1995, the Company's tax status changed from a Subchapter S corporation to a C corporation, and accordingly, it is subject to federal and state income taxes. Deferred tax assets and liabilities were not material at the conversion date. The Company accounts for taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which is an asset and liability method. F-12 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (5) INCOME TAXES (CONTINUED) The provision (benefit) for income taxes for the years ended August 28, 1993, September 3, 1994, September 2, 1995 and the thirty-nine weeks ended June 1, 1996 consisted of the following:
THIRTY-NINE WEEKS ENDED 1993 1994 1995 JUNE 1 , 1996 ------- ------- -------- ------------- U.S. Federal-- Current............................... $ -- $ -- $ 88,242 $1,145,358 Deferred.............................. -- -- (12,083) 430,494 State-- Current............................... 69,252 88,128 285,211 (93,203) Deferred.............................. -- -- (3,948) (36,640) ------- ------- -------- ---------- $69,252 $88,128 $357,422 $1,446,010 ======= ======= ======== ==========
Under SFAS No. 109, net current deferred tax assets or liabilities and net long-term deferred tax assets or liabilities are reported separately in the Company's balance sheets. The Company had a Subchapter S corporation status in fiscal 1993 and fiscal 1994 and, accordingly, did not have any deferred taxes recorded as of September 3, 1994. The effect of temporary differences which give rise to a significant portion of deferred taxes are as follows at September 2, 1995 and June 1, 1996:
1995 1996 -------- -------- Deferred tax assets: Reserves and accruals not yet deductible for tax purposes................................................ $ 10,150 $335,038 Inventory basis differences.............................. 40,600 45,099 -------- -------- Total deferred tax assets.................................. 50,750 380,137 Deferred tax liabilities: Property basis differences............................... (32,188) (74,804) Other.................................................... (2,531) (1,671) -------- -------- Total deferred tax liabilities............................. (34,719) (76,475) -------- -------- Net deferred tax assets.................................... $ 16,031 $303,662 ======== ========
F-13 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (5) INCOME TAXES (CONTINUED) During fiscal 1993 and fiscal 1994, the Company was operating as a Subchapter S corporation and was not subject to federal income taxes. The provision for income taxes in the accompanying statements of operations represents certain state tangible and net worth taxes. A reconciliation of tax on income at the federal statutory rate to the recorded income tax provision for fiscal 1995 and for the thirty-nine weeks ended June 1, 1996 is presented below.
THIRTY-NINE WEEKS ENDED 1995 JUNE 1, 1996 ----------- ------------ Tax provision at statutory rate..................... $ 1,547,581 $1,146,539 State tax provision, net of federal taxes........... 304,054 259,944 Subchapter S corporation earnings not subject to federal and state income taxes..................... (1,599,209) -- Subchapter S corporation related taxes.............. 168,334 -- Book expenses not deductible for tax purposes....... -- 59,203 Other............................................... (63,338) (19,676) ----------- ---------- Recorded income tax provision....................... $ 357,422 $1,446,010 =========== ==========
(6) RETIREMENT PLAN The Company has adopted a qualified, noncontributory defined contribution retirement plan which covers all employees who have completed one year of service and who have reached age 21. Employees qualify for benefits upon reaching the age of 62; however, an employee cannot receive benefits from the defined contribution retirement plan until actual retirement. Vesting begins at 20% after two years of employment and is increased by 20% each subsequent year until full vesting occurs. Retirement plan contributions are made at the discretion of the Company and for fiscal 1993, 1994 and 1995 and for the thirty-nine weeks ended June 1, 1996 were approximately $215,000, $217,000, $176,000 and $149,000, respectively. (7) COMMITMENTS AND CONTINGENCIES Leases The Company occupies five warehouse facilities and a corporate office building (which includes a warehouse) under operating leases expiring at various dates through 2006. Two of the warehouses and the Company's corporate office and warehouse facility in Holliston, Massachusetts, are leased from related parties (see Note 10). Certain of the Company's leased premises are subject to renewal options at their fair rental values at the time of renewal. Rent expense for fiscal 1993, 1994 and 1995 and for the thirty-nine weeks ended June 1, 1996, under all operating leases, including certain motor vehicle and equipment leases, amounted to approximately $595,000, $636,000, $702,000 and $583,000 (net of sublease income of approximately $72,000, $47,000, $42,000 and $11,000), respectively. At June 1, 1996, approximate future minimum lease payments, net of sublease income, for the next five years and thereafter under noncancelable operating leases including $149,500 in the period June 1, 1996 F-14 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (7) COMMITMENTS AND CONTINGENCIES (CONTINUED) through August 31, 1996, $598,000 in each year from 1997 through 2001 and $2,684,780 thereafter, to related parties, are as follows:
FISCAL YEAR AMOUNT ----------- ---------- June 1 through August 31, 1996.... $ 213,025 1997.............................. 814,597 1998.............................. 768,192 1999.............................. 763,542 2000.............................. 763,542 2001.............................. 682,077 Thereafter........................ 2,684,780 ---------- $6,689,755 ==========
Employment Contracts In connection with the Recapitalization (discussed in Note 1) on July 3, 1995, the Company entered into employment and noncompetition agreements (the "Employment Agreements") with five executive officers. The Employment Agreements provide for an employment term through July 1, 2000, after which the term will be automatically renewed on an annual basis unless written notice to the contrary is given at least 90 days in advance by either party. The Employment Agreements provide for an aggregate initial annual base salary of $690,000, subject to such annual increases to reflect increases in the applicable consumers price index as may be determined by the Board of Directors, as well as certain benefits and reimbursement of expenses. Should employment be terminated by the Company for any reason other than cause (as defined in the Employment agreements) prior to July 3, 1996, the officer shall be entitled to receive all salary and bonus earned through the termination date, the remaining salary through July 3, 1996 and an additional 12 months of salary. In the event of termination by the Company for any reason other than cause in subsequent years, the officer shall be entitled to receive all salary and bonus earned through the termination date plus an additional 12 months of salary. (8) STOCK TRANSACTIONS On July 3, 1995, the Recapitalization of the Company was completed. These transactions are described in Note 1. In connection with the Recapitalization, the Company effected a 100-for-1 common stock split. In April 1996, the Company further effected a 50-for-1 common stock split. On June 21, 1996, the Company further effected a 3.67-for-1 common stock split. All references to the number of common shares and per share amounts in the consolidated financial statements, including these accompanying notes have been retroactively restated to reflect these splits for periods subsequent to the Recapitalization. In August 1993, the Company adopted an employee stock option plan for three key employees and granted options to purchase 400,000 shares of Common Stock at the estimated fair market value on the date of grant. These options were to expire 15 years from the date of grant and were exercisable immediately. In 1993, 200,000 options were exercised, and the remaining 200,000 options were exercised in 1994. To facilitate the exercise of these options, the Company made bonus payments to the executives in the amounts of approximately $2,111,000 and $2,237,000 in 1993 and 1994, respectively. In connection with the Recapitalization, this stock option plan was terminated. The Company redeemed 200,000 shares of common stock held by certain officers of the Company on both September 6, 1993 and September 26, 1994 at their estimated fair market value. F-15 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (8) STOCK TRANSACTIONS (CONTINUED) On July 3, 1995, in connection with the Recapitalization, the Company adopted an incentive stock option plan (the "Stock Option Plan") under which 815,474 shares of Common Stock have been authorized. In July 1995, the Company granted options to certain officers to purchase a total of 734,000 shares of Common Stock. In October 1995, the Company granted to certain employees options to purchase 34,865 shares of Common Stock. The exercise price of the options granted in July, 1995 is $0.68 per share, and the exercise price of the options granted in October, 1995 is $1.36 per share which, in both instances, is not less than estimated fair market value on the grant date. The options vest over seven years at rates set forth in the Stock Option Plan agreement and are exercisable for a 10-year period. A summary of option activity is presented below:
EXERCISE SHARES PRICE ------- -------- Options granted......................................... 734,000 $0.68 Outstanding, September 2, 1995.......................... 734,000 0.68 Granted............................................... 34,865 1.36 Exercised............................................. (27,525) 0.68 ------- Outstanding, June 1, 1996............................... 741,340 $0.71 ------- ----- Options exercisable, June 1, 1996....................... 111,384 $0.71 ------- ----- Shares available for future grants...................... 46,609 =======
On July 3, 1995, certain stockholders of the Company made a $300,000 capital contribution pursuant to the Recapitalization, which was used to pay a onetime bonus to an executive officer of the Company. Payment of the bonus was made prior to year-end and is included in the operating expenses in the accompanying consolidated statements of income. In 1995, the Company declared dividends in the amount of approximately $2,200,000. In 1996, certain stockholders contributed approximately $99,000 of this dividend back to the Company. These transactions are reflected in the accompanying consolidated statements of changes in stockholders' equity (deficit). F-16 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (9) SUPPLEMENTAL CASH FLOW DISCLOSURE Cash payments for interest and income taxes and certain noncash transactions were as follows for the periods indicated:
YEAR ENDED YEAR ENDED YEAR ENDED THIRTY-NINE WEEKS AUGUST 28, SEPTEMBER 3, SEPTEMBER 2, ENDED JUNE 1, 1993 1994 1995 1996 ---------- ------------ ------------ ----------------- Interest................ $ -- $ -- $ 51,494 $1,821,854 Income taxes............ 18,560 73,328 149,792 1,420,690 Issuance of subordinated note to acquire net assets of St. Louis Ostomy................. -- -- -- 1,235,000 1995 unpaid dividends contributed by stockholders back to the Company in 1996.... -- -- -- 98,780 Issuance of 12% note payable on June 30, 2000 for the repurchase of common stock........ -- -- 2,500,000 -- Issuance of 200 shares of preferred stock for certain Recapitalization fees.. -- -- 200,000 -- Accretion of preferred stock.................. -- -- 110,833 507,060 Transfer of cash surrender value of life insurance to officers.. -- -- 309,966 -- Exchange of notes payable by officers for cash surrender value of life insurance......... -- -- 234,739 --
(10) OTHER RELATED PARTY TRANSACTIONS The stockholders of the Company and, in certain cases, two of its officers, participate in three partnerships with which the Company has entered into certain transactions. The Company leases warehouse facilities in Holliston, Massachusetts; Atlanta, Georgia; and South Bend, Indiana, from a related parties under 15- and 10-year leases expiring in fiscal 2006, 2006 and 2003, respectively. Rent expense under these leases amounted to approximately $563,000, $571,000, $591,000 and $449,000 for 1993, 1994, 1995 and the thirty- nine weeks ended June 1, 1996, respectively. In the opinion of the Company, the rent paid to related parties is not materially different than the amounts which would be paid to third parties for comparable space. In July 1995, the Company was released from the guarantee of repayment of a mortgage loan on the Atlanta facility. In December 1995, the Company sold an automobile with a net book value of $2,000 to one of the executives for $20,000. (11) LIFE INSURANCE ON KEY EXECUTIVES On June 30, 1995, $5,000,000 of life insurance for two key executives which had previously been carried by the Company was transferred back to the executives. In the event of either individual's death, the proceeds of this insurance were to be used to repurchase the individual's stock in the Company at book value. In return for the transfer of the insurance, the executives exchanged certain notes payable to them from the Company and issued notes payable of $129,520 in the amount of the difference between the old notes payable and the cash surrender value of the insurance plus prepaid insurance premiums at the date of transfer. At September 2, 1995, the entire $129,520 is due from the executives and is included in accounts receivable in the accompanying balance sheet. The notes were paid in full during the thirty-nine weeks ended June 1, 1996. F-17 SUBURBAN OSTOMY SUPPLY CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 1, 1996 (11) LIFE INSURANCE ON KEY EXECUTIVES In order to comply with certain debt covenants, the Company acquired term life insurance policies in the amount of $1,000,000 each on the two key executives. In the event of either individual's death, the proceeds of this insurance must be used to pay down outstanding principal under the terms of the Credit Facility Agreement. (12) SUBSEQUENT EVENTS On June 14, 1996, the Company acquired all of the outstanding common stock of Patient-Care Medical Sales, a California corporation, for an aggregate purchase price, including expenses, of approximately $4,150,000, of which $375,000 is payable on the first annual anniversary of the closing, subject to set off ("Patient-Care Deferred Payment"). The acquisition is expected to be accounted for as a purchase, and the purchase price will be allocated to the net assets acquired based on their respective estimated fair values. The acquisition was financed using bank debt (see Note 4). In June 1996, the Company plans to file a registration statement with the Securities and Exchange Commission to sell 3,750,000 shares, or 33.7% of its common stock, through a public offering. F-18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To St. Louis Ostomy Distributors, Inc.: We have audited the accompanying balance sheets of St. Louis Ostomy Distributors, Inc. (a Missouri corporation) as of July 30, 1994 and July 29, 1995, and the related statements of income, changes in stockholders' (deficit) equity and cash flows for each of the three years ended July 29, 1995 and for the period from July 30, 1995 through January 22, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of St. Louis Ostomy Distributors, Inc. as of July 30, 1994 and July 29, 1995, and the results of its operations and its cash flows for each of the three years ended July 29, 1995 and for the period from July 30, 1995 through January 22, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts June 14, 1996 F-19 ST. LOUIS OSTOMY DISTRIBUTORS, INC. BALANCE SHEETS--JULY 30, 1994 AND JULY 29, 1995
1994 1995 ----------- ---------- ASSETS Current Assets: Cash and cash equivalents............................ $ 86,042 $ 448,782 Accounts receivable, net of allowance for doubtful accounts of $90,015 and $91,651 in 1994 and 1995, respectively........................................ 1,710,283 1,741,359 Merchandise inventory................................ 764,829 681,323 Prepaid expenses and other........................... 68,748 39,949 Deferred income taxes................................ 36,502 36,767 ----------- ---------- Total current assets............................... 2,666,404 2,948,180 ----------- ---------- Fixed Assets, at cost: Equipment and fixtures............................... 396,097 466,681 Leasehold improvements............................... 48,037 48,037 ----------- ---------- 444,134 514,718 Less--Accumulated depreciation....................... 187,107 243,865 ----------- ---------- Total fixed assets, net............................ 257,027 270,853 ----------- ---------- Other Assets: Cash surrender value of life insurance............... 34,071 40,688 Deposits............................................. 20,350 20,350 ----------- ---------- Total other assets................................. 54,421 61,038 ----------- ---------- Total assets....................................... $ 2,977,852 $3,280,071 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt.................... $ -- $ 303,384 Note payable......................................... 1,545,262 -- Accounts payable..................................... 998,950 1,049,773 Accrued expenses, including payroll and related taxes............................................... 158,460 205,442 Income taxes payable................................. 14,596 14,057 ----------- ---------- Total current liabilities.......................... 2,717,268 1,572,656 ----------- ---------- Long-term Debt......................................... -- 585,724 Deferred Income Taxes.................................. 5,819 9,913 Stockholders' Equity: Common stock, $1 par value-- Authorized--30,000 shares Issued--500 shares in 1994 and 250 shares in 1995.. 500 250 Additional paid-in capital........................... 51,957 51,957 Retained earnings.................................... 2,166,118 1,059,571 Treasury stock at cost, 250 shares in 1994........... (1,963,810) -- ----------- ---------- Total stockholders' equity......................... 254,765 1,111,778 ----------- ---------- Total liabilities and stockholders' equity......... $ 2,977,852 $3,280,071 =========== ==========
The accompanying notes are an integral part of these financial statements. F-20 ST. LOUIS OSTOMY DISTRIBUTORS, INC. STATEMENTS OF INCOME FOR THE YEARS ENDED JULY 31, 1993, JULY 30, 1994 AND JULY 29, 1995 AND THE PERIOD FROM JULY 30, 1995 THROUGH JANUARY 22, 1996
PERIOD FROM JULY 30, 1995 THROUGH JANUARY 22, 1993 1994 1995 1996 ----------- ----------- ----------- ------------- Net Sales.................. $14,025,192 $15,905,672 $17,235,282 $9,272,034 Cost of Goods Sold......... 11,102,211 12,490,194 13,756,393 7,375,178 ----------- ----------- ----------- ---------- Gross profit............. 2,922,981 3,415,478 3,478,889 1,896,856 Operating Expenses......... 1,838,181 1,812,520 1,972,352 1,120,079 Depreciation and amortiza- tion...................... 54,685 53,658 56,758 55,113 ----------- ----------- ----------- ---------- Operating income......... 1,030,115 1,549,300 1,449,779 721,664 Interest Expense, net...... 173,635 135,974 90,263 17,857 Other (Income) Expense..... (16,920) 5,285 (12,841) (4,882) ----------- ----------- ----------- ---------- Income before provision for income taxes........ 873,400 1,408,041 1,372,357 708,689 Provision for Income Tax- es........................ 324,777 506,408 515,344 277,278 ----------- ----------- ----------- ---------- Net income............... $ 548,623 $ 901,633 $ 857,013 $ 431,411 =========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements. F-21 ST. LOUIS OSTOMY DISTRIBUTORS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY FOR THE YEARS ENDED JULY 31, 1993, JULY 30, 1994 AND JULY 29, 1995 AND THE PERIOD FROM JULY 30, 1995 THROUGH JANUARY 22, 1996
TOTAL COMMON ADDITIONAL STOCKHOLDERS' STOCK, PAID-IN RETAINED TREASURY (DEFICIT) $1 PAR VALUE CAPITAL EARNINGS STOCK EQUITY ------------ ---------- ----------- ----------- ------------- Balance, July 25, 1992.. $ 500 $ -- $ 715,862 $(1,963,810) $(1,247,448) Capital contribution.. -- 51,957 -- -- 51,957 Net income............ -- -- 548,623 -- 548,623 ----- ------- ----------- ----------- ----------- Balance, July 31, 1993.. 500 51,957 1,264,485 (1,963,810) (646,868) Net income............ -- -- 901,633 -- 901,633 ----- ------- ----------- ----------- ----------- Balance, July 30, 1994.. 500 51,957 2,166,118 (1,963,810) 254,765 Retirement of treasury stock................ (250) -- (1,963,560) 1,963,810 -- Net income............ -- -- 857,013 -- 857,013 ----- ------- ----------- ----------- ----------- Balance, July 29, 1995.. 250 51,957 1,059,571 -- 1,111,778 Net income............ -- -- 431,411 -- 431,411 ----- ------- ----------- ----------- ----------- Balance, January 22, 1996................... $ 250 $51,957 $ 1,490,982 $ -- $ 1,543,189 ===== ======= =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-22 ST. LOUIS OSTOMY DISTRIBUTORS, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 31, 1993, JULY 30, 1994 AND JULY 29, 1995 AND THE PERIOD FROM JULY 30, 1995 THROUGH JANUARY 22, 1996
PERIOD FROM JULY 30, 1995 THROUGH 1993 1994 1995 JANUARY 22, 1996 --------- --------- ---------- ---------------- Cash Flows from Operating Activities: Net income................ $ 548,623 $ 901,633 $ 857,013 $ 431,411 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amorti- zation................. 54,685 53,658 56,758 55,113 Provision for bad debt losses................. 10,432 13,445 1,636 13,291 Net loss on sale of fixed assets........... -- 20,000 -- -- Deferred income tax (benefit) provision.... (3,361) (19,861) 3,829 (14,010) Change in assets and li- abilities-- Accounts receivable... (208,637) (268,907) (32,712) (187,014) Merchandise invento- ry................... (181,288) (107,198) 83,506 (161,552) Prepaid expenses and other................ (38,316) (18,998) 28,799 39,949 Deposits.............. 6,150 (12,634) -- -- Accounts payable...... 292,160 (160,124) 50,823 192,900 Accrued expenses...... (10,721) (21,096) 46,982 85,703 Income taxes payable.. (280,067) 5,561 (539) 7,241 --------- --------- ---------- --------- Net cash provided by operating activities......... 189,660 385,479 1,096,095 463,032 --------- --------- ---------- --------- Cash Flows from Investing Activities: Repayments from affiliated company.................. 16,707 -- -- -- Purchase of fixed assets.. (73,137) (82,679) (70,584) (36,653) Increase in cash surrender value of life insurance.. (13,749) (13,332) (6,617) (4,384) Proceeds from surrender of life insurance policy.... -- 41,268 -- -- --------- --------- ---------- --------- Net cash used in investing activities......... (70,179) (54,743) (77,201) (41,037) --------- --------- ---------- --------- Cash Flows from Financing Activities: Capital contribution from stockholder.............. 51,957 -- -- -- Proceeds from notes pay- able to bank............. 300,000 -- -- -- Principal repayment of notes payable to bank.... (223,059) (231,679) (28,332) -- Principal repayment of long-term bank debt...... (108,830) (227,184) (627,822) (451,693) --------- --------- ---------- --------- Net cash provided by (used in) financing activities......... 20,068 (458,863) (656,154) (451,693) --------- --------- ---------- --------- Net Increase (Decrease) in Cash and Cash Equivalents.. 139,549 (128,127) 362,740 (29,698) Cash and Cash Equivalents, beginning of period........ 74,620 214,169 86,042 448,782 --------- --------- ---------- --------- Cash and Cash Equivalents, end of period.............. $ 214,169 $ 86,042 $ 448,782 $ 419,084 ========= ========= ========== =========
The accompanying notes are an integral part of these financial statements. F-23 ST. LOUIS OSTOMY DISTRIBUTORS, INC. NOTES TO FINANCIAL STATEMENTS JULY 29, 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General St. Louis Ostomy Distributors, Inc. (the "Company") is a wholesaler of home health care products. The Company is located in St. Louis, Missouri. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Disclosure of Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable, notes payable and debt. The carrying amounts of the Company's cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. Certain of the Company's debt bears interest at a variable market rate, and thus has a carrying amount that approximates fair value. The debt carries a fixed rate of interest which approximates fair value based on rates available to the Company for debt with similar terms and maturities. Merchandise Inventory Inventory is stated at the lower of cost or market and is accounted for using the weighted moving-average cost method, which approximates the first- in, first-out (FIFO) method. Fixed Assets The cost of property and equipment is depreciated and amortized over the estimated useful lives of the related assets, as follows: Equipment, computers and fixtures................. 3-7 years Straight-line Leasehold improvements............................ 31 years Straight-line
Maintenance and repairs are expensed as incurred. Cash and Cash Equivalents For the accompanying statements of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which is an asset and liability method. Under the asset and liability method, deferred taxes are established for the temporary differences between the financial reporting and tax bases of the Company's assets and liabilities at currently enacted tax laws and rates. (2) DEBT Debt consists of the following at July 30, 1994 and July 29, 1995:
1994 1995 ---------- -------- Note payable to Jefferson Bank...................... $ -- $889,108 Note payable to Colonial Bank. The note was refinanced in September 1994....................... 1,545,262 -- ---------- -------- $1,545,262 $889,108 ========== ========
F-24 ST. LOUIS OSTOMY DISTRIBUTORS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 29, 1995 (2) DEBT (CONTINUED) In connection with the acquisition of certain shares held by a former stockholder in 1993 (discussed in Note 7), the Company entered into a note agreement in the amount of $1,963,810. The note was collateralized by all of the Company's assets and shares of common stock and was guaranteed by the remaining sole stockholder of the Company. The note was refinanced with $1,700,000 of bank debt in February 1994. The $1,700,000 debt payable to Colonial Bank was secured by the Company's accounts receivable, inventory and equipment, and was guaranteed by the stockholder of the Company. Interest on the note was at prime (7.25% at July 30, 1994) plus .5%. Monthly payments were required in the amount of $28,333 plus interest. In September 1994, this debt was refinanced with new bank debt in the amount of $1,516,929. The $1,516,929 original debt with Jefferson Bank is collateralized by accounts receivable and inventory of the Company, as well as the assignment of a Company-owned life insurance policy on the life of the stockholder. The debt is guaranteed by the stockholder. Interest accrues annually at the prime rate (8.75% at July 29, 1995). The terms of the debt agreement provide for monthly payments of $25,282 plus interest, with the final payment due in September 1999. In addition to the required minimum monthly payments, the Company has made optional prepayments in accordance with the terms of the agreement in the amount of approximately $442,000 through July 29, 1995. In February 1992, the Company entered into a $80,000 loan agreement with Colonial Bank secured by an automobile. The loan bore interest at prime (6.0% at July 31, 1993) plus 1% and was fully repaid in April 1994. In October 1992, the Company entered into a loan agreement with Colonial Bank secured by accounts receivable, inventory and equipment of the Company. The loan was guaranteed by the stockholder. Interest accrued at a rate of prime plus .5%, and monthly payments were due in the amount of $25,901 plus interest. The note was fully repaid in October 1993. At July 29, 1995, aggregate minimum maturities are as follows:
FISCAL YEAR AMOUNT ----------- -------- 1996................................ $303,384 1997................................ 303,384 1998................................ 282,340 -------- $889,108 ========
(3) INCOME TAXES The provision (benefit) for income taxes for the years ended July 31, 1993, July 30, 1994 and July 29, 1995 and for the period from July 30, 1995 through January 22, 1996 consists of the following:
PERIOD FROM JULY 30, 1995 THROUGH JANUARY 22, 1993 1994 1995 1996 -------- -------- -------- ------------- U.S. Federal-- Current............................ $295,328 $480,470 $452,895 $261,488 Deferred........................... (3,025) (18,133) 3,390 (13,232) State-- Current............................ 32,810 45,799 58,620 29,800 Deferred........................... (336) (1,728) 439 (778) -------- -------- -------- -------- $324,777 $506,408 $515,344 $277,278 ======== ======== ======== ========
F-25 ST. LOUIS OSTOMY DISTRIBUTORS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 29, 1995 (3) INCOME TAXES (CONTINUED) Under SFAS No. 109, net current deferred tax assets or liabilities and net long-term deferred tax assets or liabilities are reported separately in the Company's accompanying balance sheets. The components of the deferred taxes as of July 30, 1994 and July 29, 1995 are as follows:
1994 1995 ------- ------- Deferred tax assets: Reserves and accruals not yet deductible for tax purposes... $33,306 $33,192 Other....................................................... 3,196 2,855 ------- ------- Total deferred tax assets..................................... 36,502 36,767 Deferred tax liabilities: Property basis differences.................................. (5,819) (9,913) ------- ------- Net deferred taxes............................................ $30,683 $22,854 ======= =======
The provision for income taxes is different from the amount computed by applying the U.S. federal statutory income tax rate of 34% to income before provision for income taxes, primarily due to state taxes net of federal income tax benefit. (4) RETIREMENT PLAN The Company has a qualified, noncontributory, profit-sharing plan covering eligible full-time employees. The plan provides for contributions by the Company in such amounts as the Board of Directors may annually determine. Contributions to the plan amounted to approximately $52,000, $60,000, $75,000 and $0 in 1993, 1994, 1995 and the period from July 30, 1995 through January 22, 1996, respectively. (5) COMMITMENTS AND CONTINGENCIES Leases In December 1991, the Company entered into a lease for rental of a warehouse facility commencing in April 1992 and expiring in March 1997. Rent expense charged against operations under the lease amounted to approximately $117,000, $83,000, $86,000 and $35,000 in 1993, 1994, 1995 and the period from July 30, 1995 through January 22, 1996, respectively. In March 1994, the Company entered into a lease for rental of a luxury box at a sports facility for a five-year period expiring in August 1999. Rent expense for fiscal 1995 and for the period from July 30, 1995 through January 22, 1996 was approximately $13,000 and $14,000, respectively. At July 29, 1995, approximate future minimum lease payments under noncancelable operating leases are as follows:
YEAR AMOUNT ---- -------- 1996................................ $114,666 1997................................ 89,959 1998................................ 32,056 1999................................ 34,300 -------- $270,981 ========
F-26 ST. LOUIS OSTOMY DISTRIBUTORS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 29, 1995 (6) SUPPLEMENTAL CASH FLOWS DISCLOSURE Cash payments for interest and income taxes and certain noncash transactions were as follows for the periods indicated:
PERIOD FROM JULY 30, 1995 THROUGH JANUARY 22, 1993 1994 1995 1996 -------- ---------- ---------- ----------- Interest........................... $170,520 $ 137,239 $ 108,117 $ 33,472 Income taxes....................... 644,157 543,816 478,835 284,586 Refinance of note payable through the issuance of long-term debt.... -- -- 1,516,929 -- Retirement of long-term debt through the issuance of note payable........................... -- 1,512,990 -- --
(7) STOCK REDEMPTION AGREEMENT On April 24, 1992, the Company entered into an agreement to acquire the outstanding shares of one of the Company's stockholders. The purchase of 250 shares of the Company's stock was funded through the issuance of a promissory note in the amount of $1,963,810. In February 1994, this obligation was refinanced with bank debt (see Note 2). The agreement contained a covenant not to compete in the amount of $250,000 to be paid in monthly installments ranging from $3,125 to $5,208 through March 1998. Additionally, a one-year employment agreement for $50,000 and a five- year consulting agreement for $100,000 per year were entered into between the Company and the former stockholder. Amounts paid under these agreements amounted to approximately $145,000 in 1993. On May 19, 1993, in connection with the sale of the remaining stockholder's interest in an affiliated company, the terms of the above agreement were modified to release the Company from further obligation under the noncompetition and consulting agreements. (8) RELATED PARTY TRANSACTIONS The Company engaged in transactions with a company formerly related through common ownership. Sales in the amount of $335,565 were made to the affiliate during 1993. On May 19, 1993, the stockholder of the Company sold his interest in the affiliated company. Under the agreement, the Company agreed to maintain the same profit margin on future sales to the former affiliate. During 1994, this provision was eliminated. The companies also entered into a mutual covenant not to compete for a period of three years. (9) STOCK TRANSACTIONS In April 1992, the Company acquired 250 shares of stock held by a former stockholder. This transaction is discussed in Note 7. In March 1995, the Company's stockholder transferred 175 shares of stock to a limited partnership in which the stockholder is the general partner. (10) SUBSEQUENT EVENT On September 22, 1995, the stockholders of the Company signed a confidential letter of intent to sell the outstanding stock to Suburban Ostomy Supply Co., Inc. The transaction was completed on January 22, 1996. F-27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Patient-Care Medical Sales: We have audited the accompanying balance sheets of Patient-Care Medical Sales (a California corporation) as of March 31, 1995 and 1996, and the related statements of income, changes in stockholders' equity and cash flows for the three years ended March 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Patient-Care Medical Sales as of March 31, 1995 and 1996, and the results of its operations and its cash flows for the three years ended March 31, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts May 3, 1996 F-28 PATIENT-CARE MEDICAL SALES BALANCE SHEETS--MARCH 31, 1995 AND 1996
1995 1996 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents.............................. $ 117,030 $ 84,116 Accounts receivable, net of allowance for doubtful accounts of $132,399 and $123,791 in 1995 and 1996, respectively.......................................... 2,239,783 1,893,234 Merchandise inventory.................................. 1,233,667 1,412,178 Prepaid expenses and other............................. 21,697 90,887 Prepaid income taxes................................... -- 161,813 Deferred income taxes.................................. 113,350 89,826 ---------- ---------- Total current assets................................. 3,725,527 3,732,054 ---------- ---------- Fixed Assets, at cost: Equipment and fixtures................................. 674,693 813,439 Leasehold improvements................................. 40,864 45,422 ---------- ---------- 715,557 858,861 ---------- ---------- Less--Accumulated depreciation......................... 464,581 534,682 ---------- ---------- Total fixed assets, net.............................. 250,976 324,179 ---------- ---------- Other Assets: Deposits............................................... 14,738 27,282 Deferred income taxes.................................. 9,816 -- ---------- ---------- Total assets......................................... $4,001,057 $4,083,515 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt...................... $ 195,113 $ 455,620 Bank line of credit.................................... 880,000 890,000 Accounts payable....................................... 1,050,488 951,584 Accrued expenses, including payroll and related taxes.. 280,345 529,269 Income taxes payable................................... 206,986 -- ---------- ---------- Total current liabilities............................ 2,612,932 2,826,473 ---------- ---------- Long-Term Debt........................................... 271,500 -- Deferred Income Taxes.................................... -- 12,615 Commitments and Contingencies Stockholders' Equity: Common stock, no par value-- Authorized--100,000 shares Issued--295 shares in 1995 and 1994.................. 5,000 5,000 Retained earnings...................................... 1,111,625 1,239,427 ---------- ---------- Total stockholders' equity........................... 1,116,625 1,244,427 ---------- ---------- Total liabilities and stockholders' equity........... $4,001,057 $4,083,515 ========== ==========
The accompanying notes are an integral part of these financial statements. F-29 PATIENT-CARE MEDICAL SALES STATEMENTS OF INCOME FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
1994 1995 1996 ----------- ----------- ----------- Net Sales............................... $17,580,778 $18,100,947 $18,321,220 Cost of Goods Sold...................... 14,405,775 14,403,101 14,545,214 ----------- ----------- ----------- Gross profit.......................... 3,175,003 3,697,846 3,776,006 Operating Expenses...................... 2,919,138 3,120,145 3,435,205 Depreciation and Amortization........... 70,626 57,897 70,101 ----------- ----------- ----------- Operating income...................... 185,239 519,804 270,700 Interest Expense, Net................... 109,783 105,979 146,182 Other Income, Net....................... (33,258) (78,442) (88,976) ----------- ----------- ----------- Income before provision for income taxes................................ 108,714 492,267 213,494 Provision for Income Taxes.............. 36,669 210,773 85,692 ----------- ----------- ----------- Net income............................ $ 72,045 $ 281,494 $ 127,802 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-30 PATIENT-CARE MEDICAL SALES STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
COMMON TOTAL STOCK, RETAINED STOCKHOLDERS' NO PAR VALUE EARNINGS EQUITY ------------ ---------- ------------- Balance, March 31, 1993................... $5,000 $ 758,086 $ 763,086 Net income.............................. -- 72,045 72,045 ------ ---------- ---------- Balance, March 31, 1994................... 5,000 830,131 835,131 Net income.............................. -- 281,494 281,494 ------ ---------- ---------- Balance, March 31, 1995................... 5,000 1,111,625 1,116,625 Net income.............................. -- 127,802 127,802 ------ ---------- ---------- Balance, March 31, 1996................... $5,000 $1,239,427 $1,244,427 ====== ========== ==========
The accompanying notes are an integral part of these financial statements. F-31 PATIENT-CARE MEDICAL SALES STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
1994 1995 1996 --------- --------- --------- Cash Flows from Operating Activities: Net income.................................. $ 72,045 $ 281,494 $ 127,802 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization............. 70,626 57,897 70,101 Provision for bad debt losses............. 50,000 82,399 (8,608) Loss on sale of fixed assets.............. 1,713 17,225 -- Change in assets and liabilities-- Deferred income tax (benefit) provision, net.................................... (25,070) (57,957) 45,955 Accounts receivable..................... (321,538) (357,215) 355,157 Merchandise inventory................... (83,041) (108,311) (178,511) Prepaid expenses and other.............. 15,597 (17,051) (69,190) Prepaid income taxes.................... -- -- (161,813) Deposits................................ -- 320 (12,544) Accounts payable........................ 121,769 95,579 (98,904) Accrued expenses........................ 94,465 4,494 248,924 Income taxes payable.................... 25,518 180,606 (206,986) --------- --------- --------- Net cash provided by operating activities........................... 22,084 179,480 111,383 --------- --------- --------- Cash Flows from Investing Activities: Purchase of fixed assets.................... (29,247) (47,000) (143,304) --------- --------- --------- Net cash used in investing activities........................... (29,247) (47,000) (143,304) --------- --------- --------- Cash Flows from Financing Activities: Payments on capital lease obligations....... (31,227) (34,015) (10,993) Net proceeds from bank line of credit....... (163,000) 280,000 10,000 Principal repayment of notes payable........ -- (65,000) -- --------- --------- --------- Net cash (used in) provided by financing activities................. (194,227) 180,985 (993) --------- --------- --------- Net (Decrease) Increase in Cash and Cash Equivalents.................................. (201,390) 313,465 (32,914) Cash and Cash Equivalents, Beginning of Year.. 4,955 (196,435) 117,030 --------- --------- --------- Cash and Cash Equivalents, End of Year........ $(196,435) $ 117,030 $ 84,116 ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-32 PATIENT-CARE MEDICAL SALES NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Patient-Care Medical Sales (the "Company") is a wholesaler of home health care products, primarily incontinence, ostomy and wound care supplies. The Company is located in Santa Fe Springs, California. Merchandise Inventory Inventory is stated at the lower of cost or market and is accounted for using the weighted moving-average cost method, which approximates the first- in, first-out (FIFO) method. Fixed Assets The cost of property and equipment is depreciated and amortized over the estimated useful lives of the related assets, as follows: Equipment, computers and fixtures 5-7 years Straight-line Leasehold improvements 5 years Straight-line
Cash and Cash Equivalents For the accompanying statements of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which is an asset and liability method. Under the asset and liability method, deferred taxes are established for the temporary differences between the financial reporting and tax bases of the Company's assets and liabilities at currently enacted tax laws and rates. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Disclosure of Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable, bank line-of-credit payable and note payable to shareholder. The carrying amounts of the Company's cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. The Company's outstanding bank line of credit bears interest at a variable market rate and has a carrying amount that approximates fair value. The note payable to shareholder carries a fixed rate of interest that also approximates fair value, based on rates available to the Company for debt with similar terms and remaining maturities. F-33 PATIENT-CARE MEDICAL SALES NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1996 (2) DEBT Debt consists of the following at March 31, 1995 and 1996:
1995 1996 ---------- ---------- Sanwa Bank line of credit............................. $ 880,000 $ 890,000 Note payable to a shareholder......................... 271,500 271,500 Equipment capital leases.............................. 195,113 184,120 ---------- ---------- $1,346,613 $1,345,620 ========== ==========
The Company has an agreement with Sanwa Bank which provides for a $1,400,000 line of credit secured by substantially all the assets of the Company. Outstanding borrowings bear interest monthly at the annual rate of prime plus 1% (or 9.25% at March 31, 1996). The line of credit agreement expires on July 31, 1996, at which time all outstanding borrowings and unpaid interest are due in full. The agreement requires the Company to comply with certain covenants and to satisfy certain financial tests and ratios. In February 1993, the shareholder of the Company advanced funds to the Company in the amount of $271,500 in return for a promissory note. The note is due in February 1997 and bears interest monthly at an interest rate of 11% per annum. The note is secured by substantially all the Company's assets and is subordinate to the bank line of credit. The Company also has equipment capital leases ranging in maturities from June 1997 to February 2000 and bearing interest rates ranging from 7% to 13%. (3) INCOME TAXES The provision (benefit) for income taxes for the years ended March 31, 1994, 1995 and 1996 consists of the following:
1994 1995 1996 -------- -------- ------- U.S. Federal-- Current........................................... $ 45,603 $210,896 $30,529 Deferred.......................................... (19,262) (44,528) 35,308 State-- Current........................................... 16,136 57,834 9,208 Deferred.......................................... (5,808) (13,429) 10,647 -------- -------- ------- $ 36,669 $210,773 $85,692 ======== ======== =======
F-34 PATIENT-CARE MEDICAL SALES NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1996 (3) INCOME TAXES (CONTINUED) Under SFAS No. 109, net current deferred tax assets or liabilities and net long-term deferred tax assets or liabilities are reported separately in the Company's accompanying balance sheets. Deferred taxes result primarily from nondeductible accruals and reserves and tax bases differing from financial reporting bases of inventories and fixed assets. The components of the deferred taxes as of March 31, 1995 and 1996 are as follows:
1995 ----------------- LONG- CURRENT TERM -------- -------- Deferred tax assets......................................... $113,350 $ 9,816 Deferred tax liabilities.................................... -- -- -------- -------- $113,350 $ 9,816 ======== ======== 1996 ----------------- LONG- CURRENT TERM -------- -------- Deferred tax assets......................................... $ 89,826 $ -- Deferred tax liabilities.................................... -- (12,615) -------- -------- $ 89,826 $(12,615) ======== ========
The provision for income taxes is different from the amount computed by applying the U.S. federal statutory income tax rate of 34% to income before provision for income taxes, primarily due to state taxes net of federal income tax benefit. (4) RETIREMENT PLAN In 1996, the Company adopted a qualified, defined contribution 401(k) plan covering eligible full-time employees during the 1996 fiscal year. The Company matches 25% of employee contributions up to 6% of their annual salary and may also make discretionary contributions. Contributions to the plan by the Company amounted to $7,014 in 1996. (5) COMMITMENTS AND CONTINGENCIES Lease The Company currently has a lease for its Santa Fe Springs warehouse facility which expires in May 1998. Rent expense, including common area maintenance charges, charged against operations under the lease amounted to $212,433, $169,739 and $176,077 in 1994, 1995 and 1996, respectively. At March 31, 1996, approximate future minimum lease payments under this noncancelable operating lease are as follows:
YEAR AMOUNT ---- -------- 1997................................ $160,920 1998................................ 160,920 1999................................ 26,820 -------- $348,660 ========
F-35 PATIENT-CARE MEDICAL SALES NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1996 (6) SUPPLEMENTAL CASH FLOWS DISCLOSURE Cash payments for interest and income taxes and certain noncash transactions were as follows for the fiscal years indicated:
1994 1995 1996 ------- -------- -------- Interest............................................. $61,740 $268,730 $146,182 Income taxes......................................... 36,222 88,124 408,535 Equipment acquired under capital lease obligations... -- 179,172 -- ======= ======== ========
(7) SUBSEQUENT EVENT On April 18, 1996, the stockholder of the Company signed a confidential letter of intent to sell the outstanding stock to Suburban Ostomy Supply Co., Inc. The proposed transaction is subject to a number of conditions, including the negotiation of a definitive agreement and satisfactory completion of due diligence by the buyer. F-36 [LOGO OF SUBURBAN OSTOMY APPEARS HERE] 3,750,000 SHARES COMMON STOCK PROSPECTUS DEAN WITTER REYNOLDS INC. BEAR, STEARNS & CO. INC. WILLIAM BLAIR & COMPANY WHEAT FIRST BUTCHER SINGER , 1996 ITEM 16. EXHIBITS Exhibits: 3.1 Restated Articles of Organization, as amended 3.2 Bylaws 5.1 Form of Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation, as to the legality of the securities being registered 10.1 Stock Purchase and Redemption Agreement, among the Company, Summit, BSC, the Management Stockholders and Melvin Aronson, dated July 3, 1995 10.2 Subordinated Debenture Purchase Agreement among the Company, Summit Debt and Summit Investors, dated July 3, 1995 10.3 Shareholders' Agreement among the Company, Summit, BSC, the Management Stockholders and Melvin Aronson, dated July 3, 1995 10.4 Registration Rights Agreement among the Company, Summit, BSC, the Management Stockholders and Melvin Aronson, dated July 3, 1995 10.5 $6,615,000 12% Subordinated Debenture of the Company issued to Summit Debt, dated July 3, 1995 10.6 $135,000 12% Subordinated Debenture of the Company issued to Summit Investors, dated July 3, 1995 10.7 Suburban Ostomy Supply Co., Inc. Stock Option Plan 10.8 Stock Option Agreement with Herbert Grey, dated July 3, 1995 10.9 Stock Option Agreement with Donald Benovitz, dated July 3, 1995 10.10 Stock Option Agreement with Stephen N. Aschettino, dated July 3, 1995 10.11 Stock Option Agreement with John Manos, dated July 3, 1995 10.12 Employment Agreement with Herbert Gray, dated July 3, 1995 10.13 Employment Agreement with Donald Benovitz, dated July 3, 1995 10.14 Employment Agreement with Stephen N. Aschettino, dated July 3, 1995 10.15 Employment Agreement with Patrick Bohan, dated July 3, 1995 10.16 Employment Agreement with John Manos, dated July 3, 1995 10.17 $1,000,000 12% Non-Negotiable Subordinated Promissory Note of the Company issued to Melvin Aronson, dated July 3, 1995 10.18 $1,000,000 12% Non-Negotiable Subordinated Promissory Note of the Company issued to Melvin Aronson, dated July 3, 1995 10.19 $375,000 12% Non-Negotiable Subordinated Promissory Note of the Company issued to Donald Benovitz, dated July 3, 1995 10.20 $62,500 12% Non-Negotiable Subordinated Promissory Note of the Company issued to Stephen N. Aschettino, dated July 3, 1995 10.21 $62,500 12% Non-Negotiable Subordinated Promissory Note of the Company issued to Patrick Bohan, dated July 3, 1995 10.22 Credit Agreement between the Company and The First National Bank of Boston, dated July 3, 1995 10.23 First Amendment to Credit Agreement among the Company, the Bank and St. Louis Ostomy, dated January 22, 1996 10.24 Second Amendment to Credit Agreement among the Company, the Bank and St. Louis Ostomy, dated June 14, 1996 10.25 Proposed terms and conditions of Amended Credit Facility from the Bank 10.26 Warrant to purchase shares of Common Stock issued to the Bank, dated January 22, 1996 10.27 Stock Purchase Agreement relating to the Purchase of St. Louis Ostomy by the Company, dated January 22, 1996 10.28 Non-Competition Agreement between the Company and Michael J. Quinn, dated January 22, 1996
10.29 $1,235,000 10% Subordinated Promissory Note of the Company issued to Michael J. Quinn, dated January 22, 1996 10.30 Employment Letter Agreement between the Company and Michael J. Quinn, dated January 22, 1996 10.31 Stock Purchase Agreement relating to the Purchase of Patient-Care by the Company, dated June 14, 1996 10.32 Escrow Agreement among the Company and the Stockholders of Patient- Care, dated June 14, 1996 10.33 Non-Competition Agreement by Nate Spunt for the benefit of the Company and Patient-Care, dated June 14, 1996 10.34 Employment Agreement between Patient-Care and John Somers, dated June 14, 1996 10.35 UPS Ground Incentive Program Contract Carrier Agreement between the Company and UPS, dated February 13, 1995 10.36 Letter Agreement between the Company and UPS, dated August 23, 1995 10.37 UPS Consignee Billing Contract Courier Agreement between the Company and UPS, dated September 23, 1995 10.38 Lease of New Englander Industrial Park between the Company and GBA Realty Trust, dated August 1991 10.39 Lease and Agreement between the Company and GBA Realty Corp., dated August 1, 1993 10.40 Lease Agreement between the Company and Suburban Grayson Atlanta Partnership, dated August 1, 1986 10.41 Lease Agreement between the Company and Christmas Joint Venture, dated July 1, 1994 10.42 Single Tenant Industrial Lease between the Company and Watson Land Company, dated August 18, 1994 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in Exhibit 5.1) 24.1 Power of Attorney (included on signature page) 27.1 Financial Data Schedule
EX-3.1 2 RESTATED ARTICLES OF ORGANIZATION AS AMENDED EXHIBIT 3.1 THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN Secretary of the Commonwealth FEDERAL IDENTIFICATION ONE ASHBURTON PLACE, BOSTON, MASS: 02108 NO. 04-2675674 ---------- RESTATED ARTICLES OF ORGANIZATION GENERAL LAWS, CHAPTER 156B, SECTION 74 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the restated articles of organization. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. __________ We, Donald H. Benovitz ,President and Stephen N. Aschettino ,Clerk of Suburban Ostomy Supply Co., Inc. - -------------------------------------------------------------------------------- (Name of Corporation) located at 75 October Hill Road, Holliston, MA 01746 ---------------------------------------------------------------------- do hereby certify that the following restatement of the articles of organization of the corporation was duly adopted by written consent __________, 199__, by vote of 20,000 shares of Common out of 20,000 shares outstanding - ----------------------- ---------------------------- -------------------------- (Class of Stock) _______________________shares of----------------------------out of___________________________shares outstanding, and (Class of Stock) _______________________shares of--------------------------- out of___________________________outstanding. (Class of Stock)
being at least two-thirds of each class of stock outstanding and entitled to vote and of each class or series of stock adversely affected thereby: 1. THE NAME BY WHICH THE CORPORATION SHALL BE KNOWN IS: Suburban Ostomy Supply Co., Inc. 2. THE PURPOSES FOR WHICH THE CORPORATION IS FORMED ARE AS FOLLOWS: See continuation sheets attached. 3. THE TOTAL NUMBER OF SHARES AND THE PAR VALUE, IF ANY, OF EACH CLASS OF STOCK WHICH THE CORPORATION IS AUTHORIZED TO ISSUE IS AS FOLLOWS:
WITHOUT PAR VALUE WITH PAR VALUE ----------------- ---------------- CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE - ---------------- ---------------- ---------------- --------- PREFERRED None 66,500 $.01 COMMON 200,000 None
*4. IF MORE THAN ONE CLASS IS AUTHORIZED, A DESCRIPTION OF EACH OF THE DIFFERENT CLASSES OF STOCK WITH, IF ANY, THE PREFERENCES, VOTING POWERS, QUALIFICATIONS, SPECIAL OR RELATIVE RIGHTS OR PRIVILEGES AS TO EACH CLASS THEREOF AND ANY SERIES NOW ESTABLISHED: See continuation sheet attached. *5. THE RESTRICTIONS, IF ANY, IMPOSED BY THE ARTICLES OF ORGANIZATION UPON THE TRANSFER OF SHARES OF STOCK OF ANY CLASS ARE AS FOLLOWS: None. *6. OTHER LAWFUL PROVISIONS, IF ANY, FOR THE CONDUCT AND REGULATION OF THE BUSINESS AND AFFAIRS OF THE CORPORATION, FOR ITS VOLUNTARY DISSOLUTION, OR FOR DEFINING, OR REGULATING THE POWERS OF THE CORPORATION, OR OF ITS DIRECTORS OR STOCKHOLDERS, OR OF ANY CLASS OF STOCKHOLDERS: See continuation sheets attached. * IF THERE ARE NO SUCH PROVISIONS, STATE "NONE". Articles of Organization of SUBURBAN OSTOMY SUPPLY CO., INC. Article II continued: The purposes of the Corporation shall be: To engage in the business of selling ostomy and other health care products at wholesale and at retail within and without the continental United States; to make and enter into all kinds of contracts, agreements and obligations by or with any persons, firms, associations and corporations in furtherance of such activities, and, generally, to perform any and all acts connected therewith, or incidental thereto, and all acts proper or necessary for the purposes of this business. To carry on any business or other activity which may lawfully be carried on by a corporation organized under Chapter 156B of the Massachusetts General Laws (the "Business Corporation Law"), whether or not related to those referred to in the foregoing paragraph, whether or not related or similar to the activities described in the preceding paragraph. To carry on any business, operation or activity through a wholly owned or partly owned subsidiary. To carry on any business, operation or activity referred to in the foregoing paragraphs to the same extent as might an individual, whether as principal, agent, contractor or otherwise, and either alone or as a partner, trustee, participant, member or stockholder of or in any form of partnership, joint venture, corporation, association, trust, limited liability company or other form of entity or with any individual, and, without limiting the generality of the foregoing, to be a limited and/or general partner of any partnership organized to carry on any business or activity of the type described herein. To have as additional purposes all powers granted and conferred by the laws of The Commonwealth of Massachusetts upon business corporations organized under the Business Corporation Law. In these provisions, the enumeration of specific purposes or powers shall not be construed to limit other statements of purposes or powers which this Corporation may otherwise have under applicable law, all of the same being separate and cumulative, and all of the same may be carried on, promoted and pursued, transacted or exercised in any place in the world whatsoever. Common Stock - ------------ The holders of the Common Stock shall have the exclusive right to vote for the election of directors and on all other matters requiring action by the stockholders or submitted to the stockholders for action, except as may otherwise be required by these Articles of Organization or law, and each share of the Common Stock shall entitle the holder thereof to one vote. The holders of the Common Stock shall be entitled to receive, to the extent permitted by law, such dividends as may from time to time be declared by the directors, subject to the rights of holders of shares of any class or series having preferential rights to receive distributions or dividends. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Common Stock shall be entitled to receive the net assets of the Corporation, after the Corporation shall have satisfied or made provision for its debts and obligations and for payment to the holders of shares of any class or series having preferential rights to receive distributions of the net assets of the Corporation. Preferred Stock - --------------- The preferences, voting powers, qualifications and special or relative rights or privileges of the Preferred Stock are as follows: SERIES A REDEEMABLE PREFERRED STOCK ----------------------------------- 1. Designation and Amount. The shares of such series of Preferred Stock ---------------------- shall be designated as "Series A Redeemable Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting such series shall be 66,500. 2. Dividends, Etc. --------------- (a) In General. No dividends shall be payable on the Series A ---------- Preferred Stock. (b) Priority. So long as any shares of Series A Preferred Stock -------- remain outstanding, neither the Company nor any Subsidiary (which shall mean any corporation, association or other business entity which the Company directly or indirectly owns at the time more than fifty percent (50%) of the outstanding voting securities or equity interests) will redeem, purchase or otherwise acquire any other equity security of the Company now or hereafter outstanding, including, without limitation, the Common Stock (collectively, the "Junior Securities"), nor will the Company declare or pay any dividend (including accrued dividends) other than dividends payable in shares of capital stock or make any distribution upon any Junior Securities, except for any redemption in connection with the issuance of the shares of Series A Preferred Stock, without the consent of the holders of a majority of the shares of Series A Redeemable Preferred Stock, then outstanding. 3. Liquidation. ----------- (a) Treatment at Liquidation, Dissolution and Winding Up. In the ---------------------------------------------------- event of any liquidation, dissolution or winding-up of the Company, whether voluntarily or involuntarily, before any distribution or payment may be made with respect to any Junior Securities, holders of each share of Series A Preferred Stock shall be entitled to be paid out of the assets of the Company available for distribution to holders of the Company's capital stock of all classes, whether such assets are capital, -2- surplus, or capital earnings, an amount in cash equal to $ 1 00 per share of Series A Preferred Stock (which amount shall be subject to equitable adjustment whenever there shall occur a stock split, combination, reclassification or other similar event involving the Series A Preferred Stock) plus an amount equal to a ten percent (10%) cumulative annual return (computed on the basis of the actual days elapsed in a year of 360 days) on such $100, compounded annually, since the date of issuance up to and including the date full payment shall be tendered to the holders of the Series A Preferred Stock with respect to such liquidation, dissolution, or winding up (the "Series A Liquidation Amount"). The date on which the Company initially issues any shares of Series A Preferred Stock will be deemed to be its "date of issuance" regardless of the number of times transfer of such share of Series A Preferred Stock is made on the stock records of the Company, and regardless of the number of certificates which may be issued to evidence such share of Series A Preferred Stock. If upon any such liquidation, dissolution or winding up of the Company, the assets of the Company to be distributed among the holders of the Series A Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets of the Company to be distributed to such holders will be distributed ratably among such holders in proportion to the number of shares of Series A Preferred Stock owned by each holder. After the payment of the Series A Liquidation Amount shall have been made in full to the holders of the Series A Preferred Stock or funds necessary for such payment shall have been set aside by the Company in trust for the account of holders of the Series A Preferred Stock so as to be available for such payments, the holders of the Series A Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Company, and the remaining assets of the Company legally available for distribution to its stockholders shall be distributed among the holders of other classes of securities of the Company in accordance with their respective terms. (b) Treatment of Reorganizations. Any merger or consolidation of the ---------------------------- Company with or into another corporation more than fifty percent (50%) of the common voting securities of which are owned by persons or entities who are not stockholders (or affiliates or stockholders or partners of stockholders) of the Company immediately following the closing of the transactions under the Stock Purchase and Redemption Agreement among the Company and the other parties named therein dated as of July 3, 1995 ("New Investors"), or the sale of all or substantially all of the Company's properties and assets to any person or group of persons at least fifty percent (50%) in interest of which are New Investors or any transaction or series of related transactions in which more than fifty percent (50%) of the outstanding common voting securities of the Company is sold or assigned to New Investors (ally of which events is herein referred to as a "Reorganization"), shall be regarded as a liquidation, dissolution or winding up of the affairs of the Company within the meaning of this Section 3 unless the holders of at least a majority of the then outstanding shares of Series A Preferred Stock elect to have such events not deemed to be a liquidation, dissolution or winding up of the Company by giving written notice thereof to the Company at least IO days before the effective date of such event. -3- 4. Voting Power. Except as otherwise expressly provided in Section 6 ------------ hereof, or as required by law, the holders of the Series A Preferred Stock shall not be entitled to vote on any corporate matters. 5. Redemption. ---------- (a) Optional Redemption. The Company may at any time redeem all ------------------- or any portion of the then outstanding Series A Preferred Stock at a redemption price (the "Redemption Price") for each share of Series A Preferred Stock redeemed pursuant to this Section 5 (a) equal to the Series A Liquidation Amount, such amount to be calculated and paid through the date payment is actually made to the holders of the Series A Preferred Stock with respect to such redemption. The Company shall give the holders of the Series A Preferred Stock notice (the "Optional Redemption Notice") at least thirty (30) days prior to the date fixed for redemption pursuant to this Section 5(a) of its election to redeem the Series A Preferred Stock. Such election shall be irrevocable on the part of the Company. The Optional Redemption Price shall be paid on the date fixed for redemption and specified in the Redemption Notice upon surrender of certificates as provided in Section 5(d) below. (b) Mandatory Redemption. In the event the Company does not elect -------------------- to redeem the Series A Preferred Stock as provided in Section 5(a), the Company- V shall redeem Pig rata from all holders of the Series A Preferred Stock on June 30 of each of 2000, 2001 and 2002 one-third (1/3) of the shares of Series A Preferred Stock outstanding on June 30, 2000, or such lesser amount as may be outstanding on the date of such redemption. In the event shares of Series A Preferred Stock scheduled for redemption are not redeemed because of a prohibition under applicable law, such shares shall be redeemed as soon as such prohibition no longer exists. The number of shares to be redeemed shall be cumulative, so that any shares which were subject to redemption in a prior year or years but were not so redeemed shall continue to be subject to redemption in addition to the shares otherwise redeemable in the current year. In addition, if a Liquidity Event (as herein defined) occurs, the Company shall redeem all shares of Series A Preferred Stock outstanding. The term Liquidity Event shall mean any one or more of the following: (1) a Reorganization, (11) the liquidation, dissolution or winding up of the Company or (111) the sale of securities by the Company pursuant to an effective registration statement under the Securities Act of 1933, as amended; provided, however, that in the event that the proceeds from the sale of securities by the Company pursuant to such a registration statement arc insufficient (after giving effect to required repayments of outstanding debt and the reservation of funds required for specific corporate needs and projects) to fund redemption in full of the Preferred Stock then outstanding, then such proceeds shall be applied to redeem such of the Series A Preferred Stock as can be redeemed at the Redemption Price (such redemption to be applied to the holders of the Series A Preferred Stock pro rata, in proportion to the shares owned by each), and the balance of the Series A Preferred Stock shall be converted into a Series B Preferred Stock which shall have a dividend rate of not less than IO% per annum, and shall contain such other rights, terms and privileges as then prevail in the marketplace with respect to preferred stock investments made in public companies by unaffiliated third parties. If a Liquidity Event occurs, the Company shall be required to redeem the -4- shares of Series A Preferred Stock concurrently Nvith the closing of the event constituting the Liquidity Event. The redemption price of each share of Series A Preferred Stock redeemed pursuant to this Section 5(b) shall be equal to the Redemption Price provided for in Section 5(a). (c) Redemption Notice. The Company shall mail notice (the ----------------- "Redemption Notice") of any redemption to be effected pursuant to Section 5(b), not later than 30 days before the date fixed for each redemption pursuant to Section 5(b) (each of the dates fixed for redemption and the extended redemption date is hereinafter referred to as a "Redemption Date"), provided, however, that the Company's failure to give such Redemption Notice shall in no way affect its obligation to redeem the shares of Preferred Stock or the obligation of the holders to redeem their shares of Preferred Stock as provided in Section 5(b) hereof The Redemption Notice shall contain the following information: (i) the number of shares of Series A Preferred Stock held by the holder and the total number of shares of Series A Preferred Stock held by all holders subject to redemption as of such Redemption Date, and (ii) the Redemption Date and the Redemption Price. (d) Surrender of Certificates. Each holder of shares of Series A ------------------------- Preferred Stock to be redeemed under this Section 5 shall surrender the certificate or certificates representing such shares to the Company at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares as set forth in this Section 5 shall be paid to the order of the person whose name appears on such certificate or certificates. Irrespective of whether the certificates therefor shall have been surrendered, all shares of Series A Preferred Stock which are the subject of a Redemption Notice shall be deemed to have been redeemed and shall be cancelled effective as of the Redemption Date, unless the Company shall default in the payment of the applicable Redemption Price. 6. Restrictions and Limitations. ---------------------------- (a) Corporate Action. Except as exprcssly provided herein or as ---------------- required by law, so long as any shares of Series A Preferred Stock remain outstanding. the Company shall not, and shall not permit any Subsidiary to, without the approval by vote or written consent by the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate class: (i) authorize or issue, or obligate itself to authorize or issue, additional shares of Series A Preferred Stock; or (ii) authorize or issue, or obligate itself to authorize or issue, any equity security senior to or on parity with the Series A Preferred Stock as to liquidation preferences, redemption rights or dividend rights. -5- (b) Amendments to Charter. The Company shall not amend its Articles --------------------- of Organization without the approval, by vote or written consent, by the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, if such amendment would adversely amend any of the rights, preferences, privileges of or limitations provided for herein for the benefit of any shares of Series A Preferred Stock. Without limiting the generality of the preceding sentence, the Company will not amend its Articles of Organization without the approval by the holders of at least a majority of the then outstanding shares of Series A Preferred Stock if such amendment would: (i) change the relative seniority rights of the holders of Series A Preferred Stock as to the payment of dividends in relation to the holders of any other capital stock of the Company, or create any other class or series of capital stock entitled to seniority as to the payment of dividends relation to the holders of Series A Preferred Stock; (ii) reduce the amount payable to the holders of Series A Preferred Stock upon the voluntary or Involuntary liquidation, dissolution or winding up of the Company, or change the relative seniority of the liquidation preferences of the holders of Series A Preferred Stock to the rights upon liquidation of the holders of other capital stock of the Company; (iii) cancel or modify the redemption rights of the holders of the Series A Preferred Stock provided for in Section 5 herein; or (iv) cancel or modify the rights of the holders of the Series A Preferred Stock provided for in this Section 6. 7. Notices of Record Date. In the event of ---------------------- (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend, distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger of the Company, or any transfer of all or substantially all of the assets of the Company to any other corporation, or any other entity or person, or (c) any voluntary or involuntary dissolution, liquidation orxvinding up of the Company, then and in each such event the Company shall mail or cause to be mailed to each holder of Series A Preferred Stock a notice specifying (i) the date on which any such record is to be taken for the purpose of such distribution or right and a description of such distribution or right, (ji) the date on which any -6- such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation orAinding up. Such notice shall be mailed at least ten (10) business days prior to the date specified in such notice on which such action is to be taken. 8. No Reissuance of Series A Preferred Stock. No share or shares of ----------------------------------------- Series A Preferred Stock acquired by the Company by reason of redemption, purchase or otherwise shall be reissued. and all such shares shall be cancelled, retired and eliminated from the shares which the Company shall be authorized to issue. The Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Series A Preferred Stock accordingly. Article VI: Other Lawful Provisions - Continuation Sheets - --------------------------------------------------------- The following additional provisions arc hereby established for the management, conduct and regulation of the business and affairs of the Corporation, and for creating, limiting, defining and regulating the powers of the Corporation and of its directors and stockholders: 1. Except as otherwise provided in these Articles of Organization or the by-laws of the Corporation as from time to time amended, the business and affairs of the Corporation shall be managed by its board of directors. Without limiting the foregoing, the board of directors of the Corporation is hereby specifically authorized from time to time in its discretion to determine the manner in which the accounts of the Corporation shall be kept, and to detennine for any purpose and in any manner not inconsistent with other provisions of these Articles of Organization, the amount of the gross assets, liabilities, net assets, net earnings, profits and surplus of the Corporation as the same exist or shall have existed at any time or for any period or periods, and to create, increase, abolish or reduce any reserve or reserves for accrued, accruing or contingent liabilities or expenses, including taxes and other charges, and to determine what amounts, if any, shall be declared as dividends. Unless the board of directors otherwise specifies, the excess of the consideration received for any share of its capital stock with par value issued by it over such par value shall be paid-in surplus. The board of directors may allocate to capital stock less than all of the consideration received for any share of its capital stock without par value issued by it, in which case the balance of such consideration shall be paid-mi surplus. All surplus shall be available for any corporate purpose, including the payment of dividends. 2. The board of directors shall have full power and authority to determine the terms and manner of issue, including, but not limited to, the consideration therefore and to issue or cause the issue of all shares of capital stock of the Corporation now or from time to time hereafter authorized. -7- 3. The board of directors is authorized from time to time, in its discretion, to make, amend or repeal the by-laws, in part or in whole, except with respect to any provision thereof which by law or the by-laws requires action by the stockholders. 4. The Corporation may carry on any operation or activity through a wholly or partly owned subsidiary and may be a partner in any business enterprise which it would have the power to conduct by itself. 5. Meetings of stockholders may be held outside The Commonwealth of Massachusetts. The books of the Corporation may be kept (subject to any provision contained in the Business Corporation Law) outside The Commonwealth of Massachusetts at such place or places as may be designated from time to time by the board of directors or in the by-laws of this Corporation. Election of directors need not be by ballot unless so requested by any stockholder entitled to vote thereon. 6. Each director or officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account of the Corporation, reports made to the Corporation by any of its officers or employees or by counsel, accountants, appraisers or other experts or consultants selected with reasonable care by the directors or officers of the Corporation or upon other records of the Corporation. Without limiting the generality of the foregoing, no director or officer of the Corporation shall be liable to any person on account of any action undertaken by him or her as such director or officer in reliance in good faith upon information, opinions, reports or records, including financial statements, books of account and other financial records, in each case presented by or prepared by or under the supervision of (i) one or more officers or employees of the Corporation whom the director or officer reasonably believes to be reliable and competent in the matters presented, or (ii) legal counsel, public accountants or other persons as to matters which the director or officer reasonably believes to be within such person's professional or expert competence, or (iii) in the case of a director, a duly constituted committee of the board of directors upon which he or she does not serve, as to matters within its delegated authority, which committee the director reasonably believes to merit confidence. 7. No director of this Corporation shall be personally liable to the Corporation or its Stockholders for monetary damages for any breach of fiduciary duty as a director; provided, however, that to the extent provided by applicable law this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 61 or Section 62 of the Business Corporation Law, or (iv) for any transaction in connection with which such director derived an improper personal benefit. No amendment or repeal of this paragraph shall apply to or have any effect on the liability of alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. 8. Each officer or director or former officer or director of the Corporation, and each person who shall, at the Corporation's request, have served as an officer or director of another Corporation or -8- as a trustee, partner or officer of a trust, partnership, limited liability company or association, and each person who shall, at the Corporation's request, have served in any capacity with respect to any employee benefit plan, whether or not then in office or then serving with respect to such employee benefit plan, and the heirs, executors, administrators, and other personal representatives of each of them shall, to the maximum extent permitted from time to time under the law of The Commonwealth of Massachusetts, be indemnified by the Corporation against all liabilities, costs and expenses, including amounts paid in satisfaction of judgments, in compromise and/or as fines or penalties and the fees and disbursements of counsel, imposed or reasonably incurred by him dr them in connection with or arising out of any action, suit, or proceeding, civil or criminal, in which he, she or they may be involved, or incurred in anticipation of any action, suit or proceeding, by reason of his or her being or having been such officer, trustee, partner or director or by reason of any alleged act or omission by him or her in such capacity or in serving with respect to any employee benefit plan. Such indemnification may include payment by the Corporation of expenses incurred in defending any such action, suit, or proceeding in advance of the final disposition thereof, upon receipt of an undertaking by the person indemnified to repay such payment if he or she shall be adjudicated not to be entitled to indemnification under this Section, which undertaking may be accepted by the Corporation without reference to the financial ability of such person to make repayment. The foregoing rights of indemnification shall not be exclusive of other rights to which any such director, officer, trustee, partner or person serving with respect to any employee benefit plan may be entitled as a matter of law, and any repeal or modification of any of the foregoing provisions of this Section shall not adversely affect any right or protection of such persons with respect to any acts or omissions that occurred prior to such repeal or modification. These indemnity provisions shall be separable, and if any portion thereof shall be finally adjudged to be invalid, such invalidity shall not affect any other portion which can be given effect. Notwithstanding the foregoing, no indemnification shall be provided with respect to any matter disposed of by settlement, consent decree or other negotiated resolution unless: a. such indemnification shall have been approved by holders of the shares of the Corporation's capital stock then entitled to vote for directors, voting such shares as a single class, by a majority of the votcs cast on the question exclusive of any shares owned bv an interested director or officer; or b. such indemnification and such settlement, decree or resolution shall have been approved as being in the best interest of the Corporation or organization or plan or participants served, as the case may be, after notice that it involves such indemnification, by a majority of the disinterested directors (or, if applicable, the sole disinterested director) then in office (whether or not constituting a quorurn); or c. if no directors are disinterested, a written opinion, reasonably satisfactory to the Corporation, of independent legal counsel selected by the Corporation shall have been furnished to the Corporation that (i) such indemnification and such settlement, decree or resolution are in the best interest of the Corporation or organization or plan or -9- participants served, as the case may be, and (ii) if adjudicated, such indemnification would not be found to have been prohibited by law. For purposes of this Section, an "interested" director or officer is one against whom in such capacity the proceeding in question or another proceeding on the same or similar grounds is then pendi ing or threatened, and a "disinterested director" is any director who is not an interested director. 9. The Corporation shall not, however, indemnify any such person, or his or her heirs, executors, administrators, or other personal representatives, with respect to any matter as to which he or she shall be finally adjudged in any such action, suit, or proceeding not to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Corporation, or to the extent that such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. 10. The board of directors may purchase and maintain insurance on behalf of any person who is or was a director, officer, trustee, partner, employee or other agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, trustee, partner, employee or other agent of another Corporation, association, trust, limited liability company or partnership against any liability incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the Corporation would have the power to indeninify him or her against such liability. 11. a. The Corporation may enter into contracts and transact business with one or more of its directors, officers, or stockholders, or in which any of them is in any other way interested, or with any Corporation, association, trust, firm, partnership, limited liability company, or other concern in which ally one or more of its directors, officers or stockholders are directors, officers, stockholders, trustees, shareholders, beneficiaries, partners or otherwise interested; and in the absence of fraud no such contract or transaction shall be invalidated or in any way affected by the fact that such directors, officers or stockholders of the Corporation have or may have interests which are or might be adverse to the interests of the Corporation, even though the vote or action of the directors, officers, or stockholders having such adverse interests may have been necessary to obligate the Corporation upon such contract or transaction, if: i. the material facts as to such person's or persons'relationship or interest and as to the contract or transaction arc disclosed or are known to the board of directors or the committee thereof which authorizes the contract or transaction, and the board or committee authorizes, approves or ratifies the contract or transaction by the affirmative vote of a majority of the disinterested directors (or, if applicable, the sole disinterested director) then in office (whether or not constituting a quorum); or ii. the material facts as to said person's or persons' relationship or interest as to the contract or transaction are disclosed or are known to the stockholders (whether or not so disinterested) of the Corporation then -10- entitled to vote for directors, and such holders specifically authorize, approve or ratify the contract or transaction by a majority of the votes cast on the question stock, voting such shares as a single class; or iii. the contract or transaction is fair to the Corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof, or the stockholders. b. The directors shall have the power to fix from time to time their own compensation. c. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of the committee which authorizes the contract or transaction. No director or officer shall be disqualified from holding office as a director or officer of the Corporation by reason of any such adverse interest. In the absence of fraud, no director, officer or stockholder having such adverse interest shall be liable to the Corporation or to any stockholder or creditor thereof, or to any other person, for any loss incurred by it under or by reason of such contract or transaction, nor shall any such director, officer or stockholder be accountable for any gains or profits realized thereon. d. Any contract or transaction entered into by the Corporation or act of the board of directors on behalf of this Corporation which shall be authorized, approved or ratified by the holders of a majority of the outstanding shares of this Corporation's conmon stock at any special meeting duly called for that purpose, or at any annual meeting, at which a quorum is present or represented, or by their consent in writing, shall be as valid and binding as though authorized, approved or ratified by every stockholder of this Corporation. 12. Except as otherwise provided by law, no stockholder shall have any, right to examine any property or any books, accounts or other writings of the Corporation if there is reasonable ground for belief that such examination will for any reason be adverse to the interests of the Corporation, and a vote of the directors refusing pennission to make such examination and setting forth that in the opinion of the directors such examination would be adverse to the interests of the Corporation shall be prima facie evidence that such examination would be adverse to the interests of the Corporation. Every such examination shall be subject to such reasonable regulations as the directors may establish in regard thereto. 13. The purchase or other acquisition or retention by the Corporation of shares of its own capital stock shall not be deemed a reduction of its capital stock. Upon any reduction of capital or capital stock, no stockholder shall have any right to demand any distribution from the Corporation, except as and to the extent that the stockholders shall have provided at the time of authorizing such reduction. -11- *We further certify that the foregoing restated articles of organization effect no amendments to the articles of organization of the corporation as heretofore amended, except amendments to the following articles 2, 3, 4, 6. - ---------- (*If there are no such amendments, state "None".) Briefly describe amendments in space below: Article 2. Article 2 has been amended to include additional purposes of --------- the Corporation. Article 3. Article 3 has been amended to add a new class of preferred --------- stock. Article 4. Article 4 has been added to set forth the preferences, --------- voting powers, qualifications and special or relative rights of each class and series of authorized stock. Article 5. Article 6 has been amended to modify certain general --------- provisions regarding the management, conduct and regulation of the business and affairs of the Corporation, including, without limitation, the provisions regarding indemnification of directors and officers and limitations on the personal liability of the directors. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 30th day of June in the year 1995. Donald H. Benovitz ______________________________ President Stephen N. Aschettino ______________________________ Clerk -12- THE COMMONWEALTH OF MASSACHUSETTS RESTATED ARTICLES OF ORGANIZATION (General Laws, Chapter 156B, Section 74) I hereby approve the within restated articles of organization and, the filing fee in the amount of $600 having been paid, said articles are deemed to have been filed with me this 30th day of June, 1995. ______________________________ William Francis Galvin Secretary of the Commonwealth TO BE FILED IN BY CORPORATION PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT TO: Susan Forest Barrett SULLIVAN & WORCESTER One Post Office Square Boston, MA 02109 Telephone:(617) 338-2800 -13- FEDERAL IDENTIFICATION NO. 04-267564 ------------------- THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF AMENDMENT (GENERAL LAWS, CHAPTER 156B, SECTION 72) We Donald Benovitz , *President --------------------------------------------------------- and Stephen Aschettino , *Clerk --------------------------------------------------------- of Suburban Ostorny Supply Co, Inc. ------------------------------------------------------------------------ (Exact name of corporation) located at 75 October Hill Road, Holliston MA 01746 ---------------------------------------------------------------- (Street address of corporation in Massachusetts) certify that these Articles of Amendment affecting articles number: 3 - -------------------------------------------------------------------------- (Number those articles 1,2,3,4,5 and/or 6 being amended) of the Articles of Organization were duly adopted by written consent, dated March 21, 1996, by vote of: 40,000 shares of Common Stock of 40,000 shares outstanding, - ----------- ---------------- -------------- (type class & series, if any) 66,500 shares of Common Stock of 66,500 shares outstanding, and - ----------- ---------------- --------------- (type, class & series, if any) ____________shares of __________________of_______________shares outstanding, and (type, class & series, if any) /1/** being at least a majority of each type, class or series outstanding and entitled to vote thereon: * Delete the inapplicable words. ** Delete the inapplicable clause /1/ For amendments adopted pursuant to Chapter 156B, Section 70. /2/ For amendments adopted pursuant to Chapter 156B, Chapter 71. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is:
- -------------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------- Common: 200,000 Common: None - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Preferred: None Preferred 66,500 $.01 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Change the total authorized to:
- -------------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------- Common: 10,000,000 Common: None - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Preferred: None Preferred 66,500 $.01 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date:____________________, SIGNED UNDER THE PENALTIES OF PERJURY, this 26th day of March , 1996, ------ -------- -- Donald Benovitz , *President/, - ------------------------------------------------------------ Stephen Aschettino , *Clerk - ------------------------------------------------------------ * Delete the inapplicable words. THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT (GENERAL LAWS, CHAPTER 156B, SECTION 72) ======================================================== I hereby approve the within Articles of Amendment and, the filing fee in the amount of $9,800 having been paid, said articles are deemed to have been filed with me this 10th day of April, 1996 Effective date:_________________________________________ WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION PHOTOCOPY OF DOCUMENT TO BE SENT TO: Joseph Listengart, Esq. Hutchins, Wheeler & Dittmar A Professional Corporation 101 Federal Street Boston, MA 02110 Tel: (617)951-6600 EX-3.2 3 BYLAWS EXHIBIT 3.2 ================================================================================ BY-LAWS OF SUBURBAN OSTOMY SUPPLY CO., INC. A Massachusetts Corporation ================================================================================ BY-LAWS OF SUBURBAN OSTOMY SUPPLY CO., INC. A Massachusetts corporation ARTICLE I. STOCKHOLDERS ------------ Section 1. Annual Meeting of Stockholders. An annual meeting of ---------- ------------------------------ stockholders shall be held at I 0: 00 a.m. local time, on the first Wednesday in December in each year or at such other time and date before or after such date (but within six months after the end of each fiscal year of the Corporation) as the Board of Directors may from time to time fix. The purposes for which an annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization and by these By-Laws, may be specified by the President or by the Board of Directors. If an annual meeting is not held as provided above, a special meeting of stockholders may be held in place thereof and any business transacted or elections held at such special meeting shall have the same effect as if transacted or held at the annual meeting, and, in such case, all references in these By-Laws, except in this Section and in Section 3 of Article 1, to the annual meeting of stockholders shall be deemed to refer to such special meeting. Section 2. Special Meetings of Stockholders. A special meeting of ---------- -------------------------------- stockholders may be called at any time by the President or by the Board of Directors. A special meeting of stockholders shall be called by the Clerk, or in the case of the death, absence, incapacity or refusal of the Clerk, by any other officer, upon written application of one or more stockholders who hold in the aggregate at least ten percent (10%) of the capital stock entitled to vote at the meeting or, if the Corporation has a class of voting stock registered under the Securities Exchange Act of 1934, as amended, upon the written application of one or more stockholders who hold in the aggregate at least forty percent (40%) in interest of the capital stock entitled to vote at the meeting. Such call shall state the date, time, place and purpose of the meeting. Section 3. Place of Stockholders' Meetings. The annual meeting of ---------- ------------------------------- stockholders and any special meeting of stockholders, by whomever called, shall be held at the principal office of the Corporation in Massachusetts, or at such other place in Massachusetts or, to the extent provided in the Articles of Organization, within the continental limits of the United States of America as may be determined by the Board of Directors (or, in the event such meeting shall have been called upon the application of stockholders, by such stockholders) and stated in the notice thereof. Any adjourned session of any annual or special meeting of stockholders shall be held at such permitted place as is designated in the vote of adjournment. Section 4. Notice of Stockholders' Meeting. A written notice of each ---------- ------------------------------- annual or special meeting of stockholders, stating the date, time, place and purpose or purposes for which the meeting is to be held, shall be given by the Clerk or any other officer at least seven (7) days, or such longer period as may be prescribed by law or the Articles of Organization, before the meeting to each stockholder entitled to notice of or to vote at the meeting by leaving such notice with such stockholder or at such stockholder's residence, or usual place of business, or by mailing it, postage prepaid, addressed to such stockholder at such stockholder's address as it appears in the records of the Corporation. No notice of the date, time, place and purpose(s) of any annual or special meeting of stockholders shall be required to be given to a stockholder if a written waiver of such notice is executed before or after the meeting by such stockholder, or by such stockholder's attorney thereunto authorized, and filed with the records of the meeting. Section 5. Quorum and Adjournments. Except as otherwise provided by ---------- ----------------------- law or by the Articles of Organization, the presence in person or by proxy at any meeting of stockholders of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote thereat, shall constitute a quorum. If two or more classes of stock are entitled to vote as separate classes upon any question, then, in the case of each such class, a quorum for the consideration of such question shall, except as otherwise provided by law or by the Articles of Organization, consist of a majority of all stock of that class issued, outstanding and entitled to vote. Any meeting may be adjourned from time to time by the holders of a majority of the shares present or represented by proxy and entitled to vote, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. At any such adjourned meeting at which a quorum shall be represented any such business may be transacted which might have been transacted at the meeting as originally called. Subject to the requirements of law and the Articles or Organization, on any issue on which two or more classes of stock are entitled to vote separately, if a quorum is not present for any one class the holders of a majority of the shares of such class present or represented by proxy and entitled to vote at the meeting may adjourn the meeting, as provided above, as to that class. Section 6. Proxies, Voting, Conduct of Meeting. Stockholders entitled ---------- ----------------------------------- to vote may vote either in person or by written proxy dated not more than six (6) months before the meeting named therein. A proxy with respect to stock which is owned by two or more persons shall be valid if executed by any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them. Unless a proxy otherwise provides, a proxyholder shall be valid to vote at any adjourned meeting which is reconvened, but not after the final adjournment of such meeting. When a quorum is present at any meeting, except where a larger vote is required by law, by the Articles of Organization or by these By-Laws, a plurality of the votes properly cast for the election of a Director shall be sufficient to elect such Director, and a majority of the votes properly cast upon any other question (or if two or more classes of stock are entitled to - 2 - vote as separate classes upon such question, then, in the case of each such class, a majority of the votes of such class properly cast upon the question), shall decide the matter. Except as provided by law or the Articles of Organization, stockholders entitled to vote shall have one vote for each share of stock owned by them and a proportionate vote for a fractional share. Shares owned by the Corporation, directly or indirectly, shall not be entitled to vote. The Chairman of the Board, if there be one, or in the absence of the Chairman, the President, or in absence of both the Chairman of the Board and the President, a Vice President, shall act as chairman of the meeting. The Clerk of the Corporation, if present, shall record the proceedings of all meetings of stockholders. In the absence of the Clerk, the presiding officer may appoint a clerk pro tempore of the meeting. Section 7. Action Without A Meeting. Any action to be taken by ---------- ------------------------ stockholders may be taken without a meeting if all stockholders entitled to vote on the matter consent to the action by a writing or writings filed with the records of the meetings of stockholders. Such consent shall be treated for all purposes as a vote at a meeting. ARTICLE II. DIRECTORS --------- Section 1. Board of Directors. The Board of Directors shall consist ---------- ------------------ of not fewer than three Directors; provided, however, that the number of Directors shall be not fewer than two whenever there shall be only two stockholders and not fewer than one whenever there shall be only one stockholder. Directors shall be elected annually (by ballot if so requested by any stockholder entitled to vote) at the annual meeting of stockholders, or if such annual meeting is omitted, at any special meeting called pursuant to Section 2 of Article 1, by such stockholders as have the right to vote at such election. The number of Directors for the forthcoming year shall be fixed either by the Board of Directors prior to, or by the Stockholders at, the stockholders' meeting at which they are to be elected, or if not so fixed, shall be the number of Directors immediately prior to such meeting. Except as may be provided by law or the Articles of Organization, at any time during any year the size of the Board of Directors may be (i) increased by the Board of Directors and (ii) increased or reduced by the stockholders at a meeting called for the purpose and, in the case of a reduction which involves the termination of the directorship of an incumbent Director, by such vote as would be required to remove such incumbent from office in the manner provided in Section 6 of this Article II. Each newly-created directorship resulting from any increase in the number of Directors may be filled in the manner provided in Section 6 of this Article II. - 3 - No Director need be a stockholder. Except as may be otherwise provided by law or by the Articles of Organization, each Director shall hold office until the next annual meeting of stockholders and until his or her successor is elected and qualified, or until he or she sooner dies, resigns or is removed. Section 2. Powers of Directors. The business, property and affairs of ---------- ------------------- the Corporation shall be managed by, and be under the control and direction of, the Board of Directors, which shall have and may exercise all the powers of the Corporation except such as are conferred upon or reserved to the stockholders by law, the Articles of Organization or these By-Laws. Except as may be otherwise specifically provided by law or by vote of the stockholders, the Board of Directors is expressly authorized to issue, from time to time, the capital stock of the Corporation of any class or series which may have been authorized but not issued or otherwise reserved for issue, to such person or persons, on such terms and for such consideration permitted by law as they may determine. The Board of Directors may delegate from time to time to any committee, officer, employee or agent such powers and authority as applicable law, the Articles of Organization and these By-Laws may permit. The Board of Directors in its discretion may appoint and remove and determine the compensation and duties in addition to those fixed by law, the Articles of Organization and these By- Laws, of all the officers, employees and agents of the Corporation. The Board of Directors shall have power to fix a reasonable compensation or fee for a person's service as a director. Section 3. Committees of Directors. The Board of Directors, by vote of ---------- ----------------------- a majority of the Directors then in office, may from time to time elect from its own number an executive committee and/or one or more other committees, to consist of not fewer than two members, and may from time to time designate or alter, within the limits permitted by this Section, the duties and powers of such committees or change their membership, and may at any time abolish such committees or any of them. Any committee shall be vested with such powers of the Board of Directors as the Board may determine in the vote establishing such committee or in a subsequent vote of a majority of Directors then in office, provided, however, that no such committee shall have any power prohibited by law, or the Articles of Organization, or the power: a. to change the principal office of the Corporation; b. to amend or authorize the amendment of the Articles of Organization or these By-Laws; c. to issue stock or other securities exchangeable or exercisable for or convertible into stock; - 4 - d. to establish and designate series of stock, or fix and determine the relative rights and preferences of any series of stock; e. to elect officers required by law, the Articles of Organization or these By-Laws to be elected by Directors, or to fill vacancies in any such office; f. to change the number of the Board of Directors or to fill vacancies in the Board of Directors; g. to remove officers or Directors from office; h. to authorize the payment of any dividend or distribution to stockholders; i. to authorize the reacquisition for value of stock or other securities of the Corporation; j. to authorize a merger or consolidation of the Corporation or a sale or other disposition of all or substantially all the property and business of the Corporation; and k. to authorize the liquidation or dissolution of the Corporation; and provided further, that the fact that a particular power appears in the foregoing enumeration of powers denied to committees of the Board of Directors shall not be construed to override by implication any other provision of the Articles of Organization or these By-Laws limiting or denying to the Board of Directors the right to exercise such power. Each member of a committee shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders (or until such other time as the Board of Directors may determine, either in the vote establishing the committee or at the election of such member) and until his or her successor is elected and qualified, or until he or she sooner dies, resigns, is removed, is replaced by change of membership or becomes disqualified by ceasing to be a Director, or until the committee is sooner abolished by the Board of Directors. A majority of the members of any committee then in office, but not fewer than two, shall constitute a quorum for the transaction of business, but any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. Each committee may make rules not inconsistent herewith for the holding and conduct of its meetings or the taking of any action in lieu of a meeting, but unless otherwise provided in such rules its meetings shall be held and conducted in the same manner, as nearly as may be, as is provided in these By-Laws for meetings of the Board of Directors. The Board of Directors shall have - 5 - the power to rescind or amend any vote or resolution of any committee; provided, however, that no rights of third parties shall be impaired by such rescission. Section 4. Meetings of the Board of Directors, Action Without a ---------- ---------------------------------------------------- Meeting. Regular meetings of the Board of Directors may be held without call or - ------- notice at such places and at such times as the Board may from time to time determine; provided, however, that notice of such determination and of any changes therein is given to each member of the Board then in office. A regular meeting of the Board of Directors may be held without call or notice immediately after and at the same place as the annual meeting of stockholders. Special meetings of the Board of Directors may be held at any time and at any place when called by the President, the Treasurer, the Chairman of the Board, if there be one, or two or more Directors, notice thereof being given to each Director by the Secretary, or, if there be no Secretary, by the Clerk, or, in the case of death, absence, incapacity or refusal of the Secretary (or the Clerk, as the case may be), by the officer or Directors calling the meeting. In any case, it shall be deemed that sufficient notice has been given to a Director if (a) written notice is sent by mail to such Director at least seventy-two (72) hours before the meeting, (b) notice is sent by telegram or confirmed telex, facsimile or other electronic transmission to such Director at least forty-eight (48) hours before the meeting, (c) notice is given to such Director in person, either by telephone or by handing such Director a written notice, at least thirty-six (36) hours before the meeting, or (d) such Director has actual knowledge of the time, place and purpose of a meeting at least twenty-four (24) hours before the meeting. Mail or telegram notices shall be addressed to a Director at the Director's usual or last known business or residence address. Notices given by telex, facsimile or other electronic transmission shall be addressed to a Director and transmitted to the Director's usual or last known business or residence telex number, fax telephone number or electronic message address. Notwithstanding the foregoing, notice of a meeting need not be given to any Director if a written waiver of notice, executed by him or her before, during or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior thereto, or at its commencement, the lack of notice to him or her. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting if a written consent thereto is signed by all the Directors or the members of such committee and such written consent is filed with the records of the meetings of the Directors or such committee. Such consent shall be treated as a vote at a meeting for all purposes. Such consents may be executed in one or more counterparts and not every Director need sign the same counterpart. - 6 - Members of the Board of Directors or of any committee of the Board of Directors may participate in a meeting of the Board of Directors or of such committee by means of a conference telephone, video or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation in a meeting by such means shall constitute presence in person at such meeting. Section 5. Quorum of Directors. At any meeting of the Board of ---------- ------------------- Directors, a quorum for any election, or for the consideration of any question, shall consist of a majority of the Directors then in office, but any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. When a quorum is present at any meeting, the votes of a majority of the Directors present shall be requisite and sufficient for election to any office and for any question brought before such meeting, except in any case where a larger vote is required by law, by the Articles of Organization or by these ByLaws. Section 6. Resignation and Removal of Directors, Vacancies. Any ---------- ----------------------------------------------- Director may resign at any time by delivering his or her resignation in writing to the President, the Clerk or the Secretary, or to a meeting of the Board of Directors. The stockholders may, by vote of a majority in interest of the stock issued and outstanding and entitled to vote at an election of Directors, remove any Director or Directors from office with or without cause; provided, however, that the Directors of a class elected by a particular class of stockholders may be removed only by the vote of the holders of a majority of the shares of such class. The Board of Directors may, by vote of the majority of the Directors in office, remove any Director from office with cause. No Director resigning and (except where a right to receive compensation for a definite future period shall be expressly provided in a written agreement with the Corporation, duly approved by the Board of Directors) no Director removed shall have any right to any compensation as such Director for any period following such resignation or removal, or any right to damages on account of such removal, whether such Director's compensation be by the month, by the year or otherwise. Any Director may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove such Director. Any vacancy in the Board of Directors, however occurring, including a vacancy resulting from the enlargement of the Board, may be filled by the stockholders or, in the absence of stockholder action, by a majority of the Directors then in office. If the office of any member of any committee becomes vacant, the Board of Directors may elect or appoint a successor or successors by vote of a majority of the Directors then in office. Each successor as a Director shall hold office for the unexpired term and until such Director's successor shall be elected or appointed and qualified, or until such Director sooner dies, resigns, is removed or becomes disqualified. - 7 - The Board of Directors shall have and may exercise all its powers, notwithstanding the existence of one or more vacancies in its' number as fixed by either the stockholders or the Directors. ARTICLE III. OFFICERS AND AGENTS ------------------- Section 1. Officers and Agents. The officers of the Corporation shall ---------- ------------------- be a President, a Treasurer, a Clerk, and such other officers, which may include a Chairman of the Board, a Secretary, a Controller, one or more Vice Presidents, Assistant Treasurers, Assistant Secretaries, Assistant Clerks, or Assistant Controllers, as the Board of Directors may, in its discretion, elect or appoint. The Corporation may also have such agents, if any, as the Board of Directors may, in its discretion, appoint. So far as is permitted by law, any two or more offices may be held by the same person. Subject to law, the Articles of Organization and the other provisions of these By-Laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to such office and as the Board of Directors may from time to time designate. The President, Treasurer, and Clerk (and the Secretary and Chairman of the Board, if, as the case may be, there be one) shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Such other offices of the Corporation as may be created in accordance with these By-Laws may be filled by election at the annual or any special meeting of the Board of Directors. Each officer shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until such officer's successor is elected or appointed and qualified, or until such officer sooner dies, resigns, is removed, or becomes disqualified. Each agent shall retain his or her authority at the pleasure of the Board of Directors. Any officer, employee, or agent of the Corporation may be required, as and if determined by the Board of Directors, to furnish a bond for the faithful performance of his or her duties. Section 2. President and Vice Presidents, Chairman of the Board. The ---------- ---------------------------------------------------- Chairman of the Board, if there be one, or if there is no Chairman of the Board, the President shall be the chief executive officer of the Corporation and shall have general charge and supervision of the business, property and affairs of the Corporation and such other powers and duties as the Board of Directors may prescribe, subject to the control of the Board of Directors, unless otherwise provided by law, the Articles of Organization, these By-Laws or by specific vote of the Board of Directors. The Chairman of the Board, if there be one, shall be a member of the - 8 - Board of Directors and shall preside at its meetings and at the meetings of the stockholders. The Chairman shall keep informed of the administration of the affairs of the Corporation, shall advise and counsel the President, and, in the President's absence, shall perform the duties of the President with other officers of the Corporation, and shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors. If there is a Chairman of the Board, the President shall be the Chief Operating Officer of the Corporation and shall have the duties and powers specified in these by-laws and shall have such other duties and powers as shall be designated from time to time by the Board of Directors. Unless a Chairman of the Board shall have been elected, the President shall preside at all meetings of stockholders and of the Board of Directors, except as otherwise determined by the Board of Directors. Any Vice President shall have such duties and powers as shall be designated from time to time by the Board of Directors or by the President, and, in any case, shall be responsible to and shall report to the President. In the absence or disability of the President, the Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or as otherwise designated by the Board of Directors shall have the powers and duties of the President. Section 3. Treasurer and Assistant Treasurer. The Treasurer shall be ---------- --------------------------------- the chief financial officer of the Corporation and shall be in charge of its funds and the disbursements thereof, subject to the President and the Board of Directors, and shall have such duties and powers as are commonly incident to the office of a corporate treasurer and such other duties and powers as may be prescribed from time to time by the Board of Directors or by the President. If no Controller is elected, the Treasurer shall also have the duties and powers of the Controller as provided in these By-Laws. The Treasurer shall be responsible to and shall report to the Board of Directors, but in the ordinary conduct of the Corporation's business, shall be under supervision of the President. Any Assistant Treasurer shall have such duties and powers as shall be prescribed from time to time by the Board of Directors or by the Treasurer, and shall be responsible to and shall report to the Treasurer. In the absence or disability of the Treasurer, the Assistant Treasurer or, if there be more than one, the Assistant Treasurers in their order of seniority or as otherwise designated by the Board of Directors shall have the powers and duties of the Treasurer. Section 4. Controller and Assistant Controllers. The Controller shall ---------- ------------------------------------ be the chief accounting officer of the Corporation and shall be in charge of its books of account and accounting records and of its accounting procedures, and shall have such duties and powers as are commonly incident to the office of a corporate controller and such other duties and powers as may be prescribed from time to time by the Board of Directors or by the President. The Controller shall be responsible to and shall report to the Board of Directors, but in the - 9 - ordinary conduct of the Corporation's business, shall be under the supervision of the President. Any Assistant Controller shall have duties and powers as shall be prescribed from time to time by the Board of Directors or by the Controller, and shall be responsible to and shall report to the Controller. In the absence or disability of the Controller, the Assistant Controller or, if there be more than one, Assistant Controllers in their order of seniority or as otherwise designated by the Board of Directors, shall have the powers and duties of the Controller. Section 5. Clerk, Secretary, Assistant Clerk and Assistant Secretary. ---------- --------------------------------------------------------- The Clerk shall record all proceedings of the stockholders in books to be kept therefor, and shall have custody of the Corporation's records, documents and valuable papers. In the absence of the Clerk from any such meeting, the Secretary, if any, may act as temporary clerk, and shall record the proceedings thereof in the aforesaid books, or a temporary clerk may be chosen by vote of the meeting. The Clerk shall also keep, or cause to be kept, the stock transfer records of the Corporation which shall contain a complete list of the names and addresses of all stockholders and the amount of stock held by each. Unless the Board of Directors shall otherwise designate, the Clerk or, in the absence of the Clerk, the Assistant Clerk, if any, shall have custody of the corporate seal and be responsible for affixing it to such documents as may be required by law or as may be directed by the Board of Directors to be sealed. The Clerk shall have such other duties and powers as are commonly incident to the office of a corporate clerk, and such other duties and powers as may be prescribed from time to time by the Board of Directors or by the President. The Clerk shall be a resident of Massachusetts unless the Corporation has a resident agent appointed for the purpose of receiving service of process. If no Secretary is elected, the Clerk shall also record all proceedings of the Board of Directors and of any meetings of any committees of the Board, and, in the absence of the Clerk from any such meeting, a temporary clerk shall be chosen who shall record the proceedings thereof. The Secretary shall attend all meetings of the Board of Directors and shall record the proceedings thereat in books provided for that purpose which shall be available upon request for the inspection of any Director during business hours. The Secretary shall notify the Directors of the meetings in accordance with these By-Laws and shall have and may exercise such other powers and duties as the Board of Directors may prescribe. In the absence of the Secretary at a meeting of the Board of Directors, a temporary secretary shall be chosen. - 10 - Any Assistant Clerk and any Assistant Secretary shall have such duties and powers as shall from time to time be designated by the Board of Directors or the Clerk or the Secretary, respectively, and shall be responsible to and shall report to the Clerk and the Secretary, respectively. Section 6. Resignations and Removals of Officers and Agents, Vacancies. ---------- ------------------------------------------------------------ Any officer may resign at any time by delivering his or her resignation in writing to the President, the Clerk or the Secretary, or to a meeting of the Board of Directors. The Board of Directors may, by vote of the majority of the Directors in office, remove any officer from office, with or without cause. The Board of Directors may, at any time, by vote of a majority of the Directors present and voting, terminate or modify the authority of any agent. No officer resigning and (except where a right to receive compensation for a definite future period shall be expressly provided in a written agreement with the Corporation, duly approved by the Board of Directors) no officer removed shall have any right to any compensation as such officer for any period following such officer's resignation or removal, or any right to damages on account of such removal, whether his or her compensation be by the month, by the year or otherwise. Any officer may be removed for cause only after reasonable notice and opportunity to be heard before the Board of Directors. Each successor as an officer shall hold office for the unexpired term and until his or her successor shall be elected or appointed and qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. ARTICLE IV. STOCK ----- Section 1. Certificates of Stock. Unless the Board of Directors ---------- --------------------- provides by resolution that some or all of any or all classes and series of the Corporation's shares shall be uncertificated shares, each stockholder shall be entitled to a certificate of the capital stock of the Corporation owned by him or her, in such form as shall, in conformity to law, be prescribed from time to time by the Board of Directors. Such certificate shall be signed by either the President or a Vice President, and by either the Treasurer or an Assistant Treasurer, and may, but need not be, sealed with the corporate seal; but when any such certificate is signed by a transfer agent or by a registrar other than a Director, officer, or employee of the Corporation, the signature of the President or a Vice President and of the Treasurer or an Assistant Treasurer of the Corporation, or either or both such signatures and such seal upon such certificate, may be facsimile. If any officer who has signed, or whose facsimile signature has been placed on, any such certificate shall have ceased to be such officer before such certificate is issued, the certificate may be issued by the Corporation with the same effect as if he or she were such officer at the time of issue. Every certificate for shares of stock which are subject to any restriction on transfer pursuant to law, the Articles of Organization, these By-Laws, or any agreement to which the - 11 - Corporation is a party, shall have the restriction noted conspicuously on the certificate, and shall also set forth, on the face or back, either the full text of the restriction or a statement of the existence of such restriction and (except if such restriction is imposed by law) a statement that the Corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. Every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications, and special and relative rights of the shares of each class and series authorized to be issued, or a statement of the existence of such preferences, powers, qualifications and rights, and a statement that the Corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. Section 2. Transfer of Shares of Stock. Subject to the restrictions, ---------- --------------------------- if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the Corporation only by surrender to the Corporation, or its transfer agent, of the certificate therefor, properly endorsed or accompanied by a written assignment or power of attorney properly executed, with all requisite stock transfer stamps affixed, and with such proof of the authenticity and effectiveness of the signature as the Corporation or its transfer agent shall reasonably require. Except as may be otherwise required by law, by the Articles of Organization or by these By-Laws, the Corporation shall have the right to treat the person registered on the stock transfer books as the owner of any shares of the Corporation's stock as the owner-in-fact thereof for all purposes, including the payment of dividends, the right to vote with respect thereto and otherwise, and accordingly shall not be bound to recognize any attempted transfer, pledge or other disposition thereof, or any equitable or other claim with respect thereto, whether or not it shall have actual or other notice thereof, until such shares shall have been transferred on the Corporation's books in accordance with these By-Laws. It shall be the duty of each stockholder to notify the Corporation of such stockholder's post office address. Section 3. Transfer Agents and Registrars; Further Regulations. The ---------- --------------------------------------------------- Board of Directors may appoint one or more banks, trust companies or corporations doing a corporate trust business, in good standing under the laws of the United States or any state therein, to act as the Corporation's transfer agent and/or registrar for shares of capital stock, and the Board may make such other and further regulations, not inconsistent with applicable law, as it may deem expedient concerning the issue, transfer and registration of capital stock and stock certificates of the Corporation. Section 4. Loss of Certificates. In the case of the alleged loss, ---------- -------------------- destruction, or wrongful taking of a certificate of stock, a duplicate certificate may be issued in place thereof upon receipt by the Corporation of such evidence of loss and such indemnity bond, with or without surety, as shall be satisfactory to the President and the Treasurer, or otherwise upon such terms, consistent with law, as the Board of Directors may prescribe. - 12 - Section 5. Record Date. The Directors may fix in advance a time, ---------- ----------- which shall not be more than sixty (60) days before the date of any meeting of stockholders or the date for the payment of any dividend or the making of any distribution to stockholders, or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at, such meeting and any adjournment thereof, or the right to receive such dividend or distribution, or the right to give such consent or dissent, and in such case, only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the Corporation after the record date; or, without fixing such record date, the Directors may, for any such purposes, close the transfer books for all or any part of such period. ARTICLE V. MASSACHUSETTS CONTROL SHARE ACQUISITIONS ACT -------------------------------------------- Section 1. Massachusetts Control Share Acquisitions Act Shall Not Apply. ---------- ------------------------------------------------------------ The provisions of Chapter 110D of the Massachusetts General Laws shall not apply to control share acquisitions of the Corporation. Section 2. Redemption Procedure. If the provisions of Chapter 110D ---------- -------------------- shall become applicable to control share acquisitions of the Corporation through amendment of these By-Laws or otherwise, the following provisions shall apply: a. The Corporation is authorized to redeem shares acquired in a control share acquisition to the extent and in accordance with the procedures specified in Section 6 of Chapter 110D and in this Article. b. The additional procedures for redemption specified in this Article are as follows: (i) Fair value shall be determined by the Board of Directors or a committee of the Board of Directors of the Corporation, and the amount so determined shall be included in the notice of redemption given by the Corporation pursuant to Section 6 of Chapter 110D. (ii) The person whose shares are being redeemed (the "Holder") may within ten days after the date of the notice of redemption advise the Corporation in writing that the Holder believes that the value so determined is not fair, and in that event the Corporation shall, within the 30-day period following its receipt of the Holder's notice, permit the Holder to submit such written and oral evidence of value as the Holder may wish and the Board of Directors or committee considers appropriate. The Board of Directors or committee shall affirm or revise its determination of fair value within fifteen days after the completion of the 30-day period, and shall promptly advise the Holder in writing of its decision. - 13 - (iii) The notice of redemption shall specify a redemption date, which shall be 30 days after the date of the notice (or the first business day after the 30-day period), and a redemption office, which shall be the principal office of the Corporation or an office of a commercial bank specified by the Corporation in the notice. The redemption date so fixed shall not be deferred by a request of the Holder for a redetermination of fair value. The Holder shall cause the certificate or certificates representing the shares being redeemed to be delivered to the redemption office not later than the redemption date, duly endorsed or assigned for transfer, with signature guaranteed, if such an endorsement or assignment is required in the notice of redemption. (iv) The certificate or certificates representing the shares being redeemed having been deposited in accordance with item (iii) above, the redemption price shall be paid by the Corporation on the redemption date specified in its notice of redemption or such later date as the redemption price may be determined if the Holder has duly requested a redetermination of fair value. (v) Notice of redemption having been given, from and after the redemption date the shares being redeemed shall no longer be deemed to be outstanding, and all rights of the holder or holders thereof as a stockholder or stockholders of the Corporation shall cease, except the right to receive the redemption price. If the Corporation shall default in payment of the redemption price, interest shall accrue thereon from the date of default at the base or prime rate of the Corporation's principal lending bank or if none, the base or prime rate of First National Bank of Boston, as in effect from time to time during the period of default. (vi) Notice given by the Corporation by first class mail or delivered in person on the basis of a good faith determination by the Corporation of the identity and address of the person who has made a control shares acquisition shall be deemed to have been duly given. (vii) Any person who makes a control share acquisition of the Corporation shall be deemed to have consented to and shall be bound by the provisions of the Section and shall indemnify and hold the Corporation harmless from and against any damage, loss or expense which the Corporation may suffer as a result of any . non-compliance with the provisions of this Section. References in this Section to Chapter 110D mean Chapter 110D of the Massachusetts General Laws as in effect from time to time. - 14 - ARTICLE VI. MISCELLANEOUS ------------- Section 1. Seal. The seal of the Corporation shall, subject to ---------- ---- alteration by the Board of Directors, consist of a flat-faced circular die with the word "Massachusetts", together with the name of the Corporation and the year' of incorporation, cut or engraved thereon. An impression of the seal impressed upon the original copy of these By-Laws shall be deemed conclusively to be the seal adopted by the Board of Directors. Section 2. Execution of Papers. Except as the Board of Directors may ---------- ------------------- generally or in particular cases otherwise authorize or direct, all deeds, leases, transfers, contracts, proposals, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the Corporation shall be signed or endorsed on behalf of the Corporation by its President, one of its Vice Presidents or its Treasurer. Section 3. Voting Stock in Other Corporations. Unless otherwise ---------- ---------------------------------- authorized or directed by the Board of Directors, the President or, in the case of the absence or failure of the President to act, one of its Vice Presidents or its Treasurer, shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meetings of stockholders of any corporation in which this Corporation may hold stock, and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such stock and which, as the owner thereof, the Corporation might have possessed and exercised if present. The Board of Directors, by resolution from time to time, or, in the absence thereof, the President, may confer like powers upon any other person or persons as attorneys and proxies of the Corporation. Section 4. Fiscal Year. Except as from time to time provided by the ---------- ----------- Board of Directors, the fiscal year of the Corporation shall end on the Saturday closest to the 31st of August of each year. ARTICLE VII. AMENDMENTS ---------- These By-Laws may be altered, amended or repealed, in whole or in part, at any time by vote of the stockholders. The Board of Directors, by a majority vote of Directors at the time in office, may also alter, amend or repeal these By- Laws in whole or in part, except with respect to any provision hereof which by law, the Articles of Organization or these By-Laws requires action by the stockholders; provided, however, that not later than the time of giving notice of the meeting of stockholders next following the alteration, amendment or repeal of these By-Laws, in whole or in part by the Board of Directors, notice thereof, stating the substance of such action shall be given to all stockholders entitled to vote on amending these By-Laws. By-Laws adopted by the Directors may be amended or repealed by the stockholders. - 15 - EX-5.1 4 HUTCHINS, WHEELER OPINION EXHIBIT 5.1 __________, 1996 Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Gentlemen: We have acted as counsel to Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), in connection with proceedings being taken to register under the Securities Act of 1933, as amended, up to 4,312,500 shares of the Company's Common Stock, no par value per share (the "Common Stock") pursuant to a Registration Statement on Form S-1 (File No. 333-____) (the "Registration Statement") which includes 562,500 shares which may be sold upon exercise of the underwriters' over-allotment option described in the Registration Statement. As such counsel, we have examined (i) certain corporate records of the Company, including its Restated Articles of Organization, as amended (the "Restated Articles"), its Amended and Restated Bylaws, stock records and Minutes of Meetings of its Stockholders and Board of Directors; (ii) a Certificate of the Secretary of the Commonwealth of Massachusetts as to the legal existence of the Company; and (iii) such other documents as we have deemed necessary as a basis for the opinions hereinafter expressed. For purposes of rendering this opinion, we have assumed that the Restated Articles of the Company in the form filed as an Exhibit to the Registration Statement will be filed with the Secretary of the Commonwealth of Massachusetts prior to the issuance and sale of its Common Stock under the circumstances contemplated in the Registration Statement. Based upon the foregoing, and having regard for such legal considerations as we deem relevant, we are of the opinion that: 1. The Company is a corporation duly incorporated and validly existing under the laws of the Commonwealth of Massachusetts. Suburban Ostomy Supply Co., Inc. _______________, 1996 Page 2 2. The Company, as of the effective date of the Restated Articles, will be authorized to issue 40,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock, par value $.01 per share. 3. When issued and sold under the circumstances contemplated in the Registration Statement, the 4,312,500 shares of Common Stock offered by the Company will be duly authorized, validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to us under the caption "Legal Matters" in the Prospectus forming a part of the Registration Statement. Very truly yours, HUTCHINS, WHEELER & DITTMAR, A Professional Corporation EX-10.1 5 STOCK PURCHASE AGREE.MELVIN ARONSON EXHIBIT 10.1 STOCK PURCHASE AND REDEMPTION AGREEMENT by and among SUBURBAN OSTOMY SUPPLY CO., INC. SUMMIT VENTURES III, L.P. SUMMIT INVESTORS II, L.P. SUMMIT SUBORDINATED DEBT FUND, L.P. THE BEAR STEARNS COMPANIES, INC. and THE STOCKHOLDERS PARTIES HERETO July 3, 1995 TABLE OF CONTENTS -----------------
Page ---- Section 1. Purchase and Sale......................................... 1 (a) Purchase and Sale of Shares........................... 1 (b) Subordinated Debt Investment.......................... 2 (c) Closing............................................... 2 (d) Use of Proceeds....................................... 2 (e) Allocation of Purchase Price.......................... 2 (f) Stock Dividend........................................ 3 Section 2. Redemption of Shares by the Company....................... 3 (a) Redemption by the Company on the Closing Date.................................................. 3 (b) Redemption Consideration.............................. 3 (c) Surrender and Exchange of Stock Certificates; Payment of Redemption Consideration......................................... 3 (d) Stock Transfer Books.................................. 4 Section 3. Covenants and Agreements of the Parties................... 4 (a) Access to Information; Confidentiality....................................... 4 (b) Agreement to Cooperate................................ 6 (c) Public Announcements.................................. 7 (d) Directors' and Officers' Indemnification.............. 7 (e) New Indebtedness...................................... 7 (f) Life Insurance........................................ 7 (g) Exclusivity; No Solicitation.......................... 7 (h) Investment Bankers.................................... 8 Section 4. Representations, Warranties and Covenants of the Company and the Stockholders....................... 9 (a) Organization; Power and Authority; Effect of Transaction................................. 9 (b) Financial Information................................. 11 (c) Condition and Title to Properties; Leases.................................... 12
(d) Compliance with Private Authorizations....................................... 12 (e) Compliance with Governmental Authorizations and Applicable Law.................... 13 (f) Intellectual Property................................ 14 (g) Related Transactions................................. 14 (h) Insurance............................................ 14 (i) Tax Matters.......................................... 15 (j) Employee Retirement Income Security Act of 1974.......................................... 16 (k) Inapplicability of Specified Statutes................ 17 (l) [Intentionally Omitted].............................. 17 (m) Employment Arrangements.............................. 17 (n) Material Agreements.................................. 18 (o) Ordinary Course of Business.......................... 18 (p) Broker or Finder..................................... 19 (q) Environmental Protection............................. 20 (r) Accounts Receivable.................................. 21 (s) Inventories.......................................... 21 (t) Records and Books.................................... 21 (u) Disclosure of Material Information................... 21 Section 5. Representations, Warranties and Covenants of the Purchasers........................................ 23 (a) Organization and Business; Power and Authority; Effect of Transaction; Ordinary Course of Business................................... 23 (b) Investment........................................... 25 (c) Financial Capacity................................... 25 (d) Broker or Finder..................................... 25 (e) Financing............................................ 25
Section 6. Covenants................................................ 26 (a) Interim Conduct of Business.......................... 26 (b) Disclosure Supplements............................... 27 Section 7. Closing Conditions....................................... 28 (a) Conditions of the Purchasers and the Stockholders..................................... 28 (b) Conditions of the Purchasers......................... 29 (c) Conditions of the Stockholders....................... 30 Section 8. Indemnification.......................................... 30 (a) Survival of Representations and Warranties........................................... 30 (b) Indemnification by Stockholders...................... 30 (c) Indemnification by the Purchasers.................... 32 (d) Minimum Indemnification.............................. 32 (e) Notice and Opportunity to Defend..................... 32 (f) Set-Off.............................................. 33 Section 9. Definition............................................... 34 Section 10. Miscellaneous............................................ 34
(a) Nature and Survival of Representations and Warranties....................... 34 (b) Entire Agreement..................................... 35 (c) Rights and Remedies.................................. 35 (d) Expenses............................................. 35 (e) Termination.......................................... 35 (f) Waivers; Amendments.................................. 37 (g) Assignment; Successors and Assigns................... 37 (h) Notices.............................................. 38 (i) Severability......................................... 39 (j) Counterparts......................................... 40 (k) Section Headings..................................... 40 (l) Further Acts......................................... 40 (m) Relationship of Parties.............................. 40 (n) Conflict Among Attachments........................... 40 (o) Governing Law........................................ 41
Schedules - --------- A Definitions (see Section 7) B Disclosure Schedule 1 List of Purchasers and Shares to be Acquired 2 List of Stockholders and Shares to be Redeemed Exhibits - -------- A Terms of Series A Preferred Stock B Form of Note C Form of Shareholders' Agreement D Form of Registration Rights Agreement E Form of Employment Agreement F Form of Stock Option Plan G Form of Stock Option Agreement H Aronson Non-Competition Agreement STOCK PURCHASE AND REDEMPTION AGREEMENT made as of July 3, 1995 by and among Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), each of the undersigned stockholders of the Company (individually, a "Stockholder" and collectively, the "Stockholders"), and the Purchasers listed on the signature page hereof (individually, a "Purchaser" and collectively, "the Purchasers"). WITNESSETH: ---------- WHEREAS, the Company is engaged in the business of distributing disposable home health care products and owning and operating the properties and assets associated therewith (the Subject Business" and such properties and assets, the "Subject Assets"); WHEREAS, the Stockholders own all of the issued and outstanding capital stock of the Company; WHEREAS, the Purchasers desire to acquire, and the Company desires to issue and sell, securities of the Company upon the terms and conditions hereinafter set forth; and WHEREAS, the Company desires to repurchase shares of its Common Stock from the Stockholders; NOW, THEREFORE, in consideration of the premises, of the mutual covenants and agreements herein set forth, and other valuable consideration, the receipt, adequacy and sufficiency whereof are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby covenant and agree as follows: SECTION 1. Purchase and Sale. ----------------- (a) Purchase and Sale of Shares. Subject to the provisions of this Agreement, --------------------------- the Company shall issue and sell to the Purchasers, and the Purchasers agree to purchase and accept the delivery of, an aggregate of 66,500 shares of the Company's Series A Redeemable Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), at a price of $100 per share, for an aggregate purchase price of $6,650,000, and an aggregate of 280 shares of the Company's Common Stock, no par value per share (the "Common Stock"), at a price of $357.14 per share, for an aggregate purchase price of approximately $100,000. The Series A Preferred Stock shall have the rights, terms and privileges set forth on Exhibit A attached hereto. The shares of Series A Preferred Stock and Common --------- Stock purchased pursuant to this Section 1(a) are referred to herein as the "Preferred Shares" and "Common Shares," respectively. The number of Preferred Shares and Common Shares to be sold by the Company to each Purchaser is set forth in Schedule 1 attached hereto. ---------- (b) Subordinated Debt Investment. Pursuant to a certain Subordinated ---------------------------- Debenture Purchase Agreement of even date (the "Subordinated Debenture Agreement"), Summit Subordinated Debt Fund, L.P. and Summit Investors II, L.P. have committed to purchase $6,750,000 in principal amount of newly-issued subordinated debentures (the "Debentures") of the Company. The closing of the transactions contemplated by the Subordinated Debenture Agreement shall occur at the Closing and currently with the closing of the purchase of the Preferred Shares and Common Shares hereunder. (c) Closing. Subject to the satisfaction or waiver of the conditions set ------- forth in Section 7 below, the purchase of the Preferred Shares and Common Shares shall be made at a closing (the "Closing") to be held at the offices of Hutchins, Wheeler & Dittmar, 101 Federal Street, Boston, MA 02110 on June 30, 1995, or at such other time and on such other date on or prior to July 19, 1995 as the Purchasers, the Company and the Stockholders may mutually agree (the "Closing Date"). Payment at the Closing for the Preferred Shares and Common Shares shall be by wire transfer payable in immediately available federal funds. Each Purchaser shall pay that amount for the Preferred Shares and Common Shares being acquired by it at the Closing as described on Schedule 1 hereof. At the ---------- Closing, (i) the Company will deliver to each Purchaser one or more certificates representing the Preferred Shares and Common Shares purchased by such Purchaser, in such denominations and issued in such names as may be requested by such Purchaser, and (ii) each Purchaser shall deliver to the Company a duly completed Internal Revenue Service Form W-9 or Internal Revenue Service Form W-8 and its taxpayer identification number. (d) Use of Proceeds. The proceeds of the sale of the Preferred Shares and --------------- Common Shares, together with the proceeds of the sale of the Debentures and the New Company Debt, shall be used to redeem shares of Common Stock from the Stockholders as provided in Section 2 hereof. (e) Allocation of Purchase Price. The total consideration paid by the ---------------------------- Purchasers to the Company pursuant to this Agreement and the Subordinated Debenture Agreement is $13,500,000. The parties hereto agree that such amount shall be allocated among the Common Shares, Preferred Shares and Debentures as set forth in Sections 1(a) and 1(b) above, and the Company shall file all tax returns and reports in a manner consistent with such allocation. (f) Stock Dividend. Immediately after giving effect to the purchase and sale -------------- of Series A Preferred Stock and Common Stock as provided in Section 1(a), and before execution of the option agreements evidencing the options specified in Section 7(c)(iii), there shall be declared and effected a 100 for 1 stock split, effected in the form of a stock dividend of 99 shares of Common Stock for each share of Common Stock outstanding. SECTION 2. REDEMPTION OF SHARES BY THE COMPANY. ----------------------------------- (a) Redemption by the Company on the Closing Date. On the Closing Date, --------------------------------------------- immediately after the issuance and sale of the Preferred Shares and Common Shares to the Purchasers, the Company shall redeem and purchase from each Stockholder, and each Stockholder hereby agrees to sell and deliver to the Company, the number of shares of Common Stock set forth opposite his name on Schedule 2 attached hereto ---------- (the "Redemption Shares"). (b) Redemption Consideration. The aggregate consideration payable to the ------------------------ Stockholders for the repurchase of the Redemption Shares contemplated hereby (the "Redemption Consideration") shall be as follows: (i) Twenty-Seven Million Dollars ($27,000,000) payable in immediately available funds at the Closing; and (ii) Two Million Five Hundred Thousand Dollars ($2,500,000) payable to the Stockholders through the issuance of subordinated notes in the principal amount of $2,500,000 (the "Notes"), which Notes will bear interest at the rate of 12% per annum, payable quarterly in arrears. The Notes will be in the form of Exhibit B attached hereto. --------- (c) Surrender and Exchange of Stock Certificates; Payment of Redemption ------------------------------------------------------------------- Consideration. At the Closing, each Stockholder shall cease to have any rights - -------------- as a shareholder relating to his Redemption Shares. At the Closing, each Stockholder shall be entitled to receive, upon surrender to the Company of a certificate or certificates or other documents or instruments (collectively, "Certificates") representing the Redemption Shares set forth opposite his name in Schedule 2, accompanied by a duly completed and executed stock transfer power ---------- and IRS Form W-9, the cash Redemption Consideration for such Redemption Shares, which amount shall be paid by wire transfer of immediately available funds to an account specified by such Stockholder and a Note in the principal amount set forth opposite his name on Schedule 2. ---------- (d) Stock Transfer Books. From and after the Closing Date, no transfer of the -------------------- Redemption Shares shall be registered on the stock transfer books of the Company. SECTION 3. Covenants and Agreements of the Parties. --------------------------------------- The parties do hereby, jointly and severally, covenant and agree as follows: (a) Access to Information; Confidentiality. --------------------------------------- (i) The Company shall afford to the Purchasers and their officers, directors, employees, attorneys, accountants, financial advisors and other representatives or agents full access during normal business hours throughout the period from the date hereof to the Closing Date to all of its properties, books, contracts, commitments and records (including without limitation Tax Returns) and, during such period, shall furnish promptly to the Purchasers (A) a copy of each report, schedule and other document filed or received by it pursuant to the requirements of any Applicable Law (including without limitation federal or state securities laws) or filed by it with any Authority in connection with the transactions contemplated by this Agreement or which may have a material effect on its business, operations, properties, prospects, personnel, condition, financial or other, or results of operations and (B) such other information concerning any of the foregoing as the Purchasers shall reasonably request. (ii) Each party hereto shall, whether or not the transactions contemplated hereby are consummated, maintain on the same basis as it does with respect to its own confidential and proprietary information the confidentiality of all information concerning any other party or any Affiliate of any other party provided to or discovered by it, its officers, directors, employees, attorneys, accountants, financial advisors or other representatives or agents and which is not otherwise available on a nonconfidential basis to such party and shall not (except as may otherwise be required by Applicable Law, including without limitation federal and state securities laws, or by summons or subpoena) disclose such information, subject to the provisions of this Section, to anyone other than (A) those persons directly involved in the investigation and negotiations pertaining to the transactions contemplated hereby, including, without limitation, attorneys, accountants, financial advisors and other representatives and agents, (B) such lenders or investors as may be necessary to finance the transactions contemplated hereby or thereby, (C) such Persons or Governmental Authorities, whose consent or approval may be necessary to permit consummation of the transactions contemplated hereby or thereby, and (D) those persons directly involved in any Legal Action based upon or in connection with the subject matter of this Agreement, including, without limitation, the failure of the transactions contemplated hereby to be consummated. The provisions of this paragraph are in addition to, and not in replacement of, any confidentiality agreement between the Company and the Purchasers or any Affiliate of the Purchasers. (iii) It shall be a condition of the disclosure of any confidential information to any of the Persons described in clauses (ii)(A), (B) or (C) above that such Persons (other than Governmental Authorities) execute and deliver to the party whose confidential information is being disclosed an agreement in form, scope and substance reasonably satisfactory to such party embodying the provisions of this Section 3(a). (iv) Each party further agrees that in the event that the transactions contemplated by this Agreement shall not be consummated, it will return all documents and records obtained by it, its officers, directors, employees, attorneys, accountants and other representatives or agents from the other party during the course of its investigation or negotiations pertaining to the transactions contemplated hereby, and all copies thereof (other than one record copy to be kept by independent counsel to such party). Without limiting the generality of the foregoing, in such event, the parties hereto agree that they shall not retain or permit any Person to whom they have furnished the same to retain, any memoranda, copies, summaries, extracts or other reproductions in whole or in part of such written information or material or any oral information so provided (other than the one copy to be delivered to independent counsel). In such event all documents, memoranda, notes and other writing whatsoever prepared by a Purchaser or the Company based on the information in such information or material shall except as provided in the preceding sentence be destroyed (and the Purchasers and the Company shall use their respective reasonable business efforts to cause all Persons to whom they have furnished the same to similarly destroy their documents, memoranda and notes), and such destruction (and efforts) shall be certified in writing by the authorized officer supervising such destruction. (v) The provisions of paragraphs (ii) and (iv) of this Section 3(a) shall survive any termination of this Agreement or the consummation of the transactions contemplated hereby. (b) Agreement to Cooperate. Subject to the terms and conditions herein ---------------------- provided, each of the parties hereto shall cooperate and use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under Applicable Laws to consummate and make effective the transactions contemplated by this Agreement, including without limitation using its reasonable efforts to: (i) prepare and file with the applicable Authorities (including without limitation the Federal Trade Commission and the Department of Justice), as promptly as practicable after the execution of this Agreement, all requisite applications, notifications, registrations, filings and submissions, amendments thereto, and publications and requests for extensions and waivers in connection therewith, together with all related information, data and exhibits, as may be necessary to obtain all Governmental Authorizations legally required for, or otherwise required by Applicable Law in connection with, the consummation of the transactions contemplated by this Agreement; (ii) defend vigorously against any Legal Actions in which such party is named as a defendant which seeks to enjoin, restrain or prohibit the consummation of the transactions contemplated hereby or seeks damages with respect to such transaction, including to lift any injunction or other legal bar to such consummation (and, in such case, to proceed with such consummation as expeditiously as possible); and (iii) obtain the satisfaction of the conditions specified in Section 7. Without limiting the generality of the foregoing, the parties recognize that the consummation of the transactions contemplated hereby is subject to the preacquisition notification requirements of the HSR Act. Each of the parties agrees, accordingly, that it will (x) file with the Antitrust Division of the Department of Justice and the Federal Trade Commission a Notification and Report Form in a manner so as to constitute substantial compliance with the notification requirements of the HSR Act, and (y) use its reasonable business efforts to achieve the prompt termination or expiration of the waiting period or any extension thereof under the HSR Act. (c) Public Announcements. Until such time, including following any --------------------- termination of this Agreement as may be mutually agreed upon by the parties to this Agreement, none of the parties shall, without the approval of the Summit Purchasers and the Company, which approval shall not unreasonably be withheld, delayed or conditioned, make or cause to be made any press release or other public announcement that directly or indirectly discloses the transactions contemplated by this Agreement, except as and to the extent that it is required to make by Law. Prior to making any press release or other public announcement that may be required by Law, the party proposing to make the same shall advise the others and afford them the opportunity to review and comment upon its content. (d) Directors' and Officers' Indemnification. The Company shall not take, and ----------------------------------------- the Purchasers shall not permit the Company to take, for a period of six years after the Closing, any action that would diminish the rights to indemnification of each present and former director, officer, employee and agent of the Company contained in the Articles of Organization or By-Laws, respectively, of the Company as in effect on the Closing Date. (e) New Indebtedness. Prior to the Closing, the Summit Purchasers and the ---------------- Company shall cooperate in obtaining financing for the Company in a minimum principal amount equal to $16,000,000 (the "New Company Debt"), including a working credit line of not less than $2,500,000 (the "Working Credit Line") on reasonable terms approved by the Board of Directors of the Company. Immediately prior to the sale and purchase of the Common Shares and Preferred Shares pursuant to this Agreement, the Company shall draw down $13,500,000 of the New Company Debt in order to consummate the redemption of shares of Common Stock from the Stockholders pursuant to Section 2 of this Agreement. (f) Life Insurance. The Company shall use its reasonable best efforts to -------------- obtain and maintain in full force and effect, at its expense, insurance payable to the Company upon the lives of Herbert Gray and Donald Benovitz in the amount of $1,000,000 each with insurers and upon terms approved by the Board of Directors of the Company. (g) Exclusivity; No Solicitation. In recognition and consideration of the ----------------------------- fact that the Summit Purchasers have invested and will invest substantial time and effort, and have incurred and will incur substantial expenses in their detailed investigation of the Company and its business and in the negotiation and preparation of this Agreement and other documents relating to the transactions contemplated hereby, from and after the date hereof until the earlier of July 15, 1995 and the date on which negotiations concerning the transactions contemplated hereby cease to continue in good faith, the Company and the Stockholders agree with the Summit Purchasers that the Company shall not, and shall not permit any of its officers, directors, employees, advisers, agents or other representatives, directly or indirectly, to solicit, initiate, participate in, consider or entertain (including by way of furnishing any non- public information concerning the Company's business, properties or assets) discussions, inquiries or proposals whether or not solicited by the Company or participate in any negotiation for the purpose or with the intention of leading to any such discussion, inquiry or proposal concerning any acquisition of all or substantially all of the assets of, or any merger, consolidation or business combination with, the Company or the sale of any material amount of assets of the Company or for the purchase of any material amount of equity securities of the Company (including a sale to the public) (collectively, a "Purchase Proposal"), except for the transactions with the Purchasers contemplated by this Agreement; provided, however, that if the Stockholders believe that the Summit Purchasers have ceased to negotiate with them in good faith, they shall so notify the Purchasers specifying the reasons for their belief in reasonable particularity, and the Summit Purchasers shall have five business days to resume negotiations in good faith. Promptly after this Agreement is signed, the Company and the Stockholders and any agents of any of them shall notify any persons or entities with whom the Company or any of the Stockholders or their agents are now engaged in discussions concerning a Purchase Proposal that the Company and the Stockholders have signed this Agreement to engage in a transaction with the Summit Purchasers. The Company will promptly inform the Summit Purchasers of any inquiry (including the terms thereof and the Person making such inquiry) which it may receive in respect of ny Purchase Proposal. (h) Investment Bankers. The parties acknowledge that while the Company has no ------------------ present intention of offering its securities for sale to the public under the Securities Act, it may choose to do so in the future. In such event, the Company agrees that it shall inform BSC of such intent, and shall invite BSC to make a presentation to the Board of Directors of the Company should BSC desire to manage such an offering. The Company further agrees that given BSC's expertise and knowledge of the Company, if the Company elects to name three or more managers of such an offering, BSC shall be one of such managers, with the lead underwriter to be selected by the Board of Directors of the Company. SECTION 4. Representations, Warranties and Covenants of the Company and ------------------------------------------------------------ the Stockholders. The Company and each Stockholder, jointly and severally, - ---------------- hereby represents, warrants, covenants and agrees to and with the Purchasers as follows: (a) Organization, Power and Authority; Effect of Transaction. -------------------------------------------------------- (i) The Company (A) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as set forth in the Disclosure Schedule, (B) has all requisite power and authority (corporate and other) to own or hold under lease its properties and to conduct its business as now conducted and as presently proposed to be conducted, and has in full force and effect all Governmental Authorizations and Private Authorizations, to the extent required for such ownership or lease of its property and conduct of its business, except where the failure to have such Governmental Authorizations and Private Authorizations does not, in the aggregate, have a Material Adverse Effect on the Company, and (C) has duly qualified and is authorized to do business and is in good standing as a foreign corporation in each jurisdiction (a true and correct list of which is set forth in the Disclosure Schedule) in which the character of its property or the nature of its business or operations requires such qualification or authorization, except where the failure to so qualify does not, in the aggregate, have a Material Adverse Effect on the Company. (ii) The Company has all requisite power and authority (corporate and other) and has in full force and effect all Governmental Authorizations and Private Authorizations in order to enable it to execute and deliver, and to perform its obligations under, this Agreement and each agreement, instrument or other document executed or required to be executed pursuant hereto or thereto, and the execution, delivery and performance of this Agreement and each agreement, instrument or other document executed or required to be executed pursuant hereto or thereto have been duly authorized by all requisite corporate or other action. This Agreement has been duly executed and delivered by the Company and constitutes, and each agreement, instrument or other document executed or required to be executed pursuant hereto or thereto when executed and delivered by the Company will constitute, legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms, except as (A) the enforceability thereof may be limited by bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or other laws of general applicability affecting the enforcement of creditors' or secured parties' rights or debtors' obligations generally; (B) the availability of specific performance or other equitable remedies may be limited by equitable principles of general applicability (whether such matter is considered in a proceeding at law or in equity); and (C) the indemnification provisions with respect to securities law matters may be limited by applicable securities laws or principles of public policy. (iii) Except as set forth in the Disclosure Schedule, neither the execution and delivery of this Agreement or any agreement instrument or other document executed or required to be executed pursuant hereto or thereto, nor the consummation of the transactions herein or therein contemplated nor compliance with the terms, conditions and provisions hereof or thereof by the Company: (A) will conflict with, or result in a breach or violation of, or constitute a default under, any Applicable Law on the part of the Company or will conflict with, or result in a breach or violation of, or constitute a default under, or permit the acceleration of any obligation or liability in, or but for any requirement of giving of notice or passage of time or both would constitute such a conflict with, breach or violation of, or default under, or permit any such acceleration in, any material agreement to which the Company is a party or by which it or its property is bound, (B) will result in or permit the creation or imposition of any Lien upon any property now owned or leased by the Company, or (C) will, based on the representations and warranties of the Purchasers set forth in Section 5(b), require any Governmental Authorization or Governmental Filing or Private Authorization, except pursuant to the HSR Act and for filings contemplated by the Registration Rights Agreement referred to in Section 7(a)(v)(B). (iv) The Company does not have any Subsidiaries. (v) The authorized and outstanding capital stock of the Company and the ownership thereof will as of the Closing Date be as set forth in the Disclosure Schedule. All issued and outstanding shares of capital stock are, and when issued in accordance with the terms hereof, all Preferred Shares and Common Shares will be, duly authorized, validly issued, fully paid, non-assessable and free from any restrictions on transfer, and are not subject to any preemptive or similar rights, except (A) as set forth in the Disclosure Schedule, (B) for restrictions imposed by federal or state securities or "blue-sky" laws and (C) for those imposed pursuant to this Agreement or any Related Agreement. Except as contemplated by this Agreement or as set forth in the Disclosure Schedule, (A) there is neither outstanding nor has the Company agreed to grant or issue any shares of its capital stock or any Option Security or Convertible Security and (B) the Company is not a party to and is not bound by any agreement, put or commitment pursuant to which it is obligated to purchase, redeem or otherwise acquire any shares of capital stock or any Option Security or Convertible Security. All issued and outstanding shares of capital stock of the Company were, and, based on the representations and warranties of the Purchasers set forth in Section 5(b), the Preferred Shares and Common Shares will be, issued (A) in transactions exempt from the registration provisions of the Securities Act of 1933, as amended (the "Securities Act") and (B) in compliance with or in transactions exempt from the registration provisions of applicable state securities or "blue-sky" laws. The Company has complied and will comply, in all material respects, with all applicable federal or state securities laws in connection with the issuance and sale of the Preferred Shares and Common Shares. Neither the Company nor anyone acting on its behalf has offered any of the Preferred Shares and Common Shares, or similar securities, or solicited any offers to purchase any of such securities to any Person other than the Purchasers and other than in connection with soliciting offers to acquire the Company as a whole. (b) Financial Information. The Company has heretofore furnished to Purchaser --------------------- copies of the financial statements of the Company listed in the Disclosure Schedule (the "Financial Statements"). The Financial Statements, including in each case the notes thereto, have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, except as otherwise noted therein, and fairly present the financial condition and results of operations of the Company, on the bases therein stated, as of the respective dates thereof, and for the respective periods covered thereby subject, in the case of unaudited financial statements, to normal year-end audit adjustments and accruals. Between the date of the most recent financial statements forming part of the Financial Statements and the date of this Agreement, except to the extent described in the Disclosure Schedule, there has been no Material Adverse Change in the Company. Except as set forth in the April 30, 1995 balance sheet forming part of the Financial Statements (the "Most Recent Balance Sheet"), there are no material liabilities of the Company, whether accrued, absolute, contingent or otherwise (including, without limitation, liabilities as guarantor or otherwise with respect to obligations of any other Person, or liabilities for Taxes due or then accrued or to become due), of a nature required by GAAP to be set forth in the Financial Statements, or the notes thereto, except for liabilities which have arisen in the ordinary course of business of the Company since the date of the Most Recent Balance Sheet and except as contemplated by this Agreement, the Related Agreements and the agreements relating to the New Company Debt. (c) Condition and Title to Properties; Leases. The Company owns no real ----------------------------------------- property and has good indefeasible and merchantable title to all assets, tangible and intangible, reflected on the Most Recent Balance Sheet forming part of the Financial Statements, or acquired by the Company since such date, except inventory sold and other tangible personal property used up or retired since such date, in each case in the ordinary course of business consistent with past practice of the Company, free and clear of all Liens, except such as are reflected in such balance sheet, or the notes thereto, or set forth in the Disclosure Schedule, or which do not, in the aggregate, have a Material Adverse Effect on the Company. The Company has a valid leasehold interest in and enjoys peaceful and undisturbed possession under all leases pursuant to which it holds any real property. The Company is not in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any such lease, which could, in the aggregate for all such defaults, have a Material Adverse Effect on the Company. The Disclosure Schedule contains a list of all real property leased by the Company and all leases of real property. None of the tangible personal property (other than inventory) is subject to contracts of sale, none is held by the Company as lessee or as conditional sales vendee under any lease or conditional sales contract and none is subject to any title retention agreement, except as set forth in the Most Recent Balance Sheet or the Disclosure Schedule. The Company owns or leases all real, personal, tangible and intangible property and assets necessary for the conduct of the Subject Business as such business is presently conducted and proposed to be conducted. To the knowledge of each of the Stockholders and the Company, all tangible properties and assets owned or leased by the Company are in satisfactory operating condition and repair, ordinary wear and tear excepted, have been maintained in accordance with reasonable business practice, and conform in ll material respects with all Applicable Laws. (d) Compliance with Private Authorizations. The Disclosure Schedule sets -------------------------------------- forth a list of each material Private Authorization of the Company. The Company has obtained all Private Authorizations which are necessary for the ownership by it of its properties and the conduct of its business substantially as now conducted or as presently proposed to be conducted or which, if not obtained and maintained, could, in the aggregate, have a Material Adverse Effect on the Company. The Company is not in breach or violation of, and is not in default in the performance, observance or fulfillment of, any Private Authorization, and no event exists or has occurred, which constitutes, or but for any requirement of giving of notice or passage of time or both would constitute, such a breach, violation or default, under any Private Authorization, except for such defaults, breaches or violations, as do not and will not, in the aggregate, have a Material Adverse Effect on the Company. No material Private Authorization is the subject of any pending or, to the Company's knowledge, threatened attack, revocation or termination, except as set forth in the Disclosure Schedule (e) Compliance with Governmental Authorizations and Applicable Law. The -------------------------------------------------------------- Disclosure Schedule contains a list of (i) all Legal Actions which are pending or in which the Company or its business, operations or, properties or, to the Company's knowledge, any of its officers or directors in connection therewith, is, or at any time since January 1, 1993 has been, engaged, or which involve, or at any time during such period involved, the business, operations or properties of the Company or, to the Company's knowledge, which are threatened or contemplated against the Company or its business, operations or properties, or its officers or directors, in connection therewith; and (ii) each Governmental Authorization which, if not obtained and maintained, could individually or in the aggregate, have any Material Adverse Effect on the Company (a "Material Governmental Authorization"). No Material Governmental Authorization is the subject of any pending or, to the Company's knowledge, threatened attack, revocation, expiration or termination. Neither the Company nor, to the Company's knowledge, any officer or director, in connection with the business, operations and properties of the Company, is or at any time since January 1, 1993 has been (A) in breach or violation or, or in default in the performance of, or (B) charged with any such breach or violation of, or default under, or (C) to the Company's knowledge, threatened with or under investigation with respect to any such breach or violation of, or default under, any Material Governmental Authorization or any Applicable Law, and no event exists or has occurred, which constitutes, or but for any requirement of giving of notice or passage of time or both would constitute, such a breach or violation of or default under any Material Governmental Authorization or any Applicable Law, or except as otherwise set forth in the Disclosure Schedule. (f) Intellectual Property. The present and planned future conduct of business --------------------- by the Company is not materially dependent upon any one or more patents, trademarks, trade names, service marks or copyrights. There are no Claims of any Person pertaining to any of the aforesaid, no proceedings have been instituted, are pending or, to the Company's knowledge, threatened which challenge the Company's rights in respect to any of the aforesaid, and, to the Company's knowledge, none of the aforesaid infringes upon or otherwise violates the rights of any other Person or is being infringed or violated by any other Person, except as set forth on the Disclosure Schedule. No licenses, sublicenses or agreements pertaining to any of the aforesaid are in effect, except as set forth in the Disclosure Schedule. (g) Related Transactions. The Disclosure Schedule sets forth a list of any -------------------- agreement or transaction between the Company and any of its officers, directors or stockholders, or any Affiliate of any thereof (other than for services as, or loans and advances in the ordinary course of business to, officers, and directors and dividends to stockholders), now existing or which, at any time since January 1, 1993, existed or occurred, including without limitation any providing for the furnishing of services to or by, providing for rental of property, real, personal or mixed, to or from, or providing for the lending or borrowing of money to or from or otherwise requiring payments to or from, any officer, director or stockholder, or any Affiliate of any thereof. (h) Insurance. The Disclosure Schedule sets forth a list of all insurance --------- maintained by the Company, including those with respect to loss or damage by fire, theft, burglary, pilferage, loss in transit, explosion, hazards insured against by extended coverage, and hazards, risks and liability to persons and property, including larceny, embezzlement or other criminal misappropriation insurance and business interruption insurance. Each such policy of insurance is, to the knowledge of the Company, valid, binding and enforceable and in full force and effect. The Company is not in breach or violation of or in default under any such policy such as the insurer could cancel such policy or avoid payment thereunder. (i) Tax Matters. The Company has in accordance with all Applicable Laws filed ----------- all Tax Returns which are required to be filed, and has paid, or made adequate provision for the payment of, all Taxes which have or may become due and payable pursuant to said returns, all estimated Taxes due and payable and all other governmental charges and assessments received to date. The Tax Returns of the Company have been prepared in accordance with all Applicable Laws and generally accepted accounting principles applicable to taxation consistently applied. All Taxes which the Company is required by law to withhold and collect have been duly withheld and collected, and have been paid over, in a timely manner, to the proper Authorities to the extent due and payable. The Company has not executed any waiver to extend, or otherwise taken or failed to take any action that would have the effect of extending, the applicable statute of limitations in respect of any Tax liabilities of the Company for the fiscal years prior to and including the most recent fiscal year, except as otherwise set forth on the Disclosure Schedule. Adequate provision has been made on the most recent balance sheet forming part of the Financial Statements for all Taxes of any kind, including interest and penalties in respect thereof, whether disputed or not, and whether past, current or deferred, accrued or unaccrued, fixed, contingent, absolute or other, and to the Company's knowledge, there are no transactions or matters or any basis which might or could result in additional Taxes of any material nature to the Company for which an adequate reserve has not been provided on such balance sheet. The Company has at all times since September 1, 1987 and will until the Closing be a corporation organized under Subchapter S of the Code. The Company is an accrual basis taxpayer for federal income tax purposes. (j) Employee Retirement Income Security Act of 1974. The Company has no ------------------------------------------------ current obligation to make any contribution to any Plans, except as set forth in the Disclosure Schedule. As to all Plans listed in the Disclosure Schedule, except as set forth on the Disclosure Schedule: (i) All Plans comply and have been administered in form and in operation with all Applicable Laws, except where the failure to so comply does not, in the aggregate, have a Material Adverse Effect on the Company, and the Company has not received any notice from any Authority to the effect that any Plan does not so comply. (ii) All Plans maintained by the Company that are or were intended to comply with Sections 401 and 501 of the Code have been the subject of favorable determination letters from the Service, and, to the Company's knowledge, no event has occurred which will or could give rise to disqualification of any such Plan under such sections or to a material tax liability under Section 511 of the Code. (iii) None of the assets of any Plan are invested in employer securities or employer real property. (iv) There have been no non-exempt "prohibited transactions" (as described in Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan and the Company has not otherwise engaged in any such prohibited transaction. (v) There have been no acts or omissions by the Company which have given rise to or may give rise to material unpaid fines, penalties, taxes or related charges under Sections 502(c), 502(i) or 4071 or ERISA or Chapter 43 of the Code for which the Company may be liable. (vi) There are no Claims (other than routine claims for benefits) pending or, to the Company's knowledge, threatened involving such Plans or the assets of such Plans except such Claims which do not, in the aggregate, have a Material Adverse Effect on the Company. (vii) As to any Plan which is subject to Title IV of ERISA, there have been no "reportable events" (as described in Section 4043 of ERISA), other than "reportable events" with respect to which notice has been waived pursuant to 29 C.F.R. Part 2615, and no steps have been taken to terminate any such Plan. (viii) All group health Plans of the Company have been operated in compliance with the group health plan continuation coverage requirements of Section 4980B(f) of the Code and Section 601 of ERISA to the extent such requirements are applicable except where the failure to so comply does not, in the aggregate, have a Material Adverse Effect on the Company. (ix) Actuarially adequate accruals for all obligations under the Plans are reflected in the most recent balance sheet forming part of the Financial Statements and such obligations include a pro rata amount of the contributions which would otherwise have been made in accordance with past practices for the Plan years which include the Closing Date. (x) Neither the Company nor, to its knowledge, any of its directors, officers, employees or any other fiduciary has committed any breach of fiduciary responsibility imposed by ERISA that would subject the Company to material liability under ERISA. (xi) No Plan which is subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code had an accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of such Plan to which Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code applied, nor would have had an accumulated funding deficiency on such date if such year were the first year of such Plan to which Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code applied. (xii) No material liability to the PBGC (other than payment of insurance premiums) has been incurred by the Company with respect to any Plan. (xiii) The Company is not and never has been a party to any Multiemployer Plan or made contributions to any such plan. (k) Inapplicability of Specified Statutes. The Company is not a "holding ------------------------------------- company," or a "subsidiary company" or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or an "investment company" or a company "controlled" by or acting on behalf of an "investment company", as defined in the Investment Company Act of 1940, as amended, or a "carrier" or a person which is in control of a "carrier", as defined in sections 10102 or 11301 of Title 49, U.S.C. (l) [Intentionally Omitted] (m) Employment Arrangements. The Company has no obligation or liability, ----------------------- contingent or other, under any Employment Arrangement, other than those listed in the Disclosure Schedule. Except as set forth on the Disclosure Schedule, none of the employees of the Company are represented by any labor union or other employee collective bargaining organization or are parties to any labor or other collective bargaining agreement, and there are no pending grievances, disputes or controversies with any union or any other organization of such employees, or threats of strikes, work stoppages or any pending demands for collective bargaining by any union or organization, or, to the Company's knowledge, any active organizing or recruiting of such employees with respect to becoming members of any union or other employee or collective bargaining organization. The Company has performed all obligations required to be performed under all Employment Arrangements and is not in breach or violation of or in default or arrears under any of the terms, provisions or conditions thereof, except such as do not, in the aggregate, have a Material Adverse Effect on the Company. (n) Material Agreements. Listed on the Disclosure Schedule are all Material ------------------- Agreements relating to the ownership or operation of the business and property of the Company presently held or used by the Company or to which the Company is a party or to which it or any of its property is subject or bound. The Company has complied in all material respects with all of the terms and conditions of each Material Agreement and has not done or performed, or failed to do or perform (and there is no pending or, to the knowledge of the Company, threatened, Claim that the Company has not so complied, done and performed or failed to do and perform) any act, and the Company is not aware of any such noncompliance, nonperformance or failure on the part of any other Person to the Material Agreements. (o) Ordinary Course of Business. The Company from the end of its most recent --------------------------- fiscal year to the date hereof, except as may be described on the Disclosure Schedule or as may be required by the terms of this Agreement: (i) has operated its business in the ordinary course; (ii) has not sold or otherwise disposed of, or contracted to sell or otherwise dispose of, any of its properties or assets, other than inventory in the ordinary course of its business and nonmaterial amounts of machinery and equipment no longer needed in the operation or business or replaced with assets of like kind or better kind and quality; (iii) except in each case in the ordinary course of business has not incurred any Material obligations or liabilities; (iv) has not made any additions to its property or any purchases of machinery or equipment, except for normal maintenance and replacements; (v) has not discharged or satisfied, any Lien or paid any obligation or liability (absolute or contingent) other than current liabilities or obligations under contracts then existing or thereafter entered into in the ordinary course of business, and commitments under leases of real property existing on that date or incurred since that date in the ordinary course of business; (vi) has not committed or suffered to exist any Act of Bankruptcy; (vii) has not materially increased the compensation payable or to become payable to any of its officers, employees, advisers, consultants, salesmen or agents, has not otherwise altered, modified or changed in any material respect the terms of their employment or engagement, and has not entered into new employment arrangements, other than in the ordinary course of business and on terms and conditions substantially consistent with prior practices; (viii) has not suffered any material damage, destruction or loss (whether or not covered by insurance) or any acquisition or taking of property by any Authority; (ix) has not amended in any material respect, terminated or entered into or become (or permit any of its property to be) bound by or subject to any Governmental Authorization, Private Authorization, Material Agreement, Employment Arrangement or Plan or any transaction with any Affiliate; (x) has not done any act or failed to do any act, if such act or failure to act might result in the expiration, revocation, suspension or modification of any of its Material Governmental or material Private Authorizations; (xi) has not issued, sold or purchased or agreed to issue, sell or purchase any shares of capital stock or any Convertible Securities or Option Securities; (xii) has not declared, made or paid or agreed to declare, make or pay, any Distribution; and (xiii) has not entered into any other transaction or series of related transactions or suffered any change which individually or in the aggregate is Material to the Company. (p) Broker or Finder. No Person assisted in or brought about the ---------------- negotiation of this Agreement or the subject matter of the transactions contemplated hereby in the capacity of broker, agent or finder or in any similar capacity on behalf of the Company or any of the Stockholders other than BSC, and, except for the fees and expenses of BSC, neither any Stockholder nor the Company has incurred any brokers, finders or similar fees or commissions payable with respect to the transactions contemplated by this Agreement. (q) Environmental Protection. ------------------------- (i) Except as set forth in the Disclosure Schedule, (A) the Company has obtained all Governmental Authorizations (including without limitation all Environmental Permits) and made all Governmental Filings which are required to be obtained by the Company for the ownership of its property, facilities and assets and the operation of its businesses under all Environmental Laws, except where the failure to obtain such Authorizations or to make such filings would not, individually or in the aggregate, have a Material Adverse Effect on the Company, (B) the Company is and at all times since January 1, 1993 has been in compliance with the terms and conditions of all such required Governmental Authorizations and all Environmental Requirements, except where the failure to so be in compliance, does not, in the aggregate, have a Material Adverse Effect on the Company, and (C) the Company is not the subject of or, to the Company's knowledge, threatened with any Legal Action involving a demand for damages or other potential liability with respect to violations or breaches of any Environmental Requirement, except for such Legal Actions which, if determined adversely, would not, in the aggregate, have a Material Adverse Effect on the Company. (ii) There have not been any past or present events, activities, practices, incidents, actions or plans of the Company, which constitute a breach of any Environmental Requirements or which may interfere with or prevent continued compliance with all Environmental Requirements or which may give rise to any common law, statutory or other legal liability, or otherwise form the basis of any Claim, clean-up cost, fine, penalty or assessment based on or related to the transportation, transmission, gathering, processing, distribution, use, treatment, storage, disposal or handling. or the emission, discharge, release or threatened emission, discharge or release into the environment of any pollutant, contaminant, hazardous or toxic material, substance or waste with respect to the Company or its business, operations or property which have, in the aggregate for all of the aforesaid, a Material Adverse Effect on the Company. (iii) The Company has not stored or disposed of (or engaged in the business of storing or disposing) or released or caused the release of any hazardous waste, contaminants, oil, radioactive or other material thereon, the removal of which is required or the maintenance of which is prohibited or penalized by any Environmental Laws. All real property leased by the Company is free from any such hazardous waste, contaminants, oil, radioactive and other materials owned or used by the Company. (r) Accounts Receivable. All of the accounts receivable of the Company are ------------------- properly reflected in the Financial Statements and are, subject to the allowance for doubtful accounts set forth therein, valid and enforceable claims, subject to no set-off or counterclaim, and are collectible in the ordinary course of business at least to the extent, in the aggregate, as reflected. (s) Inventories. Except as disclosed in the Disclosure Schedule, (i) the ----------- inventories of the Company are properly reflected in the Most Recent Balance Sheet and are of a quality and quantity saleable in the ordinary course of business of the Company at prevailing market prices, are priced at the lower of cost (first in, first out) or market and (ii) the values of the inventories stated in the Financial Statements reflect the Company's normal inventory valuation policies and were determined in accordance with generally accepted accounting principles consistently applied. (t) Records and Books. Except as disclosed in the Disclosure Schedule, (i) ----------------- the minute books of the Company accurately record all corporate action taken by the stockholders and boards of directors and committees thereof from the date of organization through the date hereof, and (ii) the stock transfer ledgers or record books of the Company completely and accurately set forth all transfers of the Company's capital stock from the date of organization through the date hereof. (u) Disclosure of Material Information. Neither this Agreement (including ---------------------------------- the Schedules and Exhibits hereto) nor any document, certificate or instrument furnished in connection herewith, when taken in their entirety, contains, with respect to the Company, or any Stockholder, any untrue statement of a material fact or omits to state a material fact necessary to made the statements therein not misleading; provided, however, that it is agreed that this representation and warranty shall not be deemed to apply to the confidential placement memorandum dated January, 1995 prepared by the Company and distributed by BSC. Each Stockholder severally and not jointly represents and warrants that: (1) He has adequate power and authority and all necessary Governmental Authorizations and Private Authorizations in order to enable him to execute and deliver, and to perform his obligations under, this Agreement and each other agreement, instrument and document executed or required to be executed pursuant hereto or thereto, and the execution, delivery and performance of this Agreement and each other agreement, instrument and document executed or required to be executed pursuant hereto or thereto have, or on or prior to the Closing Date will have, been duly executed and delivered; (2) This Agreement constitutes, and each other agreement, instrument and document executed or required to be executed pursuant hereto or thereto when executed and delivered by him will constitute, his valid and binding obligations, enforceable in accordance with its respective terms, except as (a) the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors' or secured parties' rights or debtors' obligations generally, (b) the availability of specific performance or other equitable remedies may be limited by equitable principles of general applicability (whether in a court of law or in equity), and (c) the indemnification provisions with respect to securities law matters may be limited by applicable securities laws or principles of public policy. (3) He owns and has good, indefeasible and merchantable title to the shares of Common Stock set forth opposite his name on the Disclosure Schedule (including the Redemption Shares set forth on Schedule 2 hereto), free and clear ---------- of all Liens, puts, calls, options, pre-emptive rights, stockholder agreements and voting rights, except as otherwise set forth in the Disclosure Schedule; (4) After giving effect to the consummation of the transactions contemplated bv this Agreement, as of the Closing Date, he will be Solvent; and (5) Except as set forth in the Disclosure Schedule, neither the execution and delivery of this Agreement or any agreement, instrument or other Agreement executed or required to be executed pursuant hereto or thereto, nor the consummation of the transactions herein or therein contemplated, nor compliance with the terms, conditions and provisions hereof or thereof by him: (x) will conflict with, or result in a breach or violation of, or constitute a default under, any Applicable Law on his part or will conflict with, or result in a breach or violation of, or constitute a default in the performance, observance or fulfillment of, or a default under, or permit the acceleration of any obligation or liability in, or but for any requirement of giving of notice or passage of time or both would constitute such a conflict with, breach or violation of, or default under, or permit any such acceleration in, any material agreement to which he is a party or by which he or his property is bound, (y) will result in or permit the creation or imposition of any Encumbrance upon any of his property or assets, or (z) will require any Governmental Authorization or Governmental Filing, except pursuant to the HSR Act. (6) He is acquiring the Note acquired by him under Section 2 above for investment and not with a view to the distribution thereof in violation of the Securities Act. SECTION 5. Representations, Warranties and Covenants of the Purchasers. ----------------------------------------------------------- Each Purchaser, acting severally and not jointly, hereby represents, warrants, covenants and agrees to and with the Company and each Stockholder as follows: (a) Organization and Business; Power and Authority; Effect of Transaction; ---------------------------------------------------------------------- Ordinary Course of Business - --------------------------- (i) Each Purchaser (A) is a partnership validly existing and in good standing under the laws of the Commonwealth of Massachusetts or, in the case of BSC, a corporation validly existing and in good standing under the laws of [the State of Delaware], and (B) has all requisite power and authority (corporate partnership and other) to own or hold under lease the properties which it proposes to own or hold under lease and to conduct its business as presently proposed to be conducted, and has in full force and effect all Governmental Authorizations and Private Authorizations and has made all Governmental Filings, to the extent required for such ownership or lease of its property and conduct of its business. (ii) Each Purchaser has all requisite power and authority (corporate partnership and other) and has in full force and effect all Governmental Authorizations and Private Authorizations in order to enable it to execute and deliver, and to perform its obligations under, this Agreement and each agreement instrument or other document executed or required to be executed pursuant hereto or thereto, and the execution, delivery and performance of this Agreement and each agreement, instrument or other document executed or required to be executed pursuant hereto or thereto have been duly authorized bv all requisite partnership or other action. This Agreement has been duly executed and delivered by each Purchaser and constitutes, and each agreement, instrument and other document executed or required to be executed pursuant hereto or thereto when executed and delivered by each Purchaser will constitute, legal, valid and binding obligations of such Purchaser, enforceable in accordance with their respective terms, except as (A) the enforceability thereof may be limited by bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or other laws of general applicability affecting the enforcement of creditors' or secured parties' rights or debtors' obligations generally, (B) the availability of specific performance or other equitable remedies may be limited by equitable principles of general applicability (whether such matter is considered in a proceeding at law or in equity), and (C) the indemnification provisions with respect to securities law matters may be limited by applicable securities laws or principles of public policy. (iii) Neither the execution and delivery of this Agreement or any agreement, instrument or other document executed or required to be executed pursuant hereto and thereto, nor the consummation of of the transaction herein or therein contemplated, nor compliance with the terms, conditions and provisions hereof or thereof by any Purchaser: (A) will conflict with, or result in a breach or violation of, or constitute a default under, any Applicable Law on the part of such Purchaser or any such other party or will conflict with, or result in a breach or violation of, or constitute a default under, or permit the acceleration of any obligation or liability in, or but for any requirement of giving of notice or passage of time or both would constitute such a conflict with, breach or violation of, or default under, or permit any such acceleration in, any material agreement to which Purchaser is a party or by which it or its property is bound; (B) will result in or permit the creation or imposition of any Lien upon any property now owned or leased by such Purchaser, or (C) will require any Governmental Authorization or Governmental Filing or Private Authorization, except as applicable securities laws may apply to compliance by such Purchaser with the provisions of the Registration Rights Agreement and pursuant to the HSR Act. (b) Investment. ---------- (i) Each Purchaser is acquiring the Securities for its own account for investment and not with a view to, or for sale in connection with, any transaction which would constitute, a distribution within the meaning of the Securities Act. (ii) Each Purchaser understands that none of the Securities have been registered under the Securities Act or the securities laws of any state, and in the absence of such registration (or an exemption therefrom), it may be required to hold the Securities for an indefinite period of time; that the exemptions from registration under the Securities Act provided by Rule 144 promulgated thereunder are not presently available and may not necessarily be available, to it; and that even if available, such rule may permit resales of the Securities only in limited amounts and upon compliance with the terms and conditions of such rule. (iii) Each Purchaser (A) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of this investment in the Securities; (B) is able to bear the complete loss of its investment in the Securities; and (C) has had the opportunity to ask questions of, and receive answers from, the Company concerning the terms and conditions of the offering of the Securities and to obtain additional information. (iv) Each Purchaser acknowledges and agrees that until such time as it is no longer required under the Securities Act and the rules and regulations thereunder, the certificates representing the Preferred Shares and the Common Shares shall bear a legend referencing the Securities Act. (v) Each Purchaser is a financial institution or institutional buyer or broker-dealer within the meaning of Section 402(b)(8) of chapter 110A of the General Laws of Massachusetts. (c) Financial Capacity. Each Purchaser has the financial capacity and ------------------ ability to consummate the transactions contemplated by this Agreement. As of the execution and delivery of this Agreement, and after giving effect to the consummation of the transactions contemplated by this Agreement, each Purchaser is and, as of the Closing Date, will be Solvent. (d) Broker or Finder. No Person assisted in or brought about the negotiation ---------------- of this Agreement or the subject matter of the transactions contemplated hereby in the capacity of broker, agent or finder or in any similar capacity on behalf of any of the Purchasers and none of the Purchasers has incurred any broker's, finder's or similar fees or commissions payable with respect to the transactions contemplated by this Agreement. (e) Financing. The Summit Purchasers, jointly and severally, represent and --------- warrant that the New Company Debt will be obtained from non-affiliated lenders on commercially reasonable terms or, if not obtained from such sources, will be provided by the Summit Purchasers or their Affiliates in an amount not less than $16,000,000, including the Working Credit Line, on such commercially reasonable terms or other terms reasonably satisfactory to the Company. SECTION 6. Covenants. The Company and each of the Stockholders hereby agree --------- with each Purchaser to keep, perform and fully discharge the following covenants and agreements: (a) Interim Conduct of Business. From the date hereof until the Closing, the --------------------------- Company shall operate its business as a going concern consistent with prior practice and in the ordinary course of business. Without limiting the generality of the foregoing, from the date hereof until the Closing Date, except for transactions contemplated by this Agreement or contemplated by matters set forth in the Disclosure Schedule or expressly approved in writing by the Summit Purchasers, the Company shall not: (i) enter into or amend any employment, bonus, severance or retirement contract or arrangement, or increase any salary or other form of compensation payable or to become payable to any executive or employee other than in the ordinary course of business consistent with past practices and other than salary increases for employees of the Company who are not Stockholders and whose current salary is less than $75,000 per annum; notwithstanding this clause (a)(i), payments provided for in the Company's bonus plan for fiscal year 1995, as heretofore furnished to the Purchasers, will be made as contemplated; (ii) purchase, lease or otherwise acquire any real estate or any interest therein; (iii) declare, set aside or pay any dividend or make any other distribution with respect to any Equity security of the Company (other than dividends and distributions to Stockholders to fund taxes on their allocable share of S Corporation income within a reasonable period prior to the time those taxes are due and payable); (iv) merge or consolidate with or agree to merge or consolidate with, or purchase or agree to purchase all or substantially all of the assets of, acquire securities of or otherwise acquire, any Person; (v) sell, lease or otherwise dispose of or agree to sell, lease or otherwise dispose of any of its assets, properties, rights or claims, whether tangible or intangible, except in the ordinary course of business consistent with prior practice; (vi) authorize for issuance, issue, sell or deliver any of of its equity securities; (vii) split, combine or reclassify any class of equity security or redeem or otherwise acquire, directly or indirectly, any of its equity securities; (viii) incur any liability, guaranty or obligation (including without limitation for money borrowed) (fixed or contingent) other than in the ordinary course of business consistent with prior practice; (ix) place or permit to be placed any Lien on any of its assets or properties, other than statutory Liens arising in the ordinary course of business; (x) make or authorize any amendments or changes to its corporate charter or By-Laws not approved in writing by the Summit Purchasers; (xi) make any investment in excess of $100,000, whether singly or in the aggregate, in property, plant and equipment and other items of capital expenditure; or (xii) accelerate receivables or delay or postpone payment of any accounts payable or other liability, except in the ordinary course of business consistent with prior practice. (b) Disclosure Supplements. From time to time prior to the Closing, the ---------------------- Company and the Stockholders will supplement or amend the Disclosure Schedule hereto with respect to any matter hereafter arising which, if existing or occurring at or prior to the date of this Agreement, would have been required to be set forth or described in any such Schedule or which is necessary to complete or correct any information in any such Schedule or in any representation or warranty of the Company and the Stockholders which has been rendered inaccurate thereby. For purposes of determining the satisfaction of the conditions set forth in Section 7 hereof, no such supplement or amendment shall be given effect. SECTION 7. Closing Conditions ------------------ The obligations of each Purchaser and each Stockholder to consummate the transactions contemplated by this Agreement are subject the truth, accuracy and completeness in all material respects of the certificates to be furnished to it pursuant to the provisions of this Section, and to the condition that all agreements, certificates, opinions, letters and other documents and all corporate and other matters incident to the transactions contemplated by this Agreement shall be reasonably satisfactory in form, scope and substance to such party and its counsel, and that such party shall have received all information and copies of all documents, including records of corporate proceedings, which it or its counsel may reasonably request in connection therewith, such documents, where appropriate, to be certified by proper corporate officers or Authorities, and to the satisfaction in all material respects on the Closing Date of the following further conditions, except to the extent that any such condition may have been waived in writing by such party at or prior to the Closing Date. (a) Conditions of the Purchasers and the Stockholders. ------------------------------------------------- (i) No Opposition. No Legal Action or other Claim shall be pending on ------------- the Closing Date before or by any Authority seeking to restrain or prohibit the consummation of the transactions contemplated hereby. (ii) Representations and Covenants. The representations, warranties, ----------------------------- covenants and agreements of the other party (which in the case of the Purchasers shall mean the Company and the Stockholders) contained in this Agreement or otherwise made in writing by it or on its behalf pursuant hereto or otherwise made in connection with the transactions contemplated hereby shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as though made on and as of such date except those which speak as of a certain date which shall continue to be true and correct as of such date in all material respects on the Closing Date, each and all of the agreements and conditions to be performed or satisfied by the other party hereunder at or prior to the Closing Date shall have been duly performed or satisfied in all material respects, and each party shall have furnished the other party with such certificates and other documents evidencing the truth of such representations, warranties, covenants and agreements and the performance of such agreements or conditions as any such other party shall have reasonably requested. (iii) HSR Act. The filing and waiting period requirements under the HSR ------- Act relating to the consummation of the transactions contemplated by this Agreement shall have been complied with. (iv) Consents and Modifications, Governmental and Private ---------------------------------------------------- Authorizations. The Company shall have obtained consents to the assignment -------------- and continuation of all Material Agreements, if any, listed in the Disclosure Schedule as requiring such consents . (v) Other Agreements. The Stockholders, the Company and the ---------------- Purchasers shall have executed and delivered to one another (A) a Shareholders' Agreement substantially in the form of Exhibit C hereto and --------- (B) a Registration Rights Agreement substantially in the form of Exhibit D --------- hereto. The Company and each of the persons named therein shall have executed and delivered to one another employment agreements substantially in the form of Exhibit E hereto. Melvin Aronson shall enter into a Non- Competition Agreement substantially in the form of Exhibit H hereto. --------- (b) Conditions of the Purchasers. ---------------------------- (i) Opinions of Counsel. Each Purchaser shall have received favorable ------------------- opinions, dated the Closing Date, of Sullivan & Worcester, counsel for the Company and the Stockholders, in form reasonably acceptable to the Purchasers and their counsel. (ii) No Material Adverse Change. As of the Closing Date, there shall -------------------------- not have occurred and be continuing any Material Adverse Change affecting the Company. (iii) Instruments of Consummation. The parties hereto shall have --------------------------- delivered the instruments required to be delivered under Sections 1 and 2 above. (iv) Certain Matters Relating to Leases. The Lease and Agreement ---------------------------------- between GBA Realty Corp. and the Company dated August 1, 1993 shall have been amended on terms reasonably acceptable to the Purchasers. The Lease Agreement between the Company and Suburban Grayson Atlatna Partnership dated August 1, 1986, as amended, shall have been amended so as to extend the term thereof until August 4, 2006. (v) Termination of Certain Agreements. Each of the Redemption --------------------------------- Agreement dated August 17, 1993 by and among Herbert Gray, Melvin Aronson, Donald Benovitz, Stephen Aschettino and Patrick Bohan, the Shareholder Agreement dated August 17, 1993 by and among the Company and Messrs. Gray, Aronson, Benovitz, Aschettino, the Voting Agreement dated as of February 27, 1987 by and among the Company and Messrs. Gray and Benovitz, and the employee stock options for the benefit of Messrs. Benovitz, Bohan and Aschettino shall have been terminated, effective prior to the Closing. (c) Conditions of the Stockholders. ------------------------------ (i) Opinions of Counsel. The Stockholders shall have received ------------------- favorable opinions, dated the Closing Date, of Hutchins, Wheeler & Dittmar, A Professional Corporation, and counsel for BSC in form reasonably acceptable to the Stockholders and their counsel. (ii) New Company Debt. The New Company Debt and the Working Credit Line ---------------- shall have been obtained. (iii) Incentive Stock Option Plan. The Company shall have established an --------------------------- Incentive Stock Ownership Plan (the "ISOP") substantially in the form of Exhibit F hereto and options shall have been granted thereunder with --------- respect to an aggregate of four thousand (4,000) shares (after giving effect to the stock dividend described in Section 1(g)) to those persons and for the number of shares of Common Stock set forth on Schedule 7(c) ------------- attached hereto, which options shall be evidenced by option agreements substantially in the form of Exhibit G attached hereto. --------- SECTION 8. Indemnification --------------- (a) Survival of Representations and Warranties. The parties hereto agree ------------------------------------------ to shorten the applicable period of limitation of claims made under representations and warranties, and for that purpose each and every such representation and warranty set forth in this Agreement (including any certificates furnished in connection therewith) shall survive until the earlier of (a) ten days after the receipt by the Purchasers of the audited financial statements of the Company for the fiscal year ending August 31, 1996 and (b) December 15, 1996, except with respect to (i) the representations and warranties set forth in Sections 4(l), 4(p), 4(3) and 5(b), which shall survive the Closing for the applicable period of limitation; and (ii) the representations and warranties set forth in Section 4(i), which shall survive the Closing until the first to occur of (x) the expiration of the statute of limitations (and any extensions thereof) applicable to the Tax in respect of which indemnification is being sought without the assertion of a deficiency in respect thereof by the applicable governmental entity, or (y) the completion of the final audit and determination by the applicable governmental entity with respect to such Tax and final disposition of any deficiency resulting therefrom. From and after the applicable period of survival with respect to such respective representations and warranties of the Company, Stockholders and the Purchasers, none of the Stockholders, Company or the Purchasers or any Affiliate of the Stockholders or the Purchasers shall have any liability whatsoever with respect to any such representation or warranty, except for breaches as to which any party shall have notified the other party prior to such date. This Section 8.1 shall have no effect upon any other obligation of the parties hereto, whether to be performed before or after the Closing Date. (b) Indemnification by Stockholders. Each Stockholder hereby agrees, ------------------------------- jointly and severally, to indemnify, defend and hold each Purchaser, its officers, directors, employees, owners, agents and Affiliates, harmless from and in respect of any and all losses, damages, costs and expenses of any kind and nature whatsoever (including, without limitation, interest and penalties, reasonable expenses of investigation and court costs, reasonable attorneys' fees and disbursements and the reasonable fees and disbursements of other professionals) which may be sustained or suffered by any of them (collectively, "Losses"), arising out of or resulting from any breach or inaccuracy of any representation or warranty or the breach of or failure to perform any warranty, covenant, undertaking or other agreement of the Company or such Stockholder contained in this Agreement or any other document or instrument executed in connection therewith; provided, however, that in the -------- ------- event the transactions contemplated by this Agreement are consummated, the maximum liability of the Stockholders hereunder or otherwise with respect to such representations, warranties, covenants, undertakings, or other agreements contained in this Agreement and under the Subordinated Debenture Agreement shall not exceed $2,500,000; and provided further, however, that the obligations of -------- ------- the Stockholders pursuant to this Section 8(b) shall first be satisfied by set offs against the Notes in accordance with Section 8(f) below before any claim shall be made against the Stockholders. For all purposes of this Section 8, "Losses" for breach of any representation, warranty or covenant contained in this Agreement shall be determined without giving effect to any qualification or limitation in such representation, warranty or covenant as to materiality or Material Adverse Effect. (c) Indemnification by the Purchasers. Each Purchaser hereby agrees to --------------------------------- indemnify, defend and hold each Stockholder, the Company, its officers, directors, employees, consultants, owners, agents and Affiliates, harmless from and in respect of any and all Losses which may be sustained or suffered by any of them arising out of or resulting from any breach or inaccuracy of any representation or warranty of such Purchaser or the breach of or failure to perform any warranty, covenant, undertaking or other agreement of such Purchaser contained in this Agreement or any other document or instrument executed in connection herewith; provided, however, that in the event the transactions -------- contemplated by this Agreement are consummated, the maximum aggregate liability of the Purchasers hereunder or otherwise with respect to such representations, warranties, covenants, undertakings or other agreements contained in this Agreement and under the Subordinated Debenture Agreement shall not exceed $2,500,000. (d) Minimum Indemnification. Notwithstanding anything to the contrary ----------------------- contained herein, no party hereto shall be entitled to recover from any other party unless and until the total of all claims for indemnity or damages with respect to any inaccuracy or breach of any such representations or warranties other than those contained in Sections 4(l), 4(p), 4(3) and 5(b) above or breach of or default in the performance of any covenants, undertakings or other agreements, whether such claims are brought under this Section 8 or otherwise, exceeds $300,000, and then only to the extent such claims exceed $150,000. (e) Notice and Opportunity to Defend. If there occurs an event which a -------------------------------- party asserts is an indemnifiable event pursuant to Section 8(b) or 8(c), the parties seeking indemnification shall promptly notify the other parties obligated to provide indemnification (collectively, the "Indemnifying Party"). If such event involves (i) any Claim or (ii) the commencement of any action, suit or proceeding by a third person, the party seeking indemnification will give such Indemnifying Party prompt written notice of such Claim or the commencement of such action, suit or proceeding; provided, however, that the -------- ------- failure to provide prompt notice as provided herein will relieve the Indemnifying Party of its obligations hereunder only to the extent that such failure prejudices the Indemnifying Party hereunder. Such notice shall summarize the basis for the claim and any claim of liability being asserted by a third party. In case any such action, suit or proceeding shall be brought against any party seeking indemnification and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to participate therein and, to the extent that it desires to do so, to assume the defense thereof, with counsel reasonably satisfactory to such party seeking indemnification and, after notice from the Indemnifying Party to such party seeking indemnification of such election so to assume the defense thereof, the Indemnifying Party shall not be liable to the party seeking indemnification hereunder for any attorneys' fees or any other expenses, in each case subsequently incurred by such party, in connection with the defense of such action, suit or proceeding. The party seeking indemnification agrees to cooperate fully with the Indemnifying Party and its counsel in the defense against any such action, suit or proceeding. In any event, the party seeking indemnification shall have the right to participate at its own expense in the defense of such action, suit or proceeding. In no event shall an Indemnifying Party be liable for any settlement or compromise effected without its prior consent, which consent shall not unreasonably be withheld, delayed or conditioned. (f) Set-Off. If a claim for indemnification is made by a Purchaser as the ------- Indemnified Party under this Section 8, then to the extent Notes remain outstanding, such Purchaser shall be obligated to cause the Company to withhold on a pro rata basis in accordance with the original principal amounts thereof --- ---- the amount of such claimed indemnify from the amount of any payments otherwise due under the Notes up to an aggregate amount of $2,500,000 for all of the Purchasers. Such Purchaser shall give written notice to the Stockholders of its claim specifying the amount and the nature of the claim. Any amounts so withheld shall be held in a separate interest-bearing account reserved for such purpose pending resolution of such claim for indemnity. If such Purchaser prevails upon final determination of such claim, the Company shall reduce the principal of the Notes or any interest payments or payment of principal thereunder, at Purchaser's election, by the amount to which it is entitled hereunder up to an aggregate amount of $2,500,000. Notwithstanding the foregoing, the Purchasers may (i) cause the Company to collect from the Stockholders legal damages to the extent the aggregate principal amount of the Notes outstanding is less than $2,500,000; provided, however, that in no event shall the aggregate liability of the Stockholders, through the payment of legal damages and set off against Notes exceed $2,500,000; (ii) nothing herein shall prevent the Company from seeking equitable relief in the event a Stockholder breaches a covenant or undertaking contained herein; and (iii) nothing herein shall be deemed to prevent the Purchasers or the Company from pursuing remedies in tort. SECTION 9. Definitions. ----------- As used herein, except as otherwise specifically set forth below in this Section or unless the context otherwise requires, the terms (or any variant in the form thereof) set forth in Schedule A attached hereto and made a part hereof with the same force and effect as though set forth hereafter in its entirety have the respective meanings set forth in Schedule A. Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa, and the reference to any gender shall be deemed to include all ---------- genders. Unless otherwise defined or the context otherwise clearly requires, terms for which meanings are provided herein shall have such meanings when used in the Disclosure Schedule and each, agreement, notice, certificate, communication, opinion or other document executed or required to be executed pursuant hereto or thereto or otherwise delivered, from time to time, pursuant hereto or thereto. SECTION 10. Miscellaneous. ------------- (a) Nature of Representations and Warranties. The parties shall not be ---------------------------------------- liable or bound in any manner by expressed or implied representations, warranties, covenants, conditions, agreements or indemnifications pertaining to the subject matter of this Agreement, or any other matter whatsoever, made or furnished by any officer, director, employee, stockholder, attorney, principal, controlling person, agent or other person representing or purporting to represent one of the parties unless such representations, warranties, covenants, conditions, agreements or indemnifications are expressly and specifically set forth herein or in any schedule, exhibit or other document expressly made a part hereof or in any agreement, instrument, certificate or other document delivered pursuant to the provisions hereof or thereof. The representations, warranties, covenants, agreements and indemnifications of the parties shall not be deemed waived or otherwise affected by any investigation made by or on behalf of any party hereto. Certain of the representations and warranties are made "to the knowledge" of a particular party. The parties hereto agree that the meaning of such expression shall in all cases be understood as comprising actual knowledge and belief of the party making such representations and warranties or any executive officer of such party after a reasonable investigation thereof under the circumstances, provided that the "knowledge of the Company" shall be deemed to include the knowledge of the Stockholders. (b) Entire Agreement. This Agreement (which term, unless the context ---------------- otherwise specifically requires, includes any exhibits or schedules hereto including without limitation the Disclosure Schedule and all agreements, instruments, financial statements, opinions, or other documents and certificates delivered pursuant hereto or thereto) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements, commitments, covenants, promises, conditions, understandings, inducements, representations and negotiations, expressed or implied, written or oral, between or among them as to such subject matter, including without limitation any so-called "letters of intent" but excluding any confidentiality agreements with respect thereto. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. (c) Rights and Remedies. Anything in this Agreement to the contrary ------------------- notwithstanding, upon any termination of this Agreement each party shall be entitled to actual damages only and in no event to incidental, consequential or punitive damages, measured by loss of anticipated profits or otherwise. This Agreement is not intended to limit or abridge any rights of any party which may exist apart from this Agreement. The rights and remedies of the parties under this Agreement are cumulative and are not in lieu of, but are in addition to, any other rights and remedies which the parties shall have under or by virtue of any Applicable Law, or in equity, or any other agreement or obligation between or among the parties or any of them. (d) Expenses. If the transactions contemplated hereby do not close, each -------- party shall pay its own expenses. If the transactions contemplated hereby are consummated, (i) each of (A) the Company and (B) the Stockholders shall pay 50% of the fees and expenses of BSC, (ii) the Company shall pay all reasonable costs and expenses of the Summit Purchasers, and (iii) the Company shall pay the costs and expenses of the Stockholders, exclusive of costs and expenses referred to in (i) above. (e) Termination. Anything contained in this Agreement to the contrary ----------- notwithstanding, this Agreement may be terminated: (i) By mutual agreement of the Summit Purchasers and the Stockholders; or (ii) By any Summit Purchaser or any Stockholder, if, other than as a result of a breach or violation of or default under this Agreement by the terminating party, the Closing shall not have occurred on or before July 19, 1995; or (iii) By the Stockholders upon notice to each Purchaser if (a) a condition to the performance of the Stockholders set forth in Section 7 hereof shall not be fulfilled at the time specified for the fulfillment thereof, (b) a material default under or a material breach of this Agreement shall be made by a Purchaser or (c) any representation or warranty set forth in this Agreement or in any instrument delivered by a Purchaser pursuant hereto shall be materially false or misleading; or (iv) By any Summit Purchaser by notice to the Company if (x) a condition to the performance of such Summit Purchaser set forth in Section 7 hereof shall not be fulfilled at the time specified for the fulfillment thereof, (y) a material default under or a material breach of this Agreement shall be made by the Company or the Stockholders or (z) any representation set forth in this Agreement or in any instrument delivered by the Company or the Stockholders pursuant hereto shall be materially false or misleading. (v) By any party, if, other than as a result of a breach or violation of or default under this Agreement by the terminating party which resulted therein, an Authority of competent jurisdiction shall have issued a Governmental Order (which Order the parties hereto shall use their reasonable business efforts to lift or reverse), in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such Order shall have become a final order. Written notice setting forth the reasons for any termination (other than pursuant to paragraph (i)) shall be given by the terminating party to each other party, and the party receiving the same shall have seven (7) days within which to cure the default specified in such notice. If this Agreement shall be terminated as herein set forth, all parties hereto agree that they will remain obligated under, and will comply with, the provisions of Sections (3)(a) (to the extent therein provided) and 3(c) and there shall continue any liability which would otherwise exist hereunder for any breach or violation of or default under this Agreement, including without limitation a refusal or failure to perform obligations, covenants or agreements to be preformed on or prior to the Closing Date and any breach of or any erroneous or untrue representation and warranty. Except as set forth in this paragraph, upon the termination of this Agreement, it shall become void and have no further force and effect, and there shall be no liability hereunder on the part of any party or any of its respective officers, directors, employees, agents, stockholders, controlling persons or principals. (f) Waivers; Amendments. Anything in this Agreement to the contrary ------------------- notwithstanding, amendments to and modifications of this Agreement may be made, require consents and approvals may be granted, compliance with any term, covenant, agreement, condition or other provision set forth herein may be omitted or waived, and misrepresentations and breaches of warranties may be waived, either generally or in a particular instance and either retroactively or prospectively with, but only with, the written consent of the party or parties entitled to the benefit thereof; provided, however, that no such written consent, unless it, by its own terms, explicitly provides to the contrary shall be construed to effect a continuing waiver or consent and no such waiver in any instance shall constitute a waiver or consent in any other instance or for any other purpose or impair the right of the party against whom such waiver or consent is claimed in all other instances or for all other purposes to require full compliance with this Agreement. Except when a specific time period is set forth within which period a right or remedy must be exercised, (i) no delay on the part of any party at any time or times in the exercise of any right or remedy shall operate as a waiver thereof, and (ii) the failure of a party hereto at any time or times to insist upon strict compliance with any term, covenant, agreement, condition or other provision or to exercise any right or remedy with respect to such failure or to require performance of any thereof shall in no manner affect its right at a later time to enforce the same or constitute a waiver of any such term, covenant, agreement, condition or other provision or any breach or default in connection therewith. Whenever any provision of this Agreement provides for the consent or approval of one party as a condition to some action or omission to act of the other party, such consent or approval shall not be unreasonably withheld, delayed or conditioned. (g) Assignment; Successors and Assigns. This Agreement shall not be ---------------------------------- assignable by any party without the prior written consent of the others, provided that the Purchasers may assign their rights under Section 7 to any senior lender to the Company. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, legal representatives, successors and permitted assigns, including, without limitation, successors by operation of law pursuant to any merger, consolidation or sale of assets involving any of the parties. Nothing in this Agreement expressed or implied is intended to and shall not be construed to confer upon or create in any person (other than the parties hereto and their permitted successors and assigns and the Persons named in Section 3(d) any rights or remedies under or by reason of this Agreement, including without limitation any rights to enforce this Agreement. (h) Notices. All notices and other communications which by any provision ------- of this Agreement are required or permitted to be given shall be given in writing and shall be (i) mailed by first-class or express mail, postage prepaid, (ii) sent by telex, telegram, telecopy or other form of rapid transmission, confirmed by mailing (by first class or express mail, postage prepaid) written confirmation at substantially the same time as such rapid transmission, or (iii) personally delivered to the receiving party (which if other than an individual shall be an officer or other responsible party of the receiving party). All such notices and communications shall be mailed, sent or delivered to it at the address set forth below or to such other telex or facsimile number(s) or address(es) as the party entitled to receive any such communication or notice may have designated by written notice to the other parties as follows: If to the Company or any Stockholder: Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attention: Herbert Gray, Chairman, and Stephen Aschettino, Vice President and Chief Financial Officer Facsimile: (508) 429-6669 with a copy to each other party and to: Sullivan & Worcester One Post Office Square Boston, MA 02109 Attention: Norman A Bikales, Esquire Facsimile: (617) 338-2880 If to any Summit Purchaser: Summit Partners One Boston Place 34th Floor Boston, MA 02108 Attention: Joseph F. Trustey with a copy to: Hutchins, Wheeler & Dittmar A Professional Corporation 101 Federal Street Boston, MA 02110 Attention: James Westra, Esquire If to BSC: The Bear Stearns Companies, Inc. 245 Park Avenue New York, NY 10167 Attention: Robert Yedid Facsimile: (212) 272-3092 with a copy to: Schulte, Roth & Zabel 900 Third Avenue New York, NY 10022 Attention: Stuart Freedman, Esquire Facsimile: (212) 593-5955 A notice delivered in person shall be effective when given; a notice sent by mail shall be deemed effective on the earlier of the date of receipt or refusal to accept or the third business day after it has been mailed; a notice sent by telex, telegram, telecopy or other form of rapid transmission shall be deemed to be given when receipt of such transmission is acknowledged or other evidence of receipt is evident; provided, however, that the failure to deliver a copy of any such notice or other communication to the person(s) designated to receive copies shall not affect the validity, force or effect of any notice or other communication or subject a person so failing to deliver a copy to any liability. (i) Severability. If any provision of this Agreement shall be held or ------------ deemed to be, or shall in fact be, invalid, inoperative, illegal or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because of the conflicting of any provision with any Applicable Law or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in question invalid, inoperative, illegal or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative, illegal or unenforceable to the extent that such other provisions are not themselves actually in conflict with such Applicable Law, but this Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative, illegal or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case, except when such reformation and construction could operate as an undue hardship on any party, or constitute a substantial deviation from the general intent and purpose of such party as reflected in this Agreement. The parties shall endeavor in good faith negotiations to replace the invalid, inoperative, illegal or unenforceable provisions with valid, operative, legal and enforceable provisions the economic effect of which comes as close as possible to that of the invalid, inoperative, illegal or unenforceable provisions. (j) Counterparts. This Agreement may be executed in several counterparts, ------------ each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, binding upon all the parties hereto, notwithstanding that all the parties are not signatories to the original or the same counterpart. In pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts. (k) Section Headings. The headings contained in this Agreement are for ---------------- reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. (l) Further Acts. Each party agrees that at any time, and from time to ------------ time, before and after the consummation of the transactions contemplated by this Agreement, it will do all such things and execute and deliver all such agreements, assignments, instruments, other documents and assurances, as any other party or its counsel deems reasonably necessary or desirable in order to carry out the terms and conditions of this Agreement and the transactions contemplated hereby or to facilitate the enjoyment of any of the rights created hereby or to be created hereunder. (m) Relationship of Parties. Nothing contained in this Agreement is ----------------------- intended to create, nor shall any provision hereof be or be construed so as to create, a partnership, joint venture, coverture, or joint undertaking by and among the parties, it being the express intention of the parties hereto that the relationship created hereby shall be that of separate and independent contractors acting at all times in their sole and individual capacities. (n) Conflict Among Attachments. In the event of any conflict between the -------------------------- provisions of this Agreement and any schedule or exhibit hereto, or any agreement, instrument, other document or undertaking executed pursuant hereto, unless otherwise specifically provided therein, the provisions of this Agreement shall control. (o) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ------------- ENFORCED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA AND THE LAW (OTHER THAN THE LAW GOVERNING CONFLICT OF LAW QUESTIONS) OF THE COMMONWEALTH OF MASSACHUSETTS EXCEPT TO THE EXTENT THE LAWS OF ANY OTHER JURISDICTION ARE MANDATORILY APPLICABLE. [The Rest of this Page Intentionally Left Blank] STOCK PURCHASE AND REDEMPTION AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the parties hereto have executed this Agreement all pursuant to authority heretofore granted, to the extent applicable, by their respective Boards of Directors, as of the date first written above. STOCKHOLDERS: SUBURBAN OSTOMY SUPPLY CO., INC. /s/ Herbert Gray By: /s/ Herbert Grey - ---------------- ----------------- Herbert Gray Name: Title: /s/ Melvin Aronson - ----------------- Melvin Aronson PURCHASERS: /s/ Donald Benovitz SUMMIT VENTURES III, L.P. - ------------------- Donald Benovitz By: Summit Partners, III, L.P., Its General Partner /s/ Patrick Bohan - ----------------- Patrick Bohan By: Stamps, Woodsum & Co. III, /s/ Stephen Aschettino Its General Partner - ---------------------- Stephen Aschettino By: /s/ Martin J. Mannion ---------------------- General Partner SUMMIT INVESTORS II, L.P. BSC: By: /s/ Martin J. Mannion THE BEAR STEARNS COMPANIES, INC. ---------------------- Authorized Signatory By: /s/ David Glaser ----------------- Name: Title: SUMMIT SUBORDINATED DEBT FUND, L.P. By: Summit Partners SD, L.P., Its General Partner By: /s/ Martin J. Mannion ---------------------- General Partner SCHEDULE A to STOCK PURCHASE AND REDEMPTION AGREEMENT By and among SUMMIT VENTURES III, L.P. SUMMIT INVESTORS II, L.P. SUMMIT SUBORDINATED DEBT FUND, L.P. THE BEAR STEARNS COMPANIES, INC. and THE STOCKHOLDERS PARTY THERETO The following definitions are incorporated by reference in Section 9 of the above referenced agreement with the same force and effect as though set forth thereat in their entirety. "Act of Bankruptcy" shall mean any of the following: (a) the admission in writing of an inability, or being unable or deemed unable under Applicable Law, or failing generally, to pay debts generally as they become due; or (b) the filing of a petition, answer, consent or other document seeking relief as a debtor or otherwise commencing a voluntary case under the Bankruptcy Code; or (c) the commencement of proceedings or filing a petition, answer, consent or other document seeking (i) reorganization, (ii) an arrangement with creditors, (iii) to take advantage of or relief as a debtor under any Applicable Law, other than the Bankruptcy Code, relating to bankruptcy, reorganization, insolvency, readjustment of debts, relief of creditors, dissolution, liquidation, or the modification or alteration of the rights of creditors; (d) the seeking or consenting to or acquiescing in the appointment of a receiver, trustee, sequestrator, conservator, assignee, custodian, liquidator, fiscal agent or similar official for the Person or of all or any substantial part of its property; or (e) the commencement of proceedings or the filing against the person or all or any substantial part of its property of a petition commencing an involuntary case under the Bankruptcy Code or under any Applicable Law of a nature referred to in paragraph (c) above, or its consenting to or acquiescing in such relief or its admitting or acquiescing in or failing promptly and in any event within thirty (30) days of the filing thereof, in an appropriate manner, to deny the material allegations of any petition seeking such relief, or any such involuntary petition shall remain undismissed for more than thirty (30) days, or any order or decree approving relief adverse to such Person thereunder shall be entered and remain unstayed and in effect for more than thirty (30) days; or (f) the entry of an order or decree (whether or not final) by any Authority of competent jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or approving its liquidation, dissolution or winding up, or reorganization or any modification or alteration of the rights of its creditors, or any composition or readjustment of debts, (iii) assuming custody of, or appointing a receiver, trustee, sequestrator, conservator, assignee, custodian, liquidator, fiscal agent or similar official for, such Person or all or a substantial part of its property and any such order or decree shall continue unstayed and in effect for a period of thirty (30) days; or (g) the convening a meeting of creditors for the purpose of consummating an out-of-court arrangement, or making an assignment for the benefit of, or entering into a composition, extension or similar arrangement with, its creditors in respect of all or a substantial portion of its debt; or (h) the concealing, removing or transferring any of its assets or property in violation of or evasion of the Bankruptcy Code or any other Applicable Law of a nature referred to in paragraph (c) above; or (i) the winding-up, liquidation or dissolution of the Person; or (j) the taking of any action for the purpose of affecting any of the foregoing, including without limitation any action of the Person's board of directors, stockholders, partners or other governing body. "Affiliate" shall mean, with respect to any Person, (a) any other Person at the time directly or indirectly controlling, controlled by or under direct or indirect common control with such Person, (b) any other Person of which such Person at the time owns, or has the right to acquire, directly or indirectly, twenty percent (20%) or more of any class of the capital stock or beneficial interest, (c) any other Person which at the time owns, or has the right to acquire, directly or indirectly, twenty percent (20%) or more of any class of the capital stock or beneficial interest of such Person, (d) any executive officer or director of such Person, (e) with respect to any partnership, joint venture or similar Entity, any general partner thereof, and (f) when used with respect to an individual, shall include any member of such individual's immediate family or a trust for the benefit of any thereof. A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power to direct or cause the direction of the management or policies of such Person or the disposition of its assets or properties, whether by stock, equity or other ownership, by contract, arrangement or understanding, or otherwise. "Agreement" shall mean the Stock Purchase and Redemption Agreement of which this Schedule is a part as originally in effect, including unless the context otherwise specifically requires all schedules including the Disclosure Schedule and exhibits hereto, and as the same may from time to time be supplemented, amended, modified or restated in the manner herein or therein provided. "Applicable Law" shall mean any Law of any Authority, including without limitation all federal, state, local and foreign Laws, to which the Person in question is subject or by which it or any of its business or operations is subject or any of its property is bound. "Authority" shall mean any governmental or quasi-governmental authority, whether administrative, executive, judicial, legislative or other, or any combination thereof, including without limitation any federal, state, territorial, county, municipal or other government or governmental or quasi- governmental agency, arbitrator, authority, board, body, branch, bureau, central bank or comparable agency or Entity, commission, corporation, court, department, instrumentality, master, mediator, panel, referee, system or other political unit or subdivision or other Entity of any of the foregoing. "Bankruptcy Code" shall mean 11 U.S.C. { 101 et seq., and the rules and ------- regulations thereunder, all as from time to time in effect, or any successor law, rules or regulations and any reference to any statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. "BSC" means The Bear Stearns Companies, Inc. "Certificates" is defined in Section 2(c) of the Agreement. "Claims" shall mean, with respect to any Person, any and all debts, liabilities, obligations, losses, damages, deficiencies, assessments and penalties of or against such Person, together with all Legal Actions pending or threatened, claims and judgments of whatever kind and nature relating thereto, and all fees, costs, expenses and disbursements (including without limitation reasonable attorneys' and other legal fees, costs and expenses) relating to any of the foregoing. "Closing" is defined in Section 1(c) of the Agreement. "Closing Date" is defined in Section 1(c) of the Agreement. "Code" shall mean the United States Internal Revenue Code of 1986, and the rules and regulations thereunder, all as from time to time in effect, or any successor law, rules or regulations, and any reference to any statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. "Treas. Reg." shall mean the regulations, as from time to time in effect, promulgated by the Service under the Code. "Company" is defined in the first paragraph of the Agreement. "Common Shares" is defined in Section 1(a) of the Agreement. "Common Stock" is defined in Section 1(a) of the Agreement. "Convertible Securities" shall mean, with respect to any Person, any evidences of indebtedness, shares of capital stock (other than common stock) or other securities directly or indirectly convertible into or exchangeable for shares of common stock, whether or not the right to convert or exchange thereunder is immediately exercisable or is conditioned upon the passage of time, the occurrence or non-occurrence or existence or non-existence of some other event, or both. "Debentures" is defined in Section 1(b) of the Agreement. "Disclosure Schedule" shall mean the disclosure schedule required to be delivered pursuant to the provisions of the Agreement by the Company to the Purchasers. "Distribution" shall mean, with respect to any Person: (a) the declaration or payment of any dividend (except dividends payable in common stock of such Person) on or in respect of any shares of any class of capital stock or equity security of such Person, (b) the purchase, redemption or other retirement of any shares of any class of capital stock or equity security of such Person or any shares of capital stock of any Subsidiary owned by a Person other than such Person or a Subsidiary (otherwise than out of the substantially concurrent sale to Persons other than such Person or its Subsidiaries of shares of stock of the same class, provided that in case of any such capital stock of a Subsidiary, the proportion of such Subsidiary's stock of that class held by Persons other than such Person and its Subsidiaries does not increase), and (c) any other distribution on or in respect of any shares of any class of capital stock of such Person or any shares of capital stock of any Subsidiary owned by a Person other than such Person or a Subsidiary. "Dollars" and "$" shall mean the lawful money of the United States of America. - "Employment Arrangement" shall mean, with respect to any Person, any employment, consulting, retainer, severance or similar contract, agreement, plan, arrangement or policy (exclusive of any which is terminable within ninety (90) days without liability, penalty or payment of any kind of such Person or any of its Affiliates), or providing for severance, termination payments, insurance coverage (including any self-insured arrangements), workers compensation, disability benefits, life, health, medical, dental or hospitalization benefits, supplemental unemployment benefits, vacation or sick leave benefits, pension or retirement benefits or for deferred compensation, profit-sharing, bonuses, stock options, stock appreciation rights or other forms of incentive compensation or post-retirement insurance, compensation or post- retirement insurance compensation or benefits, or any collective bargaining or other labor agreement, whether or not any of the foregoing is subject to the provisions of ERISA. "Entity" shall mean any corporation, firm, unincorporated organization, association, partnership, limited liability company, trust (inter vivos or testamentary), estate of a deceased, insane or incompetent individual, business trust, joint stock company, joint venture or other organization, entity or business, whether acting in an individual, fiduciary or other capacity, or any Authority. "Environmental Law" shall mean any present Applicable Law relating to or otherwise imposing liability or standards of conduct concerning pollution or protection of the environment or occupational health and safety, including without limitation Laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, noises, odors or industrial, toxic or hazardous substances, materials or wastes, whether as matter or energy, into the environment (including, without limitation, ambient air, surface water, ground water, mining or reclamation or mined land, land surface or subsurface strata) or otherwise relating to the manufacture, processing, generation, distribution, use, treatment, storage, disposal, cleanup, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances, materials or wastes. "Environmental Permit" shall mean any Governmental Authorization required by or pursuant to any Environmental Law. "Environmental Requirements" shall mean all applicable present Governmental Authorizations, Private Authorizations or other requirements (including without limitation those pertaining to reporting, licensing and permitting) relating to or required by or pursuant to any Environmental Law, including without limitation all requirements pertaining or relating to: (a) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of, or the remediation, emission, discharge or release into the air, surface water, groundwater or land of, Hazardous Material, chemical substances, pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature; (b) the protection of the health and safety of employees or the public; (c) the reclamation or restoration of land; and (d) the ownership or operation of underground storage tanks. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as from time to time in effect, and any successor law, and any reference to any statutory provision shall be deemed to be a reference to any successor provision. "Financial Statements" is defined in Section 4(b) of the Agreement. "GAAP" shall mean generally accepted accounting principles as in effect from time to time in the United States of America. "Governmental Authorizations" shall mean all approvals, concessions, consents, franchises, licenses, permits, plans, registrations and other authorizations of all Authorities. "Material Governmental Authorizations" is defined in Section 4(f) of the Agreement. "Governmental Filings" shall mean all filings, including franchise and similar tax filings, and the payment of all fees, assessments, interest and penalties associated with such filings, with all Authorities. "Governmental Order" shall mean all decisions, decrees, findings, judgments, and orders, whether or not final, of any Authority in any Legal Action. "herein", "hereof", "hereto", "hereunder" and similar terms contained in the Agreement or any other instrument executed or required to be executed pursuant hereto or thereto refer, except where the context clearly indicates the contrary, to the Agreement or such other instrument, as the case may be, as a whole and not to any particular Section, paragraph or provision of the Agreement or such other instrument. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvement Act of 1976, and the rules and regulations thereunder, all as from time to time in effect, or any successor law, rules or regulations, and any reference to any statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. "including" and "includes" shall mean including without limiting the generality of any description preceding such term. "Indemnifying Parties" or "Party" is defined in Section 8(e) of the Agreement. "IRS" or the "Service" shall mean the United States Internal Revenue Service or any successor Authority. "Law" shall mean any (a) administrative, judicial, legislative or other action, code, consent decree, constitution, decree, directive, enactment, finding, guideline, law, injunction, interpretation judgment, order, ordinance, policy statement, proclamation, promulgation, regulation, requirement, rule, rule of law, rule of public policy, settlement agreement, statute, or writ of any Authority; (b) the common law, or other legal or quasi-legal precedent, or (c) arbitrator's, mediator's or referee's award, decision, finding or recommendation, including, in each such case or instance, and interpretation, directive, guideline or request, whether or not having the force of law including, in all cases, without limitation any particular section, part or provision thereof. "Legal Action" shall mean, with respect to any Person, any litigation or legal or other actions arbitrations, investigations, proceedings or suits, at law or in arbitration, equity or admiralty (whether or not purported to be brought on behalf of such Person) affecting such Person or any of its business or property or assets. "Lien" shall mean any of the following: mortgage; lien (statutory or other); preference, priority or other security agreement, arrangement or interest; hypothecation, pledge or other deposit arrangement, assignment; charge; levy; executory seizure; attachment, garnishment; encumbrance (including any easement, exception, variance, reservation or limitation, right of way, zoning restriction, building or use restriction, and the like); conditional sale, title retention or other similar agreement arrangement, device or restriction; preemptive or similar right; any financing lease involving substantially the same economic effect as any of the foregoing; the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction; restriction on sale, transfer, assignment, disposition or other alienation; or any option, equity, claim or right of or obligation to, any other Person, of whatever kind and character. "Losses" is defined in Section 8(b) of the Agreement. "Material" or "Materiality" for the purposes of the Agreement, shall, unless specifically stated to the contrary, be determined without regard to the fact that various provisions of the Agreement set forth specific dollar amounts. "Material Adverse" when used alone or in conjunction with other terms (including without limitation "Affect", "Change" and "Effect") shall mean, with respect to any Person, any event or set of events which has a material adverse effect upon the business, properties, financial condition or results of operation of such Person and its Subsidiaries taken as a whole. "Material Agreement" or "Material Commitment" shall mean, with respect to any Person, any agreement, contract, arrangement, undertaking, commitment, license or obligation which to the extent it relates to (a) any supplier of such Person, accounted for more than ten percent (10%) of the purchases of such Person in any of the three most recent fiscal years of such Person, (b) any customer of such Person, accounted for more than five percent (5%) of the sales of such Person in any of the three most recent fiscal years of such Person, or (c) any other matter, involves in excess of Five Hundred Thousand Dollars ($500,000). "Most Recent Balance Sheet" is defined in Section 4(b) of the Agreement. "New Company Debt" is defined in Section 3(e) of the Agreement. "Notes" is defined in Section 2(b)(ii) of the Agreement. "Option Securities" shall mean all rights, options and warrants, and calls or commitments evidencing the right, to subscribe for, purchase or otherwise acquire shares of capital stock or Convertible Securities, whether or not the right to subscribe for, purchase or otherwise acquire is immediately exercisable or is conditioned upon the passage of time, the occurrence or non-occurrence or the existence or non-existence of some other event. "PBGC" shall mean the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Person" shall mean any natural individual or any Entity. "Plan" shall mean, with respect to any Person and at a particular time, any employee benefit plan which is covered by ERISA and in respect of which such Person or an ERISA Affiliate (as defined in ERISA) is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an employer as defined in Section 3(5) of ERISA. "Preferred Shares" is defined in Section 1(a) of the Agreement. "Private Authorizations" shall mean, with respect to any Person, all approvals concessions, consents, franchises, licenses, permits, and other authorizations of all other Persons (other than Authorities). "Purchase Consideration" is defined in Section 1 of the Agreement. "Purchase Proposal" is defined in Section 3(e) of the Agreement. "Purchasers" is defined in the first paragraph of the Agreement. "Redemption Consideration" is defined in Section 2(b) of the Agreement. "Redemption Shares" is defined in Section 2(a) of the Agreement. "Related Agreement" or "Related Agreements" means the agreements referred to in Section 7(a)(v)(A) and (B). "Securities Act" is defined in Section 4(a)(v) of the Agreement. "Series A Preferred Stock" is defined in Section 1(a) of the Agreement. "Stockholders" is defined in the preamble of the Agreement. "Solvent" shall mean, with respect to any Person on a particular date. that on such date (a) the fair value of the assets of such Person (both at fair valuation and at present fair saleable value) is on the date of determination, greater than the total amount of liabilities, including, without limitation, contingent and unliquidated liabilities, of such Person, (b) such Person is able to pay all liabilities of such Person as they mature, and (c) such Person does not have unreasonably small capital with which to carry on its business. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount which in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Subject Assets" is defined in the first whereas clauses of the Agreement. "Subject Business" is defined in the first whereas clauses of the Agreement. "Subordinated Debenture Agreement" is defined in Section 1(b) of the Agreement. "Securities" is defined in the second whereas clause of the Agreement. "Subsidiary" shall mean, with respect to any Person, any Entity a majority of the capital stock ordinarily entitled to vote for the election of directors, or if no such voting stock is outstanding a majority of the equity interests of which is owned directly or indirectly by such Person or any subsidiary, of such Person. "Summit Purchasers" means Summit Ventures III, L.P., Summit Investors II, L.P. and Summit Subordinated Debt Fund, L.P. "Tax" (and with correlative meanings, "Taxes" and "Taxable"), shall mean, with respect to any Person, (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, gains, sales, use, ad valorem, transfer, franchise, profits, license, withholding on amounts paid to or by such Person or any of its Subsidiaries. payroll, employment, excise, severance, stamp, occupation premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by and Authority (a Taxing Authority) responsible for the imposition of any such tax (domestic or foreign), (b) joint or several liability of such Person or any of its Subsidiaries with any other Person for the payment of any amounts of the type described in (a) and (c) liability of such Person or any of its Subsidiaries for the payment of any amounts of the type described in (a) as a result of any express or implied obligation to indemnify any other Person. "Tax Returns" shall mean all returns, declarations and reports consolidated or otherwise (including without limitation information returns), required to be filed in any jurisdiction with respect to Taxes. "Transfer" shall mean any sale, assignment, conveyance, transfer or other disposition, mortgage, pledge or other Lien, lease, exchange, abandonment, parting with control of gift, granting of an option or proxy or other act of alienation. "Wholly-Owned Subsidiary" shall mean, with respect to any Person, a Subsidiary all of the issued and outstanding shares (other than directors qualifying shares if required by Applicable Law the certificates for which, duly endorsed in blank or accompanied by a stock power duly endorsed in blank, shall be held by such Person or such Subsidiary) of the capital stock and all other equity securities of, or in the case of a partnership all of the outstanding partnership interests in, which shall at the time be owned by, directly or indirectly, such Person or one or more of its Wholly Owned Subsidiaries. "Working Credit Line is defined in Section 3(e) of the Agreement. "Written" or "in writing" shall mean any form of written communication or a communication by means of telex, telecopier device telegraph or cable. SUBURBAN OSTOMY SUPPLY CO., INC. Schedule 1 ----------
Number of Number of Purchase Shares Series A Purchase Price Shares Common Price of Total Preferred Stock of Series A Stock to be Common Purchase Name and Address to be Purchased Preferred Stock Purchased (1) Stock Price - ---------------- --------------- --------------- ------------- ----- ----- Summit Ventures III, L.P. Suite 3400 One Boston Place Boston, MA 02108 63,235.44 $6,323,544.12 232.7161 $83,112.88 $6,406,657 Summit Investors II, L.P. Suite 3400 One Boston Place Boston, MA 02108 1,290.52 $129,051.92 5.4546 $1,948.08 $266,000 Summit Subordinate Debt Fund, L.P. Suite 3400 One Boston Place Boston, MA 02108 -- -- 34.5604 $12,343 $12,343 The Bear Stearns Companies, Inc. 245 Park Avenue New York, NY 10167 1,974.04 $197,403.96 7.2689 $2,596.04 $200,000 Totals 66,500.00 $6,650,000.00 280.00 $100,000.00 $6,750,000.00 ========= ============= ======= =========== ============= SUBURBAN OSTOMY SUPPLY CO., INC.
(1) After giving effect to the 100 for 1 stock split to be effected immediately after the closing, the parties will own the following number of shares of Common Stock: Summit Ventures III, L.P. (23,271.61), Summit Investors II, L.P. (545.46), Summit Subordinated Debt Fund, L.P. (3,456.04) and Bear Stearns & Co., Inc. (726.89). Schedule 2 ----------
Cash Redemption Redemption Stockholder Shares Consideration Notes - ----------- ------ ------------- ----- Herbert Gray 7,952 10,800,000 1,000,000 Melvin Aronson 7,952 10,800,000 1,000,000 Donald Benovitz 2,982 4,050,000 375,000 Patrick Bohan 497 675,000 62,500 Stephen Aschettino 497 675,000 62,500 ------ ----------- ---------- Totals 19,880 $27,000,000 $2,500,000
EX-10.2 6 SUBORDINATED DEBENTURE PURCHASE AGREEMENT EXHIBIT 10.2 SUBURBAN OSTOMY SUPPLY CO., INC. SUBORDINATED DEBENTURE PURCHASE AGREEMENT Dated as of July 3, 1995 INDEX ----- Page ---- ARTICLE I - --------- Purchase and Sale of Debentures -------------------------------
1.1 Purchase and Sale of Subordinated Debentures . 1 1.2 Equity Investment............................. 1 1.3 Closing....................................... 2 1.4 Use of Proceeds............................... 2 1.5 Description of Debentures..................... 2 ARTICLE II - ---------- Representations and Warranties of the Company. ---------------------------------------------- 2.1 Organization and Corporate Power.............. 3 2.2 Authorization................................. 3 2.3 Government Approvals.......................... 4 2.4 Federal Reserve Regulations................... 4 2.5 Securities Statutes........................... 5 2.6 Incorporation by Reference.................... 5 2.7 Disclosures................................... 5 ARTICLE III - ----------- Affirmative Covenants of the Company ------------------------------------ 3.1 Punctual Payment.............................. 5 3.2 Maintenance of Office; Business Name.......... 6 3.3 Records and Accounts.......................... 6 3.4 Financial Statements, Certificates and Information................................... 6 3.5 Notices....................................... 7 3.6 Existence; Maintenance of Properties.......... 8 3.7 Insurance..................................... 9 3.8 Taxes......................................... 9 3.9 Inspection of Properties and Books............ 10 3.10 Compliance with Laws.......................... 10 3.11 Use of Proceeds............................... 10 3.12 Further Assurances............................ 10
ARTICLE IV - ---------- Negative Covenants of the Company --------------------------------- 4.1 Restrictions on Indebtedness.................. 11 4.2 Restrictions on Liens, Etc.................... 12 4.3 Restrictions on Investments................... 14 4.4 Merger, Consolidation......................... 15 4.5 Sale and Leaseback............................ 15 4.6 Compliance with Environmental Law............. 15 4.7 Distributions................................. 16 4.8 Change to Fiscal Year......................... 16 4.9 Senior Debt Service Coverage.................. 17 4.10 Minimum Net Income............................ 17 4.11 Total Debt Service Coverage................... 17 4.12 Leverage Ratio................................ 17 4.13 Minimum Trading Assets........................ 18 ARTICLE V - --------- Investment Representations -------------------------- 5.1 Representations and Warranties................ 18 ARTICLE VI - ---------- Subordination of Debentures --------------------------- 6.1 Agreement to Subordinate...................... 19 ARTICLE VII - ----------- Conditions of Purchasers' Obligation ------------------------------------ 7.1 Effect of Conditions.......................... 20 7.2 Representations and Warranties................ 20 7.3 Performance................................... 20 7.4 Opinion of Counsel............................ 20 7.5 No Material Adverse Change.................... 20 7.6 Equity Financing.............................. 20 7.7 Consents and Waivers.......................... 21
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ARTICLE VIII - ------------ Conditions of the Company's Obligation -------------------------------------- 8.1 Effect of Conditions.......................... 21 8.2 Representations and Warranties................ 21 8.3 Equity Financing.............................. 21 ARTICLE IX - ---------- Defaults and Remedies --------------------- 9.1 Events of Default; Acceleration............... 21 9.2 Rescission of Acceleration.................... 24 ARTICLE X - --------- Certain Definitions............................................ 24 ------------------- ARTICLE XI - ---------- Miscellaneous ------------- 11.1 Debenture Payments............................ 30 11.2 Form, Registration, Transfer and Exchange of Debentures........................ 31 11.3 Survival of Representations................... 32 11.4 Parties in Interest........................... 32 11.5 Debentures Owned by Affiliates................ 32 11.6 Amendments and Waivers........................ 33 11.7 Notices....................................... 33 11.8 Expenses...................................... 34 11.9 Counterparts.................................. 34 11.10 Effect of Headings............................ 34 11.11 Governing Law................................. 34 EXHIBITS - -------- A Form of Subordinated Debenture ............... 37
-iii- July 3, 1995 To: Summit Subordinated Debt Fund, L.P. Summit Investors II, L.P. One Boston Place Boston, Massachusetts 02108 Re: Subordinated Debentures ----------------------- Ladies and Gentlemen: Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), and Herbert Gray, Melvin Aronson, Donald Benovitz, Patrick Bohan and Stephen Aschettino (the "Stockholders") hereby agree with you as follows: ARTICLE I PURCHASE AND SALE OF DEBENTURES ------------------------------- 1.1 Purchase and Sale of Subordinated Debentures. At the Closing (as -------------------------------------------- herein defined), the Company will sell to you (the "Purchasers"), and you will purchase from the Company in accordance with Schedule 1.1 attached hereto, 12% Subordinated Debentures of the Company (the "Debentures") in the aggregate principal amount of $6,750,000. The Debentures shall be in the form of Exhibit A attached hereto. - --------- 1.2 Equity Investment. Pursuant to a certain Stock Purchase and ----------------- Redemption Agreement of even date (the "Stock Purchase Agreement"), Summit Ventures III, L.P., The Bear Stearns Companies, Inc. and the Purchasers have committed to purchase an aggregate of 66,500 shares of Series A Redeemable Preferred Stock, par value $.01 per share, of the Company (the "Series A Preferred Stock"), and 280 shares of Common Stock, no par value per share, of the Company (the "Common Stock"), for an aggregate purchase price of $6,750,000. The closing of the purchase of the Series A Preferred Stock and Common Stock under the Stock Purchase Agreement shall occur at the Closing and concurrently with the closing of the purchase of the Debentures hereunder. 1.3 Closing. Subject to the satisfaction or waiver of the conditions set ------- forth in Articles VII and VIII hereof, the purchase of the Debentures shall be made at a closing (the "Closing") to be held at the offices of Hutchins, Wheeler & Dittmar, 101 Federal Street, Boston, MA 02110, at 10:00 a.m. on July 3, 1995, or at such other time and on such other date as the Purchaser and the Company may mutually agree (the "Closing Date"). Payment at the Closing for the Debentures shall be by wire transfer payable in immediately available federal funds. Each Purchaser shall pay that amount for the Debentures being acquired by it at the Closing as described on Schedule 1.1 hereof. At the Closing, the ------------ Company will deliver to the Purchaser one or more notes representing the Debentures purchased by such Purchaser, in such denominations and issued in such names as may be requested by such Purchaser. 1.4 Use of Proceeds. The proceeds from the sale of the Debentures, --------------- together with the proceeds from the sale of the Series A Preferred Stock and Common Stock, shall be used to repurchase shares of Common Stock from certain stockholders of the Company in the manner provided in the Stock Purchase Agreement. 1.5 Description of Debentures. The Debentures shall have the following ------------------------- terms, and shall be entitled to the following rights and benefits: (a) The principal amount of the Debentures shall be payable on June 30, 2000. The Debentures shall be prepaid in full upon consummation of a Liquidity Event (as herein defined), subject to the terms of the Subordination Agreement referred to in Section 6.1 below. The Company may prepay the Debentures from time to time in whole or in installments of $100,000, without premium or penalty. Each such prepayment shall be preceded by two Business Days' notice. Any partial prepayment of the Debentures shall be allocated among all holders of Debentures pro rata in proportion to the principal amount of the --- ---- Debentures held by each. Any prepayment shall be applied against installments of principal in inverse order of maturity. (b) The Debentures shall bear interest from the date of issuance until the date of payment of principal in full. Interest shall be computed on the basis of a 360-day year and the actual number of days elapsed, on the unpaid principal amount of the Debentures at the rate of twelve percent (12%) per annum. Interest shall be payable on each March 31, June 30, September 30, and December 31 for the respective three month period ending on such date, commencing on September 30, 1995, or, if any such day is not a Business Day, on the next succeeding Business Day. (c) If the principal amount of the Debentures is not paid when due and payable (whether at stated maturity, by acceleration or otherwise), the interest on such principal amount shall thereafter be increased to fourteen percent (14%) per annum, until so paid. Any interest not paid when due and payable shall thereafter be paid, on demand by the Purchaser, together with a late charge of two percent (2%) of the amount of interest payment due. -2- (d) All payments of principal on the Debentures shall be made by the Company in lawful money of the United States of America in immediately available funds (or at the request of the holder of a Debenture, by certified or bank check or wire transfer) on the date such payment is due. (e) The parties agree that the issue price of the Debentures shall be their face amount for federal income tax purposes. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- In order to induce the Purchasers to purchase the Debentures, the Company and each Stockholder, jointly and severally, make the following representations and warranties: 2.1 Organization and Corporate Power. The Company is a corporation duly -------------------------------- organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own its properties and to carry on its business as presently conducted. The Company is duly licensed or qualified to do business as a foreign corporation in each jurisdiction wherein the character of its property, or the nature of the the activities presently conducted by it, makes such qualification necessary and where the failure to be so qualified would have a Material Adverse Effect on the Company. 2.2 Authorization. Except as set forth on Schedule 2.2, the Company has ------------- ------------ all necessary corporate power and has taken all necessary corporate action required for the due authorization, execution, delivery and performance by the Company of this Agreement, the Debentures, the Shareholders' Agreement by and among the Company and its shareholders and the Registration Rights Agreement ("Registration Rights Agreement") by and among the Company, The Bear Stearns Companies, Inc., the Purchasers and Summit Ventures III, L.P. (collectively, the "Related Agreements"), and any other agreements or instruments executed by the Company in connection herewith or therewith and the consummation of the transactions contemplated herein or therein, and for the due authorization, issuance and delivery of the Debentures. The issuance of the Debentures does not require any further corporate action. This Agreement, the Related Agreements and the other agreements and instruments executed by the Company in connection herewith or therewith will each be a valid and binding obligation of the Company enforceable in accordance with its respective terms, except as (A) the enforceability thereof may be limited by bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or other laws of general applicability affecting the enforcement of creditors' or secured parties' rights or debtors' obligations generally, (B) the availability of specific performance or other equitable remedies may be limited by equitable principles of general applicability (whether such matter is considered in a proceeding at law or -3- in equity); and (C) the indemnification provisions with respect to securities law matters may be limited by applicable securities laws or principles of public policy. 2.3 Government Approvals. Except as set forth on Schedule 2.3, no -------------------- ------------ consent, approval, license or authorization of, or designation, declaration or filing with, any court or governmental authority is or will be required on the part of the Company in connection with the execution, delivery and performance by the Company of this Agreement, any of the Related Agreements and any other agreements or instruments executed by the Company in connection herewith or therewith, or in connection with the issuance of the Debentures, except for those expressly called for by the Related Agreements and those which have already been made or granted. 2.4 Federal Reserve Regulations. The Company has not engaged in the --------------------------- business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation G of the Board of Governors of the Federal Reserve System), and no part of the proceeds of the sale of the Debentures will be used to purchase or carry any margin security or to extend credit to others for the purpose of purchasing or carrying any margin security or in any other manner which would involve a violation of any of the regulations of the Board of Governors of the Federal Reserve System. 2.5 Securities Statutes. Based on the representations and warranties of ------------------- the Purchasers in Section 5 below, the Company has complied and will comply in all material respects with all applicable federal or state securities laws in connection with the issuance and sale of the Debentures. Neither the Company nor anyone acting on its behalf has offered any of the Debentures, or similar securities, or solicited any offers to purchase any of such securities to any Person other than the Purchasers and other than in connection with soliciting offers to acquire the Company as a whole. Neither the Company nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940. 2.6 Incorporation by Reference. All of the representations of the -------------------------- Company and the Stockholders (as defined in the Stock Purchase Agreement) of the Company contained in the Stock Purchase Agreement are true and correct in all material respects and are hereby incorporated by reference as though fully set forth herein. 2.7 Disclosures. Neither this Agreement (including the Schedules and ----------- Exhibits hereto) nor any document, certificate or instrument furnished in connection herewith contains, with respect to the Company or any Stockholder, any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading; provided, however, that it is agreed that this representation shall not be deemed to apply to the -4- confidential placement memorandum dated January, 1995 prepared by the Company and distributed by Bear Stearns & Co., Inc. ARTICLE III AFFIRMATIVE COVENANTS OF THE COMPANY ------------------------------------ Without limiting any other covenants and provisions hereof, the Company covenants and agrees that it will observe the following covenants on and after the Closing Date and until the repayment in full of all obligations under the Debentures: 3.1 Punctual Payment. The Company will duly and punctually pay or cause ---------------- to be paid the principal and interest on the Debentures and all interest provided for in this Agreement, all in accordance with the terms of this Agreement and the Debentures. 3.2 Maintenance of Office; Business Name. The Company will maintain its ------------------------------------ chief executive office in Holliston, Massachusetts, or at such other place in the United States of America as the Company shall designate upon written notice to the Purchasers, where notices, presentations and demands to or upon the Company in respect of this Agreement and the Debentures may be given or made. As of the date of this Agreement, the Company conducts business only under its own name and Home Health Direct. 3.3 Records and Accounts. The Company will (a) keep, and cause each of -------------------- its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles and (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves. 3.4 Financial Statements, Certificates and Information. the Company will -------------------------------------------------- deliver to each holder of Debentures: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Company, the audited consolidated balance sheet of the Company and its Subsidiaries at the end of such year, and the related audited consolidated statements of income and changes in shareholders' equity and cash flows for such year, each setting forth in comparative form the figures for the previous fiscal year and all such statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and accompanied by an auditor's report prepared without qualification by the Arthur Andersen, LLC or other independent certified public accountant of the Borrower reasonably acceptable to the Purchasers, together with a certification by the Company's chief financial officer, substantially in the form annexed as Exhibit B to the Credit Agreement, that the information contained in such statements is true, correct, and complete in -5- all material respects and fairly presents the operations of the Company in all material respects for such period; (b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each of the first three (3) fiscal quarters of each fiscal year of the Company, copies of the unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and the related unaudited consolidated statements of income and cash flows for the portion of the Company's fiscal year then elapsed, all in reasonable detail and prepared in a manner as will fairly and consistently state the financial condition and operations of Company consistent with the annual audited balance sheets and statement and previously-submitted quarterly statements, together with a certification by the principal financial or accounting officer of the Company that the information contained in such financial statements fairly presents the financial position of the Company and its Subsidiaries in all material respects on the date thereof (subject to year-end accruals and adjustments); (c) as soon as practicable, but in any event not later than forty-five (45) days after each fiscal year of the end of each of the first three (3) fiscal quarters of the Company and within ninety (90) days after the end of the Company's fiscal year, copies of a statement of Consolidated Net Income and Operating Cash Flow for such fiscal quarter, together with a certification by the Company's chief financial officer substantially in the form annexed as Exhibit B to the Credit Agreement, that the information contained in such statement is true, correct, and complete in all material respects and fairly presents the operations of the Company for such period; (d) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above a statement in form and substance reasonably acceptable to the Purchasers signed by the principal financial or accounting officer of the Company and setting forth in reasonable detail computations evidencing compliance with the covenants contained in Sections 4.9- 4.11 (as applicable) and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since September 3, 1994; (e) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the shareholders of the Company; and (f) from time to time such other financial data and information (including accountants' management letters) as the Purchasers may reasonably request. 3.5 Notices. ------- (a) Defaults. The Company will promptly notify the Purchasers in -------- writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an -6- Event of Default) under this Agreement or under any note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Company or any of its Subsidiaries is a party or obligor, whether as principal or surety, and such default would permit the holder of such note or obligation or other evidence of indebtedness to accelerate the maturity thereof, which acceleration would have a material adverse effect on the Company and its Subsidiaries taken as a whole, the Company shall forthwith give written notice thereof to the Purchasers, describing the notice or action and the nature of the claimed default. (b) Environmental Events. The Company will promptly give notice to -------------------- the Purchasers (i) of any violation of any Environmental Law that the Company or any of its Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency and (ii) of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, or any federal, state or local environmental agency or board, that in either case involves real property owned or leased by the Company or has the potential to materially affect the assets, liabilities, financial conditions or operations of the Company and its Subsidiaries taken as a whole. (c) Notice of Litigation and Judgments. The Company will, and will ---------------------------------- cause each of its Subsidiaries to, give notice to the Purchasers in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Company or any of its Subsidiaries or to which the Company or any of its Subsidiaries is or is to become a party involving an uninsured claim against the Company or any of its Subsidiaries that could reasonably be expected to have a materially adverse effect on the Company and its Subsidiaries taken as a whole and stating the nature and status of such litigation or proceedings. The Company will, and will cause each of its Subsidiaries to, give notice to the Purchasers, in writing, in form and detail reasonably satisfactory to the Purchasers, within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Company or any of its Subsidiaries in an amount in excess of $50,000.00. 3.6 Existence; Maintenance of Properties. The Company will do or cause ------------------------------------ to be done all things necessary to preserve and keep in full force and effect its existence as a Massachusetts corporation. The Company will do or cause to be done all things necessary to preserve and keep in full force all of its rights and franchises and those of its Subsidiaries material to the business and financial affairs of the Company. The Company (a) will cause all of its properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order, reasonable wear and tear excepted, and supplied with all necessary equipment, (b) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at -7- all times, and (c) will, and will cause each of its Subsidiaries to, continue to engage primarily in the businesses now conducted by it and in related businesses. 3.7 Insurance. The Company shall keep adequately insured by financially --------- sound and responsible insurers (a) all property owned or leased by it and all property of an insurable nature, such insurance to be in at least such amounts and covering loss or damage from at least such risks and hazards (including, without limitation, business interruption insurance and use and occupancy insurance) as are usually insured against in the same geographic areas by companies engaged in similar businesses, (b) all liabilities of the Company for damage to property, death or bodily injury, including, without limitation, product liability insurance, insurance required under all applicable workmen's compensation laws, and insurance for such liabilities resulting from, caused by or arising out of any product manufactured or sold by any predecessor of the Company or by the Company, all such insurance to be in at least such amounts as are usually insured against by companies engaged in the same or similar businesses. 3.8 Taxes. The Company will duly pay and discharge, or cause to be paid ----- and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; provided that any such tax, assessment, charge, levy or claim with respect to real property need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Company or such Subsidiary shall have set aside on its books adequate reserves with respect thereto; and provided further that the Company and each Subsidiary of the Company will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any Lien that may have attached as security therefor. 3.9 Inspection of Properties and Books. The Company shall permit the ---------------------------------- Purchasers and their designated representatives, at the Company's expense to visit and inspect any of the properties of the Company or any of its Subsidiaries during normal business hours of the Company as the Purchasers may reasonably request, to examine the books of account of the Company and its Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Company and its Subsidiaries with, and to be advised as to the same by, its officers, all at such reasonable times and intervals as the Purchasers may reasonably request. 3.10 Compliance with Laws, Contracts, Licenses and Permits. The Company ----------------------------------------------------- will comply with, and will cause each of its Subsidiaries to comply in all material respects with (a) all applicable laws and regulations now or hereafter in effect wherever its business is conducted, (b) the provisions of its articles of organization and other charter documents and by-laws, (c) all agreements and instruments to which it is a party or by which it or any of its -8- properties may be bound and (d) all applicable decrees, orders, and judgments. If at any time while any Debenture is outstanding, any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Company may fulfill any of its obligations hereunder, the Company will immediately take or cause to be taken all reasonable steps within the power of the Company to obtain such authorization, consent, approval, permit or license and furnish the Purchasers with evidence thereof. 3.11 Use of Proceeds. The Company will use the proceeds of the sale of --------------- the Debentures solely for redemption of shares of the Company owned by the Stockholders, transaction expenses hereunder and under the Credit Agreement, and the transactions contemplated by the Stock Purchase Agreement, and for working capital. 3.12 Further Assurances. The Company will cooperate with, and will cause ------------------ each of its Subsidiaries to cooperate with, the Purchasers and execute such further instruments and documents as the Purchasers shall reasonably request to carry out to its satisfaction the transactions contemplated by this Agreement and the Debentures. ARTICLE IV NEGATIVE COVENANTS OF THE COMPANY --------------------------------- Without limiting any other covenants and provisions hereof, the Company covenants and agrees that it will comply (and will cause each Subsidiary to comply) with each of the provisions of this Article IV on and after the Closing Date and until the repayment in full of all obligations under the Debentures. 4.1 Restrictions on Indebtedness. The Company will not, and will not ---------------------------- permit any of its Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to the holders of Senior Obligations (as defined in the Credit Agreement) and Indebtedness under the Debentures, Series C Preferred Stock and Notes issued to the Stockholders pursuant to the Stock Purchase Agreement; (b) Current liabilities of the Company or its Subsidiaries incurred in the ordinary course of business but not incurred through (i) the borrowing of money, or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services; (c) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of Section 3.8; -9- (d) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Company shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (e) Endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (f) Indebtedness incurred in connection with the acquisition after the date hereof of any real or personal property by the Company or any Subsidiary of the Company, or in respect of any Capitalized Leases, provided that the aggregate principal amount of such Indebtedness of the Company and its Subsidiaries shall not exceed the aggregate amount of (i) $600,000 for the New Computer System expenses, and (ii) $750,000.00 outstanding at any one time for Capital Expenditures other than in (i) immediately preceding; (g) Indebtedness in respect of obligations outstanding on the Closing Date and any refinancing or extension thereof which is no more onerous in any material respect to the Company than the then outstanding Indebtedness and which does not increase the principal amount of such Indebtedness; (h) Indebtedness with respect to deferred compensation in the ordinary course of business and Indebtedness with respect to employee benefit programs (including liabilities in respect of deferred compensation, pension or severance benefits, early termination benefits, disability benefits, vacation benefits and tuition benefits) incurred in the ordinary course of business; (i) Indebtedness in respect of customer advances and deposits, deferred income, deferred taxes and other deferred credits arising in the ordinary course of business; and (j) Indebtedness relating to deferred gains and deferred taxes existing as of the Closing Date or arising in connection with sales of assets which are permitted hereunder. 4.2 Restrictions on Liens, Etc. The Company will not, and will not --------------------------- permit any of its Subsidiaries to: (a) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; -10- (b) transfer any of its property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (c) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement (except as permitted in Section 4.1 above); (d) subject to Section 3.8, suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse; provided that, notwithstanding paragraphs (a) through (e) of this Section 4.2, the Company and any Subsidiary of the Company may create or incur or suffer to be created or incurred or to exist: (i) Liens created in favor of the Purchasers and the holders of Senior Obligations (as defined in the Credit Agreement); (ii) Liens to secure taxes, assessments and other government charges or claims for labor, material or supplies in respect of obligations not overdue or being contested in accordance with Section 7.8; (iii) deposits or pledges made in connection with, or to secure payment of, worker's compensation, unemployment insurance, old age pensions or other social security obligations; (iv) landlord's or lessor's liens under leases to which the Company or a Subsidiary of the Company is a party; (v) presently outstanding Liens listed on Schedule 4.2 hereto and renewals and extensions thereof, but not any increase thereof and on terms no more onerous than existing on the date hereof; (vi) purchase money security interests in or purchase money mortgages on real or personal property acquired after the date hereof to secure purchase money Indebtedness of the type and amount permitted by Section 4.1(f), incurred in connection with the acquisition of such property, which security interests or mortgages cover only the real or -11- personal property so acquired and renewals and extensions thereof, but not any increase thereof and on terms no more onerous than existing on the date hereof; (vii) Liens of carriers, warehouseman, mechanics and similar Liens or deposits to secure the release thereof; (viii) Capitalized Lease Obligations incurred after the Closing Date and purchase money security interests in or purchase money mortgages on real or personal property acquired after the Closing Date to secure purchase money indebtedness to the extent permitted by Section 4.1(f) incurred in connection with the acquisition of such property, which security interest or mortgages cover only the real or personal property so acquired and proceeds thereof and reasonable attachments and accessions thereto; (ix) other liens and encumbrances expressly permitted under the terms of the Security Agreement (as defined in the Credit Agreement); and (x) Liens in respect of endorsements, utility and other deposits and bonds posted in the ordinary course of business. 4.3 Restrictions on Investments. The Company will not, and will not --------------------------- permit any of its Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments in: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Company; (b) demand deposits, certificates of deposit, and time deposits of (x) any United States Bank that is a commercial bank having capital and surplus in excess of $1,000,000,000.00 and whose short-term commercial paper rating from Standard & Poor's Corporation is at least A-1 or the equivalent thereof or from Moodys Investors Services, Inc. of at least P-1 or the equivalent thereof; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Services, Inc., and not less than "A 1" if rated by Standard and Poor's; -12- (d) Investments listed on Schedule 4.3 hereto or other comparable institutional money market funds; (e) trade or customer accounts or notes receivable for inventory sold or leased or services rendered in the ordinary course of business; (f) advances to employees, agents and consultants in the ordinary course of business, including, but not limited to, travel, payroll and other expenses incurred in the ordinary course of business; and (g) Investments in Persons in the same line of business of the Company so long as after the making of such Investment no Default or Event of Default has occurred after giving effect to such Investment. 4.4 Merger, Consolidation. Except as permitted by Section 8.3(n), the --------------------- Company will not, and will not permit any of its Subsidiaries to, become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition or disposition (other than the acquisition or disposition of assets in the ordinary course of business consistent with past practices) except (i) the merger or consolidation of one or more of the Subsidiaries of the Company with and into the Company, or (ii) the merger or consolidation of two or more Subsidiaries of the Company. The Borrower shall not create any Subsidiaries without the prior written consent of the Purchasers which shall not be unreasonably withheld, conditioned or delayed. 4.5 Sale and Leaseback. The Company will not, and will not permit any of ------------------ its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby the Company or any Subsidiary of the Company shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Company or any Subsidiary of the Company intends to use for substantially the same purpose as the property being sold or transferred. 4.6 Compliance with Environmental Laws. The Company will not, and will ---------------------------------- not permit any of its Subsidiaries to, do any of the following: (a) use any of the real property owned or leased by the Company or any portion thereof as a facility for the handling, processing, storage or disposal of Hazardous Substances (as defined in the Credit Agreement), (b) cause or permit to be located on any of the real property owned or leased by the Company any underground tank or other underground storage receptacle for Hazardous Substances except in compliance in all material respects with Environmental Laws (as defined in the Credit Agreement), (c) generate any Hazardous Substances on any of the real property owned or leased by the Company except in compliance in all material respects with Environmental Laws, or (d) conduct any activity at any real property owned or leased by the Company or use any real property owned or leased by the Company in any manner so as to cause a Release (as defined in the Credit Agreement). -13- 4.7 Distributions. ------------- Company shall not make any Distributions, provided, however, that so long -------- ------- as no Default exists or would be created thereby, and no Event of Default has occurred, the Company may make the following: (a) Distributions on the Debentures and Series A Preferred Stock. (b) Distributions made pursuant to the Stock Purchase Agreement on the Closing Date. (c) Distributions to employees made in accordance with the employment agreements executed pursuant to the Stock Purchase Agreement or on such other economic terms as reasonably approved by the Purchasers. (d) Distributions in respect of the redemption of capital stock of the Borrower from employees of the Company; provided, however, that the amount of all such Distributions shall not exceed, in the aggregate, $200,000.00 in any fiscal year. (e) Distributions to pay Required Distributions up to the aggregate amount of $1,400,000.00. (f) The Distribution of dividends payable only in shares of Common Stock of the Company. (g) Distributions to employees for reasonable travel expenses and related business entertainment and business expenses incurred in the ordinary course of business not to exceed in the aggregate $150,000 at any one time. (h) Distributions in the ordinary course of business for salaries and bonuses to employees other than Herbert Gray, Donald Benovitz, Patrick Bohan and Stephen Aschettino. 4.8 Change of Fiscal Year. The Company shall not change its fiscal year --------------------- without the prior consent of the Purchasers. 4.9 Senior Debt Service Coverage On the last day of each fiscal quarter ---------------------------- of the Company, the ratio of Operating Cash Flow to Senior Debt Service for the period of the four (4) consecutive fiscal quarters of Company then ending (or such lesser period as required by Section 9.1 of the Credit Agreement), shall not be less than 1.1:1.0; provided, however: ----------------- (i) on the last day of the fiscal quarter ending December 2, 1995 such ratio shall be calculated based upon the one fiscal quarter then ending; -14- (ii) on the last day of the fiscal quarter ending March 2, 1996, such ratio shall be calculated based upon the two fiscal quarters then ending; and (iii) on the last day of the fiscal quarter ending on or about May 31, 1996, such ratio shall be calculated based upon the three fiscal quarters then ending. 4.10 Minimum Net Income. The Company shall have Consolidated Net Income ------------------ for each of its fiscal quarters (treated as a single accounting period) of at least $1.00. 4.11 Total Debt Service Coverage. On the last day of each fiscal quarter --------------------------- of the Company, the ratio of Operating Cash Flow to Total Debt Service for the period of the four (4) consecutive quarters of Company then ending (or such lesser period as required by Section 9.1 of the Credit Agreement), shall not be less than l.0:l.0; provided, however: ----------------- (i) on the last day of the fiscal quarter ending December 2, 1995 such ratio shall be calculated based upon the one fiscal quarter then ending; (ii) on the last day of the fiscal quarter ending March 2, 1996, such ratio shall be calculated based upon the two fiscal quarters then ending; and (iii) on the last day of the fiscal quarter ending on or about May 31, 1996, such ratio shall be calculated based upon the three fiscal quarters then ending. 4.12 Leverage Ratio. On the last day of each fiscal quarter of the -------------- Company, the ratio of (x) Total Debt as of the last day of such fiscal quarter to (y) the sum of EBITDA for the period of the four (4) consecutive quarters of the Company then ending, shall not be more than the following:
Period Ratio ------ ----- On the last day of the fiscal quarters ending: - ---------------------- September 3, 1995, December 2, 1995 March 2, 1996 and June 1, 1996 6.47:1.00 August 31, 1996 November 30, 1996 March 1, 1997
-15- and May 31, 1997 5.5:1.00 August 30, 1997 November 30, 1997 February 28, 1998 and May 30, 1998 4.7:1.00 August 29, 1998 November 28, 1998 February 27, 1999 and May 29, 1999 3.9:1.00 August 28, 1999 and thereafter 3.5:1.00
4.13 Minimum Trading Assets The Company shall have Minimum Trading Assets ---------------------- for each of its fiscal quarters during the period set forth below as follows:
Period Minimum Amount ------ -------------- Closing Date - 8/31/96 $6,205,000 9/1/96 - 8/31/97 $7,225,000 9/1/97 - $7,650,000 and thereafter
ARTICLE V INVESTMENT REPRESENTATIONS -------------------------- 5.1 Representations and Warranties. Each Purchaser hereby represents and ------------------------------ warrants to the Company that: (i) such Purchaser is acquiring the Debentures for its own account for investment and not with a view to, or for sale in connection with, any transaction which would constitute a distribution within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (ii) such Purchaser understands that none of the Debentures have been registered under the Securities Act or the securities laws of any state, and in the absence of such registration (or an exemption therefrom), it may be required to hold the Debentures for an indefinite period of time; that the exemptions from registration under the Securities Act provided by Rule 144 promulgated thereunder are not presently -16- available and may not necessarily be available to it; and that even if available, such rule may permit resale of the Debentures only in limited amounts and upon compliance with the terms and conditions of such rule. (iii) such Purchaser (A) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of this investment in the Debentures; (B) is able to bear the complete loss of its investment in the Debentures; and (C) has had the opportunity to ask questions of, and receive answers from, the Company concerning the terms and conditions of the offering of the Debentures and to obtain additional information. (iv) such Purchaser acknowledges and agrees that until such time as it is no longer required under the Securities Act and the rules and regulations thereunder, the Debentures shall bear a legend referencing the Securities Act. (v) such Purchaser is a financial institution or institutional buyer or broker-dealer within the meaning of Section 402(b)(8) of chapter 110A of the General Laws of Massachusetts. ARTICLE VI SUBORDINATION OF DEBENTURES --------------------------- 6.1 Agreement to Subordinate. The Company agrees, and each holder ------------------------ of the Debentures by its acceptance thereof agrees, that the Debentures shall be subordinate and junior in right of payment, to the extent and in the manner set forth in the Subordination Agreement dated as of the date hereof among the parties hereto and the First National Bank of Boston, to the prior payment in full of all Senior Obligations (as defined in such Agreement). ARTICLE VII CONDITIONS OF PURCHASERS' OBLIGATION ------------------------------------ 7.1 Effect of Conditions. The obligation of each Purchaser to purchase -------------------- and pay for the Debentures at the Closing shall be subject at its election to the satisfaction of each of the conditions stated in the following Sections of this Article. -17- 7.2 Representations and Warranties. The representations and warranties ------------------------------ of the Company contained in this Agreement shall be true and correct in all material respects on the date of such Closing with the same effect as though made on and as of that date, and the Purchaser shall have received a certificate dated as of such Closing and signed on behalf of the Company to that effect. 7.3 Performance. The Company shall have performed and complied in all ----------- material respects with all of the agreements, covenants and conditions contained in this Agreement required to be performed or complied with by it at or prior to such Closing, and each Purchaser shall have received a certificate dated as of such Closing and signed on behalf of the Company to that effect. 7.4 Opinion of Counsel. The Purchaser shall have received an opinion, ------------------ dated the date of such Closing, from Sullivan & Worcester, counsel to the Company, in form reasonably satisfactory to the Purchasers. 7.5 No Material Adverse Change. The business, properties, assets or -------------------------- condition (financial or otherwise) of the Company shall not have been materially adversely affected since the date of this Agreement, whether by fire, casualty, act of God or otherwise, and there shall have been no other changes in the business, properties, assets, condition (financial or otherwise), management or prospects of the Company that would have a material adverse effect the business, condition or results of operations of the Company. 7.6 Equity Financing. The Company shall have received proceeds of net ---------------- less than $6,750,000 from the sale of the Series A Preferred Stock and Common Stock pursuant to the terms of the Stock Purchase Agreement. 7.7 Consents and Waivers. The Company shall have obtained all consents -------------------- or waivers necessary to execute this Agreement and the other agreements and documents contemplated herein, to issue the Debentures, and to carry out the transactions contemplated hereby and thereby. All corporate and other action and governmental filings necessary to effectuate the terms of this Agreement, the Related Agreements, the Debentures and other agreements and instruments executed and delivered by the Company in connection herewith shall have been made or taken (except for those expressly called for by the Related Agreements). ARTICLE VIII CONDITIONS OF THE COMPANY'S OBLIGATION -------------------------------------- 8.1 Effect of Conditions. The obligation of the Company to sell the -------------------- Debentures at the Closing shall be subject at its election to the satisfaction of each of the conditions stated in the following Sections of this Article. -18- 8.2 Representations and Warranties. The representations and warranties ------------------------------ of the Purchasers contained in this Agreement shall be true and correct on the date of such Closing with the same effect as though made on and as of that date. 8.3 Equity Financing. The Company shall have received proceeds of not ---------------- less than $6,750,000 from the sale of the Series A Preferred Stock and Common Stock pursuant to the terms of the Stock Purchase Agreement. ARTICLE IX Defaults and Remedies --------------------- 9.1 Events of Default; Acceleration ------------------------------- An "Event of Default" occurs if: (1) The Company defaults in the payment of any principal of any Debenture when the same shall become due, either by the terms thereof or otherwise as herein provided; or (2) The Company defaults in the payment of interest on any Debenture when the same becomes due and payable and the default continues for a period of five business days; or (3) The Company or any Subsidiary shall fail to perform or observe any covenant contained in Article IV of this Agreement and such default shall not have been remedied within five days after such default shall first have become known to any officer of the Company or written notice thereof shall have been received by the Company (regardless of the source of such notice); or (4) The Company or any of its Subsidiaries defaults in the performance or observance of any other agreement, term or condition contained in the Debentures, this Agreement or the Related Agreements and such default shall not have been remedied within 30 days after notice thereof from the Purchasers; or (5) The Company or any Subsidiary shall default (subject to any applicable grace period) in the payment of any principal of or premium, if any, or interest on any other Indebtedness or obligation with respect to borrowed money the outstanding principal of which is in an aggregate amount greater than $100,000 or shall default in the performance of any material term of any instrument evidencing such Indebtedness or of any mortgage, indenture or agreement relating thereto, and the effect of such default is to cause such Indebtedness or obligation to become due and payable prior to its stated maturity, unless such failure to pay or perform shall have been waived in writing by the requisite holders of such indebtedness or other obligation; or -19- (6) The Company or any Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) is the debtor in an involuntary case which is not dismissed within 60 days of the commencement thereof, or (7) A court of competent jurisdiction enters an order which order remains unstayed or unappealed for 60 days or decree under any Bankruptcy Law that: (A) provides for relief against the Company or any Subsidiary in an involuntary case, (B) appoints a Custodian of the Company or any Subsidiary for all or substantially all of its property, or (C) orders the liquidation of the Company or any Subsidiary, (8) A final judgment for the payment of money in an amount in excess of $100,000 shall be rendered against the Company or any of its Subsidiaries (other than the amount of any judgment as to which a reputable insurance company shall have accepted full liability in writing) and shall remain undischarged for a period (during which execution shall not be effectively stayed) of 30 days after the date on which the right to appeal has expired; or (9) Any representation or warranty made by the Company or any Stockholder in this Agreement or in any other document or instrument furnished in connection with the transactions contemplated hereby shall prove to be materially false or incorrect on the date as of which made. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. -20- then and in any such case (a) upon the occurrence of any Event of Default described in clause (6) or (7) above, the unpaid principal amount of and accrued interest on the Debentures shall automatically become due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, and (b) upon the occurrence of any other Event of Default, in addition to any other rights, powers and remedies permitted by law or in equity, the holder or holders of greater than 50% in principal amount of the Debentures then outstanding may, at its or their option, by notice in writing to the Company, declare all of the Debentures to be, and all of the Debentures shall thereupon be and become, immediately due and payable together with interest accrued thereon and all other sums due hereunder, without presentment, demand, protest or other notice of any kind, all of which are waived by the Company. Upon the occurrence of any such Event of Default, the holders of Debentures may proceed to protect and enforce their rights by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in the Debentures held by them, for an injunction against a violation of any of the terms hereof or thereof, or for the pursuit of any other remedy which it may have by virtue of this Agreement or pursuant to applicable law. The Company shall pay to the holders of Debentures upon demand the reasonable costs and expenses of collection and of any other actions referred to in this Article IX, including without limitation reasonable attorneys' fees, expenses and disbursements. No course of dealing and no delay on the part of the holders of Debentures in exercising any of their rights shall operate as a waiver thereof or otherwise prejudice the rights of any holder of the Debentures, nor shall any single or partial exercise of any right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. No right, power or remedy conferred hereby or by the Debentures on the holders thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. 9.2 Rescission of Acceleration. At any time after any declaration of -------------------------- acceleration of all the Debentures shall have been made pursuant to Section 9.1 by any holder or holders of the Debentures and before a judgment or decree for the payment of money due has been obtained by such holder or holders, the holder or holders of at least a majority in aggregate principal amount of the Debentures at the time outstanding may, by written notice to the Company and to the other holders of the Debentures, rescind and annul such declaration and its consequences, provided that (i) the principal of and interest on the Debentures -------- which shall have become due otherwise than by reason of such declaration of acceleration shall have been duly paid, and (ii) all Events of Default other than the nonpayment of principal of and interest on the Debentures which have become due solely by reason of such declaration of acceleration shall have been cured or waived by the holders of a majority in aggregate principal amount of the Debentures at the time outstanding. No rescission or annulment referred to above shall -21- affect any subsequent Default or any right, power or remedy arising out of such subsequent Default. ARTICLE X CERTAIN DEFINITIONS ------------------- As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): Act means the Securities Act of 1933, as amended. --- Agreement means this Subordinated Debenture Purchase Agreement as from time --------- to time amended and in effect between the parties. Business Day shall mean any day which is not a Saturday or Sunday or a ------------ legal holiday in the Commonwealth of Massachusetts or the City of Boston on which Banks are not open for business. Capital Expenditures shall mean, for any period, amounts added or required -------------------- to be added to the fixed assets account on the consolidated balance sheet of the Company, prepared in accordance with generally accepted accounting principles, in respect of (i) the acquisition, construction, improvement or replacement of land, buildings, machinery, equipment, leaseholds and any other real or personal property, and (ii) to the extent not included in clause (i) above, expenditures on account of materials, contract labor and direct labor relating thereto (excluding expenditures properly expensed as repairs and maintenance in accordance with generally accepted accounting principles). Capitalized Lease Obligations shall mean the amount of the liability ----------------------------- reflecting the aggregate discounted amount of future payments under all Capitalized Leases calculated in accordance with generally accepted accounting principles. Capitalized Leases shall mean any lease that is capitalized on the balance ------------------ sheet of the lessee in accordance with generally accepted accounting principles. Closing shall have the meaning set forth in Section 1.3. ------- Company means and shall include Suburban Ostomy Supply Co., Inc. a ------- Massachusetts corporation, and its successors and assigns. -22- Consolidated or consolidated shall mean with reference to any term defined ---------------------------- herein, shall mean that term as applied to the accounts of the Company and its Subsidiaries, consolidated in accordance with generally accepted accounting principles. Consolidated Net Income (or Deficit) shall mean the consolidated net income ------------------------------------ (or deficit) of any Person, after deduction of all expenses, taxes, and other proper charges, determined in accordance with generally accepted accounting principles, after eliminating therefrom all extraordinary items of income which include, without limitation, (i) any gain resulting from the sale of capital assets, (ii) any gain arising from any write-up of assets, (iii) any gain arising from the acquisition of any securities of Company, and (iv) any extraordinary and nonrecurring gains. Credit Agreement means the Credit Agreement dated as of June 30, 1995 ---------------- between the Borrower and the First National Bank of Boston, as such Agreement is in effect on the date hereof. Default shall mean an Event of Default or any event with notice or lapse of ------- time or both would become an Event of Default. Distribution means, with respect to any Person: ------------ (i) the declaration or payment of any dividend, including dividends payable in shares of capital stock of such Person, on or in respect of any shares of any class of capital stock of such Person; (ii) the purchase or redemption of any shares of any class of capital stock of such Person (or or options, warrants or other rights for the purchase of such shares), directly, indirectly through a Subsidiary or Affiliate of such Person or otherwise: (iii) any other distribution on or in respect of any shares of any class of equity of or beneficial interest in such Person; (iv) any payment of principal or interest with respect to, or any purchase or redemption of, any Indebtedness of such Person which by its terms is subordinated to the payment of the Senior Debt; and (v) any payment, loan or advance (including any salary, management fee or other fee, benefit, bonus or any other compensation in respect of services provided to such Person) by such Person to, or any other Investment by such Person in, the holder of any shares of any class of the capital stock of or equity interest in such Person. -23- EBITDA means for any period the sum of (x) the Consolidated Net Income (or ------ deficit) of the Borrower and its Subsidiaries for such period plus (y) all ---- amounts deducted in computing such Consolidated Net Income in respect of (i) taxes based upon or measured by income, (ii) Total Interest Expense, (iii) depreciation and amortization, and (iv) other non-cash charges reducing Consolidated Net Income. Event of Default shall have the meaning set forth in Section 9.1. ---------------- Excluded Capital Expenditures means an amount of Capitalized Expenditures: ----------------------------- (i) up to $600,000.00, (ii) expended by the Company during a period commencing with the Closing Date and ending on June 30, 1997, and (iii) expended by the Company for the sole purpose of the purchase, installation and development of the New Computer System. Generally accepted accounting principles shall have the meaning given to it ---------------------------------------- in the Credit Agreement. Indebtedness means all obligations, contingent and otherwise, that in ------------ accordance with generally accepted accounting principles should be classified upon the obligor's balance sheet as liabilities, including in any event and whether or not so classified: (i) liabilities secured by any Lien existing on property owned or acquired by the Company, whether or not the liability secured thereby shall have been assumed; (ii) Capitalized Lease Obligations; (iii) liabilities in respect of mandatory redemption, repurchase or dividend obligations with respect to capital stock (or other evidence of beneficial interest); (iv) the aggregate redemption price of the issued Series A Preferred Stock; and (v) all guarantees, endorsements and other contingent obligations whether direct or indirect in respect of indebtedness of others, including, without limitation, any obligation to supply funds to or in any manner to invest in, directly or indirectly, the debtor, to purchase indebtedness, or to assure the owner of indebtedness against loss, through an agreement to purchase goods, supplies, or services for the purpose of enabling the debtor to make payment of the indebtedness held by such owner or otherwise, and the obligations to reimburse the issuer in respect of any letters of credit. Investments means all expenditures made and all liabilities incurred ----------- (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time: (a) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (b) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (c) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (d) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, -24- interest or otherwise, except that accrued interest included as provided in the foregoing clause (b) may be deducted when paid; and (e) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. Lien shall mean any mortgage, deed of trust, pledge, security interest, ---- encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction). Liquidity Event shall mean any one or more of the following: (i) the sale --------------- of all of substantially all of the assets of the Company and its Subsidiaries on a consolidated basis, (ii) merger or consolidation of the Company with or into another Person or any transaction or series of related transactions as a result of which those Persons who held all of the capital stock of the Company immediately prior to such transaction or transactions failed to hold at least a majority of the voting capital stock of the surviving or resulting corporation immediately after giving effect thereto, (iii) liquidation, dissolution or winding up of the Company or (iv) consummation of the sale by the Company of securities pursuant to an effective registration statement filed under the Act. Minimum Trading Assets means, at the time of any determination the sum of ---------------------- the value of all outstanding Accounts Receivable (as defined in the Credit Agreement) and the value of all Inventory (as defined in the Credit Agreement) determined in accordance with generally accepted accounting principles. Multiemployer Plan means any multiemployer plan within the meaning of ------------------ Section 3(37) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate. New Computer System means a new MIS Computer, new computer systems and ------------------- related software acquired or developed in connection with or related thereto. Operating Cash Flow means for any period on a consolidated basis, the total ------------------- of: (i) EBITDA minus (ii) income taxes paid in cash for such period, minus ----- ----- (iii) the difference determined by calculating (x) Capital Expenditures minus (y) Excluded Capital Expenditures. PBGC means the Pension Benefit Guaranty Corporation created by Section 4002 ---- of ERISA and any successor entity or entities having similar responsibilities. Permitted Liens shall mean: Liens permitted by Section 4.2 above. --------------- Person means an individual, corporation, partnership, joint venture, trust ------ or unincorporated organization or a government or agency or political subdivision thereof. Purchasers shall have the meaning set forth in Section 1.1. ---------- -25- Related Agreements shall have the meaning set forth in Section 2.2. ------------------ Required Distributions means, those subchapter S corporation (as defined in ---------------------- the Internal Revenue Code of 1986, as amended) distributions made to pay solely a shareholder's additional tax liability arising from the reporting of total profits of the Company, the amount of which Distributions is confirmed by a letter from Arthur Andersen, LLC certifying to the Company or the Purchasers the amount of such liability. Senior Debt Service means, for any period, (i) the sum of Senior Interest ------------------- Expense for such period, plus (ii) the aggregate amount of all mandatory ---- reductions made or to be made to reduce the principal amount outstanding to the Stated Maximum (as defined in the Credit Agreement) for such period plus (iii) the aggregate amount of principal paid or to be paid under the Senior Debt (as defined in the Credit Agreement). Senior Interest Expense means, for any period, the aggregate amount of ----------------------- interest paid or to be paid in cash under the Senior Debt for such period. Stockholders means Herbert Gray, Melvin Aronson, Donald Benovitz, Patrick ------------ Bohan and Stephen Aschettino. Stock Purchase Agreement shall have the meaning set forth in Section 1.2. ------------------------ Subordinated Debt means all Indebtedness for borrowed money of the Company ----------------- which by its terms or by law is subordinated in right of payment to the Senior Debt. Subsidiary or Subsidiaries means any corporation, association or other ---------- ------------ business entity of which the Company and/or any of its other Subsidiaries (as herein defined) directly or indirectly owns at the time more than fifty percent (50%) of the outstanding voting shares of every class of such corporation or trust other than directors' qualifying shares. Total Debt shall mean total Indebtedness minus the redemption price of ---------- Series A Preferred Stock. Total Debt Service means, for any period, the sum of (i) Total Interest ------------------ Expense for such period plus (ii) the aggregate amount of all mandatory ---- reductions made or to be made to reduce the principal amount outstanding to the Stated Maximum (as defined in the Credit Agreement) for such period plus (iii) the aggregate amount of principal paid or to be paid under the Senior Debt (as defined in the Credit Agreement) plus (iv) all payments made or required to be made under the Subordinated Debt, including any Distributions made or required to be made under the Series A Preferred Stock of the Company or otherwise permitted hereunder for such period (excluding those already included in Total Interest Expense). -26- Total Interest Expense means, for any period, the aggregate amount of (i) ---------------------- Senior Interest Expense paid or to be paid in cash, including payments in the nature of interest under Capitalized Leases, accrued by the Company on a consolidated basis (whether such interest is reflected as an item of expense or capitalized) and (ii) interest on the Subordinated Debt, including, without limitation, under the Debentures, but excluding any dividends paid on the Series A Preferred Stock through the issuance of additional shares of capital stock. ARTICLE XI MISCELLANEOUS 11.1. Debenture Payments. Subject to the provisions of the Subordination ------------------ Agreement referred to in Section 6.1 above, the Company agrees that, so long as any Purchaser shall hold any Debentures, it will make payments of principal and interest on any Debenture held by such Purchaser not later than 2:00 p.m., Boston time, on the date such payment is due, in immediately available funds, by credit to the Purchaser's account, as specified in Schedule 1.1 hereto, or such ------------ other account or accounts as the Purchaser may designate in writing, notwithstanding any contrary provision contained herein or any Debenture with respect to the place of payment. Each Purchaser agrees that, before disposing of any Debenture, it or its nominee will make a notation thereon of all principal payments previously paid thereon and of the date to which interest thereon has been paid, and will notify the Company of the name and address of the transferee of such Debenture. At the election of any subsequent holder of any Debenture which has made the same agreements relating to such Debenture as each Purchaser has made in this paragraph 11.1, the Company will make payments of principal and interest to the account of such successor holder in the same manner as set forth above. 11.2 Form, Registration, Transfer and Exchange of Debentures. The ------------------------------------------------------- Debentures are issuable as registered notes and in denominations of not less than $100,000 or any integral multiple thereof, all at the election of the Purchasers. The Company shall keep at its principal office the register in which the Company shall provide for the registration of the Debentures and for transfers of the Debentures. Upon surrender for registration of transfer of any Debenture at such office, the Company shall execute and deliver, at its expense, one or more new such Debenture or Debentures of like tenor and of like aggregate principal amount, which new Debenture or Debentures shall each be a registered Debenture. At the option of the holder of any Debenture, such Debenture may be exchanged for other Debentures, of any authorized denominations, of a like aggregate principal amount, upon surrender of the Debenture to be exchanged at the office of the Company. Whenever any Debenture is so surrendered for exchange, the Company shall execute and deliver, at its expense, the Debentures which the holder thereof making the exchange is entitled to receive. Every Debenture presented or surrendered for registration of transfer shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed by the holder of such Debenture or such holder's attorney duly authorized in writing. Any Debenture issued in -27- exchange for any Debenture or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Debenture so exchanged or transferred, and neither gain nor loss of Interest shall result from any such transfer or exchange. Upon receipt by the Company of an affidavit of the treasurer, assistant treasurer, or other responsible official of a Purchaser (or, in the case of holders of Debentures other than a Purchaser, evidence reasonably satisfactory to the Company) of the ownership of and the loss, theft, destruction or mutilation of a Debenture and (i) in case of loss, theft or destruction of a Debenture by a holder other than the Purchasers, of indemnity reasonably satisfactory to the Company or (ii) in the case of the mutilation of any Debenture, upon surrender and cancellation thereof, the Company, at its expense, shall execute and deliver in lieu thereof a new Debenture of like tenor and of a like principal amount and dated and bearing interest from the date to which interest has been paid on such lost, stolen, destroyed or mutilated Debenture. 11.3 Survival of Representations. The representations, warranties, --------------------------- covenants and agreements made herein or in any certificates or documents executed in connection herewith shall survive the execution and delivery hereof and the closing of the transaction contemplated hereby. The Purchasers may bring an action or proceeding against the Company or any Stockholder for damages for breach of representations and warranties contained in Article II above only during such periods as the Purchasers (as defined in the Stock Purchase Agreement) may bring similar actions under the Stock Purchase Agreement. The Purchasers agree that their maximum recovery against the Stockholders for such breach of representation or warranty shall be limited to $2,500,000 less any amounts paid by the Stockholders to the Purchasers (as defined in the Stock Purchase Agreement) under Section 8(b) of the Stock Purchase Agreement, and that the obligations of the Stockholders pursuant to this Section 11.3 shall first be satisfied by set-offs against the Notes received by them pursuant to the Stock Purchase Agreement before any claim shall be made against the Stockholders with respect to any such breach. No claim may be made on the Stockholders by the Purchasers with respect to any such breach until the aggregate of all such claims brought under this Agreement and under the Stock Purchase Agreement exceeds $300,000 in the aggregate, and then only to the extent such claims exceed $150,000 in the aggregate. 11.4 Parties in Interest. Except as otherwise set forth herein, all ------------------- covenants, agreements, representations, warranties and undertakings contained in this Agreement shall be binding on and shall inure to the benefit of the respective successors and assigns of the parties hereto (including transferees of any of the Debentures). The parties agree to maintain in confidence the terms of the purchase of the Debentures hereunder, except that any Purchaser may disclose such terms to its investors in the ordinary course and except that the Company may disclose such terms to its shareholders in the ordinary course. 11.5 Debentures Owned by Affiliates. For the purposes of applying all ------------------------------ provisions of this Agreement which condition the receipt of information or access to information or exercise of any rights upon ownership of a specified principal amount of Debentures, the Debentures or shares owned of record by any affiliate of the Purchasers shall be deemed to be -28- owned by the Purchaser. For the purpose of this Agreement, the term "affiliate" shall mean any Person controlling, controlled by or under common control with, any Purchaser and any general or limited partner of any Purchaser. 11.6 Amendments and Waivers. This Agreement may be amended and the ---------------------- Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the holder or holders of not less than a majority in aggregate principal amount of the Debentures at the time outstanding and each holder of any Debenture at the time or thereafter outstanding shall be bound by any consent authorized by this Section 11.6, whether or not such Debenture shall have been marked to indicate such consent, but any Debenture issued thereafter shall contain a reference or bear a notation referring to any such consent; provided that notwithstanding -------- anything in this Section 11.6 to the contrary, without the written consent of the holder or holders of all Debentures at the time outstanding, no consent, amendment or waiver to or under this Agreement shall extend or reduce the maturity of any Debenture, or reduce the rate or affect the time of payment of interest with respect to any Debenture, or affect the time, amount or allocation of any required prepayments, or reduce the proportion of the principal amount of the Debentures required with respect to any consent, amendment or waiver. The Company shall promptly send copies of any amendment, consent or waiver (and any requests for any such amendment, consent or waiver) relating to this Agreement or the Debentures to each holder of the Debentures and, to the extent practicable, shall consult with holder of the Debentures, in connection with each such amendment, consent and waiver. No course of dealing between the Company and the holder of any of the Debentures nor any delay in exercise any rights hereunder or any of the Debentures shall operate as a waiver of any rights of any holder of such Debentures. The Company will reimburse each Purchaser for the reasonable fees and expenses of counsel incurred in connection with any amendment or modification of this Agreement or any of the Related Agreements or any waiver hereof or thereof. 11.7 Notices. All notices, requests, consents, reports and demands shall ------- be in writing and shall be hand delivered, sent by facsimile or other electronic medium, or mailed, postage prepaid, to the Company or to a Purchaser at the address set forth below or to such other address as may be furnished in writing to the other parties hereto: The Company or any Stockholder: Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attn: President With a copy to: Sullivan & Worcester One Post Office Square Boston, MA 02109 -29- Attn: Norman Bikales The Purchasers: Summit Subordinated Debt Fund, L.P. Suite 3400 One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey With a copy to: Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra 11.8 Expenses. The Company agrees, whether or not the transactions hereby -------- contemplated shall be consummated, to pay all reasonable costs and expenses of the Purchaser in connection with the investigation, preparation, execution and delivery of this Agreement (and due diligence related thereto) and the other instruments and documents to be delivered hereunder and the transactions contemplated hereby and thereby, including, the reasonable fees and disbursements of Hutchins, Wheeler & Dittmar, A Professional Corporation, special counsel to the Purchaser. 11.9 Counterparts. This Agreement and any exhibit hereto may be executed ------------ in multiple counterparts, each of which shall constitute an original but all of which shall constitute but one and the same instrument. One or more counterparts of this Agreement or any exhibit hereto may be delivered via telecopier, with the intention that they shall have the same effect as an original counterpart hereof. 11.10 Effect of Headings. The article and section headings herein are for ------------------ convenience only and shall not affect the construction hereof. 11.11 Governing Law. This Agreement shall be deemed a contract made under ------------- the laws of The Commonwealth of Massachusetts and, together with the rights and obligations of the parties hereunder, shall be construed under and governed by the laws of such Commonwealth (without giving effect to the conflict-of-laws provisions thereof). * * * * * -30- If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the Company, whereupon, this letter shall become a binding agreement among us. Very truly yours, STOCKHOLDERS SUBURBAN OSTOMY SUPPLY CO., INC. /S/ HERBERT GRAY By: /S/ HERBERT GRAY - ---------------------------- --------------------------- Herbert Gray Name: Title: /S/ MELVIN ARONSON - ---------------------------- Melvin Aronson /S/ DONALD BENOVITZ PURCHASERS: - ---------------------------- Donald Benovitz SUMMIT SUBORDINATED /S/ PATRICK BOHAN DEBT FUND, L.P. - ---------------------------- Patrick Bohan By: Summit Partners SD, L.P., /S/ STEPHEN ASCHETTINO Its General Partner - ---------------------------- Stephen Aschettino By:/S/ MARTIN J. MANNION ---------------------------- General Partner SUMMIT INVESTORS II, L.P. By:/S/ MARTIN J. MANNION ---------------------------- Authorized Signatory SUBURBAN OSTOMY SUPPLY CO., INC. Schedule 1.1 ------------ Principal Amount of Debentures to be -31-
Name and Address Purchased Total Purchase Price - ---------------- ------------- ---------------------- Summit Subordinated Debt $6,615,000 $6,615,000 Fund, L.P. Suite 3400 One Boston Place Boston, MA 02108 Summit Investors II, L.P. $135,000 $135,000 Suite 3400 One Boston Place Boston, MA 02108 Totals $6,750,000 $6,750,000.00 ---------- -------------
EXHIBIT A --------- THIS SUBORDINATED DEBENTURE HAS NOT BEEN REGISTERED PURSUANT TO ANY FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN VIOLATION OF ANY FEDERAL OR STATE SECURITIES LAWS. THIS INSTRUMENT IS SUBJECT TO THE SUBORDINATION AGREEMENT DATED AS OF JULY 3, 1995, AMONG THE MAKER, THE PAYEE AND THE FIRST NATIONAL BANK OF BOSTON, WHICH AMONG OTHER THINGS, SUBORDINATES THE MAKER'S OBLIGATIONS HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE MAKER TO THE HOLDERS OF SENIOR OBLIGATIONS AS DEFINED THEREIN. 12% Subordinated Debenture Due June 30, 2000 $ Boston, Massachusetts No. R ________, 1995 FOR VALUE RECEIVED, Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), hereby promises to pay to _____________________, or its registered assigns, the sum of _____________________ Dollars ($______) on June 30, 2000, together with interest, computed on the basis of the actual number of days elapsed over a 360-day year, -32- on the unpaid principal balance hereof until paid in full at the rate of twelve percent (12%) per annum from the date hereof, payable in cash quarterly in arrears on the last day of each of March, June, September and December of each year during which any amounts due hereunder remain outstanding, commencing on September 30, 1995, and until such unpaid balance shall become due and payable (whether at maturity or at a date fixed for mandatory or optional redemption or prepayment or by acceleration or otherwise). In addition, in the event the principal amount of the Debenture is not paid when due and payable (whether at stated maturity, by acceleration or otherwise), the interest on such principal amount shall thereafter be increased to fourteen percent (14%) per annum. Any interest not paid when due and payable shall thereafter be paid, on demand by the holder of this Debenture together with a late charge of two percent (2%) of the amount of interest payment due. All payments of principal (including any prepayments or redemptions) and interest hereunder shall be made by the Company in lawful money of the United States of America in immediately available funds not later than 2:00 p.m., Boston time, on the date each such payment is due, by crediting an account in the United States as the holder of this Debenture may designate in writing to the Company before the scheduled payment date. This Debenture is one of a duly authorized issue of Debentures of the Company designated as its "12% Subordinated Debentures due June 30, 2000" (herein called the "Debentures"), in the aggregate principal amount of $6,750,000 and issued under a Debenture Purchase Agreement, dated as of July 3, 1995 (herein called the "Agreement"), among the Company, Summit Subordinated Debt Fund, L.P. and Summit Investors II, L.P. and certain stockholders of the Company to which Agreement and all agreements supplemental thereto reference is hereby made for a statement of the respective rights and duties thereunder of the Company, and the holders of the Debentures, and the terms upon which the Debentures are, and are to be, delivered. The principal of this Debenture is subject to mandatory and optional prepayment, together with accrued interest, all as more particularly set forth in the Agreement. The Company agrees to make such payments of principal on the dates and in the amounts set forth in the Agreement. Notwithstanding anything herein contained to the contrary, the Indebtedness evidenced by the Debenture is, to the extent provided in the Agreement, subordinate and subject in right of payment to the prior payment in full of all Senior Debt as defined in the Agreement, and this Debenture is issued subject to such provisions, and each holder of Debentures, by accepting the same, agrees to and shall be bound by such provisions and agrees to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Agreement. -33- In case an Event of Default, as defined in the Agreement, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Agreement. The Agreement provides that such declaration may in certain events be rescinded or annulled by the holders of a majority in principal amount of the Debentures then outstanding. No reference herein to the Agreement and no provisions of this Debenture or of the Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the times, places, and rates, and in the coin or currency, herein prescribed. As is more fully set forth in the Agreement, this Debenture is transferable by the registered owner hereof, in person or by duly authorized attorney, on the books of the Company to be kept for that purpose, upon surrender and cancellation of this Debenture and upon presentation of a duly executed written instrument of transfer satisfactory to the Company, and thereupon a new Debenture or Debentures, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange therefor; and this Debenture, with or without other Debentures may in like manner be exchanged for one or more new Debentures of other authorized denominations but of the same aggregate principal amount, all subject to the terms and conditions set forth in the Agreement. Any such transfer or exchange shall be without charge by the Company. All terms used in this Debenture which are defined in the Agreement shall have the meanings assigned to them in the Agreement. This Debenture shall be deemed to be a contract made under the laws of The Commonwealth of Massachusetts and shall for all purposes be construed in accordance with the laws of said Commonwealth without giving effect to the conflict-of-laws provisions thereof. IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed as a sealed instrument. SUBURBAN OSTOMY SUPPLY CO., INC. By:_____________________________ Schedule 4.1 -34- Restrictions on Indebtedness Prior to the consummation of the transactions contemplated by the Purchase Agreement, the Company will have Indebtedness in respect of the obligations outstanding on the Closing Date under the following agreements: 1. Guaranty Agreement dated as of August 1, 1986, as amended, by and among the Company, Herbert Gray, Melvin P. Aronson, and The First National Bank of Boston. The Company has been informed that the Company will be released from this agreement on or prior to the Closing Date. 2. Commercial Promissory Grid Note dated January 18, 1995, by and between Shawmut Bank, N.A., and the Company establishing a $1,000,000 line of credit. The Company has not drawn down on this line of credit and will terminate the arrangement before the Closing Date. Schedule 4.2 Restrictions on Liens, Etc. Pursuant to the Distributor Agreement dated March 16, 1983, between Hollister Incorporated and the Company, Hollister Incorporated has a security interest in all Hollister products in the Company's possession and all receivables due the Company as a result of the sale of such Hollister products, but has not filed a UCC financing statement. Pursuant to a Security Agreement dated August 1, 1986, by and between the Company and Wachovia Bank of Georgia, N.A., formerly known as The First National Bank of Atlanta, the Bank has a security interest in all the Company's accounts receivable and inventory, and UCC financing statements are on record in the following locations: 1. The Clerk of the Superior Court of Fulton County, Georgia. 2. The Secretary of State of The Commonwealth of Massachusetts. 3. The City Clerk of Framingham, Massachusetts. A UCC financing statement is on record at the following location with respect to a security interest that MAI Systems Corp. had in certain equipment purchased by the Company from MAI Systems Corp., which is no longer owned by the Company: 1. The Town Clerk of Holliston, Massachusetts. -35- EX-10.3 7 SHAREHOLD AGREE BETWEEN CO. MELVIN ARONSON EXHIBIT 10.3 SHAREHOLDERS' AGREEMENT SHAREHOLDERS' AGREEMENT, made as of the 3rd day of July, 1995, by and among Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), Herbert Gray, Melvin Aronson, Donald Benovitz, Patrick Bohan, and Stephen Aschettino (the "Management Shareholders"), and Summit Ventures III, L.P., Summit Investors II, L.P. and Summit Subordinated Debt Fund, L.P. (collectively, the "Summit Investors") and The Bear Stearns Companies, Inc. (together with the Summit Investors, the "Investors"; the Investors and the Management Shareholders are referred to collectively as the "Shareholders"). WHEREAS, the Investors are acquiring an aggregate of 66,500 shares of Series A Redeemable Preferred Stock, par value $.01 per share, of the Company, and 280 shares (28,000 shares after giving effect to the stock dividend described in the Purchase Agreement) of Common Stock, no par value per share, of the Company (the "Common Stock"), pursuant to the terms of a Stock Purchase and Redemption Agreement dated as of the date hereof among the Company, the Investors and the Management Shareholders (the "Purchase Agreement"); WHEREAS, following the redemption contemplated by the Purchase Agreement, the Management Shareholders will own an aggregate of 120 shares (12,000 shares after giving effect to the stock dividend described in the Purchase Agreement) of Common Stock; and WHEREAS, it is a condition to the obligations of the Investors and the Management Shareholders under the Purchase Agreement that this Agreement be executed by the parties hereto, and the parties are willing to execute this Agreement and to be bound by the provisions hereof. NOW, THEREFORE, in consideration of the foregoing, the agreements set forth below, and the parties' desire to provide for continuity of ownership of the Company to further the interests of the Company and its present and future shareholders, the parties hereby agree with each other as follows: 1. Definitions. ----------- (a) The term "Permitted Transferee" means (i) in the case of a Management Shareholder, a spouse or any lineal descendent or ancestor of such Management Shareholder, or any trust for the benefit of any one or more of such Management Shareholders, his spouse, any lineal descendent or ancestor, or the heirs, executor or guardian of such Management Shareholder and (ii) in the case of any Investor, any affiliate of such Investor; in each case so long as a transferee under clause (i) or (ii) shall agree in writing with the Company and the other Shareholders, as a condition to such transfer, to be bound by all of the provisions of this Agreement to the same extent as if such transferee were the Shareholder transferring the Shares to such Permitted Transferee. (b) "IPO Date" means the date on which shares of Common Stock of the Company shall have been sold pursuant to a public offering (including without limitation one for assets or securities of other companies) pursuant to registration statements under the Securities Act of 1933, as amended (the "Securities Act"). (c) "Shares" shall mean and include all shares of the Common Stock and other equity securities of the Company with rights to vote generally for the election of directors now owned or hereafter acquired by a Shareholder. Other terms used as defined terms herein and not otherwise defined shall have the meanings set forth in the Purchase Agreement. 2. Prohibited Transfers. No Management Shareholder shall sell, assign, -------------------- transfer, pledge, hypothecate, mortgage, encumber or dispose of all or any of his Shares except in compliance with the terms of, or pursuant to the exemption provided for in Section 3(g) of, this Agreement. Notwithstanding anything to the contrary contained in this Agreement, a Management Shareholder may transfer all or any of his Shares to a Permitted Transferee. 3. Right of First Refusal on Dispositions. -------------------------------------- (a) If at any time any Management Shareholder desires to sell or otherwise transfer all or any part of his Shares pursuant to a bona fide offer from a person or entity other than a Permitted Transferee (the "Proposed Transferee"), such Management Shareholder shall submit a written offer (the "Offer") by delivering the Offer to the Company and the other Shareholders (the "Offeree Shareholders"), to sell such Shares (the "Offered Shares") to the Company and the Offeree Shareholders on terms and conditions, including price, not less favorable than those on which the Management Shareholder proposes to sell such Offered Shares to the Proposed Transferee. The Offer shall disclose the identity of the Proposed Transferee, the number of Offered Shares proposed to be sold, the total number of Shares owned by the Management Shareholder, the terms and conditions, including price, of the proposed sale, and any other material facts relating to the proposed sale. The Offer shall further state (i) that the Company and the Offeree Shareholders may acquire, in accordance with the provisions of this Agreement, the Offered Shares for the price and upon the other terms and conditions set forth therein and (ii) that if all such Offered Shares are not purchased by the Offeree Shareholders and the Company, the Offeree Shareholders may exercise their rights provided pursuant to Section 4 hereof. (b) If the Company desires to purchase any of the Offered Shares, it shall communicate in writing its election to purchase any of the Offered Shares to the Management Shareholder and the Offeree Shareholders, which communication shall state the number of Offered Shares that the Company desires to purchase. Such communication shall, when taken in conjunction with the Offer, but subject, in any event to the requirement that the Offeree Shareholders and/or the Company purchase all, but not less than all, of the Offered Shares, be -2- deemed to constitute a valid, legally binding and enforceable agreement for the sale and purchase of the Offered Shares. Sales of such Offered Shares to be sold to the Offeree Shareholders and/or the Company pursuant to this Section 3 shall be made at the offices of the Company within 30 days following the date the Offer was made. (c) If the Company elects to purchase fewer than all of the Offered Shares within such thirty (30) day period, each Offeree Shareholder shall have the right to purchase that number of remaining Offered Shares at the Offer Price as shall be equal to the number of Offered Shares multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock then owned by such Offeree Shareholder (including any shares of Common Stock purchasable under vested stock options held by such Offeree Shareholder) and the denominator of which shall be the aggregate number of shares of Common Stock then owned by all of the Offeree Shareholders who elect to purchase the Offered Shares (including any shares of Common Stock purchasable under vested stock options held by such Offeree Shareholders). The amount of such Offered Shares that each Offeree Shareholder is entitled to purchase under this Section 3(b) shall be referred to as its "Pro Rata Fraction." Notwithstanding the foregoing, no Offeree Shareholder may purchase any Offered Shares unless the Offeree Shareholders and/or the Company purchase all of the Offered Shares. (d) The Offeree Shareholders shall have a right of oversubscription such that if any Offeree Shareholder fails to accept the Offer as to its full Pro Rata Fraction, the remaining Offeree Shareholders shall, among them, have the right to purchase up to the balance of such Offered Shares not so purchased. Other Offeree Shareholders may exercise such right of oversubscription by accepting the Offer as to more than their Pro Rata Fraction. If, as a result thereof, such oversubscriptions exceed the total number of the Offered Shares available in respect of such oversubscription privilege, the oversubscribing Offeree Shareholders shall be cut back with respect to over subscriptions on a pro rata basis in accordance with their respective Pro Rata Fractions or as they may otherwise agree among themselves. (e) Those Offeree Shareholders who desire to purchase the remaining Offered Shares shall communicate in writing their election to purchase to the Management Shareholder making the Offer, which communication shall state the number of Offered Shares said Offeree Shareholders desire to purchase and shall be provided to such Management Shareholder within 20 days of the date the Offer was made. Such communication shall, when taken in conjunction with the Offer, but subject, in any event to the requirement that the Offeree Shareholders and/or the Company purchase all, but not less than all, of the Offered Shares, be deemed to constitute a valid, legally binding and enforceable agreement for the sale and purchase of such Offered Shares (subject to the aforesaid limitations as to the right of the Offeree Shareholders to purchase more than their Pro Rata Fraction). (f) If the Offeree Shareholders and the Company do not elect to purchase all of the Offered Shares, then all of the Offered Shares may be sold by the Management Shareholder at any time within 120 days after the date the Offer was made, subject to the provisions of Section -3- 4. Any such sale shall be to the Proposed Transferee, at not less than the price and upon other terms and conditions, if any, not more favorable to the Proposed Transferee than those specified in the Offer. Any Offered Shares not sold within such 120-day period shall continue to be subject to the requirements of a prior offer pursuant to this Section 3. If Offered Shares are sold pursuant to this Section 3 to any purchaser who is not a party to this Agreement, the purchaser of such Offered Shares shall execute a counterpart of this Agreement as a Management Shareholder as a precondition of the purchase of such Offered Shares and any Offered Shares sold to such purchaser shall continue to be subject to the provisions of this Agreement. (g) Notwithstanding anything to the contrary contained in this Agreement, each of Donald Benovitz, Patrick Bohan and Stephen Aschettino may transfer an aggregate of up to 10% of the Shares held by him on the date hereof (subject to adjustment for stock splits, recapitalizations, and similar events) to other Management Shareholders, Herbert Gray may transfer shares constituting in the aggregate up to 2% of the Common Stock of the Company outstanding on the date hereof (subject to adjustment for stock splits, recapitalizations, and similar events) to other Management Shareholders, and Melvin Aronson may transfer all shares of Common Stock held by him to other Management Shareholders. 4. Right of Participation in Sales. ------------------------------- (a) If at any time prior to the IPO Date any Shareholder (the "Selling Shareholder") desires to sell all or any part of the Shares owned by such Shareholder to a Proposed Transferee, the other Shareholders shall, subject to the priority rights of the Offeree Shareholders and the Company pursuant to the provisions of Section 3, have the right to sell to the Proposed Transferee, as a condition to such sale by such Selling Shareholder, at the same price per share and on the same terms and conditions as involved in such sale by the Selling Shareholder, up to a pro rata portion of the amount of Shares proposed --- ---- to be sold to the Proposed Transferee. Subject to the following sentence, the "pro rata portion" of Shares which a Shareholder shall be entitled to sell --- ---- to the Proposed Transferee shall be that number of Shares as shall equal the number of Offered Shares proposed to be sold to the Proposed Transferee multiplied by a fraction, the numerator of which is the aggregate of all Shares which are then held by the Shareholder, (including any Shares issuable under vested stock options held by such Shareholder) and the denominator of which is the aggregate of all Shares which are then held by such Selling Shareholder (including any shares of Common Stock issuable under vested stock options held by such Stockholder) and all Shareholders (including any Shares issuable under vested stock options held by all such Shareholders) wishing to participate in any sale under this Section 4. (b) If any Shareholder wishes to make a sale to a Proposed Transferee which is subject to this Section 4, the Shareholder shall, simultaneously with the notice given pursuant to the provisions of Section 3(a), give to each Shareholder notice of such proposed sale. Such notice shall be given at least 20 days prior to the date of the proposed sale to the Proposed Transferee. Each Shareholder wishing so to participate in any sale under this Section 4 shall -4- notify the Selling Shareholder in writing of such intention within 20 days after such Shareholders' receipt of the notice described in the preceding sentence. Such notice shall when taken in conjunction with the offer notice, be deemed to constitute a valid, legally binding and enforceable agreement for the sale and purchase of such Offered Shares (subject to the aforesaid limitations as to the right of the Offeree Shareholders to purchase more than their pro rata portion). --- ---- The rights of the Other Shareholders under this Section 4 are junior and subordinated to the rights of the Offeree Stockholders and the Company pursuant to the provisions of Section 3. (c) Such Selling Shareholder and each participating Shareholder shall sell to the Proposed Transferee all, or at the option of the Proposed Transferee, any part of the Shares proposed to be sold by them at not less than the price and upon other terms and conditions, if any, not more favorable to the Proposed Transferee than those in the notice provided by such Selling Shareholder under subparagraph (b) above; provided, however, that any purchase -------- ------- of less than all of such Shares by the Proposed Transferee shall be made from the Selling Shareholder and each participating Shareholder pro rata based upon --- ---- the relative number of the Shares that the Selling Shareholder and each participating Shareholder are otherwise entitled to sell pursuant to Section 4(a). (d) If any Shares are sold pursuant to this Section 4 to any purchaser who is not a party to this Agreement, the purchaser of such Shares shall execute a counterpart of this Agreement as a "Management Shareholder" or "Investor," as the case may be, as a precondition to the purchase of such Shares and such Shares shall continue to be subject to the provisions of this Agreement. (e) Notwithstanding anything to the contrary contained in this Agreement, each of Donald Benovitz, Patrick Bohan and Stephen Aschettino may transfer an aggregate of up to 10% of the Shares held by him on the date hereof (subject to adjustment for stock splits, etc.) to other Management Shareholders, Herbert Gray may transfer shares constituting in the aggregate of up to 2% of the Common Stock of the Company outstanding on the date hereof (subject to adjustment for stock splits, etc.) to other Management Shareholders, and Melvin Aronson may transfer all shares of Common Stock held by him to other Management Shareholders. (f) The rights granted under this Section 4 shall expire immediately prior to the IPO Date, and shall not apply in connection with, the consummation of the public offering consummated on the IPO Date. 5. Take-Along Right. If on any one occasion the Investors shall determine ---------------- to sell or exchange (in a business combination or otherwise) Shares in a bona fide arm's-length transaction with a person or entity or group of affiliated persons or entities (other than a party hereto or any affiliated persons or entities of a party hereto, including without limitation any partners of any party hereto) (the "Take-Along Transferee"), and as a result of such transaction, the Take-Along Transferee will come to hold at least 50% of the shares of common stock of the Company then outstanding, then the Investors shall give written notice to each Management Shareholder of such -5- proposed sale and the Management Shareholders shall have 30 days after the date of such notice to offer to purchase such Shares from the Investors. The Investors shall be under no obligation to accept such offer and shall remain free to sell such Shares to the Take-Along Transferee on such terms as they deem desirable. After the expiration of such 30 days, if the Investors have not sold or agreed to sell such Shares to the Management Shareholders in accordance with the preceding provisions of this Section 5, then upon the written request of the Investors (the "Sales Request"), each Shareholder shall be obligated to, and shall, (a) sell, transfer and deliver, or cause to sold, transferred and delivered, to the Take-Along Transferee that percentage of his Shares that is equal to the percentage of the aggregate holding of the Shares held by the Investors which is being sold or exchanged to the third party at the same price per share and on the same terms applicable to the Investors, and (b) if Shareholder approval of the transaction is required, vote its or his Shares in favor thereof. The provisions of this Section 5 shall apply on only one occasion, whether or not any sale or exchange is consummated with the Management Shareholders or the Take-Along Transferee. 6. Election of Directors. At each annual meeting of the shareholders of --------------------- the Company, and at each special meeting of the shareholders of the Company called for the purpose of electing directors of the Company, and at any time at which shareholders of the Company shall have the right to, or shall, vote for directors of the Company, then, and in each event, the Shareholders shall vote all Shares owned by them for the election of a Board of Directors consisting of not more than five directors, designated in the manner designated below. (a) Two directors shall be designated by the Investors (which designees shall initially be Martin J. Mannion and Joseph F. Trustey); (b) Two directors shall be designated by the Management Shareholders (which designees shall initially be Herbert Gray and Donald Benovitz); (c) Subject to Section 6(d) below, the remaining director, who shall not be an employee of the Company or affiliated with any Shareholder (the "Independent Director"), shall be designated by the Investors after consultation with the Management Shareholders; (d) Any party who has the right to designate a Director under Section 6(a), (b) or (c) above may at any time remove such designee and designate a replacement for such designee. All Shareholders agree that they shall take such action as may be requested in order to elect such successor designee. (e) Notwithstanding anything to the contrary contained in this Section 6, in the event the Company becomes in default of one or more of the covenants contained in the Purchase Agreement or the Debenture Purchase Agreement, and such default continues for 60 consecutive days, then the Investors will have the right to designate three out of five members of the Board of Directors, which designees shall be the designees of the Investors under Section 6(a) above and an additional designee elected by the Investors owning a majority of the Shares held by all -6- Investors (the "Required Holders"). At the request of the Required Holders, the Shareholders agree to take all action, including voting their Shares, requested by the Required Holders in order to effect the removal of the designee named under Section 6(c) and to elect the additional director designated by the Required Holders. (f) In the event the Required Holders request pursuant to Section 6(e) election of a new designee, and following such election the default which gave rise to such request is cured, then the Board of Directors shall again be comprised of designees as named in Section 6(a), (b) and (c) of this Section 6; provided, however, that if thereafter a second default shall occur, and the Required Holders shall again exercise their rights to name a designee pursuant to Section 6(e), then for the balance of the term of this Agreement the Investors shall have the right to name a designee pursuant to Section 6(e). 7. Compensation Committee. There shall be established at all times ---------------------- during the term of this Agreement a Compensation Committee of the Board of Directors (the "Compensation Committee") which shall be comprised of three directors as follows: one of whom shall be one of the directors designated under Section 6(a); one of whom shall be one of the directors designated under Section 6(b); and one of whom shall be the Independent Director (or his replacement pursuant to Section 6(e), as applicable). The Compensation Committee will, subject to the provisions of any applicable employment agreements, determine the compensation of all senior employees and consultants of the Company (including salary, bonus, equity participation and benefits). The compensation of senior employees and consultants shall be reviewed by the Compensation Committee on an annual basis, and the decision by a majority of the members of the Compensation Committee will control the Committee's actions. 8. Preemptive Rights. ----------------- (a) The Company hereby grants to each Shareholder so long as it or he shall own, of record or beneficially, any Common Stock, the right to purchase all or part of its or his pro rata share of New Securities (as defined in Section 8(b) below which the Company, from time to time, proposes to sell and issue. A Shareholder's pro rata share, for purposes of this preemptive right, is the ratio of the number of shares of Common Stock which such Shareholder then owns or has the right to acquire from the Company, including any vested (but not unvested) stock options, to the total number of shares of Common Stock then outstanding, including any vested (but not unvested) stock options. The Shareholders shall have a right of over-allotment pursuant to this Section 8 such that to the extent a Shareholder does not exercise its or his preemptive right in full hereunder, such additional shares of New Securities which such Shareholder did not purchase may be purchased by the other Shareholders in proportion to the total number of shares of Common Stock which each such other Shareholder owns or has the right to acquire from the Company, including any vested (but not unvested) stock options, compared to the total number of shares of Common Stock which all such other Shareholders own or have the right to acquire from the Company including any vested (but not unvested) stock options. -7- (b) "New Securities" shall mean any capital stock of the Company whether now authorized or not, and rights, options or warrants to purchase capital stock, and securities of any type whatsoever that are, or may become convertible into or exchangeable for capital stock, issued on or after the date hereof; provided that the term "New Securities" does not include (i) Common -------- Stock issued as a stock dividend to holders of Common Stock or upon any stock split, subdivision or combination of shares of Common Stock, (ii) shares of Common Stock issued upon exercise of options issued pursuant to the Stock Option Plan referred to in Section 11 below, and (iii) shares of Common Stock issued in connection with any merger or acquisition with an unaffiliated third party, where such transaction has been approved by the Board of Directors of the Company and such shares are issued on arm's-length terms. (c) If the Company proposes to issue New Securities, it shall give each Shareholder written notice of its intention, describing the type of New Securities and the price and the terms upon which the Company proposes to issue the same. Each Shareholder shall have 20 business days from the date of receipt of any such notice to agree to purchase up to the Shareholder's pro rata share of such New Securities (and any over-allotment amount pursuant to the operation of Section 8(a) above) for the purchase price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased, provided that the Management Investors may elect in such notice to pay the purchase price for such New Securities in whole or in part by tender to the Company of a principal amount of Notes (as defined in the Purchase Agreement) and accrued interest on such principal amount equal to the aggregate purchase price proposed to be so paid. (d) If any Shareholder fails to exercise in full its or his preemptive right (after giving effect to the over-allotment provision of Section 8(a) above), the Company shall have 90 days thereafter to sell the New Securities with respect to which the Shareholder's option was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice. To the extent the Company does not sell all the New Securities offered within said 90 day period, the Company shall not thereafter issue or sell such New Securities without first again offering such securities to the Shareholders in the manner provided above. (e) The rights granted under this Section 8 shall expire immediately prior to the IPO Date and shall not apply to the public offering consummated on the IPO Date. 9. Term. This Agreement shall terminate immediately prior to (a) the IPO ---- Date, or (b) the tenth anniversary of the date of this Agreement whichever occurs first. 10. Failure to Deliver Shares. If any Shareholder becomes obligated to ------------------------- sell any Shares to another Shareholder under this Agreement and fails to deliver such Shares in accordance with the terms of this Agreement, such other Shareholders may, at their option, in addition to all other remedies they may have, send to the defaulting Shareholder the purchase price for such Shares as is herein specified. Thereupon, the Company, upon written notice to the defaulting Shareholder, (a) shall cancel on its books the certificate or certificates representing the Shares to -8- be sold and (b) shall issue, in lieu thereof, in the name of such other Shareholder, a new certificate or certificates representing such Shares, and thereupon all of the defaulting Shareholder's rights in and to such Shares shall terminate. 11. Stock Option Plan. Each shareholder agrees to vote to approve the ----------------- Suburban Ostomy Supply Co., Inc. Stock Option Plan in the form approved by the directors of the Company as of the date hereof. 12. Specific Enforcement. Each Shareholder expressly agrees that the -------------------- other Shareholders and the Company may be irreparably damaged if this Agreement is not specifically enforced. Upon a breach or threatened breach of the terms, covenants and/or conditions of this Agreement by any Shareholder, the other Shareholders and the Company shall, in addition to all other remedies, each be entitled to apply for a temporary or permanent injunction, and/or a decree for specific performance, in accordance with the provisions hereof. 13. Legend. Each certificate evidencing any of the Shares now owned or ------ hereafter acquired by the Management Shareholders shall bear a legend substantially as follows: "Any sale, assignment, transfer or other disposition of the shares represented by this certificate is restricted by, and subject to, the terms and provisions of a certain Shareholders' Agreement dated as of July 1, 1995. A copy of said Agreement is on file with the Clerk of the Corporation." 14. Affiliate Transactions. The parties hereto agree that prior to ---------------------- entering into any transaction between the Company and any Shareholder or any affiliate of any Shareholder, such affiliation shall be made known to the Board of Directors of the Company, and agree further that the terms of any such transaction shall be on terms not less favorable to the Company than those which could have been obtained from an unaffiliated third party. 15. Notices. Notices given hereunder shall be deemed to have been duly ------- given on the date of personal delivery or on the date of postmark if mailed by certified or registered mail, return receipt requested, to the party being notified at his or its address specified on Schedule I hereto or such other address as the addressee may subsequently notify the other parties of in writing. 16. Entire Agreement and Amendments. This Agreement constitutes the ------------------------------- entire agreement of the parties with respect to the subject matter hereof and neither this Agreement nor any provision hereof may be waived, modified, amended or terminated except by a written agreement signed by the parties hereto; provided, however, that Investors owning at least a majority of the Shares owned - -------- ------- by all Investors may effect any such waiver, modification, amendment or termination on behalf of all of the Investors. Each of the Shareholders represents that he or it is not a party to any other agreement which would prevent him or it from performing his or its obligations hereunder. No waiver of any breach or default hereunder shall be considered -9- valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. 17. Governing Law; Successors and Assigns. This Agreement shall be ------------------------------------- governed by the internal laws of The Commonwealth of Massachusetts without giving effect to the conflicts of laws principles thereof and, except as otherwise provided herein, shall be binding upon the heirs, personal representatives, executors, administrators, successors and assigns of the parties. 18. Severability. If any provision of this Agreement shall be held to be ------------ illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. 19. Captions. Captions are for convenience only and are not deemed to be -------- part of this Agreement. 20. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. * * * -10- SUBURBAN OSTOMY SUPPLY CO., INC. SHAREHOLDERS AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, this Agreement has been executed as of the date and year first above written. MANAGEMENT SHAREHOLDERS: COMPANY: SUBURBAN OSTOMY SUPPLY CO., INC. /s/ Herbert Gray By: /s/ Herbert Grey - ---------------- ----------------- Herbert Gray Name: Title: /s/ Melvin Aronson - ------------------ Melvin Aronson INVESTORS: /s/ Donald Benovitz SUMMIT VENTURES III, L.P. - ------------------- Donald Benovitz By: Summit Partners III, L.P., its general partner /s/ Patrick Bohan - ----------------- By: Stamps, Woodsum & Co. III, Patrick Bohan its general partner /s/ Stephen Aschettino By: /s/ Martin J. Mannion - ---------------------- ---------------------- Stephen Aschettino General Partner SUMMIT INVESTORS II, L.P. By: /s/ Martin J. Mannion ---------------------- Authorized Signatory -11- SUMMIT SUBORDINATED DEBT FUND, L.P. By: Summit Partners SD, L.P. Its General Partner By: /s/ Martin J. Mannion ---------------------- General Partner THE BEAR STEARNS COMPANIES, INC. By: /s/ David Glaser ----------------- Name: Title: -12- Schedule 1 ---------- Company - ------- Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attention: President Management Shareholders - ----------------------- Investors - --------- Summit Investors II, L.P. Suite 3420 One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey Summit Ventures III, L.P. Suite 3420 One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey Summit Subordinated Debt Fund, L.P. Suite 3420 One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey The Bear Stearns Companies, Inc. 245 Park Avenue -13- New York, NY 10167 Attn: Robert Yedid -14- EX-10.4 8 REGISTRATION RIGHTS AGREE BET CO. MELVIN ARONSON EXHIBIT 10.4 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, made as of the 3rd day of July, 1995, by and among SUBURBAN OSTOMY SUPPLY CO., INC., a Massachusetts corporation (the "Company"), those persons set forth on Schedule I as Investors (each an ---------- "Investor" and collectively the "Investors"), and Herbert Gray, Melvin Aronson, Donald Benovitz, Patrick Bohan, and Stephen Aschettino (the "Management Shareholders"). WHEREAS, the Investors are acquiring an aggregate of 280 shares of Common Stock, no par value per share, of the Company (the "Common Stock"), pursuant to the terms of a Stock Purchase and Redemption Agreement dated as of the date hereof among the Company, the Investors and the Management Shareholders (the "Purchase Agreement"); and WHEREAS, it is a condition to the obligations of the Investors and the Management Shareholders under the Purchase Agreement that this Agreement be executed by the parties hereto in order to provide the Investors and the Management Shareholders with certain registration rights with respect to the shares of Common Stock being purchased by the Investors under the Purchase Agreement and the shares of Common Stock held by the Management Shareholders, and the parties are willing to execute this Agreement and to be bound by the provisions hereof; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms ------------------- shall have the following respective meanings: "Act" means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Commission" means the Securities and Exchange Commission, or any other federal agency at the time administering the Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Holder" means the person who is then the record owner of Registrable Securities which have not been sold to the public. -1- "IPO Date" means the date on which shares of Common Stock shall have been sold pursuant to a public offering (including without limitation one for the assets or securities of other companies) pursuant to a registration statement under the Act. "Registrable Securities" means (i) all shares of Common Stock now owned or hereafter acquired by any Investor or Management Shareholder; (ii) all shares of Common Stock issuable with respect to securities of the Company convertible into or exercisable for shares of Common Stock now owned or hereafter acquired by any Investor or Management Shareholder; and (iii) any Common Stock issued in respect of the shares described in clauses (i) and (ii) upon any stock split, stock dividend, recapitalization or other similar event. The term "register" means to register under the Act and applicable state securities laws for the purpose of effecting a public sale of securities. "Registration Expenses" means all expenses incurred by the Company in compliance with Sections 2, 3 or 5 hereof, including, without limitation, all registration and filing fees, printing expenses, transfer taxes, fees and disbursements of counsel for the Company, blue-sky fees and expenses, fees of transfer agents and registrars, reasonable fees and disbursements of one counsel for all the selling Holders, and the expense of any special audits incident to or required by any such registration. "Selling Expenses" means all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and any transfer taxes applicable to such sales. 2. Requested Registrations ----------------------- (a) If (i) on any two occasions at any time after December 31, 1995, the Company shall receive from one or more Investors a written request that the Company effect the registration of Registrable Securities representing at least twenty-five percent (25%) of the Registrable Securities then outstanding or issuable (or any lesser percentage if the reasonably anticipated aggregate price to the public of the Registrable Securities to be included in such registration would exceed $10,000,000), (ii) on any one occasion after the IPO Date, the Company will receive from one or more Management Shareholders a written request that the Company effect the registration of Registrable Securities representing at least 33 1/3% of the Registrable Securities then owned by the Management Shareholders, or (iii) on any one occasion during each calendar year which the Company is eligible to register the sale of shares of Common Stock to the public under the Act on Form S-3, the Company shall receive from one or more Holders of Registrable Securities a written request that the Company effect the registration of Registrable Securities held by such Holders having a fair market value as of the date of such request of $1,000,000, the Company will: (A) promptly give written notice of the proposed registration to all other Holders; and -2- (B) as soon as practicable, use all commercially reasonable efforts to effect such registration as may be so requested and as would permit or facilitate the sale and distribution of such portion of such Registrable Securities as are specified in such request, together with such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company. If the underwriter managing the offering advises the Holders who have requested inclusion of their Registrable Securities in such registration that marketing considerations require a limitation on the number of shares offered, such limitation shall be imposed pro rata among such -------- Holders who requested inclusion of Registrable Securities in such registration pursuant to this Section 2 or Section 3 below according to the number of Registrable Securities requested to be registered by such Holders. No registration initiated by the Holders hereunder shall count as a registration under this Section 2 unless and until it shall have been declared effective and the Holders shall have sold all of the Registrable Securities included in such registration. (b) Selection of Underwriter. The underwriter of any underwriting ------------------------ requested under this Section 2 shall be selected by the Holders holding a majority of the Registrable Securities included therein; provided that such underwriter must be reasonably acceptable to the Company. 3. "Piggy Back" Registrations. ------------------------- (a) If the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders exercising registration rights or otherwise (other than a registration relating solely to a merger, acquisition of assets or securities or tender or exchange offer, or to employee benefit plans or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities), the Company will: (i) Promptly give to each Holder of Registrable Securities written notice thereof (which shall include the number of shares the Company or other security holder proposes to register and, if known, the name of the proposed underwriter). (ii) Use its best efforts to include in such registration all the Registrable Securities specified in a written request or requests, made by any Holder within twenty (20) days after the date of delivery of the written notice from the Company described in clause (i) above. If the underwriter advises the Company that marketing considerations require a limitation on the number of shares offered pursuant to any registration statement, then the Company may offer all of the securities it proposes to register for its own account and such limitation on any remaining securities that may, in the opinion of the underwriter, be sold will be imposed pro rata among the Holders who requested --- ---- inclusion of Registrable -3- Securities in such registration according to the number of Registrable Securities requested to be registered by each of them. (b) The Company shall select the underwriter for an offering made pursuant to this Section 3; provided that such underwriter must be reasonably acceptable to the Holders of a majority of the Registrable Securities being registered in such offering. 4. Expenses of Registration. All Registration Expenses incurred in ------------------------ connection with any registration, qualification or compliance pursuant to Section 2, 3, or 5 shall be paid by the Company. All Selling Expenses incurred in connection with any such registration, qualification or compliance shall be borne by the holders of the Registrable Securities registered, pro rata on the basis of the number of their Registrable Securities so registered. 5. Listing Application. If shares of any class of stock of the Company ------------------- shall be listed on a national securities exchange or approved for quotation on any over-the-counter market system, the Company shall, at its expense, include in its listing application all of the shares of the listed class then owned by any Holder. 6. Registration Procedures. In the case of each registration effected by ----------------------- the Company pursuant to this Agreement, the Company will keep each Holder of Registrable Securities included in such registration advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will do the following for the benefit of such Holders: (a) Keep such registration effective for a period of one hundred twenty days (120) or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs, and amend or supplement such registration statement and the prospectus contained therein from time to time to the extent necessary to comply with the Act and applicable state securities laws; (b) Use its best efforts to register or qualify the Registrable Securities covered by such registration under the applicable securities or "blue sky" laws of such jurisdictions as the selling shareholders may reasonably request; provided, that the Company shall not be obligated to qualify to do business in any jurisdiction where it is not then so qualified or otherwise required to be so qualified or to take any action which would subject it to the service of process in suits other than those arising out of such registration or which would subject it to taxation in such jurisdiction; (c) Furnish such number of prospectuses and other documents incident thereto as a Holder from time to time may reasonably request; (d) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 2 hereof, the Company will enter into any underwriting -4- agreement reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains customary underwriting provisions and is entered into by the Holder and provided further that, if the underwriter so requests, the underwriting agreement will contain customary indemnification and contribution provisions on the part of the Company; (e) To the extent then permitted under applicable professional guidelines and standards, obtain a comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by comfort letters and an opinion from the Company's counsel in customary form and covering such matters of the type customarily covered in a public issuance of securities, in each case addressed to the Holders, and provide copies thereof to the Holders; and (f) Permit the counsel to the selling shareholders whose expenses are being paid pursuant to Section 5 hereof to participate in the registration statement preparation process and to inspect and copy such corporate documents as he may reasonably request. 7. Indemnification. --------------- (a) The Company will, and hereby does, indemnify each Holder, each of its officers, directors and partners, and each person controlling such Holder within the meaning of the Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls such underwriter within the meaning of the Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein (in light of the circumstances under which they were made, in the case of any prospectus) not misleading, or any violation by the Company of the Act or the Exchange Act or securities act of any state or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, whether or not resulting in any liability, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement (or alleged untrue statement) or omission (or alleged omission) based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. -5- (b) Each Holder will, if Registrable Securities held by him are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of the Act and the rules and regulations thereunder, each other such Holder and each of their officers, directors and partners, and each person controlling such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not (in light of the circumstances under which they were made, in the case of any prospectus) misleading, and will reimburse the Company and such Holder's directors, officers, partners, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, whether or not resulting in liability, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided, however, that the obligations of each Holder hereunder shall be limited to an amount equal to the net proceeds received by such Holder upon sale of his securities. (c) Each party entitled to indemnification under this Section 7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, but the failure of any Indemnifying Party to give such notice shall not relieve the Indemnifying Party of its obligations under this Section 7 (except and to the extent the Indemnifying Party has been prejudiced as a consequence thereof). The Indemnifying Party will be entitled to participate in, and to the extent that it may elect by written notice delivered to the Indemnified Party promptly after receiving the aforesaid notice from such Indemnified Party, at its expense to assume, the defense of any such claim or any litigation resulting therefrom, with counsel reasonably satisfactory to such Indemnified Party, provided that the Indemnified Party may participate in such defense at its expense, notwithstanding the assumption of such defense by the Indemnifying Party, and provided, further, that if the defendants in any such action shall include both the Indemnified Party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be legal defenses available to it and/or other Indemnified Parties which are different from or additional to those available to the Indemnifying Party, the Indemnified Party or Parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such Indemnified Party or Parties and the fees and expenses of such counsel shall be paid by the Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party (which consent shall not be unreasonably withheld, delayed or conditioned), consent to entry of any judgment or enter -6- into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall (i) furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom and (ii) shall reasonably assist the Indemnifying Party in any such defense, provided that the Indemnified Party shall not be required to expend its funds in connection with such assistance. (d) No Holder shall be required to participate in a registration pursuant to which it would be required to execute an underwriting agreement in connection with a registration effected under Section 2 or 3 which imposes indemnification obligations on such Holder more onerous than those imposed hereunder; provided, however, that the Company shall not be deemed to breach the provisions of Section 2 or 3 if a Holder is not permitted to participate in a registration on account of his refusal to execute an underwriting agreement on the basis of this subsection (d). 8. Information by Holder. Each Holder of Registrable Securities included --------------------- in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement or otherwise required by applicable state or federal securities laws. 9. Limitations on Registration Rights. From and after the date of this ---------------------------------- Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would give any such holder or prospective holder (a) the right to require the Company, upon any registration of any of its securities, to include, among the securities which the Company is then registering, securities owned by such holder, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of its securities will not limit the number of Registrable Securities sought to be included by the Holders of Registrable Securities or reduce the offering price thereof; or (b) the right to require the Company to initiate any registration of any securities of the Company. 10. Exception to Registration. The Company shall not be required to effect ------------------------- a registration under this Agreement if (i) in the written opinion of counsel for the Company, which counsel and the opinion so rendered shall be reasonably acceptable to the Holders of Registrable Securities, such Holders may sell without registration under the Act all Registrable Securities for which they requested registration under the provisions of the Act and in the manner and in the quantity in which the Registrable Securities were proposed to be sold, or (ii) the Company shall have obtained from the Commission a "no-action" letter to that effect; provided that this Section 10 shall not apply to sales made under Rule 144(k) or any successor rule promulgated by the Commission until after the effective date of the Company's initial registration of shares under the -7- Act. Notwithstanding the foregoing, in no event shall the provisions of this Section 10 be construed to preclude a Holder of Registrable Securities from exercising rights under Section 3 for a period of three years after the effective date of the Company's initial registration of shares under the Act. 11. Rule 144 Reporting. With a view to making available the benefits of ------------------ certain rules and regulations of the Commission which may permit the sale of restricted securities (as that term is used in Rule 144 under the Act) to the public without registration, the Company agrees to: (a) make and keep public information available as those terms are understood and defined in Rule 144 under the Act, at all times from and after ninety days following the effective date of the first registration under the Act filed by the Company for an offering of its securities to the general public; (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Act and the Exchange Act at any time after it has become subject to such reporting requirements; an d (c) so long as a Holder owns any restricted securities, furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Act and Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 12. Damages. The Company recognizes and agrees that the Holder of ------- Registrable Securities shall not have an adequate remedy if the Company fails to comply with the provisions of this Agreement, and that damages will not be readily ascertainable, and the Company expressly agrees that in the event of such failure any Holder of Registrable Securities shall be entitled to seek specific performance of the Company's obligations hereunder and that the Company will not oppose an application seeking such specific performance. 13. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to the Investors as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Articles of Organization or By-laws of the Company or any provision of any indenture, agreement or other -8- instrument to which it or any or its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as (A) the enforceability thereof may be limited by bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or other laws of general applicability affecting the enforcement of creditors' or secured parties' rights or debtors' obligations generally, (B) the availability of specific performance or other equitable remedies may be limited by equitable principles of general applicability (whether such matter is considered in a proceeding at law or in equity); and (C) the indemnification and contribution provisions with respect to securities law matters may be limited by applicable securities laws or principles of public policy. 14. Miscellaneous. ------------- (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Registrable Securities), whether or not so expressed. (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by certified or registered mail, return receipt requested, postage prepaid, or telecopied or sent by other facsimile method addressed as follows: If to the Company, any Investor or the Management Shareholders, at the address of such party set forth on Schedule I hereto or the most recent address as is shown on the stock records of the Company; and If to any subsequent Holder of Registrable Securities, to it at such address as may have been furnished to the Company in writing by such Holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a Holder of Registrable Securities) or to the Holders of Registrable Securities (in the case of the Company) in accordance with the provisions of this paragraph. (c) This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to the conflict of laws provisions thereof. (d) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of at least a majority -9- of the outstanding Registrable Securities; provided, however that if any amendment adversely affects the Investors or the Management Shareholders as a class, such amendment shall also require the consent of the Holders of a majority of the Registrable Securities held by such class. (e) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (f) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. * * * * * * * * * * -10- IN WITNESS WHEREOF, this Agreement has been executed as of the date and year first above written. MANAGEMENT SHAREHOLDERS: COMPANY: SUBURBAN OSTOMY SUPPLY CO., INC. /s/ Herbert Gray - ---------------- Herbert Gray By: /s/ Herbert Gray ----------------- /s/ Melvin Aronson Name - ------------------ Title: Melvin Aronson /s/ Donald Benovitz INVESTORS: - ------------------- Donald Benovitz SUMMIT VENTURES III, L.P. /s/ Patrick Bohan By: Summit Partners III, L.P., - ----------------- General Partner Patrick Bohan By: Stamps, Woodsum & Co. III, /s/ Stephen Aschettino General Partner - ---------------------- Stephen Aschettino By: /s/ Martin J. Mannion ---------------------- General Partner SUMMIT INVESTORS II, L.P. By: /s/ Martin J. Mannion ---------------------- Authorized Signatory SUMMIT SUBORDINATED DEBT FUND, L.P. By: Summit Partners SD, L.P. Its General Partner By: /s/ Martin J. Mannion ---------------------- -11- General Partner THE BEAR STEARNS COMPANIES, INC. By: /s/ David Glaser ----------------- Name: Title: -12- Schedule I ---------- Company - ------- Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attention: President Investors - --------- Name and Address - ---------------- Summit Ventures III, L.P. One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey Summit Investors II, L.P. One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey Summit Subordinated Debt Fund, L.P. One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey The Bear Stearns Companies, Inc. 245 Park Avenue New York, NY 10167 Attn: Robert Yedid Management Shareholders - ----------------------- Herbert Gray Melvin Aronson Donald Benovitz Patrick Bohan -13- Stephen Aschettino -14- EX-10.5 9 SUBORDINATED DEBENTURE OF CO. EXHIBIT 10.5 THIS SUBORDINATED DEBENTURE HAS NOT BEEN REGISTERED PURSUANT TO ANY FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN VIOLATION OF ANY FEDERAL OR STATE SECURITIES LAWS. THIS INSTRUMENT IS SUBJECT TO THE SUBORDINATION AGREEMENT DATED AS OF JULY 3, 1995, AMONG THE MAKER, THE PAYEE AND THE FIRST NATIONAL BANK OF BOSTON, WHICH AMONG OTHER THINGS, SUBORDINATES THE MAKER'S OBLIGATIONS HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE MAKER TO THE HOLDERS OF SENIOR OBLIGATIONS AS DEFINED THEREIN. 12% Subordinated Debenture Due June 30, 2000 $6,615,000 Boston, Massachusetts No. R-1 July 3, 1995 FOR VALUE RECEIVED, Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), hereby promises to pay to Summit Subordinated Debt Fund, L.P., or its registered assigns, the sum of Six Million Six Hundred Fifteen Thousand Dollars ($6,615,000) on June 30, 2000, together with interest, computed on the basis of the actual number of days elapsed over a 360-day year, on the unpaid principal balance hereof until paid in full at the rate of twelve percent (12%) per annum from the date hereof, payable in cash quarterly in arrears on the last day of each of March, June, September and December of each year during which any amounts due hereunder remain outstanding, commencing on September 30, 1995, and until such unpaid balance shall become due and payable (whether at maturity or at a date fixed for mandatory or optional redemption or prepayment or by acceleration or otherwise). In addition, in the event the principal amount of the Debenture is not paid when due and payable (whether at stated maturity, by acceleration or otherwise), the interest on such principal amount shall thereafter be increased to fourteen percent (14%) per annum. Any interest not paid when due and payable shall thereafter be paid, on demand by the holder of this Debenture together with a late charge of two percent (2%) of the amount of interest payment due. All payments of principal (including any prepayments or redemptions) and interest hereunder shall be made by the Company in lawful money of the United States of America in immediately available funds not later than 2:00 p.m., Boston time, on the date each such payment is due, by crediting an account in the United States as the holder of this Debenture may designate in writing to the Company before the scheduled payment date. This Debenture is one of a duly authorized issue of Debentures of the Company designated as its "12% Subordinated Debentures due June 30, 2000" (herein called the "Debentures"), in the aggregate principal amount of $6,750,000 and issued under a Debenture Purchase Agreement, dated as of July 3, 1995 (herein called the "Agreement"), among the Company, Summit Subordinated Debt Fund, L.P. and Summit Investors II, L.P. and certain stockholders of the Company to which Agreement and all agreements supplemental thereto reference is hereby made for a statement of the respective rights and duties thereunder of the Company, and the holders of the Debentures, and the terms upon which the Debentures are, and are to be, delivered. The principal of this Debenture is subject to mandatory and optional prepayment, together with accrued interest, all as more particularly set forth in the Agreement. The Company agrees to make such payments of principal on the dates and in the amounts set forth in the Agreement. Notwithstanding anything herein contained to the contrary, the Indebtedness evidenced by the Debenture is, to the extent provided in the Agreement, subordinate and subject in right of payment to the prior payment in full of all Senior Debt as defined in the Agreement, and this Debenture is issued subject to such provisions, and each holder of Debentures, by accepting the same, agrees to and shall be bound by such provisions and agrees to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Agreement. In case an Event of Default, as defined in the Agreement, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Agreement. The Agreement provides that such declaration may in certain events be rescinded or annulled by the holders of a majority in principal amount of the Debentures then outstanding. No reference herein to the Agreement and no provisions of this Debenture or of the Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the times, places, and rates, and in the coin or currency, herein prescribed. As is more fully set forth in the Agreement, this Debenture is transferable by the registered owner hereof, in person or by duly authorized attorney, on the books of the Company to be kept for that purpose, upon surrender and cancellation of this Debenture and upon presentation of a duly executed written instrument of transfer satisfactory to the Company, and thereupon a new Debenture or Debentures, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange therefor; and this Debenture, with or without other Debentures may in like manner be exchanged for one or more new Debentures of other authorized denominations but of the same aggregate principal amount, all subject to the terms and conditions set forth in the Agreement. Any such transfer or exchange shall be without charge by the Company. -2- All terms used in this Debenture which are defined in the Agreement shall have the meanings assigned to them in the Agreement. This Debenture shall be deemed to be a contract made under the laws of The Commonwealth of Massachusetts and shall for all purposes be construed in accordance with the laws of said Commonwealth without giving effect to the conflict-of-laws provisions thereof. IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed as a sealed instrument. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Herbert Grey ----------------- -3- EX-10.6 10 SUBORDINATED DEBENTURE EXHIBIT 10.6 THIS SUBORDINATED DEBENTURE HAS NOT BEEN REGISTERED PURSUANT TO ANY FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN VIOLATION OF ANY FEDERAL OR STATE SECURITIES LAWS. THIS INSTRUMENT IS SUBJECT TO THE SUBORDINATION AGREEMENT DATED AS OF JULY 3, 1995, AMONG THE MAKER, THE PAYEE AND THE FIRST NATIONAL BANK OF BOSTON, WHICH AMONG OTHER THINGS, SUBORDINATES THE MAKER'S OBLIGATIONS HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE MAKER TO THE HOLDERS OF SENIOR OBLIGATIONS AS DEFINED THEREIN. 12% Subordinated Debenture Due June 30, 2000 $135,000 Boston, Massachusetts No. R-2 July 3, 1995 FOR VALUE RECEIVED, Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), hereby promises to pay to Summit Investors II, L.P., or its registered assigns, the sum of One Hundred Thirty-Five Thousand Dollars ($135,000) on June 30, 2000, together with interest, computed on the basis of the actual number of days elapsed over a 360-day year, on the unpaid principal balance hereof until paid in full at the rate of twelve percent (12%) per annum from the date hereof, payable in cash quarterly in arrears on the last day of each of March, June, September and December of each year during which any amounts due hereunder remain outstanding, commencing on September 30, 1995, and until such unpaid balance shall become due and payable (whether at maturity or at a date fixed for mandatory or optional redemption or prepayment or by acceleration or otherwise). In addition, in the event the principal amount of the Debenture is not paid when due and payable (whether at stated maturity, by acceleration or otherwise), the interest on such principal amount shall thereafter be increased to fourteen percent (14%) per annum. Any interest not paid when due and payable shall thereafter be paid, on demand by the holder of this Debenture together with a late charge of two percent (2%) of the amount of interest payment due. All payments of principal (including any prepayments or redemptions) and interest hereunder shall be made by the Company in lawful money of the United States of America in immediately available funds not later than 2:00 p.m., Boston time, on the date each such payment is due, by crediting an account in the United States as the holder of this Debenture may designate in writing to the Company before the scheduled payment date. This Debenture is one of a duly authorized issue of Debentures of the Company designated as its "12% Subordinated Debentures due June 30, 2000" (herein called the "Debentures"), in the aggregate principle amount of $6,750,000 and issued under a Debenture Purchase Agreement, dated as of July 3, 1995 (herein called the "Agreement"), among the Company, Summit Subordinated Debt Fund, L.P. and Summit Investors II, L.P. and certain stockholders of the Company to which Agreement and all agreements supplemental thereto reference is hereby made for a statement of the respective rights and duties thereunder of the Company, and the holders of the Debentures, and the terms upon which the Debentures are, and are to be, delivered. The principal of this Debenture is subject to mandatory and optional prepayment, together with accrued interest, all as more particularly set forth in the Agreement. The Company agrees to make such payments of principal on the dates and in the amounts set forth in the Agreement. Notwithstanding anything herein contained to the contrary, the Indebtedness evidenced by the Debenture is, to the extent provided in the Agreement, subordinate and subject in right of payment to the prior payment in full of all Senior Debt as defined in the Agreement, and this Debenture is issued subject to such provisions, and each holder of Debentures, by accepting the same, agrees to and shall be bound by such provisions and agrees to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Agreement. In case an Event of Default, as defined in the Agreement, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Agreement. The Agreement provides that such declaration may in certain events be rescinded or annulled by the holders of a majority in principal amount of the Debentures then outstanding. No reference herein to the Agreement and no provisions of this Debenture or of the Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the times, places, and rates, and in the coin or currency, herein prescribed. As is more fully set forth in the Agreement, this Debenture is transferable by the registered owner hereof, in person or by duly authorized attorney, on the books of the Company to be kept for that purpose, upon surrender and cancellation of this Debenture and upon presentation of a duly executed written instrument of transfer satisfactory to the Company, and thereupon a new Debenture or Debentures, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange therefor; and this Debenture, with or without other Debentures may in like manner be exchanged for one or more new Debentures of other authorized denominations but of the same aggregate principal amount, all subject to the terms and conditions set forth in the Agreement. Any such transfer or exchange shall be without charge by the Company. -2- All terms used in this Debenture which are defined in the Agreement shall have the meanings assigned to them in the Agreement. This Debenture shall be deemed to be a contract made under the laws of The Commonwealth of Massachusetts and shall for all purposes be construed in accordance with the laws of said Commonwealth without giving effect to the conflict-of-laws provisions thereof. IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed as a sealed instrument. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Herbert Grey ----------------- -3- EX-10.7 11 SUBURBAN OSTOMY STOCK OPTION PLAN EXHIBIT 10.7 Suburban Ostomy Supply Co., Inc. Stock Option Plan 1. Purpose of the Plan. ------------------- This stock option plan (the "Plan") is intended to encourage ownership of the stock of Suburban Ostomy Supply Co., Inc., (the "Company") by employees of the Company and its subsidiaries, to induce qualified personnel to enter and remain in the employ of the Company or its subsidiaries and otherwise to provide additional incentive for optionees to promote the success of its business. 2. Stock Subject to the Plan. ------------------------- (a) The total number of shares of the authorized but unissued or Treasury shares of the common stock, no par value, of the Company ("Common Stock") for which options may be granted under the Plan shall not exceed 44.44 shares (or 4,444 shares after giving effect to a 100 for 1 stock split to be effected by the Company on or about July 3, 1995), subject to adjustment as provided in Section 11 hereof. (b) If an option granted hereunder shall expire or terminate for any reason without having vested fully or having been exercised in full, the unvested and/or unpurchased shares subject thereto shall again be available for subsequent option grants under the Plan. (c) Stock issuable upon exercise of an option granted under the Plan may be subject to such restrictions on transfer, repurchase rights or other restrictions as shall be determined by the Committee. 3. Administration of the Plan. The Plan shall be administered by a -------------------------- committee (the "Committee") consisting of two or more members of the Company's Board of Directors (the "Board"), each of whom shall be, at any time during which the Company has a class of equity securities registered under the Securities Exchange Act of 1934, as amended (the "Act") a "disinterested person" as defined from time to time in Rule 16b-3 promulgated under the Act. The "Committee" may be the Compensation Committee of the Board. At any time during which the Company has a class of equity securities registered under the Act, as to all persons who are members of the Board or officers of the Company within the meaning of Section 16(b) of the Act, the Committee shall from time to time determine to whom options or other rights shall be granted under the Plan, whether options granted shall be incentive stock options or non-qualified stock options, the terms of the options or other rights, and the number of shares which may be granted under options. The Committee shall report to the Board the names of individuals to whom stock or options or other rights are to be granted, the number of shares covered and the terms and conditions of each grant. During any time that the Company does not have a class of equity securities registered under the Act as to all persons, and at any time during which the Company has a class of equity securities registered under the Act as to persons other than members of the Board or officers, the determinations described in this paragraph may be made by the Committee or by the Board, as the Board shall direct in its discretion, and references in the Plan to the Committee shall be understood to refer to the Board in any such case. The grant of options and other rights shall be made by action of the Board at a meeting at which a quorum of its members is present, or by unanimous written consent of all its members. The Board of Directors may from time to time appoint a member or members of the Committee in substitution for or in addition to the member or members then in office and may fill vacancies on the Committee however caused. The Committee shall choose one of its members as Chairman and shall hold meetings at such times and places as it shall deem advisable. A majority of the members of the Committee shall constitute a quorum and any action may be taken by a majority of those present and voting at any meeting. Any action may also be taken without the necessity of a meeting by a written instrument signed by a majority of the Committee. The decision of the Committee as to all questions of interpretation and application of the Plan shall be final, binding and conclusive on all persons. The Committee shall have the authority to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement granted hereunder in the manner and to the extent it shall deem expedient to carry the Plan into effect and shall be the sole and final judge of such expediency. No Committee member shall be liable for any action or determination made in good faith. 4. Type of Options. --------------- Options granted pursuant to the Plan shall be authorized by action of the Committee and may be designated as either incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified options which are not intended to meet the requirements of such Section 422 of the Code, the designation to be in the sole discretion of the Committee. The Plan shall be administered by the Committee in such manner to permit options to qualify as incentive stock options under the Code. The optionee must notify the Company promptly in the event that he sells, transfers, exchanges or otherwise disposes of any shares of Common Stock issued upon exercise of an incentive stock option before the later of (i) the second anniversary of the date of grant of the incentive stock option, and (ii) the first anniversary of the date the shares were issued upon his exercise of the incentive stock option. 5. Eligibility. ----------- -2- Options designated as incentive stock options may be granted only to officers and key employees of the Company or of any subsidiary corporation (herein called "subsidiary" or "subsidiaries"), as defined in Section 424 of the Code and the Treasury Regulations promulgated thereunder (the "Regulations"). Options designated as non-qualified options may be granted to directors, consultants, officers or key employees of the Company or of any of its subsidiaries. In determining the eligibility of an individual to be granted an option, as well as in determining the number of shares to be optioned to any individual, the Committee shall take into account the position and responsibilities of the individual being considered, the nature and value to the Company or its subsidiaries of his or her service and accomplishments, his or her present and potential contribution to the success of the Company or its subsidiaries, and such other factors as the Committee may deem relevant. No option designated as an incentive stock option shall be granted to any employee of the Company or any subsidiary if such employee owns, immediately prior to the grant of an option, stock representing more than ten (10%) of the voting power or more than ten (10%) of the value of all classes of stock of the Company or a parent or a subsidiary, unless the purchase price for the stock under such option shall be at least 110% of its fair market value at the time such option is granted and the option, by its terms, shall not be exercisable more than five years from the date it is granted. In determining the stock ownership under this paragraph, the provisions of Section 424(d) of the Code shall be controlling. In determining the fair market value under this paragraph, the provisions of Section 7 hereof shall apply. 6. Option Agreement. ---------------- Each option shall be evidenced by an option agreement (the "Agreement") in such form as the Committee shall approve from time to time, specifying the number of shares of Common Stock that may be purchased pursuant to the option, the time or times at which the option shall become exercisable, the term of the option and whether such option is intended to be an incentive stock option or a non-qualified stock option, which Agreement shall be duly executed on behalf of the Company and by the optionee to whom such option is granted. Such Agreement shall comply with and be subject to the terms and conditions of the Plan. The Agreement may contain such other terms, provisions and conditions which are not inconsistent with the Plan as may be determined by the Committee, provided that options designated as incentive stock options shall meet all of the conditions for incentive stock options as defined in Section 422 of the Code. The date of grant of an option shall be as determined by the Committee. More than one option may be granted to an individual. 7. Option Price. ------------ The option price or prices of shares of the Company's Common Stock for options designated as non-qualified stock options shall be the fair market value of such Common Stock as determined by the Committee. The option price or prices of shares of the Company's Common -3- Stock for incentive stock options shall be at least 100% of the fair market value of such Common Stock at the time the option is granted as determined by the Committee in accordance with the Regulations promulgated under Section 422 of the Code. If such shares are then listed on any national securities exchange, the fair market value shall be the mean between the high and low sales prices, if any, on the largest such exchange on the business day immediately preceding the date of the grant of the option or, if none, shall be determined by taking a weighted average of the means between the highest and lowest sales prices on the nearest date before and the nearest date after the date of grant in accordance with Treasury Regulations Section 25.2512-2. If the shares are not then listed on any such exchange, the fair market value of such shares shall be the mean between the high and low sales prices, if any, as reported in the Nasdaq National Market ("Nasdaq") for the business day immediately preceding the date of the grant of the option, or, if none, shall be determined by taking a weighted average of the means between the highest and lowest sales on the nearest date before and the nearest date after the date of grant in accordance with Treasury Regulations Section 25.2512-2. If the shares are not then either listed on any such exchange or quoted in Nasdaq, the fair market value shall be the mean between the average of the "Bid" and the average of the "Ask" prices, if any, as reported in the National Daily Quotation Service for the business day immediately preceding the date of the grant of the option, or, if none, shall be determined by taking a weighted average of the means between the highest and lowest sales prices on the nearest date before and the nearest date after the date of grant in accordance with Treasury Regulations Section 25.2512-2. If the fair market value cannot be determined under the preceding three sentences, it shall be determined in good faith by the Committee. 8. Manner of Payment; Manner of Exercise. ------------------------------------- (a) Options granted under the Plan may be exercised by notice to the Company as specified in sub-paragraph (b) below, and payment therefor may be made by (i) delivery of cash or a check payable to the order of the Company in an amount equal to the exercise price of such options, (ii) delivery of certificates registered in the name of the optionee or his personal representative for shares of Common Stock legally and beneficially owned by the optionee, fully vested and free of all liens, claims and encumbrances of every kind and having a fair market value on the date of delivery equal in amount to the exercise price of the options being exercised, such certificates to be duly endorsed, or accompanied by stock powers duly endorsed, by the record holder of the shares represented by such certificates, or (iii) any combination of (i) and (ii), provided, however, that (x) payment of the exercise price pursuant to (ii) above may be made only to the extent such payment does not result in a charge to earnings for financial accounting purposes as determined by the Committee and (y) the optionee may not make payment in shares of Common Stock that he acquired upon the exercise of any incentive stock option, unless he has held the shares until at least two (2) years after the date the incentive stock option was granted and at least one (1) year after the date the incentive stock option was exercised. The fair market value of any shares of the Company's Common Stock which may be delivered upon exercise of an option shall be determined by the Committee in accordance with Section 7 hereof. After the Company has a class of equity securities registered under the Act, payment may also be made by delivery of a properly executed exercise notice to the Company, together with a copy of -4- irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the exercise price. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. (b) To the extent that the right to purchase shares under an option has accrued and is in effect, options may be exercised in full at one time or in part from time to time, by giving written notice, signed by the person or persons exercising the option, to the Clerk or Treasurer of the Company, stating the number of shares with respect to which the option is being exercised, accompanied by payment in full for such shares as provided in subparagraph (a) above. Upon such exercise, delivery of a certificate for paid-up non-assessable shares shall be made at the principal office of the Company to the person or persons exercising the option at such time, during ordinary business hours, as soon as possible and in no event more than ten (10) business days from the date of receipt of the notice by the Company, or at such time, place and manner as may be agreed upon by the Company and the person or persons exercising the option. 9. Term of Options; Exercisability. ------------------------------- (a) Term. ---- (1) Each option shall expire not more than ten (10) years from the date of the granting thereof, but shall be subject to earlier termination as herein provided. (2) Except as otherwise provided in the Agreement, an option granted to any employee optionee who ceases to be an employee of the Company or one of its subsidiaries shall terminate immediately on the date such optionee ceases to be an employee of the Company or one of its subsidiaries, or on the date on which the option expires by its terms, whichever occurs first. (3) The Committee shall have the authority to extend the expiration date of any outstanding option in circumstances in which it deems such action to be appropriate, provided that no such extension shall extend the term of an option beyond the date on which the option would have expired if no termination of the optionee's employment had occurred. (b) Exercisability. -------------- (1) Each option granted under the Plan shall be exercisable at such time or times and during such period as shall be set forth in the Agreement, subject to Section 11 hereof. (2) Except as provided in the Agreement, an option granted to an employee optionee who ceases to be an employee of the Company or one of its subsidiaries shall be exercisable only to the extent that the right to purchase shares under such option has accrued -5- and is in effect on the date such optionee ceases to be an employee of the Company or one of its subsidiaries. (3) Subject to the provisions of Section 11, the Committee shall have the authority to extend, accelerate or change, but not in a manner adverse to the optionee, the vesting of any outstanding option in circumstances in which it deems such action to be appropriate. 10. Transferability. --------------- The right of any optionee to exercise any option granted to him or her shall be assignable or transferable by such optionee to the extent permitted by the Agreement evidencing such option. 11. Recapitalizations, Reorganizations and the Like. ----------------------------------------------- (a) In the event that the outstanding shares of the Common Stock of the Company are changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of any reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, or dividends payable in capital stock, appropriate adjustment shall be made in the number and kind of shares as to which options may be granted under the Plan and as to which outstanding options or portions thereof then unexercised shall be exercisable, to the end that the proportionate interest of the optionee shall be maintained as before the occurrence of such event; such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of such options and with a corresponding adjustment in the option price per share. (b) In addition, in the case of any (i) sale or conveyance to another entity of all or substantially all of the property and assets of the Company, including without limitation by way of merger or consolidation, or (ii) Change in Control (as hereinafter defined) of the Company, the purchaser(s) of the Company's assets or stock may, in his, her or its discretion, deliver to the optionee the same kind of consideration that is delivered to the shareholders of the Company as a result of such sale, conveyance or Change in Control, or the Committee may cancel all outstanding options in exchange for consideration in cash or in kind which consideration in both cases shall be equal in value to the value of those shares of stock or other securities the optionee would have received had the option been exercised (to the extent then exercisable) and no disposition of the shares acquired upon such exercise been made prior to such sale, conveyance or Change in Control, less the option price therefor. Upon receipt of such consideration by the optionee, his or her option shall immediately terminate and be of no further force and effect. The value of the stock or other securities the optionee would have received if the option had been exercised shall be determined in good faith by the Committee of the Company, and in the case of shares of the Common Stock of the Company, in accordance with the provisions of Section 7 hereof. In addition, the exercisability of all options shall accelerate upon such a sale, conveyance or Change in Control. Upon such acceleration, any options or portion thereof originally -6- designated as incentive stock options that no longer qualify as incentive stock options under Section 422 of the Code as a result of such acceleration shall be redesignated as non-qualified stock options. A "Change in Control" shall have the same meaning as "Reorganization" in the Articles of Organization of the Company, as in effect on July 3, 1995, provided that in no event shall a public offering of the Company's Common Stock constitute a Change in Control. (c) Upon dissolution or liquidation of the Company, all options granted under this Plan shall terminate, but each optionee (if at such time in the employ of or otherwise associated with the Company or any of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise his or her option to the extent then exercisable. (d) No fraction of a share shall be purchasable or deliverable upon the exercise of any option, but in the event any adjustment hereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest whole number of shares. 12. No Special Employment Rights. ---------------------------- Nothing contained in the Plan or in any option granted under the Plan shall confer upon any option holder any right with respect to the continuation of his or her employment by the Company (or any subsidiary) or interfere in any way with the right of the Company (or any subsidiary), subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the option holder from the rate in existence at the time of the grant of an option. An authorized leave of absence, or absence in military or government service, shall not constitute termination of employment for purposes of the Plan. 13. Stock Appreciation Rights. ------------------------- The Committee may grant stock appreciation rights ("SARs") in respect of such number of shares of Common Stock as it shall determine, in its discretion, and may grant SARs either separately or in connection with options, as described in the following sentence. An SAR granted in connection with an option may be exercised only to the extent of the surrender of the related option, and to the extent of the exercise of the related option the SAR shall terminate. Shares of Common Stock covered by an option that terminates upon the exercise of a related SAR shall cease to be available under the Plan. The terms and conditions of an SAR related to an option shall be contained in the Agreement, and the terms of an SAR not related to any option shall be contained in an SAR Agreement. 14. Withholding. ----------- -7- The Company's obligation to deliver shares upon the exercise of any option granted under the Plan shall be subject to the option holder's satisfaction of all applicable Federal, state and local income, excise, employment and any other tax withholding requirements. 15. Special Bonus Grants. -------------------- In its discretion, the Committee may grant in connection with any non- qualified stock option a special bonus in an amount not to exceed the lesser of (i) the combined federal, state and local income tax liability incurred by the optionee as a consequence of his acquisition of stock pursuant to the exercise of the non-qualified stock option, or (ii) thirty percent (30%) of the imputed income realized by the optionee on account of such exercise. Any such special bonus shall be payable solely to federal, state and local taxing authorities for the benefit of the optionee at such time or times as withholding payments of income tax may be required. In the event that a non-qualified stock option with respect to which a special bonus has been granted becomes exercisable by the personal representative of the estate of the optionee, the bonus shall be payable to or for the benefit of the estate in the same manner and to the same extent as it would have been payable for the benefit of the optionee had he survived to the date of exercise. A special bonus may be granted simultaneously with a related non-qualified stock option or separately with respect to an outstanding non-qualified stock option granted at an earlier date. 16. Tax Withholding. --------------- To the extent required by law, the Company shall withhold or cause to be withheld income and other taxes with respect to any income recognized by an optionee by reason of the exercise or vesting of an option, and as a condition to the receipt of any option the optionee shall agree that if the amount payable to him by the Company in the ordinary course is insufficient to pay such taxes, then he shall upon the request of the Company pay to the Company an amount sufficient to satisfy its tax withholding obligations. Without limiting the foregoing, the Committee may in its discretion permit any optionee's withholding from the shares to be issued under the option or by accepting delivery from the optionee of shares already owned by him. The fair market value of the shares for such purposes shall be determined as set forth in Section 7. An optionee may not make any such payment in the form of shares of Common Stock acquired upon the exercise of an incentive stock option until the shares have been held by him for at least two (2) years after the date the incentive stock option was granted and at least one (1) year after the date the incentive stock option was exercised. If payment of withholding taxes is made in whole or in part in shares of Common Stock, the optionee shall deliver to the Company certificates registered in his name representing shares of Common Stock legally and beneficially owned by him, fully vested and free of all liens, claims and encumbrances of every kind, duly endorsed or accompanied by stock powers duly endorsed by the record holder of the shares represented by such certificates. 17. Restrictions on Issue of Shares. ------------------------------- -8- (a) Notwithstanding the provisions of Section 8, the Company may delay the issuance of shares covered by the exercise of an option and the delivery of a certificate for such shares until one of the following conditions shall be satisfied: (i) The shares with respect to which such option has been exercised are at the time of the issue of such shares effectively registered or qualified as required under applicable Federal and state securities acts now in force or as hereafter amended; or (ii) Counsel for the Company shall have given an opinion, which opinion shall not be unreasonably delayed, conditioned or withheld, that such shares are exempt from registration and qualification under applicable Federal and state securities acts now in force or as hereafter amended. (b) It is intended that all exercises of options shall be effective, and the Company shall use its best efforts to bring about compliance with the above conditions within a reasonable time, except that the Company shall be under no obligation to qualify shares or to cause a registration statement or a post-effective amendment to any registration statement to be prepared for the purpose of covering the issue of shares in respect of which any option may be exercised, except as otherwise agreed to by the Company in writing. 18. Purchase for Investment; Rights of Holder on Subsequent Registration. -------------------------------------------------------------------- Unless the shares to be issued upon exercise of an option granted under the Plan have been effectively registered under the Securities Act of 1933 (as now in force or hereafter amended, the "Securities Act") the Company shall be under no obligation to issue any shares covered by any option unless the person who exercises such option, in whole or in part, shall give a written representation and undertaking to the Company which is reasonably satisfactory in form and scope to counsel for the Company and upon which, in the opinion of such counsel, the Company may reasonably rely, that he or she is acquiring the shares issued pursuant to such exercise of the option for his or her own account as an investment and not with a view to, or for sale in connection with, the distribution of any such shares, and that he or she will make no transfer of the same except in compliance with any rules and regulations in force at the time of such transfer under the Securities Act, or any other applicable law, and that if shares are issued without such registration, a legend to this effect may be endorsed upon the securities so issued. In the event that the Company shall, nevertheless, deem it necessary or desirable to register under the Securities Act or other applicable statutes any shares with respect to which an option shall have been exercised, or to qualify any such shares for exemption from the Securities Act or other applicable statutes, then the Company may take such action and may require from each optionee such information in writing for use in any registration statement, supplementary registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for such purpose and may require reasonable indemnity to the Company and its officers and directors and controlling persons from such holder against all losses, claims, damages and liabilities arising from such use of the information so furnished and caused by any untrue statement of any material -9- fact therein or caused by the omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. 19. Modification of Outstanding Options. ----------------------------------- The Committee may authorize the amendment of any outstanding option with the consent of the optionee when and subject to such conditions as are deemed to be in the best interests of the Company and in accordance with the purposes of this Plan. 20. Approval of Stockholders. ------------------------ The Plan shall be subject to approval by the vote of stockholders holding at least a majority of the voting stock of the Company present, or represented, and entitled to vote at a duly held stockholders' meeting, or by written consent of the stockholders as provided for under applicable state law, within twelve (12) months after the adoption of the Plan by the Board of Directors and shall take effect as of the date of adoption by the Board of Directors upon such approval. 21. Prior Grant of Options. ---------------------- The Committee may grant options under the Plan prior to such approval, but any such option shall become effective as of the date of grant only upon such approval and, accordingly, no such option may be exercisable prior to such approval. 22. Termination and Amendment. ------------------------- Unless sooner terminated as herein provided, the Plan shall terminate ten (10) years from the date upon which the Plan was duly adopted by the Board. The Board may at any time terminate the Plan or make such modification or amendment thereof as it deems advisable; provided, however, that except as provided in this Section 22, the Board may not, without the approval of the stockholders of the Company obtained in the manner stated in Section 20, increase the maximum number of shares for which options may be granted or change the designation of the class of persons eligible to receive options under the Plan, or make any other change in the Plan which requires stockholder approval under applicable law or regulations, including any approval requirement which is a prerequisite for exemptive relief under Section 20 of the Act. The Committee may grant options to persons subject to Section 16(b) of the Act after an amendment to the Plan by the Board of Directors requiring stockholder approval under Section 20, but any such option shall become effective as of the date of grant only upon such approval and, accordingly, no such option may be exerciseable prior to such approval. 23. Compliance with Rule 16b-3. -------------------------- -10- It is intended that the provisions of the Plan and any option granted thereunder to a person subject to the reporting requirements of Section 16(a) of the Act shall comply in all respects with the terms and conditions of Rule 16b-3 under the Act or any successor provisions. Any agreement granting options to a person so subject shall contain such provisions as are necessary or appropriate to assure such compliance. To the extent that any provision hereof is found not to be in compliance with such Rule, such provision shall be deemed to be modified so as to be in compliance with such Rule, or if such modification is not possible, shall be deemed to be null and void, as it relates to a recipient subject to Section 16(a) of the Act. 24. Reservation of Stock. -------------------- The Company shall at all times during the term of the Plan reserve and keep available such number of shares of stock as will be sufficient to satisfy the requirements of the Plan and shall pay all fees and expenses necessarily incurred by the Company in connection therewith. 25. Limitation of Rights in the Option Shares. ----------------------------------------- An optionee shall not be deemed for any purpose to be a stockholder of the Company with respect to any of the options except to the extent that the option shall have been exercised with respect thereto and, in addition, a certificate shall have been issued theretofore and delivered to the optionee. 26. Notices. ------- Any communication or notice required or permitted to be given under the Plan shall be in writing, and mailed by registered or certified mail or delivered by hand, if to the Company, to its principal place of business, attention: President, and, if to an optionee, to the address as appearing on the records of the Company. -11- EX-10.8 12 STOCK OPTION AGREE HERBERT GREY EXHIBIT 10.8 INCENTIVE STOCK OPTION AGREEMENT SUBURBAN OSTOMY SUPPLY CO., INC. 1995 STOCK OPTION PLAN ---------------------- INCENTIVE STOCK OPTION AGREEMENT with Herbert P. Gray SUBURBAN OSTOMY SUPPLY CO., INC. STOCK OPTION AGREEMENT UNDER 1995 STOCK OPTION PLAN INCENTIVE STOCK OPTION ---------------------------- AGREEMENT entered into this 3rd day of July, 1995 by and between Suburban Ostomy Supply Co., Inc., a Massachusetts corporation with a principal place of business in Holliston, Massachusetts (the "Company"), and the undersigned employee of the Company (or one of its subsidiaries) (the Company and its subsidiaries herein together referred to as the "Company") (the "Employee"). 1. The Company desires to grant the Employee an incentive stock option under the Company's 1995 Stock Option Plan (the "Plan") to acquire shares of the Company's common stock, no par value per share (the "Shares"). 2. Section 6 of the Plan provides that each option is to be evidenced by an option agreement, setting forth the terms and conditions of the option. ACCORDINGLY, in consideration of the premises and of the mutual covenants and agreements contained herein, the Company and the Employee hereby agree as follows: 1. Grant of Option. The Company hereby irrevocably grants under the Plan --------------- and subject to the terms and conditions of the Plan to the Employee an incentive stock option (the "Option") to purchase all or any part of an aggregate of 1,200 Shares on the terms and conditions hereinafter set forth. 2. Purchase Price. The purchase price ("Purchase Price") for the Shares -------------- covered by the Option shall be $125.00 per Share. 3. Exercisability of Option. (a) Except as provided below, the Option ------------------------ shall not be exercisable prior to July 31, 1995. Thereafter, the exercisability of the Option shall vest -2- monthly, and the option shall be exercisable as follows:
Percentage of Cumulative Shares Becoming Percentage On or After the Last Available for Available at Day Of Each Month Exercise each Month End of Year - -------------------- ------------------- ------------ July, 1995 - June, 1996 1.67% 20% July, 1996 - June, 1997 1.67% 40% July, 1997 - June, 1998 1% 52% July, 1998 - June, 1999 1% 64% July, 1999 - June, 2000 1% 76% July, 2000 - June, 2001 1% 88% July, 2001 - June, 2002 1% 100%
4. Term of Options; Exercisability. ------------------------------- (a) Term; Termination. ----------------- (1) The Option shall expire on June 30, 2005, but shall be subject to earlier termination as herein provided. (2) Except as otherwise provided in this Section 4, if the Employee ceases to be an employee of the Company, the Option granted to the Employee hereunder shall terminate immediately on the date such Employee ceases to be an employee of the Company, or on the date on which the Option expires by its terms, whichever occurs first. (3) If such termination of employment is because of dismissal by the Company with "Cause" or by the Employee without "Good Reason" (as such terms are defined in such Employee's employment agreement with the Company), such Option will terminate thirty (30) days after the date the Employee ceases to be an employee of the Company. (4) If such termination of employment is because of termination by the Company without "Cause" or by the Employee for "Good Reason" (as such terms are defined in such Employee's employment agreement with the Company), such option shall terminate ninety (90) days after the date such Employee ceases to be an employee of the Company or one of its subsidiaries. (5) If such termination of employment is because the Employee has become permanently disabled (within the meaning of Section 22(e)(3) of the Internal Revenue -3- Code of 1986, as amended (the "Code")), such Option shall terminate on the first anniversary of the date the Employee ceases to be an employee, or on the date on which the Option expires by its terms, whichever occurs first. (6) In the event of the death of the Employee, the Option granted to such Employee shall terminate on the first anniversary of the date of death, or on the date on which the Option expires by its terms, whichever occurs first. (b) Exercisability on Termination. ----------------------------- (1) Except as provided below, if the Employee ceases to be an employee of the Company, the Option granted to the Employee hereunder shall be exercisable only to the extent that the right to purchase Shares under such Option has accrued and is in effect on the date such Employee ceases to be an employee of the Company. (2) If the Employee ceases to be an employee of the Company because he or she has become permanently disabled, as defined in Section 4(a)(5) above, the Option granted to the Employee hereunder shall be exercisable as to all Shares covered by such Option with respect to which the Option can then be exercised by the Employee or his or her legal representative. (3) In the event of the death of the Employee, the Option granted to such Employee may be exercised as to all Shares covered thereby with respect to which the Option can then be exercised by the estate of such Employee, or by any person or persons who acquired the right to exercise such Option by will or pursuant to the laws of descent and distribution as a result of inheritance or by reason of the death of such Employee. 5. Manner of Exercise of Option. ---------------------------- (a) To the extent that the right to exercise the Option has accrued hereunder and is in effect, the Option may be exercised from time to time in full or in part by giving written notice to the Company stating the number of Shares exercised and accompanied by payment in full of the option price for such Shares. Payment may be made in cash or certified check, or, in accordance with the terms and conditions of Section 8(a) of the Plan, in whole or in part in shares of stock of the Company or as otherwise provided in the Plan. Upon such exercise, delivery of a certificate for paid-up, non-assessable Shares shall be made at the principal office of the Company to the person exercising the Option, not more than ten (10) business days from the date of receipt of the notice by the Company (or at such time, place and manner as may be agreed upon by the Company and the person or persons exercising the Option). (b) The Company shall at all times during the term of the Option reserve and keep available such number of Shares of its common stock as will be sufficient to satisfy the -4- requirements of the Option. The Employee shall not have any of the rights of a stockholder of the Company in respect of the Shares until he or she has duly exercised the Option. 6. Non-Transferability. The right of the Employee to exercise the Option ------------------- shall not be assignable or transferable by the Employee otherwise than by will or pursuant to the laws of descent and distribution, and the Option may be exercised during the lifetime of the Employee only by him or her. The Option shall be null and void and without effect upon the bankruptcy of the Employee or upon any attempted assignment or transfer, except as hereinabove provided, including without limitation any purported assignment, whether voluntary or by operation of law, pledge, hypothecation or other disposition contrary to the provisions hereof, or levy of execution, attachment, trustee process or similar process, whether legal or equitable, upon the Option. 7. (a) Representation Letter and Investment Legend. ------------------------------------------- (i) In the event that for any reason the Shares to be issued upon exercise of the Option shall not be effectively registered under the Securities Act of 1933 (the "1933 Act"), upon any date on which the Option is exercised in whole or in part, the person exercising the Option shall give a written representation to the Company in the form attached hereto as Exhibit 1 and the --------- Company shall place an "investment legend", so-called, as described in Exhibit 1, upon any certificate for the Shares issued by reason of such - --------- exercise. (ii) The Company shall be under no obligation to qualify Shares or to cause a registration statement or a post-effective amendment to any registration statement to be prepared for the purpose of covering the issue of Shares. (b) Holding of Incentive Stock Option Shares; Legend. In order ------------------------------------------------ to enable the Company to determine when it is entitled to a tax deduction upon the disposition of any Shares issued upon exercise of this Option, for the periods during which such a disposition would entitle the Company to such a deduction (generally, a disposition within two years from the date of grant of the option or within one year from the date of exercise of the option will entitle the Company to a deduction), all stock certificates of such Shares shall be held by Optionee in his or her name and not in the name of a broker, nominee or other person or entity, and shall bear a legend reflecting that such Shares were obtained upon exercise of an incentive stock option. The Optionee acknowledges that the Company may send a Form W-2, W-2c or substitute therefor, as appropriate, to the Optionee with respect to any income recognized by the Optionee upon a disposition of the Shares for the periods during which such a disposition would entitle the Company to such a deduction. Nothing in this Section 7(b) shall restrict Optionee from selling, transferring or otherwise disposing of such shares at any time, but only from holding such shares in other than his or her own name. -5- 8. Adjustments and Acceleration on Changes in Re-capitalization, Re- ---------------------------------------------------------------- organization and the Like. Adjustments on recapitalization, reorganization and - ------------------------- the like shall be made in accordance with Section 11 of the Plan, as in effect on the date of this Agreement. 9. No Special Employment Rights. Nothing contained in the Plan or this ---------------------------- Agreement shall be construed or deemed by any person under any circumstances to bind the Company to continue the employment of the Employee for the period within which this Option may be exercised. 10. Withholding Taxes. Whenever Shares are to be issued upon exercise of ----------------- this Option, the Company shall have the right to require the Employee to remit to the Company an amount sufficient to satisfy all Federal, state and local withholding tax requirements prior to issuance of the Shares and the delivery of any certificate or certificates for such Shares. 11. Qualification under Section 422. It is understood and intended that ------------------------------- the Option granted hereunder shall qualify as an "incentive stock option" as defined in Section 422 of the Code. Accordingly, the Employee understands that in order to obtain the benefits of an incentive stock option under Section 421 of the Code, no sale or other disposition may be made of any Shares acquired upon exercise of the Option within the one-year period beginning on the day after the day of the transfer of such Shares to him or her, nor within the two- year period beginning on the day after the grant of the Option. If the Employee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any such Shares within said periods, he or she will notify the Company within thirty (30) days after such disposition. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its corporate seal to be hereto affixed by its officer thereunto duly authorized, and the Employee has hereunto set his or her hand and seal, all as of the day and year first above written. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Donald Benovitz ------------------------------ Title: EMPLOYEE Name: /s/ Herbert Grey ----------------------------- Address:__________________________ __________________________ Social Security No.:_____________________________ -6- EXHIBIT 1 TO STOCK OPTION AGREEMENT --------------- Ladies and Gentlemen: In connection with the exercise by me as to __________ shares of common stock, no par value per share, of Suburban Ostomy Supply Co., Inc. (the "Company") under the incentive stock option dated _______________, granted to me under the 1995 Stock Option Plan, I hereby acknowledge that I have been informed as follows: 1. The shares of common stock of the Company to be issued to me pursuant to the exercise of said option have not been registered under the Securities Act of 1933, as amended (the "Act"), and, accordingly, must be held indefinitely unless such shares are subsequently registered under the Act, or an exemption from such registration is available. 2. Routine sales of securities made in reliance upon Rule 144 under the Act can be made only after the holding period and in limited amounts in accordance with the terms and conditions provided by that Rule, and in any sale to which that Rule is not applicable, registration or compliance with some other exemption under the Act will be required. 3. The Company is under no obligation under the Plan or any Stock Option Agreement to me to register the shares or to comply with any such exemptions under the Act. 4. The availability of Rule 144 is dependent upon adequate current public information with respect to the Company being available and, at the time that I may desire to make a sale pursuant to the Rule, the Company may neither wish nor be able to comply with such requirement. In consideration of the issuance of certificates for the shares to me, I hereby represent and warrant that I am acquiring such shares for my own account for investment, and that I will not sell, pledge or transfer such shares in the absence of an effective registration statement covering the same, except as permitted by the provisions of Rule 144, if applicable, or some other applicable exemption under the Act. In view of this representation and warranty, I agree that there may be affixed to the certificates for the shares to be issued to me, and to all certificates issued hereafter representing such shares (until in the opinion of counsel, which opinion must be reasonably satisfactory in form and substance to counsel for the Company, it is no longer necessary or required) a legend as follows: -7- "The shares of common stock represented by this certificate have not been registered under the Federal Securities Act of 1933, as amended, and were acquired by the registered holder pursuant to a representation and warranty that such holder was acquiring such shares for his own account and for investment, with no intention to transfer or dispose of the same, in violation of the registration requirements of that Act. These shares may not be sold, pledged or transferred in the absence of an effective registration statement under the Securities Act of 1933, as amended, or an opinion of counsel, which opinion is reasonably satisfactory to counsel to the Company, to the effect that registration is not required under said Act. In the event that the shares of common stock represented by this certificate are transferred within the two year period commencing on the date of this certificate, contemporaneous notice of such transfer must be provided to the Company." I further agree that the Company may place a stop order with its Transfer Agent, prohibiting the transfer of such shares, so long as the legend remains on the certificates representing the shares. Very truly yours, -8- EX-10.9 13 STOCK OPTION AGREE DONALD BENOVITZ EXHIBIT 10.9 INCENTIVE STOCK OPTION AGREEMENT SUBURBAN OSTOMY SUPPLY CO., INC. 1995 STOCK OPTION PLAN ---------------------- INCENTIVE STOCK OPTION AGREEMENT with Donald H. Benovitz SUBURBAN OSTOMY SUPPLY CO., INC. STOCK OPTION AGREEMENT UNDER 1995 STOCK OPTION PLAN INCENTIVE STOCK OPTION ---------------------------- AGREEMENT entered into this 3rd day of July, 1995 by and between Suburban Ostomy Supply Co., Inc., a Massachusetts corporation with a principal place of business in Holliston, Massachusetts (the "Company"), and the undersigned employee of the Company (or one of its subsidiaries) (the Company and its subsidiaries herein together referred to as the "Company") (the "Employee"). 1. The Company desires to grant the Employee an incentive stock option under the Company's 1995 Stock Option Plan (the "Plan") to acquire shares of the Company's common stock, no par value per share (the "Shares"). 2. Section 6 of the Plan provides that each option is to be evidenced by an option agreement, setting forth the terms and conditions of the option. ACCORDINGLY, in consideration of the premises and of the mutual covenants and agreements contained herein, the Company and the Employee hereby agree as follows: 1. Grant of Option. The Company hereby irrevocably grants under the Plan --------------- and subject to the terms and conditions of the Plan to the Employee an incentive stock option (the "Option") to purchase all or any part of an aggregate of 800 Shares on the terms and conditions hereinafter set forth. 2. Purchase Price. The purchase price ("Purchase Price") for the Shares -------------- covered by the Option shall be $125.00 per Share. 3. Exercisability of Option. (a) Except as provided below, the Option ------------------------ shall not be exercisable prior to July 31, 1995. Thereafter, the exercisability of the Option shall vest monthly, and the option shall be exercisable as follows:
Percentage of Cumulative Shares Becoming Percentage On or After the Last Available for Available at Day Of Each Month Exercise each Month End of Year -------------------- ------------------- ------------ July, 1995 - June, 1996 1.67% 20%
-2- July, 1996 - June, 1997 1.67% 40% July, 1997 - June, 1998 1% 52% July, 1998 - June, 1999 1% 64% July, 1999 - June, 2000 1% 76% July, 2000 - June, 2001 1% 88% July, 2001 - June, 2002 1% 100%
4. Term of Options; Exercisability. ------------------------------- (a) Term; Termination. ----------------- (1) The Option shall expire on June 30, 2005, but shall be subject to earlier termination as herein provided. (2) Except as otherwise provided in this Section 4, if the Employee ceases to be an employee of the Company, the Option granted to the Employee hereunder shall terminate immediately on the date such Employee ceases to be an employee of the Company, or on the date on which the Option expires by its terms, whichever occurs first. (3) If such termination of employment is because of dismissal by the Company with "Cause" or by the Employee without "Good Reason" (as such terms are defined in such Employee's employment agreement with the Company), such Option will terminate thirty (30) days after the date the Employee ceases to be an employee of the Company. (4) If such termination of employment is because of termination by the Company without "Cause" or by the Employee for "Good Reason" (as such terms are defined in such Employee's employment agreement with the Company), such option shall terminate ninety (90) days after the date such Employee ceases to be an employee of the Company or one of its subsidiaries. (5) If such termination of employment is because the Employee has become permanently disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code")), such Option shall terminate on the first anniversary of the date the Employee ceases to be an employee, or on the date on which the Option expires by its terms, whichever occurs first. (6) In the event of the death of the Employee, the Option granted to such Employee shall terminate on the first anniversary of the date of death, or on the date on which the Option expires by its terms, whichever occurs first. (b) Exercisability on Termination. ----------------------------- -3- (1) Except as provided below, if the Employee ceases to be an employee of the Company, the Option granted to the Employee hereunder shall be exercisable only to the extent that the right to purchase Shares under such Option has accrued and is in effect on the date such Employee ceases to be an employee of the Company. (2) If the Employee ceases to be an employee of the Company because he or she has become permanently disabled, as defined in Section 4(a)(5) above, the Option granted to the Employee hereunder shall be exercisable as to all Shares covered by such Option with respect to which the Option can then be exercised by the Employee or his or her legal representative. (3) In the event of the death of the Employee, the Option granted to such Employee may be exercised as to all Shares covered thereby with respect to which the Option can then be exercised by the estate of such Employee, or by any person or persons who acquired the right to exercise such Option by will or pursuant to the laws of descent and distribution as a result of inheritance or by reason of the death of such Employee. 5. Manner of Exercise of Option. ---------------------------- (a) To the extent that the right to exercise the Option has accrued hereunder and is in effect, the Option may be exercised from time to time in full or in part by giving written notice to the Company stating the number of Shares exercised and accompanied by payment in full of the option price for such Shares. Payment may be made in cash or certified check, or, in accordance with the terms and conditions of Section 8(a) of the Plan, in whole or in part in shares of stock of the Company or as otherwise provided in the Plan. Upon such exercise, delivery of a certificate for paid-up, non-assessable Shares shall be made at the principal office of the Company to the person exercising the Option, not more than ten (10) business days from the date of receipt of the notice by the Company (or at such time, place and manner as may be agreed upon by the Company and the person or persons exercising the Option). (b) The Company shall at all times during the term of the Option reserve and keep available such number of Shares of its common stock as will be sufficient to satisfy the requirements of the Option. The Employee shall not have any of the rights of a stockholder of the Company in respect of the Shares until he or she has duly exercised the Option. 6. Non-Transferability. The right of the Employee to exercise the Option ------------------- shall not be assignable or transferable by the Employee otherwise than by will or pursuant to the laws of descent and distribution, and the Option may be exercised during the lifetime of the Employee only by him or her. The Option shall be null and void and without effect upon the bankruptcy of the Employee or upon any attempted assignment or transfer, except as hereinabove provided, including without limitation any purported assignment, whether voluntary or by operation of law, pledge, hypothecation or other disposition contrary to the provisions hereof, or levy of execution, attachment, trustee process or similar process, whether legal or equitable, upon the Option. -4- 7. (a) Representation Letter and Investment Legend. ------------------------------------------- (i) In the event that for any reason the Shares to be issued upon exercise of the Option shall not be effectively registered under the Securities Act of 1933 (the "1933 Act"), upon any date on which the Option is exercised in whole or in part, the person exercising the Option shall give a written representation to th e Company in the form attached hereto as Exhibit 1 --------- and the Company shall place an "investment legend", so-called, as described in Exhibit 1, upon any certificate for the Shares issued by reason of such - --------- exercise. (ii) The Company shall be under no obligation to qualify Shares or to cause a registration statement or a post-effective amendment to any registration statement to be prepared for the purpose of covering the issue of Shares. (b) Holding of Incentive Stock Option Shares; Legend. In order ------------------------------------------------ to enable the Company to determine when it is entitled to a tax deduction upon the disposition of any Shares issued upon exercise of this Option, for the periods during which such a disposition would entitle the Company to such a deduction (generally, a disposition within two years from the date of grant of the option or within one year from the date of exercise of the option will entitle the Company to a deduction), all stock certificates of such Shares shall be held by Optionee in his or her name and not in the name of a broker, nominee or other person or entity, and shall bear a legend reflecting that such Shares were obtained upon exercise of an incentive stock option. The Optionee acknowledges that the Company may send a Form W-2, W-2c or substitute therefor, as appropriate, to the Optionee with respect to any income recognized by the Optionee upon a disposition of the Shares for the periods during which such a disposition would entitle the Company to such a deduction. Nothing in this Section 7(b) shall restrict Optionee from selling, transferring or otherwise disposing of such shares at any time, but only from holding such shares in other than his or her own name. 8. Adjustments and Acceleration on Changes in Re-capitalization, Re- ---------------------------------------------------------------- organization and the Like. Adjustments on recapitalization, reorganization and - ------------------------- the like shall be made in accordance with Section 11 of the Plan, as in effect on the date of this Agreement. 9. No Special Employment Rights. Nothing contained in the Plan or this ---------------------------- Agreement shall be construed or deemed by any person under any circumstances to bind the Company to continue the employment of the Employee for the period within which this Option may be exercised. 10. Withholding Taxes. Whenever Shares are to be issued upon exercise of ----------------- this Option, the Company shall have the right to require the Employee to remit to the Company an amount sufficient to satisfy all Federal, state and local withholding tax requirements prior to issuance of the Shares and the delivery of any certificate or certificates for such Shares. -5- 11. Qualification under Section 422. It is understood and intended that ------------------------------- the Option granted hereunder shall qualify as an "incentive stock option" as defined in Section 422 of the Code. Accordingly, the Employee understands that in order to obtain the benefits of an incentive stock option under Section 421 of the Code, no sale or other disposition may be made of any Shares acquired upon exercise of the Option within the one-year period beginning on the day after the day of the transfer of such Shares to him or her, nor within the two- year period beginning on the day after the grant of the Option. If the Employee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any such Shares within said periods, he or she will notify the Company within thirty (30) days after such disposition. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its corporate seal to be hereto affixed by its officer thereunto duly authorized, and the Employee has hereunto set his or her hand and seal, all as of the day and year first above written. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Herbert Grey ----------------- Title: EMPLOYEE Name: /s/ Donald Benovitz -------------------- Address:___________ ------------ Social Security No.:_______________ -6- EXHIBIT 1 TO STOCK OPTION AGREEMENT --------------- Ladies and Gentlemen: In connection with the exercise by me as to ________ shares of common stock, no par value per share, of Suburban Ostomy Supply Co., Inc. (the "Company") under the incentive stock option dated __________, granted to me under the 1995 Stock Option Plan, I hereby acknowledge that I have been informed as follows: 1. The shares of common stock of the Company to be issued to me pursuant to the exercise of said option have not been registered under the Securities Act of 1933, as amended (the "Act"), and, accordingly, must be held indefinitely unless such shares are subsequently registered under the Act, or an exemption from such registration is available. 2. Routine sales of securities made in reliance upon Rule 144 under the Act can be made only after the holding period and in limited amounts in accordance with the terms and conditions provided by that Rule, and in any sale to which that Rule is not applicable, registration or compliance with some other exemption under the Act will be required. 3. The Company is under no obligation under the Plan or any Stock Option Agreement to me to register the shares or to comply with any such exemptions under the Act. 4. The availability of Rule 144 is dependent upon adequate current public information with respect to the Company being available and, at the time that I may desire to make a sale pursuant to the Rule, the Company may neither wish nor be able to comply with such requirement. In consideration of the issuance of certificates for the shares to me, I hereby represent and warrant that I am acquiring such shares for my own account for investment, and that I will not sell, pledge or transfer such shares in the absence of an effective registration statement covering the same, except as permitted by the provisions of Rule 144, if applicable, or some other applicable exemption under the Act. In view of this representation and warranty, I agree that there may be affixed to the certificates for the shares to be issued to me, and to all certificates issued hereafter representing such shares (until in the opinion of counsel, which opinion must be reasonably satisfactory in form and substance to counsel for the Company, it is no longer necessary or required) a legend as follows: -7- "The shares of common stock represented by this certificate have not been registered under the Federal Securities Act of 1933, as amended, and were acquired by the registered holder pursuant to a representation and warranty that such holder was acquiring such shares for his own account and for investment, with no intention to transfer or dispose of the same, in violation of the registration requirements of that Act. These shares may not be sold, pledged or transferred in the absence of an effective registration statement under the Securities Act of 1933, as amended, or an opinion of counsel, which opinion is reasonably satisfactory to counsel to the Company, to the effect that registration is not required under said Act. In the event that the shares of common stock represented by this certificate are transferred within the two year period commencing on the date of this certificate, contemporaneous notice of such transfer must be provided to the Company." I further agree that the Company may place a stop order with its Transfer Agent, prohibiting the transfer of such shares, so long as the legend remains on the certificates representing the shares. Very truly yours, -8- EX-10.10 14 STOCK OPTION AGREE STEVEN N ASCHETTINO EXHIBIT 10.10 INCENTIVE STOCK OPTION AGREEMENT SUBURBAN OSTOMY SUPPLY CO., INC. 1995 STOCK OPTION PLAN ---------------------- INCENTIVE STOCK OPTION AGREEMENT with Stephen N. Aschettino SUBURBAN OSTOMY SUPPLY CO., INC. STOCK OPTION AGREEMENT UNDER 1995 STOCK OPTION PLAN INCENTIVE STOCK OPTION ---------------------------- AGREEMENT entered into this 3rd day of July, 1995 by and between Suburban Ostomy Supply Co., Inc., a Massachusetts corporation with a principal place of business in Holliston, Massachusetts (the "Company"), and the undersigned employee of the Company (or one of its subsidiaries) (the Company and its subsidiaries herein together referred to as the "Company") (the "Employee"). 1. The Company desires to grant the Employee an incentive stock option under the Company's 1995 Stock Option Plan (the "Plan") to acquire shares of the Company's common stock, no par value per share (the "Shares"). 2. Section 6 of the Plan provides that each option is to be evidenced by an option agreement, setting forth the terms and conditions of the option. ACCORDINGLY, in consideration of the premises and of the mutual covenants and agreements contained herein, the Company and the Employee hereby agree as follows: 1. Grant of Option. The Company hereby irrevocably grants under the Plan --------------- and subject to the terms and conditions of the Plan to the Employee an incentive stock option (the "Option") to purchase all or any part of an aggregate of 1,000 Shares on the terms and conditions hereinafter set forth. 2. Purchase Price. The purchase price ("Purchase Price") for the Shares -------------- covered by the Option shall be $125.00 per Share. 3. Exercisability of Option. (a) Except as provided below, the Option ------------------------ shall not be exercisable prior to July 31, 1995. Thereafter, the exercisability of the Option shall vest monthly, and the option shall be exercisable as follows: Percentage of Cumulative Shares Becoming Percentage On or After the Last Available for Available at Day Of Each Month Exercise each Month End of Year - -------------------- ------------------- ------------ -2- July, 1995 - June, 1996 1.67% 20% July, 1996 - June, 1997 1.67% 40% July, 1997 - June, 1998 1% 52% July, 1998 - June, 1999 1% 64% July, 1999 - June, 2000 1% 76% July, 2000 - June, 2001 1% 88% July, 2001 - June, 2002 1% 100%
4. Term of Options; Exercisability. ------------------------------- (a) Term; Termination. ----------------- (1) The Option shall expire on June 30, 2005, but shall be subject to earlier termination as herein provided. (2) Except as otherwise provided in this Section 4, if the Employee ceases to be an employee of the Company, the Option granted to the Employee hereunder shall terminate immediately on the date such Employee ceases to be an employee of the Company, or on the date on which the Option expires by its terms, whichever occurs first. (3) If such termination of employment is because of dismissal by the Company with "Cause" or by the Employee without "Good Reason" (as such terms are defined in such Employee's employment agreement with the Company), such Option will terminate thirty (30) days after the date the Employee ceases to be an employee of the Company. (4) If such termination of employment is because of termination by the Company without "Cause" or by the Employee for "Good Reason" (as such terms are defined in such Employee's employment agreement with the Company), such option shall terminate ninety (90) days after the date such Employee ceases to be an employee of the Company or one of its subsidiaries. (5) If such termination of employment is because the Employee has become permanently disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code")), such Option shall terminate on the first anniversary of the date the Employee ceases to be an employee, or on the date on which the Option expires by its terms, whichever occurs first. (6) In the event of the death of the Employee, the Option granted to such Employee shall terminate on the first anniversary of the date of death, or on the date on which the Option expires by its terms, whichever occurs first. (b) Exercisability on Termination. ----------------------------- -3- (1) Except as provided below, if the Employee ceases to be an employee of the Company, the Option granted to the Employee hereunder shall be exercisable only to the extent that the right to purchase Shares under such Option has accrued and is in effect on the date such Employee ceases to be an employee of the Company. (2) If the Employee ceases to be an employee of the Company because he or she has become permanently disabled, as defined in Section 4(a)(5) above, the Option granted to the Employee hereunder shall be exercisable as to all Shares covered by such Option with respect to which the Option can then be exercised by the Employee or his or her legal representative. (3) In the event of the death of the Employee, the Option granted to such Employee may be exercised as to all Shares covered thereby with respect to which the Option can then be exercised by the estate of such Employee, or by any person or persons who acquired the right to exercise such Option by will or pursuant to the laws of descent and distribution as a result of inheritance or by reason of the death of such Employee. 5. Manner of Exercise of Option. ---------------------------- (a) To the extent that the right to exercise the Option has accrued hereunder and is in effect, the Option may be exercised from time to time in full or in part by giving written notice to the Company stating the number of Shares exercised and accompanied by payment in full of the option price for such Shares. Payment may be made in cash or certified check, or, in accordance with the terms and conditions of Section 8(a) of the Plan, in whole or in part in shares of stock of the Company or as otherwise provided in the Plan. Upon such exercise, delivery of a certificate for paid-up, non-assessable Shares shall be made at the principal office of the Company to the person exercising the Option, not more than ten (10) business days from the date of receipt of the notice by the Company (or at such time, place and manner as may be agreed upon by the Company and the person or persons exercising the Option). (b) The Company shall at all times during the term of the Option reserve and keep available such number of Shares of its common stock as will be sufficient to satisfy the requirements of the Option. The Employee shall not have any of the rights of a stockholder of the Company in respect of the Shares until he or she has duly exercised the Option. 6. Non-Transferability. The right of the Employee to exercise the Option ------------------- shall not be assignable or transferable by the Employee otherwise than by will or pursuant to the laws of descent and distribution, and the Option may be exercised during the lifetime of the Employee only by him or her. The Option shall be null and void and without effect upon the bankruptcy of the Employee or upon any attempted assignment or transfer, except as hereinabove provided, including without limitation any purported assignment, whether voluntary or by operation of law, pledge, hypothecation or other disposition contrary to the -4- provisions hereof, or levy of execution, attachment, trustee process or similar process, whether legal or equitable, upon the Option. 7. (a) Representation Letter and Investment Legend. ------------------------------------------- (i) In the event that for any reason the Shares to be issued upon exercise of the Option shall not be effectively registered under the Securities Act of 1933 (the "1933 Act"), upon any date on which the Option is exercised in whole or in part, the person exercising the Option shall give a written representation to the Company in the form attached hereto as Exhibit 1 and the --------- Company shall place an "investment legend", so-called, as described in Exhibit 1, upon any certificate for the Shares issued by reason of such - --------- exercise. (ii) The Company shall be under no obligation to qualify Shares or to cause a registration statement or a post-effective amendment to any registration statement to be prepared for the purpose of covering the issue of Shares. (b) Holding of Incentive Stock Option Shares; Legend. In order ------------------------------------------------ to enable the Company to determine when it is entitled to a tax deduction upon the disposition of any Shares issued upon exercise of this Option, for the periods during which such a disposition would entitle the Company to such a deduction (generally, a disposition within two years from the date of grant of the option or within one year from the date of exercise of the option will entitle the Company to a deduction), all stock certificates of such Shares shall be held by Optionee in his or her name and not in the name of a broker, nominee or other person or entity, and shall bear a legend reflecting that such Shares were obtained upon exercise of an incentive stock option. The Optionee acknowledges that the Company may send a Form W-2, W-2c or substitute therefor, as appropriate, to the Optionee with respect to any income recognized by the Optionee upon a disposition of the Shares for the periods during which such a disposition would entitle the Company to such a deduction. Nothing in this Section 7(b) shall restrict Optionee from selling, transferring or otherwise disposing of such shares at any time, but only from holding such shares in other than his or her own name. 8. Adjustments and Acceleration on Changes in Re-capitalization, Re- ---------------------------------------------------------------- organization and the Like. Adjustments on recapitalization, reorganization and - ------------------------- the like shall be made in accordance with Section 11 of the Plan, as in effect on the date of this Agreement. 9. No Special Employment Rights. Nothing contained in the Plan or this ---------------------------- Agreement shall be construed or deemed by any person under any circumstances to bind the Company to continue the employment of the Employee for the period within which this Option may be exercised. 10. Withholding Taxes. Whenever Shares are to be issued upon exercise of ----------------- this Option, the Company shall have the right to require the Employee to remit to the Company an -5- amount sufficient to satisfy all Federal, state and local withholding tax requirements prior to issuance of the Shares and the delivery of any certificate or certificates for such Shares. 11. Qualification under Section 422. It is understood and intended that ------------------------------- the Option granted hereunder shall qualify as an "incentive stock option" as defined in Section 422 of the Code. Accordingly, the Employee understands that in order to obtain the benefits of an incentive stock option under Section 421 of the Code, no sale or other disposition may be made of any Shares acquired upon exercise of the Option within the one-year period beginning on the day after the day of the transfer of such Shares to him or her, nor within the two- year period beginning on the day after the grant of the Option. If the Employee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any such Shares within said periods, he or she will notify the Company within thirty (30) days after such disposition. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its corporate seal to be hereto affixed by its officer thereunto duly authorized, and the Employee has hereunto set his or her hand and seal, all as of the day and year first above written. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Herbert Grey ----------------- Title: EMPLOYEE Name: /s/ Stephen Aschettino ----------------------- Address:_____________ _______________ Social Security No.:_________________ -6- EXHIBIT 1 TO STOCK OPTION AGREEMENT ---------------- Ladies and Gentlemen: In connection with the exercise by me as to __________ shares of common stock, no par value per share, of Suburban Ostomy Supply Co., Inc. (the "Company") under the incentive stock option dated _____________, granted to me under the 1995 Stock Option Plan, I hereby acknowledge that I have been informed as follows: 1. The shares of common stock of the Company to be issued to me pursuant to the exercise of said option have not been registered under the Securities Act of 1933, as amended (the "Act"), and, accordingly, must be held indefinitely unless such shares are subsequently registered under the Act, or an exemption from such registration is available. 2. Routine sales of securities made in reliance upon Rule 144 under the Act can be made only after the holding period and in limited amounts in accordance with the terms and conditions provided by that Rule, and in any sale to which that Rule is not applicable, registration or compliance with some other exemption under the Act will be required. 3. The Company is under no obligation under the Plan or any Stock Option Agreement to me to register the shares or to comply with any such exemptions under the Act. 4. The availability of Rule 144 is dependent upon adequate current public information with respect to the Company being available and, at the time that I may desire to make a sale pursuant to the Rule, the Company may neither wish nor be able to comply with such requirement. In consideration of the issuance of certificates for the shares to me, I hereby represent and warrant that I am acquiring such shares for my own account for investment, and that I will not sell, pledge or transfer such shares in the absence of an effective registration statement covering the same, except as permitted by the provisions of Rule 144, if applicable, or some other applicable exemption under the Act. In view of this representation and warranty, I agree that there may be affixed to the certificates for the shares to be issued to me, and to all certificates issued hereafter representing such shares (until in the opinion of counsel, which opinion must be reasonably satisfactory in form and substance to counsel for the Company, it is no longer necessary or required) a legend as follows: -7- "The shares of common stock represented by this certificate have not been registered under the Federal Securities Act of 1933, as amended, and were acquired by the registered holder pursuant to a representation and warranty that such holder was acquiring such shares for his own account and for investment, with no intention to transfer or dispose of the same, in violation of the registration requirements of that Act. These shares may not be sold, pledged or transferred in the absence of an effective registration statement under the Securities Act of 1933, as amended, or an opinion of counsel, which opinion is reasonably satisfactory to counsel to the Company, to the effect that registration is not required under said Act. In the event that the shares of common stock represented by this certificate are transferred within the two year period commencing on the date of this certificate, contemporaneous notice of such transfer must be provided to the Company." I further agree that the Company may place a stop order with its Transfer Agent, prohibiting the transfer of such shares, so long as the legend remains on the certificates representing the shares. Very truly yours, -8- EX-10.11 15 STOCK OPTION AGREE, JOHN MANOS EXHIBIT 10.11 INCENTIVE STOCK OPTION AGREEMENT SUBURBAN OSTOMY SUPPLY CO., INC. 1995 STOCK OPTION PLAN ---------------------- INCENTIVE STOCK OPTION AGREEMENT with John Manos SUBURBAN OSTOMY SUPPLY CO., INC. STOCK OPTION AGREEMENT UNDER 1995 STOCK OPTION PLAN INCENTIVE STOCK OPTION ---------------------------- AGREEMENT entered into this 3rd day of July, 1995 by and between Suburban Ostomy Supply Co., Inc., a Massachusetts corporation with a principal place of business in Holliston, Massachusetts (the "Company"), and the undersigned employee of the Company (or one of its subsidiaries) (the Company and its subsidiaries herein together referred to as the "Company") (the "Employee"). 1. The Company desires to grant the Employee an incentive stock option under the Company's 1995 Stock Option Plan (the "Plan") to acquire shares of the Company's common stock, no par value per share (the "Shares"). 2. Section 6 of the Plan provides that each option is to be evidenced by an option agreement, setting forth the terms and conditions of the option. ACCORDINGLY, in consideration of the premises and of the mutual covenants and agreements contained herein, the Company and the Employee hereby agree as follows: 1. Grant of Option. The Company hereby irrevocably grants under the Plan --------------- and subject to the terms and conditions of the Plan to the Employee an incentive stock option (the "Option") to purchase all or any part of an aggregate of 1,000 Shares on the terms and conditions hereinafter set forth. 2. Purchase Price. The purchase price ("Purchase Price") for the Shares -------------- covered by the Option shall be $125.00 per Share. 3. Exercisability of Option. (a) Except as provided below, the Option ------------------------ shall not be exercisable prior to July 31, 1995. Thereafter, the exercisability of the Option shall vest monthly, and the option shall be exercisable as follows:
Percentage of Cumulative Shares Becoming Percentage On or After the Last Available for Available at Day Of Each Month Exercise each Month End of Year - --------------------- ------------------- ------------ July, 1995 - June, 1996 1.67% 20% July, 1996 - June, 1997 1.67% 40%
-2- July, 1997 - June, 1998 1% 52% July, 1998 - June, 1999 1% 64% July, 1999 - June, 2000 1% 76% July, 2000 - June, 2001 1% 88% July, 2001 - June, 2002 1% 100%
4. Term of Options; Exercisability. ------------------------------- (a) Term; Termination. ----------------- (1) The Option shall expire on June 30, 2005, but shall be subject to earlier termination as herein provided. (2) Except as otherwise provided in this Section 4, if the Employee ceases to be an employee of the Company, the Option granted to the Employee hereunder shall terminate immediately on the date such Employee ceases to be an employee of the Company, or on the date on which the Option expires by its terms, whichever occurs first. (3) If such termination of employment is because of dismissal by the Company with "Cause" or by the Employee without "Good Reason" (as such terms are defined in such Employee's employment agreement with the Company), such Option will terminate thirty (30) days after the date the Employee ceases to be an employee of the Company. (4) If such termination of employment is because of termination by the Company without "Cause" or by the Employee for "Good Reason" (as such terms are defined in such Employee's employment agreement with the Company), such option shall terminate ninety (90) days after the date such Employee ceases to be an employee of the Company or one of its subsidiaries. (5) If such termination of employment is because the Employee has become permanently disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code")), such Option shall terminate on the first anniversary of the date the Employee ceases to be an employee, or on the date on which the Option expires by its terms, whichever occurs first. (6) In the event of the death of the Employee, the Option granted to such Employee shall terminate on the first anniversary of the date of death, or on the date on which the Option expires by its terms, whichever occurs first. (b) Exercisability on Termination. ----------------------------- -3- (1) Except as provided below, if the Employee ceases to be an employee of the Company, the Option granted to the Employee hereunder shall be exercisable only to the extent that the right to purchase Shares under such Option has accrued and is in effect on the date such Employee ceases to be an employee of the Company. (2) If the Employee ceases to be an employee of the Company because he or she has become permanently disabled, as defined in Section 4(a)(5) above, the Option granted to the Employee hereunder shall be exercisable as to all Shares covered by such Option with respect to which the Option can then be exercised by the Employee or his or her legal representative. (3) In the event of the death of the Employee, the Option granted to such Employee may be exercised as to all Shares covered thereby with respect to which the Option can then be exercised by the estate of such Employee, or by any person or persons who acquired the right to exercise such Option by will or pursuant to the laws of descent and distribution as a result of inheritance or by reason of the death of such Employee. 5. Manner of Exercise of Option. ---------------------------- (a) To the extent that the right to exercise the Option has accrued hereunder and is in effect, the Option may be exercised from time to time in full or in part by giving written notice to the Company stating the number of Shares exercised and accompanied by payment in full of the option price for such Shares. Payment may be made in cash or certified check, or, in accordance with the terms and conditions of Section 8(a) of the Plan, in whole or in part in shares of stock of the Company or as otherwise provided in the Plan. Upon such exercise, delivery of a certificate for paid-up, non-assessable Shares shall be made at the principal office of the Company to the person exercising the Option, not more than ten (10) business days from the date of receipt of the notice by the Company (or at such time, place and manner as may be agreed upon by the Company and the person or persons exercising the Option). (b) The Company shall at all times during the term of the Option reserve and keep available such number of Shares of its common stock as will be sufficient to satisfy the requirements of the Option. The Employee shall not have any of the rights of a stockholder of the Company in respect of the Shares until he or she has duly exercised the Option. 6. Non-Transferability. The right of the Employee to exercise the Option ------------------- shall not be assignable or transferable by the Employee otherwise than by will or pursuant to the laws of descent and distribution, and the Option may be exercised during the lifetime of the Employee only by him or her. The Option shall be null and void and without effect upon the bankruptcy of the Employee or upon any attempted assignment or transfer, except as hereinabove provided, including without limitation any purported assignment, whether voluntary or by operation of law, pledge, hypothecation or other disposition contrary to the -4- provisions hereof, or levy of execution, attachment, trustee process or similar process, whether legal or equitable, upon the Option. 7. (a) Representation Letter and Investment Legend. ------------------------------------------- (i) In the event that for any reason the Shares to be issued upon exercise of the Option shall not be effectively registered under the Securities Act of 1933 (the "1933 Act"), upon any date on which the Option is exercised in whole or in part, the person exercising the Option shall give a written representation to the Company in the form attached hereto as Exhibit 1 --------- and the Company shall place an "investment legend", so-called, as described in Exhibit 1, upon any certificate for the Shares issued by reason of such - --------- exercise. (ii) The Company shall be under no obligation to qualify Shares or to cause a registration statement or a post-effective amendment to any registration statement to be prepared for the purpose of covering the issue of Shares. (b) Holding of Incentive Stock Option Shares; Legend. In order ------------------------------------------------ to enable the Company to determine when it is entitled to a tax deduction upon the disposition of any Shares issued upon exercise of this Option, for the periods during which such a disposition would entitle the Company to such a deduction (generally, a disposition within two years from the date of grant of the option or within one year from the date of exercise of the option will entitle the Company to a deduction), all stock certificates of such Shares shall be held by Optionee in his or her name and not in the name of a broker, nominee or other person or entity, and shall bear a legend reflecting that such Shares were obtained upon exercise of an incentive stock option. The Optionee acknowledges that the Company may send a Form W-2, W-2c or substitute therefor, as appropriate, to the Optionee with respect to any income recognized by the Optionee upon a disposition of the Shares for the periods during which such a disposition would entitle the Company to such a deduction. Nothing in this Section 7(b) shall restrict Optionee from selling, transferring or otherwise disposing of such shares at any time, but only from holding such shares in other than his or her own name. 8. Adjustments and Acceleration on Changes in Re-capitalization, Re- ---------------------------------------------------------------- organization and the Like. Adjustments on recapitalization, reorganization and - ------------------------- the like shall be made in accordance with Section 11 of the Plan, as in effect on the date of this Agreement. 9. No Special Employment Rights. Nothing contained in the Plan or this ---------------------------- Agreement shall be construed or deemed by any person under any circumstances to bind the Company to continue the employment of the Employee for the period within which this Option may be exercised. 10. Withholding Taxes. Whenever Shares are to be issued upon exercise of ----------------- this Option, the Company shall have the right to require the Employee to remit to the Company an -5- amount sufficient to satisfy all Federal, state and local withholding tax requirements prior to issuance of the Shares and the delivery of any certificate or certificates for such Shares. 11. Qualification under Section 422. It is understood and intended that ------------------------------- the Option granted hereunder shall qualify as an "incentive stock option" as defined in Section 422 of the Code. Accordingly, the Employee understands that in order to obtain the benefits of an incentive stock option under Section 421 of the Code, no sale or other disposition may be made of any Shares acquired upon exercise of the Option within the one-year period beginning on the day after the day of the transfer of such Shares to him or her, nor within the two- year period beginning on the day after the grant of the Option. If the Employee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any such Shares within said periods, he or she will notify the Company within thirty (30) days after such disposition. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its corporate seal to be hereto affixed by its officer thereunto duly authorized, and the Employee has hereunto set his or her hand and seal, all as of the day and year first above written. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Herbert Grey ----------------- Title: EMPLOYEE Name: /s/ John Manos --------------- Address: ------------ ----------- Social Security No.: ---------------- -6- EXHIBIT 1 TO STOCK OPTION AGREEMENT --------------- Ladies and Gentlemen: In connection with the exercise by me as to _______shares of common stock, no par value per share, of Suburban Ostomy Supply Co., Inc. (the "Company") under the incentive stock option dated _________, granted to me under the 1995 Stock Option Plan, I hereby acknowledge that I have been informed as follows: 1. The shares of common stock of the Company to be issued to me pursuant to the exercise of said option have not been registered under the Securities Act of 1933, as amended (the "Act"), and, accordingly, must be held indefinitely unless such shares are subsequently registered under the Act, or an exemption from such registration is available. 2. Routine sales of securities made in reliance upon Rule 144 under the Act can be made only after the holding period and in limited amounts in accordance with the terms and conditions provided by that Rule, and in any sale to which that Rule is not applicable, registration or compliance with some other exemption under the Act will be required. 3. The Company is under no obligation under the Plan or any Stock Option Agreement to me to register the shares or to comply with any such exemptions under the Act. 4. The availability of Rule 144 is dependent upon adequate current public information with respect to the Company being available and, at the time that I may desire to make a sale pursuant to the Rule, the Company may neither wish nor be able to comply with such requirement. In consideration of the issuance of certificates for the shares to me, I hereby represent and warrant that I am acquiring such shares for my own account for investment, and that I will not sell, pledge or transfer such shares in the absence of an effective registration statement covering the same, except as permitted by the provisions of Rule 144, if applicable, or some other applicable exemption under the Act. In view of this representation and warranty, I agree that there may be affixed to the certificates for the shares to be issued to me, and to all certificates issued hereafter representing such shares (until in the opinion of counsel, which opinion must be reasonably satisfactory in form and substance to counsel for the Company, it is no longer necessary or required) a legend as follows: -7- "The shares of common stock represented by this certificate have not been registered under the Federal Securities Act of 1933, as amended, and were acquired by the registered holder pursuant to a representation and warranty that such holder was acquiring such shares for his own account and for investment, with no intention to transfer or dispose of the same, in violation of the registration requirements of that Act. These shares may not be sold, pledged or transferred in the absence of an effective registration statement under the Securities Act of 1933, as amended, or an opinion of counsel, which opinion is reasonably satisfactory to counsel to the Company, to the effect that registration is not required under said Act. In the event that the shares of common stock represented by this certificate are transferred within the two year period commencing on the date of this certificate, contemporaneous notice of such transfer must be provided to the Company." I further agree that the Company may place a stop order with its Transfer Agent, prohibiting the transfer of such shares, so long as the legend remains on the certificates representing the shares. Very truly yours, -8- EX-10.12 16 EMPLOYMENT AGREE, HERBERT GREY EXHIBIT 10.12 EMPLOYMENT AGREEMENT -------------------- This Agreement is made as of the 3rd day of July, 1995 between Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), and Herbert P. Gray, an individual residing at 300 Boylston Street, Apt. 5-10, The Heritage, Boston, Massachusetts 02116 (the "Employee"). RECITALS -------- WHEREAS, pursuant to a Stock Purchase and Redemption Agreement dated as of July 3, 1995 (the "Purchase Agreement"), Summit Ventures III, L.P., Summit Investors II, L.P., Summit Subordinated Debt Fund, L.P. and The Bear Stearns Companies, Inc. (collectively, the "Investors") have agreed to purchase an aggregate of 66,500 shares of Series A Redeemable Preferred Stock, par value $.01 per share, of the Company, 280 shares of Common Stock (before giving effect to the stock dividend described in the Purchase Agreement), no par value per share, of the Company and $6,750,000 in aggregate principal amount of 12% Subordinated Debentures of the Company (collectively, the "Securities"); WHEREAS, pursuant to the terms of the Purchase Agreement, the Company will apply the proceeds received upon the sale of the Securities to redeem a portion of the shares of Common Stock held by the Employee; and WHEREAS, the Investors would be unwilling to purchase the Securities and the Company would be unwilling to redeem and the Employee would be unwilling to permit the redemption of the shares of Common Stock held by the Employee without the execution of this Agreement by the Employee and the Company. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as the Chairman ---------- of the Board and Chief Executive Officer of the Company, and the Employee accepts such employment for the term of employment specified in Section 3 below (the "Employment Term"). During the Employment Term, the Employee shall, subject to the direction of the Board of Directors of the Company, be responsible for the general charge and supervision of the business, property and affairs of the Company, and shall perform such other duties, consistent with his position as the Chairman of the Board and Chief Executive Officer of the Company as may from time to time be reasonably assigned to him by the Board of Directors. The Employee shall not, however, be required to change his principal residence or to spend extended periods of time away from his principal residence without his consent, which consent may be withheld in his sole and absolute discretion. -1- 2. Performance. The Employee agrees to devote his reasonable business ----------- efforts and substantially the same amount of his business time as heretofore devoted to the performance of his duties hereunder during the Employment Term. 3. Employment Term. The Employment Term shall begin on the date of this --------------- Agreement and continue until July 1, 2000 (the "Employment Term"), unless earlier terminated in accordance with the terms of this Agreement. At the end of the Employment Term, the period of employment will be automatically renewed for a further twelve (12) month term, and subsequently renewed for twelve (12) months periods upon each anniversary date thereof, unless written notice to the contrary is given by either party to the other at least ninety (90) days before the end of the Employment Term or any renewal thereof. 4. Compensation. ------------ (a) Salary. During the Employment Term, the Company shall pay the ------ Employee a base salary, payable in equal monthly installments, subject to withholding and other applicable taxes, at an annual rate of One Hundred Fifty Thousand Dollars ($150,000). The annual base salary shall be increased annually on each July 1, during the Employment Term by an amount equal to the greater of (i) such amount, if any, as the Compensation Committee of the Company shall determine, and (ii) the percentage increase in the cost of living for the twelve months ending immediately prior to such July 1, as reflected in the All Items Consumer Price Index for all Urban Consumers for the Boston, MA Primary Metropolitan Statistical Area as published by the United States Bureau of Labor Statistics, multiplied by the annual base salary then in effect. (b) Bonus. The Employee shall be eligible to participate in a bonus ----- plan of the Company pursuant to which he may be entitled to receive an annual bonus equal to a specified percentage of the annual base salary then in effect, subject to achieving specified financial targets. The actual amount of such bonus and the financial targets for the payment thereof shall be determined by the Compensation Committee of the Board of Directors of the Company as it may from time to time deem appropriate. (c) Insurance; Other Benefits. The Employee shall be entitled to ------------------------- medical, retirement, life insurance and disability insurance not less favorable to the Employee than those which he currently receives as an employee of the Company. In addition, the Employee shall be entitled to participate in all employee benefit plans now existing or hereinafter established by the Company, including, but not limited to, medical plans, group life and disability insurance plans, profit sharing or bonus plans, and any other employee benefit plan or arrangement made available to executive officers of the Company, but only to the extent such plans provide benefits greater than those currently received by the Employee. (d) Automobile. In recognition of the necessity of the use of an ---------- automobile for the efficient and expeditious performance of the Employee's duties and obligations on -2- behalf of the Company, the Company, at its cost, shall supply to the Employee for such use an automobile of such make and model and upon such terms and conditions as the Board shall determine from time to time. In addition, the Company shall pay for the insurance and maintenance of such automobile. (e) Vacation. The Employee shall be entitled to take the same -------- number of weeks of paid vacation during each year of the Employment Term as heretofore taken, consistent with the Company's past employment practices with regard to the Employee, to be taken at such time or times during such year as shall be mutually convenient and consistent with his duties and obligations to the Company. The Employee may not accrue more than an aggregate of 50% vacation days, and such accrual may not be for more than one year. The Employee shall also be entitled to all paid holidays given by the Company to its personnel similarly situated. 5. Expenses. The Employee shall be reimbursed by the Company for all -------- reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with policies established by the Board of Directors from time to time and upon receipt of appropriate documentation. 6. Agreement Not to Compete. In consideration of the distributions ------------------------ payable to the Employee under the Purchase Agreement in connection with the partial redemption of the shares of Common Stock held by him, the Employee agrees that during the Non-Competition Period (defined below) he will not in any capacity, either separately, jointly, or in association with others, directly or indirectly, as an officer, director, consultant, agent, employee, owner, partner, stockholder or otherwise, engage or have a financial interest in any business which competes with the business of the Company of wholesale distribution of health and medical products (as such business is modified from time to time prior to any termination of employment) in the United States (excepting only the ownership of not more than 5% of the outstanding securities of any class listed on an exchange or regularly traded in the over-the-counter market). The parties agree that the Employee may during the Non-Competition Period work for a manufacturer of health and medical products. The "Non- Competition Period" shall mean the longer of (i) the period during which the Employee is employed pursuant to this Agreement and, to the extent applicable, the following: (a) Upon termination of the Employment Term or any renewal thereof: twelve (12) months from such expiration. (b) Upon termination by the Company with Cause: twenty-four (24) months from such termination; (c) Upon termination by the Company without Cause: so long as the Company is making payments pursuant to the provisions of Section 9(b); -3- (d) Upon termination by the Company on account of disability: twelve (12) months from such termination; (e) Upon termination by the Employee without Good Reason: twenty-four (24) months from such termination; and (f) Upon termination by the Employee with Good Reason: so long as the Company is making payments pursuant to the provisions of Section 9(b). The Employee further agrees that during the Non-Competition Period, except in connection with the performance of services hereunder, he will not in any capacity, either separately, jointly or in association with others, directly or indirectly, hire or solicit for hire any person who was an employee of the Company at any time during the two years immediately preceding termination of employment hereunder. If a court determines that the foregoing restrictions are too broad or otherwise unreasonable under applicable law, including with respect to time or space, the court is hereby requested and authorized by the parties hereto to revise the foregoing restrictions to include the maximum restrictions allowed under the applicable law. The Employee expressly agrees that breach of the foregoing would result in irreparable injuries to the Company, that the remedy at law for any such breach will be inadequate and that upon breach of this provision, the Company, in addition to all other available remedies, shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction without the necessity of proving the actual damage to the Company. 7. Secret Processes and Confidential Information. For the Employment --------------------------------------------- Term and thereafter, (a) the Employee will not divulge (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company of any such order), directly or indirectly, other than in the regular and proper course of business of the Company, any Confidential Information (as defined below) and (b) the Employee will not use, directly or indirectly, any Confidential Information for the benefit of anyone other than the Company. For purposes of this Agreement, "Confidential Information" means any information which is proprietary or unique to the Company, including information with respect to the operations or finances of the Company or with respect to confidential or secret processes, techniques, machinery, customers, plans or products manufactured or sold by the Company. Notwithstanding the foregoing, Confidential Information shall not include information (i) that is of public knowledge at the time of disclosure to Employee, (ii) that becomes generally available to the public other than as a result of disclosure by Employee, (iii) that is rightfully received by the Employee from a third party on a nonconfidential basis, or (iv) that is unrelated to the products then being developed, manufactured or sold by the Company and is developed by Employee independently and is not derived from Confidential Information. All new processes, techniques, know-how, inventions, plans, products, patents and devices (collectively, "Developments") developed, made or invented by the Employee, alone or with -4- others, while an employee of the Company, shall be and become the sole property of the Company, unless released in writing by the Company or unless such Developments do not result from tasks assigned to the Employee by the Company and do not relate to the business of the Company or any of its products or services, and the Employee hereby assigns any and all rights therein or thereto to the Company. 8. Termination. ----------- (a) Termination at End of Term. The employment of the Employee -------------------------- hereunder shall automatically renew at the end of the Employment Term, unless terminated in accordance with the provisions of Section 3 or unless the parties hereto mutually agree otherwise in writing at least sixty (60) days prior to expiration of the Employment Term, or the Agreement is earlier terminated by the Company or the Employee pursuant to this Section 8. (b) Termination by the Company With Cause. The Company shall have ------------------------------------- the right, subject to the provisions hereinafter set forth, at any time to terminate the Employee's employment hereunder upon the occurrence of any of the following (any such termination being referred to as a termination for "Cause"): (i) the commission by the Employee of any embezzlement or other deliberate act of dishonesty against the financial or business interests of the Company; (ii) the habitual drug addiction or intoxication of the Employee; (iii) the conviction by the Employee of or the pleading by the Employee of nolo contendere to, a felony or breach of fiduciary trust for the ---- ---------- purpose of gaining a personal profit; (iv) the willful or intentional failure or refusal of the Employee to perform the duties specified in and pursuant to Section 1 hereof or to follow reasonable directives of the Board of Directors of the Company which failure or refusal is not cured within thirty (30) days following Employee's receipt of notice from the Company specifying in reasonable detail such failure or refusal; (v) the breach by the Employee of any material term of this Agreement which breach is not cured within thirty (30) days following Employee's receipt of notice from the Company specifying in reasonable detail such breach. (c) Termination Upon Death or Disability. The Employee's ------------------------------------ employment hereunder shall automatically terminate upon the Employee's death or upon his inability to -5- have performed his duties hereunder by reason of any mental, physical or other disability for a period of at least six consecutive months, as determined by a qualified physician chosen by the Board of Directors of the Company and reasonably acceptable to the Employee or his legal representatives. (d) Termination by the Company Without Cause. The Company shall ---------------------------------------- have the right to terminate the Employee's employment at any time for any reason without Cause. (e) Termination for Good Reason. The Employee shall have the --------------------------- right to terminate his employment with the Company for "Good Reason" upon written notice to the Company. The Employee's termination for Good Reason hereunder shall be treated for purposes of this Agreement, including without limitation Section 6 and 9(b), as if the Employee were terminated without Cause pursuant to Section 8(d) above. For purposes of this Agreement, "Good Reason" shall mean: (i) without the Employee's consent, the assignment to him during the Employment Term of any material duties or responsibilities substantially inconsistent with his position and duties and responsibilities with the Company as set forth herein, or a material change in his reporting responsibilities, titles or authority as set forth herein, which assignment, change or inconsistency is not cured by the Company within thirty (30) days following its receipt of notice from the Employee specifying in reasonable detail such assignment, change or inconsistency; or (ii) the Company's breach of any material terms of this Agreement, which breach is not cured by the Company within thirty (30) days following its receipt of notice from the Employee specifying in reasonable detail the breach. 9. Effect of Termination of Employment. ----------------------------------- (a) Upon Expiration of Employment Term. If the Employee's employment ---------------------------------- terminates upon expiration of the Employment Term or any renewal thereof upon notice given in accordance with Section 3, the Employee will receive salary, bonus and vacation accrued through the date of termination, but shall be entitled to no further benefits hereunder. (b) With Cause; Resignation Without Good Reason. If the Employee's ------------------------------------------- employment is terminated with Cause pursuant to Section 8(b) or if the Employee elects to terminate his employment other than pursuant to Section 8(e), the Employee's salary, bonus and other benefits specified in Section 4 shall cease at the time of such termination. The Employee shall be entitled only to receive accrued salary and vacation through the date of termination, but shall be entitled to no further benefits hereunder. (c) Without Cause by the Company. If the Employee's employment is ---------------------------- terminated by the Company without Cause pursuant to Section 8(d) including for such purposes termination by the Employee for Good Reason pursuant to Section 8(e), the Employee's salary, bonus and other benefits specified in Sections 4 shall cease at the time of such termination, and the Employee shall be entitled to receive (i) his base salary then payable under Section 4(a) above, subject, however, to the C.P.I. adjustment therein provided for -6- subsequent payments ("Salary Payment") for a period of twelve (12) months following termination; provided, however that if such termination occurs during the first year of the Employment Term such Salary Payment shall continue for the balance of such first year and for the twelve months commencing upon expiration of such first year; and provided further, however, that the Company may, at its option, extend for up to twelve (12) months the period during which Salary Payments are otherwise required to be made; (ii) accrued salary and vacation through the date of termination; (iii) continuation at the Company's expense of comparable medical benefits during the period during which Salary Payments are made; and (iv) payment of such pro rata bonus, if any, as was earned in the --- ---- year in which termination occurred. The term "pro rata bonus" shall mean the bonus which the Employee would have received had he remained employee for the entire year in which his employment was terminated (calculated on an annualized basis on results of operations as of the end of the month immediately preceding his termination, without taking into account results of operations after the end of such month) times a fraction, the numerator of which is the number of days the Employee was employed in the year of termination, and the denominator of which is 365. Any pro rata bonus earned will be paid when other bonuses are paid --- ---- for the year in which termination occurs. The Employee shall not be required to mitigate the amount of any Salary Payment provided for in this Section 9(b) by seeking other employment or otherwise. The Salary Payment (as previously described in this Section 9(b)) shall be the Employee's sole and exclusive severance payment and remedy at law or in equity for termination of employment hereunder by the Company without Cause or by Employee for Good Reason. (d) Medical Benefits. Notwithstanding the foregoing, in the case of ---------------- any termination of employment of the Employee, the Employee shall be entitled to continue to participate in the Company's medical benefit plans to the extent required by law. 10. Insurance. The Company may purchase insurance on the life of the --------- Employee, and if it does so, the Employee shall cooperate fully by performing all the requirements of the life insurer which are necessary conditions precedent to the issuance of the life insurance policy issued by it. 11. Notice. Any notices required or permitted hereunder shall be in ------ writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses or such other address as to which notice is given in the manner provided herein: If to the Employee: Herbert P. Gray 300 Boylston Street, Apt. 5-10 The Heritage Boston, MA 02116 -7- If to the Company: Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attention: President With copies to: Summit Partners III, L.P. One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey; Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra; and Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Norman A. Bikales 12. General. ------- (a) Governing Law. The terms of this Agreement shall be governed by ------------- and construed under the laws of The Commonwealth of Massachusetts without regard to its principles of conflicts of laws. (b) Assignability. The Employee may not assign his interest in or ------------- delegate his duties under this Agreement. Except in the case of a sale of all or substantially all of the stock or assets of the Company, the Company may not assign the Agreement or the rights and obligations hereunder without consent of Employee. (c) Enforcement Costs. In the event that either the Company or the ----------------- Employee initiates an action or claim to enforce any provision or term of this Agreement, the costs and expenses (including reasonable attorney's fees and expenses) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principle claims. -8- (d) Binding Effect. This Agreement shall be binding upon and inure -------------- to the benefit of the Company, its permitted successors and assigns and the Employee, his representatives and heirs. (e) Entire Agreement; Modification. This Agreement constitutes the ------------------------------ entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, -------- this Agreement shall continue for so long as any obligations remain under this Agreement. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Donald Benovitz -------------------- Name: Title: EMPLOYEE /s/ Herbert Gray ---------------- Herbert P. Gray -9- EX-10.13 17 EMPLOYMENT AGREE,DONALD BENOVITZ EXHIBIT 10.13 EMPLOYMENT AGREEMENT -------------------- This Agreement is made as of the 3rd day of July, 1995 between Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), and Donald H. Benovitz, an individual residing at One Everett Terrace, South Natick, Massachusetts 01760 (the "Employee"). RECITALS -------- WHEREAS, pursuant to a Stock Purchase and Redemption Agreement dated as of July 3, 1995 (the "Purchase Agreement"), Summit Ventures III, L.P., Summit Investors II, L.P., Summit Subordinated Debt Fund, L.P. and The Bear Stearns Companies, Inc. (collectively, the "Investors") have agreed to purchase an aggregate of 66,500 shares of Series A Redeemable Preferred Stock, par value $.01 per share, of the Company, 280 shares of Common Stock (before giving effect to the stock dividend described in the Purchase Agreement), no par value per share, of the Company and $6,750,000 in aggregate principal amount of 12% Subordinated Debentures of the Company (collectively, the "Securities"); WHEREAS, pursuant to the terms of the Purchase Agreement, the Company will apply the proceeds received upon the sale of the Securities to redeem a portion of the shares of Common Stock held by the Employee; and WHEREAS, the Investors would be unwilling to purchase the Securities and the Company would be unwilling to redeem and the Employee would be unwilling to permit the redemption of the shares of Common Stock held by the Employee without the execution of this Agreement by the Employee and the Company. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as the President ---------- and Chief Operating Officer of the Company, and the Employee accepts such employment for the term of employment specified in Section 3 below (the "Employment Term"). During the Employment Term, the Employee shall, subject to the direction of the Board of Directors of the Company, be responsible for the day to day operations of the Company, supervise all Vice Presidents and other employees of the Company and perform such other duties, consistent with his position as the President and Chief Operating Officer of the Company, as may from time to time be reasonably assigned to him by the Board of Directors. The Employee shall not, however, be required to change his principal residence or to spend extended periods of time away from his principal residence without his consent, which consent may be withheld in his sole and absolute discretion. -1- 2. Performance. The Employee agrees to devote his reasonable business ----------- efforts and substantially all of his business time to the performance of his duties hereunder during the Employment Term. 3. Employment Term. The Employment Term shall begin on the date of this --------------- Agreement and continue until July 1, 2000 (the "Employment Term"), unless earlier terminated in accordance with the terms of this Agreement. At the end of the Employment Term, the period of employment will be automatically renewed for a further twelve (12) month term, and subsequently renewed for twelve (12) months periods upon each anniversary date thereof, unless written notice to the contrary is given by either party to the other at least ninety (90) days before the end of the Employment Term or any renewal thereof. 4. Compensation. ------------ (a) Salary. During the Employment Term, the Company shall pay the ------ Employee a base salary, payable in equal monthly installments, subject to withholding and other applicable taxes, at an annual rate of One Hundred Ninety- Five Thousand Dollars ($195,000). The annual base salary shall be increased annually on each July 1, during the Employment Term by an amount equal to the greater of (i) such amount, if any, as the Compensation Committee of the Company shall determine, and (ii) the percentage increase in the cost of living for the twelve months ending immediately prior to such July 1, as reflected in the All Items Consumer Price Index for all Urban Consumers for the Boston, MA Primary Metropolitan Statistical Area as published by the United States Bureau of Labor Statistics, multiplied by the annual base salary then in effect. (b) Bonus. The Employee shall be eligible to participate in a bonus ----- plan of the Company pursuant to which he may be entitled to receive an annual bonus equal to a specified percentage of the annual base salary then in effect, subject to achieving specified financial targets. The actual amount of such bonus and the financial targets for the payment thereof shall be determined by the Compensation Committee of the Board of Directors of the Company as it may from time to time deem appropriate. (c) Insurance; Other Benefits. The Employee shall be entitled to ------------------------- medical, retirement, life insurance and disability insurance not less favorable to the Employee than those which he currently receives as an employee of the Company. In addition, the Employee shall be entitled to participate in all employee benefit plans now existing or hereinafter established by the Company, including, but not limited to, medical plans, group life and disability insurance plans, profit sharing or bonus plans, and any other employee benefit plan or arrangement made available to executive officers of the Company, but only to the extent such plans provide benefits greater than those currently received by the Employee. (d) Vacation. The Employee shall be entitled to take five weeks of -------- paid vacation during each year of the Employment Term, consistent with the Company's past -2- employment practices with regard to the Employee, to be taken at such time or times during such year as shall be mutually convenient and consistent with his duties and obligations to the Company. The Employee may not accrue more than an aggregate of 50% vacation days, and such accrual may not be for more than one year. The Employee shall also be entitled to all paid holidays given by the Company to its personnel similarly situated. 5. Expenses. The Employee shall be reimbursed by the Company for all -------- reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with policies established by the Board of Directors from time to time and upon receipt of appropriate documentation. 6. Agreement Not to Compete. In consideration of the distributions ------------------------ payable to the Employee under the Purchase Agreement in connection with the partial redemption of the shares of Common Stock held by him, the Employee agrees that during the Non-Competition Period (defined below) he will not in any capacity, either separately, jointly, or in association with others, directly or indirectly, as an officer, director, consultant, agent, employee, owner, partner, stockholder or otherwise, engage or have a financial interest in any business which competes with the business of the Company of wholesale distribution of health and medical products (as such business is modified from time to time prior to any termination of employment) in the United States (excepting only the ownership of not more than 5% of the outstanding securities of any class listed on an exchange or regularly traded in the over-the-counter market). The parties agree that the Employee may during the Non-Competition Period work for a manufacturer of health and medical products. The "Non- Competition Period" shall mean the longer of (i) the period during which the Employee is employed pursuant to this Agreement and, to the extent applicable, the following: (a) Upon termination of the Employment Term or any renewal thereof: twelve (12) months from such expiration. (b) Upon termination by the Company with Cause: twenty-four (24) months from such termination; (c) Upon termination by the Company without Cause: so long as the Company is making payments pursuant to the provisions of Section 9(b); (d) Upon termination by the Company on account of disability: twelve (12) months from such termination; (e) Upon termination by the Employee without Good Reason: twenty- four (24) months from such termination; and (f) Upon termination by the Employee with Good Reason: so long as the Company is making payments pursuant to the provisions of Section 9(b). -3- The Employee further agrees that during the Non-Competition Period, except in connection with the performance of services hereunder, he will not in any capacity, either separately, jointly or in association with others, directly or indirectly, hire or solicit for hire any person who was an employee of the Company at any time during the two years immediately preceding termination of employment hereunder. If a court determines that the foregoing restrictions are too broad or otherwise unreasonable under applicable law, including with respect to time or space, the court is hereby requested and authorized by the parties hereto to revise the foregoing restrictions to include the maximum restrictions allowed under the applicable law. The Employee expressly agrees that breach of the foregoing would result in irreparable injuries to the Company, that the remedy at law for any such breach will be inadequate and that upon breach of this provision, the Company, in addition to all other available remedies, shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction without the necessity of proving the actual damage to the Company. 7. Secret Processes and Confidential Information. For the Employment --------------------------------------------- Term and thereafter, (a) the Employee will not divulge (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company of any such order), directly or indirectly, other than in the regular and proper course of business of the Company, any Confidential Information (as defined below) and (b) the Employee will not use, directly or indirectly, any Confidential Information for the benefit of anyone other than the Company. For purposes of this Agreement, "Confidential Information" means any information which is proprietary or unique to the Company, including information with respect to the operations or finances of the Company or with respect to confidential or secret processes, techniques, machinery, customers, plans or products manufactured or sold by the Company. Notwithstanding the foregoing, Confidential Information shall not include information (i) that is of public knowledge at the time of disclosure to Employee, (ii) that becomes generally available to the public other than as a result of disclosure by Employee, (iii) that is rightfully received by the Employee from a third party on a nonconfidential basis, or (iv) that is unrelated to the products then being developed, manufactured or sold by the Company and is developed by Employee independently and is not derived from Confidential Information. All new processes, techniques, know-how, inventions, plans, products, patents and devices (collectively, "Developments") developed, made or invented by the Employee, alone or with others, while an employee of the Company, shall be and become the sole property of the Company, unless released in writing by the Company or unless such Developments do not result from tasks assigned to the Employee by the Company and do not relate to the business of the Company or any of its products or services, and the Employee hereby assigns any and all rights therein or thereto to the Company. 8. Termination. ----------- -4- (a) Termination at End of Term. The employment of the Employee -------------------------- hereunder shall automatically renew at the end of the Employment Term, unless terminated in accordance with the provisions of Section 3 or unless the parties hereto mutually agree otherwise in writing at least sixty (60) days prior to expiration of the Employment Term, or the Agreement is earlier terminated by the Company or the Employee pursuant to this Section 8. (b) Termination by the Company With Cause. The Company shall have ------------------------------------- the right, subject to the provisions hereinafter set forth, at any time to terminate the Employee's employment hereunder upon the occurrence of any of the following (any such termination being referred to as a termination for "Cause"): (i) the commission by the Employee of any embezzlement or other deliberate act of dishonesty against the financial or business interests of the Company; (ii) the habitual drug addiction or intoxication of the Employee; (iii) the conviction by the Employee of or the pleading by the Employee of nolo contendere to, a felony or breach of fiduciary trust for the purpose of gaining a personal profit; (iii) the conviction by the Employee of or the pleading by the Employee of nolo contendere to, a felony or breach of fiduciary trust ---- ---------- for the purpose of gaining a personal profit; (iv) the willful or intentional failure or refusal of the Employee to perform the duties specified in and pursuant to Section 1 hereof or to follow reasonable directives of the Board of Directors of the Company which failure or refusal is not cured within thirty (30) days following Employee's receipt of notice from the Company specifying in reasonable detail such failure or refusal; (v) the breach by the Employee of any material term of this Agreement which breach is not cured within thirty (30) days following Employee's receipt of notice from the Company specifying in reasonable detail such breach. (c) Termination Upon Death or Disability. The Employee's employment ------------------------------------ hereunder shall automatically terminate upon the Employee's death or upon his inability to have performed his duties hereunder by reason of any mental, physical or other disability for a period of at least six consecutive months, as determined by a qualified physician chosen by the Board of Directors of the Company and reasonably acceptable to the Employee or his legal representatives. (d) Termination by the Company Without Cause. The Company shall ---------------------------------------- have the right to terminate the Employee's employment at any time for any reason without Cause. (e) Termination for Good Reason. The Employee shall have the right --------------------------- to terminate his employment with the Company for "Good Reason" upon written notice to the -5- Company. The Employee's termination for Good Reason hereunder shall be treated for purposes of this Agreement, including without limitation Section 6 and 9(b), as if the Employee were terminated without Cause pursuant to Section 8(d) above. For purposes of this Agreement, "Good Reason" shall mean: (i) without the Employee's consent, the assignment to him during the Employment Term of any material duties or responsibilities substantially inconsistent with his position and duties and responsibilities with the Company as set forth herein, or a material change in his reporting responsibilities, titles or authority as set forth herein, which assignment, change or inconsistency is not cured by the Company within thirty (30) days following its receipt of notice from the Employee specifying in reasonable detail such assignment, change or inconsistency; or (ii) the Company's breach of any material terms of this Agreement, which breach is not cured by the Company within thirty (30) days following its receipt of notice from the Employee specifying in reasonable detail the breach. 9. Effect of Termination of Employment. ----------------------------------- (a) Upon Expiration of Employment Term. If the Employee's ---------------------------------- employment terminates upon expiration of the Employment Term or any renewal thereof upon notice given in accordance with Section 3, the Employee will receive salary, bonus and vacation accrued through the date of termination, but shall be entitled to no further benefits hereunder. (b) With Cause; Resignation Without Good Reason. If the Employee's ------------------------------------------- employment is terminated with Cause pursuant to Section 8(b) or if the Employee elects to terminate his employment other than pursuant to Section 8(e), the Employee's salary, bonus and other benefits specified in Section 4 shall cease at the time of such termination. The Employee shall be entitled only to receive accrued salary and vacation through the date of termination, but shall be entitled to no further benefits hereunder. (c) Without Cause by the Company. If the Employee's employment is ---------------------------- terminated by the Company without Cause pursuant to Section 8(d) including for such purposes termination by the Employee for Good Reason pursuant to Section 8(e), the Employee's salary, bonus and other benefits specified in Sections 4 shall cease at the time of such termination, and the Employee shall be entitled to receive (i) his base salary then payable under Section 4(a) above, subject, however, to the C.P.I. adjustment therein provided for subsequent payments ("Salary Payment") for a period of twelve (12) months following termination; provided, however that if such termination occurs during the first year of the Employment Term such Salary Payment shall continue for the balance of such first year and for the twelve months commencing upon expiration of such first year; and provided further, however, that the Company may, at its option, extend for up to twelve (12) months the period during which Salary Payments are otherwise required to be made; (ii) accrued salary and vacation through the date of termination; (iii) continuation at the Company's expense of comparable medical benefits during the period during which Salary Payments are made; and (iv) payment of such pro rata bonus, if any, as was earned in the year in which --- ---- termination occurred. The term "pro rata bonus" shall mean the bonus which the Employee would have received had he remained employee for the entire year in -6- which his employment was terminated (calculated on an annualized basis on results of operations as of the end of the month immediately preceding his termination, without taking into account results of operations after the end of such month) times a fraction, the numerator of which is the number of days the Employee was employed in the year of termination, and the denominator of which is 365. Any pro rata bonus earned will be paid when other bonuses are paid for --- ---- the year in which termination occurs. The Employee shall not be required to mitigate the amount of any Salary Payment provided for in this Section 9(b) by seeking other employment or otherwise. The Salary Payment (as previously described in this Section 9(b)) shall be the Employee's sole and exclusive severance payment and remedy at law or in equity for termination of employment hereunder by the Company without Cause or by Employee for Good Reason. (d) Medical Benefits. Notwithstanding the foregoing, in the case of ---------------- any termination of employment of the Employee, the Employee shall be entitled to continue to participate in the Company's medical benefit plans to the extent required by law. 10. Insurance. The Company may purchase insurance on the life of the --------- Employee, and if it does so, the Employee shall cooperate fully by performing all the requirements of the life insurer which are necessary conditions precedent to the issuance of the life insurance policy issued by it. 11. Notice. Any notices required or permitted hereunder shall be in ------ writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses or such other address as to which notice is given in the manner provided herein: If to the Employee: Patrick Bohan 10 Massapoag Avenue Sharon, Massachusetts 02067 If to the Company: Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attention: President With copies to: Summit Partners III, L.P. One Boston Place -7- Boston, MA 02108 Attn: Joseph F. Trustey; Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra; and Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Norman A. Bikales 12. General. ------- (a) Governing Law. The terms of this Agreement shall be governed by ------------- and construed under the laws of The Commonwealth of Massachusetts without regard to its principles of conflicts of laws. (b) Assignability. The Employee may not assign his interest in or ------------- delegate his duties under this Agreement. Except in the case of a sale of all or substantially all of the stock or assets of the Company, the Company may not assign the Agreement or the rights and obligations hereunder without consent of Employee. (c) Enforcement Costs. In the event that either the Company or the ----------------- Employee initiates an action or claim to enforce any provision or term of this Agreement, the costs and expenses (including reasonable attorney's fees and expenses) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principle claims. (d) Binding Effect. This Agreement shall be binding upon and -------------- inure to the benefit of the Company, its permitted successors and assigns and the Employee, his representatives and heirs. (e) Entire Agreement; Modification. This Agreement constitutes the ------------------------------ entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, -------- this Agreement shall continue for so long as any obligations remain under this Agreement. -8- IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Herbert Grey ----------------- Name: Title: EMPLOYEE /s/ Patrick Bohan ----------------- Patrick Bohan -9- EX-10.14 18 EMPLOYMENT AGREE,STEVEN ASCHETTINO EXHIBIT 10.14 EMPLOYMENT AGREEMENT -------------------- This Agreement is made as of the 3rd day of July, 1995 between Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), and Stephen N. Aschettino, an individual residing at 48 Pelham Island Road, Sudbury, Massachusetts 01776 (the "Employee"). RECITALS -------- WHEREAS, pursuant to a Stock Purchase and Redemption Agreement dated as of July 3, 1995 (the "Purchase Agreement"), Summit Ventures III, L.P., Summit Investors II, L.P., Summit Subordinated Debt Fund, L.P. and The Bear Stearns Companies, Inc. (collectively, the "Investors") have agreed to purchase an aggregate of 66,500 shares of Series A Redeemable Preferred Stock, par value $.01 per share, of the Company, 280 shares of Common Stock (before giving effect to the stock dividend described in the Purchase Agreement), no par value per share, of the Company and $6,750,000 in aggregate principal amount of 12% Subordinated Debentures of the Company (collectively, the "Securities"); WHEREAS, pursuant to the terms of the Purchase Agreement, the Company will apply the proceeds received upon the sale of the Securities to redeem a portion of the shares of Common Stock held by the Employee; and WHEREAS, the Investors would be unwilling to purchase the Securities and the Company would be unwilling to redeem and the Employee would be unwilling to permit the redemption of the shares of Common Stock held by the Employee without the execution of this Agreement by the Employee and the Company. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as the Vice ---------- President, Chief Financial Officer, Treasurer and Clerk of the Company, and the Employee accepts such employment for the term of employment specified in Section 3 below (the "Employment Term"). During the Employment Term, the Employee shall, subject to the direction of the President of the Company, be responsible for all financial, treasury and accounting functions and procedures of the Company, and shall perform such other duties, consistent with his position as Vice President, Chief Financial Officer, Treasurer and Clerk of the Company as may from time to time be reasonably assigned to him by the President of the Corporation. The Employee shall not, however, be required to change his principal residence or to spend extended periods of time away from his principal residence without his consent, which consent may be withheld in his sole and absolute discretion. -1- 2. Performance. The Employee agrees to devote his reasonable business ----------- efforts and substantially all of his business time to the performance of his duties hereunder during the Employment Term. 3. Employment Term. The Employment Term shall begin on the date of this --------------- Agreement and continue until July 1, 2000 (the "Employment Term"), unless earlier terminated in accordance with the terms of this Agreement. At the end of the Employment Term, the period of employment will be automatically renewed for a further twelve (12) month term, and subsequently renewed for twelve (12) months periods upon each anniversary date thereof, unless written notice to the contrary is given by either party to the other at least ninety (90) days before the end of the Employment Term or any renewal thereof. 4. Compensation. ------------ (a) Salary. During the Employment Term, the Company shall pay the ------ Employee a base salary, payable in equal monthly installments, subject to withholding and other applicable taxes, at an annual rate of One Hundred Fifteen Thousand Dollars ($115,000). The annual base salary shall be increased annually on each July 1, during the Employment Term by an amount equal to the greater of (i) such amount, if any, as the Compensation Committee of the Company shall determine, and (ii) the percentage increase in the cost of living for the twelve months ending immediately prior to such July 1, as reflected in the All Items Consumer Price Index for all Urban Consumers for the Boston, MA Primary Metropolitan Statistical Area as published by the United States Bureau of Labor Statistics, multiplied by the annual base salary then in effect. (b) Bonus. The Employee shall be eligible to participate in a bonus ----- plan of the Company pursuant to which he may be entitled to receive an annual bonus equal to a specified percentage of the annual base salary then in effect, subject to achieving specified financial targets. The actual amount of such bonus and the financial targets for the payment thereof shall be determined by the Compensation Committee of the Board of Directors as it may from time to time deem appropriate. (c) Insurance; Other Benefits. The Employee shall be entitled to ------------------------- medical, retirement, life insurance and disability insurance not less favorable to the Employee than those which he currently receives as an employee of the Company. In addition, the Employee shall be entitled to participate in all employee benefit plans now existing or hereinafter established by the Company, including, but not limited to, medical plans, group life and disability insurance plans, profit sharing or bonus plans, and any other employee benefit plan or arrangement made available to executive officers of the Company, but only to the extent such plans provide benefits greater than those currently received by the Employee. (d) Automobile. In recognition of the necessity of the use of an ---------- automobile for the efficient and expeditious performance of the Employee's duties and obligations on behalf of -2- the Company, the Company, at its cost, shall supply to the Employee for such use an automobile of such make and model and upon such terms and conditions as the Board shall determine from time to time. In addition, the Company shall pay for the insurance and maintenance of such automobile. (e) Vacation. The Employee shall be entitled to take four weeks of -------- paid vacation during each year of the Employment Term, consistent with the Company's past employment practices with regard to the Employee, to be taken at such time or times during such year as shall be mutually convenient and consistent with his duties and obligations to the Company. The Employee may not accrue more than an aggregate of 50% vacation days, and such accrual may not be for more than one year. The Employee shall also be entitled to all paid holidays given by the Company to its personnel similarly situated. 5. Expenses. The Employee shall be reimbursed by the Company for all -------- reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with policies established by the Board of Directors from time to time and upon receipt of appropriate documentation. 6. Agreement Not to Compete. In consideration of the distributions ------------------------ payable to the Employee under the Purchase Agreement in connection with the partial redemption of the shares of Common Stock held by him, the Employee agrees that during the Non-Competition Period (defined below) he will not in any capacity, either separately, jointly, or in association with others, directly or indirectly, as an officer, director, consultant, agent, employee, owner, partner, stockholder or otherwise, engage or have a financial interest in any business which competes with the business of the Company of wholesale distribution of health and medical products (as such business is modified from time to time prior to any termination of employment) in the United States (excepting only the ownership of not more than 5% of the outstanding securities of any class listed on an exchange or regularly traded in the over-the-counter market). The parties agree that the Employee may during the Non-Competition Period work for a manufacturer of health and medical products. The "Non- Competition Period" shall mean the longer of (i) the period during which the Employee is employed pursuant to this Agreement and, to the extent applicable, the following: (a) Upon termination of the Employment Term or any renewal thereof: twelve (12) months from such expiration. (b) Upon termination by the Company with Cause: twenty-four (24) months from such termination; (c) Upon termination by the Company without Cause: so long as the Company is making payments pursuant to the provisions of Section 9(b); -3- (d) Upon termination by the Company on account of disability: twelve (12) months from such termination; (e) Upon termination by the Employee without Good Reason: twenty-four (24) months from such termination; and (f) Upon termination by the Employee with Good Reason: so long as the Company is making payments pursuant to the provisions of Section 9(b). The Employee further agrees that during the Non-Competition Period, except in connection with the performance of services hereunder, he will not in any capacity, either separately, jointly or in association with others, directly or indirectly, hire or solicit for hire any person who was an employee of the Company at any time during the two years immediately preceding termination of employment hereunder. If a court determines that the foregoing restrictions are too broad or otherwise unreasonable under applicable law, including with respect to time or space, the court is hereby requested and authorized by the parties hereto to revise the foregoing restrictions to include the maximum restrictions allowed under the applicable law. The Employee expressly agrees that breach of the foregoing would result in irreparable injuries to the Company, that the remedy at law for any such breach will be inadequate and that upon breach of this provision, the Company, in addition to all other available remedies, shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction without the necessity of proving the actual damage to the Company. 7. Secret Processes and Confidential Information. For the Employment Term --------------------------------------------- and thereafter, (a) the Employee will not divulge (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company of any such order), directly or indirectly, other than in the regular and proper course of business of the Company, any Confidential Information (as defined below) and (b) the Employee will not use, directly or indirectly, any Confidential Information for the benefit of anyone other than the Company. For purposes of this Agreement, "Confidential Information" means any information which is proprietary or unique to the Company, including information with respect to the operations or finances of the Company or with respect to confidential or secret processes, techniques, machinery, customers, plans or products manufactured or sold by the Company. Notwithstanding the foregoing, Confidential Information shall not include information (i) that is of public knowledge at the time of disclosure to Employee, (ii) that becomes generally available to the public other than as a result of disclosure by Employee, (iii) that is rightfully received by the Employee from a third party on a nonconfidential basis, or (iv) that is unrelated to the products then being developed, manufactured or sold by the Company and is developed by Employee independently and is not derived from Confidential Information. All new processes, techniques, know-how, inventions, plans, products, patents and devices (collectively, "Developments") developed, made or invented by the Employee, alone or with others, while an -4- employee of the Company, shall be and become the sole property of the Company, unless released in writing by the Company or unless such Developments do not result from tasks assigned to the Employee by the Company and do not relate to the business of the Company or any of its products or services, and the Employee hereby assigns any and all rights therein or thereto to the Company. 8. Termination. ----------- (a) Termination at End of Term. The employment of the Employee -------------------------- hereunder shall automatically renew at the end of the Employment Term, unless terminated in accordance with the provisions of Section 3 or unless the parties hereto mutually agree otherwise in writing at least sixty (60) days prior to expiration of the Employment Term, or the Agreement is earlier terminated by the Company or the Employee pursuant to this Section 8. (b) Termination by the Company With Cause. The Company shall have ------------------------------------- the right, subject to the provisions hereinafter set forth, at any time to terminate the Employee's employment hereunder upon the occurrence of any of the following (any such termination being referred to as a termination for "Cause"): (i) the commission by the Employee of any embezzlement or other deliberate act of dishonesty against the financial or business interests of the Company; (ii) the habitual drug addiction or intoxication of the Employee; (iii) the conviction by the Employee of or the pleading by the Employee of nolo contendere to, a felony or breach of fiduciary trust --------------- for the purpose of gaining a personal profit; (iv) the willful or intentional failure or refusal of the Employee to perform the duties specified in and pursuant to Section 1 hereof or to follow reasonable directives of the Board of Directors of the Company which failure or refusal is not cured within thirty (30) days following Employee's receipt of notice from the Company specifying in reasonable detail such failure or refusal; (v) the breach by the Employee of any material term of this Agreement which breach is not cured within thirty (30) days following Employee's receipt of notice from the Company specifying in reasonable detail such breach. (c) Termination Upon Death or Disability. The Employee's ------------------------------------ employment hereunder shall automatically terminate upon the Employee's death or upon his inability to have performed his duties hereunder by reason of any mental, physical or other disability for a period of at least six consecutive months, as determined by a qualified physician chosen by the Board of -5- Directors of the Company and reasonably acceptable to the Employee or his legal representatives. (d) Termination by the Company Without Cause. The Company shall ---------------------------------------- have the right to terminate the Employee's employment at any time for any reason without Cause. (e) Termination for Good Reason. The Employee shall have the right --------------------------- to terminate his employment with the Company for "Good Reason" upon written notice to the Company. The Employee's termination for Good Reason hereunder shall be treated for purposes of this Agreement, including without limitation Section 6 and 9(b), as if the Employee were terminated without Cause pursuant to Section 8(d) above. For purposes of this Agreement, "Good Reason" shall mean: (i) without the Employee's consent, the assignment to him during the Employment Term of any material duties or responsibilities substantially inconsistent with his position and duties and responsibilities with the Company as set forth herein, or a material change in his reporting responsibilities, titles or authority as set forth herein, which assignment, change or inconsistency is not cured by the Company within thirty (30) days following its receipt of notice from the Employee specifying in reasonable detail such assignment, change or inconsistency; or (ii) the Company's breach of any material terms of this Agreement, which breach is not cured by the Company within thirty (30) days following its receipt of notice from the Employee specifying in reasonable detail the breach. 9. Effect of Termination of Employment. ----------------------------------- (a) Upon Expiration of Employment Term. If the Employee's employment ---------------------------------- terminates upon expiration of the Employment Term or any renewal thereof upon notice given in accordance with Section 3, the Employee will receive salary, bonus and vacation accrued through the date of termination, but shall be entitled to no further benefits hereunder. (b) With Cause; Resignation Without Good Reason. If the Employee's ------------------------------------------- employment is terminated with Cause pursuant to Section 8(b) or if the Employee elects to terminate his employment other than pursuant to Section 8(e), the Employee's salary, bonus and other benefits specified in Section 4 shall cease at the time of such termination. The Employee shall be entitled only to receive accrued salary and vacation through the date of termination, but shall be entitled to no further benefits hereunder. (c) Without Cause by the Company. If the Employee's employment is ---------------------------- terminated by the Company without Cause pursuant to Section 8(d) including for such purposes termination by the Employee for Good Reason pursuant to Section 8(e), the Employee's salary, bonus and other benefits specified in Sections 4 shall cease at the time of such termination, and the Employee shall be entitled to receive (i) his base salary then payable under Section 4(a) above, subject, however, to the C.P.I. adjustment therein provided for subsequent payments ("Salary Payment") for a period of twelve (12) months following termination; provided, however that if such termination occurs during the first year of the Employment Term such Salary -6- Payment shall continue for the balance of such first year and for the twelve months commencing upon expiration of such first year; and provided further, however, that the Company may, at its option, extend for up to twelve (12) months the period during which Salary Payments are otherwise required to be made; (ii) accrued salary and vacation through the date of termination; (iii) continuation at the Company's expense of comparable medical benefits during the period during which Salary Payments are made; and (iv) payment of such pro rata bonus, if any, as was earned in the year in which termination --- ---- occurred. The term "pro rata bonus" shall mean the bonus which the Employee would have received had he remained employee for the entire year in which his employment was terminated (calculated on an annualized basis on results of operations as of the end of the month immediately preceding his termination, without taking into account results of operations after the end of such month) times a fraction, the numerator of which is the number of days the Employee was employed in the year of termination, and the denominator of which is 365. Any pro rata bonus earned will be paid when other bonuses are paid for the --- ---- year in which termination occurs. The Employee shall not be required to mitigate the amount of any Salary Payment provided for in this Section 9(b) by seeking other employment or otherwise. The Salary Payment (as previously described in this Section 9(b)) shall be the Employee's sole and exclusive severance payment and remedy at law or in equity for termination of employment hereunder by the Company without Cause or by Employee for Good Reason. (d) Medical Benefits. Notwithstanding the foregoing, in the case of ---------------- any termination of employment of the Employee, the Employee shall be entitled to continue to participate in the Company's medical benefit plans to the extent required by law. 10. Insurance. The Company may purchase insurance on the life of the --------- Employee, and if it does so, the Employee shall cooperate fully by performing all the requirements of the life insurer which are necessary conditions precedent to the issuance of the life insurance policy issued by it. 11. Notice. Any notices required or permitted hereunder shall be in ------ writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses or such other address as to which notice is given in the manner provided herein: If to the Employee: Donald H. Benovitz One Everett Terrace South Natick, Massachusetts 01776 -7- If to the Company: Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attention: President With copies to: Summit Partners III, L.P. One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey; Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra; and Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Norman A. Bikales 12. General. ------- (a) Governing Law. The terms of this Agreement shall be governed by ------------- and construed under the laws of The Commonwealth of Massachusetts without regard to its principles of conflicts of laws. (b) Assignability. The Employee may not assign his interest in or ------------- delegate his duties under this Agreement. Except in the case of a sale of all or substantially all of the stock or assets of the Company, the Company may not assign the Agreement or the rights and obligations hereunder without consent of Employee. (c) Enforcement Costs. In the event that either the Company or the ----------------- Employee initiates an action or claim to enforce any provision or term of this Agreement, the costs and expenses (including reasonable attorney's fees and expenses) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded -8- pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principle claims. (d) Binding Effect. This Agreement shall be binding upon and inure -------------- to the benefit of the Company, its permitted successors and assigns and the Employee, his representatives and heirs. (e) Entire Agreement; Modification. This Agreement constitutes the ------------------------------ entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, this -------- Agreement shall continue for so long as any obligations remain under this Agreement. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Herbert Grey ----------------- Name: Title: EMPLOYEE /s/ Donald H. Benovitz ---------------------- Donald H. Benovitz -9- EX-10.15 19 EMPLOYMENT AGREE,PATRICK BOHAN EXHIBIT 10.15 EMPLOYMENT AGREEMENT -------------------- This Agreement is made as of the 3rd day of July, 1995 between Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), and Patrick Bohan, an individual residing at 10 Massapoag Avenue, Sharon, Massachusetts 02067 (the "Employee"). RECITALS -------- WHEREAS, pursuant to a Stock Purchase and Redemption Agreement dated as of July 3, 1995 (the "Purchase Agreement"), Summit Ventures III, L.P., Summit Investors II, L.P., Summit Subordinated Debt Fund, L.P. and The Bear Stearns Companies, Inc. (collectively, the "Investors") have agreed to purchase an aggregate of 66,500 shares of Series A Redeemable Preferred Stock, par value $.01 per share, of the Company, 280 shares of Common Stock (before giving effect to the stock dividend described in the Purchase Agreement), no par value per share, of the Company and $6,750,000 in aggregate principal amount of 12% Subordinated Debentures of the Company (collectively, the "Securities"); WHEREAS, pursuant to the terms of the Purchase Agreement, the Company will apply the proceeds received upon the sale of the Securities to redeem a portion of the shares of Common Stock held by the Employee; and WHEREAS, the Investors would be unwilling to purchase the Securities and the Company would be unwilling to redeem and the Employee would be unwilling to permit the redemption of the shares of Common Stock held by the Employee without the execution of this Agreement by the Employee and the Company. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as the Vice ---------- President of Sales and Marketing of the Company, and the Employee accepts such employment for the term of employment specified in Section 3 below (the "Employment Term"). During the Employment Term, the Employee shall, subject to the direction of the President of the Company, be responsible for generating the sales and marketing strategy of the Company and shall perform such other duties, consistent with his position as Vice President of Sales and Marketing of the Company, as may from time to time be reasonably assigned to him by the President of the Company. The Employee shall not, however, be required to change his principal residence or to spend extended periods of time away from his principal residence without his consent, which consent may be withheld in his sole and absolute discretion. 2. Performance. The Employee agrees to devote his reasonable business ----------- efforts and substantially all of his business time to the performance of his duties hereunder during the Employment Term. 3. Employment Term. The Employment Term shall begin on the date of this --------------- Agreement and continue until July 1, 2000 (the "Employment Term"), unless earlier terminated in accordance with the terms of this Agreement. At the end of the Employment Term, the period of employment will be automatically renewed for a further twelve (12) month term, and subsequently renewed for twelve (12) months periods upon each anniversary date thereof, unless written notice to the contrary is given by either party to the other at least ninety (90) days before the end of the Employment Term or any renewal thereof. 4. Compensation. ------------ (a) Salary. During the Employment Term, the Company shall pay the ------ Employee a base salary, payable in equal monthly installments, subject to withholding and other applicable taxes, at an annual rate of Once Hundred Thirty Thousand Dollars ($130,000). The annual base salary shall be increased annually on each July 1, during the Employment Term by an amount equal to the greater of (i) such amount, if any, as the Compensation Committee of the Company shall determine, and (ii) the percentage increase in the cost of living for the twelve months ending immediately prior to such July 1, as reflected in the All Items Consumer Price Index for all Urban Consumers for the Boston, MA Primary Metropolitan Statistical Area as published by the United States Bureau of Labor Statistics, multiplied by the annual base salary then in effect. (b) Bonus. The Employee shall be eligible to participate in a bonus ----- plan of the Company pursuant to which he may be entitled to receive an annual bonus equal to a specified percentage of the annual base salary then in effect, subject to achieving specified financial targets. The actual amount of such bonus and the financial targets for the payment thereof shall be determined by the Compensation Committee of the Board of Directors of the Company as it may from time to time deem appropriate. (c) Insurance; Other Benefits. The Employee shall be entitled to ------------------------- medical, retirement, life insurance and disability insurance not less favorable to the Employee than those which he currently receives as an employee of the Company. In addition, the Employee shall be entitled to participate in all employee benefit plans now existing or hereinafter established by the Company, including, but not limited to, medical plans, group life and disability insurance plans, profit sharing or bonus plans, and any other employee benefit plan or arrangement made available to executive officers of the Company, but only to the extent such plans provide benefits greater than those currently received by the Employee. (d) Vacation. The Employee shall be entitled to take four weeks of -------- paid vacation during each year of the Employment Term, consistent with the Company's past -2- employment practices with regard to the Employee, to be taken at such time or times during such year as shall be mutually convenient and consistent with his duties and obligations to the Company. The Employee may not accrue more than an aggregate of 50% vacation days, and such accrual may not be for more than one year. The Employee shall also be entitled to all paid holidays given by the Company to its personnel similarly situated. 5. Expenses. The Employee shall be reimbursed by the Company for all -------- reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with policies established by the Board of Directors from time to time and upon receipt of appropriate documentation. 6. Agreement Not to Compete. In consideration of the distributions ------------------------ payable to the Employee under the Purchase Agreement in connection with the partial redemption of the shares of Common Stock held by him, the Employee agrees that during the Non-Competition Period (defined below) he will not in any capacity, either separately, jointly, or in association with others, directly or indirectly, as an officer, director, consultant, agent, employee, owner, partner, stockholder or otherwise, engage or have a financial interest in any business which competes with the business of the Company of wholesale distribution of health and medical products (as such business is modified from time to time prior to any termination of employment) in the United States (excepting only the ownership of not more than 5% of the outstanding securities of any class listed on an exchange or regularly traded in the over-the-counter market). The parties agree that the Employee may during the Non-Competition Period work for a manufacturer of health and medical products. The "Non- Competition Period" shall mean the longer of (i) the period during which the Employee is employed pursuant to this Agreement and, to the extent applicable, the following: (a) Upon termination of the Employment Term or any renewal thereof: twelve (12) months from such expiration. (b) Upon termination by the Company with Cause: twenty-four (24) months from such termination; (c) Upon termination by the Company without Cause: so long as the Company is making payments pursuant to the provisions of Section 9(b); (d) Upon termination by the Company on account of disability: twelve (12) months from such termination; (e) Upon termination by the Employee without Good Reason: twenty-four (24) months from such termination; and (f) Upon termination by the Employee with Good Reason: so long as the Company is making payments pursuant to the provisions of Section 9(b). -3- The Employee further agrees that during the Non-Competition Period, except in connection with the performance of services hereunder, he will not in any capacity, either separately, jointly or in association with others, directly or indirectly, hire or solicit for hire any person who was an employee of the Company at any time during the two years immediately preceding termination of employment hereunder. If a court determines that the foregoing restrictions are too broad or otherwise unreasonable under applicable law, including with respect to time or space, the court is hereby requested and authorized by the parties hereto to revise the foregoing restrictions to include the maximum restrictions allowed under the applicable law. The Employee expressly agrees that breach of the foregoing would result in irreparable injuries to the Company, that the remedy at law for any such breach will be inadequate and that upon breach of this provision, the Company, in addition to all other available remedies, shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction without the necessity of proving the actual damage to the Company. 7. Secret Processes and Confidential Information. For the Employment Term --------------------------------------------- and thereafter, (a) the Employee will not divulge (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company of any such order), directly or indirectly, other than in the regular and proper course of business of the Company, any Confidential Information (as defined below) and (b) the Employee will not use, directly or indirectly, any Confidential Information for the benefit of anyone other than the Company. For purposes of this Agreement, "Confidential Information" means any information which is proprietary or unique to the Company, including information with respect to the operations or finances of the Company or with respect to confidential or secret processes, techniques, machinery, customers, plans or products manufactured or sold by the Company. Notwithstanding the foregoing, Confidential Information shall not include information (i) that is of public knowledge at the time of disclosure to Employee, (ii) that becomes generally available to the public other than as a result of disclosure by Employee, (iii) that is rightfully received by the Employee from a third party on a nonconfidential basis, or (iv) that is unrelated to the products then being developed, manufactured or sold by the Company and is developed by Employee independently and is not derived from Confidential Information. All new processes, techniques, know-how, inventions, plans, products, patents and devices (collectively, "Developments") developed, made or invented by the Employee, alone or with others, while an employee of the Company, shall be and become the sole property of the Company, unless released in writing by the Company or unless such Developments do not result from tasks assigned to the Employee by the Company and do not relate to the business of the Company or any of its products or services, and the Employee hereby assigns any and all rights therein or thereto to the Company. 8. Termination. ----------- -4- (a) Termination at End of Term. The employment of the Employee -------------------------- hereunder shall automatically renew at the end of the Employment Term, unless terminated in accordance with the provisions of Section 3 or unless the parties hereto mutually agree otherwise in writing at least sixty (60) days prior to expiration of the Employment Term, or the Agreement is earlier terminated by the Company or the Employee pursuant to this Section 8. (b) Termination by the Company With Cause. The Company shall have the ------------------------------------- right, subject to the provisions hereinafter set forth, at any time to terminate the Employee's employment hereunder upon the occurrence of any of the following (any such termination being referred to as a termination for "Cause"): (i) the commission by the Employee of any embezzlement or other deliberate act of dishonesty against the financial or business interests of the Company; (ii) the habitual drug addiction or intoxication of the Employee; (iii) the conviction by the Employee of or the pleading by the Employee of nolo contendere to, a felony or breach of fiduciary trust for the ---- ---------- purpose of gaining a personal profit; (iv) the willful or intentional failure or refusal of the Employee to perform the duties specified in and pursuant to Section 1 hereof or to follow reasonable directives of the Board of Directors of the Company which failure or refusal is not cured within thirty (30) days following Employee's receipt of notice from the Company specifying in reasonable detail such failure or refusal; (v) the breach by the Employee of any material term of this Agreement which breach is not cured within thirty (30) days following Employee's receipt of notice from the Company specifying in reasonable detail such breach. (c) Termination Upon Death or Disability. The Employee's ------------------------------------ employment hereunder shall automatically terminate upon the Employee's death or upon his inability to have performed his duties hereunder by reason of any mental, physical or other disability for a period of at least six consecutive months, as determined by a qualified physician chosen by the Board of Directors of the Company and reasonably acceptable to the Employee or his legal representatives. (d) Termination by the Company Without Cause. The Company shall ---------------------------------------- have the right to terminate the Employee's employment at any time for any reason without Cause. (e) Termination for Good Reason. The Employee shall have the right --------------------------- to terminate his employment with the Company for "Good Reason" upon written notice to the -5- Company. The Employee's termination for Good Reason hereunder shall be treated for purposes of this Agreement, including without limitation Section 6 and 9(b), as if the Employee were terminated without Cause pursuant to Section 8(d) above. For purposes of this Agreement, "Good Reason" shall mean: (i) without the Employee's consent, the assignment to him during the Employment Term of any material duties or responsibilities substantially inconsistent with his position and duties and responsibilities with the Company as set forth herein, or a material change in his reporting responsibilities, titles or authority as set forth herein, which assignment, change or inconsistency is not cured by the Company within thirty (30) days following its receipt of notice from the Employee specifying in reasonable detail such assignment, change or inconsistency; or (ii) the Company's breach of any material terms of this Agreement, which breach is not cured by the Company within thirty (30) days following its receipt of notice from the Employee specifying in reasonable detail the breach. 9. Effect of Termination of Employment. ----------------------------------- (a) Upon Expiration of Employment Term. If the Employee's employment ---------------------------------- terminates upon expiration of the Employment Term or any renewal thereof upon notice given in accordance with Section 3, the Employee will receive salary, bonus and vacation accrued through the date of termination, but shall be entitled to no further benefits hereunder. (b) With Cause; Resignation Without Good Reason. If the Employee's ------------------------------------------- employment is terminated with Cause pursuant to Section 8(b) or if the Employee elects to terminate his employment other than pursuant to Section 8(e), the Employee's salary, bonus and other benefits specified in Section 4 shall cease at the time of such termination. The Employee shall be entitled only to receive accrued salary and vacation through the date of termination, but shall be entitled to no further benefits hereunder. (c) Without Cause by the Company. If the Employee's employment is ---------------------------- terminated by the Company without Cause pursuant to Section 8(d) including for such purposes termination by the Employee for Good Reason pursuant to Section 8(e), the Employee's salary, bonus and other benefits specified in Sections 4 shall cease at the time of such termination, and the Employee shall be entitled to receive (i) his base salary then payable under Section 4(a) above, subject, however, to the C.P.I. adjustment therein provided for subsequent payments ("Salary Payment") for a period of twelve (12) months following termination; provided, however that if such termination occurs during the first year of the Employment Term such Salary Payment shall continue for the balance of such first year and for the twelve months commencing upon expiration of such first year; and provided further, however, that the Company may, at its option, extend for up to twelve (12) months the period during which Salary Payments are otherwise required to be made; (ii) accrued salary and vacation through the date of termination; (iii) continuation at the Company's expense of comparable medical benefits during the period during which Salary Payments are made; and (iv) payment of such pro rata bonus, if any, as was earned in the year in which --- ---- termination occurred. The term "pro rata bonus" shall mean the bonus which the Employee would have received had he remained employee for the entire year in -6- which his employment was terminated (calculated on an annualized basis on results of operations as of the end of the month immediately preceding his termination, without taking into account results of operations after the end of such month) times a fraction, the numerator of which is the number of days the Employee was employed in the year of termination, and the denominator of which is 365. Any pro rata bonus earned will be paid when other bonuses are paid for --- ---- the year in which termination occurs. The Employee shall not be required to mitigate the amount of any Salary Payment provided for in this Section 9(b) by seeking other employment or otherwise. The Salary Payment (as previously described in this Section 9(b)) shall be the Employee's sole and exclusive severance payment and remedy at law or in equity for termination of employment hereunder by the Company without Cause or by Employee for Good Reason. (d) Medical Benefits. Notwithstanding the foregoing, in the case of ---------------- any termination of employment of the Employee, the Employee shall be entitled to continue to participate in the Company's medical benefit plans to the extent required by law. 10. Insurance. The Company may purchase insurance on the life of the --------- Employee, and if it does so, the Employee shall cooperate fully by performing all the requirements of the life insurer which are necessary conditions precedent to the issuance of the life insurance policy issued by it. 11. Notice. Any notices required or permitted hereunder shall be in ------ writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses or such other address as to which notice is given in the manner provided herein: If to the Employee: Patrick Bohan 10 Massapoag Avenue Sharon, Massachusetts 02067 If to the Company: Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attention: President With copies to: Summit Partners III, L.P. One Boston Place -7- Boston, MA 02108 Attn: Joseph F. Trustey; Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra; and Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Norman A. Bikales 12. General. ------- (a) Governing Law. The terms of this Agreement shall be governed by ------------- and construed under the laws of The Commonwealth of Massachusetts without regard to its principles of conflicts of laws. (b) Assignability. The Employee may not assign his interest in or ------------- delegate his duties under this Agreement. Except in the case of a sale of all or substantially all of the stock or assets of the Company, the Company may not assign the Agreement or the rights and obligations hereunder without consent of Employee. (c) Enforcement Costs. In the event that either the Company or the ----------------- Employee initiates an action or claim to enforce any provision or term of this Agreement, the costs and expenses (including reasonable attorney's fees and expenses) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principle claims. (d) Binding Effect. This Agreement shall be binding upon and inure to -------------- the benefit of the Company, its permitted successors and assigns and the Employee, his representatives and heirs. (e) Entire Agreement; Modification. This Agreement constitutes the ------------------------------ entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, this -------- Agreement shall continue for so long as any obligations remain under this Agreement. -8- IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Herbert P. Gray --------------------------- Name: Title: EMPLOYEE /s/ Patrick Bohan ------------------------------ Patrick Bohan -9- EX-10.16 20 EMPLOYMENT AGREE,JOHN MANOS EXHIBIT 10.16 EMPLOYMENT AGREEMENT -------------------- This Agreement is made as of the 3rd day of July, 1995 between Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), and John Manos, an individual residing at 85 Prospect Street, South Easton, Massachusetts 02375, (the "Employee"). RECITALS -------- WHEREAS, pursuant to a Stock Purchase and Redemption Agreement dated as of July 3, 1995 (the "Purchase Agreement"), Summit Ventures III, L.P., Summit Investors II, L.P., Summit Subordinated Debt Fund, L.P. and The Bear Stearns Companies, Inc. (collectively, the "Investors") have agreed to purchase an aggregate of 66,500 shares of Series A Redeemable Preferred Stock, par value $.01 per share, of the Company, 280 shares of Common Stock (before giving effect to the stock dividend described in the Purchase Agreement), no par value per share, of the Company and $6,750,000 in aggregate principal amount of 12% Subordinated Debentures of the Company (collectively, the "Securities"); WHEREAS, pursuant to the terms of the Purchase Agreement, the Company will apply the proceeds received upon the sale of the Securities to redeem a portion of the shares of Common Stock held by the Employee; and WHEREAS, the Investors would be unwilling to purchase the Securities and the Company would be unwilling to redeem and the Employee would be unwilling to permit the redemption of the shares of Common Stock held by the Employee without the execution of this Agreement by the Employee and the Company. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as the Vice ---------- President of Management Information Systems and Operations of the Company, and the Employee accepts such employment for the term of employment specified in Section 3 below (the "Employment Term"). During the Employment Term, the Employee shall, subject to the direction of the President of the Company, oversee the operations of the Management Information Systems of the Company, and shall perform such other duties, consistent with his position as Vice President of Management Information Systems and Operations of the Company as may from time to time be reasonably assigned to him by the President of the Company. The Employee shall not, however, be required to change his principal residence or to spend extended periods of time away from his principal residence without his consent, which consent may be withheld in his sole and absolute discretion. 2. Performance. The Employee agrees to devote his reasonable business ----------- efforts and substantially all of his business time to the performance of his duties hereunder during the Employment Term. 3. Employment Term. The Employment Term shall begin on the date of this --------------- Agreement and continue until July 1, 2000 (the "Employment Term"), unless earlier terminated in accordance with the terms of this Agreement. At the end of the Employment Term, the period of employment will be automatically renewed for a further twelve (12) month term, and subsequently renewed for twelve (12) months periods upon each anniversary date thereof, unless written notice to the contrary is given by either party to the other at least ninety (90) days before the end of the Employment Term or any renewal thereof. 4. Compensation. ------------ (a) Salary. During the Employment Term, the Company shall pay the ------ Employee a base salary, payable in equal monthly installments, subject to withholding and other applicable taxes, at an annual rate of One Hundred Thousand Dollars ($100,000). The annual base salary shall be increased annually on each July 1, during the Employment Term by an amount equal to the greater of (i) such amount, if any, as the Compensation Committee of the Company shall determine, and (ii) the percentage increase in the cost of living for the twelve months ending immediately prior to such July 1, as reflected in the All Items Consumer Price Index for all Urban Consumers for the Boston, MA Primary Metropolitan Statistical Area as published by the United States Bureau of Labor Statistics, multiplied by the annual base salary then in effect. (b) Bonus. The Employee shall be eligible to participate in a bonus ----- plan of the Company pursuant to which he may be entitled to receive an annual bonus equal to a specified percentage of the annual base salary then in effect, subject to achieving specified financial targets. The actual amount of such bonus and the financial targets for the payment thereof shall be determined by the Compensation Committee at the Board of Directors as it may from time to time deem appropriate. (c) Insurance; Other Benefits. The Employee shall be entitled to ------------------------- medical, retirement, life insurance and disability insurance not less favorable to the Employee than those which he currently receives as an employee of the Company. In addition, the Employee shall be entitled to participate in all employee benefit plans now existing or hereinafter established by the Company, including, but not limited to, medical plans, group life and disability insurance plans, profit sharing or bonus plans, and any other employee benefit plan or arrangement made available to executive officers of the Company, but only to the extent such plans provide benefits greater than those currently received by the Employee. (d) Vacation. The Employee shall be entitled to take four weeks of -------- paid vacation during each year of the Employment Term, consistent with the Company's past -2- employment practices with regard to the Employee, to be taken at such time or times during such year as shall be mutually convenient and consistent with his duties and obligations to the Company. The Employee may not accrue more than an aggregate of 50% vacation days, and such accrual may not be for more than one year. The Employee shall also be entitled to all paid holidays given by the Company to its personnel similarly situated. 5. Expenses. The Employee shall be reimbursed by the Company for all -------- reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with policies established by the Board of Directors from time to time and upon receipt of appropriate documentation. 6. Agreement Not to Compete. In consideration of the distributions ------------------------ payable to the Employee under the Purchase Agreement in connection with the partial redemption of the shares of Common Stock held by him, the Employee agrees that during the Non-Competition Period (defined below) he will not in any capacity, either separately, jointly, or in association with others, directly or indirectly, as an officer, director, consultant, agent, employee, owner, partner, stockholder or otherwise, engage or have a financial interest in any business which competes with the business of the Company of wholesale distribution of health and medical products (as such business is modified from time to time prior to any termination of employment) in the United States (excepting only the ownership of not more than 5% of the outstanding securities of any class listed on an exchange or regularly traded in the over-the-counter market). The parties agree that the Employee may during the Non-Competition Period work for a manufacturer of health and medical products. The "Non- Competition Period" shall mean the longer of (i) the period during which the Employee is employed pursuant to this Agreement and, to the extent applicable, the following: (a) Upon termination of the Employment Term or any renewal thereof: twelve (12) months from such expiration. (b) Upon termination by the Company with Cause: twenty-four (24) months from such termination; (c) Upon termination by the Company without Cause: so long as the Company is making payments pursuant to the provisions of Section 9(b); (d) Upon termination by the Company on account of disability: twelve (12) months from such termination; (e) Upon termination by the Employee without Good Reason: twenty-four (24) months from such termination; and (f) Upon termination by the Employee with Good Reason: so long as the Company is making payments pursuant to the provisions of Section 9(b). -3- The Employee further agrees that during the Non-Competition Period, except in connection with the performance of services hereunder, he will not in any capacity, either separately, jointly or in association with others, directly or indirectly, hire or solicit for hire any person who was an employee of the Company at any time during the two years immediately preceding termination of employment hereunder. If a court determines that the foregoing restrictions are too broad or otherwise unreasonable under applicable law, including with respect to time or space, the court is hereby requested and authorized by the parties hereto to revise the foregoing restrictions to include the maximum restrictions allowed under the applicable law. The Employee expressly agrees that breach of the foregoing would result in irreparable injuries to the Company, that the remedy at law for any such breach will be inadequate and that upon breach of this provision, the Company, in addition to all other available remedies, shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction without the necessity of proving the actual damage to the Company. 7. Secret Processes and Confidential Information. For the Employment Term --------------------------------------------- and thereafter, (a) the Employee will not divulge (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company of any such order), directly or indirectly, other than in the regular and proper course of business of the Company, any Confidential Information (as defined below) and (b) the Employee will not use, directly or indirectly, any Confidential Information for the benefit of anyone other than the Company. For purposes of this Agreement, "Confidential Information" means any information which is proprietary or unique to the Company, including information with respect to the operations or finances of the Company or with respect to confidential or secret processes, techniques, machinery, customers, plans or products manufactured or sold by the Company. Notwithstanding the foregoing, Confidential Information shall not include information (i) that is of public knowledge at the time of disclosure to Employee, (ii) that becomes generally available to the public other than as a result of disclosure by Employee, (iii) that is rightfully received by the Employee from a third party on a nonconfidential basis, or (iv) that is unrelated to the products then being developed, manufactured or sold by the Company and is developed by Employee independently and is not derived from Confidential Information. All new processes, techniques, know-how, inventions, plans, products, patents and devices (collectively, "Developments") developed, made or invented by the Employee, alone or with others, while an employee of the Company, shall be and become the sole property of the Company, unless released in writing by the Company or unless such Developments do not result from tasks assigned to the Employee by the Company and do not relate to the business of the Company or any of its products or services, and the Employee hereby assigns any and all rights therein or thereto to the Company. -4- 8. Termination. ----------- (a) Termination at End of Term. The employment of the Employee -------------------------- hereunder shall automatically renew at the end of the Employment Term, unless terminated in accordance with the provisions of Section 3 or unless the parties hereto mutually agree otherwise in writing at least sixty (60) days prior to expiration of the Employment Term, or the Agreement is earlier terminated by the Company or the Employee pursuant to this Section 8. (b) Termination by the Company With Cause. The Company shall have the ------------------------------------- right, subject to the provisions hereinafter set forth, at any time to terminate the Employee's employment hereunder upon the occurrence of any of the following (any such termination being referred to as a termination for "Cause"): (i) the commission by the Employee of any embezzlement or other deliberate act of dishonesty against the financial or business interests of the Company; (ii) the habitual drug addiction or intoxication of the Employee; (iii) the conviction by the Employee of or the pleading by the Employee of nolo contendere to, a felony or breach of fiduciary trust ---- ---------- for the purpose of gaining a personal profit; (iv) the willful or intentional failure or refusal of the Employee to perform the duties specified in and pursuant to Section 1 hereof or to follow reasonable directives of the Board of Directors of the Company which failure or refusal is not cured within thirty (30) days following Employee's receipt of notice from the Company specifying in reasonable detail such failure or refusal; (v) the breach by the Employee of any material term of this Agreement which breach is not cured within thirty (30) days following Employee's receipt of notice from the Company specifying in reasonable detail such breach. (c) Termination Upon Death or Disability. The Employee's employment ------------------------------------ hereunder shall automatically terminate upon the Employee's death or upon his inability to have performed his duties hereunder by reason of any mental, physical or other disability for a period of at least six consecutive months, as determined by a qualified physician chosen by the Board of Directors of the Company and reasonably acceptable to the Employee or his legal representatives. (d) Termination by the Company Without Cause. The Company shall have ---------------------------------------- the right to terminate the Employee's employment at any time for any reason without Cause. -5- (e) Termination for Good Reason. The Employee shall have the right --------------------------- to terminate his employment with the Company for "Good Reason" upon written notice to the Company. The Employee's termination for Good Reason hereunder shall be treated for purposes of this Agreement, including without limitation Section 6 and 9(b), as if the Employee were terminated without Cause pursuant to Section 8(d) above. For purposes of this Agreement, "Good Reason" shall mean: (i) without the Employee's consent, the assignment to him during the Employment Term of any material duties or responsibilities substantially inconsistent with his position and duties and responsibilities with the Company as set forth herein, or a material change in his reporting responsibilities, titles or authority as set forth herein, which assignment, change or inconsistency is not cured by the Company within thirty (30) days following its receipt of notice from the Employee specifying in reasonable detail such assignment, change or inconsistency; or (ii) the Company's breach of any material terms of this Agreement, which breach is not cured by the Company within thirty (30) days following its receipt of notice from the Employee specifying in reasonable detail the breach. 9. Effect of Termination of Employment. ----------------------------------- (a) Upon Expiration of Employment Term. If the Employee's employment ---------------------------------- terminates upon expiration of the Employment Term or any renewal thereof upon notice given in accordance with Section 3, the Employee will receive salary, bonus and vacation accrued through the date of termination, but shall be entitled to no further benefits hereunder. (b) With Cause; Resignation Without Good Reason. If the Employee's ------------------------------------------- employment is terminated with Cause pursuant to Section 8(b) or if the Employee elects to terminate his employment other than pursuant to Section 8(e), the Employee's salary, bonus and other benefits specified in Section 4 shall cease at the time of such termination. The Employee shall be entitled only to receive accrued salary and vacation through the date of termination, but shall be entitled to no further benefits hereunder. (c) Without Cause by the Company. If the Employee's employment is ---------------------------- terminated by the Company without Cause pursuant to Section 8(d) including for such purposes termination by the Employee for Good Reason pursuant to Section 8(e), the Employee's salary, bonus and other benefits specified in Sections 4 shall cease at the time of such termination, and the Employee shall be entitled to receive (i) his base salary then payable under Section 4(a) above, subject, however, to the C.P.I. adjustment therein provided for subsequent payments ("Salary Payment") for a period of twelve (12) months following termination; provided, however that if such termination occurs during the first year of the Employment Term such Salary Payment shall continue for the balance of such first year and for the twelve months commencing upon expiration of such first year; and provided further, however, that the Company may, at its option, extend for up to twelve (12) months the period during which Salary Payments are otherwise required to be made; (ii) accrued salary and vacation through the date of termination; (iii) continuation at the Company's expense of comparable medical benefits during the period during which Salary Payments are made; and (iv) payment of such pro rata bonus, if any, as was --- ---- -6- earned in the year in which termination occurred. The term "pro rata bonus" shall mean the bonus which the Employee would have received had he remained employee for the entire year in which his employment was terminated (calculated on an annualized basis on results of operations as of the end of the month immediately preceding his termination, without taking into account results of operations after the end of such month) times a fraction, the numerator of which is the number of days the Employee was employed in the year of termination, and the denominator of which is 365. Any pro rata bonus earned will be paid when --- ---- other bonuses are paid for the year in which termination occurs. The Employee shall not be required to mitigate the amount of any Salary Payment provided for in this Section 9(b) by seeking other employment or otherwise. The Salary Payment (as previously described in this Section 9(b)) shall be the Employee's sole and exclusive severance payment and remedy at law or in equity for termination of employment hereunder by the Company without Cause or by Employee for Good Reason. (d) Medical Benefits. Notwithstanding the foregoing, in the case of ---------------- any termination of employment of the Employee, the Employee shall be entitled to continue to participate in the Company's medical benefit plans to the extent required by law. 10. Insurance. The Company may purchase insurance on the life of the --------- Employee, and if it does so, the Employee shall cooperate fully by performing all the requirements of the life insurer which are necessary conditions precedent to the issuance of the life insurance policy issued by it. 11. Notice. Any notices required or permitted hereunder shall be in ------ writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses or such other address as to which notice is given in the manner provided herein: If to the Employee: John Manos 85 Prospect Street South Easton, Massachusetts 02375 If to the Company: Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attention: President With copies to: -7- Summit Partners III, L.P. One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey; Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra; and Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Norman A. Bikales 12. General. ------- (a) Governing Law. The terms of this Agreement shall be governed by ------------- and construed under the laws of The Commonwealth of Massachusetts without regard to its principles of conflicts of laws. (b) Assignability. The Employee may not assign his interest in or ------------- delegate his duties under this Agreement. Except in the case of a sale of all or substantially all of the stock or assets of the Company, the Company may not assign the Agreement or the rights and obligations hereunder without consent of Employee. (c) Enforcement Costs. In the event that either the Company or the ----------------- Employee initiates an action or claim to enforce any provision or term of this Agreement, the costs and expenses (including reasonable attorney's fees and expenses) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principle claims. (d) Binding Effect. This Agreement shall be binding upon and inure to -------------- the benefit of the Company, its permitted successors and assigns and the Employee, his representatives and heirs. (e) Entire Agreement; Modification. This Agreement constitutes the ------------------------------ entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, this -------- Agreement shall continue for so long as any obligations remain under this Agreement. -8- IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Herbert Grey ----------------- Name: Title: EMPLOYEE /s/ John Manos -------------- John Manos 76030-1 -9- EX-10.17 21 NON NEGOTIABLE SUB PROM NOTE, ARONSON EXHIBIT 10.17 THIS INSTRUMENT IS SUBJECT TO THE SUBORDINATION AGREEMENT DATED AS OF JULY 3, 1995, AMONG THE MAKER, THE PAYEE AND THE FIRST NATIONAL BANK OF BOSTON, WHICH AMONG OTHER THINGS, SUBORDINATES THE MAKER'S OBLIGATIONS HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE MAKER TO THE HOLDERS OF SENIOR OBLIGATIONS AS DEFINED THEREIN. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 12% NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE $1,000,000 July 3, 1995 Boston, Massachusetts FOR VALUE RECEIVED, the undersigned, SUBURBAN OSTOMY SUPPLY CO. INC., a Massachusetts corporation (the "Payor"), hereby promises to pay to Melvin Aronson (the "Holder"), the principal amount of One Million Dollars ($1,000,000), payable on the terms specified below. This Promissory Note (the "Note") is executed and delivered on this date in connection with the purchase by the Payor of seven thousand nine hundred and fifty-two (7952) shares of common stock of the Payor held by the Holder, all as is more fully described in a certain Stock Purchase and Redemption Agreement dated as of July 3, 1995 (the "Purchase Agreement"). 1. Payment of Principal. -------------------- (a) Scheduled Payment. Subject to Sections 1(b) and 6 hereof, the ----------------- principal amount of this Note shall be payable on June 30, 2000. (b) Mandatory Prepayment. Subject to Section 6 hereof, this Note shall be -------------------- subject to mandatory prepayment immediately upon the occurrence of a Liquidity Event (as defined in the Subordinated Debenture Purchase Agreement between the Payor and the Purchasers named therein dated as of July 3, 1995 (as amended or modified by such Purchasers or as the terms thereof may be waived by such Purchasers, the "Debenture Purchase Agreement")). 2. Interest. Interest shall accrue on the outstanding principal amount -------- hereof, commencing on the date hereof and continuing until the date of payment in full, at the rate of twelve percent (12%) per annum, based on the actual number of days elapsed over a 360-day year, and shall be payable quarterly in arrears, on the last days of March, June, September and December of each year, commencing on September 30, 1995. In addition, in the event the principal amount of the Note is not paid when due and payable (whether at stated maturity by acceleration or otherwise), the interest on such principal amount shall thereafter be increased to fourteen percent (14%). Any interest not paid when due and payable shall thereafter be paid on demand by the holder of this Note, together with a late charge of two percent (2%) of the amount of interest past due. 3. Manner of Payment. All payments shall be made in lawful money of the ----------------- United States of America in immediately available funds and shall be made at the address of the Holder for receiving notices hereunder or at such other address as the holder may designate for payments hereunder by notice given to the Payor. 4. Covenants. The Payor hereby covenants and agrees with the Holder to --------- observe and comply with all of the covenants of the Payor contained in Articles III and IV of the Debenture Purchase Agreement and to grant the Holder the rights of a "Purchaser" for purposes of such Articles III and IV. 5. Default: Remedy. Upon the occurrence of an Event of Default pursuant --------------- to Section 5(b), 5(c) or 5(d) hereof, the unpaid balance of the principal of this Note and all accrued interest thereon shall automatically become immediately due and payable without action on the part of the Holder. Upon the occurrence of an Event of Default pursuant to Section 5(a) hereof, subject to Section 6 hereof, the Holder may by written notice to the Payor declare this Note to be in default, whereupon the unpaid balance of the principal of this Note and all accrued interest thereon shall immediately become due and payable. If within five (5) business days following such declaration of default or an automatic default pursuant to Section 5(b), 5(c) or 5(d) the Payor shall fail to pay promptly in full the unpaid balance of this Note and all interest accrued thereon, subject to Section 6 hereof, the Holder shall be entitled to pursue all such remedies as he may have, at law or in equity, for the enforcement and collection hereof, and to receive in addition to such principal and interest all costs of collection (including reasonable attorney's fees). For the purpose of this Note, an "Event of Default" shall consist only of one or more of the following: (a) The Payor shall fail to make any payment of principal when due or payment of interest within five (5) business days of when due. (b) The Payor shall fail to comply with any of the terms and provisions of this Note and such failure shall continue for a period of five (5) business days after receipt by the Payor of notice of such failure from the Holder. -2- (c) The Payor shall default in the performance of any material term of the Debenture Purchase Agreement and the effect of such default is to cause the Debentures issued pursuant to such Agreement to become due and payable prior to their stated maturity. (d) The Payor shall default in the performance of any material term of the Debenture Purchase Agreement and the holders of the Debentures thereunder shall give notice to the Payor of their declaration that the Debentures are immediately due and payable prior to their stated maturity. 6. Transfer. Neither this Note nor any interest herein may be -------- transferred or endorsed to any other party, except that, subject to the right of set-off, the Holder may transfer this Note by way of gift to any of his lineal descendants or to a trust for the benefit of his lineal descendants. Neither this Note nor any interest herein has been registered under the Securities Act of 1933, as amended, or any applicable state securities laws. 7. Note to Bear Legend. This Note and any subsequent Note issued in ------------------- replacement hereof or any interest therein shall bear the following legend: "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT." 8. Miscellaneous. ------------- (a) This Note shall be binding upon and inure to the benefit of the Holder hereof and its permitted successors and assigns. This Note shall be binding upon the Payor and any successor to the principal business interests of the Payor, whether by merger or otherwise. (b) Any notice, request or communication pursuant to this Note shall be deemed duly given in the case of a delivered notice, when delivered by hand, or in the case of a mailed notice, when deposited in the mail, postage prepaid, or in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answer back received, addressed to the parties as follows: If to the Payor: Suburban Ostomy Supply Co. c/o Summit Partners III, L.P. One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey -3- With a copy to: Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra If to the Holder: Melvin Aronson c/o Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 With a copy to: Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Norman Bikales In the case of either Payor or Holder, to such other address as it may be designated by a notice to the other party in the manner herein provided. (c) Except as otherwise provide herein, the Payor hereby waives presentment, demand, protest, and notice of every kind in connection with the enforcement and collection of this Note. (d) The execution, delivery and performance of this Note shall be governed and construed in accordance with the laws of The Commonwealth of Massachusetts without giving effect to the conflict of laws provisions thereof. SUBURBAN OSTOMY SUPPLY CO., INC. ATTEST:____________________ By: /s/ Herbert Grey ----------------- Name: Herbert Grey 76110-1 -4- EX-10.18 22 NON-NEG PROM.NOTE MELVIN ARONSON EXHIBIT 10.18 THIS INSTRUMENT IS SUBJECT TO THE SUBORDINATION AGREEMENT DATED AS OF JULY 3, 1995, AMONG THE MAKER, THE PAYEE AND THE FIRST NATIONAL BANK OF BOSTON, WHICH AMONG OTHER THINGS, SUBORDINATES THE MAKER'S OBLIGATIONS HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE MAKER TO THE HOLDERS OF SENIOR OBLIGATIONS AS DEFINED THEREIN. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 12% NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE $1,000,000 July 3, 1995 Boston, Massachusetts FOR VALUE RECEIVED, the undersigned, SUBURBAN OSTOMY SUPPLY CO. INC., a Massachusetts corporation (the "Payor"), hereby promises to pay to Herbert Gray (the "Holder"), the principal amount of One Million Dollars ($1,000,000), payable on the terms specified below. This Promissory Note (the "Note") is executed and delivered on this date in connection with the purchase by the Payor of seven thousand nine hundred and fifty-two (7952) shares of common stock of the Payor held by the Holder, all as is more fully described in a certain Stock Purchase and Redemption Agreement dated as of July 3, 1995 (the "Purchase Agreement"). 1. Payment of Principal. -------------------- (a) Scheduled Payment. Subject to Sections 1(b) and 6 hereof, the ----------------- principal amount of this Note shall be payable on June 30, 2000. (b) Mandatory Prepayment. Subject to Section 6 hereof, this Note shall be -------------------- subject to mandatory prepayment immediately upon the occurrence of a Liquidity Event (as defined in the Subordinated Debenture Purchase Agreement between the Payor and the Purchasers named -1- therein dated as of July 3, 1995 (as amended or modified by such Purchasers or as the terms thereof may be waived by such Purchasers, the "Debenture Purchase Agreement")). 2. Interest. Interest shall accrue on the outstanding principal amount -------- hereof, commencing on the date hereof and continuing until the date of payment in full, at the rate of twelve percent (12%) per annum, based on the actual number of days elapsed over a 360-day year, and shall be payable quarterly in arrears, on the last days of March, June, September and December of each year, commencing on September 30, 1995. In addition, in the event the principal amount of the Note is not paid when due and payable (whether at stated maturity by acceleration or otherwise), the interest on such principal amount shall thereafter be increased to fourteen percent (14%). Any interest not paid when due and payable shall thereafter be paid on demand by the holder of this Note, together with a late charge of two percent (2%) of the amount of interest past due. 3. Manner of Payment. All payments shall be made in lawful money of the ----------------- United States of America in immediately available funds and shall be made at the address of the Holder for receiving notices hereunder or at such other address as the holder may designate for payments hereunder by notice given to the Payor. 4. Covenants. The Payor hereby covenants and agrees with the Holder to --------- observe and comply with all of the covenants of the Payor contained in Articles III and IV of the Debenture Purchase Agreement and to grant the Holder the rights of a "Purchaser" for purposes of such Articles III and IV. 5. Default; Remedy. Upon the occurrence of an Event of Default pursuant --------------- to Section 5(b), 5(c) or 5(d) hereof, the unpaid balance of the principal of this Note and all accrued interest thereon shall automatically become immediately due and payable without action on the part of the Holder. Upon the occurrence of an Event of Default pursuant to Section 5(a) hereof, subject to Section 6 hereof, the Holder may by written notice to the Payor declare this Note to be in default, whereupon the unpaid balance of the principal of this Note and all accrued interest thereon shall immediately become due and payable. If within five (5) business days following such declaration of default or an automatic default pursuant to Section 5(b), 5(c) or 5(d) the Payor shall fail to pay promptly in full the unpaid balance of this Note and all interest accrued thereon, subject to Section 6 hereof, the Holder shall be entitled to pursue all such remedies as he may have, at law or in equity, for the enforcement and collection hereof, and to receive in addition to such principal and interest all costs of collection (including reasonable attorney's fees). For the purpose of this Note, an "Event of Default" shall consist only of one or more of the following: (a) The Payor shall fail to make any payment of principal when due or payment of interest within five (5) business days of when due. -2- (b) The Payor shall fail to comply with any of the terms and provisions of this Note and such failure shall continue for a period of five (5) business days after receipt by the Payor of notice of such failure from the Holder. (c) The Payor shall default in the performance of any material term of the Debenture Purchase Agreement and the effect of such default is to cause the Debentures issued pursuant to such Agreement to become due and payable prior to their stated maturity. (d) The Payor shall default in the performance of any material term of the Debenture Purchase Agreement and the holders of the Debentures thereunder shall give notice to the Payor of their declaration that the Debentures are immediately due and payable prior to their stated maturity. 6. Transfer. Neither this Note nor any interest herein may be -------- transferred or endorsed to any other party, except that, subject to the right of set-off, the Holder may transfer this Note by way of gift to any of his lineal descendants or to a trust for the benefit of his lineal descendants. Neither this Note nor any interest herein has been registered under the Securities Act of 1933, as amended, or any applicable state securities laws. 7. Note to Bear Legend. This Note and any subsequent Note issued in ------------------- replacement hereof or any interest therein shall bear the following legend: "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT." 8. Miscellaneous. ------------- (a) This Note shall be binding upon and inure to the benefit of the Holder hereof and its permitted successors and assigns. This Note shall be binding upon the Payor and any successor to the principal business interests of the Payor, whether by merger or otherwise. (b) Any notice, request or communication pursuant to this Note shall be deemed duly given in the case of a delivered notice, when delivered by hand, or in the case of a mailed notice, when deposited in the mail, postage prepaid, or in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answer back received, addressed to the parties as follows: If to the Payor: Suburban Ostomy Supply Co. c/o Summit Partners III, L.P. -3- One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey With a copy to: Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra If to the Holder: Herbert Gray c/o Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 With a copy to: Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Norman Bikales In the case of either Payor or Holder, to such other address as it may be designated by a notice to the other party in the manner herein provided. (c) Except as otherwise provide herein, the Payor hereby waives presentment, demand, protest, and notice of every kind in connection with the enforcement and collection of this Note. (d) The execution, delivery and performance of this Note shall be governed and construed in accordance with the laws of The Commonwealth of Massachusetts without giving effect to the conflict of laws provisions thereof. SUBURBAN OSTOMY SUPPLY CO., INC. ATTEST: /s/ Melvin Aronson By: /s/ Donald H. Benovitz ------------------ ---------------------- Name: -4- EX-10.19 23 NON NEGOTIABLE PROM.NOTE DONALD BENOVITZ EXHIBIT 10.19 THIS INSTRUMENT IS SUBJECT TO THE SUBORDINATION AGREEMENT DATED AS OF JULY 3, 1995, AMONG THE MAKER, THE PAYEE AND THE FIRST NATIONAL BANK OF BOSTON, WHICH AMONG OTHER THINGS, SUBORDINATES THE MAKER'S OBLIGATIONS HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE MAKER TO THE HOLDERS OF SENIOR OBLIGATIONS AS DEFINED THEREIN. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 12% NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE $375,000 July 3, 1995 Boston, Massachusetts FOR VALUE RECEIVED, the undersigned, SUBURBAN OSTOMY SUPPLY CO. INC., a Massachusetts corporation (the "Payor"), hereby promises to pay to Donald Benovitz (the "Holder"), the principal amount of Three Hundred Seventy-Five Thousand Dollars ($375,000), payable on the terms specified below. This Promissory Note (the "Note") is executed and delivered on this date in connection with the purchase by the Payor of two thousand nine hundred eighty- two (2982) shares of common stock of the Payor held by the Holder, all as is more fully described in a certain Stock Purchase and Redemption Agreement dated as of July 3, 1995 (the "Purchase Agreement"). 1. Payment of Principal. -------------------- (a) Scheduled Payment. Subject to Sections 1(b) and 6 hereof, the ----------------- principal amount of this Note shall be payable on June 30, 2000. (b) Mandatory Prepayment. Subject to Section 6 hereof, this Note shall be -------------------- subject to mandatory prepayment immediately upon the occurrence of a Liquidity Event (as defined in the Subordinated Debenture Purchase Agreement between the Payor and the Purchasers named therein dated as of July 3, 1995 (as amended or modified by such Purchasers or as the terms thereof may be waived by such Purchasers, the "Debenture Purchase Agreement")). 2. Interest. Interest shall accrue on the outstanding principal amount -------- hereof, commencing on the date hereof and continuing until the date of payment in full, at the rate of twelve percent (12%) per annum, based on the actual number of days elapsed over a 360-day year, and shall be payable quarterly in arrears, on the last days of March, June, September and December of each year, commencing on September 30, 1995. In addition, in the event the principal amount of the Note is not paid when due and payable (whether at stated maturity by acceleration or otherwise), the interest on such principal amount shall thereafter be increased to fourteen percent (14%). Any interest not paid when due and payable shall thereafter be paid on demand by the holder of this Note, together with a late charge of two percent (2%) of the amount of interest past due. 3. Manner of Payment. All payments shall be made in lawful money of the ----------------- United States of America in immediately available funds and shall be made at the address of the Holder for receiving notices hereunder or at such other address as the holder may designate for payments hereunder by notice given to the Payor. 4. Covenants. The Payor hereby covenants and agrees with the Holder to --------- observe and comply with all of the covenants of the Payor contained in Articles III and IV of the Debenture Purchase Agreement and to grant the Holder the rights of a "Purchaser" for purposes of such Articles III and IV. 5. Default; Remedy. Upon the occurrence of an Event of Default pursuant --------------- to Section 5(b), 5(c) or 5(d) hereof, the unpaid balance of the principal of this Note and all accrued interest thereon shall automatically become immediately due and payable without action on the part of the Holder. Upon the occurrence of an Event of Default pursuant to Section 5(a) hereof, subject to Section 6 hereof, the Holder may by written notice to the Payor declare this Note to be in default, whereupon the unpaid balance of the principal of this Note and all accrued interest thereon shall immediately become due and payable. If within five (5) business days following such declaration of default or an automatic default pursuant to Section 5(b), 5(c) or 5(d) the Payor shall fail to pay promptly in full the unpaid balance of this Note and all interest accrued thereon, subject to Section 6 hereof, the Holder shall be entitled to pursue all such remedies as he may have, at law or in equity, for the enforcement and collection hereof, and to receive in addition to such principal and interest all costs of collection (including reasonable attorney's fees). For the purpose of this Note, an "Event of Default" shall consist only of one or more of the following: (a) The Payor shall fail to make any payment of principal when due or payment of interest within five (5) business days of when due. -2- (b) The Payor shall fail to comply with any of the terms and provisions of this Note and such failure shall continue for a period of five (5) business days after receipt by the Payor of notice of such failure from the Holder. (c) The Payor shall default in the performance of any material term of the Debenture Purchase Agreement and the effect of such default is to cause the Debentures issued pursuant to such Agreement to become due and payable prior to their stated maturity. (d) The Payor shall default in the performance of any material term of the Debenture Purchase Agreement and the holders of the Debentures thereunder shall give notice to the Payor of their declaration that the Debentures are immediately due and payable prior to their stated maturity. 6. Transfer. Neither this Note nor any interest herein may be -------- transferred or endorsed to any other party, except that, subject to the right of set-off, the Holder may transfer this Note by way of gift to any of his lineal descendants or to a trust for the benefit of his lineal descendants. Neither this Note nor any interest herein has been registered under the Securities Act of 1933, as amended, or any applicable state securities laws. 7. Note to Bear Legend. This Note and any subsequent Note issued in ------------------- replacement hereof or any interest therein shall bear the following legend: "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT." 8. Miscellaneous. ------------- (a) This Note shall be binding upon and inure to the benefit of the Holder hereof and its permitted successors and assigns. This Note shall be binding upon the Payor and any successor to the principal business interests of the Payor, whether by merger or otherwise. (b) Any notice, request or communication pursuant to this Note shall be deemed duly given in the case of a delivered notice, when delivered by hand, or in the case of a mailed notice, when deposited in the mail, postage prepaid, or in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answer back received, addressed to the parties as follows: If to the Payor: Suburban Ostomy Supply Co. c /o Summit Partners III, L.P. -3- One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey With a copy to: Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra If to the Holder: Donald Benovitz c/o Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 With a copy to: Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Norman Bikales In the case of either Payor or Holder, to such other address as it may be designated by a notice to the other party in the manner herein provided. (c) Except as otherwise provide herein, the Payor hereby waives presentment, demand, protest, and notice of every kind in connection with the enforcement and collection of this Note. (d) The execution, delivery and performance of this Note shall be governed and construed in accordance with the laws of The Commonwealth of Massachusetts without giving effect to the conflict of laws provisions thereof. SUBURBAN OSTOMY SUPPLY CO., INC. ATTEST: /s/ Melvin Aronson By: /s/ Herbert Gray ------------------- ----------------- Name: -4- EX-10.20 24 NON NEGOTIABLE PROM.NOTE STEVEN ASCHETTINO EXHIBIT 10.20 THIS INSTRUMENT IS SUBJECT TO THE SUBORDINATION AGREEMENT DATED AS OF JULY 3, 1995, AMONG THE MAKER, THE PAYEE AND THE FIRST NATIONAL BANK OF BOSTON, WHICH AMONG OTHER THINGS, SUBORDINATES THE MAKER'S OBLIGATIONS HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE MAKER TO THE HOLDERS OF SENIOR OBLIGATIONS AS DEFINED THEREIN. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 12% NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE $62,500 July 3, 1995 Boston, Massachusetts FOR VALUE RECEIVED, the undersigned, SUBURBAN OSTOMY SUPPLY CO. INC., a Massachusetts corporation (the "Payor"), hereby promises to pay to Stephen Aschettino (the "Holder"), the principal amount of Sixty-Two Thousand Five Hundred Dollars ($62,500), payable on the terms specified below. This Promissory Note (the "Note") is executed and delivered on this date in connection with the purchase by the Payor of four hundred ninty-seven (497) shares of common stock of the Payor held by the Holder, all as is more fully described in a certain Stock Purchase and Redemption Agreement dated as of July 3, 1995 (the "Purchase Agreement"). 1. Payment of Principal. -------------------- (a) Scheduled Payment. Subject to Sections 1(b) and 6 hereof, the ----------------- principal amount of this Note shall be payable on June 30, 2000. (b) Mandatory Prepayment. Subject to Section 6 hereof, this Note shall be -------------------- subject to mandatory prepayment immediately upon the occurrence of a Liquidity Event (as defined in the Subordinated Debenture Purchase Agreement between the Payor and the Purchasers named -1- therein dated as of July 3, 1995 (as amended or modified by such Purchasers or as the terms thereof may be waived by such Purchasers, the "Debenture Purchase Agreement")). 2. Interest. Interest shall accrue on the outstanding principal amount -------- hereof, commencing on the date hereof and continuing until the date of payment in full, at the rate of twelve percent (12%) per annum, based on the actual number of days elapsed over a 360-day year, and shall be payable quarterly in arrears, on the last days of March, June, September and December of each year, commencing on September 30, 1995. In addition, in the event the principal amount of the Note is not paid when due and payable (whether at stated maturity by acceleration or otherwise), the interest on such principal amount shall thereafter be increased to fourteen percent (14%). Any interest not paid when due and payable shall thereafter be paid on demand by the holder of this Note, together with a late charge of two percent (2%) of the amount of interest past due. 3. Manner of Payment. All payments shall be made in lawful money of the ----------------- United States of America in immediately available funds and shall be made at the address of the Holder for receiving notices hereunder or at such other address as the holder may designate for payments hereunder by notice given to the Payor. 4. Covenants. The Payor hereby covenants and agrees with the Holder to --------- observe and comply with all of the covenants of the Payor contained in Articles III and IV of the Debenture Purchase Agreement and to grant the Holder the rights of a "Purchaser" for purposes of such Articles III and IV. 5. Default; Remedy. Upon the occurrence of an Event of Default pursuant --------------- to Section 5(b), 5(c) or 5(d) hereof, the unpaid balance of the principal of this Note and all accrued interest thereon shall automatically become immediately due and payable without action on the part of the Holder. Upon the occurrence of an Event of Default pursuant to Section 5(a) hereof, subject to Section 6 hereof, the Holder may by written notice to the Payor declare this Note to be in default, whereupon the unpaid balance of the principal of this Note and all accrued interest thereon shall immediately become due and payable. If within five (5) business days following such declaration of default or an automatic default pursuant to Section 5(b), 5(c) or 5(d) the Payor shall fail to pay promptly in full the unpaid balance of this Note and all interest accrued thereon, subject to Section 6 hereof, the Holder shall be entitled to pursue all such remedies as he may have, at law or in equity, for the enforcement and collection hereof, and to receive in addition to such principal and interest all costs of collection (including reasonable attorney's fees). For the purpose of this Note, an "Event of Default" shall consist only of one or more of the following: (a) The Payor shall fail to make any payment of principal when due or payment of interest within five (5) business days of when due. -2- (b) The Payor shall fail to comply with any of the terms and provisions of this Note and such failure shall continue for a period of five (5) business days after receipt by the Payor of notice of such failure from the Holder. (c) The Payor shall default in the performance of any material term of the Debenture Purchase Agreement and the effect of such default is to cause the Debentures issued pursuant to such Agreement to become due and payable prior to their stated maturity. (d) The Payor shall default in the performance of any material term of the Debenture Purchase Agreement and the holders of the Debentures thereunder shall give notice to the Payor of their declaration that the Debentures are immediately due and payable prior to their stated maturity. 6. Transfer. Neither this Note nor any interest herein may be -------- transferred or endorsed to any other party, except that, subject to the right of set-off, the Holder may transfer this Note by way of gift to any of his lineal descendants or to a trust for the benefit of his lineal descendants. Neither this Note nor any interest herein has been registered under the Securities Act of 1933, as amended, or any applicable state securities laws. 7. Note to Bear Legend. This Note and any subsequent Note issued in ------------------- replacement hereof or any interest therein shall bear the following legend: "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT." 8. Miscellaneous. ------------- (a) This Note shall be binding upon and inure to the benefit of the Holder hereof and its permitted successors and assigns. This Note shall be binding upon the Payor and any successor to the principal business interests of the Payor, whether by merger or otherwise. (b) Any notice, request or communication pursuant to this Note shall be deemed duly given in the case of a delivered notice, when delivered by hand, or in the case of a mailed notice, when deposited in the mail, postage prepaid, or in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answer back received, addressed to the parties as follows: If to the Payor: Suburban Ostomy Supply Co. c/o Summit Partners III, L.P. -3- One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey With a copy to: Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra If to the Holder: Stephen Aschettino c/o Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 With a copy to: Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Norman Bikales In the case of either Payor or Holder, to such other address as it may be designated by a notice to the other party in the manner herein provided. (c) Except as otherwise provide herein, the Payor hereby waives presentment, demand, protest, and notice of every kind in connection with the enforcement and collection of this Note. (d) The execution, delivery and performance of this Note shall be governed and construed in accordance with the laws of The Commonwealth of Massachusetts without giving effect to the conflict of laws provisions thereof. SUBURBAN OSTOMY SUPPLY CO., INC. ATTEST: /s/ Melvin Aronson By: /s/ Herbert Gray ------------------- ----------------- Name: -4- EX-10.21 25 NON-NEGOTIABLE SUB. PROM NOTE PATRICK BOHAN EXHIBIT 10.21 THIS INSTRUMENT IS SUBJECT TO THE SUBORDINATION AGREEMENT DATED AS OF JULY 3, 1995, AMONG THE MAKER, THE PAYEE AND THE FIRST NATIONAL BANK OF BOSTON, WHICH AMONG OTHER THINGS, SUBORDINATES THE MAKER'S OBLIGATIONS HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE MAKER TO THE HOLDERS OF SENIOR OBLIGATIONS AS DEFINED THEREIN. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 12% NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE $62,500 July 3, 1995 Boston, Massachusetts FOR VALUE RECEIVED, the undersigned, SUBURBAN OSTOMY SUPPLY CO. INC., a Massachusetts corporation (the "Payor"), hereby promises to pay to Patrick Bohan (the "Holder"), the principal amount of Sixty-Two Thousand Five Hundred Dollars ($62,500), payable on the terms specified below. This Promissory Note (the "Note") is executed and delivered on this date in connection with the purchase by the Payor of four hundred ninety-seven (497) shares of common stock of the Payor held by the Holder, all as is more fully described in a certain Stock Purchase and Redemption Agreement dated as of July 3, 1995 (the "Purchase Agreement"). 1. Payment of Principal. -------------------- (a) Scheduled Payment. Subject to Sections 1(b) and 6 hereof, the ----------------- principal amount of this Note shall be payable on June 30, 2000. (b) Mandatory Prepayment. Subject to Section 6 hereof, this Note shall be -------------------- subject to mandatory prepayment immediately upon the occurrence of a Liquidity Event (as defined in the Subordinated Debenture Purchase Agreement between the Payor and the Purchasers named -1- therein dated as of July 3, 1995 (as amended or modified by such Purchasers or as the terms thereof may be waived by such Purchasers, the "Debenture Purchase Agreement")). 2. Interest. Interest shall accrue on the outstanding principal amount -------- hereof, commencing on the date hereof and continuing until the date of payment in full, at the rate of twelve percent (12%) per annum, based on the actual number of days elapsed over a 360-day year, and shall be payable quarterly in arrears, on the last days of March, June, September and December of each year, commencing on September 30, 1995. In addition, in the event the principal amount of the Note is not paid when due and payable (whether at stated maturity by acceleration or otherwise), the interest on such principal amount shall thereafter be increased to fourteen percent (14%). Any interest not paid when due and payable shall thereafter be paid on demand by the holder of this Note, together with a late charge of two percent (2%) of the amount of interest past due. 3. Manner of Payment. All payments shall be made in lawful money of the ----------------- United States of America in immediately available funds and shall be made at the address of the Holder for receiving notices hereunder or at such other address as the holder may designate for payments hereunder by notice given to the Payor. 4. Covenants. The Payor hereby covenants and agrees with the Holder to --------- observe and comply with all of the covenants of the Payor contained in Articles III and IV of the Debenture Purchase Agreement and to grant the Holder the rights of a "Purchaser" for purposes of such Articles III and IV. 5. Default; Remedy. Upon the occurrence of an Event of Default pursuant --------------- to Section 5(b), 5(c) or 5(d) hereof, the unpaid balance of the principal of this Note and all accrued interest thereon shall automatically become immediately due and payable without action on the part of the Holder. Upon the occurrence of an Event of Default pursuant to Section 5(a) hereof, subject to Section 6 hereof, the Holder may by written notice to the Payor declare this Note to be in default, whereupon the unpaid balance of the principal of this Note and all accrued interest thereon shall immediately become due and payable. If within five (5) business days following such declaration of default or an automatic default pursuant to Section 5(b), 5(c) or 5(d) the Payor shall fail to pay promptly in full the unpaid balance of this Note and all interest accrued thereon, subject to Section 6 hereof, the Holder shall be entitled to pursue all such remedies as he may have, at law or in equity, for the enforcement and collection hereof, and to receive in addition to such principal and interest all costs of collection (including reasonable attorney's fees). For the purpose of this Note, an "Event of Default" shall consist only of one or more of the following: (a) The Payor shall fail to make any payment of principal when due or payment of interest within five (5) business days of when due. -2- (b) The Payor shall fail to comply with any of the terms and provisions of this Note and such failure shall continue for a period of five (5) business days after receipt by the Payor of notice of such failure from the Holder. (c) The Payor shall default in the performance of any material term of the Debenture Purchase Agreement and the effect of such default is to cause the Debentures issued pursuant to such Agreement to become due and payable prior to their stated maturity. (d) The Payor shall default in the performance of any material term of the Debenture Purchase Agreement and the holders of the Debentures thereunder shall give notice to the Payor of their declaration that the Debentures are immediately due and payable prior to their stated maturity. 6. Transfer. Neither this Note nor any interest herein may be -------- transferred or endorsed to any other party, except that, subject to the right of set-off, the Holder may transfer this Note by way of gift to any of his lineal descendants or to a trust for the benefit of his lineal descendants. Neither this Note nor any interest herein has been registered under the Securities Act of 1933, as amended, or any applicable state securities laws. 7. Note to Bear Legend. This Note and any subsequent Note issued in ------------------- replacement hereof or any interest therein shall bear the following legend: "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT." 8. Miscellaneous. ------------- (a) This Note shall be binding upon and inure to the benefit of the Holder hereof and its permitted successors and assigns. This Note shall be binding upon the Payor and any successor to the principal business interests of the Payor, whether by merger or otherwise. (b) Any notice, request or communication pursuant to this Note shall be deemed duly given in the case of a delivered notice, when delivered by hand, or in the case of a mailed notice, when deposited in the mail, postage prepaid, or in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answer back received, addressed to the parties as follows: If to the Payor: Suburban Ostomy Supply Co. c/o Summit Partners III, L.P. -3- One Boston Place Boston, MA 02108 Attn: Joseph F. Trustey With a copy to: Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Attn: James Westra If to the Holder: Patrick Bohan c/o Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 With a copy to: Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Norman Bikales In the case of either Payor or Holder, to such other address as it may be designated by a notice to the other party in the manner herein provided. (c) Except as otherwise provide herein, the Payor hereby waives presentment, demand, protest, and notice of every kind in connection with the enforcement and collection of this Note. (d) The execution, delivery and performance of this Note shall be governed and construed in accordance with the laws of The Commonwealth of Massachusetts without giving effect to the conflict of laws provisions thereof. SUBURBAN OSTOMY SUPPLY CO., INC. ATTEST: /s/ Melvin Aronson By: /s/ Herbert Grey ------------------- ----------------- Name: -4- EX-10.22 26 CREDIT AGREEMENT FIRST NATIONAL BANK OF BOSTON EXHIBIT 10.22 ________________________________________________________________ ________________________________________________________________ CREDIT AGREEMENT by and between SUBURBAN OSTOMY SUPPLY CO., INC. and THE FIRST NATIONAL BANK OF BOSTON Dated As of July 3, 1995 ________________________________________________________________ ________________________________________________________________ Schedule 6.10 Tax Status.................................................. Schedule 6.15 Certain Transactions........................................ Schedule 6.16 Employee Benefit Plans...................................... Schedule 6.18 Environmental Compliance.................................... Schedule 6.22 Real Property; Leases....................................... Schedule 6.24 Fiscal Quarters............................................. Schedule 8.1 Restrictions on Indebtedness..................................... Schedule 8.2 Restrictions on Liens, Etc. ..................................... Schedule 8.3 Restrictions on Investments...................................... CREDIT AGREEMENT This CREDIT AGREEMENT is made as of the 3rd day of July, 1995, by and between SUBURBAN OSTOMY SUPPLY CO., INC., a Massachusetts corporation (the "Borrower"), having its principal place of business at 75 October Hill Road, Holliston, Massachusetts 01746, and THE FIRST NATIONAL BANK OF BOSTON, a national banking association (the "Bank"), having an office at 100 Federal Street, Boston, Massachusetts 02110. 1. DEFINITIONS AND RULES OF INTERPRETATION. --------------------------------------- 1.1 Definitions. The following terms shall have the meanings set forth in ----------- this Section 1 or elsewhere in the provisions of this Agreement referred to below: Accounts and Accounts Receivable. See Security Agreement. -------------------------------- Account Debtor. A Person who is an obligor to Borrower under any Account. -------------- Acquisition Agreement. Stock Purchase and Redemption Agreement by and --------------------- among the Borrower, Summit Ventures III, L.P., Summit Investors II, L.P., Summit Subordinated Debt Fund, L.P., The Bear Stearns & Companies, Inc. and certain stockholders of the Borrower, dated as of July 3, 1995. Affiliate means, with respect to any Person, any other Person directly or --------- indirectly controlling, controlled by or under direct or indirect common control with such Person, and shall include (i) any officer or director or general partner of such Person and (ii) any Person of which such Person or any Affiliate (as defined in clause (i) above) of such Person shall, directly or indirectly, beneficially own either at least 10% of the outstanding equity securities having the general power to vote or at least 10% of all equity interests. Agreement. This Credit Agreement, including the Schedules and Exhibits --------- hereto. Balance Sheet Date. September 3, 1994. ------------------ Bank. The First National Bank of Boston, its successors and assigns, and ---- any other Person who becomes an assignee of any rights thereof. Bank's Head Office. The Bank's head office located at 100 Federal Street, ------------------ Boston, Massachusetts 02110, or at such other location as the Bank may designate in writing from time to time. Bank's Special Counsel. Kirkpatrick & Lockhart, LLP. ---------------------- Base Rate. The higher of (a) the annual rate of interest announced from --------- time to time by Bank at its head office in Boston, Massachusetts as its "base rate" and (b) one half of one percent (1/2%) above the overnight Federal Funds Effective Rate as published by the Board of Governors of the Federal Reserve System, as in effect from time to time (rounded upwards, if necessary, to the next one-eighth of one percent. Base Rate Loan. Any Revolving Credit Loans bearing interest determined with -------------- reference to the Base Rate. Book Value. As defined by generally accepted accounting principles. ---------- Borrower. As defined in the preamble hereto. -------- Borrower's Key Officers: Herbert P. Gray, Donald H. Benovitz, Melvin ----------------------- Aronson, Patrick Bohan and Stephen Aschettino. Business Day. Any day (other than a Saturday or Sunday) on which banking ------------ institutions in Boston, Massachusetts, are open for the transaction of a substantial part of their commercial banking business and with respect to all notices and determinations in connection with and payments of principal and interest on LIBOR Rate Loans, any day that is a London Banking Day. Capital Expenditures. For any period, amounts added or required to be -------------------- added to the fixed assets account on the consolidated balance sheet of the Borrower, prepared in accordance with generally accepted accounting principles, in respect of (i) the acquisition, construction, improvement or replacement of land, buildings, machinery, equipment, leaseholds and any other real or personal property, and (ii) to the extent not included in clause (i) above, expenditures on account of materials, contract labor and direct labor relating thereto (excluding expenditures properly expensed as repairs and maintenance in accordance with generally accepted accounting principles). Capitalized Lease Obligations. The amount of the liability reflecting the ----------------------------- aggregate discounted amount of future payments under all Capitalized Leases calculated in accordance with generally accepted accounting principles. - 2 - Capitalized Leases. Any lease that is capitalized on the balance sheet of ------------------ the lessee in accordance with generally accepted accounting principles. CERCLA. See Section 6.18. ------ Closing Date. The first date on which the conditions set forth in Sections ------------ 10 and 11 have been satisfied and any Revolving Credit Loan is made. Code. The Federal Internal Revenue Code of 1986 and the rules and ---- regulations thereunder, collectively, as the same may from time to time be supplemented or amended and remains in effect. Collateral. All of the property, rights and interests of the Borrower that ---------- are or are intended to be subject to the security interests and liens and mortgages created by the Security Documents. Commitment. $16,000,000.00 as such amount shall be reduced in accordance ---------- with Section 2.1 and as such amount may be irrevocably reduced by the Borrower pursuant to Section 2.3. Consolidated or consolidated. With reference to any term defined herein, ---------------------------- shall mean that term as applied to the accounts of the Borrower and its Subsidiaries, consolidated in accordance with generally accepted accounting principles. Consolidated Net Income (or Deficit). The consolidated net income (or ------------------------------------ deficit) of any Person, after deduction of all expenses, taxes, and other proper charges, determined in accordance with generally accepted accounting principles, after eliminating therefrom all extraordinary items of income which include, without limitation, (i) any gain resulting from the sale of capital assets, (ii) any gain arising from any write-up of assets, (iii) any gain arising from the acquisition of any securities of Borrower, and (iv) any extraordinary and nonrecurring gains. Creditor(s). Holder(s) of Subordinated Indebtedness as defined in the ----------- Subordination Agreements. Debenture Agreement. Subordinated Debenture Purchase Agreement dated as of ------------------- July 3, 1995 among Borrower, Summit Subordinated Debt Fund, L.P. and Summit Investors II, L.P. Default. See Section 12.1., provided that the application of the Default ------- Rate shall not be construed as a waiver of or limitation of the Bank's rights under this Agreement, the Security Documents or any of the other Loan Documents. Default Rate. See Section 4.7. ------------ Distribution means, with respect to any Person: ------------ - 3 - (i) the declaration or payment of any dividend, including dividends payable in shares of capital stock of such Person, on or in respect of any shares of any class of capital stock of such Person; (ii) the purchase or redemption of any shares of any class of capital stock of such Person (or of options, warrants or other rights for the purchase of such shares), directly, indirectly through a Subsidiary of such Person or otherwise; (iii) any other distribution on or in respect of any shares of any class of equity of or beneficial interest in such Person; (iv) any payment of principal or interest with respect to, or any purchase or redemption of, any Indebtedness of such Person which by its terms is subordinated to the payment of the Senior Debt; and (v) any payment, loan or advance (including any salary, management fee or other fee, benefit, bonus or any other compensation in respect of services provided to such Person) by the Borrower to, or any other Investment by the Borrower in, the holder of any shares of any class of the capital stock of or equity interest in the Borrower. Dollars or $. Dollars in lawful currency of the United States of America. ------------ Drawdown Date. The date on which any Revolving Credit Loan is made or is ------------- to be made. EBITDA. For any period, the sum of (x) the Consolidated Net Income (or ------ deficit) of the Borrower and its Subsidiaries for such period plus (y) all ---- amounts deducted in computing such Consolidated Net Income in respect of (i) taxes based upon or measured by income, (ii) Total Interest Expense, (iii) depreciation and amortization, and (iv) other non-cash charges reducing Consolidated Net Income. Eligible Accounts Receivable means an Account Receivable owing to Borrower ---------------------------- which meets the following requirements: (1) it is genuine and in all respects what it purports to be; (2) it has been outstanding for no longer than sixty (60) days from the date of shipment or the date that the invoice is rendered to an Account Debtor, whichever is earlier, unless the Borrower has provided the Account Debtor sixty (60) day terms and so notified the Bank, that it has been outstanding for no longer than ninety (90) days rather than sixty (60) days; (3) it arises from: either (a) the performance of services by Borrower and Borrower reasonably believes that such services have been fully performed and acknowledged - 4 - and accepted by the Account Debtor with respect thereto and Borrower has no knowledge that the Account Debtor has claimed that such services have not been fully performed acknowledged and accepted (and upon obtaining such knowledge the Account Receivable shall cease to be an Eligible Account Receivable); or (b) the sale or lease of goods by Borrower, including C.O.D. sales, and (i) such goods comply with such Account Debtor's specifications (if any) and have been delivered to and not rejected by such Account Debtor and (ii) Borrower has possession of, or has delivered to Lender at Lender's request, shipping and delivery receipts evidencing such shipment; (4) it is evidenced by an invoice or invoices rendered to the Account Debtor with respect thereto which is or are dated not later than the date of shipment or performance and requires payment from such Account Debtor within sixty (60) days; (5) it is not subject to any prior assignment, claim, lien, security interest or encumbrance whatsoever, other than as permitted hereunder; (6) it is not subject to setoff, counterclaim, credit, allowance (except any allowance which has been deducted in computing the net amount of the applicable invoice as shown in the original schedule furnished to Lender identifying such Account Receivable) or adjustment by the Account Debtor with respect thereto, or to any claim by such Account Debtor denying liability thereunder in whole or in part, and such Account Debtor has not refused to accept and/or has not returned or offered or attempted to return any of the goods or services which are the subject of such Account Receivable; (7) Borrower has no knowledge either directly or indirectly of any proceedings or actions which are threatened or pending against the Account Debtor with respect thereto or to which such Account Debtor is a party which might result in any material adverse change in such Account Debtor's financial condition or in its ability to pay any Account Receivable in full when due; (8) it does not arise out of a contract or order which, by its terms, forbids or makes void or unenforceable the assignment by Borrower to Lender of the Account Receivable arising with respect thereto; (9) the Account Debtor with respect thereto is not a director, officer, employee, agent, or any Affiliate of Borrower; (10) the Account Debtor with respect thereto is a resident or citizen of or is located within the United States of America or Canada unless the sale of goods giving rise - 5 - to the Account Receivable is on letter of credit, acceptance or other credit support terms satisfactory to Bank; (11) it is not an Account Receivable arising from a "sale or return", "consignment", or subject to any other repurchase or return agreement; (12) it is not an Account Receivable with respect to which possession and/or control of the goods sold giving rise thereto is held, maintained or retained by Borrower (or by any agent or custodian of Borrower) for the account of or subject to further and/or future direction from the Account Debtor thereof; (13) it is not an Account Receivable which in any way fails to meet or violates any warranty, representation or covenant contained in this Loan Agreement or any other agreement relating directly or indirectly to Borrower's Accounts Receivable; (14) it does not arise from a sale of goods which is not in the ordinary course of Borrower's business; (15) if the Account Debtor is the United States of America or any department, agency or instrumentality thereof, Borrower has assigned its right to payment of such Account Receivable to lender pursuant to the Assignment of Claims Act of 1940, as amended; (16) if the Account Receivable is evidenced by chattel paper or instruments (a) the Lender shall have specifically agreed to include such Account Receivable as an Eligible Account Receivable and (b) the originals of such chattel paper or instruments have been endorsed and/or assigned and delivered to Lender in a manner satisfactory to Lender; and (17) it is not an Account Receivable owed by an Ineligible Account Debtor. An "Ineligible Account Debtor" is an Account Debtor for which 35% or more of the total Accounts Receivables it owes to the Borrower do not qualify as Eligible Accounts Receivable under the criteria set forth in (1) - (16) immediately preceding. An Account Receivable which is at any time an Eligible Account Receivable, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Account Receivable. Eligible Inventory means such of Borrower's Inventory, at Book Value, which ------------------ is and at all times shall continue to be acceptable to Lender in all respects. Criteria for eligibility shall be fixed and revised from time to time by Lender in its reasonable discretion and judgment - 6 - consistently applied. Without limiting the generality of the foregoing, Inventory which meets the following criteria shall be deemed Eligible Inventory: (a) Borrower has good, indefeasible and merchantable title; (b) it is located at a plant or other facility of Borrower in the United States listed in Schedule 6.22, and not in transit (other than from one of Borrower's facilities to another); (c) Lender has a perfected first priority security interest pursuant to the Loan Documents and which is subject to no other Lien whatsoever except Permitted Liens; (d) of good and merchantable quality, free from material defects; (e) it is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties; and (f) the completion of manufacture and sale or other disposition of which by Lender shall not require the consent of any Person, and shall not constitute a default under any contract or agreement to which Borrower is a party or to which such Inventory is subject. Employee Benefit Plan. Any employee benefit plan within the meaning of --------------------- Section 3(3) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate, other than a Multiemployer Plan. Environmental Laws. See Section 6.18(a). ------------------ ERISA. The Employee Retirement Income Security Act of 1974, as amended and ----- in effect from time to time. ERISA Affiliate. Any Person which is treated as a single employer with the --------------- Borrower under Section 414 of the Code. ERISA Reportable Event. A reportable event with respect to a Guaranteed ---------------------- Pension Plan within the meaning of Section 4043 of ERISA and the regulations promulgated thereunder as to which the requirement of notice has not been waived. Event of Default. See Section 12.1. ---------------- Excluded Capital Expenditures. An amount of Capitalized Expenditures: (i) ----------------------------- up to $600,000.00, (ii) expended by the Borrower during a period commencing with the Closing Date - 7 - and ending on December 31, 1996, and (iii) expended by the Borrower for the sole purpose of the purchase, installation and development of the New Computer System. Federal Funds Effective Rate means, for any day, (i) the fluctuating rate ---------------------------- equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve Bank arranged by federal funds brokers, as such weighted average is published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York or (ii) if such rate is not so published for such Business Day, the average of the quotations for such day on such transactions received by the Bank from three federal funds brokers of recognized standing selected by the Bank. Fiscal Year. The Borrower's fiscal year ending on or about August 31. ----------- Generally accepted accounting principles. (a) When used in Section 9, ---------------------------------------- whether directly or indirectly through reference to a capitalized term used therein, means (i) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (ii) to the extent consistent with such principles, the accounting practices of the Borrower reflected in its financial statements for the year ended on the Balance Sheet Date and (b) when used in general, other than as provided above, means principles that are (i) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time and (ii) consistently applied with past financial statements of the Borrower adopting the same principles; provided that in each case referred to in this definition of "generally accepted accounting principles" a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. Guaranteed Pension Plan. Any employee pension benefit plan within the ----------------------- meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. Hazardous Substances. See Section 6.18(b). -------------------- Indebtedness. All obligations, contingent and otherwise, that in ------------ accordance with generally accepted accounting principles should be classified upon the obligor's balance sheet as liabilities, including in any event and whether or not so classified: (i) liabilities secured by any Lien existing on property owned or acquired by the Borrower, whether or not the liability secured thereby shall have been assumed; (ii) Capitalized Lease Obligations; (iii) liabilities in respect of mandatory redemption, repurchase or dividend obligations with respect to capital stock (or other evidence of beneficial interest); (iv) obligations under the Series A Preferred Stock; and (v) all guarantees, endorsements and other contingent obligations whether direct or indirect in respect of indebtedness - 8 - of others, including, without limitation, any obligation to supply funds to or in any manner to invest in, directly or indirectly, the debtor, to purchase indebtedness, or to assure the owner of indebtedness against loss, through an agreement to purchase goods, supplies, or services for the purpose of enabling the debtor to make payment of the indebtedness held by such owner or otherwise, and the obligations to reimburse the issuer in respect of any letters of credit. Ineligible Account Debtor. See definition of Eligible Accounts Receivable. ------------------------- Intellectual Property. See Section 6.6. --------------------- Interest Payment Date. August 1, 1995 and the first day of each succeeding --------------------- calendar month. Interest Period with respect to each LIBOR Rate Loan, a period of one, two --------------- and three or six consecutive months as selected or deemed selected by the Borrower at least three (3) Business Days prior to a Drawdown Date for a Revolving Credit Loan; or if a Revolving Credit Loan is already outstanding, at least three (3) Business Days prior to the end of the then current Interest Period. However, no Interest Period may be selected which would end beyond the Maturity Date of the Note. If the last day of an Interest Period would otherwise occur on a day which is not a Business Day, such last day shall be extended to the next succeeding Business Day, except, if such Interest Period is for a LIBOR ------ Rate Loan and such extension would cause such last day to occur in a new calendar month, then such last day shall occur on the next preceding Business Day. The term Interest Period with respect to each Base Rate Loan shall mean consecutive period of one (1) day each. Inventory. See Security Agreement. --------- Investments. All expenditures made and all liabilities incurred ----------- (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time: (a) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (b) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (c) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (d) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (b) may be deducted when paid; and (e) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. Key Man Life Insurance Policies. See Section 7.16. ------------------------------- - 9 - Lease Collateral Agreements. With respect to each Lease, (i) an estoppel --------------------------- certificate executed by the Borrower and each lessor; (ii) a Landlord's Waiver and Agreement from each lessor, pursuant to which such lessor agrees to subordinate its rights under the Lease and any lessor's or landlord's lien with respect to property of the Borrower to the lien of the Security Documents and agrees not to terminate the Lease for Borrower's default without notice and an opportunity to cure given to the Bank and to recognize the Bank or its successor in interest as tenant under the Lease in the event of a sale or transfer of Borrower's interest under the Lease; and (iii) a Mortgagee's Waiver and Agreement from each holder of a mortgage or deed of trust encumbering the premises subject to a Lease, pursuant to which such mortgagee agrees to subordinate its rights under its mortgage, and if it succeeds to the landlord's interest under the Lease, any lessors's or landlord's lien with respect to property of the Borrower to the lien of the Security Documents and agrees if it becomes landlord, not to terminate the Lease for Borrower's default without notice and an opportunity to cure given to the Bank and to recognize the Bank or its successor in interest as tenant under the Lease in the event of a sale or transfer of Borrower's interest under the Lease, such certificates and agreements to be in form and substance satisfactory to the Bank. Leases. Leases, licenses and agreements whether written or oral, relating ------ to the use or occupation of space by the Borrower, including but not limited to the leases listed on Schedule 6.22. LIBO Rate or LIBOR. The term "LIBO Rate" or "LIBOR" shall mean: with ------------------ respect to each Interest Period, the per annum rate of interest determined on the basis of the offered rates for deposits in Dollars for a period equal to such Interest Period as quoted by the principal London office of Bank as of 11:00 a.m. (London time) on the day that is two London Banking Days prior to the first day of such Interest Period; provided, however, that if such office is not -------- ------- offering such deposits at such time, "LIBOR", with respect to such Interest Period, shall mean the rate of interest (expressed as an annual rate) equal to the simple average (rounded up to the nearest 1/16 of 1%) of the rates shown on the display referred to as the "LIBO page" (or any display substituted therefor) of the Reuters U.S. Domestic Money Service transmitted through the Reuters monitor system as being the respective rates at which deposits in Dollars would be offered by the principal London offices of each of the banks named thereon to major banks in the London interbank market at approximately 11:00 a.m. (London time) on the second London Banking Day before the first day of such Interest Period for a period substantially coextensive with such Interest Period; provided further, however, that if Bank is unable after reasonable efforts to - ---------------- ------- ascertain such rate, "LIBOR", with respect to such Interest Period, shall mean the lowest lending rate (expressed as an annual rate) that the Bank's Head Office of Bank in Boston is quoting at approximately 11:00 a.m. (Boston time) on the first day of such Interest Period to leading European banks for loans in Dollars for such period and in such amount. LIBOR Rate Loan. Any Revolving Credit Loans bearing interest determined --------------- with reference to LIBOR. - 10 - Lien. With respect to any Person, (i) any encumbrance, mortgage, pledge, ---- lien, charge or security interest of any kind upon any property or assets of such Person, whether now owned or hereafter acquired, or upon the income or profits therefrom; (ii) any arrangement or agreement that prohibits such Person from creating encumbrances, mortgages, pledges, liens, charges or security interests; (iii) the acquisition of, or the agreement or option to acquire, any property or assets upon conditional sale or subject to any other title retention agreement, device or arrangement (including a Capitalized Lease); and (iv) the sale, assignment, pledge or transfer for security of any accounts, general intangibles or chattel paper of such Person, with or without recourse. Loan Documents. This Agreement, the Note, the Security Agreement, the -------------- Subordination Agreement(s), and any other Security Documents, and each of the other documents, agreements and certificates executed by Borrower or any Subsidiary or Affiliate, thereof and delivered to Bank in connection with or with regard to the Revolving Credit Loans. Loan Request. See Section 2.6. ------------ Loan(s). The Revolving Credit Loans to be made by the Bank hereunder. ------- London Banking Day means any day on which dealings in deposits in Dollars ------------------ are transacted in the London interbank market. Maturity Date. June 30, 2000, or such earlier date on which the Loans ------------- shall become due and payable pursuant to the terms hereof, including, without limitation, after acceleration. Minimum Trading Assets. At the time of any determination the sum of the ---------------------- value of all outstanding Accounts and the value of all Inventory determined in accordance with generally accepted accounting principles. Multiemployer Plan. Any multiemployer plan within the meaning of Section ------------------ 3(37) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate. New Computer System. A new MIS Computer, new computer systems and related ------------------- software acquired or developed in connection with or related thereto. Note. See Section 2.4. ---- Note(s). The Revolving Credit Note or Notes. ------- Notice of Borrowing. See Section 2.6. ------------------- Obligations. All indebtedness, obligations and liabilities of the Borrower ----------- and its Subsidiaries to the Bank under this Agreement or any of the other Loan Documents or in respect - 11 - of any of the Loans or the Note or other instruments at any time evidencing any thereof, whether existing on the date of this Agreement or arising or incurred hereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law of otherwise. Operating Cash Flow means for any period on a consolidated basis, the total ------------------- of: (i) EBITDA minus (ii) income taxes paid in cash for such period, minus (iii) ----- ----- the difference determined by calculating (x) Capital Expenditures minus (y) ----- Excluded Capital Expenditures. Outstanding or outstanding. With respect to the Loans, the aggregate -------------------------- unpaid principal thereof as of any date of determination. Paydown Restriction Agreement. That paydown restriction agreement dated ----------------------------- the date hereof by and among the Bank, Summit (any one or all of them) and The Bear Stearns Companies, Inc. PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of ---- ERISA and any successor entity or entities having similar responsibilities. Permitted Liens. Liens, security interests and other encumbrances --------------- permitted by Section 8.2. Person. Any individual, corporation, partnership, trust, unincorporated ------ association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. Property. All interests of the Borrower in real or personal property now -------- owned or hereafter acquired, including, without limitation, all property in which the Borrower grants a security interest in the Security Agreement. Real Estate. All real property at any time owned or leased (as lessee or ----------- sublessee) by the Borrower or any of its Subsidiaries. Record. The grid attached to any Note, or the continuation of such grid, ------ or any other similar record, including computer records, maintained by the Bank with respect to any Revolving Credit Loan. Release. See Section 6.18(c)(iii). ------- Required Distributions. Those subchapter S corporation (as defined in the ---------------------- Code) distributions made to pay solely a shareholder's additional tax liability arising from the reporting of total profits of Borrower, the amount of which Distributions is confirmed by a letter from Arthur Andersen LLC certifying to the Borrower and the Bank the amount of such liability. - 12 - Reserve Adjusted LIBOR. Applicable to any Interest Period, shall mean a ---------------------- rate per annum determined pursuant to the following formula: [LIBOR] --------------- RAL = [1.00 - RP] The amount in brackets shall be rounded upwards, if necessary, to the next higher 1/100 of 1%. RAL = Reserved Adjusted LIBOR LIBOR = as defined herein RP = Reserve Percentage Reserve Adjusted Libor shall be adjusted automatically as of the effective date of any change in the Reserve Percentage. "Reserve Percentage" applicable to any Interest Period means the rate ------------------ (expressed as a decimal) applicable to the Bank during such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency or marginal reserve requirement) of the Bank with respect to "Eurocurrency Liabilities" as that term is defined under such regulations. Revolving Credit Loans. Revolving credit loans made or to be made by the ---------------------- Bank to the Borrower pursuant to Section 2. Revolving Credit Note Record. A Record with respect to the Revolving ---------------------------- Credit Note. Security Agreement. The Pledge and Security Agreement - All Assets by and ------------------ between the Borrower and the Bank, pursuant to which the Borrower has conveyed the Collateral as security for the Obligations. Security Documents. The Security Agreement, the Subordination ------------------ Agreement(s), and the Lease Collateral Agreements, including, without limitation, UCC-1 financing statements, executed and delivered in connection therewith. Senior Debt shall mean: ----------- (i) Indebtedness in respect of borrowed money other than the Subordinated Debt; (ii) Indebtedness in respect of Capitalized Lease Obligations; - 13 - (iii) Indebtedness in respect of the deferred purchase price of assets (other than normal trade accounts payable in the ordinary course of business); and (iv) Indebtedness in respect of unfunded pension liabilities. Senior Debt Service means, for any period, (i) the sum of Senior Interest ------------------- Expense for such period, plus (ii) the aggregate amount of all mandatory reductions made or to be made to reduce the principal amount outstanding to the Stated Maximum for such period, plus (iii) the aggregate amount of principal paid or to be paid under the Senior Debt. Senior Interest Expense means, for any period, the aggregate amount of ----------------------- interest paid or to be paid in cash under the Senior Debt for such period. Series A Preferred Stock. The Series A Redeemable Preferred Stock issued ------------------------ by the Borrower, including, without limitation, pursuant to the Acquisition Agreement. Stated Maximum. See Section 2.1. -------------- Subordinated Debt. Any Indebtedness of Borrower or any Subsidiaries ----------------- (including, for purposes of determining payments which are subordinate to the Senior Debt, any payments made or to be made under the Series A Preferred Stock being issued in connection with the transactions contemplated in the Acquisition Agreement) which is expressly made subordinate to or is intended to be subordinate and junior to the Senior Debt. Subordination Agreements. The Subordination Agreement dated or to be dated ------------------------ on or prior to the Closing Date, among the Bank and the Borrower's Key Officers and Summit (collectively, the "Creditors") and the Borrower in form and substance satisfactory to the Bank, pursuant to which the rights of the Creditors against the Borrower with reference to indebtedness of the Borrower to such Creditors are subordinated to the rights of the Bank against the Borrower with reference to the Borrower's Indebtedness to the Bank, individually or collectively and the Paydown Restriction Agreement. Subsidiary. Any corporation, association, partnership, trust, or other ---------- business entity of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes or controlling interests) of the outstanding Voting Interests. Summit. Summit Ventures III, L.P., Summit Investors II, L.P. and Summit ------ Subordinated Debt Fund, L.P. Tier I Amount. An amount equal to the sum of (x) eighty percent (80%) of ------------- Eligible Accounts Receivable plus (y) fifty percent (50%) of Eligible Inventory. ---- - 14 - Total Debt shall mean total Indebtedness minus the redemption price of the ---------- Series A Preferred Stock. Total Debt Service. For any period, the sum of (i) Total Interest Expense ------------------ for such period plus (ii) the aggregate amount of all mandatory reductions made or to be made to reduce the principal amount outstanding to the Stated Maximum for such period plus (iii) the aggregate amount of principal paid or to be paid under the Senior Debt plus (iv) all payments made or required to be made under the Subordinated Debt including, without limitation, any Distributions made or required to be made under any preferred stock of the Borrower or otherwise permitted hereunder for such period (excluding those already included in Total Interest Expense). Total Interest Expense. For any period, the aggregate amount of (i) Senior ---------------------- Interest Expense paid or to be paid in cash, including payments in the nature of interest under Capitalized Leases, accrued by the Borrower on a consolidated basis (whether such interest is reflected as an item of expense or capitalized) and (ii) interest on the Subordinated Indebtedness, including, without limitation, under the Subordinated Debt, but excluding any dividends paid on the Series A Preferred Stock through the issuance of additional capital stock. Type. As to any Revolving Credit Loan, its nature as a Base Rate Loan or a ---- LIBOR Rate Loan. UCC. The Uniform Commercial Code as in effect in the Commonwealth of --- Massachusetts or any other applicable jurisdiction, provided, however, that with -------- ------- respect to the perfection of the Bank's Lien in the Collateral and the effect or non-perfection thereof, the term Uniform Commercial Code shall mean the Uniform Commercial Code as in effect in any jurisdiction, the laws of which are made applicable by Section 9-103 of the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts. Voting Interests. Stock or similar ownership interests, of any class or ---------------- classes (however designated), the holders of which are at the time entitled, as such holders, (a) to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, partnership, trust or other business entity involved, or (b) to control, manage, or conduct the business of the corporation, partnership, association, trust or other business entity involved. 1.2 Rules of Interpretation. ----------------------- (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Agreement. (b) The singular includes the plural and the plural includes the singular. - 15 - (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, have the meanings assigned to them therein. (h) Reference to a particular "section" or "Section" refers to that numbered section of this Agreement unless otherwise indicated. (i) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Agreement as a whole and not to any particular section or subdivision of this Agreement. 2. THE REVOLVING CREDIT FACILITY. ----------------------------- 2.1 Commitment to Lend. ------------------ (a) Upon the terms and subject to the conditions set forth in this Agreement and in reliance upon the representations and warranties and covenants of the Borrower herein, and so long as no Default exists, the Bank agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the Closing Date and the Maturity Date upon notice by the Borrower to the Bank given in accordance with Section 2.6, such sums as are requested by the Borrower up to a maximum aggregate principal amount outstanding (after giving effect to all amounts requested) at any one time in an amount equal to the lesser of (a) the Stated Maximum (defined below) or (b) the reduced Commitment amount specified by Borrower pursuant to Section 2.3, provided that the sum of the outstanding amount of the Revolving Credit Loans shall not at any time exceed the Commitment. Each request for a Revolving Credit Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in Sections 10 and 11, in the case of the initial Revolving Credit Loan, and Section 11, in the case of all other Revolving Credit Loans, have been satisfied on the date of such request. (b) The term "Stated Maximum" shall mean, during any period, an amount equal to the amount specified in the table below for such period. Period Stated Maximum ------ -------------- - 16 - July 3, 1995 - March 1, 1996 $16,000,000.00 March 2, 1996 - August 30, 1996 $15,375,000.00 August 31, 1996 - February 28, 1997 $14,750,000.00 March 1, 1997 - August 29, 1997 $14,000,000.00 August 30, 1997 - February 27, 1998 $13,250,000.00 February 28, 1998 - August 28, 1998 $12,000,000.00 August 29, 1998 - February 26, 1999 $10,750,000.00 February 27, 1999 - August 27, 1999 $ 9,500,000.00 August 28, 1999 and thereafter $ 8,250,000.00
2.2 Commitment Fee. The Borrower shall pay to the Bank a commitment fee -------------- calculated at the rate of three-eighths of one percent (0.375%) per annum on the average daily amount during each calendar quarter or portion thereof from the date hereof to the Maturity Date by which the Commitment exceeds the outstanding amount of Revolving Credit Loans during such calendar quarter. The commitment fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof (meaning, the first payment is due on October 1, 1995), with a final payment on the Maturity Date or any earlier date on which the Commitment shall terminate. 2.3 Reduction of Commitment. Subject to the payment of any fees required ----------------------- hereunder for prepaying any LIBOR Rate Loans, the Borrower shall have the right at any time and from time to time upon five (5) Business Days' prior written irrevocable notice to the Bank to reduce by $250,000.00 or an integral multiple of $100,000.00 in excess thereof or terminate entirely the unborrowed portion of the Commitment, whereupon the Commitment shall irrevocably be reduced by the amount specified in such notice or, as the case may be, terminated. Upon the effective date - 17 - of any such reduction or termination, the Borrower shall pay to the Bank the full amount of any commitment fee derived pursuant to Section 2.2 and then accrued on the amount of the reduction. No reduction or termination of the Commitment may be reinstated. 2.4 The Revolving Credit Note. The Revolving Credit Loans shall be ------------------------- evidenced by a promissory note of the Borrower in substantially the form of Exhibit A hereto (the "Note"), dated as of the Closing Date and completed with appropriate insertions. The Borrower irrevocably authorizes the Bank to make or cause to be made, at or about the time of the Drawdown Date of any Revolving Credit Loan or at the time of receipt of any payment of principal on the Note, an appropriate notation on the Bank's Record reflecting the making of such Revolving Credit Loan or (as the case may be) the receipt of such payment. The outstanding amount of the Revolving Credit Loans set forth on the Bank's Record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Bank, but the failure to record, or any error in so recording, any such amount on such Bank's Record shall not limit or otherwise affect the obligations of the Borrower hereunder or under any Note to make payments of principal of or interest on any Note when due. 2.5 Interest on Revolving Credit Loans. ---------------------------------- Unless an Event of Default shall have occurred and the Default Rate applies, and subject to the limitation as to the number of different maturities of LIBOR Rate Loans outstanding at any one time, set forth in Section 2.6, all Revolving Credit Loans shall bear interest as follows: (1) for the aggregate principal outstanding at any one time which is equal to or less than the Tier I Amount, at the election of the Borrower, either: (i) the Base Rate; or (ii) Reserve Adjusted LIBOR plus two hundred (200) basis points; and (2) for the aggregate principal outstanding at any time which is in excess of the Tier I Amount, at the election of the Borrower, either: (i) the Base Rate plus one-half of one percent (0.5%); or (ii) Reserve Adjusted LIBOR plus two hundred fifty (250) basis points. 2.6 Requests for Revolving Credit Loans; Type of Loan. ------------------------------------------------- (a) Whenever Borrower desires to obtain or continue a Revolving Credit Loan hereunder or convert an outstanding Revolving Credit Loan into a Revolving Credit Loan of another type pursuant to Section 2.1(c), Borrower shall notify ("Notice of Borrowing) in the form annexed hereto as Exhibit C together with a Tier I Amount Report in the form annexed as Exhibit - 18 - D, as of the date of the Notice of Borrowing, Bank by written notice (which notice shall be irrevocable and may be provided by telecopy) received no later than 12:00 p.m. noon Boston time on the Business Day on which the requested Revolving Credit Loan is to be made or continued as or converted to a Base Rate Loan and in the case of a LIBOR Rate Loan received no later than 10:00 a.m. Boston time on the date three (3) Business Days before the day on which the requested Revolving Credit Loan is to be made or continued as or converted to a LIBOR Rate Loan. For purposes of the Notice of Borrowing for a LIBOR Rate Loan, such notice must specify: (i) the Interest Period of one, two, three or six months, provided LIBOR Rate Loans shall be limited to not more than six (6) different maturities at any time; and (ii) the minimum of the outstanding principal Borrower wishes the LIBOR Rate to apply to, provided such borrowing -------- shall be in the minimum amounts of $500,000.00 and in integrals of $50,000.00 above such amount. If Bank does not receive a Notice of Borrowing containing an Interest Period for a LIBOR Rate Loan within the applicable time limits set forth herein, or if when a Notice of Borrowing must be given, a Default exists, Borrower shall be deemed to have elected to borrow or to convert such Revolving Credit Loan, in whole, into a Base Rate Loan on the last day of the then current Interest Period. Each Notice of Borrowing shall be irrevocable and binding on the Borrower and shall obligate the Borrower to accept the Revolving Credit Loan requested from the Bank on the applicable Drawdown Date. Each Revolving Credit Loan will be made at the Bank's Head Office by depositing the amount thereof to a demand deposit account of the Borrower with the Bank. (b) Provided that no Default shall have occurred and be continuing or no Event of Default has occurred, Borrower may convert all or any part of (in the minimum amount of $500,000.00 and in integral multiples of $50,000.00 above such amount) of any Base Rate Loan into a LIBOR Rate Loan (provided no more than six (6) Interest Periods for a LIBOR Rate Loan shall be outstanding at any time), or any LIBOR Rate Loan into a Base Rate Loan on any Business Day (which, in the case of a conversion of a LIBOR Rate Loan shall be the last day of the Interest Period applicable to such LIBOR Rate Loan). 2.7 One Loan. All extensions of credit by the Bank to Borrower under the -------- Revolving Credit Note and all other Obligations to the Bank under this Agreement and any of the Loan Documents shall constitute one general obligation secured by the security interest in all of the Collateral and by all other security interests, liens, claims, and encumbrances heretofore, now, or at any time or times hereafter granted by Borrower and its Subsidiaries to the Bank. Borrower agrees that all of the rights of the Bank set forth in this Agreement shall apply to any modification of or supplement to this Agreement, any supplements or exhibits hereto, and other agreements, unless otherwise agreed in writing. 3. REPAYMENT OF THE LOANS. ---------------------- 3.1 Maturity. The Borrower promises to pay on the Maturity Date, and -------- there shall become absolutely due and payable on the Maturity Date, all of the Revolving Credit Loans outstanding on such date, together with any and all accrued and unpaid interest thereon and costs, expenses and charges due under the Loan Documents. - 19 - 3.2 Mandatory Repayments of Revolving Credit Loans. If at any time the ---------------------------------------------- sum of the outstanding amount of the Revolving Credit Loans exceeds the Commitment (as the same may be reduced by changes in the Stated Maximum, including, without limitation, by reductions in the Commitment as provided in Section 2.3), then the Borrower shall immediately, without demand therefor, pay the amount of such excess to the Bank for application to the Revolving Credit Loans. 3.3 Optional Repayments of Loans. The Borrower shall have the right, at ---------------------------- its election, to repay the outstanding amount of the Base Rate Loans, as a whole or in part, at any time without penalty or premium. Not later than 1:00 p.m. (Boston time) on the requested date of prepayment, the Borrower shall give to the Bank notice (which may be given by a telephone call and promptly confirmed in writing) of any prepayment pursuant to this Section 3.3, specifying the proposed date of payment and the principal amount to be paid. Each such partial prepayment of the Base Rate Loans shall be in an integral multiple of $50,000.00. Borrower shall not be permitted to prepay, in whole or in part, any LIBOR Rate Loans unless Borrower shall simultaneously with such prepayment pay to the Bank the breakage fee set forth in Section 4.10. 4. CERTAIN GENERAL PROVISIONS. -------------------------- 4.1 Facility Fee. The Borrower agrees to pay to the Bank at the Closing a ------------ facility fee in the amount of Eighty Thousand Dollars ($80,000.00). Such amount shall be deemed fully earned at the Closing and shall not be subject to rebate or return, in whole or in part. 4.2 Funds for Payments. ------------------ (a) All payments of principal, interest, commitment fees, facility fees and any other amounts due hereunder or under any of the other Loan Documents shall be made to the Bank at Bank's Head Office, in each case in immediately available funds. (b) All payments by the Borrower hereunder and under any of the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Bank on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Bank to receive the same net amount which the Bank would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Bank certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document. - 20 - 4.3 Computations. All computations of interest on the Loans and of other ------------ fees to the extent applicable shall be based on a 360-day year and paid for the actual number of days elapsed. Whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall, except as otherwise provided in the case of a LIBOR Rate Loan, be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amount of the Revolving Credit Loans as reflected on the Revolving Credit Note Records from time to time shall be considered correct and binding on the Borrower unless within ten (10) Business Days after receipt by the Borrower of any notice from the Bank of such outstanding amount, the Borrower shall notify the Bank to the contrary. 4.4 Additional Costs, Etc. If any present or future applicable law, which --------------------- expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to the Bank by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: (a) subject the Bank to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Agreement, the other Loan Documents, the Bank's Commitment or the Loans (other than taxes based upon or measured by the income or profits of the Bank or taxes in lieu thereof), or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to the Bank of the principal of or the interest on any Loans or any other amounts payable to the Bank under this Agreement or the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or commitments of an office of the Bank, or (d) impose on the Bank any other conditions or requirements with respect to this Agreement, the other Loan Documents, the Loans, the Commitment, or any class of loans or commitments of which any of the Loans or the Commitment forms a part; and the result of any of the foregoing is (i) to increase the cost to the Bank of making, funding, issuing, renewing, extending or maintaining any of the Loans or the Commitment, or - 21 - (ii) to reduce the amount of principal, interest or other amount payable to the Bank hereunder on account of the Commitment or any of the Loans, or (iii) to require the Bank to make any payment or to forego any interest or other sum payable hereunder, the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank from the Borrower hereunder, then, and in each such case, the Borrower will, upon demand made by the Bank at any time and from time to time and as often as the occasion therefor may arise, pay to the Bank such additional amounts as will be sufficient to compensate the Bank for such additional cost, reduction, payment or foregone interest or other sum. The Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. 4.5 Capital Adequacy. If any present or future law, governmental rule, ---------------- regulation, policy, guideline or directive (whether or not having the force of law) or the interpretation thereof by a court or governmental authority with appropriate jurisdiction affects the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank determines that the amount of capital required to be maintained by it is increased by or based upon the existence of such Loans made or deemed to be made pursuant hereto, then the Bank may notify the Borrower of such fact, and the Borrower shall pay to the Bank from time to time on demand, as an additional fee payable hereunder, such amount as the Bank shall determine in good faith and certify in a notice to the Borrower to be an amount that will adequately compensate the Bank in light of these circumstances for its increased costs of maintaining such capital. The Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. 4.6 Certificate. A certificate setting forth any additional amounts ----------- payable pursuant to Sections 4.4 or 4.5 and a brief explanation of such amounts which are due, submitted by the Bank to the Borrower, shall be prima facie evidence that such amounts are due and owing. 4.7 Interest on Overdue Amounts. Overdue principal and (to the extent --------------------------- permitted by applicable law) interest on the Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest payable on demand at a rate ("Default Rate") per annum equal to four percent (4%) above the Base Rate until such amount shall be paid in full (after as well as before judgment). 4.8 Inability to Determine LIBOR. In the event, prior to the commencement ---------------------------- of any Interest Period relating to any LIBOR Rate Loan, the Bank shall determine that adequate and reasonable methods do not exist for ascertaining the LIBOR that would otherwise determine the rate of interest to be applicable to any LIBOR Rate Loan during any Interest Period, the Bank shall forthwith give notice of such determination (which shall be conclusive and binding on the Borrower) to the Borrower. In such event (a) any Loan Request with respect to LIBOR Rate Loans shall be automatically withdrawn and shall be deemed a request for Base Rate Loans, (b) - 22 - each LIBOR Rate Loan will automatically, on the last day of the then current Interest Period thereof, become a Base Rate Loan, and (c) the obligations of the Bank to make LIBOR Rate Loans shall be suspended until the Bank determines that the circumstances giving rise to such suspension no longer exist, whereupon the Bank shall so notify the Borrower. 4.9 Illegality. Notwithstanding any other provisions herein, if any ---------- present or future law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for Bank to make or maintain LIBOR Rate Loans, Bank shall forthwith give notice of such circumstances to the Borrower and thereupon (a) the commitment of Bank to make LIBOR Rate Loans or convert Loans of another Type to LIBOR Rate Loans shall forthwith be suspended and (b) the LIBOR Rate Loans then outstanding shall be converted automatically to Base Rate Loans on the last day of each Interest Period applicable to such LIBOR Rate Loans or within such earlier period as may be required by law. The Borrower hereby agrees promptly to pay the Bank for the account of Bank, upon demand by Bank, any additional amounts necessary to compensate the Bank for any costs incurred by such Bank in making any conversion as such payments are described in accordance with 4.10, including any interest or fees payable by Bank to lenders of funds obtained by it in order to make or maintain its LIBOR Rate Loans hereunder. 4.10 Indemnity. If the Borrower shall at any time (a) repay or prepay any --------- principal of any LIBOR Rate Loan on a date other than the last day of an Interest Period with respect thereto (as a consequence of acceleration, a mandatory repayment to reduce the principal outstanding to the Stated Maximum, or otherwise) or (b) for any reason fail to borrow or convert a LIBOR Rate Loan on the date specified therefor in any notice delivered by the Borrower to the Bank pursuant to Section 2.6. The Borrower shall indemnify the Bank, on demand made by the Bank, at any time and as often as the occasion therefor may arise, against all losses, costs or expenses which the Bank may at any time or from time to time occur as a consequence of such repayment, prepayment or failure to borrow. The amount of such losses, costs or expenses shall be an amount equal to the remainder, if any, of: (a) the total amount of interest which would otherwise have accrued hereunder on the principal so paid, not borrowed or converted at a rate equal to the interest rate which otherwise would have been applicable to such principal during the period (the "Reemployment Period"). (i) in the case of any such repayment or prepayment, beginning on the date of such payment and ending on the last day of the applicable Interest Period of the amount so paid, or (ii) in the case of any such failure to borrow or convert, beginning on the date for the borrowing or conversion that shall have been requested in any notice - 23 - of borrowing relating thereto and ending on the date that would have been the applicable last day of the Interest Period if such amount had been borrowed or converted; minus (b) an amount equal to the aggregate interest to be earned by the Bank by reinvesting the amount prepaid, repaid or not borrowed or converted, or the Reemployment Period at the yield to maturity on a United States treasury security selected by the Bank equal in amount to the amount prepaid, repaid, or not borrowed or converted and having a maturity approximately equal to the Reemployment Period. 5. COLLATERAL SECURITY. The Obligations shall be secured by a perfected first ------------------- priority security interest to be held by the Bank (subject only to Permitted Liens) in the Property of the Borrower, pursuant to the terms of the Security Documents. 6. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to ------------------------------ the Bank as follows (except as set forth on the respective Schedules attached hereto). 6.1 Corporate Authority; Etc. ------------------------- (a) Incorporation; Good Standing. The Borrower (i) is a Massachusetts ---------------------------- corporation, duly organized and existing pursuant to restated articles of organization filed with the Massachusetts Secretary of State on June 30, 1995, and is validly existing and in good standing under the laws of the Commonwealth of Massachusetts, (ii) has all requisite power to own its property and conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign entity and is duly authorized to do business in each other jurisdiction where such qualification is necessary except where a failure to be so qualified in such other jurisdiction would not have a materially adverse effect on the business, assets or financial condition of the Borrower. (b) Authorization. The execution, delivery and performance of this ------------- Agreement and the other Loan Documents to which the Borrower is to become a party and the repayment of the Loan (i) are within the authority of the Borrower, (ii) have been duly authorized by all necessary proceedings on the part of Borrower, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrower is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower, and (iv) do not conflict with any provision of the restated articles of organization or bylaws of, or any material agreement or other material instrument binding upon, the Borrower. (c) Enforceability. The execution and delivery of this Agreement and the -------------- other Loan Documents to which the Borrower is or is to become a party will result in valid and legally binding obligations of the Borrower enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of - 24 - creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 6.2 Governmental Approvals. The execution, delivery and performance by ---------------------- the Borrower of this Agreement and the other Loan Documents to which the Borrower is or is to become a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any governmental agency or authority other than those already obtained and the filing of financing statements in the appropriate records offices with respect thereto and other than set forth in Schedule 6.2 hereof. 6.3 Title to Properties; Leases. Except as indicated on Schedule 6.3 --------------------------- hereto, the Borrower owns all of the assets relating to the Property reflected in the consolidated balance sheet of the Borrower as at the Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no rights of others, including any mortgages, leases, conditional sales agreements, security interests, title retention agreements, liens or other encumbrances except Permitted Liens. 6.4 Financial Statements. The following financial statements have been -------------------- furnished to the Bank: (a) A consolidated balance sheet of the Borrower and its Subsidiaries (if any) as of the Balance Sheet Date, and a consolidated statement of income for the fiscal year ended September 3, 1994, accompanied by an auditor's report prepared without qualification by Borrower's independent certified public accountant, together with a statement by such auditors that the information in such balance sheet has been subjected to the auditing procedures applied in the audit of the basic financial statements and is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Such balance sheet and statement of income have been prepared in accordance with generally accepted accounting principles and fairly present the financial condition of the Borrower as at the close of business on the date thereof and the results of operations for the fiscal year then ended. There are no contingent liabilities of the Borrower or any of its Subsidiaries as of such date involving material amounts, known to the officers of the Borrower or any of its Subsidiaries not disclosed in said balance sheet and the related notes thereto of a nature required by generally accepted accounting principles to be disclosed on a balance sheet and the notes thereto. (b) A consolidated balance sheet and a consolidated statement of income of the Borrower and its Subsidiaries for each of the fiscal quarters of the Borrower (if any) ended since the Balance Sheet Date, certified by Borrower's chief financial officer to have been prepared in accordance with generally accepted accounting principles consistent with those used in the preparation of the annual audited statements delivered pursuant to paragraph (a) above and to fairly present the financial condition of the Borrower and its Subsidiaries as at the close of business on the dates thereof and the results of operations for the fiscal quarters then ended - 25 - (subject to year-end adjustments). There are no contingent liabilities of the Borrower or any of its Subsidiaries as of such dates involving material amounts of a nature required by generally accepted accounting principles to be disclosed on a balance sheet and the notes thereto, known to the officers of the Borrower or any of its Subsidiaries, not disclosed in such balance sheets and the related notes thereto. 6.5 No Material Changes, Etc. Since the Balance Sheet Date, there has ------------------------- occurred no materially adverse change in the financial condition or business of the Borrower or its Subsidiaries as shown on or reflected in the consolidated balance sheet of the Borrower as of the Balance Sheet Date, or the consolidated statement of income for the fiscal year then ended, other than changes in the ordinary course of business that have not had any materially adverse effect either individually or in the aggregate on the business or financial condition of the Borrower. 6.6 Intellectual Property Rights. Except as listed on Schedule 6.6: (a) ---------------------------- Borrower owns all "Intellectual Property" necessary for the conduct of its business, subject to no third party rights, license of any interest therein, or other agreement; (b) no Intellectual Property is subject to any pending or, to Borrower's knowledge, threatened challenge; (c) no claims, demands, suits, or proceedings are pending or, to Borrower's knowledge, threatened which challenge, or may impair Borrower's rights in, any Intellectual Property used in the conduct of Borrower's business; (d) Borrower has not infringed any Intellectual Property of other rights of any person, and the present conduct of Borrower's business does not infringe any such intellectual property or rights; (e) all patents, patent applications, registered trademarks (including service marks), and trademark applications for the United States or other jurisdictions owned by Borrower are listed on Schedule 6.6 and Borrower's Key Officers own no such patents, patent applications, registered trademarks or trademark applications. For this purpose "Intellectual Property" includes all of the following: domestic and foreign letters patent and patent applications; inventions, discoveries, and improvements, whether or not patentable; trade names, trademarks, trademark applications and registrations, service marks, and service mark applications and regulations; copyrights and copyright applications and registrations; and trade secrets and other proprietary information, including without limitation, the patents and patent applications listed on Schedule 6.6. 6.7 Litigation. Except as stated on Schedule 6.7, there are no actions, ---------- suits, proceedings or investigations of any kind pending or threatened against the Borrower or any of its Subsidiaries before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, materially adversely affect the properties, assets, financial condition or business of the Borrower or materially impair the right of the Borrower and its Subsidiaries to carry on business substantially as now conducted by it, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the balance sheet of the Borrower, or which question the validity of this Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. - 26 - 6.8 No Materially Adverse Contracts, Etc. Neither the Borrower nor any ------------------------------------- of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of the Borrower. Neither the Borrower nor any of its Subsidiaries is a party to any contract or agreement that has or is expected, in the judgment of the Borrower's officers, to have any materially adverse effect on the business of the Borrower or its Subsidiaries. 6.9 Compliance With Other Instruments, Laws, Etc. Neither the Borrower --------------------------------------------- nor any of its Subsidiaries is in violation of any provision of its articles of organization, charter or other organization documents, or by-laws, or any material agreement or material instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of the Borrower or its Subsidiaries. 6.10 Tax Status. The Borrower (a) has made or filed all federal and ---------- state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (b) has paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (c) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction other than those set forth on Schedule 6.10. 6.11 No Event of Default. No Default or Event of Default has occurred ------------------- and is continuing. 6.12 Holding Company and Investment Company Acts. Neither the Borrower ------------------------------------------- nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940. 6.13 Absence of UCC Financing Statements, Etc. Except with respect to ---------------------------------------- Permitted Liens, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry, or other public office, that purports to cover, affect or give notice of any present or possible future lien on, or security interest in, any Collateral of the Borrower or rights thereunder. 6.14 Setoff, Etc. The Collateral and the rights of the Bank with respect ------------ to the Collateral are not subject to any setoff, claims, withholdings or other defenses. The Borrower is the owner - 27 - of the Collateral free from any lien, security interest, encumbrance and any other claim or demand, except for Permitted Liens. 6.15 Certain Transactions. Except as set forth on Schedule 6.15, none of -------------------- the officers, directors, or employees of the Borrower or any of its Subsidiaries is presently a party to any transaction with the Borrower or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, trustee, director or such employee or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any officer, trustee, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 6.16 Employee Benefit Plans; Multiemployer Plans; Guaranteed Pension --------------------------------------------------------------- Plans. Except as set forth on Schedule 6.16, neither the Borrower nor any ERISA - ----- Affiliate maintains or contributes to any Employee Benefit Plan, Multiemployer Plan or Guaranteed Pension Plan. 6.17 Regulations U and X. No portion of any Loan is to be used for the ------------------- purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 6.18 Environmental Compliance. The Borrower has taken all necessary ------------------------ steps to investigate the past and present condition and usage of the Real Estate and the operations conducted thereon and, based upon such diligent investigation, makes the following representations and warranties, subject to all disclosures set forth on Schedule 6.18. (a) To the best of the Borrower's knowledge with respect to any Real Estate, none of the Borrower, its Subsidiaries or any operator of the Real Estate, or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment (hereinafter "Environmental Laws"), which violation involves any of the Real Estate and would have a material adverse effect on the environment or the business, assets or financial condition of the Borrower. (b) Neither the Borrower nor any of its Subsidiaries has received notice from any third party including, without limitation, any federal, state or local governmental authority, (i) that it has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities - 28 - List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any hazardous waste, as defined by 42 U.S.C. 9601(5), any hazardous substances as defined by 42 U.S.C. 9601(14), any pollutant or contaminant as defined by 42 U.S.C. 9601(33) or any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("Hazardous Substances") which it has generated, transported or disposed of have been found at any site at which a federal, state or local agency or other third party has conducted or has ordered that the Borrower or any of its Subsidiaries conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances. (c) To the best of the Borrower's knowledge with respect to any Real Estate: (i) no portion of the Real Estate has been used for the handling, processing, storage or disposal of Hazardous Substances except in accordance with applicable Environmental Laws; and no underground tank or other underground storage receptacle for Hazardous Substances is located on any portion of the Real Estate; (ii) in the course of any activities conducted by the Borrower, its Subsidiaries or the operators of its properties, no Hazardous Substances have been generated or are being used on the Real Estate except in accordance with applicable Environmental Laws; (iii) there has been no release i.e. any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping (a "Release") or threatened Release of Hazardous Substances on, upon, into or from the Real Estate, which Release would in the case of such other properties have a material adverse effect on the value of any of the Real Estate or adjacent properties or the environment; (iv) there have been no Releases on, upon, from or into any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on, and which would have a material adverse effect on the value of, the Real Estate; and (v) any Hazardous Substances that have been generated on any of the Real Estate have been transported off-site only by carriers having an identification number issued by the EPA, treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities have been and are operating in compliance with such permits and applicable Environmental Laws. (d) Neither the Borrower nor the Real Estate currently leased or used by Borrower is subject to any applicable Environmental Law requiring the performance of Hazardous Substances - 29 - site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the effectiveness of any transactions contemplated hereby. 6.19 Subsidiaries. The Borrower has no Subsidiaries. ------------ 6.20 Loan Documents. All of the representations and warranties of the -------------- Borrower made in the Security Agreement and the other Loan Documents or any document or instrument delivered to the Bank pursuant to or in connection with any of such Loan Documents are true, accurate and correct in all material respects. 6.21 Acquisition Agreement; Debenture Agreement. The representations and ------------------------------------------ warranties of the Borrower in the Acquisition Agreement and the Debenture Agreement are true, accurate and complete in all material respects, and, to the best of Borrower's knowledge, the representations and warranties of Borrower's Key Officers in the Acquisition Agreement and the Debenture Agreement are true, accurate and complete in all material respects. 6.22 Real Property; Leases. Neither the Borrower, nor any of its --------------------- Subsidiaries is the fee owner of any real property or has any beneficial interest in any fee owner. Borrower is the lessee under the Leases as described on Schedule 6.22. The Leases reflected on such schedule constitute the sole agreements and understandings relating to leasing or licensing of space by the Borrower or its Subsidiaries. The Borrower has delivered to the Bank a true and complete copy of all Leases. Except as set forth in Schedule 6.22, the Leases are in full force and effect, in accordance with their respective terms, without any payment default or any other material default by the Borrower thereunder, and the Borrower has not given or made, or received, any notice of default, or any claim, which remains uncured or unsatisfied, with respect to any of the Leases and, to the best of the Borrower's knowledge there is no basis for any such claim or notice of default by any lessor. No leasing, brokerage or like commissions, fees or payments are due from the Borrower in respect of the Leases. 6.23 Chief Place of Business; Locations of Property. As of the date ---------------------------------------------- hereof (i) the chief executive office of Borrower is located at 75 October Hill Road, Holliston, Massachusetts; (ii) the principal place of business of Borrower is at 75 October Hill Road, Holliston, Massachusetts; (iii) the principal books and records of the Borrower and all records of Accounts are located at 75 October Hill Road, Holliston, Massachusetts; (iv) all other property of the Borrower, including, without limitation, all Inventory and Equipment are located at 75 October Hill Road, Holliston, Massachusetts and at such locations as set forth on Schedule 6.22 annexed; and (v) there is no other office or place of business at which Borrower conducts business. 6.24 Fiscal Quarters. Attached as Schedule 6.24 are the fiscal quarter --------------- end dates of the Borrower. - 30 - 7. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees ------------------------------------- that, so long as any Loan or Note is outstanding or the Bank has any obligation to make any Loans: 7.1 Punctual Payment. The Borrower will duly and punctually pay or ---------------- cause to be paid the principal and interest on the Loans and all interest and fees provided for in this Agreement, all in accordance with the terms of this Agreement and the Note, as well as all other sums owing pursuant to the Loan Documents. 7.2 Maintenance of Office; Business Name. The Borrower will maintain ------------------------------------ its chief executive office in Holliston, Massachusetts, or at such other place in the United States of America as the Borrower shall designate upon written notice to the Bank, where notices, presentations and demands to or upon the Borrower in respect of the Loan Documents may be given or made. As of the date of this Agreement, the Borrower conducts business only under its own name and Home Health Direct. The Borrower will not change its name, identity or structure in any manner which might make any financing or continuation statement filed in respect of the Collateral ineffective or misleading within the meaning of Section 9-402(7) (or any other applicable provision) of the UCC, unless the Borrower shall have given the Bank at least thirty (30) days' prior written notice thereof. 7.3 Records and Accounts. The Borrower will (a) keep, and cause each of -------------------- its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles and (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves. 7.4 Financial Statements, Certificates and Information. The Borrower -------------------------------------------------- will deliver to the Bank: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Borrower, the audited consolidated balance sheet of the Borrower and its Subsidiaries at the end of such year, and the related audited consolidated statements of income and changes in shareholders' equity and cash flows for such year, each setting forth in comparative form the figures for the previous fiscal year and all such statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and accompanied by an auditor's report prepared without qualification by Arthur Andersen, LLC or other independent certified public accountant of the Borrower reasonably acceptable to the Bank, together with a written statement from such accountants to the effect that they have read a copy of Sections 8.1 (Restrictions on Indebtedness, 8.2 (Restrictions on Liens), 8.3 (Restrictions on Investments), 8.4 (Merger; Consolidation), 8.5 (Sale Leaseback), 8.7 (Distributions), 8.8 (Change to Fiscal Year), 9.1 (Senior Debt Service Coverage), 9.2 (Minimum Net Income), 9.3 (Total Debt Service Coverage), 9.4 (Leverage Ratio) and 9.5 (Minimum Trading Assets) (collectively, the - 31 - "Accounting Review Sections") of this Agreement (and such other provisions of this Agreement to which reference is made in such sections or which define terms used therein and the definitions of "Default" and "Event of Default"), and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default with respect to the provisions of the Accounting Review Sections, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default with respect to the Accounting Review Sections they shall disclose in such statement any such Default or Event of Default, together with a certification by the Borrower's chief financial officer, substantially in the form annexed as Exhibit B, that the information contained in such statements is true, correct and complete and fairly presents the operations of the Borrower in all material respects for such period; (b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each of the first three (3) fiscal quarters of each Fiscal Year of the Borrower, copies of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarter, and the related unaudited consolidated statements of income and cash flows for the portion of the Borrower's fiscal year then elapsed, all in reasonable detail and prepared in a manner as will fairly and consistently state the financial condition and operations of Borrower consistent with the annual audited balance sheets and statement and previously-submitted quarterly statements, together with a certification by the principal financial or accounting officer of the Borrower that the information contained in such financial statements fairly presents the financial position of the Borrower and its Subsidiaries in all material respects on the date thereof (subject to year-end accruals and adjustments); (c) as soon as practicable, but in any event not later than forty-five (45) days after the end of each of the first three (3) fiscal quarters of each Fiscal Year of the Borrower and within ninety (90) days after the end of Borrower's Fiscal Year, copies of a statement of Consolidated Net Income and Operating Cash Flow for such fiscal quarter, prepared on a basis consistent with the statement furnished pursuant to Section 6.4(c) together with a certification by the Borrower's chief financial officer, substantially in the form annexed as Exhibit B, that the information contained in such statement is true, correct, and complete in all material respects, and fairly presents the operations of the Borrower for such period; (d) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement in form and substance reasonably acceptable to the Bank signed by the principal financial or accounting officer of the Borrower and setting forth in reasonable detail computations evidencing compliance with the covenants contained in Sections 9.1 through 9.3 (as applicable) and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since the Balance Sheet Date; (e) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the shareholders of the Borrower; - 32 - (f) from time to time such other financial data and information (including accountants' management letters) as the Bank may reasonably request; and (g) in addition to the delivery in connection with a LIBOR Rate Loan, within twenty (20) days following the end of each calendar month or more frequently as the Bank may from time to time request the Borrower shall deliver to the Bank a Tier I Amount Report in the form annexed as Exhibit D dated as of the end of the prior calendar month calculating the Tier I Amounts as of such date. 7.5 Notices. ------- (a) Defaults. The Borrower will promptly notify the Bank in writing of -------- the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Agreement or under any note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Borrower or any of its Subsidiaries is a party or obligor, whether as principal or surety, and such default would permit the holder of such note or obligation or other evidence of indebtedness to accelerate the maturity thereof, which acceleration would have a material adverse effect on the Borrower, the Borrower shall forthwith give written notice thereof to the Bank, describing the notice or action and the nature of the claimed default. (b) Environmental Events. The Borrower will promptly give notice to the -------------------- Bank (i) of any violation of any Environmental Law that the Borrower or any of its Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency and (ii) of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, or any federal, state or local environmental agency or board, that in either case involves the Real Estate or has the potential to materially affect the assets, liabilities, financial conditions or operations of the Borrower and its Subsidiaries taken as a whole, or the Bank's security interests pursuant to the Security Documents. (c) Notification of Claims against Collateral. The Borrower will, ----------------------------------------- immediately upon becoming aware thereof, notify the Bank in writing of any setoff, claims (including, with respect to the Real Estate, environmental claims), withholdings or other defenses to which any of the Collateral, or the rights of the Bank with respect to the Collateral, are subject. (d) Notice of Litigation and Judgments. The Borrower will, and will cause each of its Subsidiaries to, give notice to the Bank in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Borrower or any of its Subsidiaries or to which the Borrower or any of its Subsidiaries is or is to become a party involving an uninsured claim against the Borrower or any of its Subsidiaries that could reasonably be expected to have a materially adverse effect on the Borrower and its Subsidiaries taken as a whole, and stating the nature and status of such litigation - 33 - or proceedings. The Borrower will, and will cause each of its Subsidiaries to, give notice to the Bank, in writing, in form and detail reasonably satisfactory to the Bank, within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Borrower or any of its Subsidiaries in an amount in excess of $50,000.00. 7.6 Existence; Maintenance of Properties. The Borrower will do or cause ------------------------------------ to be done all things necessary to preserve and keep in full force and effect its existence as a Massachusetts corporation. The Borrower will do or cause to be done all things necessary to preserve and keep in full force all of its rights and franchises and those of its Subsidiaries material to the business and financial affairs of the Borrower. The Borrower (a) will cause all of its properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order, reasonable wear and tear excepted, and supplied with all necessary equipment, (b) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (c) will, and will cause each of its Subsidiaries to, continue to engage primarily in the businesses now conducted by it and in related businesses. 7.7 Insurance. The Borrower shall keep adequately insured by --------- financially sound and responsible insurers (a) all property owned or leased by it and all property of an insurable nature, such insurance to be in at least such amounts and covering loss or damage from at least such risks and hazards (including, without limitation, business interruption insurance and use and occupancy insurance) as are usually insured against in the same geographic areas by companies engaged in similar businesses and such other insurance as is reasonably required by the Bank, (b) all liabilities of Borrower for damage to property, death or bodily injury, including, without limitation, product liability insurance, insurance required under all applicable workmen's compensation laws, and insurance for such liabilities resulting from, caused by or arising out of any product manufactured or sold by any predecessor of Borrower or by Borrower, all such insurance to be in at least such amounts as are usually insured against by companies engaged in the same or similar businesses and in any event as reasonably required by the Bank. All property, fire and casualty policies of insurance shall (i) provide that no cancellation, reduction in amount or change in coverage thereof shall be effective until at least thirty (30) days after receipt by the Bank of written notice thereof; (ii) waive any right of subrogation of the insurer against, or any right of set-off, counterclaim or any other deduction in respect of any liability of, the Bank to such insurer; and (iii) be otherwise satisfactory in all respects to the Bank. The Borrower shall provide the Bank promptly copies of all notices to the Borrower of any default or other act or omission by the Borrower which might invalidate or render unenforceable, in whole or in part, such policy or result in the lapse thereof. Each liability policy shall be primary without right of contribution from any other insurance policy which is carried by the Borrower or any other Person to the extent that such - 34 - other insurance policy provides the Borrower or other Person with contingent or excess insurance with respect to its interest in the insured property and shall expressly provide that all of the provisions thereof, except the limits on liability, shall operate in the same manner as if there were a separate policy covering each insured. Borrower shall, if so requested by the Bank, deliver to the Bank as often as the Bank may reasonably request a report of a reputable insurance broker with respect to the insurance on the property insured. Borrower shall upon request of the Bank at any time furnish to Bank insurance certificates for such insurance. The Borrower shall name the Bank, its successors and assigns, ATIMA, as loss-payee on such policies of insurance. 7.8 Taxes. The Borrower will duly pay and discharge, or cause to be ----- paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; provided that any such tax, assessment, charge, levy or claim with respect to real property need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower or such Subsidiary shall have set aside on its books adequate reserves with respect thereto; and provided further that the Borrower and each Subsidiary of the Borrower will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 7.9 Inspection of Properties and Books. The Borrower shall permit the ---------------------------------- Bank, through the Bank or any of the Bank's other designated representatives, at the Borrower's expense to visit and inspect any of the properties of the Borrower or any of its Subsidiaries during normal business hours of the Borrower as the Bank may reasonably request, to examine the books of account of the Borrower and its Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with, and to be advised as to the same by, its officers, all at such reasonable times and intervals as the Bank may reasonably request, provided, however, that so long as no Event of Default shall have occurred, the - ----------------- Bank shall conduct a commercial field audit exam at Borrower's expense, no more frequently than once every twelve (12) consecutive months. 7.10 Compliance with Laws, Contracts, Licenses, and Permits. The ------------------------------------------------------ Borrower will comply with, and will cause each of its Subsidiaries to comply in all material respects with (a) all applicable laws and regulations now or hereafter in effect wherever its business is conducted, including all Environmental Laws, (b) the provisions of its articles of organization and other charter documents and by-laws, (c) all agreements and instruments to which it is a party or by which it or any of its properties may be bound and (d) all applicable decrees, orders, and judgments. If at any time while any Loan or Note is outstanding or the Bank shall have any obligation to make Loans hereunder, any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in - 35 - order that the Borrower may fulfill any of its obligations hereunder, the Borrower will immediately take or cause to be taken all reasonable steps within the power of the Borrower to obtain such authorization, consent, approval, permit or license and furnish the Bank with evidence thereof. 7.11 Use of Proceeds. The Borrower will use the proceeds of the Loans --------------- solely for redemption of shares of the Borrower owned by Herbert P. Gray, Donald H. Benovitz, Melvin Aronson, Patrick Bohan, and Stephen Aschettino, transaction expenses in connection with the closing of the Loan hereunder and the expenses in connection with the Acquisition Agreement, and for working capital. 7.12 Further Assurances. The Borrower will cooperate with, and will ------------------ cause each of its Subsidiaries to cooperate with the Bank and execute such further instruments and documents as the Bank shall reasonably request to carry out to its satisfaction the transactions contemplated by this Agreement and the other Loan Documents. 7.13 Maintenance of Liens of Security Documents. Without limitation on ------------------------------------------ the provisions of the Security Agreement: Borrower shall promptly, upon the reasonable request of the Bank and at Borrower's expense, execute, acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record in an appropriate governmental office, any document or instrument supplemental to or confirmatory of the Security Documents or otherwise necessary or desirable in the opinion of the Bank for the creation, preservation and/or perfection of the liens purported to be created by the Security Documents, if any. If any of Borrower's property shall be or become evidenced by any negotiable document of title, promissory note or other instrument, such document, note or instrument shall immediately be delivered to the Bank, duly endorsed in a manner satisfactory to the Bank. Borrower shall, at the Bank's request, defend the right, title and interest of the Bank in and to any of the property which is the subject of the Security Documents against the claims and demands of all Persons except claims of Persons with liens permitted hereunder. 7.14 Equipment Not to Become Fixtures. At the request of the Bank, --------------------------------- Borrower will use its best efforts to obtain waivers or subordinations of lien, in form satisfactory to the Bank, from each lessor and each lessor's mortgagee of real property on which any material amount of the equipment is or may be located. 7.15 Verification of Accounts. After the occurrence of an Event of ------------------------- Default, the Bank shall have the right, at any time or times, to verify the validity, amount or any other matter relating to any Account, by mail, telephone, or in person. 7.16 Key Man Life Insurance. Borrower shall pay all premiums when such ---------------------- are due and payable and maintain, with a reputable insurer satisfactory to the Bank, life insurance policies on Herbert P. Gray and Donald H. Benovitz (the "Key Man Life Insurance Policies") in the minimum amount for each policy of One Million Dollars ($1,000,000.00) and naming the Bank - 36 - as loss payee and take all action necessary to preserve and maintain the Key Man Life Insurance Policies, for so long as each respective Borrower's Key Officer shall continue to be employed by the Borrower or its Subsidiaries. The proceeds of such insurance shall be applied by the Bank to reduce the amount outstanding under the Loans, but such application shall not reduce the Commitment. At the time that the Borrower purchases a key man life insurance policy on any employee, the Borrower shall forthwith assign such policy to the Bank as collateral security for the Borrower's Obligations to the Bank. 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and ------------------------------------------ agrees that, so long as any Loan or Note is outstanding or the Bank has any obligation to make any Loans: 8.1 Restrictions on Indebtedness. The Borrower will not, and will not ---------------------------- permit any of its Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) the Obligations; (b) current liabilities of the Borrower or its Subsidiaries incurred in the ordinary course of business but not incurred through (i) the borrowing of money, or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services; (c) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of Section 7.8; (d) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Borrower shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (e) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (f) Indebtedness incurred in connection with the acquisition after the date hereof of any real or personal property by the Borrower or any Subsidiary of the Borrower, or in respect of any Capitalized Leases, provided that the aggregate principal amount of such Indebtedness of the Borrower and its Subsidiaries shall not exceed the aggregate amount of (i) $600,000.00 for the New Computer System expenses and (ii) Seven Hundred Fifty Thousand Dollars ($750,000.00) outstanding at any one time for Capital Expenditures other than in (i) immediately preceding; - 37 - (g) Indebtedness in respect of obligations outstanding on the Closing Date and described on Schedule 8.1 and any refinancing or extension thereof which is no more onerous in any material respect to the Borrower than the then outstanding Indebtedness and which does not increase the principal amount of such Indebtedness. (h) Indebtedness with respect to deferred compensation in the ordinary course of business and Indebtedness with respect to employee benefit programs (including liabilities in respect of deferred compensation, pension or severance benefits, early termination benefits, disability benefits, vacation benefits and tuition benefits) incurred in the ordinary course of business; (i) Indebtedness in respect of customer advances and deposits, deferred income, deferred taxes and other deferred credits arising in the ordinary course of business; (j) Indebtedness relating to deferred gains and deferred taxes existing as of the Closing Date or arising in connection with sales of assets which are permitted hereunder; and (k) Indebtedness in respect of the Subordinated Debt. 8.2 Restrictions on Liens, Etc. The Borrower will not, and will not --------------------------- permit any of its Subsidiaries to: (a) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; (b) transfer any of its property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (c) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement (except as permitted in Section 8.1 above); (d) subject to Section 7.8, suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse; - 38 - Provided that the Borrower and any Subsidiary of the Borrower may create or incur or suffer to be created or incurred or to exist: (i) liens created in favor of the Bank; (ii) liens to secure taxes, assessments and other government charges or claims for labor, material or supplies in respect of obligations not overdue or being contested in accordance with Section 7.8; (iii) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (iv) landlord's or lessor's liens under leases to which the Borrower or a Subsidiary of the Borrower is a party; (v) presently outstanding Liens listed on Schedule 8.2 hereto and renewals and extensions thereof, but not any increase thereof and on terms no more onerous than existing on the date hereof, provided, however, that the perfecting of any security interest by any Person listed on Schedule 8.2 is not permitted; (vi) purchase money security interests in or purchase money mortgages on real or personal property acquired after the date hereof to secure purchase money Indebtedness of the type and amount permitted by Section 8.1(f), incurred in connection with the acquisition of such property, which security interests or mortgages cover only the real or personal property so acquired and renewals and extensions thereof, but not any increase thereof and on terms no more onerous than existing on the date hereof; (vii) liens of carriers, warehouseman, mechanics and similar Liens or deposits to secure the release thereof; (viii) Capitalized Lease Obligations incurred after the Closing Date and purchase money security interests in or purchase money mortgages on real or personal property acquired after the Closing Date to secure purchase money indebtedness to the extent permitted by Section 8.1(f) incurred in connection with the acquisition of such property, which security interest or mortgages cover only the real or personal property so acquired and proceeds thereof and reasonable attachments and accessions thereto; (ix) other liens and encumbrances expressly permitted under the terms of the Security Agreement; and (x) Liens in respect of endorsements, utility and other deposits and bonds posted in the ordinary course of business. - 39 - 8.3 Restrictions on Investments. The Borrower will not, and will not --------------------------- permit any of its Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments in: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Borrower; (b) demand deposits, certificates of deposit and time deposits of: (x) any United States Bank that is a commercial bank having capital and surplus in excess of $1,000,000,000.00 and whose short-term commercial paper rating from Standard & Poor's Corporation is at least A-1 or the equivalent thereof or from Moodys Investors Services, Inc. of at least P-1 or the equivalent thereof; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Services, Inc., and not less than "A 1" if rated by Standard and Poor's; (d) Investments listed on Schedule 8.3 or other comparable institutional money market funds. (e) trade or customer accounts or notes receivable for inventory sold or leased or services rendered in the ordinary course of business; (f) advances to employees, agents and consultants in the ordinary course of business, including, but not limited to, travel, payroll and other expenses incurred in the ordinary course of business; and (g) Investments in Persons in the same line of business of the Borrower so long as after the making of such Investment no Default or Event of Default has occurred after giving effect to such Investment. 8.4 Merger, Consolidation. Except as permitted by Section 8.3(h), the --------------------- Borrower will not, and will not permit any of its Subsidiaries to, become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition or disposition (other than the acquisition or disposition of assets in the ordinary course of business consistent with past practices) except (i) the merger or consolidation of one or more of the Subsidiaries of the Borrower with and into the Borrower, or (ii) the merger or consolidation of two or more Subsidiaries of the Borrower. The Borrower shall not create any Subsidiaries without the prior written consent of the Bank which shall not be unreasonably withheld, conditioned or delayed. 8.5 Sale and Leaseback. The Borrower will not, and will not permit any ------------------ of its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby the Borrower or any - 40 - Subsidiary of the Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Borrower or any Subsidiary of the Borrower intends to use for substantially the same purpose as the property being sold or transferred. 8.6 Compliance with Environmental Laws. The Borrower will not, and will ---------------------------------- not permit any of its Subsidiaries to, do any of the following: (a) use any of the Real Estate or any portion thereof as a facility for the handling, processing, storage or disposal of Hazardous Substances, (b) cause or permit to be located on any of the Real Estate any underground tank or other underground storage receptacle for Hazardous Substances except in compliance in all material respects with Environmental Laws, (c) generate any Hazardous Substances on any of the Real Estate except in compliance in all material respects with Environmental Laws, or (d) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause a Release. 8.7 Distributions. ------------- Borrower shall not make any Distributions, provided, however, that so -------- ------- long as no Default exists or would be created thereby, and no Event of Default has occurred, the Borrower may make the following: (a) Distributions on Subordinated Debt to the extent permitted by the Bank in the Subordination Agreement. (b) Distributions made pursuant to the Acquisition Agreement on the Closing Date as permitted under Section 7.11 of this Agreement. (c) Distributions to employees made in accordance with the employment agreements executed pursuant to the Acquisition Agreement or on such other economic terms as reasonably approved by the Bank. (d) Distributions in respect of the redemption of capital stock of the Borrower from employees of the Borrower; provided, however, that the amount of -------- ------- all such Distributions shall not exceed, in the aggregate, $200,000.00 in any Fiscal Year. (e) Distributions to pay Required Distributions up to the aggregate amount of $1,400,000.00. (f) the Distribution of dividends payable only in shares of common stock of the Borrower; (g) Distributions to employees for travel expenses and related business entertainment and business expenses incurred in the ordinary course of business not to exceed in the aggregate $150,000.00 at any one time; and - 41 - (h) Distributions in the ordinary course of business for salaries and bonuses to employees other than to Borrower's Key Officers. 8.8 Change to Fiscal Year. The Borrower shall not change its Fiscal --------------------- Year without the prior consent of the Bank. 9. FINANCIAL COVENANTS OF THE BORROWER. The Borrower covenants and agrees ----------------------------------- that, so long as any principal is outstanding under the Note or the Bank has any obligation to make any Loans or the Commitment has not been terminated: 9.1 Senior Debt Service Coverage. On the last day of each fiscal ---------------------------- quarter of the Borrower, the ratio of Operating Cash Flow to Senior Debt Service for the period of the four (4) consecutive fiscal quarters of Borrower then ending (or such lesser period as set forth in this section), shall not be less than 1.3:1.0, provided, however: -------- ------- (i) on the last day of the fiscal quarter ending December 2, 1995 such ratio shall be calculated based upon the one fiscal quarter then ending; (ii) on the last day of the fiscal quarter ending March 2, 1996, such ratio shall be calculated based upon the two fiscal quarters then ending; and (iii) on the last day of the fiscal quarter ending on or about May 31, 1996, such ratio shall be calculated based upon the three fiscal quarters then ending. 9.2 Minimum Net Income. The Borrower shall have Consolidated Net Income ------------------ for each of its fiscal quarters (treated as a single accounting period) of at least $1.00. 9.3 Total Debt Service Coverage. On the last day of each fiscal quarter --------------------------- of the Borrower, the ratio of Operating Cash Flow to Total Debt Service for the period of the four (4) consecutive quarters of Borrower then ending (or such lesser period as set forth in this section), shall not be less than 1.1:1.0, provided, however: - -------- ------- (i) on the last day of the fiscal quarter ending December 2, 1995 such ratio shall be calculated based upon the one fiscal quarter then ending; (ii) on the last day of the fiscal quarter ending March 2, 1996, such ratio shall be calculated based upon the two fiscal quarters then ending; and (iii) on the last day of the fiscal quarter ending on or about May 31, 1996, such ratio shall be calculated based upon the three fiscal quarters then ending. 9.4 Leverage Ratio. On the last day of each fiscal quarter of the -------------- Borrower, the ratio of (x) Total Debt as of the last day of such fiscal quarter to (y) the sum of EBITDA for the period - 42 - of the four (4) consecutive quarters of the Borrower then ending, shall not be more than the following:
Period Ratio ------ ----- On the last day of the fiscal quarters ending: ---------------------- September 3, 1995, December 2, 1995 March 2, 1996 and June 1, 1996 5.50:1.00 August 31, 1996 November 30, 1996 March 1, 1997 and May 31, 1997 4.70:1.00 August 30, 1997 November 30, 1997 February 28, 1998 and May 30, 1998 4.00:1.00 August 29, 1998 November 28, 1998 3.3:1.00 February 27, 1999 and May 29, 1999 August 28, 1999 and 3.0:1.00 thereafter
9.5 Minimum Trading Assets The Borrower shall have Minimum ---------------------- Trading Assets for each of its fiscal quarters during the period set forth below as follows:
Period Minimum Amount ------ -------------- Closing Date - 8/31/96 $7,300,000.00 9/1/96 - 8/30/97 $8,500,000.00 8/31/97 and thereafter $9,000,000.00
- 43 - 10. CLOSING CONDITIONS. The obligations of the Bank to make the initial ------------------ Revolving Credit Loans shall be subject to the satisfaction of the following conditions precedent on or prior to June 1, 1995: 10.1 Loan Documents. Each of the Loan Documents shall have been duly -------------- executed and delivered by the respective parties thereto and, shall be in full force and effect and shall be in form and substance satisfactory to the Bank, and the Bank shall have received a fully executed original of each such document. 10.2 Certified Copies of Organization Documents. The Bank shall have ------------------------------------------ received from the Borrower a copy, certified as of a recent date by the appropriate officer of the Secretary of State of Massachusetts to be true and complete, of the articles of organization and any other organization documents of Borrower as in effect on such date of certification. 10.3 By-laws; Resolutions. All action on the part of the Borrower -------------------- necessary for the valid execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Bank shall have been provided to the Bank. The Bank shall have received from the Borrower true copies of its by-laws and the resolutions adopted by its shareholders and board of directors authorizing the transactions described herein, each certified by its clerk or assistant clerk as of a recent date to be true and complete. 10.4 Incumbency Certificate; Authorized Signers. The Bank shall have ------------------------------------------ received from the Borrower an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of the Borrower and giving the name and bearing a specimen signature of each individual who shall be authorized: (a) to sign, in the name and on behalf of the Borrower, each of the Loan Documents to which the Borrower is or is to become a party; (b) to make Loan Requests; and (c) to give notices and to take other action on behalf of the Borrower under the Loan Documents. 10.5 Validity of Liens. The Security Documents shall be effective to ----------------- create in favor of the Bank a legal, valid and enforceable first (except for Permitted Liens entitled to priority under applicable law) security interest in the Collateral. All filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Bank to protect and preserve such security interests shall have been duly effected. The Bank shall have received evidence thereof in form and substance satisfactory to the Bank. 10.6 UCC Searches. The Bank shall have received UCC searches of records ------------ of applicable jurisdictions with respect to the Borrower, satisfactory to the Bank and showing no liens or encumbrances on the Collateral other than Permitted Loans. 10.7 Leases. The Bank shall have received from the Borrower true copies ------ of all Leases. - 44 - 10.8 Lease Collateral Agreements. The Bank shall have received the Lease --------------------------- Collateral Agreements, in form and substance satisfactory to the Bank. 10.9 Certificates of Insurance. The Bank shall have received (a) ------------------------- certified copies of all policies of insurance maintained by Borrower evidencing such insurance (or certificates therefor signed by the insurer or an agent authorized to bind the insurer, identifying insurers, types of insurance, insurance limits, and policy terms); and (b) such further information and certificates from Borrower, its insurers and insurance brokers as the Bank may request. 10.10 Opinion of Counsel Concerning Organization and Loan Documents. The ------------------------------------------------------------- Bank shall have received a favorable opinion from Borrower's counsel addressed to the Bank and dated as of the Closing Date, in form and substance satisfactory to the Bank and its counsel, as to the matters referred by the Bank. 10.11 Payment of Fees. The Borrower shall have paid to the Bank the --------------- facility fee pursuant to Section 4.1, the commercial finance examination fee of the Bank, and the Bank's Special Counsel fees and expenses. 10.12 Permit Assurances. The Bank shall have received evidence ----------------- satisfactory to the Bank that all activities being conducted by the Borrower and its Subsidiaries which require federal, state or local licenses or permits have been duly licensed and that such licenses or permits are in full force and effect. 10.13 Subordination Agreement(s). The Subordination Agreement(s) shall -------------------------- have been duly executed and delivered to the Bank by the Creditors and all other necessary parties. 10.14 Related Transactions. The transactions contemplated by the -------------------- Acquisition Agreement and the Debenture Agreement shall have been consummated in accordance with the terms thereof and Summit shall have provided Six Million Seven Hundred Fifty Thousand Dollars ($6,750,000.00) of subordinated debt to the Borrower, the Borrower's Key Officers shall have provided Two Million Five Hundred Thousand Dollars ($2,500,000.00) of subordinated debt seller financing and Summit shall have purchased and the Borrower sold an approximate amount of Six Million Six Hundred Fifty Thousand Dollars ($6,650,000.00) of preferred stock of the Borrower. The proceeds derived from the closing of the Acquisition Agreement and the Debenture Agreement shall be deposited with the Bank for disbursement together with the Revolving Credit Loan borrowed on the Closing Date in furtherance of the transaction contemplated by the Acquisition Agreement. 10.15 Other Documents. The Borrower shall have executed and delivered or --------------- caused others to execute and deliver such other certificates, affidavits, agreements or documents as the Bank or its counsel may reasonably require. - 45 - 11. CONDITIONS TO ALL BORROWINGS. The obligations of the Bank to make any ---------------------------- Loan, whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent: 11.1 Representations True; No Event of Default. Each of the ----------------------------------------- representations and warranties of the Borrower and its Subsidiaries contained in this Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with this Agreement shall be true in all material respects as of the date as of which they were made and shall also be true in all material respects at and as of the time of the making of such Loan, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and except further for matters about which the Borrower has previously given the Bank adequate written notice and further except to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. The Bank, if requested, shall have received a certificate of the Borrower signed by an authorized officer of the Borrower to such effect substantially in the form annexed hereto as Exhibit C. 11.2 No Legal Impediment. No change shall have occurred in any law or ------------------- regulations thereunder or interpretations thereof that in the reasonable opinion of the Bank would make it illegal for the Bank to make such Loan. 11.3 Governmental Regulation. The Bank shall have received such ----------------------- statements in substance and form reasonably satisfactory to the Bank as the Bank shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. 11.4 Proceedings and Documents. All proceedings in connection with the ------------------------- transactions contemplated by this Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in substance and in form to the Bank and to the Bank's counsel, and the Bank and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Bank may reasonably request. 12. EVENTS OF DEFAULT; ACCELERATION; ETC. ------------------------------------- 12.1 Events of Default and Acceleration. If any of the following events ---------------------------------- ("Events of Default" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "Defaults") shall occur: (a) the Borrower shall fail to make any payment in respect of: - 46 - (i) interest or any fee on or in respect of any of the Loan Documents, including, without limitation, the Note, as the same shall become due and payable, and such failure shall continue for a period of three (3) Business Days; or (ii) principal of any of the Loan Documents owed by it as the same shall become due and payable, whether at the Maturity Date, or after acceleration, or the pay-down of amounts outstanding under the Note to the Stated Maximum; (b) [intentionally not used]; (c) the Borrower shall fail to comply with any of its covenants contained in 7.4, 7.5, 7.6, 7.7, 7.9, 7.11, 7.12, 7.13, 7.14, 8.1, 8.2, 8.3, 8.4, 8.5, 8.7, 9.1, 9.2, 9.3, 9.4 or 9.5 or any of the covenants contained in the Security Agreement within any applicable grace period contained in the Security Agreement; (d) the Borrower or any of its Subsidiaries shall fail to perform any other term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this Section 12), and such failure shall not be rectified or cured to the written satisfaction of the Bank within thirty (30) days after notice thereof by the Bank to the Borrower; (e) any representation or warranty of the Borrower or any of its Subsidiaries in this Agreement or any of the other Loan Documents or in any other document or instrument delivered pursuant to or in connection with this Agreement shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; (f) the Key Man Life Insurance Policy of Herbert Gray and Donald H. Benovitz shall lapse or be terminated; (g) the Borrower or any of its Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of the Borrower or any of its Subsidiaries or of any substantial part of the assets of the Borrower or any of its Subsidiaries or shall commence any case or other proceeding relating to the Borrower or any of its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against the Borrower or any of its Subsidiaries and the Borrower or any of its Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein; - 47 - (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Borrower or any of its Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Borrower or any Subsidiary of the Borrower in an involuntary case under federal bankruptcy laws as now or hereafter constituted, which remains undischarged for a period of sixty (60) days; (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than sixty (60) days, whether or not consecutive, any uninsured final judgment against the Borrower or any of its Subsidiaries that, with other outstanding uninsured final judgments, undischarged, against the Borrower or any of its Subsidiaries exceeds in the aggregate of $100,000.00; (j) if any of the Loan Documents shall be canceled, terminated, revoked or rescinded otherwise than in accordance with the terms thereof or with the express prior written agreement, consent or approval of the Bank, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of the Borrower or any of its Subsidiaries, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof (but the foregoing shall not apply to any such determination, judgment, order, decree or ruling invalidating any provision of the Loan Documents or severing such provision from such Loan Documents, provided that it does not materially adversely affect the rights, remedies and relationships established by the Loan Documents); (k) with respect to any Guaranteed Pension Plan, an ERISA Reportable Event shall have occurred and the Bank shall have determined in its reasonable discretion that such event reasonably could be expected to result in liability of the Borrower or any of its Subsidiaries to the PBGC or such Guaranteed Pension Plan in an aggregate amount exceeding $100,000.00 and such event in the circumstances occurring reasonably could constitute grounds for the termination of such Guaranteed Pension Plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Guaranteed Pension Plan; or a trustee shall have been appointed by the United States District Court to administer such Plan; or the PBGC shall have instituted proceedings to terminate such Guaranteed Pension Plan; (l) the occurrence of an Event of Default under the Subordinated Debt. (m) one or more changes in the Voting Interests of the Borrower which would result in Summit having beneficial ownership and control of less than fifty-one percent (51%) of the capital stock of Borrower; then, and in any such event, so long as the same may be continuing, the Bank may by notice in writing to the Borrower declare all amounts owing with respect to this Agreement, the Note and - 48 - the other Loan Documents to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; provided that in the event of any Event of Default specified in Sections 12.1(g) or 12.1(h), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Bank. 12.2 Termination of Commitment. If any one or more Events of Default ------------------------- specified in Sections 12.1(g) or 12.1(h) shall occur, any unused portion of the credit hereunder shall forthwith terminate and the Bank shall be relieved of all obligations to make Loans to the Borrower. If any other Event of Default shall have occurred, then the Bank may by notice to the Borrower, terminate the unused portion of the credit hereunder, and upon such notice being given such unused portion of the credit hereunder shall terminate immediately and the Bank shall be relieved of all further obligations to make Loans. No termination of the credit hereunder shall relieve the Borrower of any of the Obligations or any of its existing obligations to the Bank arising under other agreements or instruments. 12.3 Remedies. In case any one or more of the Events of Default shall -------- have occurred and be continuing, and whether or not the Bank shall have accelerated the maturity of the Loans pursuant to Section 12.1, the Bank may proceed to protect and enforce its rights and remedies under this Agreement, the Note or any of the other Loan Documents by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to the Bank are evidenced, including to the full extent permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of the Bank. No remedy herein conferred upon the Bank or the holder of any Note is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. 12.4 Distribution of Collateral Proceeds. In the event that, following ----------------------------------- the occurrence or during the continuance of any Default or Event of Default, the Bank receives any monies in connection with the enforcement of any of the Security Documents, or otherwise with respect to the realization upon any of the Collateral, such monies shall be distributed for application as follows: (a) First, to the payment of, or (as the case may be) the reimbursement of, the Bank for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Bank in connection with the collection of such monies by the Bank, for the exercise, protection or enforcement by the Bank of all or any of the rights, remedies, powers and privileges of the Bank under this Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Bank - 49 - against any taxes or liens which by law shall have, or may have, priority over the rights of the Bank to such monies; (b) Second, to all other Obligations in such order or preference as the Bank may determine; and provided, further that the Bank may in its discretion make proper allowance to take into account any Obligations not then due and payable; (c) Third, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Bank of all of the Obligations, to the payment of any obligations required to be paid pursuant to Section 9-504(1)(c) of the UCC; and (d) Fourth, the excess, if any, shall be returned to the Borrower or to such other Persons as are entitled thereto. 12.5 Event of Default Waiver. If an Event of Default has occurred and ----------------------- the Bank waives by waiver or amendment, in its sole discretion, the occurrence of such Event of Default in writing to the Borrower, it shall be treated as in the same manner for purposes of the Loan Documents as a Default which the Borrower has cured within an applicable grace period. The foregoing provision does not obligate the Bank to provide any waivers of any Event of Default to the Borrower at any time and from time to time. 13. SETOFF. Regardless of the adequacy of any collateral, after the ------ occurrence of any Event of Default, any deposits (general or specific, time or demand, provisional or final, regardless of currency, maturity, or the branch of where such deposits are held) or other sums credited by or due from the Bank to the Borrower and any securities or other property of the Borrower in the possession of such Bank may be applied to or set off against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrower to such Bank. 14. [Intentionally blank.] 15. EXPENSES. The Borrower agrees to pay: -------- (a) reserved; (b) any taxes (including any interest and penalties in respect thereto) payable by the Bank (other than taxes based upon the Bank's income or profits), including any filing, recording, mortgage, documentary or intangibles taxes in connection with the Security Agreement and other Loan Documents, or other taxes payable on or with respect to the transactions contemplated by this Agreement, including any taxes payable by the Bank after the Closing Date (the Borrower hereby agreeing to indemnify the Bank with respect thereto); - 50 - (c) all title insurance premiums, appraisal fees, engineer's fees, and the reasonable fees, expenses and disbursements of the Bank's Special Counsel incurred in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, and amendments, modifications, approvals, consents or waivers hereto or hereunder; (d) the fees, expenses and disbursements of the Bank incurred by the Bank in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein; (e) all reasonable out-of-pocket expenses (including reasonable attorneys' fees and costs, which attorneys may be employees of the Bank and the fees and costs of appraisers, engineers, investment bankers or other experts retained by the Bank in connection with any such enforcement proceedings) incurred by the Bank in connection with: (i) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or any of its Subsidiaries or the administration thereof after the occurrence of a Default or Event of Default; and (ii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to the Bank's relationship with the Borrower or any of its Subsidiaries; and (f) all reasonable fees, expenses and disbursements of the Bank incurred in connection with UCC searches, UCC filings or mortgage recordings. The covenants of this Section 15 shall survive payment or satisfaction of payment of amounts owing with respect to the Note. 16. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the --------------- Bank from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Agreement or any of the other Loan Documents or the transactions contemplated hereby (except to the extent such claims, damages, liabilities and expenses result from the Bank's gross negligence, bad faith or willful misconduct) including, without limitation (subject to the exceptions set forth above): (a) any actual or proposed use by the Borrower or any of its Subsidiaries of the proceeds of any of the Loans; (b) any actual or alleged infringement of any patent, copyright, trademark, service mark or similar right of the Borrower or any of its Subsidiaries comprised in the Collateral; - 51 - (c) the Borrower or any of its Subsidiaries entering into or performing this Agreement or any of the other Loan Documents; or (d) with respect to the Borrower and its Subsidiaries and their respective properties and assets, the violation of any Environmental Law, the Release or threatened Release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to claims with respect to wrongful death, personal injury or damage to property), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Bank shall be entitled to select its own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrower under this Section 16 are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The provisions of this Section 16 shall survive the repayment of the Loans and the termination of the obligations of the Bank hereunder. 17. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations --------------------------- and warranties made herein, in the Notes, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have been relied upon by the Bank, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Bank of any of the Loans, as herein contemplated, and shall continue in full force and effect so long as any amount due under this Agreement or the Notes or any of the other Loan Documents remains outstanding or the Bank has any obligation to make any Loans. The indemnification obligations of the Borrower provided herein and the other Loan Documents shall survive the full repayment of amounts due and the termination of the obligations of the Bank hereunder and thereunder to the extent provided herein and therein. All statements contained in any certificate or other paper delivered to the Bank at any time by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower or such Subsidiary hereunder. 18. SUCCESSORS. This Agreement shall be binding upon and inure to the ---------- benefit of Borrower, Bank and all future holders of the Note, and their respective successors and assigns, except that Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Bank. Borrower acknowledges that the Bank may, from time to time, sell participation interests in the Loan and Borrower's other obligations hereunder, to third parties, on such terms and conditions as the Bank may determine, and Borrower specifically consents thereto. The Bank may also from time to time assign its rights and delegate its obligations, including its obligation to make part or all of the Loans or grant part or all of any other financial accommodation under this Agreement, in which event Borrower shall only have recourse to the assignee for the performance of the Bank's obligation that have been so delegated. - 52 - For these purposes the Bank may disclose to an intended or actual participant or assignee all or any information supplied to the Bank by or on behalf of Borrower, provided that the Bank shall inform such recipients that such information is to be held in confidence. 19. NOTICES, ETC. Except as otherwise expressly provided in this Agreement, ------------- all notices and other communications made or required to be given pursuant to this Agreement or the Note shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy, telefax or telex and confirmed by delivery via courier or postal service, addressed as follows: (a) if to the Borrower, at 75 October Hill Road, Holliston, Massachusetts 01746, Attention: President, or at such other address for notice as the Borrower shall last have furnished in writing to the Person giving the notice (and Bank also shall use good-faith efforts to provide a copy of any such --- notice to Borrower to the following additional address: Attn: Joseph F. Trustey, Summit Partners, One Boston Place, Boston, Massachusetts 02108, but the failure to give such additional notice shall not affect the effect or validity of any notice or other communication given to Borrower at the first address set forth above); and (b) if to the Bank, at 100 Federal Street, Boston, Massachusetts 02110, Attention: Gregory G. O'Brien, Director, or such other address for notice as the Bank shall last have furnished in writing to the Borrower. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile and (ii) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. 20. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE. THIS AGREEMENT AND -------------------------------------------------- EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SUCH COMMONWEALTH (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 19. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY - 53 - SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 21. HEADINGS. The captions in this Agreement are for convenience of -------- reference only and shall not define or limit the provisions hereof. 22. COUNTERPARTS. This Agreement and any amendment hereof may be executed in ------------ several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. 23. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents ---------------------- executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in Section 25. 24. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS. THE BORROWER HEREBY ---------------------------------------------- WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT TO THE EXTENT EXPRESSLY PROHIBITED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH THEY ARE PARTIES BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN. 25. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly ----------------------------------- provided in this Agreement, any consent or approval required or permitted by this Agreement may be given, and any term of this Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrower of any terms of this Agreement or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Bank. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or - 54 - delay or omission on the part of the Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. 26. SEVERABILITY. The provisions of this Agreement are severable, and if any ------------ one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. [END OF PAGE 56] [SIGNATURE PAGE OF CREDIT AGREEMENT] IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a sealed instrument as of the date first set forth above. SUBURBAN OSTOMY SUPPLY CO., INC. By: /s/ Herbert Grey --------------------------------- Name: Title: Hereunto Duly Authorized THE FIRST NATIONAL BANK OF BOSTON By: /s/ Gregory G. O'Brien --------------------------------- Name: Gregory G. O'Brien Title: Director Exhibit A Revolving Credit Note Exhibit B Officer's Certificate Exhibit C NOTICE OF BORROWING ------------------- (FOR LIBOR REQUESTS) - 55 - SUBURBAN OSTOMY SUPPLY CO., INC. TO: The First National Bank of Boston One Hundred Federal Street Boston, Massachusetts This Notice of Borrowing is being delivered pursuant to and in accordance with Section 2.6 of that certain Credit Agreement ("Loan Agreement") dated as of July 3, 1995 by and between Suburban Ostomy Supply Co., Inc. (the "Borrower") and The First National Bank of Boston (the "Bank"). Capitalized terms used herein but not otherwise defined herein shall have the meaning given such term in the Loan Agreement. This Notice of Borrowing constitutes the Borrower's irrevocable written request for a LIBOR Rate Revolving Credit Loan, as follows: Tier I Amount loan availability $____________ Tier I Amount loan outstanding after giving effect to this request $____________ Check One and Provide Amount: Tier I Amount Request $____________ Tier II Amount Request $____________ Interest Period: _______________ (specify one, two, three or six months) (one interest period per request) Pricing: Tier I Amount = Reserve Adjusted LIBOR + 200 BP Tier II Amount = Reserve Adjusted LIBOR + 250 BP SUBURBAN OSTOMY SUPPLY CO., INC. By:_____________________________ - 56 - Exhibit D TIER I AMOUNT REPORT -------------------- SUBURBAN OSTOMY SUPPLY CO., INC. TO: The First National Bank of Boston One Hundred Federal Street Boston, Massachusetts 02110 This certificate dated _________________ is furnished to the Bank pursuant to Section 2.6 or Section 7.4(g) of that certain credit agreement ("Credit Agreement") dated as of July 3, 1995 by and between SUBURBAN OSTOMY SUPPLY CO., INC. (the "Borrower") and the Bank. Capitalized terms not otherwise defined herein shall have the meaning given such term in the Credit Agreement. The Borrower hereby certifies as true and correct as follows: I. Gross Accounts $___________ Eligible Accounts Receivable $___________ Formula .80 X Accounts Availability $__________ II. Gross Inventory $___________ Eligible Inventory $__________ Formula .50 X Inventory Availability $___________ Tier I Amount = Accounts Availability + Inventory Availability ______________ = ______________________ + ______________________ - 57 - SUBURBAN OSTOMY SUPPLY CO., INC. By:_____________________________ Schedule 6.2 Government Approvals Schedule 6.3 Title to Properties; Leases Schedule 6.6 Intellectual Property Schedule 6.7 Litigation Schedule 6.10 Tax Status Schedule 6.15 Certain Transactions Schedule 6.16 Employee Benefit Plans Schedule 6.18 Environmental Compliance Schedule 6.22 Real Property; Leases Schedule 6.24 Fiscal Quarters Schedule 8.1 Restrictions on Indebtedness Schedule 8.2 Restrictions on Liens, Etc. Schedule 8.3 Restrictions on Investments - 58 - EX-10.23 27 FIRST AMEND TO CREDIT AGREE EXHIBIT 10.23 FIRST AMENDMENT TO CREDIT AGREEMENT ----------------------------------- SUBURBAN OSTOMY SUPPLY CO., INC. ST. LOUIS OSTOMY DISTRIBUTORS, INC. THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the or this "First Amendment") is dated as of January 22, 1996 by and between SUBURBAN OSTOMY SUPPLY CO., INC. ("Suburban"), a Massachusetts corporation, ST. LOUIS OSTOMY DISTRIBUTORS, INC. ("St. Louis"), a Missouri corporation and THE FIRST NATIONAL BANK OF BOSTON (the "Lender"), a national banking association. NOW, THEREFORE, for the Loan Increase (defined below), for the premises herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledge, the parties hereto agree as follows: I. BACKGROUND ---------- As of July 3, 1995, Suburban and the Lender entered into a revolving reducing loan arrangement of up to Sixteen Million Dollars ($16,000,000.00) (the "Original Loan"). The Original Loan was evidenced by a revolving credit note (the "Original Note") dated July 3, 1995 in the original principal amount of Sixteen Million Dollars ($16,000,000.00) made by Suburban in favor of the Lender. Advances under the Original Note are made, subject to and in accordance with, a credit agreement (the "Original Credit Agreement") dated as of July 3, 1995 between Suburban and the Lender. Suburban is acquiring all of the capital stock of St. Louis from St. Louis' sole shareholder, Michael J. Quinn ("Quinn") and St. Louis shall become a wholl- owned subsidiary of Suburban. In connection with the acquisition of the stock of St. Louis, the Original Loan is being increased (the "Loan Increase") by up to Nine Million Dollars ($9,000,000.00). Suburban intends to use a portion of the Original Loan and the Loan Increase to purchase such stock and for working capital purposes and St. Louis intends to use proceeds of the Original Loan and the Loan Increase for working capital purposes. The Original Loan as increased by the Loan Increase as may be further modified, amended, supplemented or recast, from time to time, is referred to herein as the "Loan". To facilitate St. Louis' borrowing Loan proceeds, St. Louis is being made a co-borrower with Suburban. Suburban and St. Louis, jointly and severally, are delivering to the Lender an amended and restated revolving credit note (the "Note Amendment") which amends and restates the Original Note to account for the Loan Increase and to make St. Louis as co- borrower thereunder. The Original Note, as amended by the Note Amendment, as may be further amended, modified, supplemented or recast, from time to time, is referred to herein as the "Note". St. Louis is securing the payment and performance of all of its obligations under the Note by executing and delivering a Pledge and Security Agreement -- All Assets ("St. Louis Security Agreement"), thereby granting the Lender a security interest in all of St. Louis' assets. In connection with the Note Amendment, Suburban, inter alia, (i) is amending and confirming the Loan ----- ---- Documents executed in connection with the Original Credit Agreement, (ii) is providing the Lender with a stock pledge agreement ("Stock Pledge Agreement") thereby pledging all of the stock of St. Louis as additional security for the Loan and (iii) is providing the Lender with a warrant ("Warrant"), thereby permitting the Lender to purchase 1.25% of the common stock of Suburban. In connection with Suburban's acquisition of the stock of St. Louis, Suburban will issue a 10% subordinated promissory note ("Quinn Note") in the original principal amount of One Million Two Hundred Fifty Thousand Dollars ($1,250,000.00) in favor of Quinn. The Quinn Note, as may be amended from time to time, shall be junior and subordinate to all of the obligations of Suburban and St. Louis under the Loan and the Loan Documents, as amended. The subordination agreement (the "Original Subordination Agreement") executed in connection with the Original Loan among Herbert P. Gray, Donald H. Benovitz, Melvin Aronson, Patrick Bohan and Stephen Aschettino, Summit Subordinated Debt Fund, L.P. and Summit Investors II, L.P. and Suburban and the Lender is being amended and restated by a first amended and restated subordination agreement ("Subordination Agreement Amendment") dated as of January 22, 1996 and executed by the same parties, as well as, St. Louis and Quinn. The Original Subordination Agreement, as amended by the Subordination Agreement Amendment, and as may be further amended, supplemented, modified or recast from time to time, referred to as the "Subordination Agreement." Capitalized terms used in this First Amendment and not defined herein shall have the meanings given such term in the Original Loan Agreement. This First Amendment, together with the Original Loan Agreement and such other amendments, modifications, supplements or restatements, as may be made from time to time, referred to herein as the "Loan Agreement." - 2 - II. AMENDMENTS TO ARTICLE I, DEFINITIONS AND RULES OF ------------------------------------------------- INTERPRETATIONS --------------- A. The term "Borrower" is hereby amended to delete the phrase therein contained and to insert the following in lieu thereof: "Suburban Ostomy Supply Co., Inc., a Massachusetts corporation, and St. Louis Ostomy Distributors, Inc., a Missouri corporation, jointly and severally." B. The term "Commitment" is hereby amended to delete the amount "$16,000,000.00" therein contained and to insert the amount "$25,000,000.00" in lieu thereof. C. The term "Loan Documents" is hereby amended to delete the phrases therein contained and to insert the following in lieu thereof: "The Loan Agreement, the Note, the Security Agreement, as amended, the Patent and Trademark Security Agreement from Suburban, as amended, the St. Louis Security Agreement, the Collateral Assignment of Life Insurance Policies and Rights Thereunder, from Suburban, as amended, the Subordination Agreement, and any other Security Documents, and each of the other documents, agreements and certificates executed by Borrower or any Subsidiary or Affiliate thereof and delivered to Bank in connection with or with regard to the Revolving Credit Loans, as each may be amended, supplemented, modified or recast from time to time." D. The term "Security Agreement" is hereby amended (i) to delete the reference to "Borrower" and insert the term "Suburban" in lieu thereof. E. The term "Security Documents" is hereby amended to delete the phrases therein contained and to insert the following in lieu thereof: "The Security Agreement, the St. Louis Security Agreement, the Patent and Trademark Security Agreement, as amended, from Suburban, the Collateral Assignment of Life Insurance Policies and Rights Thereunder, as amended, from Suburban, the Stock Pledge Agreement, the Collateral Assignment and Security Agreement in Respect of Purchase and Sale Agreement from Suburban, the Collateral Assignment and Security Agreement in Respect of Material Contracts, the Lease Collateral Agreements, the UCC-1 - 3 - financing statements and each and every other document, agreement, mortgage or collateral assignment given as security for the Obligations." F. The term "Subordination Agreement" is amended to include the Subordination Agreement Amendment as defined in this First Amendment. G. Each of the definitions set forth in Section I of this First Amendment are incorporated by reference into this Article I of the Credit Agreement as if fully set forth herein. III. AMENDMENT TO ARTICLE 2, THE REVOLVING CREDIT FACILITY ----------------------------------------------------- Section 2.1(b) is hereby amended by deleting the table set forth therein and inserting the following table in lieu thereof:
=============================================================================== PERIOD STATED MAXIMUM - -------------------------------------------------------------------------------- July 3, 1995 - $25,000,000.00 March 1, 1996 - ------------------------------------------------------------------------------- March 2, 1996 - $25,000,000.00 August 30, 1996 - ------------------------------------------------------------------------------- August 31, 1996 - $24,375,000.00 February 28, 1997 - ------------------------------------------------------------------------------- March 1, 1997 - $23,750,000.00 August 29, 1997 - ------------------------------------------------------------------------------- August 30, 1997 - $23,000,000.00 February 27, 1998 - ------------------------------------------------------------------------------- February 28, 1998 - $22,250,000.00 August 28, 1998 - ------------------------------------------------------------------------------- August 29, 1998 - $21,000,000.00 February 26, 1999 - ------------------------------------------------------------------------------- February 27, 1999 - $20,250,000.00 August 27, 1999 - --------------------------------------------------------------------------------
- 4 - - -------------------------------------------------------------------------------- August 28, 1999 - $19,000,000.00 (day before last day of Fiscal Quarter ending on or about) February 26, 2000 - -------------------------------------------------------------------------------- (last day of Fiscal Quarter ending on or about) $17,750,000.00 February 26, 2000 and thereafter ================================================================================
IV. AMENDMENT TO ARTICLE 6, REPRESENTATIONS AND WARRANTIES ------------------------------------------------------ A. Generally. Each of the representations and warranties contained in --------- Article 6 shall be deemed to be made by Suburban and by St. Louis, jointly and severally, except as set forth below: 1. Section 6.1(a), clause (i) a written is made by Suburban only and by St. Louis makes the following representation and warranty for clause (i) "St. Louis is a Missouri corporation, duly organized and existing pursuant to articles of organization filed with the Missouri Secretary of State on May 18, 1983 and is validly existing and in good standing under the laws of the State of Missouri". 2. Suburban and not St. Louis makes the representations contained in Section 6.21, in Section 6.23 and in Section 6.24. B. Section 6.19. Section 6.19 is hereby amended to delete the phrase ------------ therein contained and to insert the following in lieu thereof: "Suburban has one wholly owned subsidiary which is St. Louis." C. Section 6.20. Section 6.20 is hereby amended to delete (i) the term ------------ "Borrower" in such section and insert, "the respective party" in lieu thereof and (ii) the term "Security Agreement" in such section and insert "the Security Documents" in lieu thereof. D. Section 6.23. Only Suburban makes the representation and warranty ------------ contained in Section 6.23 E. Section 6.25. The following section is hereby added which ------------ representation and warranty is made by St. Louis only: - 5 - As of the date hereof (i) the chief executive office of St. Louis is located at 2701 Clark Avenue, St. Louis, Missouri, (ii) the principal place of business of St. Louis is at 2701 Clark Avenue, St. Louis, Missouri, (iii) the principal books and records of St. Louis and all records of Accounts are located at 2701 Clark Avenue, St. Louis, Missouri, (iv) all other property St. Louis, including, without limitation, all Inventory and Equipment are located at 2701 Clark Avenue, St. Louis, Missouri, and at such other locations as set forth in schedule 6.22 annex and (iv) there is no other office or place of business at which St. Louis conducts its business. F. The schedules annexed to this First Amendment update the various affected disclosure schedules to the Original Credit Agreement and the Borrower hereby represents and warrants that such schedules are true, accurate and complete in all material respects and no information is omitted therefrom which would make any of the representations or warranties herein contained materially misleading. V. AMENDMENT TO ARTICLE 9 FINANCIAL COVENANTS OF THE BORROWER ---------------------------------------------------------- A. Section 9.4, "Leverage Ratio", is hereby amended by deleting the table therein set forth and inserting the following table in lieu thereof:
================================================================================ PERIOD RATIO - -------------------------------------------------------------------------------- On the last day of the Fiscal Quarters ending: - -------------------------------------------------------------------------------- March 2, 1996 6.00:1.00 June 1, 1996 August 31, 1996 November 30, 1996 March 1, 1997 May 31, 1997 - -------------------------------------------------------------------------------- August 30, 1997 5.50:1.00 November 30, 1997 February 28, 1998 May 30, 1998 - -------------------------------------------------------------------------------- August 29, 1998 4.70:1.00 November 28, 1998 February 27, 1999 - --------------------------------------------------------------------------------
- 6 - - -------------------------------------------------------------------------------- May 29, 1999 3.30:1.00 August 28, 1999 and thereafter ================================================================================
B. Section 9.5 "Minimum Trading Assets" is hereby amended by deleting the table therein set forth and inserting the following table in lieu thereof:
================================================================================ PERIOD MINIMUM AMOUNT - -------------------------------------------------------------------------------- March 2, 1996 - $11,000,000.00 August 30, 1997 - -------------------------------------------------------------------------------- August 31, 1997 $12,100,000.00 and thereafter ================================================================================
VI. WAIVER OF SURETYSHIP DEFENSES ----------------------------- The following is added as Article 27 to the Credit Agreement: "Borrower hereby waives and relinquishes to the fullest extent now or hereafter permitted by law: A. all suretyship defenses and defenses in the nature thereof; B. any right or claim of right to cause a marshalling of Borrower's assets or of any security or to cause Bank to proceed against any of the Collateral for the Loan before proceeding otherwise against the Borrower in any particular order; C. notice of the acceptance hereof, presentment, demand for payment, protest, notice of protest, or any and all notice of nonpayment, nonperformance or nonobservance or other proof or notice of demand whereby to charge Guarantor therefor; D. the pleading of any Statute of Limitations as a defense to its obligations hereunder; and All rights and remedies of the Lender shall be cumulative and may be exercised in such manner and combination as Lender may determine. The Borrower further agrees that, to the extent that Borrower, makes a payment or payments to Bank or Bank receives any proceeds of Collateral, which payment or payments or any part hereof are subsequently invalidated, declared to be fraudulent or preferential, set aside - 7 - and/or required to be repaid to the Borrower, or their respective estates, trustees, receivers or any other party, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the part of the Obligations which as been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the time immediately preceding such initial payments, reduction or satisfaction. The liability of St. Louis and Suburban shall in no way be limited or impaired by, and St. Louis and Suburban each hereby assent to and agree to be bound by, any amendment or modification of the Loan Documents or the Security Documents. In addition, the liability of St. Louis and Suburban shall in no way be limited or impaired by: 1. any extensions of time for performance required by the Loan Documents or the Security Documents; 2. the accuracy or inaccuracy of any of the representations or warranties made by either or any other party obligated under any of the documents or agreements evidencing obligations of Borrower to Bank; 3. the release of either or any other person from performance or observance of any of the documents or agreements evidencing obligations of either to Bank by operation of law, Lender's voluntary act or otherwise; 4. the release or substitution in whole or part of any collateral or security for the obligations, contained in the Loan Documents or any security therefor; 5. Bank's failure to perfect, protect, secure, or insure any security interest or lien given as security; or 6. the release of any one or more of the parties obligated hereunder or any other party now or hereafter liable upon or in respect to the Note or any of the documents or agreements evidencing obligations of Borrower to Bank. No delay on Bank's part in exercising any right, power or privilege hereunder or under any of the Loan Documents shall operate as a waiver of any such privilege, power or right. No waiver by Bank in any instance shall constitute a waiver in any other instance. VII. CONTRIBUTION ------------ Suburban hereby agrees, that if St. Louis shall pay or have satisfied out of the foreclosure of any security for the Obligations given by St. Louis to Bank, an amount which is more than the Allocable Amount (defined below), St. Louis shall be entitled to seek and receive contribution from and against Suburban and Suburban shall pay to and indemnify St. Louis for the amount of the excess above the Allocable Amount (defined below). As of the date of determination, the - 8 - "Allocable Amount" of St. Louis shall be equal to the maximum amount which could then be claimed by Bank against St. Louis under the Obligations without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the United States Federal Bankruptcy Code (11 U.S.C. (S)101 et seq.) or under any successor statute or other applicable statute or under any state uniform fraudulent transfer act, uniform fraudulent conveyance act, or similar statute, or its successor, or under common law. The provisions of this section shall in no respect limit the obligations and liabilities of St. Louis to Bank and St. Louis shall remain liable to Bank for the full payment of the Obligations. Such right of contribution and indemnification shall be subordinate to the Obligations to Bank from Suburban and no payments on account of such contribution and indemnification shall be made until the Obligations have been repaid in full as defined in Section 3.2 (i) of the Subordination Agreement. VIII. RATIFICATION ------------ 1. The Loan Documents shall otherwise remain unaltered, ratified, confirmed and in full force and effect. Borrower also hereby ratifies and confirms the Note. 2. Borrower represents and warrants as follows: there are no defenses, offsets or counterclaims against the obligations to Lender evidenced by the Note, or the other Loan Documents and to the extent there are any defenses, offsets or counterclaims the same are hereby waived. All of the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof. IN WITNESS WHEREOF the parties hereto have set their hand and seal as of the date first above written. WITNESS: FIRST NATIONAL BANK OF BOSTON _________________________ By: /s/ Gregory G. O'Brien James R. Kane -------------------------------- Name: Gregory G. O'Brien Title: Managing Director Hereunto Duly Authorized WITNESS: SUBURBAN OSTOMY SUPPLY CO., INC. _________________________ By: /s/ Herbert P. Gray James Westra -------------------------------- Name: Herbert P. Gray Title: Chairman Hereunto Duly Authorized - 9 - WITNESS: ST. LOUIS OSTOMY DISTRIBUTORS, INC. ________________________ By: _______________________________ James Westra Name: Stephen N. Aschettino Title: Treasurer Hereunto Duly Authorized - 10 - EX-10.24 28 SECOND AMENDMENT TO CREDIT AGREE EXHIBIT 10.24 SECOND AMENDMENT TO CREDIT AGREEMENT ------------------------------------ SUBURBAN OSTOMY SUPPLY CO., INC. ST. LOUIS OSTOMY DISTRIBUTORS, INC. PATIENT-CARE MEDICAL SALES THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the or this "Second Amendment") is dated as of June 14, 1996 by and between SUBURBAN OSTOMY SUPPLY CO., INC. ("Suburban"), a Massachusetts corporation, ST. LOUIS OSTOMY DISTRIBUTORS, INC. ("St. Louis"), a Missouri corporation, PATIENT-CARE MEDICAL SALES ("Patient- Care"), a California corporation, and THE FIRST NATIONAL BANK OF BOSTON (the "Lender"), a national banking association. NOW, THEREFORE, for the Second Loan Increase (defined below), for the premises herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledge, the parties hereto agree as follows: I. BACKGROUND ---------- As of July 3, 1995, Suburban and the Lender entered into a revolving reducing loan arrangement of up to Sixteen Million Dollars ($16,000,000.00) (the "Original Loan"). The Original Loan was evidenced by a revolving credit note (the "Original Note") dated July 3, 1995 in the original principal amount of Sixteen Million Dollars ($16,000,000.00) made by Suburban in favor of the Lender. Advances under the Original Note are made, subject to and in accordance with, a credit agreement (the "Original Credit Agreement") dated as of July 3, 1995 between Suburban and the Lender. Suburban acquired all of the capital stock of St. Louis from St. Louis' sole shareholder, Michael J. Quinn ("Quinn") and St. Louis became a wholly-owned subsidiary of Suburban on or about January 22, 1996. In connection with the acquisition of the stock of St. Louis, the Original Loan was increased (the "First Loan Increase") by up to Nine Million Dollars ($9,000,000.00). Suburban used a portion of the Original Loan and the First Loan Increase to purchase such stock and for working capital purposes and St. Louis used proceeds of the Original Loan and the First Loan Increase for working capital purposes. Suburban is acquiring all of the capital stock of Patient-Care from Patient-Care's sole shareholders, Elaine and Nathan Spunt. The purchase price for such stock is Three Million Nine Hundred Fifty Thousand Dollars ($3,950,000.00) of which approximately (subject to closing adjustments) Three Million Five Hundred Seventy-Five Thousand Dollars ($3,575,000.00) will be paid to Mr. and Mrs. Spunt by wire transfer and Three Hundred Seventy-five thousand Dollars ($375,000.00) of the purchase price will be paid into an escrow to be held by Hutchins Wheeler & Dittmar, P.C., a professional corporation, as escrow agent ("Escrow Agent") pursuant to an escrow agreement dated as of June 14, 1996 by and among Suburban, Nate Spunt, Elaine Spunt and Escrow Agent. The Original Loan as increased by the First Loan Increase and the Second Loan Increase and as may be further modified, amended, supplemented or recast, from time to time, is referred to herein as the "Loan". To facilitate Patient- Care's borrowing Loan proceeds, Patient-Care is being made a co-borrower with Suburban and St. Louis. Suburban, St. Louis, and Patient-Care jointly and severally, are delivering to the Lender a second amendment to credit note (the "Second Note Amendment"). The Second Note Amendment amends the Original Note which was amended by a first amended and restated promissory note dated January 22, 1996 (the "First Note Amendment"). The First Note Amendment was executed in connection with the First Loan Increase. The Second Note Amendment takes into account the Second Loan Increase and makes Patient-Care a co-borrower thereunder. The Original Note, as amended by the First Note Amendment and by the Second Note Amendment, and as may be further amended, modified, supplemented or recast, from time to time, is referred to herein as the "Note". Patient-Care is securing the payment and performance of all of its obligations under the Note by executing and delivering a Pledge and Security Agreement -- All Assets ("Patient-Care Security Agreement"), thereby granting the Lender a security interest in all of Patient-Care's assets. In connection with the Second Note Amendment, Suburban, inter alia, (i) is amending and ----- ---- confirming the Loan Documents executed in connection with the Original Credit Agreement, as amended by the First Amendment to Credit Agreement, and the Second Amendment to Credit Agreement and (ii) is providing the Lender with a stock pledge agreement ("Stock Pledge Agreement") thereby pledging all of the stock of Patient-Care as additional security for the Loan. Capitalized terms used in this Second Amendment and not defined herein shall have the meanings given such term in the Original Loan Agreement as amended by the First Amendment to Credit Agreement. This Second Amendment, together with the Original Credit Agreement as amended by the First Amendment to Credit Agreement and such other amendments, modifications, supplements or restatements, as may be made from time to time, referred to herein as the "Loan Agreement." - 2 - II. AMENDMENTS TO ARTICLE I, DEFINITIONS AND RULES OF ------------------------------------------------- INTERPRETATIONS --------------- A. The term "Borrower" is hereby amended to delete the phrase therein contained and to insert the following in lieu thereof: "Suburban Ostomy Supply Co., Inc., a Massachusetts corporation, and St. Louis Ostomy Distributors, Inc., a Missouri corporation, and Patient-Care Medical Sales, a California corporation, jointly and severally." B. The term "Commitment" is hereby amended to delete the amount "$25,000,000.00" therein contained and to insert the amount "$30,000,000.00" in lieu thereof. C. The term "Loan Documents" is hereby amended to delete the phrases therein contained and to insert the following in lieu thereof: "The Loan Agreement, the Note, the Security Agreement, as amended, the Patent and Trademark Security Agreement from Suburban, as amended, the St. Louis Security Agreement, the Patient-Care Security Agreement, the Collateral Assignment of Life Insurance Policies and Rights Thereunder, from Suburban, as amended, the Subordination Agreement, and any other Security Documents, and each of the other documents, agreements and certificates executed by Borrower or any Subsidiary or Affiliate thereof and delivered to Bank in connection with or with regard to the Revolving Credit Loans, as each may be amended, supplemented, modified or recast from time to time." D. The term "Security Agreement" is hereby amended (i) to delete the reference to "Borrower" and insert the term "Suburban" in lieu thereof. E. The term "Security Documents" is hereby amended to delete the phrases therein contained and to insert the following in lieu thereof: "The Security Agreement, the St. Louis Security Agreement, the Patient-Care Security Agreement, the Patent and Trademark Security Agreement, as amended, from Suburban, the Collateral Assignment of Life Insurance Policies and Rights Thereunder, as amended, from Suburban, the Stock Pledge Agreement, Patient-Care Stock Pledge Agreement, the Collateral Assignment and Security Agreement in Respect of Purchase and Sale Agreement - 3 - from Suburban, the Collateral Assignment and Security Agreement in Respect of Material Contracts, the Lease Collateral Agreements, the UCC-1 financing statements and each and every other document, agreement, mortgage or collateral assignment given as security for the Obligations." F. Each of the definitions set forth in Section I of this Second Amendment are incorporated by reference into this Article I of the Credit Agreement as if fully set forth herein. III. AMENDMENT TO ARTICLE 2, THE REVOLVING CREDIT FACILITY ----------------------------------------------------- The following Section 2.8 is hereby added to this Agreement: Section 2.8 Letter of Credit Arrangements. ----------------------------- (a) Subject to the terms and conditions set forth in this Agreement, if the Borrower desires the Lender to issue a standby letter of credit ("Letter of Credit") on its behalf, the Borrower shall make such request in writing to the Lender on such forms as the Lender then requires and the Lender may, in its sole discretion, at any time thereafter, issue Letters of Credit so applied for. In connection with the issuance of any Letter of Credit, the Lender shall require the Borrower and the Borrower shall execute and deliver to the Lender, the Lender's standard and customary documentation, and deliver any other documentation reasonably requested by the Lender. The Borrower shall, prior to the issuance of any Letter of Credit, pay the reasonable and customary fees regarding the issuance of any Letter of Credit then charged by the Lender. Any draws on any issued outstanding Letters of Credit made after the Revolving Loan Termination Date paid by the Lender shall be reimbursed by the Borrower, ON DEMAND. (b) Prior to the Revolving Loan Termination Date, the face amount of all issued and outstanding Letters of Credit and all amounts drawn thereunder shall constitute Advances and principal amounts outstanding under the Revolving Note, provided, however, interest -------- ------- shall be paid by the Borrower only on the amounts drawn. For any Letter of Credit application requesting the Lender to issue a Letter of Credit with an expiry date which would be after the Revolving Loan Termination Date, the Borrower shall, at the time of such application, pledge and deposit with the Lender, in cash, U.S. Dollars, the full face amount of such Letter of Credit and execute such additional pledge agreements and documents as the Lender reasonably requests. Liability of the Borrower under this Agreement or under any other documentation executed by the Borrower to repay the Lender in - 4 - respective drawings under Letters of Credit shall be Obligations secured by the Security Documents and shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, the Borrower's obligation with respect to drawings under any Letters of Credit shall not be subject to any defense based upon any dispute, alleged or actual, between the beneficiary and the Borrower or the non-application or misplacement by the beneficiary of the proceeds of any such payment, or the legality, validity, regularity or enforceability of the Letter of Credit or any renewal or extension thereof. The Borrower's request for issuance of each Letter of Credit hereunder shall constitute a representation by the Borrower that the applicable conditions set forth for the making of any Advance herein contained have been satisfied on the date of such request. IV. AMENDMENT TO ARTICLE 6, REPRESENTATIONS AND WARRANTIES ------------------------------------------------------ A. Generally. Each of the representations and warranties contained in --------- Article 6 shall be deemed to be made by Suburban and by St. Louis, and by Patient-Care, jointly and severally, except as set forth below: 1. Section 6.1(a), clause (i) as written is made by Suburban only and St. Louis only makes the following representation and warranty for clause (i) "St. Louis is a Missouri corporation, duly organized and existing pursuant to articles of organization filed with the Missouri Secretary of State on May 18, 1983 and is validly existing and in good standing under the laws of the State of Missouri" and Patient-Care makes the following representation and warranty for clause (i) "Patient-Care is a California corporation, duly organized and existing pursuant to a charter filed with the California Secretary of State on May 10, 1983 and is validly existing and in good standing under the laws of the State of California. 2. Suburban and not St. Louis makes the representations contained in Section 6.21, in Section 6.23 and in Section 6.24. B. Section 6.19. Section 6.19 is hereby amended to delete the phrase ------------ therein contained and to insert the following in lieu thereof: "Suburban has two wholly owned subsidiaries which are St. Louis and Patient-Care." C. Section 6.20. Section 6.20 is hereby amended to delete (i) the term ------------ "Borrower" in such section and insert, "the respective party" in lieu thereof and (ii) the term - 5 - "Security Agreement" in such section and insert "the Security Documents" in lieu thereof. D. Section 6.23. Only Suburban makes the representation and warranty ------------ contained in Section 6.23 E. Section 6.25. The following section is hereby added which ------------ representation and warranty is made by Patient-Care only: As of the date hereof (i) the chief executive office of Patient- Care is located at 10425 Slusher Drive, Santa Fe Springs, California, 90670 (ii) the principal place of business of Patient-Care is at 10425 Slusher Drive, Santa Fe Springs, California, 90670, (iii) the principal books and records of Patient-Care and all records of Accounts are located at 10425 Slusher Drive, Santa Fe Springs, California, 90670, (iv) all other property Patient-Care, including, without limitation, all Inventory and Equipment are located at 10425 Slusher Drive, Santa Fe Springs, California, 90670, and at such other locations as set forth in schedule 6.22 annex and (iv) there is no other office or place of business at which Patient-Care conducts its business. F. The schedules annexed to this First Amendment update the various affected disclosure schedules to the Original Credit Agreement and the Borrower hereby represents and warrants that such schedules are true, accurate and complete in all material respects and no information is omitted therefrom which would make any of the representations or warranties herein contained materially misleading. V. WAIVER OF SURETYSHIP DEFENSES ----------------------------- The following is added to Article 27 to the Credit Agreement: "Borrower hereby waives and relinquishes to the fullest extent now or hereafter permitted by law: A. all suretyship defenses and defenses in the nature thereof; B. any right or claim of right to cause a marshalling of Borrower's assets or of any security or to cause Bank to proceed against any of the Collateral for the Loan before proceeding otherwise against the Borrower in any particular order; C. notice of the acceptance hereof, presentment, demand for payment, protest, notice of protest, or any and all notice of nonpayment, nonperformance or nonobservance or other proof or notice of demand whereby to charge Guarantor therefor; - 6 - D. the pleading of any Statute of Limitations as a defense to its obligations hereunder; and All rights and remedies of the Lender shall be cumulative and may be exercised in such manner and combination as Lender may determine. The Borrower further agrees that, to the extent that Borrower, makes a payment or payments to Bank or Bank receives any proceeds of Collateral, which payment or payments or any part hereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to the Borrower, or their respective estates, trustees, receivers or any other party, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the part of the Obligations which as been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the time immediately preceding such initial payments, reduction or satisfaction. The liability of St. Louis, Suburban and Patient-Care shall in no way be limited or impaired by, and St. Louis, Suburban and Patient-Care each hereby assent to and agree to be bound by, any amendment or modification of the Loan Documents or the Security Documents. In addition, the liability of St. Louis, Suburban and Patient-Care shall in no way be limited or impaired by: 1. any extensions of time for performance required by the Loan Documents or the Security Documents; 2. the accuracy or inaccuracy of any of the representations or warranties made by either or any other party obligated under any of the documents or agreements evidencing obligations of Borrower to Bank; 3. the release of either or any other person from performance or observance of any of the documents or agreements evidencing obligations of either to Bank by operation of law, Lender's voluntary act or otherwise; 4. the release or substitution in whole or part of any collateral or security for the obligations, contained in the Loan Documents or any security therefor; 5. Bank's failure to perfect, protect, secure, or insure any security interest or lien given as security; or 6. the release of any one or more of the parties obligated hereunder or any other party now or hereafter liable upon or in respect to the Note or any of the documents or agreements evidencing obligations of Borrower to Bank. - 7 - No delay on Bank's part in exercising any right, power or privilege hereunder or under any of the Loan Documents shall operate as a waiver of any such privilege, power or right. No waiver by Bank in any instance shall constitute a waiver in any other instance. VI. CONTRIBUTION ------------ Suburban and St. Louis hereby agree, that if Patient-Care shall pay or have satisfied out of the foreclosure of any security for the Obligations given by Patient-Care to Bank, an amount which is more than the Allocable Amount (defined below), Patient-Care shall be entitled to seek and receive contribution from and against Suburban and St. Louis and Suburban and St. Louis shall pay to and indemnify Patient-Care for the amount of the excess above the Allocable Amount (defined below). As of the date of determination, the "Allocable Amount" of Patient-Care shall be equal to the maximum amount which could then be claimed by Bank against Patient-Care under the Obligations without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the United States Federal Bankruptcy Code (11 U.S.C. (S)101 et seq.) or under any successor -- --- statute or other applicable statute or under any state uniform fraudulent transfer act, uniform fraudulent conveyance act, or similar statute, or its successor, or under common law. The provisions of this section shall in no respect limit the obligations and liabilities of Patient-Care to Bank and Patient-Care shall remain liable to Bank for the full payment of the Obligations. Such right of contribution and indemnification shall be subordinate to the Obligations to Bank from Suburban and St. Louis and no payments on account of such contribution and indemnification shall be made until the Obligations have been repaid in full as defined in Section 3.2 (i) of the Subordination Agreement. VII. RATIFICATION ------------ 1. The Loan Documents shall otherwise remain unaltered, ratified, confirmed and in full force and effect. Borrower also hereby ratifies and confirms the Note. 2. Borrower represents and warrants as follows: there are no defenses, offsets or counterclaims against the obligations to Lender evidenced by the Note, or the other Loan Documents and to the extent there are any defenses, offsets or counterclaims the same are hereby waived. All of the representations and warranties contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof. IN WITNESS WHEREOF the parties hereto have set their hand and seal as of the date first above written. - 8 - WITNESS: FIRST NATIONAL BANK OF BOSTON /s/ James R. Kane /s/ Gregory G. O'Brien _________________________ By: _______________________________ James R. Kane Name: Gregory G. O'Brien Title: Managing Director Hereunto Duly Authorized WITNESS: SUBURBAN OSTOMY SUPPLY CO., INC. /s/ James Westra /s/ Stephen N. Aschettino _________________________ By: _______________________________ James Westra Name: Stephen N. Aschettino Title: Treasurer Hereunto Duly Authorized WITNESS: ST. LOUIS OSTOMY DISTRIBUTORS, INC. /s/ James Westra /s/ Stephen N. Aschettino ________________________ By: _______________________________ James Westra Name: Stephen N. Aschettino Title: Treasurer Hereunto Duly Authorized PATIENT-CARE MEDICAL SALES /s/ Stephen N. Aschettino By: _______________________________ Name: Stephen N. Aschettino Title: Hereunto Duly Authorized - 9 - EX-10.25 29 PROPOSED TERMS OF AMENDED CREDIT FACILITY EXHIBIT 10.25 SUMMARY OF PROPOSED TERMS AND CONDITIONS (For discussion purposes only) June 14, 1996 BORROWER: Suburban Ostomy Supply Co., Inc. ("the Borrower") LENDER: The First National Bank of Boston ("the Bank") FACILITY: $30,000,000 acquisition revolving credit facility MATURITY: June 30, 2000 COLLATERAL: First security interest in all corporate assets PRICING: Outstanding amounts under the facilities shall initially accrue interest according to the following pricing alternative as selected by the borrower:
Total Debt EBITDA LIBOR+ Base+ ------ ------ ----- less than 1.5X 100 0 1.5X - 2.0X 125 0 2 - 2.25X 150 0 more than 2.5X 175 0
FEES: 0.25% per annum fee, payable quarterly, on the unused portion COVENANTS: To be tested quarterly on a consolidated, rolling four quarter basis (where applicable), including but not limited to the following: 1) Maximum, Total Debt/EBITDA 2) Minimum profitability 3) Minimum Total debt service coverage In addition, the credit agreement will include, but not be limited to, standard language governing financial and other reporting requirements, limitations on indebtedness, liens, capital expenditures, management fees, investments, mergers, acquisitions, distributions and changes in control. EXPENSES: The Borrower agrees to reimburse the Bank for any expenses, including legal and examination fees, related to the negotiation, closing and enforcement of the loan agreement. THESE PROPOSED TERMS AND CONDITIONS ARE PROVIDED FOR DISCUSSION PURPOSES ONLY AND DO NOT CONSTITUTE AN OFFER, AGREEMENT OR COMMITMENT TO LEND. THE ACTUAL TERMS AND CONDITIONS UPON WHICH THE BANK MIGHT EXTEND CREDIT TO THE BORROWER ARE SUBJECT TO SATISFACTORY COMPLETION OF DUE DILIGENCE, CREDIT COMMITTEE APPROVAL, SATISFACTORY REVIEW OF DOCUMENTATION AND SUCH OTHER TERMS AND CONDITIONS AS ARE DETERMINED BY THE BANK. EX-10.26 30 WARRENT TO PURCHASE SHARES OF COMMON STOCK EXHIBIT 10.26 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED FROM TIME TO TIME, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SAID ACT. WARRANT TO PURCHASE COMMON STOCK OF SUBURBAN OSTOMY SUPPLY CO., INC. January 22, 1996 THIS CERTIFIES THAT, for value received, THE FIRST NATIONAL BANK OF BOSTON or its registered assigns (hereinafter called the "Holder") is entitled to purchase at any time and from time to time after January 22, 1996 until the Warrant Expiration Date (defined below) from SUBURBAN OSTOMY SUPPLY CO., INC. (the "Company"), a Massachusetts corporation, 556 fully paid and non-assessable shares (the "Original Number of Warrant Shares") of Common Stock (defined below) at the Purchase Price (defined below). The exercise of this Warrant shall be subject to the provisions, limitations and restrictions herein contained. The Original Number of Warrant Shares purchasable hereunder and the Purchase Price are subject to adjustment as hereinafter set forth. AGREEMENTS NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: Section 1. (a) Definitions. The following words and terms as used in this ----------- Warrant shall have the following meanings: "Additional Shares of Common Stock" means Common Stock of the Company, including treasury shares, issued on or after the Business Day prior to January 22, 1996, except for: (i) shares issued pursuant to the incentive stock option agreements, each dated July 3, 1995 made by the Company with each of Herbert P. Gray, Donald H. Benovitz, Stephen N. Aschettino and John Manos, (ii) in addition to the shares described in clause (i), shares in the aggregate not exceeding, upon issuance thereof, up to ten percent (10%) of the Outstanding Shares, which shares are issued to employees of the Company or are issued upon exercise of options granted to such employees, in each case as approved from time to time by the Company's Board of Directors, (iii) Common Stock issued upon the exercise of this Warrant, and (iv) Common Stock issued to any Person in consideration of the acquisition of stock or assets for such Person. "Affiliate," with respect to any specified Person controlling, controlled by, or under common control with such specified Person. For the purposes of this definition the term "control" when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the meaning of the term "control" or otherwise can directly or indirectly vote more than 10% of the securities having ordinary voting power for the selection of directors of such Person. "Business Day" means a day other than a Saturday, a Sunday or a day on which banking institutions in Boston, Massachusetts are authorized or obligated by law or required by executive vote generally in the election of directors of the Company. "Common Stock" when used with reference to the stock of the Company means and includes the Company's authorized Common Stock as constituted on the Business Day prior to January 22, 1996 and the Company's common stock thereafter authorized and shall not be limited to a fixed sum or a percentage of par value in respect of the rights of the holders thereof to receive dividends and to participate in the distribution of assets upon the voluntary or involuntary liquidation, dissolution, or winding-up of the Company. "Commission" means the Securities and Exchange Commission and any other similar or successor agency of the federal government of the United States of America administering the Securities Act or the Exchange Act. "Convertible Securities" means any securities issued by the Company which are convertible into, or exchangeable or exercisable for, directly or indirectly, shares of Common Stock. "Corporate Office" means the Company's office at 75 October Hill Road, Holliston, Massachusetts 01746 (or such other office as the Company may designate from time to time by written notice to the Warrantholder). "Credit Agreement" - that certain Credit Agreement dated as of July 3, 1995, as amended as of January 22, 1996 between the Holder, the Company and St. Louis Ostomy Distributors, Inc. "Exchange Act" means the Securities Exchange Act of 1934, and any similar or successor federal statute, and the rules and regulations of the Commission thereunder. - 2 - "Market Price" of a share of Common Stock of the Company shall be: (i) if the Common Stock is listed on a national securities exchange, the average closing price of such Common Stock on the principal national securities exchange on which such Common Stock is traded for the ten trading days immediately preceding on the date for which any determination of Market Value is made for any purpose hereunder (a "Determination Date"), or, if there shall have been no sales on any such exchange during the ten trading days immediately preceding the Determination Date, the average of the highest bid and lowest asked prices on such principal exchange during such ten trading days; or (ii) if the Common Stock is not listed on a national securities exchange, the closing price of such Common Stock on the largest principal securities exchange on which such Common Stock is traded on the Determination Date, or, if the Common Stock is not listed on a securities exchange, such closing price on the NASDAQ National Market System, or, if there shall have been no sales on the Determination Date on such exchange or the NASDAQ National Market System, as the case may be, the average of highest bid and lowest asked prices during the ten trading days immediately preceding the Determination Date on such exchange or the NASDAQ National Market System, as applicable; or (iii) if the Common Stock is not listed on a securities exchange or the NASDAQ National Market System, the average of the representative bid and asked prices of the Common Stock as of the close of trading during the ten trading days immediately preceding the Determination Date as quoted in the NASDAQ System; or (iv) if the Common Stock is not quoted in the NASDAQ System, the average of the high and low bid and asked prices during the ten trading days immediately preceding the Determination Date in the over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization; or (v) if the Common Stock is not listed on or traded in any recognized securities market, such value as the Company and the Holder may agree upon; or (vi) if the Company and the Holder cannot agree on a value for the Common Stock within thirty (30) days after the Company or the Holder has made a written proposal with respect to such value to the other party, the value of the Company as determined by an independent appraisal, conducted by an independent financial expert selected by the Company which expert must be reasonably satisfactory to the Holder, divided by the number of Outstanding Shares as of such date. In making the independent appraisal, the independent financial expert shall not consider items such as discounts for minority interests, lack of marketability of the Common Stock or blockage. The fees and expenses incurred by the independent financial expert in rendering its independent appraisal shall be paid one half by the Warrantholder and one half by the Company. Such independent financial expert shall complete and deliver its independent appraisal with sixty - 3 - (60) days after the date of such written proposal. If such independent appraisal is not so timely delivered the Warrantholder, acting in good faith, shall set such value. "NASDAQ System" means the inter-dealer quotation system operated by the National Association of Securities Dealers, Inc. "Number of Warrant Shares" - at any time means: (a) if no adjustments have theretofor been made pursuant to the provisions hereof, the Original Number of Warrant Shares purchasable under this Warrant, and (b) if any one or more of such adjustments have been so made, the amount to which the Original Number of Warrant Shares shall have been so adjusted of Common Stock purchasable under this Warrant. "Outstanding Shares" shall mean all of the shares of Common Stock exercisable or outstanding on the applicable date as if all options and rights to convert or exchange Convertible Securities outstanding on such date had been exercised, whether or not exercisable on such date. "Person" means in individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "Public Offering" shall mean the filing by the Company of a registration statement under the Securities Act on any form with the exception of Form S-8 or its then equivalent. "Purchase Price" means, as of any date: (a) if no adjustments have theretofor been made pursuant to the provisions hereof, One Hundred Twenty-Five Dollars ($125.00) per Warrant Share (the "Original Purchase Price") and (b) if any one or more such adjustments have been so made, the amount to which the Original Purchase Price shall have been so adjusted pursuant to the provisions hereof. "Redemption Event" means the occurrence of the repayment in full of the Reducing Revolver and the termination of the commitments thereunder, other than following acceleration of the Reducing Revolver by the "Lender" under the Credit Agreement. "Redemption Price" means Ninety Thousand Dollars ($90,000.00). "Reducing Revolver" means the reducing revolving line Of credit pursuant to the Credit Agreement. "Securities Act" means the Securities Act of 1933, and any similar or successor federal statute, and the rules and regulations of the Commission thereunder. - 4 - "Significant Shareholder Transaction" means a Transfer by the Significant Holders to Persons who are not Affiliates of such Significant Shareholder of any of the shares of Common Stock held by them on the date hereof (treating for such purpose any outstanding Convertible Securities as being the number of shares of Common Stock issuable upon their conversion). "Significant Shareholders" means any of Summit Investors II, L.P., Summit Ventures III, L.P. and Summit Subordinated Debt Fund, L.P. "Transfer" means, with respect to this Warrant, the Warrant Shares, or any interest therein, the Common Stock or any Convertible Securities, or any interest therein, any disposition thereof, whether by sale, assignment, gift, exchange, pledge, hypothecation or otherwise. "Warrant Expiration Date" means January 22, 2006. "Warrant Redemption Notice" means a notice delivered pursuant to Section 19 concerning redemption of Warrants. "Warrantholder" means, as of any day, the then registered holder of the Warrants and the then registered holder of the Warrant Shares. "Warrants" means this Warrant and the additional Warrants which may be issued hereunder. "Warrant Shares" means all the shares of the Common Stock purchased or purchasable by the Warrantholder upon the exercise of this Warrant. (b) Other Definitional Provisions. (i) Except as otherwise specified herein, all references herein (A) to any Person other than the Company, shall be deemed to include such Person other than the Company, shall be deemed to include such Person's successors and assigns; (B) to the Company, shall be deemed to include the Company's successors, and (C) to any applicable law deemed or referred to herein, shall be deemed references to such applicable law as the same may have been or may be amended or supplemented from time to time. (ii) When used in this Agreement the words "herein," "hereof" and "hereunder," and words of similar import, shall refer to this Agreement as a whole and not to any provision of this Agreement, and the words "Section" and "Exhibit" shall refer to Sections of, and Exhibits to, this Agreement unless otherwise specified. (iii) Whenever the context so requires, the neuter gender includes the masculine or feminine, and the singular number includes the plural, and vice versa. - 5 - Section 2. Representations and Warranties. The Company represents and ------------------------------ warrants to, and covenants with the Holder of this Warrant or any pall thereof as follows: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts. The Company has all necessary corporate power and authority, and has taken all necessary corporate action to execute and deliver and to perform its obligations under this Warrant, to authorize and reserve for issuance, and to issue and deliver the Warrant Shares. Upon such issuance, such Common Shares will be validly issued, fully paid and nonassessable, with no personal liability attaching to the ownership thereof. The issuance of such Common Shares is not subject to any preemptive or other similar rights. (b) This Warrant has been duly authorized, executed and delivered by the Company and constitutes its legal, valid and binding obligation, enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution hereunder may be limited by applicable law, and except as may be limited by bankruptcy, insolvency, reorganizations, moratorium or similar laws affecting the enforceability of creditors' rights generally and subject to general principles of equity. (c) The execution, delivery, performance and issuance by the Company of this Warrant and the issuance of Warrant Shares do not and will not, with or without the giving of notice of the lapse of time, or both: (i) violate any terms or provisions of the Company's Articles of Incorporation or Bylaws; (ii) result in a breach of, constitute a default under, result in the termination or modification of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties of the Company pursuant to any material indenture, mortgage, deed of trust, contract, commitment or other material agreement or instrument to which the Company is a party or by which any of the Company's properties or assets are bound or affected; or (iii) violate any applicable law, rule, regulation, judgment, order or decree of any government or governmental agency, instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its properties or assets. (d) No consent, approval, authorization, order, registration, license or permit of any court, government or governmental agency, instrumentality or other regulatory body or - 6 - official is required for the valid authorization, execution, issuance, sale, delivery, and performance by the Company of this Warrant or the Warrant Shares. (e) That all Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof; and (f) That during the period from which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of issue and delivery upon exercise of the rights evidenced by this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. Section 3. Reserved. -------- Section 4. Ownership of Warrants. The Company may deem and treat the --------------------- Person in whose name the Warrants are registered as the holder and owner thereof for all purposes, notwithstanding any notations of or writing thereon made by anyone other than the Company, and shall not be affected by any notice to the contrary, until presentation of such Warrants for Transfer or replacement as provided in Section 5. The Company shall maintain at the Corporate Office a register for the Warrants in which the Company shall record the name and address of the Person in whose name each Warrant has been issued or to whom the Wan-ants have been transferred. Section 5. Transfer and Replacement. The Warrants and all rights ------------------------ thereunder may be Transferred upon presentation of the Warrants, with the Assignment Form attached thereto duly completed, by the Warrantholder (in person or by duly authorized attorney) to the Company at the Corporate Office, and thereupon new Warrants, of the same tenor as the Warrants presented for Transfer, shall be delivered by the Company in accordance with such Assignment Form and the transferee's ownership of such Warrants shall be registered in accordance with Section 4. Following any Transfer of the Warrants or the Warrant Shares, or any portions thereof, the transferee of such Warrants or Warrant Shares shall succeed to all rights and obligations of the transferor under the Agreement and the Warrant(s) and shall be deemed to be a "Warrantholder." Upon receipt by the Company at the Corporate Office of evidence reasonably satisfactory to it of the loss, theft, destruction, or mutilation of a Warrant, the Company will make and deliver a new Warrant of like tenor in replacement of such Warrant. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated, or destroyed Warrant shall at any time be enforceable by any Person. The Warrants shall be promptly canceled by the Company upon the surrender thereof in connection with any Transfer or replacement. The Company shall pay all taxes and all other expenses and charges payable in connection with the preparation, execution and delivery of Warrants pursuant to this Section 5. Notwithstanding the foregoing, the Holder may not transfer the Warrant or the Warrant Shares to a direct competitor of the Company. - 7 - Section 6. Warrantholder Not Deemed a Shareholder. No Warrant shall -------------------------------------- entitle a Warrantholder to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in the Warrants be construed to confer upon any Warrantholder any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action, receive notice of meetings, or receive dividends or subscription rights, prior to any due exercise of this Warrant, in whole or in part, by the Warrantholder. Section 7. No Limitation on Corporate Action. Except as otherwise --------------------------------- expressly provided in this Secton 7, no provisions of the Warrants and no right or option granted or conferred thereunder shall in any way limit, affect, or abridge the exercise by the Company of any of its corporate rights or powers to recapitalize, amend its Articles of Organization or By-Laws, reorganize, consolidate or merger with or into another Person, or transfer all or any part of its property or assets or the exercise of any other of its corporate rights and powers. Notwithstanding the foregoing, without the prior written consent of the Warrantholder the Company shall not hereafter amend any of the terms of its Articles of Organization or By-laws in any manner that would adversely affect the rights of the Warrantholder unless such amendment has a like effect on all holders of Common Stock. Section 8. Representation of Warrantholders. The Warrantholder -------------------------------- represents that it is acquiring the Warrants for its own account for investment and not with a view to, or sale in connection with, any distribution thereof or of any of the Warrant Shares issuable upon the exercise thereof, nor with the present intention of distributing any of such securities, except that the Warrantholder does anticipate that it may transfer this Warrant to an Affiliate of such Warrantholder. Section 9. Exercise of Warrants: Conversion of Warrants. -------------------------------------------- (a) Procedure for Exercise. Subject to the terms and conditions hereof, ---------------------- the Warrantholder may exercise this Warrant, in whole or in part, at any time during normal business hours on any Business Day during the period beginning on January 22, 1996 and ending on the Warrant Expiration Date. The rights represented by the Warrants may be exercised by the Warrantholder by: (i) delivery to the Company at the Corporate Office this Warrant, with the Subscription Form attached thereto in the form attached as Exhibit B hereto duly completed and executed, and (ii) payment to the Company (in cash or by certified or bank check) of the Purchase Price (which may be done simultaneously with the sale of the Warrant Shares in connection with any public offering). - 8 - In the event of exercise of the Warrants, certificates for the Warrant Shares so purchased, registered in the name of, or as directed by, the Warrants shall be delivered by the Company to the Warrantholder or its designee or nominee within a reasonable time, not exceeding 5 Business Days, after such Warrants shall have been exercised. Upon receipt of (i) and (ii) immediately preceding, the Warrantholder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company may then be closed or that certificates representing such Common Stock may not then be actually delivered to the Warrantholder. The stock certificate so delivered shall be in such denomination as may be requested by the Warrantholder and shall be registered in the name of the Warrantholder or such other name as shall be designated by the Warrantholder. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of said stock certificate or certificates, deliver to the Warrantholder a new Warrant evidencing the right of the Warrantholder to purchase the remaining shares of Common Stock then covered by this Warrant. The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section, regardless of the name or names in which such stock certificates shall be registered. (b) Procedure for Conversion. The Warrantholder may convert this ------------------------ Warrant, in whole or in part, at any time during normal business hours on any Business Day during the period beginning January 22, 1996 and ending on the Warrant Expiration Date into the number of shares of Common Stock of the Company calculated pursuant to the following formula by surrendering the Warrant with the Subscription Form attached hereto as Exhibit B (duly completed and executed) at the Principal Office of the Company specifying the number of shares of Common Stock of the Company, and the rights to purchase which the Warrantholder desires to convert: X = Y x (A-B) ------------- A where: X = the number of shares of Common Stock to be issued to the Warrantholder; Y = the number of shares of Common Stock subject to this Warrant for which the conversion right is being exercised as such number may be affected by the provisions contained in Section 11 hereof; A = the Market Price of one share of Common Stock; B = the Purchase Price - 9 - (c) Legends. Unless at the time of exercise or conversion the Warrant ------- Shares are registered under the Securities Act, each certificate representing Warrant Shares initially issued upon exercise or conversion of the Warrants shall bear the following legend (and any additional legend required by any applicable state securities laws): "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold or transferred in the absence of such registration or an exemption therefrom under said Act and are subject to the terms a Warrant dated January 22, 1996." Any certificate issued any time upon Transfer or replacement of any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration under the Securities Act) shall also bear such legend, unless, in the opinion of counsel for the Warrantholder the securities represented thereby are not, at such time, required by law to bear such legend. Section 10. Covenants as to Warrant Shares. ------------------------------ (a) The Company covenants and agrees that all Warrant Shares which may be issued upon any exercise or conversion of the Warrants will, upon issuance, be validly issued, fully paid and nonassessable. The Company further covenants and agrees that, during the period within which the Warrants may be exercised, the Company will at all times have authorized and reserved a sufficient number of Warrant Shares to provide for the exercise or conversion of such Warrants in whole. (b) If any Warrant Shares reserved or to be reserved to provide for the exercise of the Wan-ants require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued, then the Company covenants that it will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. Section 11. Adjustment of Warrants: Purchase Price. -------------------------------------- (a) Stock Splits, Dividends, Distributions and Combinations. In case ------------------------------------------------------- after January 22, 1996, the Company shall: (1) take a record of the holders of any class of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, such Common Stock, or (2) subdivide the outstanding shares of any class of its Common Stock into a larger number of shares; or - 10 - (3) combine the outstanding shares of any class of its Common Stock into a smaller number of shares, then the Number of Warrant Shares shall be adjusted to that Number of Warrant Shares determined by the following formula: A = WSB x TA -------- TB where: A = the adjusted Number of Warrant Shares; WSB = the Number of Warrant Shares in effect immediately prior to such event; TA = the total number of outstanding shares of Common Stock immediately following such event; TB = the total number of outstanding shares of Common Stock immediately prior to such event (b) Reclassification, Consolidation or Merger. In case of any reclassification or change of outstanding securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value), or as a result of a subdivision or combination, or in case of any consolidation or merger of the Company with or into another corporation, other than a merger with another corporation in which the Company is a continuing corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant, or in case of any sale of all or substantially all of the assets of the Company, the Company, or any successor or purchasing corporation, as the case may be, shall execute a new Warrant providing that the Warrantholder shall have the right to exercise such new Warrant and procure upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation or merger by a holder of one share of Common Stock, provided, however, that in connection with any consolidation or merger which involves either (i) the sale of all or substantially all of the assets of the Company or (ii) a Change of Control of the Company, then the Company may redeem pro-rata with the redemption of shares of Common Stock of each of the Significant Shareholders, such Number of Warrant Shares under this Warrant. The Company shall make such redemption or purchase by simultaneously (i) paying the Warrantholder, in the same consideration which is being paid to the Significant Shareholders good funds, an amount equal to the Number of Warrant Shares being redeemed or purchased, multiplied times the consideration per share being paid in connection with such merger or consideration to the Significant Shareholders, or in the case of cancellation of the Warrant with respect to Warrant Shares not yet issued, such consideration per share being paid to the Significant Shareholders, less - 11 - the Purchase Price and (ii) issuing a new Warrant, if so requested by the Warrantholder, for the Number of Warrant Shares remaining and the Warrantholder shall exchange this Warrant if so requested by the Company. Any new Warrant issued shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 11(b). If the Warrantholder still has Warrant Shares purchasable thereafter, then no consolidation or merger of the Company with or into another corporation referred to in the first sentence of this paragraph (b) shall be consummated unless the successor or purchasing corporation referred to above shall have agreed to issue a new Warrant as provided in this Section 11(b). The provisions of this subsection (b) shall similarly apply to successive reclassification, changes, consolidations, mergers and transfers. (c) Intentionally Left Blank. ------------------------ (d) Intentionally Left Blank. ------------------------ (e) Intentionally Left Blank. ------------------------ (f) Adjustment to Purchase Price. Upon each adjustment in the Number of Warrant Shares, the Purchase Price shall be adjusted to an amount equal to the quotient of (i) the Number of Warrant Shares entitled to be purchased upon exercise of this Warrant immediately prior to the adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, divided by (ii) the adjusted Number of Warrant Shares immediately after such adjustment. (g) Stock Dividends. In the event that the company shall at any time --------------- declare any dividend or distribution upon its Common Stock payable in stock, the Number of Warrant Shares shall increase by the number (and the kind) of shares which would have been issued to the Warrantholder if the Warrant were exercised immediately prior to such dividend. Such increase shall become effective immediately after the opening of business on the day following the record date for such dividend or distribution. (h) Cash Dividends. In the event that the Company shall at any time -------------- declare any dividend or distribution upon its Common Stock payable in cash, assets or other property, the Number of Warrant Shares shall increase to a number obtained by multiplying (A) the Number of Warrant Shares for which the Warrant is exercisable immediately prior to such dividend or distribution, by (B) a fraction: (i) the numerator of which shall be the Market Price per share of Common Stock on the date of the taking of the record holder of Common Stock entitled to such dividend or distribution, and (ii) the denominator of which shall be such Market Price per share of Common Stock, minus the amount allocable to one share of Common Stock of any such cash, assets or other property so distributable. Such increase shall become effective immediately after the opening of business on the day following the record date for such dividend or distribution. - 12 - (i)) Computation of Adjustments. -------------------------- (i) Upon each computation of an adjustment in the number of Warrant Shares which may be purchased upon exercise of the Warrants, the number of Warrant Shares which may be purchased upon exercise of such Warrants shall be calculated to the nearest whole share (e.g., fractions of one-half of a share, or greater, shall be treated as being a whole share). (ii) The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company. Section 12. Covenants as to Issuances and Sale of Stock. ------------------------------------------- (a) Preemptive Rights. If at any time after the date hereof but prior ----------------- to the first registration by the Company of any Common Stock under the Securities Act the Company proposes to issue, any Additional Shares of Common Stock or Convertible Security convertible to Additional Shares of Common Stock, the Company shall first offer in writing to sell to the Warrantholder a portion thereof which bears the same proportion to the total as the proportion the Warrant Shares then owned by each such Warrantholder bears to the total Outstanding Shares. Such offer shall describe such securities and specify the quantity, the price and the payment terms. If within 10 days after the making of such offer any Warrantholder accepts the same in writing as to the portion referred to above or any lesser amount, then the Company shall sell such portion of such securities, or such lesser amount as such Warrantholder may specify, to such Warrantholder upon the terms specified. If Additional Shares of Common Stock are being sold as a unit with other securities, the Warrantholder must purchase a prorata share of each such security upon exercise of their rights under this Section. (b) "Tag Along" Rights. Simultaneously with the issuance by the Company ----------------- of this Warrant, the Warrantholder and the Significant Shareholders are entering into a Co-sale Agreement in the form of Exhibit C hereto providing for the participation of the Warrantholder in certain transactions by the Significant Shareholders. Section 13. Merger and Consolidation. In case of any consolidation or ------------------------ merger of the Company with or into any other Person (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in the Common Stock being changed into or exchanged for stock or other securities or property of any other Person), provided, however, that in connection with any consolidation or merger which involves either (i) the sale of all or substantially all of the assets of the Company or (ii) a Change of Control of the Company, then the Warrant Shares shall be subject to repurchase or redemption or the Warrant subject to cancellation all in the same manner and under the same terms and conditions as set forth or provided in Section 11(b) hereof. Any new Warrant shall entitle the Warrantholder to purchase the kind and number of shares of stock or other securities or property (a) of the Person resulting - 13 - from such consolidtion or surviving such merger or (b) into or for which the Common Stock has been changed or is exchangeable, as the case may be, to which the Warrantholder would have been entitled if it had held the Warrant Shares issuable upon the exercise of its Warrants immediately prior to such consolidation or merger, and in any such case appropriate provision shall be made with respect to the rights and interests of the Warrantholder to the end that the provisions hereof (including, without limitation, provisions for adjustment of the number of shares purchasable upon the exercise of the Warrants) shall thereafter be applicable, as nearly as may be practicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of the rights represented by the Warrants. Section 14. Notice of Adjustment of Warrant Shares. Upon any adjustment -------------------------------------- of the number of Warrant Shares purchasable pursuant to the Warrants, the Company shall give notice thereof to Warrantholder, which notice shall state the number of Warrant Shares purchasable pursuant to the Warrant after such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Section 15. Intentionally Deleted. --------------------- Section 16. Notice of Certain Events. Prior to the time that: ------------------------ (a) The Company shall pay any dividend upon, or make any distribution in respect of, its Common Stock or Convertible Securities; or (b) there shall be any capital reorganization, or reclassification of the Common Stock or Convertible Securities, of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another person; or (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; or (d) the Company receives notice, or otherwise becomes aware of, a Change in Control; or (e) the Company shall determine to register under the Securities Act (including pursuant to a demand of any stockholder of the Company exercising registration rights) any Common Stock or Convertible Securities; or (f) the Company receives notice, or otherwise becomes aware of, a prospective, pending or completed Significant Shareholder Transaction; then, in any one or more of such cases, the Company shall give written notice to the Warrantholder of the date on which (i) the books of the Company shall close or a record shall be - 14 - taken for such dividend, distribution or subscription rights, or (ii) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, Change in Control, Public Offering, or Significant Shareholder Transaction shall occur, as the case may be. Such notice shall be given not less than 20 days prior to the record date or the date on which the transfer books of the Company are to be closed in respect thereto in the case of any action specified in clause (i) and, to the extent known by the Company, 20 days prior to the effective date of the action in question in the case of an action specified in clause(h). Section 17. No New Warrant on Adjustment. Irrespective of any ---------------------------- adjustment in the number of Warrant Shares issuable upon exercise of the Warrant, such Warrants, whether theretofore or thereafter issued or reissued, may continue to express the same Purchase Price and Number of Warrant Shares as are stated therein and the Purchase Price and the Number of Warrant Shares specified therein shall be deemed to have been so adjusted. Section 18. Transfers. Subject to the restrictions contained in the --------- last sentence of Section 5 hereof, the Warrant and all rights thereunder and the Warrant Shares purchased upon exercise thereof may be Transferred in whole or part. Section 19. Redemption. ---------- (a) Redemption at Option of a Warrantholder. Upon the occurrence of a --------------------------------------- Redemption Event, the Warrantholder shall have the right, but not the obligation, in the sole discretion of the Warrantholder, to cause the Company to redeem all, but not less than all, of its Warrants and/or Warrant Shares, by delivery to the Company of a duly completed and signed Redemption Notice in the form of Exhibit D attached hereto, at any time. Upon a redemption of the Warrant, the Warrantholder shall be entitled, upon tender of the Warrant, as provided in this Section 19, to receive from and the Company shall pay to the Warrantholder upon such tender a redemption price ("Redemption Price") of Ninety Thousand Dollars ($90,000.00) in payment for all Warrants evidenced hereby and/or all Warrant Shares issuable upon the exercise hereof, which amount shall not be subject to offset, counterclaim, deduction or abatement. (b) Tender and Payment. The Warrantholder shall deliver to the Company ------------------ at the Corporate Office the Warrant or the Warrant Shares, as the case may be, to be redeemed. Against receipt of the Warrant or the Warrant Shares, as the case may be, from the Warrantholder the Company shall pay the Redemption Price to the Warrantholder by certified or bank check or by wire transfer as so directed by the Warrantholder. Section 20. Registration Rights. ------------------- (a) "Piggy Back" Registration. If at any time the Company ------------------------- shall determine to register under the Securities Act (including pursuant to a demand of any stockholder of the - 15 - Company exercising registration rights) any of its Common Stock of the type which has been or may be issued upon the exercise of the Warrant, other than on Form S-8 or its then equivalent, it shall send to the Warrantholder, written notice of such determination and, if within twenty (20) days after receipt of such notice, such Warrantholder shall so request in writing, the Company shall include in such registration statement all or any part of the Warrant Shares the Warrantholder requests to be registered. In the event that the underwriter managing such a distribution determines, in its best judgment, a limitation or exclusion is necessary to effect an orderly public distribution, including all shares to which the Warrantholder has requested registration, and such limitation or exclusion is imposed among all of the holders of such Common Stock having an incidental ("piggy back") right to include such Common Stock in the registration statement according to the amount of such Common Stock which the Warrantholder had requested to be included pursuant to such right, then the Company shall be obligated to include in such registration statement only such limited portion of the Warrant Shares with respect to which the Warrantholder has requested inclusion hereunder (or in the event of an exclusion of piggy back shares, none of such Warrant Shares). In the event of such a pro rata limitation, no shares of Common Stock held by Persons not having such an incidental ("piggy back") right may be included in the registration statement. (b) Effectiveness. The Company will use its best efforts to ------------- maintain the effectiveness for up to nine (9) months of any registration statement pursuant to which any of the Warrant Shares are being offered, and from time to time will amend or supplement such registration statement and the prospectus contained therein as to the extent necessary to comply with the Securities Act and any applicable state securities statute or regulation. The Company will also provide the holder of Warrant Shares with as many copies of the prospectus contained in any such registration statement as it may reasonably request. As a condition to inclusion of Warrant Shares in any registration of shares of the Company, the Warrantholder shall enter into such Underwriting Agreement having usual and customary terms, including customary representations, warranties, indemnities and other agreements, provided, however, that no such agreement shall require the Warrantholder to make any representation or warranty or indemnification based thereon concerning the Company unless the same is based upon the actual knowledge of the Warrantholder. Representations as to the Warrantholder's title to shares, authorization and accuracy of written information provided by such Warrantholder shall be given without qualification as to knowledge. In no event shall the Warrantholder be obligated to indemnify in any amount in excess of the proceeds received by the Warrantholder. (c) Indemnification of Warrantholder. In the event that the -------------------------------- Company registers the Warrant Shares under the Securities Act, the Company will indemnify and hold harmless the Warrantholder and each underwriter of the Warrant Shares so registered (including any broker or dealer through whom such shares may be sold) and each Person, if any, who controls such Warrantholder or any such underwriter within the meaning of Section 15 of the Securities Act from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them become subject under the Securities Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the - 16 - Warrantholder, each such underwriter and each such controlling Person, if any, for any legal or other expenses reasonably incurred by then or any of them in connection with investigating or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, in any preliminary or amended preliminary prospectus or in the final prospectus (in each case as from time to time amended or supplemented by the Company) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with such registration, unless such untrue statement or omission was made in such registration statement, preliminary or amended, preliminary prospectus or prospectus in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by any such Warrantholder, any such underwriter or any such controlling person expressly for use therein. Promptly after receipt by the Warrantholder, any underwriter or any controlling person, of notice of the commencement of any action in respect of which indemnity may be sought against the Company, such Warrantholder, or such underwriter or such controlling person, as the case may be, will notify the Company in writing of the commencement thereof, and, subject to the provisions hereinafter stated, the Company shall assume the defense of such action (including the employment of counsel, who shall be counsel satisfactory to such Warrantholder, such underwriter or such controlling person, as the case may be), and the payment of expenses insofar as such action shall relate to any alleged liability in respect of which indemnity may be sought against the Company. Such Warrantholder, any such underwriter or any such controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall not be at the expense of the Company unless the employment of such counsel has been specifically authorized by the Company. The Company shall not be liable to indemnify any person for any settlement of any such action effected without the Company's consent. The Company shall not, except with the approval of each party being indemnified under this Section 20(c), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the parties being so indemnified of a release from all liability in respect to such claim or litigation. (d) Exchange Act Registration. If the Company at any time shall ------------------------- list any of its Common Stock of the type which may be issued upon the exercise of the Warrant on any national securities exchange and shall register such Common Stock under the Exchange Act, the Company will, at its expense, simultaneously list on such exchange and maintain such listing of, all of the Common Stock from time to time issuable upon exercise of the Warrants. If the Company becomes subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act, the Company will use its best efforts to timely file with the Securities and Exchange Commission such information as the Securities and Exchange Commission may require under either of said Sections; and in such event, the Company shall use its best efforts to take all - 17 - action as may be required as a condition to the availability of Rule 144 under the Securities Act (or any successor exemptive rule hereinafter in effect) with respect to such Common Stock. The Company shall furnish to the Warrantholder forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144, (ii) a copy of the most recent annual or quarterly report of the Company as filed with the Securities and Exchange Commission, and (iii) such other reports and documents as the Warrantholder may reasonably request in availing itself of any rule or regulation of the Securities and Exchange Commission allowing a holder to sell any such Warrant Shares without registration. (e) Damages. The Company recognizes and agrees that the ------- Warrantholder will not have an adequate remedy if the Company fails to comply with this Section 20 and that damages will not be readily ascertainable, and the Company expressly agrees that, in the event of such failure, it shall not oppose an application by the Warrantholder of any other person entitled to the benefits of this Section 20 requiring specific performance of any and all provisions hereof or enjoining the Company from continuing to commit any such breach of this Section 20. (f) Further Obligations of the Company. Whenever under this ---------------------------------- Section 20, the Company is required hereunder to register the Warrant Shares, it agrees that it shall also do the following: (i) Furnish to the Warrantholder such copies of each preliminary and final prospectus and such other documents as said Warrantholder may reasonably request to facilitate the public offering of its Warrant Shares; (ii) Use its best efforts to register or qualify the Warrant Shares covered by said registration statement under the applicable securities or "blue sky" laws of such jurisdictions as the Warrantholder may reasonably request; provided that the Company shall not be required to register or qualify Warrant Shares in any jurisdiction in which the Company must consent to a general consent or service of process, or in which the Company must qualify to do business by virtue of such registration and the Company is not then otherwise qualified to do business therein; (iii) Furnish to the Warrantholder a signed counterpart or a copy thereof, of: (1) an opinion of counsel for the Company, dated the effective date of the registration statement, and (2) "comfort" letters signed by the Company's independent public accountants who have examined and reported on the Company's financial statements included in the registration statement, to the extent permitted by the standards of the American Institute of Certified Public Accountants, covering substantially the same matters with respect to the registration statement (and the prospectus included therein) and (in the case of the accountants' "comfort" letters) with respect to events subsequent - 18 - to the date of the financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' "comfort" letters delivered to the underwriters in underwritten public offerings of securities, to the extent that the Company is required to deliver or cause the delivery of such Opinion or "comfort" letters to the underwriters in an underwritten public offering of securities; (iv) Permit the Warrantholder or its counsel or other representatives to inspect and copy such corporate documents and records as may reasonably be requested by them; (v) Furnish to the selling Warrantholder a copy of all documents filed and all correspondence from or to the Securities and Exchange Commission in connection with any such offering; and (vi) Use its best efforts to ensure the obtaining of all necessary approvals from the National Association of Securities Dealers, Inc. (g) Expenses; Taxes. In the case of a registration hereunder, the --------------- Company shall bear all costs and expenses of each such registration, including, but not limited to, printing, legal and accounting expenses, Securities and Exchange Commission filing fees and "blue sky" fees and expenses, provided, however, that the Company shall have no obligation to pay or otherwise bear: (i) any portion of the fees or disbursements for the Warrantholder in connection with the registration of the Warrant Shares, or (ii) any portion of the underwriters commissions or discounts attributable to the Warrant Shares being offered and sold by the Warrantholder. The Company covenants and agrees that it will pay when due and payable any and all federal and state taxes which may be payable in respect of the issue of this Warrant or any Common Stock or certificate thereof issuable upon the exercise of this Warrant. Section 21. Notice. AU notices and other communications under this ------ Agreement shall (a) be in writing (which shall include communications by telex and telecopy), (b) be (i) sent by registered or certified mail, return receipt requested and postage prepaid, or (ii) delivered by hand, and (c) be given at the following respective addresses and telex and telecopier numbers and to the attention of the following Persons: (i) If to the Company, to it at: Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, Massachusetts 01746 Telecopier No.: 508-429-1000 Telephone No.: 508-429-7921 Attention: Stephen N. Aschettino, Treasurer with a copy to: - 19 - James Westra, Esq. Hutchins, Wheeler & Dittmar, P.C. 101 Federal Street Boston, Massachusetts 02110 (ii) If to the Warrantholder, to it at its address as it appears on the Warrant register maintained by the Company pursuant to Section 4; for this purpose the address and telex, telecopier and telephone numbers of the initial Warrantholder and the Person to whom notices to such Warrantholder shall be sent are as follows: The First National Bank of Boston 100 Federal Street Boston, MA 02110 Attention: Gregory G. O'Brien, Managing Director Telecopier No.: 617-434-8102 Telephone No.: 617-434-8206 with a copy to: James R. Kane, Esq. Kirkpatrick & Lockhart LLP One International Place Boston, Massachusetts 02110-2637 The Company and the Warrantholder may change its address or telex or telecopier number for purposes of receiving notices hereunder or the person to whom notices to such party shall be sent by sending a notice thereof (specifically captioned "Notice of Change of Address") to the other parties to this Warrant. Notices and other communications hereunder shall be effective or deemed delivered or furnished (a) if given by mail, on the fifth Business Day after such communication is deposited in the mail, as provided in this Section 20, (b) if given by telex or telecopier, when such communication is transmitted to the number as provided in this Section 20 and the appropriate answer back is received or receipt is otherwise acknowledged, and (c) if given by hand delivery, when left at the address of the addressee addressed as provided in this Section 20, except that notices of a change of address, telex or telecopier number shall not be deemed furnished until received. Section 22. Governing Law. This Warrant shall be governed and construed ------------- in accordance with the laws of the Commonwealth of Massachusetts, without regard to the conflict of laws provisions thereof. Section 23. Miscellaneous. This Warrant and any term hereof may be ------------- changed, waived, discharged, or terminated only by an instrument in writing signed by the party against which - 20 - enforcement of such change, waiver, discharge or termination is sought. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. Section 24. Conflict with Credit Agreement and Security Documents. ----------------------------------------------------- Notwithstanding anything herein to the contrary, this Warrant and the rights and responsibilities of the parties hereto shall be subject to, and void to the extent of any inconsistency with, the rights and responsibilities of such parties as set forth in the Credit Agreement and in the "Security Documents" (as defined in the Credit Agreement). Section 25. Covenants in Credit Agreement for the Benefit of the ---------------------------------------------------- Warrantholder. For so long as any of the Warrants or Warrant Shares are - ------------- outstanding, the Company shall comply with its covenants in Sections 7.3, 7.4(a) (provided that no statement of accountants shall be provided), 7.9, 7. 1 0 and 8.6 of the Credit Agreement for the benefit of the Warrantholder, notwithstanding that the Credit Agreement may have terminated by reason of the termination of the lending commitments thereunder or for any other reason. Solely for the purpose of permitting the Warrantholder to enforce such covenants, the defined term "Lender," as such defined term is incorporated in such Sections, shall be deemed to include the Warrantholder. [SIGNATURE PAGE TO TIES WARRANT FOLLOWS ON THE NEXT PAGE] - 21 - [SIGNATURE PAGE OF WARRANT] IN WITNESS WHEREOF, the Company has caused this Warrant to be issued by its duly authorized officers and its corporate seal to be hereunto affixed as of the date first hereinbefore written. WITNESS: SUBURBAN OSTOMY SUPPLY CO., INC. /s/ James Westra /s/ Stephen N. Aschettino ____________________________________ By:_________________________________ James Westra Name: Stephen N. Aschettino Title: Treasurer - 22 - EXHIBIT A ASSIGNMENT FORM (To be executed upon assignment of Warrant) For value received, ______________________________ hereby sells, assigns and transfers unto ____________________ (print name and address) the attached Warrant, together with all its right, title and interest therein, and does hereby irrevocably constitute and appoint ____________________ as its attorney to transfer said Warrant on the books of SUBURBAN OSTOMY SUPPLY CO., INC., a Massachusetts corporation, with full power of substitution in the premises. Name: ______________________________ ______________________________ ______________________________ (print name and address) ______________________________ Note: The above signature should correspond exactly with the name on the face of the attached Warrant. Signature: ______________________________ Date: Signature Guaranteed: ______________________________ - 23 - EXHIBIT B SUBSCRIPTION FORM (To be executed upon exercise or of Warrant) The undersigned hereby irrevocably elects to exercise the right represented by this Warrant to receive ______ shares of Common Stock and herewith [check one] [_] tenders payment for such shares in the form of cash or a certified or ban check in the amount of $____________ or [_] elects to convert the Warrant directly to Common Stock pursuant to Section 9(b) of the Warrant. The undersigned requests that a certificate for such shares be registered in the name of _________________________, whose address is ____________________ and that such shares be delivered to ____________________whose address is ______________________. Name: __________________________________ (Please print name and address) Signature: __________________________________ Date: Signature Guaranteed: __________________________________ - 24 - EXHIBIT C CO-SALE AGREEMENT Agreement made and entered into as of January 22, 1996, by and among Summit Ventures III, L.P., Summit Investors H, L.P. and Summit Subordinated Debt Fund, L.P. (each of whom is sometimes referred to as a "Significant Shareholder" and all of whom are referred to herein collectively as the "Significant Shareholders") Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company") and The First National Bank of Boston (together with its successors and assigns, the "Warrantholder;" as initial Warrantholder, the "Bank"). The Company has issued a Warrant of even date herewith (the "Warrant") in favor of the Bank permitting the Bank to purchase the Company's Common Stock. Capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Warrant. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the Significant Shareholders, the Company and the Warrantholder, the parties do hereby agree as follows: 1. Each of the Significant Shareholders agrees that it will not sell or otherwise transfer or dispose ("Transfer") for value any shares of Common Stock or Convertible Securities of the Company to any third party other than to an Affiliate without first giving written notice in reasonable detail to the Warrantholder at least twenty (20) days prior to such sale or agreement to sell and affording the Warrantholder the opportunity to participate pro-rata in such sale or agreement to sell, as hereinafter provided. In the event that the Significant Shareholders have agreed to sell their shares of Common Stock and/or Convertible Securities (i) in a transaction in which all of the outstanding capital stock of the Company is being sold, or (ii) in a Group Sale Transaction (as hereinafter defined) the Warrantholder shall be entitled to and, if so requested by the Significant Shareholders shall, participate in such transaction on an equivalent basis to the Significant Shareholders. In such event the Warrantholder shall sell the same proportion of their Warrant Shares owned or issuable as that proportion of shares which are being sold or conveyed by the Significant Shareholders bears to the total number of shares of Common Stock owned by the Significant Shareholders. The Warrantholders shall be entitled to receive payment at the same time as the Significant Shareholders receive their payment. As used herein, the defined term "Group Sale Transaction" shall refer to a transfer (whether by sale, merger or otherwise) of in excess of 75% of the outstanding shares of Common Stock (assuming the full conversion of all Convertible Securities. In the event that less than all of the Company is sold in connection with a sale by the Significant Shareholders of their Shares of Common Stock in a transaction which is not a Group Sale Transaction, the Warrantholder shall receive proceeds from such sale on a pro-rata basis with the Significant Shareholders, plus cash - 25 - in the amount of their pro-rata share of the fair market value of all noncash consideration received by the Significant Shareholders. The pro-rata participation in such sale or agreement to sell which each Warrantholder shall be entitled, shall be in the proportion that the aggregate number of Warrant Shares held by such Warrantholder assuming the full conversion of all Warrants bears to the aggregate number of shares of Common Stock into which any Convertible Securities held by the Significant Shareholders and the holders of all other equity holders participating in the sale transaction could then be converted, assuming the full conversion of all Convertible Securities. 2. All notices and other communications under this Agreement (A) shall be in writing which shall include communications by telex and telecopy, CB) be (i) sent by registered or certified mail, return receipt and postage prepaid, or (ii) delivered by hand, and (C) be given at the following respective addresses and telex and telecopier numbers and to the attention of the following persons: (i) if to the Warrantholder or to the Bank, at the address, telex and telecopier numbers and to the attention of the person listed in the Warrant; and (ii) if to the Significant Shareholders at the addresses set forth in Schedule I annexed hereto. 3. This Agreement shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflict of laws, provisions thereof. SUBURBAN OSTOMY SUPPLY CO., INC. By:______________________________ Name: Title: [SIGNATURES CONTINUED ON NEXT PAGE] - 26 - SIGNATURE PAGE OF CO-SALE AGREEMENT SUMMIT VENTURES M, L.P. By: Summit Partners M, L.P., General Partner By: Stamps, Woodsum & Co. III, General Partner By:______________________________ General Partner SUMMIT INVESTORS H, L.P. By:_____________________________ Authorized Signatory SUMMIT SUBORDINATED DEBT FUND, L.P. By: Summit Partners SD, L.P. Its General Partner By:______________________________ General Partner THE FIRST NATIONAL BANK OF BOSTON By:______________________________ Name: Title: - 27 - EXHIBIT D FORM OF REDEMPTION NOTICE The undersigned hereby irrevocably elects to have Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Company"), redeem all of the Warrants and Warrant Shares of the undersigned in accordance with Section 19(a) of the Warrant dated January 22, 1996, pursuant to which such Warrants and Warrant Shares were issued. The undersigned hereby instructs the Company to pay the redemption price (check one) ____ by wire transfer to Account #__________, at ____________________ (specify bank), ABA # or by certified or bank check. Name: ______________________________ ______________________________ ______________________________ (print name and address) Signature: Date: ______________________________ ______________________________ Signature Guaranteed: - 28 - EX-10.27 31 STOCK PURCHASE AGREE,ST LOUIS OSTOMY EXHIBIT 10.27 Execution Copy ---------------------------------- STOCK PURCHASE AGREEMENT RELATING TO PURCHASE OF ST. LOUIS OSTOMY DISTRIBUTORS, INC. BY SUBURBAN OSTOMY SUPPLY CO., INC. January 22, 1996 ---------------------------------- Table of Contents ----- -- -------- RECITALS PAGE NO. - -------- -------- ARTICLE I. DEFINITIONS 1.1 Definitions 1 ARTICLE II. PURCHASE AND SALE OF SHARES 2.1 Purchase and Sale 6 2.2 Consideration 6 2.3 Time and Place of Closing 7 2.4 Deliveries by the Seller 7 2.5 Adjustments to the Purchase Price 7 2.6 Other Transactions at the Closing 8 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS 3.1 Organization and Qualification 8 3.2 Authority; No Violation 8 3.3 Capitalization 9 3.4 Subsidiaries 9 3.5 Financial Statements 9 3.6 Absence of Undisclosed Liabilities 10 3.7 Absence of Certain Changes 10 3.8 Title to Assets 12 3.9 Sufficiency and Condition of Assets 12 3.10 Real Estate 12 3.11 Accounts Receivable 13 3.12 Inventories 13 3.13 Intellectual Property 14 3.14 Trade Secrets and Customer Lists 14 3.15 Contracts 15 3.16 Customers and Suppliers 16 3.17 Compliance with Laws 17 3.18 Taxes 17 3.19 Employee Benefit Plans 18 3.20 Environmental Matters 21 3.21 Employees 23 3.22 Litigation 23 -i- 3.23 Insurance 24 3.24 Company Products 24 3.25 Powers of Attorney 24 3.26 Brokers 25 3.27 Burdensome Agreements 25 3.28 Records and Books 25 3.29 Transactions with Interested Persons 25 3.30 Bank Accounts 25 3.31 Copies of Documents 25 3.32 Status Under Certain Statutes 25 3.33 Disclosure of Material Information 26 3.34 Sole Representations and Warranties 26 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER 4.1 Organization and Qualification 26 4.2 Authority 26 4.3 Brokers 26 4.4 Shares Acquired For Investment 26 4.5 Financing Commitment 27 4.6 Financial Statements 27 4.7 Sole Representations and Warranties 27 ARTICLE V. COVENANTS 5.1 Covenants of the Company 27 5.2 Covenants of the Company and Seller 29 5.3 Covenants of the Seller 29 5.4 Covenants of Parent and Buyer 30 5.5 Mutual Covenants 31 ARTICLE VI. CLOSING CONDITIONS 6.1 Conditions to Obligations of Buyer 31 6.2 Conditions to Obligations of the Company and the Sellers 33 ARTICLE VII. TERMINATION 7.1 Termination of Agreement 34 7.2 Effect of Termination and Right to Proceed 35 -ii- ARTICLE VIII. INDEMNIFICATION 8.1 Survival of Representations and Warranties 35 8.2 Indemnification by Seller 36 8.3 Indemnification by Buyer 36 8.4 Minimum Indemnification 37 8.5 Notice and Opportunity to Defend 37 8.6 Contribution 38 8.7 Right of Set-off 38 8.8 Adjustment for Insurance and Taxes 38 ARTICLE IX. MISCELLANEOUS 9.1 Fees and Expenses 39 9.2 Publicity and Disclosures 39 9.3 Notices 39 9.4 Successors and Assigns 40 9.5 Descriptive Headings 40 9.6 Counterparts 40 9.7 Severability 40 9.8 Attorney's Fees 41 9.9 Course of Dealing 41 9.10 Third Parties 41 9.11 Tax Matters 41 9.12 Variations in Pronouns 42 9.13 Waiver of Jury Trial 42 9.14 Governing Law 43 9.15 Entire Agreement 43 Table of Exhibits - ----------------- Exhibit A 10% Subordinated Note Exhibit B Intercreditor Agreement Exhibit C Opinion of Seller's Counsel Exhibit D Non-Competition Agreement Exhibit E Opinion of Buyer's Counsel -iii- Table of Schedules - ------------------ Schedule 3.1 Qualification Schedule 3.4 Subsidiaries Schedule 3.5 Financial Statements Schedule 3.6 Liabilities Schedule 3.7 Changes Schedule 3.10 Real Estate Schedule 3.11 Accounts Receivables Schedule 3.12 Inventories Schedule 3.13 Intellectual Property Schedule 3.14 Trade Secrets Schedule 3.15 Contracts Schedule 3.16 Major Customers Schedule 3.18 Taxes Schedule 3.19 Employee Benefit Plans Schedule 3.20 Environmental Matters Schedule 3.21 Employees Schedule 3.22 Litigation Schedule 3.23 Insurance Schedule 3.24 Warranty and other Claims Schedule 3.26 Brokers Schedule 3.29 Transactions with Interested Persons Schedule 3.30 Bank Accounts Schedule 5.1(a) Interim Conduct -iv- STOCK PURCHASE AGREEMENT ------------------------ Stock Purchase Agreement (the "Agreement") dated as of January 22, 1996, by and among Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Buyer") and St. Louis Ostomy Distributors, Inc., a Missouri corporation (the "Company"), and Michael J. Quinn the sole shareholder of the Company (the "Seller"). The Seller owns the outstanding shares (the "Shares") of Common Stock of the Company, $1.00 par value per share, constituting all of the outstanding Equity Securities of the Company, on the date hereof. Buyer desires to purchase, and the Seller desires to sell, all of the outstanding Equity Securities of the Company. In consideration of the foregoing, the mutual representations, warranties and covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: ARTICLE I DEFINITIONS ----------- 1.1 Definitions. For the purposes of this Agreement, all capitalized words ----------- or expressions used in this Agreement (including the Schedules and Exhibits annexed hereto) shall have the meanings specified in this Article I (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Affiliate" means when used with respect to any Person, (a) if such Person --------- is a corporation, any officer or director thereof and any Person which is, directly or indirectly, the beneficial owner (by itself or as part of any group) of more than five percent (5%) of any class of any Equity Security thereof, and, if such beneficial owner is a partnership, any general or limited partner thereof, or if such beneficial owner is a corporation, any Person controlling, controlled by or under common control with such beneficial owner, or any officer or director of such beneficial owner or of any corporation occupying any such control relationship, (b) if such Person is a partnership, any general or limited partner thereof and (c) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person. For purposes of this definition, (i) "control" (including the correlative terms "controlling", "controlled by" and "under common control with"), with respect to any Person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise; and (ii) all employees, stockholders, consultants and agents of Buyer and any direct or indirect stockholder of Buyer shall be considered an Affiliate of Buyer. "Agreement" means this Stock Purchase Agreement (together with all Exhibits --------- and Schedules hereto) as from time to time assigned, supplemented, modified, amended, or restated or as the terms hereof may be waived. "Business Day" means any day, excluding Saturday, Sunday and any other day ------------ on which commercial banks in Boston, Massachusetts are authorized or required by law to close. "Buyer" means Suburban Ostomy Supply, Co., Inc., a Massachusetts ----- corporation, and its successors and assigns. "Cash Equivalents" means any certificate of deposit, interest in a money ---------------- market account or similar security which may be immediately liquidated and converted into cash. "CERCLA" means the Comprehensive Environmental Response Compensation and ------ Liability Act of 1980, as amended, and the regulations thereunder, and court decisions in respect thereof, all as the same shall be in effect at the time. "Charter" means the Certificate of Incorporation, Articles of Incorporation ------- or Organization or other organizational document of a corporation, as amended and restated through the date hereof. "Claim" means an action, suit, proceeding, hearing, investigation, ----- litigation, charge, complaint, claim or demand. "Code" means the Internal Revenue Code of 1986, as amended, and the ---- regulations thereunder. "Commission" means the Securities and Exchange Commission and any other ---------- similar or successor agency of the federal government administering the Securities Act or the Exchange Act. "Common Stock" means the common stock of the Company, $1.00 par value per ------------ share. "Company" means St. Louis Ostomy Distributors, Inc., a Missouri corporation, ------- and its successors and assigns. "EBIT" means, for any period, the net earnings of the Company for such ---- period, plus the interest and income taxes paid or accrued by the Company for such period, all as determined in accordance with GAAP, applied on a basis consistent with prior periods. "Environmental Action" means any administrative, regulatory or judicial -------------------- action, suit, demand, demand letter, claim, notice of non-compliance or violation, investigation, request for information, proceeding, consent order or consent agreement relating in any way to any 2 Environmental Law or any Environmental Permit, including without limitation (a) any claim by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any Environmental Law and (b) any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials, damage to the environment or alleged injury or threat of injury to human health or safety from pollution or other environmental degradation. "Environmental Law" means any applicable federal, state or local law, ----------------- statute, rule, regulation, or ordinance relating to the environment, human health or safety from pollution or other environmental degradation or Hazardous Materials, including, without limitation, CERCLA, the Resource Conservation and Recovery Act, the Hazardous Materials Transportation Act, the Clean Water Act, the Toxic Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Occupational Safety and Health Act, and any similar state and local laws or by-laws, the rules, regulations and interpretations thereunder, all as the same shall be in effect from time to time. "Environmental Permit" means any permit, approval, identification number, -------------------- license or other authorization required under any Environmental Law. "Equity Security" shall have the meaning given to such term in Section --------------- 3(a)(ii) of the Exchange Act. "ERISA" means the Employee Retirement Income Security Act of 1974, and any ----- similar or successor federal statute, and the rules and regulations thereunder, all as the same shall be in effect at the time. "ERISA Affiliate" means, for purposes of Title IV of ERISA, any trade or --------------- business, whether or not incorporated, that together with the Company or any Subsidiary of the Company, would be deemed to be a "single employer" within the meaning of Section 4001 of ERISA, and, for purposes of the Code, any member of any group that, together with the Company or any Subsidiary of the Company, is treated as a "single employer" for purposes of Section 414 of the Code. "Exchange Act" means the Securities Exchange Act of 1934, and any similar or ------------ successor federal statute, and the rules and regulations and interpretations of the Commission thereunder, all as the same shall be in effect at the time. "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant 3 segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Hazardous Materials" means (a) petroleum or petroleum products, natural or ------------------- synthetic gas, asbestos, urea formaldehyde foam insulation and radon gas, (b) any substances defined as or included in the definition or "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes" "restricted hazardous waters," toxic substances," "toxic pollutants," "contaminants" or "pollutants," or words of similar import, under any Environmental Law and (c) any other substance exposure to which is regulated under any Environmental Law. "Indebtedness" means all obligations, contingent or otherwise, whether ------------ current or long-term, which in accordance with GAAP would be classified upon the obligor's balance sheet as liabilities (other than deferred taxes) and shall also include capitalized leases, guaranties, endorsements (other than for collection in the ordinary course of business) or other arrangements whereby responsibility is assumed for the obligations of others, including any agreement to purchase or otherwise acquire the obligations of others or any agreement, contingent or otherwise, to furnish funds for the purchase of goods, supplies or services for the purpose of payment of the obligations of others. "IRS" means the Internal Revenue Service and any similar or successor agency --- of the federal government administering the Code. "Last Balance Sheet" shall mean the consolidated balance sheet of the ------------------ Company and its Subsidiaries as at the month ended October 31, 1995, included in the Financial Statements. "Lien" means, with respect to any asset, any mortgage, deed of trust, ---- pledge, hypothecation, assignment, security interest, lien, charge, restriction, adverse claim by a third party, title defect or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any assignment or other conveyance of any right to receive income and any assignment of receivables with recourse against assignor), any filing of any financing statement as debtor under the Uniform Commercial Code or comparable law of any jurisdiction and any agreement to give or make any of the foregoing. "Material Adverse Effect" means a material adverse impact or effect on (a) ----------------------- the business, operations, assets, liabilities, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company or the Seller to perform their respective obligations under any of the Purchase Documents, (c) the validity or enforceability of any of the Purchaser Documents or (d) the rights and remedies of the Buyer hereunder or thereunder. 4 "Officer's Certificate" means a certificate signed in the name of a --------------------- corporation by its President, Chief Executive Officer, Treasurer, Chief Financial Officer, or, if so specified, the Clerk or Secretary, acting in his or her official capacity. "Person" means any individual, firm, partnership, association, trust, ------ corporation, limited liability company, governmental body or other entity. "PBGC" means the Pension Benefit Guaranty Corporation, and any successor ---- thereto. "Purchase Documents" means this Agreement, the Non-Competition Agreement, ------------------ and any other certificate, document, instrument, stock power, or agreement executed in connection therewith. "Release" means any release, issuance, disposal, discharge, dispersal, ------- leaching or migration into the indoor or outdoor environment or into or out of any property, including the movement of Hazardous Materials through or in the air, soil, surface water, ground water, or property other than in compliance with all Environmental Laws and Permits. "Securities Act" means the Securities Act of 1933, and any similar or -------------- successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Shares" means the outstanding shares of Common Stock of the Company. ------ "Subordinated Note" means the promissory note to be issued by the Buyer to ----------------- the Seller as provided in Section 2.2 hereof. "Subsidiary" means, with respect to any Person (a) any corporation, ---------- association or other entity of which at least a majority in interest of the outstanding capital stock or other Equity Securities having by the terms thereof voting power under ordinary circumstances to elect a majority of the directors, managers or trustees thereof, irrespective of whether or not at the time capital stock or other Equity Securities of any other class or classes of such corporation, association or other entity shall have or might have voting power by reason of the happening of any contingency, is at the time, directly or indirectly, owned or controlled by such Person, or (b) any entity (other than a corporation) in which such Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of such Person, directly or indirectly at the date of determination thereof, has at least majority ownership interest. For purposes of this Agreement, a Subsidiary of the Company shall include the direct and indirect Subsidiaries of the Company. "Tax" means any federal, state, local or foreign income, gross receipts, --- license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, 5 disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or ---------- information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. The following terms are defined in the following Sections of this Agreement:
Term Section ---- ------- Closing 2.3 Closing Date 2.3 Financial Statements 3.5 Indemnifying Party 8.5 Losses 8.2 Non-Competition Agreement 6.1 Plan 3.19(a) Purchase Price 2.2
ARTICLE II PURCHASE AND SALE OF SHARES --------------------------- 2.1 Purchase and Sale. Upon the terms and subject to the conditions ----------------- contained in this Agreement, at the Closing (as defined in Section 2.3 below), the Seller shall sell, assign, transfer and deliver to Buyer, and Buyer will accept and purchase from the Seller, all of the Shares owned or held by the Seller, free and clear of all Liens. 2.2 Consideration. Upon the terms and subject to the conditions contained ------------- in this Agreement, in reliance upon the representations, warranties and agreements of the Company and the Seller contained herein, and in consideration of the sale, assignment, transfer and delivery of the Shares, Buyer will pay to the Seller Twelve Million Five Hundred Thousand Dollars ($12,500,000), of which Eleven Million Two Hundred Fifty Thousand Dollars ($11,250,000) shall be paid by wire transfer of immediately available funds, and One Million Two Hundred Fifty Thousand Dollars ($1,250,000) will be paid by delivery to Seller of a 10% Subordinated Promissory Note of the Buyer in the form of Exhibit A attached --------- hereto. The consideration payable to the Seller for the Shares is subject to adjustment as provided in Section 2.5 hereof, and such consideration, as so adjusted, is referred to herein as the "Purchase Price". The indebtedness evidenced by the Subordinated Note shall be subordinate 6 and junior in right of payment to certain senior debt of the Buyer as provided in the Intercreditor Agreement attached hereto as Exhibit B. --------- 2.3 Time and Place of Closing. The closing of the transactions described ------------------------- in Sections 2.1 and 2.2 of this Agreement (the "Closing") shall take place at the offices of Hutchins, Wheeler & Dittmar, A Professional Corporation, 101 Federal Street, Boston, MA, 02110 at 10:00 a.m. on January 22, 1996, or at such other place or time as the parties hereto may agree. The date and time at which the Closing actually occurs is hereinafter referred to as the "Closing Date." 2.4 Deliveries by the Seller. At the Closing, the Seller will deliver to ------------------------ Buyer (a) the various certificates, instruments and documents referred to in Section 6.1 below, and (b) stock certificates representing the Shares duly endorsed for transfer or accompanied by a stock power duly executed in blank, and any other documents that are necessary to transfer to Buyer good title to all Shares free and clear of all Liens, and Buyer will deliver to the Seller the various certificates, instruments, and documents referred to in Section 6.2 below and the Purchase Price so set forth in Section 2.2. 2.5 Adjustment to the Purchase Price. -------------------------------- (a) The consideration otherwise payable for the Shares pursuant to Section 2.2 hereof shall be adjusted downward, dollar for dollar, to the extent that (i) Indebtedness of the Company for borrowed money as of the Closing Date exceeds Four Hundred Fifty Thousand Dollars ($450,000); and (ii) cash and Cash Equivalents of the Company as of the Closing Date, after giving effect to the payments described in Sections 5.1(d) and 5.1(e) hereof are less than Five Hundred Thousand Dollars ($500,000). Any such adjustment shall be applied ninety percent (90%) to the cash component of the Purchase Price and ten percent (10%) to the Subordinated Note. (b) At the Closing, the Seller shall deliver to the Buyer (i) a balance sheet as of a date not more than three (3) Business Days prior to the Closing (the "Closing Balance Sheet"), which Closing Balance Sheet shall be prepared in accordance with GAAP consistently applied, and (ii) an Officer's Certificate setting forth the amount of Indebtedness of the Company for borrowed money as of the Closing Date and the amount of cash and Cash Equivalents for the Company as of the Closing Date. Any adjustments to the Purchase Price under this Section 2.5 shall initially be made on the basis of such Officer's Certificate. If within thirty (30) days following the Closing the Buyer notifies the Seller that the Buyer disagrees with the Closing Balance Sheet or the Officer's Certificate, the parties shall use all reasonable efforts to resolve such disagreement within thirty (30) days after such notice. If the parties are unable to do so, such disagreement shall be referred to Arthur Andersen & Co. or such other accounting firm of national recognition which is acceptable to Seller and Buyer. The decision of such firm shall be binding on all parties, and the fees and expenses of such firm shall be paid one half by the Buyer and one half by the Seller. 7 2.6 Other Transactions at the Closing. Simultaneously with the Closing, and --------------------------------- subject to the provisions of Section 2.5: (a) The Company shall sell to the Seller the two automobiles listed on Schedule 2.6(a) hereto. The purchase price of such automobiles shall be the - --------------- book value thereof as shown on the Company's financial statements as of the Closing Date; provided, however, that up to one-half of the amount of the sum of -------- ------- (i) the amount by which Indebtedness for borrowed money of the Company as of the Closing Date is less than Four Hundred Fifty Thousand Dollars ($450,000); and (ii) the amount by which cash and Cash Equivalents of the Company as of the Closing Date, after giving effect to the payments described in Sections 5.1(d) and 5.1(e) hereof, exceed Five Hundred Thousand Dollars ($500,000), may be used by the Seller to fund that portion of the purchase price of such automobiles which equals the difference between the Company's book value thereof as of the Closing Date and the wholesale or "black book" value thereof and/or shall be used by the Company to pay a bonus (not to exceed One Hundred Fifty Thousand Dollars ($150,000)) to such key employee of the Company as may be designated in writing by the Seller. (b) The Company shall sell to the Seller that certain key man life insurance policy identified on Schedule 2.6(b) hereto at a purchase price equal --------------- to the cash surrender value thereof. ARTICLE III REPRESENTATIONS AND WARRANTIES ------------------------------ OF THE COMPANY AND THE SELLER ----------------------------- Each of the Company and the Seller, jointly and severally, hereby represents and warrants to Buyer as follows: 3.1 Organization and Qualification. The Company is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of Missouri. The Company has full power and authority to own, use and lease its properties and to conduct its business as such properties are owned, used or leased and as such business is currently conducted and as it is proposed to be conducted. The copies of the Company's Charter and By-Laws, as amended to date, certified by its Secretary and delivered to Buyer's counsel prior to the Closing, are true, complete and correct. Except as set forth on Schedule 3.1 ------------ attached hereto, the Company is qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which it owns or leases property or maintains inventories or where the conduct of its business would require such qualification. 3.2 Authority; No Violation. The Company has all requisite corporate power ----------------------- and authority to enter into this Agreement and to carry out the transactions contemplated hereby. 8 The execution, delivery and performance of this Agreement by the Company have been duly and validly authorized and approved by all necessary corporate action. This Agreement constitutes the legal and binding obligation of the Company and the Seller, enforceable against each of them in accordance with its terms. The Shares, when transferred in compliance with this Agreement, will be validly issued, fully paid and non-assessable, and free of any Liens. Assuming the accuracy of the representations and warranties of Buyer hereunder, (a) the entering into of this Agreement by the Company and the Seller does not, and the consummation by the Company and the Seller of the transactions contemplated hereby, including specifically the transfer of the Shares to Buyer by the Seller, will not violate the provisions of (i) to the knowledge of the Company and Seller, any applicable federal, state, local or foreign laws, (ii) the Company's Charter or By-Laws, or (iii) any provision of, or result in a default or acceleration of any obligation under, or result in any change in the rights or obligations of the Company or the Seller under, any Lien, contract, agreement, license, lease, instrument, indenture, order, arbitration award, judgment, or decree to which the Company or the Seller is a party or by which any of them is bound, or to which any property of the Company is subject; and (b) to the knowledge of the Company and the Seller, the offer and sale of the Shares, as contemplated by this Agreement, are exempt from the registration requirements of the Securities Act and from any registration or filing requirements of any applicable state securities laws. 3.3 Capitalization. The Company's authorized capital stock consists of -------------- 30,000 shares of Common Stock, $1.00 par value per share, of which 750 shares are issued and outstanding, and all of which are owned beneficially and of record by the Seller. All of such outstanding shares are duly authorized, validly issued, fully paid, non-assessable, free of all Liens and pre-emptive rights and have been issued in compliance with all applicable federal and state laws. Except for the rights of Buyer hereunder, there are no outstanding options, warrants, rights or agreements of any kind for the issuance or sale of, or outstanding securities convertible into or exchangeable for, any additional shares of Common Stock or any other Equity Security of the Company. 3.4 Subsidiaries. The Company has no Subsidiaries. Except as set forth on ------------ Schedule 3.4, the Company does not own, directly or indirectly, any securities - ------------ issued by any other Person except for United States government securities, certificates of deposit, or other cash equivalents and is not a partner or participant in any partnership or joint venture of any kind. 3.5 Financial Statements. Attached hereto as Schedule 3.5 are the -------------------- ------------ following financial statements (collectively the "Financial Statements"): (i) audited balance sheets and statements of income, changes in stockholders' equity and cash flow as of and for the fiscal years ended July 31, 1995, July 31, 1994, and July 31, 1993, for the Company; and (ii) unaudited balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the three months ended October 31, 1995 for the Company. The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition 9 of the Company as of such dates and the results of operations of the Company for such periods, are correct and complete, and are consistent with the books and records of the Company, subject to normal year-end adjustments (which will not be material individually or in the aggregate) and the absence of footnotes and other presentation items. 3.6 Absence of Undisclosed Liabilities. Except as set forth in the Last ---------------------------------- Balance Sheet and in Schedule 3.6 attached hereto, there are no material ------------ liabilities of the Company, whether accrued, absolute, contingent or otherwise (including, without limitation, liabilities as guarantor or otherwise with respect to obligations of any other Person, or liabilities for Taxes due or then accrued or to become due), except for liabilities which have arisen in the ordinary course of business of the Company since the date of the Last Balance Sheet. Schedule 3.6 sets forth a true and correct aged list of all accounts ------------ payable of the Company as of October 31, 1995, in excess of $5,000 to any one payee. 3.7 Absence of Certain Changes. Except as otherwise disclosed in Schedule -------------------------- -------- 3.5 attached hereto, since July 31, 1995, there has not been: - --- (a) any change in the business, operations, assets, liabilities, prospects or condition (financial or otherwise) of the Company taken as a whole that, by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has been or is reasonably likely to be materially adverse with respect to the Company (including, by way of example and not of limitation, the loss of any significant distributor, customer or vendor, any announcement of new developments in competitive technology, or the intention on the part of any key employee of the Company to leave the Company's employ); (b) any obligation or liability incurred by the Company for an amount not more than $25,000 in each case or $50,000 in the aggregate; other than routine trade payables, payables and other obligations and liabilities incurred in the ordinary course of business (c) any Lien placed on any of the Company's properties or assets which remains in existence on the date hereof; (d) any contingent liabilities incurred by the Company with respect to the obligations of any other Person; (e) any purchase, sale, lease, assignment, transfer or other disposition, or any agreement or other arrangement for the purchase, sale, lease, assignment, transfer or other disposition, of any part of the Company's properties or assets, other than purchases for and sales from inventory for fair consideration in the ordinary course of business, except for fixed assets purchased or other capital expenditures made in amounts not exceeding $25,000 for any single item and $50,000 in the aggregate for all such items; 10 (f) any damage, destruction or loss, whether or not covered by insurance, adversely affecting the Company's properties, assets or business; (g) any declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, any Equity Security of the Company, or any direct or indirect redemption, purchase or other acquisition by the Company of any of its own Equity Securities, or any issuance by the Company of any Equity Security; (h) any labor trouble or claim of unfair labor practices involving the Company or any of its Subsidiaries; any change in the employment contracts of or compensation payable or to become payable by the Company to any of its officers, directors, employees, consultants or agents, or any bonus payment or arrangement made to or with any of such officers, directors, employees, consultants or agents; or any change in coverage or benefits available under any Plan described in Section 3.19; (i) any change with respect to the Company's management or supervisory personnel; (j) any payment or discharge of a material Lien or liability of the Company not disclosed on the Financial Statements or incurred in the ordinary course of business; (k) any obligation or liability incurred by the Company with respect to any loan, advance or commitment to lend by any bank, financial institution or institutional lender to any of the officers, directors, employees, consultants, agents, or stockholders of the Company or to any other Person; or any loans or advances made by the Company to any officers, directors, employees, consultants, agents or stockholders of the Company, except for normal compensation, professional fees and expense allowances payable to officers and directors; (l) any contracts, licenses, leases or agreements entered into by the Company which are outside the ordinary course of business or which obligate the Company for more than $5,000 in any one case or more than $25,000 in the aggregate; (m) any recapitalization or reorganization; (n) any amendment or other change (or any authorization to make such an amendment or change) to the Company's or any of its Subsidiaries' Charter or By- Laws, except as required in connection with the consummation of the transactions contemplated hereby; (o) any postponement or delay in payment of any accounts payable or other liability of the Company or any of its Subsidiaries except in the ordinary course of business consistent with prior practices; 11 (p) any cancellation, waiver, compromise or release of any right or claim either involving more than $10,000 or outside the ordinary course of business consistent with prior practices; (q) any cancellation, termination, modification, or acceleration by any party to any contract, license, lease or agreement involving more than $10,000 to which any of the Company or any of its Subsidiaries is a party or by which any of them is bound; or (r) to the knowledge of the Seller, any other occurrence, action, failure to act or transaction involving the Company other than transactions in the ordinary course of business consistent with prior practices. 3.8 Title to Assets. The Company has good and marketable title to, or a --------------- valid leasehold interest in, all of the property and assets used by it, located on its premises, or shown on the Last Balance Sheet, free and clear of all Liens, except for properties and assets disposed of in the ordinary course of business since the date of the Last Balance Sheet. 3.9 Sufficiency and Condition of Assets. The Company owns or leases all ----------------------------------- real, personal, tangible and intangible property and assets necessary for the conduct of its businesses as such businesses are presently conducted and are proposed to be conducted. To the knowledge of each of the Sellers and Company, all tangible properties and assets owned or leased by the Company are in good operating condition and repair, ordinary wear and tear excepted, have been well maintained, and conform with all applicable laws, statutes, ordinances, rules and regulations. 3.10 Real Estate. ----------- (a) The Company does not own any real property. (b) Schedule 3.10(b) lists and describes briefly all real property ---------------- leased or subleased to the Company. With respect to each such lease and sublease; (i) correct and complete copies thereof have been delivered to Buyer; (ii) the lease or sublease is legal, valid binding, enforceable, and in full force and effect and will continue to be so on identical terms following the consummation of the transactions contemplated hereby; (iii) no party to the lease or sublease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; 12 (iv) no party to the lease or sublease has repudiated any provision thereof, and there are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; (v) with respect to each sublease, the representations and warranties set forth in subsections (ii), (iii) and (iv) above are true and correct with respect to the underlying lease; (vi) the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or subleasehold; (vii) to the knowledge of the Company and the Seller, all facilities leased or subleased thereunder have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, statutes, ordinances, rules and regulations; and (viii) all facilities leased or subleased thereunder are supplied with utilities and other services necessary for the operation of said facilities. 3.11 Accounts Receivable. All of the accounts receivable of the Company are ------------------- properly reflected in the Financial Statements and are, subject to the allowance for doubtful accounts set forth therein, valid and enforceable claims, subject to no set-off or counterclaim, and are fully collectible in the ordinary course of business. Except as set forth in Schedule 3.11 attached hereto, the Company ------------- does not have any accounts receivable or loans or notes receivable from any Affiliates or from any of its officers, directors, consultants, employees, agents or stockholders. 3.12 Inventories. ----------- (a) Except as disclosed in Schedule 3.12 attached hereto: (i) the ------------- inventories of the Company are properly reflected in the Last Balance Sheet and are of a quality and quantity saleable in the ordinary course of business of the Company at prevailing market prices, are priced at the [lower of cost (first in, first out) or market] and (ii) the values of the inventories stated in the Financial Statements reflect the Company's normal inventory valuation policies and were determined in accordance with GAAP consistently applied. (b) As of the date hereof, purchase commitments for raw materials and parts for the Company are not, individually or in the aggregate, in excess of normal requirements and none of such commitments are at prices materially in excess of current market prices. Sales commitments for finished goods are all at prices in excess of prices used in valuing inventory items or of estimated costs of manufacture of items not in inventory after allowing for selling expenses and a normal profit margin. 13 3.13 Intellectual Property. All patents, patent applications, registered --------------------- copyrights, trade names, registered trademarks and trademark applications which are owned by or licensed to the Company, if any, are listed in Schedule 3.13 ------------- attached hereto, which indicates with respect to each the nature of the Company's interest therein and the expiration date thereof or the date on which the Company's interest therein terminates. All of the Company's patents and registered trademarks have been duly registered in, filed in or issued by the United States Patent Office or the corresponding offices of other countries identified in Schedule 3.13, and have been properly maintained and renewed in ------------- accordance with all applicable laws and regulations in the United States and each such country. Except as set forth in Schedule 3.13, use of said patents, ------------- patent applications, registered copyrights, trade names, registered trademarks or trademark applications owned by the Company does not require the consent of any other Person and the same are freely transferable (except as otherwise provided by law) and are owned exclusively by the Company, free and clear of any Liens. Except as set forth in Schedule 3.13, (i) no other Person has an ------------- interest in or right or license to use, or the right to license any other Person to use, any of said patents, patent applications, registered copyrights, trade names, registered trademarks or trademark applications, (ii) there are no claims or demands of any other Person pertaining thereto and no proceedings have been instituted, or are pending or, to the knowledge of the Company and each Seller, threatened, which challenge the Company's rights in respect thereof, (iii) none of the patents, copyrights, trade names or trademarks listed in Schedule 3.13 is ------------- being infringed by another Person or is subject to any outstanding order, decree, ruling, charge, injunction, judgment or stipulation, (iv) no Claim has been made or is threatened charging the Company with infringement of any adversely held patent, trade name, trademark or copyright and (v) there does not exist (a) any unexpired patent with claims which are or would be infringed by products of the Company or by apparatus, methods or designs employed by it in manufacturing such products or (b) any patent or application therefor or invention which would materially adversely affect the Company's ability to manufacture, use or sell any such product, apparatus, method or design. 3.14 Trade Secrets and Customer Lists. The Company has the right to use, -------------------------------- free and clear of any Claims or rights of any other Person, all trade secrets, customer lists, manufacturing and secret processes and know-how (if any) required for or used in the manufacture or marketing of all products being sold, manufactured, or under development by it, including products licensed from other Persons. Any payments required to be made by the Company for the use of such trade secrets, customer lists, manufacturing and secret processes and know-how are described in Schedule 3.14 attached hereto. The Company is not in any way ------------- making an unlawful or wrongful use of any confidential information, know-how, or trade secrets of any other Person, including without limitation any former employer of any present or past employee of the Company. Except as described on Schedule 3.14, neither the Seller nor any officer, director or employee of the - ------------- Company is a party to any non-competition or confidentiality agreement with any Person other than the Company. 14 3.15 Contracts. Except for contracts, commitments, leases, licenses, --------- plans and agreements described in Schedule 3.15 attached hereto, the Company is ------------- not a party to or subject to: (a) any plan or contract regarding or providing for bonuses, pensions, options, stock purchases, deferred compensation, severance benefits retirement payments, profit sharing, stock appreciation, collective bargaining or the like, or any contract or agreement with any labor union; (b) any employment or consulting contract or contract for personal services not terminable at will by the Company without penalty to the Company; (c) any contract or agreement for the purchase of any commodity, product, material, supplies, equipment or other personal property, or for the receipt of any service, other than purchase orders entered into in the ordinary course of business for less than $5,000 each and which in the aggregate do not exceed $25,000; (d) any contract, arrangement or program with vendors, suppliers or customers relating to rebates, volume discounts or cooperative Advertising; (e) any contract or agreement for the purchase or lease of any fixed asset, whether or not such purchase or lease is in the ordinary course of business, for a price in excess of $25,000; (f) any contract or agreement for the sale of any commodity, product, material, equipment, or other personal property, or the furnishing by the Company of any service, other than contracts with customers entered into in the ordinary course of business; (g) any contract or agreement providing for the purchase of all or substantially all of its requirements of a particular product from a supplier, or for periodic minimum purchases of a particular product from a supplier; (h) any contract or agreement with any sales agent, distributor or OEM of products of the Company; (i) any contract or agreement concerning a partnership or joint venture with one or more Persons; (j) any confidentiality agreement or any non-competition agreement or other contract or agreement containing covenants limiting the Company's freedom to compete in any line of business or in any location or with any Person; (k) any license agreement (as licensor or licensee); 15 (l) any contract or agreement with any Seller or any present or former officer, director, consultant, agent or stockholder of the Company or with any Affiliate of any of them; (m) any loan agreement, indenture, note, bond, debenture or any other document or agreement evidencing a capitalized lease obligation or Indebtedness to any Person; (n) any agreement of guaranty, indemnification, or other similar commitment with respect to the obligations or liabilities of any other Person (other than lawful indemnification provisions contained in the Charters and By- Laws of the Company); (o) any agreement under which the consequences of a default by the Company or termination could have a Material Adverse Effect; or (p) any other agreement or contract (or group or related agreements or contracts) the performance of which involves consideration paid or received by the Company in excess of $25,000. Copies of all such contracts, commitments, plans, leases, licenses and agreements have been provided to Buyer or its counsel prior to the execution of this Agreement, and all such copies are true, correct and complete and have been subject to no amendment, extension or other modification as of the date hereof, except such as are described in Schedule 3.15. Except as listed and described in ------------- Schedule 3.15, neither the Company, or to the knowledge of the Company and the - ------------- Seller, any other Person, is in default under any such contract, commitment, plan, lease, license or agreement described in Schedule 3.15 (a "default" being ------------- defined for purposes hereof as an actual default or event of default or the existence of any fact or circumstance which would, upon receipt of notice or passage of time, constitute a default). 3.16 Customers and Suppliers. Schedule 3.16 attached hereto sets forth the ----------------------- ------------- twenty (20) largest suppliers and customers of the Company for the year ended July 31, 1995 (the "Large Suppliers and Customers"). Except as reflected in Schedule 3.16, no supplier is a material sole source of supply to the Company. - ------------- The relationships of the Company with their suppliers and customers are good commercial working relationships and, except as set forth on Schedule 3.16, ------------- neither (i) any of the Large Suppliers and Customers nor (ii) any supplier who at any time during the year ended July 31, 1995 was the sole source of supply of any item, has canceled or otherwise terminated, or threatened to cancel or otherwise terminate, its relationship with the Company or has during the last twelve (12) months decreased materially or threatened to decrease or limit materially, its services, supplies or materials to the Company or its usage or purchase of the services or products of the Company or any of its Subsidiaries, as the case may be. Neither the Company nor the Seller has any knowledge that any of the Large Suppliers and Customers intends to cancel or otherwise adversely modify its relationship with the Company or to decrease materially or limit its services, supplies or materials to the 16 Company or its usage or purchase of the services or products of the Company and the acquisition of the Shares by Buyer will not, to the knowledge of the Company or any of the Seller, adversely affect the relationship of the Company with any of the Large Suppliers and Customers. 3.17 Compliance with Laws. -------------------- (a) To the knowledge of the Seller and the Buyer, the Company has all licenses, permits, franchises, orders, approvals, accreditations, written waivers and other authorizations as are necessary in order to enable it to own and conduct its business as currently conducted and as proposed to be conducted and to occupy and use its real and personal properties without incurring any material liability. No registration, filing, application, notice, transfer, consent, approval, order, qualification, waiver or other action of any kind is required by virtue of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby to avoid the loss of any rights pertaining to any such license, permit, franchise, order, approval, accreditation, waiver or authorization. The Company is in full compliance with the terms and conditions of all such licenses, permits, franchises, orders, approvals, accreditations, waivers and authorizations. (b) The Company has conducted and is conducting its business in material compliance with applicable federal, state, local or foreign laws, statutes, ordinances, regulations, rules or orders or other requirements of any governmental, regulatory or administrative agency or authority or court or other tribunal relating to it (including, but not limited to, any law, statute, ordinance, regulation, rule, order or requirement relating to securities, properties, business, products, advertising, sales or employment practices, immigration, terms and conditions of employment, workers compensation, wages and hours, safety, occupational safety, health or welfare conditions relating to premises occupied, product safety and liability or civil rights). The Company is not now charged with, and to the knowledge of the Company and the Seller, is not now under investigation with respect to, any possible material violation of any applicable law, statute, ordinance, regulation, rule, order or requirement relating to any of the foregoing in connection with the business of the Company, and the Company has filed all material reports required to be filed with any governmental, regulatory or administrative agency or authority. The Company shall promptly inform Buyer of any notice relating to the foregoing received after the date hereof and on or prior to the Closing Date. 3.18 Taxes. ----- (a) The Company has filed all Tax Returns that it was required to file. To the knowledge of the Company and the Seller, all such Tax Returns were correct and complete in all respects. All Taxes owed by any of the Company have been paid (whether or not shown on any Tax Return). The Company is not currently the beneficiary of any extension of time within which to file any Tax Return. No Claim has ever been made by an authority in a 17 jurisdiction where the Company does not file Tax Returns that it is or may be subject to the imposition of any Tax by that jurisdiction. There are no Liens on any of the assets of any of the Company that arose in connection with any failure (or alleged failure) to pay any Tax. (b) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, consultant, independent contractor, creditor, stockholder, or other third party. (c) Neither the Company nor the Seller is aware of any dispute or Claim concerning any liability for Taxes of the Company. Schedule 3.18 attached ------------- hereto lists all federal, state, local, and foreign income Tax Returns filed with respect to any of the Company for taxable periods ended on or after July 31, 1989, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Seller has delivered to Buyer correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by any of the Company since July 31, 1993. (d) The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (e) The Company has not filed a consent under Section 341(f) of the Code concerning collapsible corporations. The Company has not made or is obligated to make any payments or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Section 280G of the Code or that are subject to an excise tax under Section 4999 of the Code. The Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The Company is not a party to any Tax allocation or sharing agreement. The Company (i) has not been a member of an Affiliated Group (as defined by Section 1504 of the Code) filing a consolidated federal income Tax Return or (ii) has any Liability for the Taxes of any Person (other than any of the Company) under Treas. Reg.(S) 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor by contract or otherwise. (f) The unpaid Taxes of the Company (i) did not, as of the date of the Last Balance Sheet, exceed the reserve for Tax Liabilities (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Last Balance Sheet (rather than in any notes thereto) and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing their Tax Returns. 3.19 Employee Benefit Plans. ---------------------- (a) Identification of Plans. ----------------------- 18 Schedule 3.19 attached hereto lists and identifies each: ------------- (1) "Employee Pension Benefit Plan" (as such term is defined in Section 3(2) of ERISA) which is not a Multiemployer Plan; (2) "Multiemployer Plan" (as such term is defined in Section 3(37) or 4001(a)(3) of ERISA); (3) "Employee Welfare Benefit Plan" (as such term is defined in Section 3(3) of ERISA); and (4) Stock purchase, option or bonus plan, deferred compensation, severance pay, incentive, vacation, sick pay or leave, fringe benefit plan, policy or arrangement or payroll practice, which is, or was within five (5) years prior to the Closing Date, maintained or contributed to by the Company or any ERISA Affiliate or under which the Company or any ERISA Affiliate has any liability or contingent liability (individually a "Plan" and collectively, the "Plans"). (b) Representations Applicable to All Employee ------------------------------------------ Pension Benefit Plans. --------------------- (1) Each Plan which is intended to be "qualified" under Section 401(a) of the Code is and has been at all times so qualified, and the trusts maintained thereunder are and have been at all times exempt from taxation under Section 501(a) of the Code. There have been no amendments to any such Plans which are not the subject of a determination letter issued with respect thereto by the Internal Revenue Service. No prohibited transaction or other event has occurred that will give rise to disqualification of any such Plan under the Code. No event has occurred that will or could subject any such Plan to tax under Section 511 of the Code. (2) No Plan has incurred any "accumulated funding deficiency" (as described in Section 302 of ERISA or Section 412 of the Code), whether or not waived, nor has there been any failure to make by its due date a required installment under Section 302(e) of ERISA or Section 412(m) of the Code with respect to any Plan. (c) Representations Applicable to All Title IV Plans. ------------------------------------------------ (1) With respect to each Plan, no liability under Title IV or ERISA has been incurred since the effective date of ERISA that has not been satisfied in full, and no condition exists that presents a risk of incurring a liability under Title IV, other than liability for PBGC premiums which have been paid when due. 19 (2) No steps have been taken to terminate any Plan subject to Title IV of ERISA. (3) No Plan has been the subject of a "reportable event" (as described in Section 4043 of ERISA) as to which a notice would be required to be filed with the PBGC. (4) With respect to each Plan which is subject to Title IV of ERISA, neither (i) the present value of accrued benefits under such Plan (based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by the Plan's actuary with respect to such Plan), nor (ii) the "benefit liabilities" (as described in Section 4001(a)(18) of ERISA) of such Plan exceeded, as of its last valuation date, the then current value of the assets of such Plan. All costs of any Plan subject to Title IV of ERISA have been provided for on the basis of consistent methods in accordance with sound actuarial assumptions and practices. Since the last valuation date for each such Plan, there have been no amendments or changes to such Plans that would increase the amount of benefits thereunder. (5) No Plan is a plan described in Section 4063(a) of ERISA. (c) Representations Applicable to All Multiemployer Plans. ----------------------------------------------------- (1) No Plan listed in Schedule 3.19(a) is a Multiemployer Plan. ---------------- (d) Representations Applicable to All Plans. --------------------------------------- (1) To the knowledge of the Company and the Seller, each Plan complies and has been administered in form and operation with all requirements of law and regulation applicable thereto. The Company and the ERISA Affiliates have performed all of their obligations under all such Plans. (2) There have been no acts or omissions which have given rise to, or which could give rise to, any penalty, tax, or fine under Sections 409, 502(c), or 502(i) of ERISA, or Sections 4975 or 4976 of the Code, for which the Company or any ERISA Affiliate may be liable. (3) None of the assets of any Plan are invested in any employer securities, employer real property, or any annuity contracts. (4) All contributions required with respect to any Plan for all periods ending prior to the Closing (including periods from the first day of the current plan year to the Closing) will be timely made prior to the Closing by the Company or the ERISA Affiliates or will be properly recorded on the Closing Balance Sheet. 20 (5) All required reports and descriptions of each Plan (including IRS Form 5500 Annual Reports, Summary Annual Reports, and Summary Plan Descriptions) have been timely filed and distributed. (6) None of the Company or any ERISA Affiliate has any plan or commitment to establish any additional Plans or to amend any existing Plan. (7) No Plan provides benefits, including without limitation death, medical, or severance benefits, with respect to current or former employees or directors (or their beneficiaries) beyond their retirement or other termination of service other than (i) coverage for benefits mandated by applicable law, (ii) death benefits or retirement benefits under an Employee Pension Benefit Plan, (iii) deferred compensation benefits properly accrued as liabilities on the Financial Statements, or (iv) benefits the full cost of which is borne by the current or former employee or director or his beneficiaries. (8) There are no actions, suits, or claims (other than routine claims for benefits made in the ordinary course of plan administration for which plan administrative review procedures have not been exhausted) pending or threatened involving any Plans or the assets of such Plans, and no facts exist which could give rise to any such action, suit, or claim. (9) For each Plan, a true and complete copy of each of the following documents have been delivered to Buyer: (i) Plan document and all amendments thereto; (ii) most recent Summary Plan Description (together with each Summary of Material Modifications required under ERISA); (iii) IRS Form 5500 Annual Report, if required under ERISA, for the two most recent plan years, together with all schedules, financial statements, and opinions of independent accountants; (iv) the actuarial report, if required under ERISA, for the two most recent plan years; (v) Form PBGC-1, if required under ERISA, for the two most recent plan years; (vi) if the Plan is funded through a trust or any third party funding vehicle (including a voluntary employee benefit association under Section 501(c)(9) of the Code, or a "multiple employer welfare arrangement" described in Section 3(40) of ERISA), the trust or other funding agreement, all amendments thereto, and the latest financial statements thereof for the two most recent plan years; and (vii) the most recent determination letter received from the Internal Revenue Service with respect to each Plan that is intended to be qualified under Section 401 of the Code. 3.20 Environmental Matters. --------------------- (a) Except as disclosed in Schedule 3.20 attached hereto, the use and ------------- operation by the Company and, to the knowledge of the Company and the Seller, by all past owners and operators, of all facilities and properties used in the business of the Company have been, and will be on the Closing Date, in compliance in all material respects with all Environmental Laws, and no Environmental Action has been filed, commenced, or, to the 21 knowledge of the Company and the Seller, threatened with or against any of them alleging any failure so to comply. (b) The Company has received all Environmental Permits required to allow it to conduct its operations and businesses, such Environmental Permits are valid and in effect, and the Company is in compliance with such Environmental Permits. (c) Except as disclosed in Schedule 3.20, the Company has never sent or ------------- arranged for the transportation of Hazardous Materials to a site, or owned or operated a site, which, pursuant to CERCLA or any similar state law, has been placed or is proposed (by the United States Environmental Protection Agency ("EPA") or similar state authority) to be placed, on the "National Priorities List," as in effect as of the Closing Date, of hazardous waste sites or any similar state list. (d) Except as disclosed in Schedule 3.20, neither the Company nor the ------------- Seller has received notice from any Person, (i) that the Company has been identified by the EPA or similar state authority as a potentially responsible party under CERCLA with respect to a site listed on the "National Priorities List," as in effect as of the Closing Date, of hazardous waste sites or any similar state list; (ii) that any Hazardous Materials which the Company has generated, transported, or disposed of has been found at any site at which a Person has conducted or has ordered that the Company conduct a remedial investigation, removal, or other response action pursuant to any Environmental Law; or (iii) that the Company is or shall be a named party to any Environmental Action arising out of any Person's incurrence of costs, expenses, losses, or damages of any kind whatsoever in connection with the release of Hazardous Materials. (e) Except as disclosed in Schedule 3.20, there are no underground fuel ------------- or other storage tanks located at any of the facilities of the Company. All such tanks disclosed in Schedule 3.20, together with all appurtenant piping, ------------- valve, and related facilities, are, except as disclosed in Schedule 3.20, ------------- structurally sound, are not currently and have not in the past been leaking or releasing their contents into the soil or groundwater, and are in compliance with all applicable registration, testing, monitoring, containment, and corrosion protection requirements. (f) Except as disclosed in Schedule 3.20, there have been no ------------- unpermitted Releases or threatened Releases that are or at any time were reasonably likely to occur of Hazardous Materials on, upon, into, or from the Real Estate or other assets of the Company; and, to the knowledge of the Company and the Seller, there have been no Releases on, upon, from, or into any real property in the vicinity of the Real Estate or other assets of the Company which, through the soil, groundwater, or surface water, may have come to be located on, upon, or under such Real Estate or other assets. 22 (g) Without in any way limiting the generality of the foregoing, there is, to the knowledge of the Company and the Seller, no asbestos contained in or forming part of any building, building component, structure, or office space owned or leased by the Company; and, to the knowledge of the Company and the Seller, no polychlorinated biphenyls (PCBs) are used or stored at any property owned or leased by the Company. All properties and equipment used in the business of the Company have been free of methylene chloride, trichloroethylene, 1, 2 - transdichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances, as such term is defined in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. (h) None of the Real Property or other assets of the Company is or shall be subject to any applicable environmental clean-up responsibility law or environmental restrictive transfer law or regulation, solely by virtue of the transactions set forth herein and contemplated hereby. 3.21 Employees. Schedule 3.21 attached hereto sets forth a true and --------- ------------- complete list of (a) all directors of the Company, (b) all officers (with office held) of the Company, (c) all consultants and independent contractors retained by the Company currently or during the last fiscal year and (d) all employees of the Company who are compensated at an annual rate in excess of $50,000, including each such employee's job title, remuneration and duration of employment period. Except as disclosed in Schedule 3.21 or Schedule 3.19, the ------------- ------------- Company is not a party to any written or oral employment, consulting, service, severance or pension agreement. The Company is not a party to, and none of its employees are subject to, any collective bargaining agreement or other union contract, other than as disclosed in Schedule 3.21. The Company is in ------------- compliance in all material respects with applicable federal, state and local laws affecting employment and employment practices, including terms and conditions of employment and wages and hours, and there are, and have been during the past five (5) years, no complaints against the Company pending or, to the knowledge of the Company and the Seller, threatened before the National Labor Relations Board or any similar state or local agency, except as set forth on Schedule 3.21. The Company enjoys good relations with its employees and ------------- there is no pending or, to the knowledge of the Company and the Seller, threatened labor trouble with or effort to organize any of its employees, and there has been no such labor trouble or, to the knowledge of the Company and the Seller, effort to organize during the past five (5) years. 3.22 Litigation. Except as disclosed on Schedule 3.22 attached hereto, (a) ---------- ------------- there is no Claim pending or, to the knowledge of the Company or the Seller threatened (or, to the knowledge of the Company and the Seller, any facts which could lead to such a claim) by, against, affecting or regarding the Company or its businesses, properties or assets, or the Seller at law or in equity, before any federal, state, local or foreign court or any other governmental or administrative agency or tribunal or any arbitrator or arbitration panel, and (b) there are no judgments, orders, rulings, charges, decrees, injunctions, notices of violation or other mandates against or affecting the Company or the Seller with respect to the 23 businesses, properties or assets of the Company. Nothing listed on Schedule -------- 3.22, either individually or when aggregated with other listings on such - ---- Schedule, would reasonably be expected to have a Material Adverse Effect. 3.23 Insurance. Schedule 3.23 attached hereto sets forth a summary of all --------- ------------- insurance policies (including policies providing property, casualty, liability, and workers' compensation coverage, benefits or coverage for any Plan described in Section 3.19, and bond and surety arrangements) to which any of the Company has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past two (2) years and specifies the insurer, the amount of coverage, type of insurance, expiration date, and any retroactive premium adjustments or other loss sharing arrangements. With respect to each such insurance policy to the knowledge of the Company and the Seller: (a) the policy is legal, valid, binding, enforceable, and in full force and effect; (b) the policy will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (c) neither the Company nor any other party to the policy is in breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration under the policy; and (d) no party to the policy has repudiated any provision thereof. The Company has been covered during the past five (5) years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during the aforementioned period. Schedule 3.23 describes any self-insurance arrangements affecting any of the - ------------- Company. 3.24 Company Products. To the knowledge of the Company and the Seller, each ---------------- product manufactured, sold, leased, distributed or delivered by the Company ("Company Products") has been in conformity with all applicable contractual commitments and all applicable express and implied service and product warranties. Except as disclosed in Schedule 3.24 attached hereto, (a) there are ------------- no existing or, to the knowledge of the Company or the Seller, threatened Claims against the Company for services or merchandise which are defective or fail to meet any express or implied service or product warranties, or any facts which, if discovered by a third party, would support such a Claim; and (b) no Claim has been asserted against the Company for renegotiation or price redetermination with respect to any transaction, and there are no facts upon which any such Claim could be based. Except as set forth on Schedule 3.24, there are no ------------- statements, citations or decisions by any governmental or regulatory body or agency that any Company Product is defective or fails to meet any standards promulgated by any such governmental or regulatory body or agency. Except as set forth on Schedule 3.24, there have been no recalls ordered by any such ------------- governmental or regulatory body or agency with respect to any Company Product. 3.25 Powers of Attorney. Except for powers of attorney granted in the ------------------ ordinary course of business to independent certified public accountants or in connection with the 24 establishment or amendment of a Plan described in Schedule 3.19(a)(1), the ------------------- Company has not granted any outstanding power of attorney. 3.26 Brokers. Except as disclosed in Schedule 3.26 attached hereto, none of ------- ------------- the Company, the Seller, or anyone acting on their behalf, has engaged, retained, or incurred any liability to any broker, investment banker, finder or agent or has agreed to pay any brokerage fees, commissions, finder's fees or other fees with respect to the sale of the Shares, this Agreement or the transactions contemplated hereby. 3.27 Burdensome Agreements. The Company is not subject to or bound by any --------------------- agreement, judgment, decree or order which does or may in the future reasonably be expected to result in a Material Adverse Effect. 3.28 Records and Books. The minute books of the Company have previously ----------------- been made available to Buyer and accurately record all corporate action taken by the stockholders and boards of directors and committees thereof from the date of organization through the date hereof. The stock transfer ledgers or record books of the Company completely and accurately set forth all transfers of the Company's capital stock from the date of organization through the date hereof. 3.29 Transactions with Interested Persons. Except as set forth on Schedule ------------------------------------ -------- 3.29 attached hereto, no officer, supervisory employee or director of the - ---- Company owns directly or indirectly, either individually or jointly, any material interest in, or serves as an officer or director of, any customer, competitor or supplier of the Company, or any organization which has a material contract or arrangement with the Company. 3.30 Bank Accounts. Schedule 3.30 contains a complete and accurate list ------------- ------------- of all bank accounts, safe deposit boxes and lock boxes maintained by the Company, together with a list of all authorized signatories thereto. 3.31 Copies of Documents. The Company and the Seller have made available ------------------- for inspection and copying by Buyer and its counsel true and correct copies of all documents referred to in this Article III or in the Schedules delivered to Buyer pursuant to this Agreement. 3.32 Status Under Certain Statutes. The Company is not: (i) a "public ----------------------------- utility company" or a "holding company," or an "affiliate" or a "subsidiary company" of a "holding company," or an "affiliate" of such a "subsidiary company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, (ii) a "public utility" as defined in the Federal Power Act, as amended, or (iii) an "investment company," or an affiliated person" thereof or an "affiliated person" of any such "affiliated person," as such terms are defined in the Investment Company Act of 1940, as amended. 25 3.33 Disclosure of Material Information. Neither this Agreement ---------------------------------- (including the Schedules and Exhibits hereto) nor any document, certificate or instrument furnished in connection therewith contains, with respect to the Company or the Seller, any untrue statement of a material fact or omits to state a material fact necessary to made the statements therein not misleading. 3.34 Sole Representations and Warranties. The representations and ----------------------------------- warranties contained in this Article III are the only representations and warranties made by the Company and the Seller in connection with the transactions contemplated by this Agreement and supersede any and all previous written or oral statements made by the Company and the Seller to Buyer. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER ------------------------------------------- The Buyer hereby represents and warrants to the Company and the Sellers as follows: 4.1 Organization and Qualification. The Buyer is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts, with full power and authority to own, use or lease its properties and to conduct its business as such properties are owned, used or leased and as such business is conducted. 4.2 Authority. The Buyer has the requisite corporate power and authority --------- to enter into this Agreement and to carry out the transactions contemplated hereby. The execution, delivery and performance of this Agreement by Buyer have been duly and validly authorized and approved by all necessary corporate action on the part of the Buyer, and this Agreement constitutes the legal and binding obligation of the Buyer, enforceable against them in accordance with its terms. 4.3 Brokers. Neither Buyer nor anyone acting on their behalf has engaged, ------- retained or incurred any liability to any broker, investment banker, finder or agent or has agreed to pay any brokerage fees, commissions, finder's fees or other fees with respect to the purchase of the Shares, this Agreement or the transactions contemplated hereby. 4.4 Shares Acquired For Investment. Buyer represents, covenants and ------------------------------ warrants that it is acquiring the Shares for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof. Buyer further represents and warrants that it is an "accredited investor" within the meaning of Regulation D under the Securities Act. Buyer will not offer to sell or otherwise transfer any of the Shares in violation of any federal or state securities law. Buyer acknowledges that the sale of the Shares to it has not been registered pursuant to any federal or state securities laws and that a legend to that 26 effect may be placed on all certificates representing such Shares unless and until a registration statement under the Securities Act has become effective with respect to such Shares. 4.5 Financing Commitment. Buyer has or will have prior to the Closing -------------------- Date, sufficient funds to fund the payment of the Purchase Price. 4.6 Financial Statement. The financial statements of the Buyer for its ------------------- fiscal year ended September 3, 1995 previously delivered to the Seller have been prepared in accordance with GAPP applied in a consistent basis throughout the periods covered thereby, present fairly the financial condition of the Buyer as of such dates and results of operations with the Buyer for such periods, are correct and complete, and are consistent with the books and records of the Buyer. 4.7 Sole Representations and Warranties. The representations and ----------------------------------- warranties contained in this Article IV are the only representations and warranties made by Buyer in connection with the transactions contemplated by this Agreement and supersede any and all previous written or oral statements made by Buyer to the Company or the Seller. ARTICLE V COVENANTS --------- The parties hereto agree to the following covenants: 5.1 Covenants of the Company. The Company hereby agrees with Buyer to ----------------------- keep, perform and fully discharge the following covenants and agreements: (a) Interim Conduct of Business. From the date hereof until the --------------------------- Closing, the Company shall operate its business as a going concern consistent with prior practice and in the ordinary course of business (except as may be authorized pursuant to this Agreement or as set forth on Schedule 5.1(a) --------------- hereto). Without limiting the generality of the foregoing, from the date hereof until the Closing, except for transactions contemplated by this Agreement or expressly approved in writing by Buyer, the Company shall not: (i) enter into or amend any employment, bonus, severance or retirement contract or arrangement, or increase any salary or other form of compensation payable or to become payable to any executive or employee other than in the ordinary course of business consistent with prior practice; provided, however that the Company may at Closing pay a bonus of up to $150,000 to a key employee designated by the Seller, to the extent permitted under Section 2.6; 27 (ii) purchase, lease or otherwise acquire any real estate or any interest therein; (iii) declare, set aside or pay any dividend or make any other distribution with respect to any Equity Security or make any loan, advance or other distribution to the Seller; (iv) merge or consolidate with or agree to merge or consolidate with, or purchase or agree to purchase all or substantially all of the assets of, acquire securities of or otherwise acquire any Person; (v) sell, lease or otherwise dispose of or agree to sell, lease or otherwise dispose of any of its assets, properties, rights or claims, whether tangible or intangible, including without limitations, customer lists or other information relating to the Company's customers, except in the ordinary course of business consistent with prior practice; (vi) authorize for issuance, issue, sell or deliver any of its own Equity Securities; (vii) split, combine or reclassify any class of Equity Security or redeem or otherwise acquire, directly or indirectly, any of its Equity Securities; (viii) incur or guaranty any Indebtedness for borrowed money, or incur any other obligation (fixed or contingent) other than in the ordinary course of business consistent with prior practice; (ix) place or permit to be placed any Lien on any of its assets or properties, other than statutory Liens arising in the ordinary course of business; (x) make or authorize any amendments or changes to its Charter or By-Laws; (xi) make any single investment in excess of $25,000, or aggregate investments in excess of $50,000, in property, plant and equipment and other items of capital expenditure; (xii) accelerate receivables or delay or postpone payment of any accounts payable or other liability, or liquidate inventory except in the ordinary course of business consistent with prior practice; or (xiii) abandon any part of its business. 28 (b) Access. The Company shall, upon reasonable notice, give Buyer and ------ its representatives full and free access to all properties, assets, books, contracts, commitments and records of the Company during reasonable business hours and shall promptly furnish Buyer with all financial and operating data and other information as to the history, ownership, Affiliates, business, operations, properties, assets, liabilities, or condition (financial or otherwise) of the Company as Buyer may from time to time reasonably request. (c) Satisfaction of Conditions. The Company agrees to use its best -------------------------- efforts to accomplish the satisfaction of the conditions precedent to Closing contained in Section 6.1 herein on or prior to the Closing Date. (d) Prior to the Closing, the Company agrees to pay all accounting expenses in connection with the July 31, 1995 financial audit of the Company by Arthur Andersen LLP and all expenses billed or accrued through the date hereof by Rubin, Brown, Gornstein & Co. (e) Prior to the Closing, the Company agrees to pay to Christopher Ott a bonus of $150,000. 5.2 Covenants of the Company and the Seller. Each of the Company and the --------------------------------------- Seller agrees with Buyer to keep, perform and fully discharge the following covenants and agreements: (a) No Solicitation, Confidentiality, Etc. The Seller and the Company -------------------------------------- agree that, prior to the termination of this Agreement pursuant to Article VII hereof neither the Company nor the Seller will (i) solicit or negotiate with respect to any inquiries or proposals relating to (x) the possible direct or indirect acquisition of the Shares or any other Equity Security of the Company or of all or a portion of the assets or business of the Company or (y) any merger, consolidation, joint venture or business combination with the Company or (ii) discuss or disclose either this Agreement or other confidential information pertaining to the Company with any Person (except as may be required by law or except as may be required in connection with the transactions contemplated by this Agreement to Affiliates, officers, directors, employees and agents of the Company or the Seller) without the prior written approval of Buyer. Buyer acknowledges that the prior distribution of material regarding the Company to interested parties shall not be deemed to violate this Section 5.2(c). The Company and the Seller shall advise such parties of the existence of this Agreement and shall refrain from entering into further discussions with such parties concerning the sale of the Company to the extent otherwise prohibited by this Section 5.2(c). 5.3 Covenants of the Seller. The Seller agrees with Buyer to keep, perform ----------------------- and fully discharge the following covenants and agreements: (a) Accuracy of Representations and Warranties. Without the prior ------------------------------------------ written consent of Buyer, the Seller will not take any action from the date hereof to the Closing Date, 29 whether as an officer, director or stockholder of the Company or otherwise, that would cause any representation or warranty of the Company or the Seller contained in this Agreement to become untrue or cause the breach of any agreement hereof or covenant contained herein. The Seller will promptly bring to the attention of Buyer any facts which come to his attention that would cause any of the representations and warranties of the Company or the Seller to be untrue or materially misleading in any respect. (b) Satisfaction of Conditions. The Seller agrees to use his best -------------------------- efforts to cause the Company to comply with Sections 5.1 and 5.2 above and to accomplish the satisfaction of the conditions precedent to Closing contained in Section 6.1 below on or prior to the Closing Date. (c) Tax Matters. (i) The Seller shall be responsible for and shall ----------- cause to be prepared and duly filed all Tax Returns relating to Taxes of the Company for all taxable periods ending on or before the Closing Date. The Seller shall be responsible for and shall indemnify and hold harmless Buyer and the Company with respect to all Taxes to which such Tax Returns relate for all taxable periods covered by such Tax Returns. (ii) The Company shall be responsible for and cause to be prepared and duly filed all Tax Returns relating to Taxes of the Company for any taxable period which commences after the Closing Date (the "Post Closing Period"). The Buyer shall be responsible for and shall indemnify and hold harmless Seller with respect to all Taxes with respect to the Company for the Post Closing Period. (d) Disclosure Supplements. From time to time prior to the Closing, ---------------------- the Company and the Seller will supplement or amend the Schedule(s) hereto with respect to any matter hereafter arising which, if existing or occurring at or prior to the date of this Agreement, would to Seller's knowledge have been required to be set forth or described in any such Schedule or which is necessary to complete or correct any information in any such Schedule or in any representation or warranty of the Company and the Seller which has been rendered inaccurate thereby. For purposes of determining the satisfaction of the conditions set forth in Section 6.1 hereof, no such supplement or amendment shall be given effect. 5.4 Covenants of Parent and Buyer. The Buyer hereby agree with the Company ----------------------------- and the Seller to keep, perform and fully discharge the following covenants and agreements: (a) Confidentiality. The Buyer agrees to hold, and to cause its --------------- officers, directors, employees, prospective financing services, consultants, agents and stockholders to hold, all information heretofore or hereafter obtained from the Company or its advisors in strict confidence and to use the information so obtained only for the purpose of evaluating the purchase of the Company. The Buyer shall promptly return all such information to the Company if the Closing is not consummated as contemplated hereby. 30 (b) Satisfaction of Conditions. The Buyer agree to use their best -------------------------- efforts to accomplish the satisfaction of the conditions precedent to Closing contained in Section 6.2 herein on or prior to the Closing Date. 5.5 Mutual Covenants. Each party agrees that after the Closing it shall, ---------------- upon the request and at the expense of any other party to this Agreement, take such action and execute such documents as such other party may reasonably request in order to effect the transaction hereby declared. ARTICLE VI CLOSING CONDITIONS ------------------ 6.1 Conditions to Obligations of Buyer. The obligations of Buyer to ---------------------------------- consummate this Agreement and the transactions contemplated hereby are subject to the fulfillment, prior to or at the Closing, of the following conditions precedent: (a) Representations, Warranties and Covenants. Each of the ----------------------------------------- representations and warranties of the Company and the Seller contained in this Agreement shall remain true and correct at the Closing Date as fully as if made on the Closing Date; the Company and the Seller shall have performed, on or before the Closing Date, all of its or his respective obligations under this Agreement and the other Purchase Documents which by the terms thereof are to be performed on or before the Closing Date; and the Company and the Seller shall have delivered to Buyer an Officer's Certificate dated the Closing Date of the Company and a certificate from the Seller in his individual capacity to such effect. (b) No Pending Action. No legislation, order, rule, ruling or ----------------- regulation shall have been proposed, enacted or made by or on behalf of any governmental body, department or agency, and no legislation shall have been introduced in either House of Congress or in the legislature of any state, and no investigation by any governmental authority shall have been commenced or threatened, and no action, suit, investigation or proceeding shall have been commenced before, and no decision shall have been rendered by, any court or other governmental authority or arbitrator, which, in any such case, in the reasonable judgment of Buyer could adversely affect, restrain, prevent or rescind the transactions contemplated by this Agreement (including, without limitation, the purchase and sale of the Shares) or result in a Material Adverse Effect (c) Proceedings Satisfactory. All proceedings taken in connection with ------------------------ the purchase and sale of the Shares, all of the other Purchase Documents and all documents and papers relating thereto, shall be in form and substance reasonably satisfactory to Buyer. Buyer and its counsel shall have received copies of such documents and papers as Buyer or its counsel may reasonably request in connection therewith, all in form and substance reasonably 31 satisfactory to Buyer. Any Purchase Document, any Schedule or Exhibit to this Agreement and any other document, agreement or certificate contemplated by this Agreement, not approved by Buyer in writing as to form and substance on the date this Agreement is executed, shall be reasonably satisfactory in form and substance to Buyer. (d) Consents - Permits. The Company shall have received (and there ------------------ shall be in full force and effect) all material consents, approvals, licenses, permits, orders and other authorizations of, and shall have made (and there shall be in full force and effect) all such filings, registrations, qualifications and declarations with, any Person pursuant to any applicable law, statute, ordinance regulation or rule or pursuant to any agreement, order or decree to which the Company is a party or to which it is subject, in connection with the transactions contemplated by this Agreement and the sale of the Shares. (e) Corporate Documents. The Company shall have delivered to Buyer: ------------------- (i) an Officer's Certificate of the Secretary of the Company certifying (x) the incumbency and genuineness of signatures of all officers of the Company executing this Agreement, any document delivered by the Company at the Closing and any other document, instrument or agreement executed in connection herewith, (y) the truth and correctness of resolutions of the Company authorizing the entry by the Company into this Agreement and the transactions contemplated hereby and (z) the truth, correctness and completeness of the By- Laws of the Company; (ii) the minute books and stock record books of the Company; (iii) the Charter of the Company certified as of a recent date by the Secretary of State of the State of Missouri; and (iv) certificates of corporate and tax good standing and legal existence of the Company as of a recent date from the Secretary of State of the State of Missouri. (f) Resignations. Buyer shall have received written resignations of ------------ all directors of the Company effective as of the Closing. (g) Opinion of Counsel. Buyer shall have received a favorable opinion, ------------------ dated the Closing Date and satisfactory in form to Buyer and its counsel, of Raskas, Ruthmeyer, Pomerantz, Wynne, Gravaglia & Susman, counsel to the Seller and the Company, as to the matters set forth on Exhibit C attached hereto. In --------- rendering such opinion such counsel may, to the extent he may deem such reliance or limitation is proper, (a) rely on (x) certificates of public officials, and (y) certificates, in form and substance satisfactory to Buyer and its counsel, of the Seller or officers of the Company and (b) limit the scope of such opinion to the laws of Missouri and the federal laws of the United States. 32 (h) Non-Competition Agreement. The Seller shall have executed and ------------------------- delivered to Buyer a non-competition and non-disclosure agreement in substantially the form of Exhibit D attached hereto (the "Non-Competition --------- Agreement"). (i) 1995 EBIT. The Company's EBIT for the year ending July 31, 1995, --------- as shown in the audited financial statements delivered to the Buyer with respect to the year ended July 31, 1995, shall be not less than $1,372,000, and the chief executive and chief financial officers shall deliver to Parent an officer's certificate to such effect. (j) Due Diligence. The Buyer shall have been satisfied, in its sole ------------- discretion, with the results of its due diligence review with respect to the Company's business. (k) Pursuant to a Letter Agreement of even date herewith, the Company shall have transferred to the Seller, and the Seller shall have assumed the obligations of the Company under each of the Kiel Center Suite Reservation Agreement and Kiel Center Suite Agreement, each dated March 23, 1994. 6.2 Conditions to Obligations of the Company and the Seller. The ------------------------------------------------------- obligations of the Company and the Sellers to consummate this Agreement and the transactions contemplated hereby are subject to the fulfillment, prior to or at the Closing, of the following conditions precedent: (a) Representations and Warranties. Each of the representations and ------------------------------ warranties of the Buyer in this Agreement shall remain true and correct at the Closing Date, and the Buyer shall, on or before the Closing Date, have performed all of its obligations under this Agreement and the Other Purchase Documents which by the terms thereof are to be performed by it on or before the Closing Date; and the Buyer shall have delivered an Officer's Certificate to the Seller dated the Closing Date to such effect. (b) No Pending Action. No legislation, order, rule, ruling or ----------------- regulation shall have been proposed, enacted or made by or on behalf of any governmental body, department or agency, and no legislation shall have been introduced in either House of Congress or in the legislature of any state, and no investigation by any governmental authority shall have been commenced or threatened, and no action, suit, investigation or proceeding shall have been commenced before, and no decision shall have been rendered by, any court or other governmental authority or arbitrator, which, in any such case, was not known by the Company or the Seller on the date hereof or which could adversely affect, restrain, prevent or rescind the transactions contemplated by this Agreement (including, without limitation, the purchase and sale of the Shares) or result in a Material Adverse Effect. (c) Corporate Documents. The Buyer shall have delivered to the Seller: ------------------- 33 (i) an Officer's Certificate of the Clerk of the Buyer certifying (x) the incumbency and genuineness of signatures of all officers of the Buyer executing this Agreement, any document delivered by the Buyer at the Closing and any other document, instrument or agreement executed in connection herewith, (y) the truth and correctness of resolutions of the Buyer authorizing the entry by the Buyer into this Agreement and the transactions contemplated hereby and (z) the truth, correctness and completeness of the By-Laws of the Buyer; (ii) the Charter of the Buyer, each certified as of a recent date by the Secretary of State of the Commonwealth of Massachusetts; and (iii) certificate of corporate good standing and legal existence of the Buyer as of a recent date from the Secretary of State of the Commonwealth of Massachusetts. (d) Opinion of Counsel to Buyer. The Seller shall have received a --------------------------- favorable opinion, dated the Closing Date and satisfactory in form to the Seller, of Hutchins, Wheeler & Dittmar, A Professional Corporation, counsel to Buyer, in substantially the form attached hereto as Exhibit E. In rendering --------- such opinion such counsel may, to the extent it may deem such reliance or limitation is proper, (a) rely on (x) certificates of public officials, and (y) certificates, in form and substance satisfactory to the Company, of the Buyer or officers of the Buyer and (b) limit the scope of such opinion to the laws of the Commonwealth of Massachusetts and the federal laws of the United States. ARTICLE VII TERMINATION ----------- 7.1 Termination of Agreement. This Agreement and the transactions ------------------------ contemplated hereby may (at the option of the party having the right to do so) be terminated at any time on or prior to the Closing Date: (a) Mutual Consent. By mutual written consent of Buyer and the Seller; -------------- (b) Court Order. By Buyer, the Company or the Seller if any court of ----------- competent jurisdiction shall have issued an order pursuant to the request of a third party restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement; (c) Failure to Close By January 31, 1996. By Buyer or the Seller if ------------------------------------ the transactions contemplated hereby shall not have been consummated on or before January 31, 1996, provided, however, that such right to terminate this -------- ------- Agreement shall not be available to any party whose failure to fulfill any obligation of this Agreement has been the cause of, or 34 resulted in, the failure of the transactions contemplated hereby to be consummated on or before such date; (d) Termination by Seller. By the Seller upon notice to Buyer at any --------------------- time prior to January 31, 1996 if (i) a condition to the performance of the Seller set forth in Section 6.2 hereof shall not be fulfilled at the time specified for the fulfillment thereof, (ii) a material default under or a material breach of this Agreement shall be made by Buyer or (iii) any representation or warranty set forth in this Agreement or in any instrument delivered by Buyer pursuant hereto shall be materially false or misleading; or (e) Termination by Buyer. By Buyer by notice to the Company and the -------------------- Seller at any time prior to January 31, 1996 if (i) a condition to the performance of Buyer set forth in Section 6.1 hereof shall not be fulfilled at the time specified for the fulfillment thereof, (ii) a material default under or a material breach of this Agreement shall be made by the Company or the Seller or (iii) any representation set forth in this Agreement or in any instrument delivered by the Company or the Sellers pursuant hereto shall be materially false or misleading. 7.2 Effect of Termination and Right to Proceed. If this Agreement is ------------------------------------------ terminated pursuant to this Article VII, then except as provided below, all further obligations of Buyer, the Company and the Sellers under this Agreement shall terminate without further liability of Buyer or any Affiliate thereof to the Seller or the Company or of the Seller or the Company to Buyer or any Affiliate thereof, except with respect to the obligations set forth in Sections 7.1, 9.1 and 9.2, and except, in the case of termination pursuant to Section 7.1(d) or Section 7.1(e), as to liability for misrepresentation, breach or default in connection with any warranty, representation, covenant or obligation given, occurring or arising to the date of termination. In addition, anything in this Agreement to the contrary notwithstanding, if any of conditions to obligations specified in Sections 5.1, 5.2 or 5.3 hereof have not been satisfied, Buyer, in addition to any other rights which it may have, shall have the right to waive its rights to have such conditions satisfied and elect to proceed with the transactions contemplated hereby and, if any of the conditions to the obligations of the Sellers specified in Section 5.4 hereof have not been satisfied, the Seller, in addition to any other rights which may be available to him, shall have the right to waive their rights to have such conditions satisfied and elect to proceed with the transactions contemplated hereby. ARTICLE VIII INDEMNIFICATION --------------- 8.1 Survival of Representations and Warranties. The parties hereto agree ------------------------------------------ to shorten the applicable period of limitation of claims made under representations and warranties, and for that purpose each and every such representation and warranty set forth in this Agreement (including the Officer's Certificates required by Sections 6.1(a) and 6.2(a) above), shall 35 survive until the second anniversary of the Closing Date, except with respect to (a) the representations and warranties set forth in Sections 3.2, 3.3 and 4.3, which shall survive the Closing without limitation; and (b) the representations and warranties set forth in Section 3.18, which shall survive the Closing until the first to occur of (x) the expiration of the statute of limitations (and any extensions thereof) applicable to the Tax in respect of which indemnification is being sought without the assertion of a deficiency in respect thereof by the applicable governmental entity, or (y) the completion of the final audit and determination by the applicable governmental entity with respect to such Tax and final disposition of any deficiency resulting therefrom. From and after the applicable period of survival with respect to such respective representations and warranties of the Seller and Buyer, neither the Seller nor the Buyer, nor any Affiliate of the Seller or Buyer shall have any liability whatsoever with respect to any such representation or warranty, except for breaches as to which any party shall have notified the other party prior to such date. This Section 8.1 shall have no effect upon any other obligation of the parties hereto, whether to be performed before or after the Closing Date. 8.2 Indemnification by Seller. The Seller hereby agrees to indemnify, ------------------------- defend and hold Buyer, its officers, directors, employees, owners, agents and Affiliates, harmless from and in respect of any and all losses, damages, costs and expenses of any kind and nature whatsoever (including, without limitation, interest and penalties, reasonable expenses of investigation and court costs, reasonable attorneys' fees and disbursements and the reasonable fees and disbursements of other professionals) which may be sustained or suffered by any of them (collectively, "Losses"), arising out of or resulting from any breach or inaccuracy of any representation or warranty or the breach of or failure to perform any warranty, covenant, undertaking or other agreement of the Company or any Seller contained in this Agreement or any other Purchase Document provided, -------- however, that the maximum liability of the Seller pursuant to this Agreement for - ------- aggregate losses (other than those arising under Section 3.3) shall be limited to Indebtedness evidenced from time to time by the Subordinated Note. 8.3 Indemnification by Buyer. Buyer hereby agrees to indemnify, defend and ------------------------ hold each Seller, its officers, directors, employees, consultants, owners, agents and Affiliates, harmless from and in respect of any and all Losses which may be sustained or suffered by any of them arising out of or resulting from any breach or inaccuracy of any representation or warranty or the breach of or failure to perform any warranty, covenant, undertaking or other agreement of Buyer contained in this Agreement or any other Purchase Document and arising out of any and all actions, suits, claims and administrative or other proceedings of every kind and nature instituted or pending against any Seller or any of its Affiliates at any time before or after the Closing Date to the extent that such Losses (a) relate to or arise out of or in connection with the assets, businesses, operations, conduct, products and/or employees (including former employees) of the Company or any of its Subsidiaries, whether relating to or arising out of or in connection with occurrences before or after the Closing Date and (b) do not arise out of a breach or inaccuracy of Seller's representations and warranties in, or a 36 breach or default in the performance of any warranty, covenant under, undertaking or other agreement contained in this Agreement or any other Purchase Document. 8.4 Minimum Indemnification. Notwithstanding anything to the contrary ----------------------- contained herein, no party hereto shall be entitled to recover from any other party unless and until the total of all claims for indemnity or damages with respect to any inaccuracy or breach of any such representations or warranties (other than those contained in Sections 3.3, 3.4, 3.18, 3.26, and 4.3 above) or breach of or default in the performance of any covenants, undertakings or other agreements, whether such claims are brought under this Article VIII or otherwise, exceeds Fifty Thousand Dollars ($50,000) and then only for the amount by which such claims for indemnity or damages exceed Fifty Thousand Dollars ($50,000). 8.5 Notice and Opportunity to Defend. If there occurs an event which a -------------------------------- party asserts is an indemnifiable event pursuant to Section 8.2 or 8.3, the parties seeking indemnification shall promptly notify the other parties obligated to provide indemnification (collectively, the "Indemnifying Party"). If such event involves (a) any Claim or (b) the commencement of any action, suit or proceeding by a third person, the party seeking indemnification will give such Indemnifying Party prompt written notice of such Claim or the commencement of such action, suit or proceeding, provided, however, that the failure to -------- ------- provide prompt notice as provided herein will relieve the Indemnifying Party of its obligations hereunder only to the extent that such failure prejudices the Indemnifying Party hereunder. In case any such action, suit or proceeding shall be brought against any party seeking indemnification and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to participate therein and, to the extent that it desires to do so, to assume the defense thereof, with counsel reasonably satisfactory to such party seeking indemnification and, after notice from the Indemnifying Party to such party seeking indemnification of such election so to assume the defense thereof, the Indemnifying Party shall not be liable to the party seeking indemnification hereunder for any attorneys' fees or any other expenses, in each case subsequently incurred by such party, in connection with the defense of such action, suit or proceeding. The party seeking indemnification agrees to cooperate fully with the Indemnifying Party and its counsel in the defense against any such action, suit or proceeding. In any event, the party seeking indemnification shall have the right to participate at its own expense in the defense of such action, suit or proceeding. In no event shall an Indemnifying Party be liable for any settlement or compromise effected without its prior consent. If, however, the party seeking indemnification refuses its consent to a bona fide offer of settlement which the Indemnifying Party wishes to accept ---- ---- (which must include the unconditional release of the parties seeking indemnification from all liability with respect to the Claim at issue), the party seeking indemnification may continue to pursue such matter, free of any participation by the Indemnifying Party, at the sole expense of the party seeking indemnification. In such event, the obligation of the Indemnifying Party to the party seeking indemnification shall be equal to the lesser of (i) the amount of the offer or settlement which the party seeking indemnification refused to accept plus the costs and expenses of such party prior to the date the Indemnifying Party notifies the party seeking indemnification of the offer 37 of settlement and (ii) the actual out-of-pocket amount the party seeking indemnification is obligated to pay as a result of such party's continuing to pursue such matter. 8.6 Contribution. If the indemnification provided for in Section 8.2 or ------------ 8.3, as the case may be, of this Agreement is unavailable to a party seeking indemnification in respect to any Losses, then the Indemnifying Party, in lieu of indemnifying such party seeking indemnification, shall have an obligation to contribute, and shall contribute, to the amount paid or payable by such party seeking indemnification as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and the party seeking indemnification, on the other hand, in connection with the actions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and the parties seeking indemnification shall be determined by reference to, among other things, whether any action in question, including any breach or inaccuracy of any representation or warranty, relates to information supplied by the Indemnifying Party or the parties seeking indemnification and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it will not be just and equitable if contribution pursuant to the preceding provisions of this Section 8.6 were determined by any method of allocation which does not take into account the equitable considerations referred to in such provisions. No Person guilty of fraudulent misrepresentation shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 8.7 Right of Set-Off. If a claim for indemnification is made by Buyer as ---------------- the Indemnified Party, Buyer's sole remedy with respect to such claim shall be to withhold the amount of such claimed indemnity from the amount of any payments otherwise due under the Subordinated Note. Upon final determination of such claim, Buyer may reduce the principal of the Subordinated Note or any interest payments or payment of principal thereunder, at Buyer's election, by the amount of which it is entitled hereunder. 8.8 Adjustment for Insurance and Taxes. The amount which an Indemnifying ---------------------------------- Party is required to pay to, for or on behalf of any other party (hereinafter referred to as an "Indemnitee") pursuant to this Article VIII shall be adjusted (including, without limitation, retroactively) (i) by any insurance proceeds actually recovered by or on behalf of such Indemnitee in reduction of the related indemnifiable loss (the "Indemnifiable Loss") and (ii) to take account of any Tax benefit realized as a result of any Indemnifiable Loss. Amounts required to be paid, as so reduced, are hereafter sometimes called an "Indemnity Payment." If an Indemnitee shall have received or shall have had paid on its behalf an Indemnity Payment in respect of an Indemnifiable Loss and shall subsequently receive insurance proceeds in respect of such Indemnifiable Loss, or realize any Tax benefit as a result of such Indemnifiable Loss, then the Indemnitee shall pay to the Indemnifying Party the amount of such insurance proceeds or Tax benefit or, if lesser, the amount of the Indemnity Payment. 38 ARTICLE IX MISCELLANEOUS ------------- 9.1 Fees and Expenses. Each of the parties hereto will pay and discharge ----------------- its own expenses and fees in connection of with the negotiation of and entry into this Agreement and the consummation of the transactions contemplated hereby; provided that the Seller shall pay the fees and expenses of counsel for the Company and the Company shall pay prior to the Closing the fees and expenses of the accountants incurred in connection with the Financial Statements in accordance with Section 5.1(d) hereof. 9.2 Publicity and Disclosures. Prior to the Closing, no press release or ------------------------- any public disclosure, either written or oral, of the transactions contemplated by this Agreement shall be made by any party without the prior knowledge and written consent of the Company and Buyer. 9.3 Notices. All notices, requests, demands, consents and communications ------- necessary or required under this Agreement or any other Purchase Document shall be made in the manner specified, or, if not specified, shall be delivered by hand or sent by registered or certified mail, return receipt requested, or by telecopy (receipt confirmed) to: if to Buyer: Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attention: Stephen Aschettino Vice President and Chief Financial Officer Facsimile Transmission Number: (508)429-7921 with a copy to: Hutchins, Wheeler & Dittmar A Professional Corporation 101 Federal Street Boston, MA 02110 Attention: James Westra Facsimile Transmission Number: (617) 951-1295 39 if to the Company or Seller: St. Louis Ostomy Distributors, Inc. 2701 Clark Avenue St. Louis, MO 63103 Attention: Michael J. Quinn Facsimile Transmission Number: (314) 535-7301 with a copy to: Raskas, Ruthmeyer, Pomerantz, Wyme, Garavaglia & Susman 1010 Market Street, Suite 1300 St. Louis, MO 63101-2000 Attn: Sanford E. Pomerantz, Esq. Facsimile Transmission Number: (314) 241-6162 All such notices, requests, demands, consents and other communications shall be deemed to have been duly given or sent two (2) days following the date on which mailed, or on the date on which delivered by hand or by facsimilie transmission (receipt confirmed), as the case may be, and addressed as aforesaid. 9.4 Successors and Assigns. All covenants and agreements set forth in this ---------------------- Agreement and made by or on behalf of any of the parties hereto shall bind and inure to the benefit of the successors and assigns of such party, whether or not so expressed, except that none of the Seller or the Company may assign or transfer any of their respective rights or obligations under this Agreement without the consent in writing of Buyer. 9.5 Descriptive Headings. The headings of the sections and paragraphs of -------------------- this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. 9.6 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 9.7 Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason in any jurisdiction, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in 40 any way impaired or affected, it being intended that each of parties' rights and privileges shall be enforceable to the fullest extent permitted by law, and any such invalidity, illegality and unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the fullest extent permitted by law, the parties hereby waive any provision of any law, statute, ordinance, rule or regulation which might render any provision hereof invalid, illegal or unenforceable. 9.8 Attorneys' Fees. In any action or proceeding brought to enforce any --------------- provision of this Agreement or the other Purchase Documents, or where any provision hereof or thereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. 9.9 Course of Dealing. No course of dealing and no delay on the part of ----------------- any party hereto in exercising any right, power, or remedy conferred by this Agreement shall operate as a waiver thereof or otherwise prejudice such party's rights, powers and remedies. The failure of any of the parties to this Agreement to require the performance of a term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. No single or partial exercise of any rights, powers or remedies conferred by this Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 9.10 Third Parties. Except as specifically set forth or referred to herein, ------------- nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person, other than the parties hereto and their permitted successors or assigns, any rights or remedies under or by reason of this Agreement or any other Purchase Document. 9.11 Tax Matters. ----------- (a) Seller will timely file on behalf of the Company and its Subsidiaries all federal, state, local and foreign tax reports and returns for any period which ends on or prior to the Closing Date and which are required to be filed to reflect the operations of the Company and its Subsidiaries. All such reports and returns shall be submitted to Buyer for review at least thirty (30) days prior to filing such reports and returns. Buyer, at its expense or that of the Company, shall be entitled to participate in the preparation of such reports and returns. All such reports and returns will be prepared and filed using tax accounting methods and principles which are substantially consistent with those used in the returns and reports of taxes for the Company and its Subsidiaries for preceding tax periods unless Buyer agrees otherwise. Any item of income, deduction or credit to be included in any such tax return or report shall be based on the permanent records (including work papers) of the Company and its Subsidiaries. Buyer shall prepare and file on behalf of the Company and its Subsidiaries all federal, state, local and foreign tax reports and returns for any period which ends after the 41 Closing Date and which are required to be filed to reflect the operations of the Company and its Subsidiaries attributable to a period prior to the Closing Date. (b) All refunds of taxes attributable to any or all years or periods (or portions thereof) ending prior to the Closing Date shall belong to the Seller, and all such refunds of taxes attributable to any or all years or periods (or portions thereof) commencing on or after the Closing Date shall belong to the Company. (c) Buyer will give notice to Seller of any Tax Claim relating to any taxable year or period ending on or prior to the Closing Date or that includes the Closing Date, and shall keep Seller informed of the progress of, and the issues involved in, the same, in each case which may be the subject of indemnification by Seller pursuant to this Agreement. The parties hereto shall, and shall cause the Company and its Subsidiaries to, provide such necessary information as any other party hereto may reasonably request in connection with the preparation of such parties' Tax Returns, or to respond to or contest any audit, prosecute any claim for refund or credit or otherwise satisfy any requirements relating to Taxes of each of the Company and its Subsidiaries. (d) Seller shall pay all stock transfer Taxes, real property transfer Taxes, sales Taxes, documentary stamp Taxes, recording charges and other similar Taxes resulting from, arising under or in connection with the transfer of the Shares or any other related transaction under the Agreement. (e) The obligations of Seller set forth in the Agreement relating to Taxes shall, except as otherwise agreed in writing, be unconditional and absolute and shall remain in effect without limitation as to time or amount of recovery by Buyer until thirty (30) days after the expiration of the applicable statute of limitations governing the Taxes to which such obligations relate (after giving effect to any agreement extending or tolling such statute of limitations). 9.12 Variations in Pronouns. All pronouns and any variations thereof refer ---------------------- to the masculine, feminine or neuter, singular or plural, as the identity of the Person or Persons may require. 9.13 WAIVER OF JURY TRIAL. EACH OF BUYER, THE COMPANY AND THE SELLER HEREBY -------------------- EXPRESSLY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OTHER PURCHASE DOCUMENT OR THE SHARES OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. THE COMPANY, THE SELLER AND BUYER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY 42 BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE COMPANY, THE SELLER AND BUYER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAVIER IS IRREVOCABLE AND MAY ONLY BE MODIFIED EITHER ORALLY OR IN AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER PURCHASE DOCUMENT OR THE SHARES. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT. 9.14 GOVERNING LAW. THIS AGREEMENT, INCLUDING THE VALIDITY HEREOF AND THE ------------- RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF MISSOURI APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY IN SUCH STATE (WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF). 9.15 Entire Agreement. This Agreement, including the Schedules and Exhibits ---------------- referred to herein, is complete, and all promises, representations, understandings, warranties and agreements with reference to the subject matter hereof, and all inducements to the making of this Agreement relied upon by all the parties hereto, have been expressed herein or in said Schedules or Exhibits. This Agreement may not be amended except by an instrument in writing signed on behalf of the Company, Buyer and the Seller. [Remainder of Page Intentionally Left Blank] 43 IN WITNESS WHEREOF the parties hereto have executed this Agreement under seal as of the date first set forth above. ATTEST: ST. LOUIS OSTOMY DISTRIBUTORS, INC. /s/ Sanford Pumerantz By: /s/ Michael J. Quinn, - ----------------------- -------------------------------- Michael J. Quinn, President ATTEST: SELLER /s/ Sanford Pumerantz /s/ Michael J. Quinn - ----------------------- ----------------------------------- Michael J. Quinn, Individually ATTEST: SUBURBAN OSTOMY SUPPLY CO., INC. /s/ James Westig By: /s/ Herbert Gray - ----------------------- -------------------------------- Herbert Gray, Chairman 44 EX-10.28 32 NON COMPETITION AGREE, MIKE QUINN EXHIBIT 10.28 NON-COMPETITION AGREEMENT ------------------------- This Non-Competition Agreement is made as of the 22nd day of January, 1996 by Michael J. Quinn [include address] ("Mr. Quinn") for the benefit of Suburban Ostomy Supply Co., Inc. ("Suburban") and St. Louis Ostomy Distributors, Inc. (the "Company"). RECITALS -------- Pursuant to a certain Purchase Agreement of even date (the "Purchase Agreement") Suburban, acting through a wholly-owned subsidiary, is acquiring all of the outstanding capital stock of the Company. Mr. Quinn is the President of the Company and the owner of all of the capital stock of the Company. Mr. Quinn is executing this Non-Competition Agreement as an inducement to Suburban to enter into and perform under the Purchase Agreement. WITNESSETH: ---------- NOW, THEREFORE, in consideration of the execution by Suburban of the Purchase Agreement and its performance thereunder, and the acquisition by Suburban, acting through its wholly owned subsidiary, of all of the shares of capital stock of the Company in accordance with the terms of the Purchase Agreement, Mr. Quinn hereby agrees as follows: 1. Non-Competition. Mr. Quinn hereby agrees to abide by the following --------------- non-competition covenants: (a) For a period of five (5) years after the date hereof Mr. Quinn shall not, directly or indirectly, alone or as a member of any partnership or other business organization, or as a partner, officer, director, employee, stockholder, consultant or agent of any corporation, partnership or business organization, (i) engage in any business activity which is in competition with the products or services which are being developed, manufactured, marketed, provided or sold by Suburban or the Company as of the date hereof, (ii) request or cause any customer of the Company to cancel or terminate any business relationship with the Company, or (iii) solicit or otherwise cause any employee of the Company to terminate such employee's relationship with the Company. Notwithstanding the foregoing, nothing herein shall be construed so as to prohibit Mr. Quinn from engaging in the business of selling health care products through retail stores directly to individuals for their personal use, and not for resale or distribution. (b) The geographic scope of the restrictive covenants set forth in this Section 1 shall be the entire United States. 2. Non-Disclosure. -------------- (a) Mr. Quinn will not at any time, whether during or after the termination of cessation of his employment or engagement by the Company, reveal to any person, association or company any of the trade secrets of confidential information concerning the organization, business or finances of the Company so far as they have come or may come to his knowledge, except as may be required in the ordinary course of performing his duties as an employee or consultant of the Company or except as may be in the public domain through no fault of Mr. Quinn, and Mr. Quinn shall keep secret all matters entrusted to him and shall not use or attempt to use any such information in any manner which may injure or cause loss or may be calculated to injure or cause loss, whether directly or indirectly, to the Company. (b) Notwithstanding the foregoing, Mr. Quinn shall be entitled to disclose trade secrets and confidential information of the Company to the extent compelled to do so in response to judicial process or summons, or as otherwise required by law. In such event, Mr. Quinn shall give the Company prompt notice of the receipt of any judicial process or summons, and will cooperate with the Company to obtain a protective order with respect to the trade secrets or confidential information of the Company. If such an order cannot be obtained, Mr. Quinn will disclose only such information as he is advised by written opinion of his counsel that must be disclosed. 3. Right to Injunction. Mr. Quinn acknowledges and agrees that ------------------- irreparable and immediate damage will result to the Company if he fails to, refuses to or neglects to perform his agreements and obligations hereunder. In the event of such a failure, refusal or neglect by Mr. Quinn, Suburban and the Company shall be entitled to injunctive relief or any other legal or equitable remedies including the recovery, by appropriate action, of the amount of the actual damage caused the Company by any such failure, refusal or neglect by Mr. Quinn. The remedies provided in this Agreement shall be deemed cumulative and the exercise of one shall not preclude the exercise of any other remedy at law or in equity for the same event or any other event. 4. No Guarantee of Employment or Engagement. Nothing herein shall be ---------------------------------------- deemed to constitute an agreement on the part of Suburban or the Company to employ or engage Mr. Quinn for any stated term or to limit the Company's right to terminate the employment or engagement of Mr. Quinn at any time, with or without notice and with or without cause. 5. Miscellaneous. ------------- (a) Amendments. Mr. Quinn acknowledges that the execution and ---------- delivery of this Agreement is a condition to the closing of the transaction set forth in the Purchase Agreement. No amendment, modification or waiver of any of the terms of this Agreement shall be valid unless made in writing and signed by Mr. Quinn, the Company and Suburban. (b) Successors in Interest. All provisions of this Agreement shall ---------------------- survive the termination or cessation of Mr. Quinn's employment with the Company and shall be binding upon and inure to the benefit of and be enforceable by the Company, Suburban and their respective successors and assigns. -2- (c) Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties with respect to the matters contained herein. (d) Waiver. The waiver by Suburban or the Company of a breach of ------ this Agreement by Mr. Quinn shall not operate or be construed as a waiver of any subsequent breach by Mr. Quinn. (e) Severability. If any provision of this Agreement shall ------------ contravene any law of any particular state where Mr. Quinn shall perform services for the Company, then this Agreement shall be first construed to be limited in scope and duration so as to be enforceable in that state, and if still unenforceable, shall then be construed as if such provision is not contained herein. (f) Governing Law. This Agreement shall be governed by the laws of ------------- the State of Missouri applicable to agreements made and to be performed entirely in such State. IN WITNESS WHEREOF, Mr. Quinn has caused this Non-Competition Agreement to be executed as of the date first above written. /s/ Michael J. Quinn __________________________ Michael J. Quinn -3- EX-10.29 33 SUBORDINATED PROMIS NOTE, MIKE QUINN EXHIBIT 10.29 THIS INSTRUMENT IS SUBJECT TO THE FIRST AMENDED AND RESTATED SUBORDINATION AGREEMENT DATED AS OF JANUARY 22, 1996, AMONG THE MAKER, THE PAYEE AND THE FIRST NATIONAL BANK OF BOSTON, WHICH AMONG OTHER THINGS, SUBORDINATES THE MAKER'S OBLIGATIONS HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS OF THE MAKER TO THE HOLDERS OF SENIOR OBLIGATIONS AS DEFINED THEREIN. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 10% NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE $1,235,000 January 22, 1996 Boston, Massachusetts FOR VALUE RECEIVED, the undersigned, SUBURBAN OSTOMY SUPPLY CO. INC., a Massachusetts corporation (the "Payor"), hereby promises to pay to Michael J. Quinn (the "Holder"), the principal amount of One Million Two Hundred Thirty Five Thousand Dollars ($1,235,000), payable on the terms specified below. This Promissory Note (the "Note") is executed and delivered on this date in connection with the purchase by the Payor of seven hundred fifty (750) shares of common stock of St. Louis Ostomy held by the Holder, all as is more fully described in a certain Stock Purchase Agreement relating to the purchase of St. Louis Ostomy Distributors, Inc. by the Payor, dated as of January 22, 1996 (the "Purchase Agreement"). 1. Payment of Principal. Subject to Sections 5 and 7 hereof, the -------------------- principal amount of this Note shall be payable on: $123,500 shall be payable on each of January 22, 1997 and January 22, 1998, and $329,333.33 shall be paid on each of January 22, 1999, January 22, 2000, and January 22, 2001. In the event of consummation of a sale of securities of the Payor pursuant to a registration statement filed under the Securities Act of 1933, as amended, the outstanding principal amount of this Note shall be prepaid in full; provided that in such event an amount equal to the principal amount so prepaid shall be placed in an escrow account to be maintained on terms reasonably acceptable to Mr. Quinn and the Payor until expiration of Mr. Quinn's indemnification obligations under the Purchase Agreement. 2. Interest. Interest shall accrue on the outstanding principal amount -------- hereof, commencing on the date hereof and continuing until the date of payment in full, at the rate of ten percent (10%) per annum, based on the actual number of days elapsed over a 360-day year, and shall be payable quarterly in arrears, on the last days of March, June, September and December of each year, commencing on March 31, 1996. In the event of an Event of Default as herein defined, the interest rate shall increase to twelve percent (12%) until such Event of Default is cured. 3. Manner of Payment. All payments shall be made in lawful money of the ----------------- United States of America in immediately available funds and shall be made at the address of the Holder for receiving notices hereunder or at such other address as the holder may designate for payments hereunder by notice given to the Payor. 4. Prepayment. The principal indebtedness represented by this ---------- Subordinated Promissory Note together with all unpaid accrued interest thereon may be prepaid at any time, and from time to time, without any prepayment premium or penalty, in whole or in part upon ten (10) days notice to the Holder, without prior written consent of the Holder. 5. Subordination. Payment of principal and interest under this ------------- Promissory Note shall in all events be subject to the terms of a First Amended and Restated Subordination Agreement dated as of January 22, 1996, as the same may be amended from time to time in accordance with its terms (the "Subordination Agreement"). 6. Default; Remedy. Subject to the terms and conditions of the --------------- Subordination Agreement, upon the occurrence of an Event of Default pursuant to Section 6(a) hereof, the Holder may by written notice to the Payor declare this Note to be in default, whereupon the unpaid balance of the principal of this Note and all accrued interest thereon shall immediately become due and payable. Subject to the terms and conditions of the Subordination Agreement, upon the occurrence of an Event of Default described in Section 6(b) or 6(c), the unpaid balance of the principal amount of this Note and all accrued interest thereon shall automatically become immediately due and payable without action on the part of the Holder. If within five (5) business days following such declaration of default under Section 6(a) or automatic default under Section 6(b), or 6(c) the Payor shall fail to pay promptly in full the unpaid balance of this Note and all interest accrued thereon, subject to the Subordination Agreement, the Holder shall be entitled to pursue all such remedies as he may have, at law or in equity, for the enforcement and collection hereof, and to receive in addition to such principal and interest all costs of collection (including reasonable attorney's fees). For the purpose of this Note, an "Event of Default" shall consist only of one or more of the following: (a) The Payor shall fail to make any payment of principal when due or payment of interest within five (5) days of when due; (b) The Payor shall file a voluntary petition for an order or relief under the federal Bankruptcy Code or shall file a petition for relief from creditors under any applicable state law; or - 2 - (c) There shall be filed against the Payor an involuntary petition for an order of relief under the federal Bankruptcy Code or under any state law relating to relief of creditors, and such involuntary petition shall not have been removed or stayed within 60 days thereafter. 7. Set-off. The Payor, upon written notice to the Holder of a claim for ------- indemnification as provided in Section 8.7 of the Purchase Agreement and final determination of such claim in favor of the Payor, may reduce the principal of this Subordinated Promissory Note or any interest payments or payment of principal hereunder, at Payor's election, by the amount to which it is entitled pursuant to such favorable determination of a claim for indemnification. If such a claim has been made but not yet finally adjudicated, then payments of principal otherwise payable hereunder may be withheld pending such adjudication. 8. Transfer. Neither this Note nor any interest herein may be -------- transferred or endorsed to any other party, except that, subject to the right of set-off, the Holder may transfer this Note by way of gift to any of his lineal descendants or to a trust for the benefit of his lineal descendants. Neither this Note nor any interest herein has been registered under the Securities Act of 1933, as amended, or any applicable state securities laws. 9. Note to Bear Legend. This Note and any subsequent Note issued in ------------------- replacement hereof or any interest therein shall bear the following legend: "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE PAYOR, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT." 10. Miscellaneous. ------------- (a) This Note shall be binding upon and inure to the benefit of the Holder hereof and his permitted successors and assigns. This Note shall be binding upon the Payor and any successor to the principal business interests of the Payor, whether by merger or otherwise. (b) Any notice, request or communication pursuant to this Note shall be deemed duly given as provided in the Purchase Agreement. (c) Except as otherwise provide herein, the Payor hereby waives presentment, demand, protest, and notice of every kind in connection with the enforcement and collection of this Note. - 3 - (d) The execution, delivery and performance of this Note shall be governed and construed in accordance with the laws of The Commonwealth of Massachusetts without giving effect to the conflict of laws provisions thereof. - 4 - SUBURBAN OSTOMY SUPPLY CO., INC. ATTEST: By: /s/ Herbert P. Gray ------------------------------- ---------------------------------- Name: - 5 - EX-10.30 34 EMPLOYMENT LETTER BETWEEN CO AND MIKE QUINN EXHIBIT 10.30 SUBURBAN OSTOMY SUPPLY CO., INC. January 22, 1996 Michael J. Quinn c/o St. Louis Ostomy Distributors, Inc. 2701 Clark Avenue St. Louis, MO 63103 Dear Mike: This letter will confirm our understandings with respect to your ongoing role with St. Louis Ostomy Distributors, Inc. ("St. Louis") following its acquisition (the "Acquisition") by Suburban Ostomy Supply Co., Inc. ("Suburban"). As we have made clear, we are eager that you continue your employment with St. Louis following the acquisition by Suburban. You will be asked to assist with transitional matters, sales activity and ongoing operations. As you are aware, we have not yet made a decision with respect to the St. Louis facility, and accordingly your continued employment by St. Louis will continue for such time as you and Suburban may mutually agree, and shall be terminable at-will by either St. Louis or Michael J. Quinn. During the period that you continue as an employee of St. Louis, you will be paid a base salary at the annualized rate of $100,000 per year, which base salary shall terminate upon termination of employment for any reason. You will also be entitled to receive such employee benefits as are made available generally to senior employees of St. Louis following the acquisition by Suburban. In addition, you will be eligible to earn a bonus of up to $60,000 for your efforts relating to the key accounts set forth below. In each case, you will be entitled to receive a bonus based on the level of sales to the Key Accounts identified below for the Measuring Periods. Only those sales by St. Louis shall be included, except in the case of American Home Patient where there shall also be included sales of Suburban. In each case, you shall be entitled to earn a pro rata bonus of between 80% ---- ----- and 100% of the amount indicated under the heading entitled "Maximum Payout", if and to the extent Suburban Ostomy Supply Co., Inc. January 22, 1996 Page 2 that in excess of 80% of the Applicable Sales Goal has been achieved. For example, if 90% of the Sales Goal for American Home Patient (or $2,700,000) is achieved for the period ending December 31, 1996, you will be entitled to a bonus of $22,500 (90% of the Maximum Payout of $25,000). In no event will your bonus with respect to sales to a particular key account exceed the specified Maximum Payout. If your employment by St. Louis terminates prior to the end of a Measuring Period, then your entitlement to a bonus will be based on annualized sales to a Key Account during the period from the date of the Acquisition through the date of termination of employment. For example, if you were employed for six months after the Acquisition, and sales by St. Louis to Primedica during that period totaled $400,000, then for the purpose of determining whether you were entitled to a bonus with respect to sales to Primedica it would be assumed that sales to Primedica for the period ending July 31, 1996 totaled $800,000. Any bonus payable to you with respect to this program shall be based upon amounts actually collected from the Key Accounts, and will be made to you within 30 days following expiration of the applicable Measuring Period.
MEASURING PERIOD MAXIMUM KEY ACCOUNT SALES GOAL ENDING PAYOUT ----------- ---------- --------- ------- American Home Patient $3,000,00 12/31/96 $25,000 MEASURING PERIOD MAXIMUM KEY ACCOUNT SALES GOAL ENDING PAYOUT ----------- ---------- --------- ------ Pharmacy Corp. of America (Indianapolis Branch) $650,000 7/31/96 $15,000 Primedica $400,000 7/31/96 $5,000 Manor Care $350,000 7/31/96 $10,000 Tandem Medical $200,000 7/31/96 $5,000
Suburban Ostomy Supply Co., Inc. January 22, 1996 Page 3 Mike, we believe that this letter sets forth an appropriate basis for continuation of your employment by St. Louis, and we look forward to working with you. If this letter accurately sets forth our understandings, would you please signify by signing and returning the enclosed copy of this letter. SUBURBAN OSTOMY SUPPLY, INC. BY: /s/ Herbert P. Gray ------------------------------ Herbert P. Gray, Chairman ACCEPTED AND AGREED THIS 22ND DAY OF JANUARY, 1996 /s/ Michael J. Quinn - ------------------------------- Michael J. Quinn EX-10.31 35 STOCK PURCHASE AGREE. RELATING TO PATIENT CARE EXHIBIT 10.31 ____________________________________ STOCK PURCHASE AGREEMENT RELATING TO PURCHASE OF PATIENT-CARE MEDICAL SALES BY SUBURBAN OSTOMY SUPPLY CO., INC. June 14, 1996 ____________________________________ Table of Contents ----- -- --------
RECITALS PAGE NO. - -------- -------- ARTICLE I. DEFINITIONS 1.1 Definitions 1 ARTICLE II. PURCHASE AND SALE OF SHARES 2.1 Purchase and Sale 6 2.2 Consideration 6 2.3 Time and Place of Closing 6 2.4 Deliveries by the Seller 7 2.5 Deferred Amount 7 2.6 Adjustment to the Purchase Price 7 2.7 Other Transactions at the Closing 8 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLER 3.1 Organization and Qualification 8 3.2 Authority; No Violation 8 3.3 Capitalization 9 3.4 Subsidiaries 9 3.5 Financial Statements 9 3.6 Absence of Undisclosed Liabilities 10 3.7 Absence of Certain Changes 10 3.8 Title to Assets 12 3.9 Sufficiency and Condition of Assets 12 3.10 Real Estate 12 3.11 Accounts Receivable 13 3.12 Inventories 13 3.13 Intellectual Property 13 3.14 Trade Secrets and Customer Lists 14 3.15 Contracts 14 3.16 Customers and Suppliers 16 3.17 Compliance with Laws 17 3.18 Taxes 17 3.19 Employee Benefit Plans 19 3.20 Environmental Matters 22 3.21 Employees 23
-i- 3.22 Litigation 23 3.23 Insurance 24 3.24 Company Products 24 3.25 Powers of Attorney 25 3.26 Brokers 25 3.27 Burdensome Agreements 25 3.28 Records and Books 25 3.29 Transactions with Interested Persons 25 3.30 Bank Accounts 25 3.31 Copies of Documents 25 3.32 Status Under Certain Statutes 25 3.33 Disclosure of Material Information 26 3.34 Sole Representations and Warranties 26 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE BUYER 4.1 Organization and Qualification 26 4.2 Authority 26 4.3 Brokers 26 4.4 Shares Acquired For Investment 26 4.5 Financing Commitment 27 4.6 Sole Representations and Warranties 27 ARTICLE V. COVENANTS 5.1 Covenants of the Company 27 5.2 Covenants of the Company and the Seller 29 5.3 Covenants of the Seller 29 5.4 Covenants of Buyer 30 5.5 Mutual Covenants 31 ARTICLE VI. CLOSING CONDITIONS 6.1 Conditions to Obligations of Buyer 31 6.2 Conditions to Obligations of the Company and the Seller 34 ARTICLE VII. TERMINATION 7.1 Termination of Agreement 34 7.2 Effect of Termination and Right to Proceed 36
-ii- ARTICLE VIII. INDEMNIFICATION 8.1 Survival of Representations and Warranties 36 8.2 Indemnification by Seller 36 8.3 Indemnification by Buyer 37 8.4 Minimum Indemnification 37 8.5 Notice and Opportunity to Defend 37 8.6 Contribution 38 8.7 Sole Source of Recovery 38 8.8 Adjustment for Insurance and Taxes 38 8.9 Assignment of Account Receivable 38 ARTICLE IX. MISCELLANEOUS 9.1 Fees and Expenses 39 9.2 Publicity and Disclosures 39 9.3 Notices 39 9.4 Successors and Assigns 40 9.5 Descriptive Headings 41 9.6 Counterparts 41 9.7 Severability 41 9.8 Attorney's Fees 41 9.9 Course of Dealing 41 9.10 Third Parties 41 9.11 Variations in Pronouns 43 9.12 Waiver of Jury Trial 43 9.13 Governing Law 43 9.14 Entire Agreement 43
Table of Exhibits - ----------------- Exhibit A Letter of Credit Exhibit B Escrow Agreement Exhibit C Opinion of Seller's Counsel Exhibit D Non-Competition Agreement Exhibit E Opinion of Buyer's Counsel -iii- Table of Schedules - ------------------ Schedule 2.7(a) Automobiles Schedule 3.1 Qualification Schedule 3.4 Subsidiaries Schedule 3.5 Financial Statements Schedule 3.6 Liabilities Schedule 3.7 Changes Schedule 3.8 Liens Schedule 3.10 Real Estate Schedule 3.11 Accounts Receivables Schedule 3.12 Inventories Schedule 3.13 Intellectual Property Schedule 3.14 Trade Secrets Schedule 3.15 Contracts Schedule 3.16 Major Customers Schedule 3.17 Compliance with Laws Schedule 3.18 Taxes Schedule 3.19 Employee Benefit Plans Schedule 3.20 Environmental Matters Schedule 3.21 Employees Schedule 3.22 Litigation Schedule 3.23 Insurance Schedule 3.24 Warranty and other Claims Schedule 3.26 Brokers Schedule 3.29 Transactions with Interested Persons Schedule 3.30 Bank Accounts Schedule 5.1(a) Interim Conduct -iv- STOCK PURCHASE AGREEMENT ------------------------ Stock Purchase Agreement (the "Agreement") dated as of June 14, 1996, by and among Suburban Ostomy Supply Co., Inc., a Massachusetts corporation (the "Buyer"), Patient-Care Medical Sales, a California corporation (the "Company"), and Nate Spunt and Elaine Spunt, the sole shareholders of the Company (collectively, the "Seller"). The Seller owns all of the outstanding shares (the "Shares") of Common Stock of the Company, no par value per share, constituting all of the outstanding Equity Securities of the Company on the date hereof. Buyer desires to purchase, and the Seller desires to sell, all of the outstanding Equity Securities of the Company. In consideration of the foregoing, the mutual representations, warranties and covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: ARTICLE I DEFINITIONS ----------- 1.1 Definitions. For the purposes of this Agreement, all capitalized ----------- words or expressions used in this Agreement (including the Schedules and Exhibits annexed hereto) shall have the meanings specified in this Article I (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Affiliate" means when used with respect to any Person, (a) if such Person --------- is a corporation, any officer or director thereof and any Person which is, directly or indirectly, the beneficial owner (by itself or as part of any group) of more than five percent (5%) of any class of any Equity Security thereof, and, if such beneficial owner is a partnership, any general or limited partner thereof, or if such beneficial owner is a corporation, any Person controlling, controlled by or under common control with such beneficial owner, or any officer or director of such beneficial owner or of any corporation occupying any such control relationship, (b) if such Person is a partnership, any general or limited partner thereof and (c) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person. For purposes of this definition, (i) the term "control" (including the correlative terms "controlling", "controlled by" and "under common control with"), with respect to any Person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Agreement" means this Stock Purchase Agreement (together with all Exhibits --------- and Schedules hereto) as from time to time assigned, supplemented, modified, amended, or restated or as the terms hereof may be waived. "Business Day" means any day, excluding Saturday, Sunday and any other day ------------ on which commercial banks in Boston, Massachusetts are authorized or required by law to close. "Buyer" means Suburban Ostomy Supply, Co., Inc., a Massachusetts ----- corporation, and its successors and assigns. "Cash Equivalents" means any certificate of deposit, interest in a money ---------------- market account or similar security which may be immediately liquidated and converted into cash. "CERCLA" means the Comprehensive Environmental Response Compensation and ------ Liability Act of 1980, as amended, and the regulations thereunder, and court decisions in respect thereof, all as the same shall be in effect at the time. "Charter" means the Certificate of Incorporation, Articles of Incorporation ------- or Organization or other organizational document of a corporation, as amended and restated through the date hereof. "Claim" means an action, suit, proceeding, hearing, investigation, ----- litigation, charge, complaint, claim or demand. "Code" means the Internal Revenue Code of 1986, as amended, and the ---- regulations thereunder. "Commission" means the Securities and Exchange Commission and any other ---------- similar or successor agency of the federal government administering the Securities Act or the Exchange Act. "Common Stock" means the common stock of the Company, no par value per ------------ share. "Company" means Patient-Care Medical Sales, a California corporation, and ------- its successors and assigns. "Environmental Action" means any administrative, regulatory or judicial -------------------- action, suit, demand, demand letter, claim, notice of non-compliance or violation, investigation, request for information, proceeding, consent order or consent agreement relating in any way to any Environmental Law or any Environmental Permit, including without limitation (a) any claim by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any Environmental Law and (b) any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials, damage to the environment or alleged injury or threat of injury to human health or safety from pollution or other environmental degradation. 2 "Environmental Law" means any applicable federal, state or local law, ----------------- statute, rule, regulation, or ordinance relating to the environment, human health or safety from pollution or other environmental degradation or Hazardous Materials, including, without limitation, CERCLA, the Resource Conservation and Recovery Act, the Hazardous Materials Transportation Act, the Clean Water Act, the Toxic Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Occupational Safety and Health Act, and any similar state and local laws or by-laws, the rules, regulations and interpretations thereunder, all as the same shall be in effect from time to time. "Environmental Permit" means any permit, approval, identification number, -------------------- license or other authorization required under any Environmental Law. "Equity Security" shall have the meaning given to such term in Section --------------- 3(a)(ii) of the Exchange Act. "ERISA" means the Employee Retirement Income Security Act of 1974, and any ----- similar or successor federal statute, and the rules and regulations thereunder, all as the same shall be in effect at the time. "ERISA Affiliate" means, for purposes of Title IV of ERISA, any trade or --------------- business, whether or not incorporated, that together with the Company or any Subsidiary of the Company, would be deemed to be a "single employer" within the meaning of Section 4001 of ERISA, and, for purposes of the Code, any member of any group that, together with the Company or any Subsidiary of the Company, is treated as a "single employer" for purposes of Section 414 of the Code. "Exchange Act" means the Securities Exchange Act of 1934, and any similar ------------ or successor federal statute, and the rules and regulations and interpretations of the Commission thereunder, all as the same shall be in effect at the time. "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Hazardous Materials" means (a) petroleum or petroleum products, natural or ------------------- synthetic gas, asbestos, urea formaldehyde foam insulation and radon gas, (b) any substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes" "restricted hazardous waters," toxic substances," "toxic pollutants," "contaminants" or "pollutants," or words of similar import, under any 3 Environmental Law and (c) any other substance exposure to which is regulated under any Environmental Law. "Indebtedness" means all obligations, contingent or otherwise, whether ------------ current or long-term, which in accordance with GAAP would be classified upon the obligor's balance sheet as liabilities (other than deferred taxes) and shall also include capitalized leases, guaranties, endorsements (other than for collection in the ordinary course of business) or other arrangements whereby responsibility is assumed for the obligations of others, including any agreement to purchase or otherwise acquire the obligations of others or any agreement, contingent or otherwise, to furnish funds for the purchase of goods, supplies or services for the purpose of payment of the obligations of others. "IRS" means the Internal Revenue Service and any similar or successor --- agency of the federal government administering the Code. "Last Balance Sheet" shall mean the consolidated balance sheet of the ------------------ Company and its Subsidiaries as at the month ended April 30, 1996, included in the Financial Statements. "Lien" means, with respect to any asset, any mortgage, deed of trust, ---- pledge, hypothecation, assignment, security interest, lien, charge, restriction, adverse claim by a third party, title defect or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any assignment or other conveyance of any right to receive income and any assignment of receivables with recourse against assignor), any filing of any financing statement as debtor under the Uniform Commercial Code or comparable law of any jurisdiction and any agreement to give or make any of the foregoing. "Material Adverse Effect" means a material adverse impact or effect on (a) ----------------------- the business, operations, assets, liabilities, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company or the Seller to perform their respective obligations under any of the Purchase Documents, (c) the validity or enforceability of any of the Purchase Documents or (d) the rights and remedies of the Buyer hereunder or thereunder. "Officer's Certificate" means a certificate signed in the name of a --------------------- corporation by its President, Chief Executive Officer, Treasurer, Chief Financial Officer, or, if so specified, the Clerk or Secretary, acting in his or her official capacity. "Person" means any individual, firm, partnership, association, trust, ------ corporation, limited liability company, governmental body or other entity. "PBGC" means the Pension Benefit Guaranty Corporation, and any successor ---- thereto. 4 "Purchase Documents" means this Agreement, the Non-Competition Agreement, ------------------ and any other certificate, document, instrument, stock power, or agreement executed in connection therewith. "Release" means any release, issuance, disposal, discharge, dispersal, ------- leaching or migration into the indoor or outdoor environment or into or out of any property, including the movement of Hazardous Materials through or in the air, soil, surface water, ground water, or property other than in compliance with all Environmental Laws and Permits. "Securities Act" means the Securities Act of 1933, and any similar or -------------- successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Shares" means the outstanding shares of Common Stock of the Company. ------ "Subsidiary" means, with respect to any Person (a) any corporation, ---------- association or other entity of which at least a majority in interest of the outstanding capital stock or other Equity Securities having by the terms thereof voting power under ordinary circumstances to elect a majority of the directors, managers or trustees thereof, irrespective of whether or not at the time capital stock or other Equity Securities of any other class or classes of such corporation, association or other entity shall have or might have voting power by reason of the happening of any contingency, is at the time, directly or indirectly, owned or controlled by such Person, or (b) any entity (other than a corporation) in which such Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of such Person, directly or indirectly at the date of determination thereof, has at least majority ownership interest. For purposes of this Agreement, a Subsidiary of the Company shall include the direct and indirect Subsidiaries of the Company. "Tax" means any federal, state, local or foreign income, gross receipts, --- license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or ---------- information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. The following terms are defined in the following Sections of this Agreement: 5 Term Section ---- ------- Closing 2.3 Closing Date 2.3 Financial Statements 3.5 Indemnifying Party 8.5 Losses 8.2 Non-Competition Agreement 6.1(l) Plan 3.19(a) Purchase Price 2.2
ARTICLE II PURCHASE AND SALE OF SHARES --------------------------- 2.1 Purchase and Sale. Upon the terms and subject to the conditions ----------------- contained in this Agreement, at the Closing (as defined in Section 2.3 below), the Seller shall sell, assign, transfer and deliver to Buyer, and Buyer will accept and purchase from the Seller, all of the Shares owned or held by the Seller, free and clear of all Liens. 2.2 Consideration. Upon the terms and subject to the conditions contained ------------- in this Agreement, in reliance upon the representations, warranties and agreements of the Company and the Seller contained herein, and in consideration of the sale, assignment, transfer and delivery of the Shares, Buyer will pay to the Seller an amount equal to Three Million Nine Hundred Fifty Thousand Dollars ($3,950,000) less the principal balance on the Closing Date of a promissory note, dated as of February 17, 1993, made by the Company and payable to the Seller (the "Seller Note"), which Seller Note had an outstanding principal balance as of the date of this Agreement of $271,500. The consideration payable to the Seller for the Shares is subject to adjustment as provided in Section 2.6 hereof, and such consideration, as so adjusted, is referred to herein as the "Purchase Price." The parties agree that on the first anniversary of the Closing Date, $375,000 of the Purchase Price (the "Deferred Amount") shall be paid into escrow in accordance with the provisions of Section 2.5, and the balance of the Purchase Price shall be paid to the Seller on the Closing Date by wire transfer of immediately available funds. The parties agree that $100,000 of the Purchase Price payable on the Closing Date shall be deemed as paid in consideration of the covenants contained in the Non-Competition Agreement attached as Exhibit D. --------- 2.3 Time and Place of Closing. Subject to the termination of this ------------------------- Agreement as provided in Article VII herein, the closing of the transactions described in Sections 2.1 and 2.2 of this Agreement (the "Closing") shall take place at the principal place of business of the Company, or at such other place designated by the Seller and acceptable to the Buyer, at 10:00 a.m. on June 14, 1996, or at such other place or time as the parties hereto may agree. The 6 date and time at which the Closing actually occurs is hereinafter referred to as the "Closing Date." 2.4 Deliveries by the Seller. At the Closing, the Seller will deliver to ------------------------ Buyer (a) the various certificates, instruments and documents referred to in Section 6.1 below, and (b) stock certificate(s) representing the Shares duly endorsed for transfer or accompanied by a stock power duly executed in blank, and any other documents that are necessary to transfer to Buyer good title to all Shares free and clear of all Liens, and Buyer will deliver to the Seller the various certificates, instruments, and documents referred to in Section 6.2 below and the Purchase Price set forth in Section 2.2 as may be adjusted pursuant to Section 2.6. 2.5 Deferred Amount. --------------- (a) The payment of Deferred Amount shall be secured by a Letter of Credit, substantially in the form of Exhibit A hereto and issued by The First --------- National Bank of Boston or such other national bank as is reasonably acceptable to Seller (the "Letter of Credit"), in the benefit amount equal to the Deferred Amount and payable to Hutchins, Wheeler & Dittmar, A Professional Corporation, as escrow agent (the "Escrow Agent"). The Deferred Amount shall accrue, and the Buyer shall pay, or shall cause the Company to pay, on the Deferred Amount, interest quarterly in arrears at the simple rate of 8% per year; provided, however, that if the Buyer makes a Claim for indemnification (as defined in Article VIII hereof), then from and after the date such Claim is made, no interest shall accrue on that portion of the Deferred Amount as equals the amount of such Claim until it is ultimately determined (whether by agreement of the parties hereto or by decision of a court of competent jurisdiction) whether the Seller is liable for such Claim. If it is determined that the Seller is liable for such claim, then no interest shall be payable with respect to that amount of the Deferred Amount equal to such Claim for the period from and after such Claim was made. If it is determined that the Seller is not liable for such Claim, then the Buyer shall promptly pay to the Seller the amount of interest which would have been paid but for cessation of payments in accordance with this Section 2.5(a). (b) The Deferred Amount shall be paid to the Escrow Agent in accordance with the terms of the Letter of Credit on the first anniversary of the Closing Date. To the extent that the Buyer has made Claims for indemnity prior to the first anniversary of the Closing Date, the amount paid to the Escrow Agent shall remain in escrow pending resolution of such Claims. Such amount paid to the Escrow Agent in excess of such Claims shall be paid to the Seller, all in accordance with the terms of the Escrow Agent substantially in the form of Exhibit B attached hereto. --------- 2.6 Adjustment to the Purchase Price. -------------------------------- (a) The consideration otherwise payable for the Shares pursuant to Section 2.2 hereof shall be adjusted downward, dollar for dollar, to the extent that Indebtedness of the 7 Company for borrowed money as of the Closing Date (which shall include all Indebtedness with respect to money borrowed from any person, other than Indebtedness under the Seller Note, and shall include obligations with respect to capitalized leases, but shall exclude trade debt incurred in the ordinary course of business and accruals, including tax accruals, made in the ordinary course of business) exceeds One Million Dollars ($1,000,000). (b) At the Closing, the Seller shall deliver to the Buyer an Officer's Certificate setting forth the amount of Indebtedness of the Company for borrowed money as of the Closing Date (exclusive of Indebtedness under the Seller Note). Any adjustments to the Purchase Price under this Section 2.6 shall initially be made on the basis of such Officer's Certificate; provided, however, that if it is ultimately determined that such Officer's Certificate was inaccurate, an appropriate adjustment to the Purchase Price shall be made. 2.7 Other Transactions at the Closing. Upon notice to the Buyer at least --------------------------------- ten (10) Business Days prior to the Closing Date, the Seller or his designee shall have the option to purchase from the Company either or both of the two automobiles listed on Schedule 2.7(a) hereto, which purchase shall be effected --------------- at least three (3) Business Days prior to the Closing Date. The purchase price of such automobiles shall be the greater of (i) book value thereof as shown on the Company's financial statements as of the Closing Date or (ii) the remaining amounts owed under notes made by the Company evidencing the indebtedness incurred to purchase automobiles. ARTICLE III REPRESENTATIONS AND WARRANTIES ------------------------------ OF THE SELLER ------------- Each of the Company and the Seller, jointly and severally, hereby represents and warrants to Buyer as follows: 3.1 Organization and Qualification. The Company is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of California. The Company has full power and authority to own, use and lease its properties and to conduct its business as such properties are owned, used or leased and as such business is currently conducted. The copies of the Company's Charter and By-Laws, as amended to date, certified by its Secretary and delivered to Buyer's counsel prior to the Closing, are true, complete and correct. Except as set forth on Schedule 3.1 attached hereto, the Company is ------------ qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which it owns or leases property or maintains inventories or where the conduct of its business would require such qualification. 3.2 Authority; No Violation. The Company has all requisite corporate ----------------------- power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. 8 The execution, delivery and performance of this Agreement by the Company have been duly and validly authorized and approved by all necessary corporate action. The Seller has the full legal capacity, legal right, power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. This Agreement constitutes the legal and binding obligation of the Company and the Seller, enforceable against each of them in accordance with its terms. The Shares, when transferred in compliance with this Agreement, will be validly issued, fully paid and non-assessable, and free of any Liens. Assuming the accuracy of the representations and warranties of Buyer hereunder, (a) the entering into of this Agreement by the Company and the Seller does not, and the consummation by the Company and the Seller of the transactions contemplated hereby, including specifically the transfer of the Shares to Buyer by the Seller, will not violate the provisions of (i) to the knowledge of the Company and Seller, any applicable federal, state, local or foreign laws, (ii) the Company's Charter or By-Laws, or (iii) any provision of, or result in a default or acceleration of any obligation under, or result in any change in the rights or obligations of the Company or the Seller under, any Lien, contract, agreement, license, lease, instrument, indenture, order, arbitration award, judgment, or decree to which the Company or the Seller is a party or by which any of them is bound, or to which any property of the Company is subject; and (b) to the knowledge of the Company and the Seller, the offer and sale of the Shares, as contemplated by this Agreement, are exempt from the registration requirements of the Securities Act and from any registration or filing requirements of any applicable state securities laws. 3.3 Capitalization. The Company's authorized capital stock consists of -------------- 100,000 shares of Common Stock, no par value per share, of which 295 shares are issued and outstanding, and all of which are owned beneficially and of record by the Seller. All of such outstanding shares are duly authorized, validly issued, fully paid, non-assessable, free of all Liens and pre-emptive rights and have been issued in compliance with all applicable federal and state laws. Except for the rights of Buyer hereunder, there are no outstanding options, warrants, rights or agreements of any kind for the issuance or sale of, or outstanding securities convertible into or exchangeable for, any additional shares of Common Stock or any other Equity Security of the Company. 3.4 Subsidiaries. The Company has no Subsidiaries. Except as set forth ------------ on Schedule 3.4, the Company does not own, directly or indirectly, any ------------ securities issued by any other Person except for United States government securities, certificates of deposit, or other cash equivalents and is not a partner or participant in any partnership or joint venture of any kind. 3.5 Financial Statements. Attached hereto as Schedule 3.5 are the -------------------- ------------ following financial statements (collectively the "Financial Statements"): (i) audited balance sheets and statements of income, changes in stockholders' equity and cash flow as of and for the fiscal years ended March 31, 1996, March 31, 1995, and March 31, 1994, for the Company; and (ii) unaudited balance sheets and statements of income and changes in stockholders' equity as of and for the month ended April 30, 1996 for the Company. The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout 9 the periods covered thereby, present fairly the financial condition of the Company as of such dates and the results of operations of the Company for such periods, are correct and complete, and are consistent with the books and records of the Company, subject to normal year-end adjustments (which will not be material individually or in the aggregate) and the absence of footnotes and other presentation items. 3.6 Absence of Undisclosed Liabilities. Except as set forth in the Last ---------------------------------- Balance Sheet and in Schedule 3.6 attached hereto, there are no material ------------ liabilities of the Company, whether accrued, absolute, contingent or otherwise (including, without limitation, liabilities as guarantor or otherwise with respect to obligations of any other Person, or liabilities for Taxes due or then accrued or to become due), except for liabilities which have arisen in the ordinary course of business of the Company since the date of the Last Balance Sheet. Schedule 3.6 sets forth a true and correct aged list of all accounts ------------ payable of the Company as of April 30, 1996. 3.7 Absence of Certain Changes. Except as otherwise disclosed in Schedule -------------------------- -------- 3.5 attached hereto, since March 31, 1996, there has not been: - --- (a) any change in the business, operations, assets, liabilities, prospects or condition (financial or otherwise) of the Company taken as a whole that, by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has been or is reasonably likely to be materially adverse with respect to the Company (including, by way of example and not of limitation, the loss of any significant distributor, customer or vendor, any announcement of new developments in competitive technology, or the intention on the part of any key employee of the Company to leave the Company's employ); (b) any obligation or liability incurred by the Company for an amount not more than $10,000 in each case or $20,000 in the aggregate; other than routine trade payables, payables and other obligations and liabilities incurred in the ordinary course of business; (c) any Lien placed on any of the Company's properties or assets which remains in existence on the date hereof; (d) any contingent liabilities incurred by the Company with respect to the obligations of any other Person; (e) any purchase, sale, lease, assignment, transfer or other disposition, or any agreement or other arrangement for the purchase, sale, lease, assignment, transfer or other disposition, of any part of the Company's properties or assets, other than purchases for and sales from inventory for fair consideration in the ordinary course of business, except for fixed assets purchased or other capital expenditures made in amounts not exceeding $10,000 for any single item and $200,000 in the aggregate for all such items; 10 (f) any damage, destruction or loss, whether or not covered by insurance, adversely affecting the Company's properties, assets or business; (g) any declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, any Equity Security of the Company, or any direct or indirect redemption, purchase or other acquisition by the Company of any of its own Equity Securities, or any issuance by the Company of any Equity Security; (h) any labor trouble or claim of unfair labor practices involving the Company or any of its Subsidiaries; any change in the employment contracts of or compensation payable or to become payable by the Company to any of its officers, directors, employees, consultants or agents, or any bonus payment or arrangement made to or with any of such officers, directors, employees, consultants or agents; or any change in coverage or benefits available under any Plan described in Section 3.19; (i) any change with respect to the Company's management or supervisory personnel; (j) any payment or discharge of a material Lien or liability of the Company not disclosed on the Financial Statements or incurred in the ordinary course of business; (k) any obligation or liability incurred by the Company with respect to any loan, advance or commitment to lend by any bank, financial institution or institutional lender to any of the officers, directors, employees, consultants, agents, or stockholders of the Company or to any other Person; or any loans or advances made by the Company to any officers, directors, employees, consultants, agents or stockholders of the Company, except for normal compensation, professional fees and expense allowances payable to officers and directors; (l) any contracts, licenses, leases or agreements entered into by the Company which are outside the ordinary course of business or which obligate the Company for more than $5,000 in any one case or more than $20,000 in the aggregate; (m) any recapitalization or reorganization; (n) any amendment or other change (or any authorization to make such an amendment or change) to the Company's or any of its Subsidiaries' Charter or By-Laws, except as required in connection with the consummation of the transactions contemplated hereby; (o) any postponement or delay in payment of any accounts payable or other liability of the Company or any of its Subsidiaries except in the ordinary course of business consistent with prior practices; 11 (p) any cancellation, waiver, compromise or release of any right or claim either involving more than $10,000 or outside the ordinary course of business consistent with prior practices; (q) any cancellation, termination, modification, or acceleration by any party to any contract, license, lease or agreement involving more than $10,000 to which any of the Company or any of its Subsidiaries is a party or by which any of them is bound; or (r) to the knowledge of the Seller, any other occurrence, action, failure to act or transaction involving the Company other than transactions in the ordinary course of business consistent with prior practices. 3.8 Title to Assets. The Company has good and marketable title to, or a --------------- valid leasehold interest in, all of the property and assets used by it, located on its premises, or shown on the Last Balance Sheet, free and clear of all Liens, except as otherwise set forth on Schedule 3.8, and except for properties ------------ and assets disposed of in the ordinary course of business since the date of the Last Balance Sheet. 3.9 Sufficiency and Condition of Assets. The Company owns or leases all ----------------------------------- real, personal, tangible and intangible property and assets necessary for the conduct of its businesses as such businesses are presently conducted. To the knowledge of each of the Seller and the Company, all tangible properties and assets owned or leased by the Company are in good operating condition and repair, ordinary wear and tear excepted, have been well maintained, and conform with all applicable laws, statutes, ordinances, rules and regulations. 3.10 Real Estate. ----------- (a) The Company does not own any real property. (b) Schedule 3.10(b) lists and describes briefly all real property ---------------- leased or subleased to the Company. With respect to each such lease and sublease: (i) correct and complete copies thereof have been delivered to Buyer; (ii) the lease or sublease is legal, valid binding, enforceable, and in full force and effect and will continue to be so on identical terms following the consummation of the transactions contemplated hereby; (iii) no party to the lease or sublease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; 12 (iv) no party to the lease or sublease has repudiated any provision thereof, and there are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; (v) with respect to each sublease, the representations and warranties set forth in subsections (ii), (iii) and (iv) above are true and correct with respect to the underlying lease; (vi) the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or subleasehold; (vii) to the knowledge of the Company and the Seller, all facilities leased or subleased thereunder have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, statutes, ordinances, rules and regulations; and (viii) all facilities leased or subleased thereunder are supplied with utilities and other services necessary for the operation of said facilities. 3.11 Accounts Receivable. All of the accounts receivable of the Company ------------------- are properly reflected in the Financial Statements and are, subject to the allowance for doubtful accounts set forth therein, valid and enforceable claims, subject to no set-off or counterclaim, and are fully collectible in the ordinary course of business. Except as set forth in Schedule 3.11 attached hereto, the ------------- Company does not have any accounts receivable or loans or notes receivable from any Affiliates or from any of its officers, directors, consultants, employees, agents or stockholders. 3.12 Inventories. ----------- (a) Except as disclosed in Schedule 3.12 attached hereto: (i) the ------------- inventories of the Company are properly reflected in the Last Balance Sheet and are of a quality and quantity saleable in the ordinary course of business of the Company at prevailing market prices, are priced at the lower of cost or market and (ii) the values of the inventories stated in the Financial Statements reflect the Company's normal inventory valuation policies and were determined in accordance with GAAP consistently applied. (b) As of the date hereof, purchase commitments for raw materials and parts for the Company are not, individually or in the aggregate, in excess of normal requirements and none of such commitments are at prices materially in excess of current market prices. 3.13 Intellectual Property. All patents, patent applications, registered --------------------- copyrights, trade names, registered trademarks and trademark applications which are owned by or licensed 13 to the Company, if any, are listed in Schedule 3.13 attached hereto, which ------------- indicates with respect to each the nature of the Company's interest therein and the expiration date thereof or the date on which the Company's interest therein terminates. All of the Company's patents and registered trademarks have been duly registered in, filed in or issued by the United States Patent Office or the corresponding offices of other countries identified in Schedule 3.13, and have ------------- been properly maintained and renewed in accordance with all applicable laws and regulations in the United States and each such country. Except as set forth in Schedule 3.13, use of said patents, patent applications, registered copyrights, - ------------- trade names, registered trademarks or trademark applications owned by the Company does not require the consent of any other Person and the same are freely transferable (except as otherwise provided by law) and are owned exclusively by the Company, free and clear of any Liens. Except as set forth in Schedule 3.13, ------------- (i) no other Person has an interest in or right or license to use, or the right to license any other Person to use, any of said patents, patent applications, registered copyrights, trade names, registered trademarks or trademark applications, (ii) there are no claims or demands of any other Person pertaining thereto and no proceedings have been instituted, or are pending or, to the knowledge of the Company and the Seller, threatened, which challenge the Company's rights in respect thereof, (iii) none of the patents, copyrights, trade names or trademarks listed in Schedule 3.13 is being infringed by another ------------- Person or is subject to any outstanding order, decree, ruling, charge, injunction, judgment or stipulation, (iv) no Claim has been made or is threatened charging the Company with infringement of any adversely held patent, trade name, trademark or copyright and (v) there does not exist (a) any unexpired patent with claims which are or would be infringed by products of the Company or by apparatus, methods or designs employed by it in manufacturing such products or (b) any patent or application therefor or invention which would materially adversely affect the Company's ability to manufacture, use or sell any such product, apparatus, method or design. 3.14 Trade Secrets and Customer Lists. The Company has the right to use, -------------------------------- free and clear of any Claims or rights of any other Person, all trade secrets, customer lists, manufacturing and secret processes and know-how (if any) required for or used in the manufacture or marketing of all products being sold, manufactured, or under development by it, including products licensed from other Persons. Any payments required to be made by the Company for the use of such trade secrets, customer lists, manufacturing and secret processes and know-how are described in Schedule 3.14 attached hereto. To the best of the Company's ------------- knowledge, it is not in any way making an unlawful or wrongful use of any confidential information, know-how, or trade secrets of any other Person, including without limitation any former employer of any present or past employee of the Company. Except as described on Schedule 3.14, neither the Seller nor ------------- any officer, director or employee of the Company is a party to any non- competition or confidentiality agreement with any Person other than the Company. 3.15 Contracts. Except for contracts, commitments, leases, licenses, plans --------- and agreements described in Schedule 3.15 attached hereto, the Company is not a ------------- party to or subject to any of the following types of contracts which have not yet been completed: 14 (a) any plan or contract regarding or providing for bonuses, pensions, options, stock purchases, deferred compensation, severance benefits retirement payments, profit sharing, stock appreciation, collective bargaining or the like, or any contract or agreement with any labor union; (b) any express written or oral employment or consulting contract or contract for personal services; (c) any contract or agreement for the purchase of any commodity, product, material, supplies, equipment or other personal property, or for the receipt of any service, other than purchase orders entered into in the ordinary course of business for less than $5,000 each and which in the aggregate do not exceed $20,000; (d) any contract, arrangement or program with vendors, suppliers or customers relating to rebates, volume discounts or cooperative advertising; (e) any contract or agreement for the purchase or lease of any fixed asset, whether or not such purchase or lease is in the ordinary course of business, for a price in excess of $10,000; (f) any contract or agreement for the sale of any commodity, product, material, equipment, or other personal property, or the furnishing by the Company of any service, other than contracts with customers entered into in the ordinary course of business; (g) any contract or agreement providing for the purchase of all or substantially all of its requirements of a particular product from a supplier, or for periodic minimum purchases of a particular product from a supplier; (h) any contract or agreement with any sales agent, distributor or OEM of products of the Company; (i) any contract or agreement concerning a partnership or joint venture with one or more Persons; (j) any confidentiality agreement or any non-competition agreement or other contract or agreement containing covenants limiting the Company's freedom to compete in any line of business or in any location or with any Person; (k) any license agreement (as licensor or licensee); (l) any contract or agreement with any Seller or any present or former officer, director, consultant, agent or stockholder of the Company or with any Affiliate of any of them; 15 (m) any loan agreement, indenture, note, bond, debenture or any other document or agreement evidencing a capitalized lease obligation or Indebtedness to any Person; (n) any agreement of guaranty, indemnification, or other similar commitment with respect to the obligations or liabilities of any other Person (other than lawful indemnification provisions contained in the Charters and By- Laws of the Company); or (o) any other agreement or contract (or group or related agreements or contracts) the performance of which involves consideration paid or received by the Company in excess of $25,000. Copies of all such contracts, commitments, plans, leases, licenses and agreements have been provided to Buyer or its counsel prior to the execution of this Agreement, and all such copies are true, correct and complete and have been subject to no amendment, extension or other modification as of the date hereof, except such as are described in Schedule 3.15. Except as listed and described in ------------- Schedule 3.15, neither the Company, nor to the knowledge of the Company and the - ------------- Seller, any other Person, is in default under any such contract, commitment, plan, lease, license or agreement described in Schedule 3.15 (a "default" being ------------- defined for purposes hereof as an actual default or event of default or the existence of any fact or circumstance which would, upon receipt of notice or passage of time, constitute a default). 3.16 Customers and Suppliers. Schedule 3.16 attached hereto sets forth the ----------------------- ------------- 25 largest suppliers and customers of the Company for the year ended March 31, 1996 (the "Large Suppliers and Customers"). Except as reflected in Schedule -------- 3.16, no supplier is a material sole source of supply to the Company. The - ---- relationships of the Company with their suppliers and customers are good commercial working relationships and, except as set forth on Schedule 3.16, ------------- neither (i) any of the Large Suppliers and Customers nor (ii) any supplier who at any time during the year ended March 31, 1996 was the sole source of supply of any item, has canceled or otherwise terminated, or threatened to cancel or otherwise terminate, its relationship with the Company or has during the last twelve (12) months decreased materially or threatened to decrease or limit materially, its services, supplies or materials to the Company or its usage or purchase of the services or products of the Company or any of its Subsidiaries, as the case may be. Neither the Company nor the Seller has any knowledge that any of the Large Suppliers and Customers intends to cancel or otherwise adversely modify its relationship with the Company or to decrease materially or limit its services, supplies or materials to the Company or its usage or purchase of the services or products of the Company and the acquisition of the Shares by Buyer will not, to the knowledge of the Company or any of the Seller, adversely affect the relationship of the Company with any of the Large Suppliers and Customers. 16 3.17 Compliance with Laws. -------------------- (a) To the knowledge of the Seller and the Company, except as otherwise set forth on Schedule 3.17, the Company has all licenses, permits, ------------- franchises, orders, approvals, accreditations, written waivers and other authorizations as are necessary in order to enable it to own and conduct its business as currently conducted and to occupy and use its real and personal properties without incurring any material liability. No registration, filing, application, notice, transfer, consent, approval, order, qualification, waiver or other action of any kind is required by virtue of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby to avoid the loss of any rights pertaining to any such license, permit, franchise, order, approval, accreditation, waiver or authorization. Except as otherwise set forth on Schedule 3.17, the Company is in full compliance with the terms and ------------- conditions of all such licenses, permits, franchises, orders, approvals, accreditations, waivers and authorizations. (b) Except as otherwise set forth on Schedule 3.17, the Company has ------------- conducted and is conducting its business in material compliance with applicable federal, state, local or foreign laws, statutes, ordinances, regulations, rules or orders or other requirements of any governmental, regulatory or administrative agency or authority or court or other tribunal relating to it (including, but not limited to, any law, statute, ordinance, regulation, rule, order or requirement relating to securities, properties, business, products, advertising, sales or employment practices, immigration, terms and conditions of employment, workers compensation, wages and hours, safety, occupational safety, health or welfare conditions relating to premises occupied, product safety and liability or civil rights). Except as otherwise set forth on Schedule 3.17, the ------------- Company is not now charged with, and to the knowledge of the Company and the Seller, is not now under investigation with respect to, any possible material violation of any applicable law, statute, ordinance, regulation, rule, order or requirement relating to any of the foregoing in connection with the business of the Company, and the Company has filed all material reports required to be filed with any governmental, regulatory or administrative agency or authority. The Company shall promptly inform Buyer of any notice relating to the foregoing received after the date hereof and on or prior to the Closing Date. 3.18 Taxes. ----- (a) The Company has filed all Tax Returns that it was required to file. To the best knowledge of the Company and the Seller, all such Tax Returns were correct and complete in all respects. All Taxes owed by the Company have been paid (whether or not shown on any Tax Return). The Company is not currently the beneficiary of any extension of time within which to file any Tax Return. No Claim has ever been made by an authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to the imposition of any Tax by that jurisdiction. There are no Liens on any of the assets of any of the Company that arose in connection with any failure (or alleged failure) to pay any Tax. 17 (b) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, consultant, independent contractor, creditor, stockholder, or other third party. (c) Neither the Company nor the Seller is aware of any dispute or Claim concerning any liability for Taxes of the Company. Schedule 3.18 attached ------------- hereto lists all federal, state, local, and foreign income Tax Returns filed with respect to the Company for taxable periods ended on or after March 31, 1989 which have been audited or currently are the subject of audit. The Seller has delivered to Buyer correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by any of the Company since March 31, 1993. (d) The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (e) The Company has not filed a consent under Section 341(f) of the Code concerning collapsible corporations. The Company has not made or is obligated to make any payments or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Section 280G of the Code or that are subject to an excise tax under Section 4999 of the Code. The Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The Company is not a party to any Tax allocation or sharing agreement. The Company (i) has not been a member of an Affiliated Group (as defined by Section 1504 of the Code) filing a consolidated federal income Tax Return or (ii) has any Liability for the Taxes of any Person (other than any of the Company) under Treas. Reg.(S) 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor by contract or otherwise. (f) The unpaid Taxes of the Company (i) did not, as of the date of the Last Balance Sheet, exceed the reserve for Tax Liabilities (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Last Balance Sheet (rather than in any notes thereto) and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing their Tax Returns. 18 3.19 Employee Benefit Plans. ---------------------- (a) Identification of Plans. ----------------------- Schedule 3.19 attached hereto lists and identifies each: ------------- (1) "Employee Pension Benefit Plan" (as such term is defined in Section 3(2) of ERISA) which is not a Multiemployer Plan; (2) "Multiemployer Plan" (as such term is defined in Section 3(37) or 4001(a)(3) of ERISA); (3) "Employee Welfare Benefit Plan" (as such term is defined in Section 3(3) of ERISA); and (4) Stock purchase, option or bonus plan, deferred compensation or severance pay, which is, or was within five (5) years prior to the Closing Date, maintained or contributed to by the Company or any ERISA Affiliate or under which the Company or any ERISA Affiliate has any liability or contingent liability (individually a "Plan" and collectively, the "Plans"). A copy of the Company's most recent Employee Handbook has been delivered to the Buyer. (b) Representations Applicable to All Employee ------------------------------------------ Pension Benefit Plans. --------------------- (1) Each Plan which is intended to be "qualified" under Section 401(a) of the Code is and has been at all times so qualified, and the trusts maintained thereunder are and have been at all times exempt from taxation under Section 501(a) of the Code. There have been no amendments to any such Plans which are not the subject of a determination letter issued with respect thereto by the Internal Revenue Service. No prohibited transaction or other event has occurred that will give rise to disqualification of any such Plan under the Code. No event has occurred that will or could subject any such Plan to tax under Section 511 of the Code. (2) No Plan has incurred any "accumulated funding deficiency" (as described in Section 302 of ERISA or Section 412 of the Code), whether or not waived, nor has there been any failure to make by its due date a required installment under Section 302(e) of ERISA or Section 412(m) of the Code with respect to any Plan. 19 (c) Representations Applicable to All Title IV Plans. ------------------------------------------------ (1) With respect to each Plan, no liability under Title IV or ERISA has been incurred since the effective date of ERISA that has not been satisfied in full, and no condition exists that presents a risk of incurring a liability under Title IV, other than liability for PBGC premiums which have been paid when due. (2) No steps have been taken to terminate any Plan subject to Title IV of ERISA. (3) No Plan has been the subject of a "reportable event" (as described in Section 4043 of ERISA) as to which a notice would be required to be filed with the PBGC. (4) With respect to each Plan which is subject to Title IV of ERISA, neither (i) the present value of accrued benefits under such Plan (based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by the Plan's actuary with respect to such Plan), nor (ii) the "benefit liabilities" (as described in Section 4001(a)(18) of ERISA) of such Plan exceeded, as of its last valuation date, the then current value of the assets of such Plan. All costs of any Plan subject to Title IV of ERISA have been provided for on the basis of consistent methods in accordance with sound actuarial assumptions and practices. Since the last valuation date for each such Plan, there have been no amendments or changes to such Plans that would increase the amount of benefits thereunder. (5) No Plan is a plan described in Section 4063(a) of ERISA. (d) Representations Applicable to All Multiemployer Plans. ----------------------------------------------------- (1) No Plan listed in Schedule 3.19(a) is a Multiemployer Plan. ---------------- (e) Representations Applicable to All Plans. --------------------------------------- (1) To the knowledge of the Company and the Seller, each Plan complies and has been administered in form and operation with all requirements of law and regulation applicable thereto. The Company and the ERISA Affiliates have performed all of their obligations under all such Plans. (2) There have been no acts or omissions which have given rise to, or which could give rise to, any penalty, tax, or fine under Sections 409, 502(c), or 502(i) of ERISA, or Sections 4975 or 4976 of the Code, for which the Company or any ERISA Affiliate may be liable. (3) None of the assets of any Plan are invested in any employer securities, employer real property, or any annuity contracts. 20 (4) All contributions required with respect to any Plan for all periods ending prior to the Closing (including periods from the first day of the current plan year to the Closing) will be timely made prior to the Closing by the Company or the ERISA Affiliates or will be properly recorded on the Closing Balance Sheet. (5) All required reports and descriptions of each Plan (including IRS Form 5500 Annual Reports, Summary Annual Reports, and Summary Plan Descriptions) have been timely filed and distributed. (6) None of the Company or any ERISA Affiliate has any plan or commitment to establish any additional Plans or to amend any existing Plan. (7) No Plan provides benefits, including without limitation death, medical, or severance benefits, with respect to current or former employees or directors (or their beneficiaries) beyond their retirement or other termination of service other than (i) coverage for benefits mandated by applicable law, (ii) death benefits or retirement benefits under an Employee Pension Benefit Plan, (iii) deferred compensation benefits properly accrued as liabilities on the Financial Statements, or (iv) benefits the full cost of which is borne by the current or former employee or director or his beneficiaries. (8) There are no actions, suits, or claims (other than routine claims for benefits made in the ordinary course of plan administration for which plan administrative review procedures have not been exhausted) pending or threatened involving any Plans or the assets of such Plans, and no facts exist which could give rise to any such action, suit, or claim. (9) For each Plan, a true and complete copy of each of the following documents have been delivered to Buyer: (i) Plan document and all amendments thereto; (ii) most recent Summary Plan Description (together with each Summary of Material Modifications required under ERISA); (iii) IRS Form 5500 Annual Report, if required under ERISA, for the two most recent plan years, together with all schedules, financial statements, and opinions of independent accountants; (iv) the actuarial report, if required under ERISA, for the two most recent plan years; (v) Form PBGC-1, if required under ERISA, for the two most recent plan years; (vi) if the Plan is funded through a trust or any third party funding vehicle (including a voluntary employee benefit association under Section 501(c)(9) of the Code, or a "multiple employer welfare arrangement" described in Section 3(40) of ERISA), the trust or other funding agreement, all amendments thereto, and the latest financial statements thereof for the two most recent plan years; and (vii) the most recent determination letter received from the Internal Revenue Service with respect to each Plan that is intended to be qualified under Section 401 of the Code. 21 3.20 Environmental Matters. --------------------- (a) Except as disclosed in Schedule 3.20 attached hereto, the use and ------------- operation by the Company and, to the knowledge of the Company and the Seller, by all past owners and operators, of all facilities and properties used in the business of the Company have been, and will be on the Closing Date, in compliance in all material respects with all Environmental Laws, and no Environmental Action has been filed, commenced, or, to the knowledge of the Company and the Seller, threatened with or against any of them alleging any failure so to comply. (b) The Company has received all Environmental Permits required to allow it to conduct its operations and businesses, such Environmental Permits are valid and in effect, and the Company is in compliance with such Environmental Permits. (c) Except as disclosed in Schedule 3.20, the Company has never ------------- sent or arranged for the transportation of Hazardous Materials to a site, or owned or operated a site, which, pursuant to CERCLA or any similar state law, has been placed or is proposed (by the United States Environmental Protection Agency ("EPA") or similar state authority) to be placed, on the "National Priorities List," as in effect as of the Closing Date, of hazardous waste sites or any similar state list. (d) Except as disclosed in Schedule 3.20, neither the Company nor the ------------- Seller has received notice from any Person, (i) that the Company has been identified by the EPA or similar state authority as a potentially responsible party under CERCLA with respect to a site listed on the "National Priorities List," as in effect as of the Closing Date, of hazardous waste sites or any similar state list; (ii) that any Hazardous Materials which the Company has generated, transported, or disposed of has been found at any site at which a Person has conducted or has ordered that the Company conduct a remedial investigation, removal, or other response action pursuant to any Environmental Law; or (iii) that the Company is or shall be a named party to any Environmental Action arising out of any Person's incurrence of costs, expenses, losses, or damages of any kind whatsoever in connection with the release of Hazardous Materials. (e) Except as disclosed in Schedule 3.20, there are no underground ------------- fuel or other storage tanks located at any of the facilities of the Company. All such tanks disclosed in Schedule 3.20, together with all appurtenant piping, ------------- valve, and related facilities, are, except as disclosed in Schedule 3.20, ------------- structurally sound, are not currently and have not in the past been leaking or releasing their contents into the soil or groundwater, and are in compliance with all applicable registration, testing, monitoring, containment, and corrosion protection requirements. (f) Except as disclosed in Schedule 3.20, there have been no ------------- unpermitted Releases or threatened Releases that are or at any time were reasonably likely to occur of 22 Hazardous Materials on, upon, into, or from the Real Estate or other assets of the Company; and, to the knowledge of the Company and the Seller, there have been no Releases on, upon, from, or into any real property in the vicinity of the Real Estate or other assets of the Company which, through the soil, groundwater, or surface water, may have come to be located on, upon, or under such Real Estate or other assets. (g) Without in any way limiting the generality of the foregoing, there is, to the knowledge of the Company and the Seller, no asbestos contained in or forming part of any building, building component, structure, or office space owned or leased by the Company; and, to the knowledge of the Company and the Seller, no polychlorinated biphenyls (PCBs) are used or stored at any property owned or leased by the Company. All properties and equipment used in the business of the Company have been free of methylene chloride, trichloroethylene, 1, 2 - transdichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances, as such term is defined in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. (h) None of the Real Property or other assets of the Company is or shall be subject to any applicable environmental clean-up responsibility law or environmental restrictive transfer law or regulation, solely by virtue of the transactions set forth herein and contemplated hereby. 3.21 Employees. Schedule 3.21 attached hereto sets forth a true and --------- ------------- complete list of (a) all directors of the Company, (b) all officers (with office held) of the Company, (c) all consultants and independent contractors retained by the Company currently or during the last fiscal year and (d) all persons who were employees of the Company as of May 31, 1996, including each such employee's job title, current rate of remuneration and duration of employment period. Except as disclosed in Schedule 3.21 or Schedule 3.19, the Company is not a ------------- ------------- party to any written or oral employment, consulting, service, severance or pension agreement. The Company is not a party to, and none of its employees are subject to, any collective bargaining agreement or other union contract, other than as disclosed in Schedule 3.21. The Company is in compliance in all ------------- material respects with applicable federal, state and local laws affecting employment and employment practices, including terms and conditions of employment and wages and hours, and there are, and have been during the past five (5) years, no complaints against the Company pending or, to the knowledge of the Company and the Seller, threatened before the National Labor Relations Board or any similar state or local agency, except as set forth on Schedule -------- 3.21. The Company enjoys good relations with its employees and there is no - ---- pending or, to the knowledge of the Company and the Seller, threatened labor trouble with or effort to organize any of its employees, and there has been no such labor trouble or, to the knowledge of the Company and the Seller, effort to organize during the past five (5) years. 3.22 Litigation. Except as disclosed on Schedule 3.22 attached hereto, (a) ---------- ------------- there is no Claim pending or, to the knowledge of the Company or the Seller threatened (or, to the 23 knowledge of the Company and the Seller, any facts which could lead to such a claim) by, against, affecting or regarding the Company or its businesses, properties or assets, or the Seller at law or in equity, before any federal, state, local or foreign court or any other governmental or administrative agency or tribunal or any arbitrator or arbitration panel, and (b) there are no judgments, orders, rulings, charges, decrees, injunctions, notices of violation or other mandates against or affecting the Company or the Seller with respect to the businesses, properties or assets of the Company. Nothing listed on Schedule -------- 3.22, either individually or when aggregated with other listings on such - ---- Schedule, would reasonably be expected to have a Material Adverse Effect. 3.23 Insurance. Schedule 3.23 attached hereto sets forth a summary of all --------- ------------- insurance policies (including policies providing property, casualty, liability, and workers' compensation coverage, benefits or coverage for any Plan described in Section 3.19, and bond and surety arrangements) to which any of the Company has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past two (2) years and specifies the insurer, the amount of coverage, the annual premium, type of insurance, expiration date, and any retroactive premium adjustments or other loss sharing arrangements. With respect to each such insurance policy to the knowledge of the Company and the Seller: (a) the policy is legal, valid, binding, enforceable, and in full force and effect; (b) the policy will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (c) neither the Company nor any other party to the policy is in breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration under the policy; and (d) no party to the policy has repudiated any provision thereof. The Company has been covered during the past five (5) years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during the aforementioned period. Schedule 3.23 describes any self- ------------- insurance arrangements affecting the Company. 3.24 Company Products. To the knowledge of the Company and the Seller, ---------------- each product manufactured, sold, leased, distributed or delivered by the Company ("Company Products") has been in conformity with all applicable contractual commitments and all applicable express and implied service and product warranties. Except as disclosed in Schedule 3.24 attached hereto, (a) there are ------------- no existing or, to the knowledge of the Company or the Seller, threatened Claims against the Company for services or merchandise which are defective or fail to meet any express or implied service or product warranties, or any facts which, if discovered by a third party, would support such a Claim; and (b) no Claim has been asserted against the Company for renegotiation or price redetermination with respect to any transaction, and there are no facts upon which any such Claim could be based. Except as set forth on Schedule 3.24, there are no ------------- statements, citations or decisions by any governmental or regulatory body or agency that any Company product is defective or fails to meet any standards promulgated by any such governmental or regulatory body or agency. Except as set 24 forth on Schedule 3.24, there have been no recalls ordered by any such ------------- governmental or regulatory body or agency with respect to any Company product. 3.25 Powers of Attorney. Except for powers of attorney granted in the ------------------ ordinary course of business to independent certified public accountants or in connection with the establishment or amendment of a Plan described in Schedule -------- 3.19(a)(1), the Company has not granted any outstanding power of attorney. - ---------- 3.26 Brokers. Except as disclosed in Schedule 3.26 attached hereto, none ------- ------------- of the Company, the Seller, or anyone acting on their behalf, has engaged, retained, or incurred any liability to any broker, investment banker, finder or agent or has agreed to pay any brokerage fees, commissions, finder's fees or other fees with respect to the sale of the Shares, this Agreement or the transactions contemplated hereby. 3.27 Burdensome Agreements. The Company is not subject to or bound by any --------------------- agreement, judgment, decree or order which does or may in the future reasonably be expected to result in a Material Adverse Effect. 3.28 Records and Books. The minute books of the Company have previously ----------------- been made available to Buyer and accurately record all corporate action taken by the stockholders and boards of directors and committees thereof from the date of organization through the date hereof. The stock transfer ledgers or record books of the Company completely and accurately set forth all transfers of the Company's capital stock from the date of organization through the date hereof. 3.29 Transactions with Interested Persons. Except as set forth on Schedule ------------------------------------ -------- 3.29 attached hereto, no officer, supervisory employee or director of the - ---- Company owns directly or indirectly, either individually or jointly, any material interest in, or serves as an officer or director of, any customer, competitor or supplier of the Company, or any organization which has a material contract or arrangement with the Company. 3.30 Bank Accounts. Schedule 3.30 contains a complete and accurate list ------------- ------------- of all bank accounts, safe deposit boxes and lock boxes maintained by the Company, together with a list of all authorized signatories thereto. 3.31 Copies of Documents. The Company and the Seller have made available ------------------- for inspection and copying by Buyer and its counsel true and correct copies of all documents referred to in this Article III or in the Schedules delivered to Buyer pursuant to this Agreement. 3.32 Status Under Certain Statutes. The Company is not: (i) a "public ----------------------------- utility company" or a "holding company," or an "affiliate" or a "subsidiary company" of a "holding company," or an "affiliate" of such a "subsidiary company," as such terms are defined in the 25 Public Utility Holding Company Act of 1935, as amended, (ii) a "public utility" as defined in the Federal Power Act, as amended, or (iii) an "investment company," or an "affiliated person" thereof or an "affiliated person" of any such "affiliated person," as such terms are defined in the Investment Company Act of 1940, as amended. 3.33 Disclosure of Material Information. Neither this Agreement (including ---------------------------------- the Schedules and Exhibits hereto) nor any document, certificate or instrument furnished in connection therewith contains, with respect to the Company or the Seller, any untrue statement of a material fact or omits to state a material fact necessary to made the statements therein not misleading. 3.34 Sole Representations and Warranties. The representations and ----------------------------------- warranties contained in this Article III are the only representations and warranties made by the Seller in connection with the transactions contemplated by this Agreement and supersede any and all previous written or oral statements made by the Company and the Seller to the Buyer. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER ------------------------------------------- The Buyer hereby represents and warrants to the Company and the Seller as follows: 4.1 Organization and Qualification. The Buyer is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts, with full power and authority to own, use or lease its properties and to conduct its business as such properties are owned, used or leased and as such business is conducted. 4.2 Authority. The Buyer has the requisite corporate power and authority --------- to enter into this Agreement and to carry out the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Buyer have been duly and validly authorized and approved by all necessary corporate action on the part of the Buyer, and this Agreement constitutes the legal and binding obligation of the Buyer, enforceable against them in accordance with its terms. 4.3 Brokers. Neither the Buyer nor anyone acting on its behalf has ------- engaged, retained or incurred any liability to any broker, investment banker, finder or agent or has agreed to pay any brokerage fees, commissions, finder's fees or other fees with respect to the purchase of the Shares, this Agreement or the transactions contemplated hereby. 4.4 Shares Acquired For Investment. The Buyer represents, covenants and ------------------------------ warrants that it is acquiring the Shares for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof. The Buyer further represents and warrants that it is an "accredited investor" within the meaning of Regulation D under the 26 Securities Act. The Buyer will not offer to sell or otherwise transfer any of the Shares in violation of any federal or state securities law. The Buyer acknowledges that the sale of the Shares to it has not been registered pursuant to any federal or state securities laws and that a legend to that effect may be placed on all certificates representing such Shares unless and until a registration statement under the Securities Act has become effective with respect to such Shares. 4.5 Financing Commitment. The Buyer has or will have prior to the Closing -------------------- Date, sufficient funds to fund the payment of the Purchase Price. 4.6 Sole Representations and Warranties. The representations and ----------------------------------- warranties contained in this Article IV are the only representations and warranties made by the Buyer in connection with the transactions contemplated by this Agreement and supersede any and all previous written or oral statements made by the Buyer to the Company or the Seller. ARTICLE V COVENANTS --------- The parties hereto agree to the following covenants: 5.1 Covenants of the Company. The Company hereby agrees with the Buyer to ----------------------- keep, perform and fully discharge the following covenants and agreements: (a) Interim Conduct of Business. From the date hereof until the --------------------------- Closing, the Company shall operate its business as a going concern consistent with prior practice and in the ordinary course of business (except as may be authorized pursuant to this Agreement or as set forth on Schedule 5.1(a) --------------- hereto). Without limiting the generality of the foregoing, from the date hereof until the Closing, except for transactions contemplated by this Agreement or expressly approved in writing by the Buyer, the Company shall not: (i) enter into or amend any employment, bonus, severance, pension or retirement plan, contract or arrangement, or increase any salary or other form of compensation payable or to become payable to any executive or employee other than in the ordinary course of business consistent with prior practice, and other than as contemplated in Section 6.1(n); (ii) purchase, lease or otherwise acquire any real estate or any interest therein; 27 (iii) declare, set aside or pay any dividend or make any other distribution with respect to any Equity Security or make any loan, advance or other distribution to the Seller; (iv) merge or consolidate with or agree to merge or consolidate with, or purchase or agree to purchase all or substantially all of the assets of, acquire securities of or otherwise acquire any Person; (v) sell, lease or otherwise dispose of or agree to sell, lease or otherwise dispose of any of its assets, properties, rights or claims, whether tangible or intangible, including without limitations, customer lists or other information relating to the Company's customers, except in the ordinary course of business consistent with prior practice; (vi) authorize for issuance, issue, sell or deliver any of its own Equity Securities; (vii) split, combine or reclassify any class of Equity Security or redeem or otherwise acquire, directly or indirectly, any of its Equity Securities; (viii) incur or guaranty any Indebtedness for borrowed money, or incur any other obligation (fixed or contingent) other than in the ordinary course of business consistent with prior practice; (ix) place or permit to be placed any Lien on any of its assets or properties, other than statutory Liens arising in the ordinary course of business; (x) make or authorize any amendments or changes to its Charter or By-Laws; (xi) make any single investment in excess of $10,000, or aggregate investments in excess of $20,000, in property, plant and equipment and other items of capital expenditure; (xii) accelerate receivables or delay or postpone payment of any accounts payable or other liability, or liquidate inventory except in the ordinary course of business consistent with prior practice; or (xiii) abandon any part of its business. (b) Access. The Company shall, upon reasonable notice, give the ------ Buyer and its representatives full and free access to all properties, assets, books, contracts, commitments and records of the Company during reasonable business hours and shall promptly furnish the 28 Buyer with all financial and operating data and other information as to the history, ownership, Affiliates, business, operations, properties, assets, liabilities, or condition (financial or otherwise) of the Company as the Buyer may from time to time reasonably request. (c) Satisfaction of Conditions. The Company agrees to use its best -------------------------- efforts to accomplish the satisfaction of the conditions precedent to Closing contained in Section 6.1 herein on or prior to the Closing Date. (d) Accounting Expenses. Prior to the Closing, the Company will pay ------------------- all accounting expenses incurred by the Company in connection with the financial audit of the Company for the three years ended March 31, 1996 by Arthur Andersen LLP; provided, however, that if the Closing is not consummated as contemplated hereby, the Buyer shall pay one-half ( 1/2) of such accounting expenses. (e) Discharge of Debt. On the Closing Date, the Buyer shall cause ----------------- the Company to pay in full the principal balance of and all accrued interest on the Seller Note, and the Buyer shall cause the Company to discharge its remaining obligations to pay Indebtedness for borrowed money as it becomes due. 5.2 Covenants of the Company and the Seller. Each of the Company and the --------------------------------------- Seller agrees with the Buyer to keep, perform and fully discharge the following covenants and agreements: (a) No Solicitation, Confidentiality, Etc. The Seller and the -------------------------------------- Company agree that, prior to the termination of this Agreement pursuant to Article VII hereof neither the Company nor the Seller will (i) solicit or negotiate with respect to any inquiries or proposals relating to (x) the possible direct or indirect acquisition of the Shares or any other Equity Security of the Company or of all or a portion of the assets or business of the Company or (y) any merger, consolidation, joint venture or business combination with the Company or (ii) discuss or disclose either this Agreement or other confidential information pertaining to the Company with any Person (except as may be required by law or except as may be required in connection with the transactions contemplated by this Agreement to Affiliates, officers, directors, employees and agents of the Company or the Seller) without the prior written approval of the Buyer. The Buyer acknowledges that the prior distribution of material regarding the Company to interested parties shall not be deemed to violate this Section 5.2(a). The Company and the Seller shall advise such parties of the existence of this Agreement and shall refrain from entering into further discussions with such parties concerning the sale of the Company to the extent otherwise prohibited by this Section 5.2(a). 5.3 Covenants of the Seller. The Seller agrees with Buyer to keep, ----------------------- perform and fully discharge the following covenants and agreements: 29 (a) Accuracy of Representations and Warranties. Without the prior ------------------------------------------ written consent of the Buyer, the Seller will not take any action from the date hereof to the Closing Date, whether as an officer, director or stockholder of the Company or otherwise, that would cause any representation or warranty of the Company or the Seller contained in this Agreement to become untrue or cause the breach of any agreement hereof or covenant contained herein. The Seller will promptly bring to the attention of the Buyer any facts which come to his attention that would cause any of the representations and warranties of the Company or the Seller to be untrue or materially misleading in any respect. (b) Satisfaction of Conditions. The Seller agrees to use his best -------------------------- efforts to cause the Company to comply with Sections 5.1 and 5.2 above and to accomplish the satisfaction of the conditions precedent to Closing contained in Section 6.1 below on or prior to the Closing Date. (c) Tax Matters. ----------- (i) The Seller shall be responsible for and shall cause to be prepared and duly filed all Tax Returns relating to Taxes of the Company for all taxable periods ending on or before the Closing Date. The Seller shall be responsible for and shall indemnify and hold harmless the Buyer and the Company with respect to all Taxes to which such Tax Returns relate for all taxable periods covered by such Tax Returns; provided, however, that the Company shall fund the payment of all Taxes for the period prior to the Closing to the extent of the tax accruals shown on the Last Balance Sheet; and provided further, that Seller's obligations under this Section 5.3(c)(i) shall be subject to the limitations contained in Article VIII. (ii) The Company shall be responsible for and cause to be prepared and duly filed all Tax Returns relating to Taxes of the Company for any taxable period which commences after the Closing Date (the "Post Closing Period"). The Buyer shall be responsible for and shall indemnify and hold harmless Seller with respect to all Taxes with respect to the Company for the Post Closing Period. (d) Disclosure Supplements. From time to time prior to the Closing, ---------------------- the Company and the Seller will supplement or amend the Schedule(s) hereto with respect to any matter hereafter arising which, if existing or occurring at or prior to the date of this Agreement, would to the Seller's knowledge have been required to be set forth or described in any such Schedule or which is necessary to complete or correct any information in any such Schedule or in any representation or warranty of the Company and the Seller which has been rendered inaccurate thereby. For purposes of determining the satisfaction of the conditions set forth in Section 6.1 hereof, no such supplement or amendment shall be given effect. 5.4 Covenants of Buyer. The Buyer hereby agrees with the Company and the ------------------ Seller to keep, perform and fully discharge the following covenants and agreements: 30 (a) Confidentiality. The Buyer agrees to hold, and to cause its --------------- officers, directors, employees, prospective financing services, consultants, agents and stockholders to hold, all information heretofore or hereafter obtained from the Company or its advisors in strict confidence and to use the information so obtained only for the purpose of evaluating the purchase of the Company. The Buyer shall promptly return all such information to the Company if the Closing is not consummated as contemplated hereby. (b) Satisfaction of Conditions. The Buyer agrees to use its best -------------------------- efforts to accomplish the satisfaction of the conditions precedent to Closing contained in Section 6.2 herein on or prior to the Closing Date. (c) Accounting Expenses. If the Closing is not consummated as ------------------- contemplated hereby prior to the termination under Article VII of this Agreement, the Buyer agrees to pay one-half ( 1/2) of all accounting expenses incurred by the Company in connection with the audit of the Company for the three years ended March 31, 1996. 5.5 Mutual Covenants. Each party agrees that after the Closing it shall, ---------------- upon the request and at the expense of any other party to this Agreement, take such action and execute such documents as such other party may reasonably request in order to effect the transaction hereby declared. ARTICLE VI CLOSING CONDITIONS ------------------ 6.1 Conditions to Obligations of Buyer. The obligations of the Buyer to ---------------------------------- consummate this Agreement and the transactions contemplated hereby are subject to the fulfillment, prior to or at the Closing, of the following conditions precedent: (a) Representations, Warranties and Covenants. Each of the ----------------------------------------- representations and warranties of the Company and the Seller contained in this Agreement shall remain true and correct at the Closing Date as fully as if made on the Closing Date; and the Company and the Seller shall have performed, on or before the Closing Date, all of its or his respective obligations under this Agreement and the other Purchase Documents which by the terms thereof are to be performed on or before the Closing Date. (b) No Pending Action. No legislation, order, rule, ruling or ----------------- regulation shall have been proposed, enacted or made by or on behalf of any governmental body, department or agency, and no legislation shall have been introduced in either House of Congress or in the legislature of any state, and no investigation by any governmental authority shall have been commenced or threatened, and no action, suit, investigation or proceeding shall have been commenced before, and no decision shall have been rendered by, any court or other 31 governmental authority or arbitrator, which, in any such case, in the reasonable judgment of the Buyer could adversely affect, restrain, prevent or rescind the transactions contemplated by this Agreement (including, without limitation, the purchase and sale of the Shares) or result in a Material Adverse Effect. (c) Proceedings Satisfactory. All proceedings taken in connection ------------------------ with the purchase and sale of the Shares, all of the other Purchase Documents and all documents and papers relating thereto, shall be in form and substance reasonably satisfactory to the Buyer. The Buyer and its counsel shall have received copies of such documents and papers as the Buyer or its counsel may reasonably request in connection therewith, all in form and substance reasonably satisfactory to the Buyer. Any Purchase Document, any Schedule or Exhibit to this Agreement and any other document, agreement or certificate contemplated by this Agreement, not approved by the Buyer in writing as to form and substance on the date this Agreement is executed, shall be reasonably satisfactory in form and substance to the Buyer. (d) Consents - Permits. The Company shall have received (and there ------------------ shall be in full force and effect) all material consents, approvals, licenses, permits, orders and other authorizations of, and shall have made (and there shall be in full force and effect) all such filings, registrations, qualifications and declarations with, any Person pursuant to any applicable law, statute, ordinance regulation or rule or pursuant to any agreement, order or decree to which the Company is a party or to which it is subject, in connection with the transactions contemplated by this Agreement and the sale of the Shares. (e) Offer of All Shares. All of the Shares of the Company shall have ------------------- been offered for sale at the Closing. (f) Financial Statements. The Buyer shall have received from the -------------------- Company true, correct and complete copies of each of the Financial Statements of the Company and the Closing Balance Sheet. The Financial Statements received by the Buyer shall be substantially similar to the unaudited financial statements of the Company previously provided to the Buyer and shall confirm the truth and correctness of the representations and warranties of the Seller and the Company. (g) Maintenance of the Business. The Company shall have operated its --------------------------- business as a going concern consistent with prior practice and in the ordinary course (except as is set forth on Schedule 5.1(a) hereto). Without limiting the ---------------- foregoing, the Company shall not have discontinued any of its product lines or lines of business or changed in any material respect the nature of its business. (h) Material Adverse Change. There shall have occurred no material ----------------------- adverse change in the business, operations, prospects, assets, liabilities, working capital position or earnings of the Company since March 31, 1996. 32 (i) Corporate Documents. The Company shall have delivered to the ------------------- Buyer: (i) a Secretary's Certificate of the Company certifying (x) the incumbency and genuineness of signatures of all officers of the Company executing this Agreement, any document delivered by the Company at the Closing and any other document, instrument or agreement executed in connection herewith, (y) the truth and correctness of resolutions of the Company authorizing the entry by the Company into this Agreement and the transactions contemplated hereby and (z) the truth, correctness and completeness of the By-Laws of the Company; (ii) the minute books and stock record books of the Company; (iii) the Charter of the Company certified as of a recent date by the Secretary of State of the State of California; and (iv) certificates of corporate and tax good standing and legal existence of the Company as of a recent date from the Secretary of State of the State of California. (j) Resignations. The Buyer shall have received written resignations ------------ of all directors of the Company effective as of the Closing. (k) Opinion of Counsel. The Buyer shall have received a favorable ------------------ opinion, dated the Closing Date and satisfactory in form to the Buyer and its counsel, of George E. Atkinson, III, Esq., counsel to the Seller and the Company, as to the matters set forth on Exhibit C attached hereto. In rendering --------- such opinion such counsel may, to the extent he may deem such reliance or limitation is proper, (a) rely on (x) certificates of public officials, and (y) certificates, in form and substance satisfactory to the Buyer and its counsel, of the Seller or officers of the Company and (b) limit the scope of such opinion to the laws of California and the federal laws of the United States. (l) Non-Competition Agreement. The Seller shall have executed and ------------------------- delivered to the Buyer a non-competition and non-disclosure agreement in substantially the form of Exhibit D attached hereto (the "Non-Competition --------- Agreement"). (m) Due Diligence. The Buyer shall have been satisfied, in its sole ------------- discretion, with the results of its due diligence review with respect to the Company's business. (n) Employment Agreement. John M. Somers shall have entered into an -------------------- employment contract with the Company on terms acceptable to the Buyer. 33 6.2 Conditions to Obligations of the Company and the Seller. The ------------------------------------------------------- obligations of the Company and the Seller to consummate this Agreement and the transactions contemplated hereby are subject to the fulfillment, prior to or at the Closing, of the following conditions precedent: (a) Representations and Warranties. Each of the representations and ------------------------------ warranties of the Buyer in this Agreement shall remain true and correct at the Closing Date, and the Buyer shall, on or before the Closing Date, have performed all of its obligations under this Agreement and the other Purchase Documents which by the terms thereof are to be performed by it on or before the Closing Date. (b) No Pending Action. No legislation, order, rule, ruling or ----------------- regulation shall have been proposed, enacted or made by or on behalf of any governmental body, department or agency, and no legislation shall have been introduced in either House of Congress or in the legislature of any state, and no investigation by any governmental authority shall have been commenced or threatened, and no action, suit, investigation or proceeding shall have been commenced before, and no decision shall have been rendered by, any court or other governmental authority or arbitrator, which, in any such case, was not known by the Company or the Seller on the date hereof or which could adversely affect, restrain, prevent or rescind the transactions contemplated by this Agreement (including, without limitation, the purchase and sale of the Shares) or result in a Material Adverse Effect. (c) Corporate Documents. The Buyer shall have delivered to the ------------------- Seller: (i) a Secretary's Certificate of the Clerk of the Buyer certifying (x) the incumbency and genuineness of signatures of all officers of the Buyer executing this Agreement, any document delivered by the Buyer at the Closing and any other document, instrument or agreement executed in connection herewith, (y) the truth and correctness of resolutions of the Buyer authorizing the entry by the Buyer into this Agreement and the transactions contemplated hereby and (z) the truth, correctness and completeness of the By-Laws of the Buyer; (ii) the Charter of the Buyer, certified as of a recent date by the Secretary of State of the Commonwealth of Massachusetts; and (iii) certificate of corporate good standing and legal existence of the Buyer as of a recent date from the Secretary of State of the Commonwealth of Massachusetts. (d) Opinion of Counsel to Buyer. The Seller shall have received a --------------------------- favorable opinion, dated the Closing Date and satisfactory in form to the Seller, of Hutchins, Wheeler & Dittmar, A Professional Corporation, counsel to the Buyer, in substantially the form attached hereto as Exhibit E. In rendering --------- such opinion such counsel may, to the extent it may deem such reliance or limitation is proper, (a) rely on (x) certificates of public officials, and (y) 34 certificates, in form and substance satisfactory to the Company, of the Buyer or officers of the Buyer and (b) limit the scope of such opinion to the laws of the Commonwealth of Massachusetts and the federal laws of the United States. (e) Release of Guaranty. The Seller shall have been released from ------------------- any liability under his guaranty of the indebtedness of the Company owed to Sanwa Bank of California. ARTICLE VII TERMINATION ----------- 7.1 Termination of Agreement. This Agreement and the transactions ------------------------ contemplated hereby may (at the option of the party having the right to do so) be terminated at any time on or prior to the Closing Date: (a) Mutual Consent. By mutual written consent of the Buyer and the -------------- Seller; (b) Court Order. By the Buyer, the Company or the Seller if any ----------- court of competent jurisdiction shall have issued an order pursuant to the request of a third party restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement; (c) Failure to Close By June 30, 1996. By the Buyer or the Seller if --------------------------------- the transactions contemplated hereby shall not have been consummated on or before June 30, 1996, provided, however, that such right to terminate this -------- ------- Agreement shall not be available to any party whose failure to fulfill any obligation of this Agreement has been the cause of, or resulted in, the failure of the transactions contemplated hereby to be consummated on or before such date; (d) Termination by Seller. By the Seller upon notice to the Buyer at --------------------- any time prior to June 30, 1996 if (i) a condition to the performance of the Seller set forth in Section 6.2 hereof shall not be fulfilled at the time specified for the fulfillment thereof, (ii) a material default under or a material breach of this Agreement shall be made by the Buyer or (iii) any representation or warranty set forth in this Agreement or in any instrument delivered by the Buyer pursuant hereto shall be materially false or misleading; or (e) Termination by Buyer. By the Buyer by notice to the Company and -------------------- the Seller at any time prior to June 30, 1996 if (i) a condition to the performance of the Buyer set forth in Section 6.1 hereof shall not be fulfilled at the time specified for the fulfillment thereof, (ii) a material default under or a material breach of this Agreement shall be made by the Company or the Seller or (iii) any representation set forth in this Agreement or in any 35 instrument delivered by the Company or the Sellers pursuant hereto shall be materially false or misleading. 7.2 Effect of Termination and Right to Proceed. If this Agreement is ------------------------------------------ terminated pursuant to this Article VII, then except as provided below, all further obligations of the Buyer, the Company and the Sellers under this Agreement shall terminate without further liability of the Buyer or any Affiliate thereof to the Seller or the Company or of the Seller or the Company to the Buyer or any Affiliate thereof, except with respect to the obligations set forth in Sections 7.1, 9.1 and 9.2, and except, in the case of termination pursuant to Section 7.1(d) or Section 7.1(e), as to liability for misrepresentation, breach or default in connection with any warranty, representation, covenant or obligation given, occurring or arising to the date of termination. In addition, anything in this Agreement to the contrary notwithstanding, if any of conditions to obligations specified in Sections 5.1, 5.2 or 5.3 hereof have not been satisfied, the Buyer, in addition to any other rights which it may have, shall have the right to waive its rights to have such conditions satisfied and elect to proceed with the transactions contemplated hereby and, if any of the conditions to the obligations of the Sellers specified in Section 5.4 hereof have not been satisfied, the Seller, in addition to any other rights which may be available to him, shall have the right to waive their rights to have such conditions satisfied and elect to proceed with the transactions contemplated hereby. ARTICLE VIII INDEMNIFICATION --------------- 8.1 Survival of Representations and Warranties. The parties hereto agree ------------------------------------------ to shorten the applicable period of limitation of claims made under representations and warranties, and for that purpose each and every such representation and warranty set forth in this Agreement (including the Officer's Certificates required by Sections 6.1(a) and 6.2(a) above), shall survive until the first anniversary of the Closing Date. From and after expiration of the period of survival with respect to such respective representations and warranties of the Seller and the Buyer, neither the Seller nor the Buyer, nor any Affiliate of the Seller or the Buyer shall have any liability whatsoever with respect to any such representation or warranty, except for breaches as to which any party shall have notified the other party prior to such date. This Section 8.1 shall have no effect upon any other obligation of the parties hereto, whether to be performed before or after the Closing Date. 8.2 Indemnification by Seller. The Seller hereby agrees to indemnify, ------------------------- defend and hold the Buyer, its officers, directors, employees, owners, agents and Affiliates, harmless from and in respect of any and all losses, damages, costs and expenses of any kind and nature whatsoever (including, without limitation, interest and penalties, reasonable expenses of investigation and court costs, reasonable attorneys' fees and disbursements and the reasonable fees and disbursements of other professionals) which may be sustained or suffered by any of 36 them (collectively, "Losses"), arising out of or resulting from any breach or inaccuracy of any representation or warranty or the breach of or failure to perform any warranty, covenant, undertaking or other agreement of the Company or the Seller contained in this Agreement or any other Purchase Document; provided, -------- however, that the maximum liability of the Seller pursuant to this Agreement for - ------- aggregate losses shall not exceed the Deferred Amount. The Seller shall have no right of contribution from the Company with respect to indemnification payments made hereunder by the Seller, nor shall the Seller have any right of subrogation with respect to claims which the Buyer may have against the Company. 8.3 Indemnification by Buyer. The Buyer hereby agrees to indemnify, ------------------------ defend and hold the Seller and the Company, its officers, directors, employees, consultants, owners, agents and Affiliates, harmless from and in respect of any and all Losses which may be sustained or suffered by any of them arising out of or resulting from any breach or inaccuracy of any representation or warranty or the breach of or failure to perform any warranty, covenant, undertaking or other agreement of the Buyer contained in this Agreement or any other Purchase Document and arising out of any and all actions, suits, claims and administrative or other proceedings of every kind and nature instituted or pending against any Seller or any of its Affiliates at any time before or after the Closing Date to the extent that such Losses (a) relate to or arise out of or in connection with the assets, businesses, operations, conduct, products and/or employees (including former employees) of the Company or any of its Subsidiaries, whether relating to or arising out of or in connection with occurrences before or after the Closing Date and (b) do not arise out of a breach or inaccuracy of Seller's representations and warranties in, or a breach or default in the performance of any warranty, covenant under, undertaking or other agreement contained in this Agreement or any other Purchase Document. 8.4 Minimum Indemnification. Notwithstanding anything to the contrary ----------------------- contained herein, the Buyer shall not be entitled to recover from the Seller unless and until, and then only to the extent that, the total of all claims for indemnity or damages with respect to any inaccuracy or breach of any such representations or warranties (other than those contained in Sections 3.3 and 3.26 above) or breach of or default in the performance of any covenants, undertakings or other agreements, whether such claims are brought under this Article VIII or otherwise, exceeds the sum of (i) Fifty Thousand Dollars ($50,000) plus (ii) one-half of the amount, if any, of any payments collected by the Company on or before June 14, 1997, from Alchemy, Inc., with respect to overdue accounts receivable (collectively, the "Deductible"). 8.5 Notice and Opportunity to Defend. If there occurs an event which a -------------------------------- party asserts is an indemnifiable event pursuant to Section 8.2 or 8.3, the parties seeking indemnification shall promptly notify the other parties obligated to provide indemnification (collectively, the "Indemnifying Party"). If such event involves (a) any Claim or (b) the commencement of any action, suit or proceeding by a third person, the party seeking indemnification will give such Indemnifying Party prompt written notice of such Claim or the commencement of such action, suit or proceeding, provided, however, that the failure to -------- ------- provide prompt notice as provided 37 herein will relieve the Indemnifying Party of its obligations hereunder only to the extent that such failure prejudices the Indemnifying Party hereunder. In case any such action, suit or proceeding shall be brought against any party seeking indemnification and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to participate therein and, to the extent that it desires to do so, to assume the defense thereof, with counsel reasonably satisfactory to such party seeking indemnification and, after notice from the Indemnifying Party to such party seeking indemnification of such election so to assume the defense thereof, the Indemnifying Party shall not be liable to the party seeking indemnification hereunder for any attorneys' fees or any other expenses, in each case subsequently incurred by such party, in connection with the defense of such action, suit or proceeding. The party seeking indemnification agrees to cooperate fully with the Indemnifying Party and its counsel in the defense against any such action, suit or proceeding. In any event, the party seeking indemnification shall have the right to participate at its own expense in the defense of such action, suit or proceeding. In no event shall an Indemnifying Party be liable for any settlement or compromise effected without its prior consent. If, however, the party seeking indemnification refuses its consent to a bona fide offer of settlement which the Indemnifying Party wishes to accept ---- ---- (which must include the unconditional release of the parties seeking indemnification from all liability with respect to the Claim at issue), the party seeking indemnification may continue to pursue such matter, free of any participation by the Indemnifying Party, at the sole expense of the party seeking indemnification. In such event, the obligation of the Indemnifying Party to the party seeking indemnification shall be equal to the lesser of (i) the amount of the offer or settlement which the party seeking indemnification refused to accept plus the costs and expenses of such party prior to the date the Indemnifying Party notifies the party seeking indemnification of the offer of settlement and (ii) the actual out-of-pocket amount the party seeking indemnification is obligated to pay as a result of such party's continuing to pursue such matter. 8.6 Contribution. If the indemnification provided for in Section 8.2 or ------------ 8.3, as the case may be, of this Agreement is unavailable to a party seeking indemnification in respect to any Losses, then the Indemnifying Party, in lieu of indemnifying such party seeking indemnification, shall have an obligation to contribute, and shall contribute, to the amount paid or payable by such party seeking indemnification as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and the party seeking indemnification, on the other hand, in connection with the actions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and the parties seeking indemnification shall be determined by reference to, among other things, whether any action in question, including any breach or inaccuracy of any representation or warranty, relates to information supplied by the Indemnifying Party or the parties seeking indemnification and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it will not be just and equitable if contribution pursuant to the preceding provisions of this Section 8.6 were determined by any method of allocation which does not take into account the equitable considerations referred to in such 38 provisions. No Person guilty of fraudulent misrepresentation shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 8.7 Sole Source of Recovery. If a claim for indemnification is made by ----------------------- the Buyer as the Indemnified Party, the Buyer's sole remedy with respect to such claim shall be to recover the amount of such claimed indemnity from the Escrow Amount, as defined in that certain Escrow Agreement, of even date herewith, by and among the Seller, the Buyer and Hutchins, Wheeler & Dittmar, A Professional Corporation as escrow agent. Upon final determination of such claim, the Buyer may recover from the Escrow Amount the amount of which it is entitled hereunder. 8.8 Adjustment for Insurance and Taxes. The amount which an Indemnifying ---------------------------------- Party is required to pay to, for or on behalf of any other party (hereinafter referred to as an "Indemnitee") pursuant to this Article VIII shall be adjusted (including, without limitation, retroactively) (i) by any insurance proceeds actually recovered by or on behalf of such Indemnitee in reduction of the related indemnifiable loss (the "Indemnifiable Loss") and (ii) to take account of any Tax benefit realized as a result of any Indemnifiable Loss and within twelve months after such Indemnifiable Loss was incurred. Amounts required to be paid, as so reduced, are hereafter sometimes called an "Indemnity Payment." If an Indemnitee shall have received or shall have had paid on its behalf an Indemnity Payment in respect of an Indemnifiable Loss and shall subsequently receive insurance proceeds in respect of such Indemnifiable Loss, or realize any Tax benefit as a result of such Indemnifiable Loss, then the Indemnitee shall pay to the Indemnifying Party the amount of such insurance proceeds or Tax benefit or, if lesser, the amount of the Indemnity Payment. 8.9 Assignment of Account Receivable. To the extent that the Seller has -------------------------------- paid a Claim with respect to breach of the representations and warranties contained in Section 3.11, the Company shall, if requested by Seller, assign to Seller for no additional consideration, so much of the unpaid account receivable as equals the Claim so paid. The Buyer agrees that it shall cause the Company to seek to collect all accounts receivable which exist as of the Closing Date in accordance with the Company's historic practice; provided, however, that the Company shall be under no obligation to take any action to collect any receivable from Alchemy, Inc. The parties agree that for purposes of determining whether there has been any breach of the representations and warranties set forth in Section 3.11, there shall be taken into account only the net amount received by the Company with respect to outstanding accounts receivable, after taking into account all costs of collection. The Buyer agrees that any payment received by the Company from a customer after the Closing Date shall be applied against the oldest outstanding account receivable from such customer, unless, and then only to the extent, that the Customer has specifically directed that the payment be applied to a different account receivable or has contested or expressed an objection to any particular account receivable. 39 ARTICLE IX MISCELLANEOUS ------------- 9.1 Fees and Expenses. Each of the parties hereto will pay and discharge ----------------- its own expenses and fees in connection of with the negotiation of and entry into this Agreement and the consummation of the transactions contemplated hereby; provided that, if the Closing is not consummated as contemplated hereby, the Company shall pay the fees and expenses of counsel for the Company and the Company shall pay the fees and expenses of the accountants incurred in connection with the Financial Statements in accordance with Sections 5.1(d) and 5.4(c) hereof; provided further that, if the Closing does not occur, such accounting fees and expenses shall be paid one-half by the Buyer and one-half by the Company. 9.2 Publicity and Disclosures. Prior to the Closing, no press release or ------------------------- any public disclosure, either written or oral, of the transactions contemplated by this Agreement shall be made by any party without the prior knowledge and written consent of the Company and the Buyer. 9.3 Notices. All notices, requests, demands, consents and communications ------- necessary or required under this Agreement or any other Purchase Document shall be made in the manner specified, or, if not specified, shall be delivered by hand or sent by registered or certified mail, return receipt requested, or by telecopy (receipt confirmed) to: if to Buyer: Suburban Ostomy Supply Co., Inc. 75 October Hill Road Holliston, MA 01746 Attention: Stephen Aschettino Vice President and Chief Financial Officer Facsimile Transmission Number: (508) 429-7921 with a copy to: Hutchins, Wheeler & Dittmar A Professional Corporation 101 Federal Street Boston, MA 02110 Attention: James Westra Facsimile Transmission Number: (617) 951-1295 40 if to the Company or Seller: Patient-Care Medical Sales 10425 Slusher Drive Santa Fe Springs, CA 90670 Attention: Nate Spunt Facsimile Transmission Number: (310) 944-4774 with a copy to: George E. Atkinson, III, Esq. 500 North State College Blvd. Suite 1200 Orange, CA 92668 Facsimile Transmission Number: (714) 634-3869 All such notices, requests, demands, consents and other communications shall be deemed to have been duly given or sent two (2) days following the date on which mailed, or on the date on which delivered by hand or by facsimile transmission (receipt confirmed), as the case may be, and addressed as aforesaid. 9.4 Successors and Assigns. All covenants and agreements set forth in ---------------------- this Agreement and made by or on behalf of any of the parties hereto shall bind and inure to the benefit of the successors and assigns of such party, whether or not so expressed, except that none of the Seller or the Company may assign or transfer any of their respective rights or obligations under this Agreement without the consent in writing of the Buyer. 9.5 Descriptive Headings. The headings of the sections and paragraphs of -------------------- this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. 9.6 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 9.7 Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason in any jurisdiction, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected, it being intended that each of parties' rights and privileges shall be enforceable to the fullest extent permitted by law, and any such invalidity, illegality and unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the fullest extent permitted by law, the parties hereby waive any 41 provision of any law, statute, ordinance, rule or regulation which might render any provision hereof invalid, illegal or unenforceable. 9.8 Attorneys' Fees. In any action or proceeding brought to enforce any --------------- provision of this Agreement or the other Purchase Documents, or where any provision hereof or thereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. 9.9 Course of Dealing. No course of dealing and no delay on the part of ----------------- any party hereto in exercising any right, power, or remedy conferred by this Agreement shall operate as a waiver thereof or otherwise prejudice such party's rights, powers and remedies. The failure of any of the parties to this Agreement to require the performance of a term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. No single or partial exercise of any rights, powers or remedies conferred by this Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 9.10 Third Parties. Except as specifically set forth or referred to ------------- herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person, other than the parties hereto and their permitted successors or assigns, any rights or remedies under or by reason of this Agreement or any other Purchase Document. 9.11 Variations in Pronouns. All pronouns and any variations thereof refer ---------------------- to the masculine, feminine or neuter, singular or plural, as the identity of the Person or Persons may require. 9.12 WAIVER OF JURY TRIAL. EACH OF THE BUYER, THE COMPANY AND THE SELLER -------------------- HEREBY EXPRESSLY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OTHER PURCHASE DOCUMENT OR THE SHARES OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. THE COMPANY, THE SELLER AND THE BUYER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL- ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE COMPANY, THE SELLER AND THE BUYER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH VOLUNTARILY WAIVES ITS JURY TRIAL 42 RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAVIER IS IRREVOCABLE AND MAY ONLY BE MODIFIED EITHER ORALLY OR IN AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER PURCHASE DOCUMENT OR THE SHARES. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT. 9.13 GOVERNING LAW. THIS AGREEMENT, INCLUDING THE VALIDITY HEREOF AND THE ------------- RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY IN SUCH STATE (WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF). 9.14 Entire Agreement. This Agreement, including the Schedules and ---------------- Exhibits referred to herein, is complete, and all promises, representations, understandings, warranties and agreements with reference to the subject matter hereof, and all inducements to the making of this Agreement relied upon by all the parties hereto, have been expressed herein or in said Schedules or Exhibits. This Agreement may not be amended except by an instrument in writing signed on behalf of the Company, the Buyer and the Seller. * * * * * * 43 IN WITNESS WHEREOF the parties hereto have executed this Agreement under seal as of the date first set forth above. ATTEST: PATIENT-CARE MEDICAL SALES /s/ George Atkinson By: /s/ Nate Spunt - -------------------------------- -------------------------------- Nate Spunt Chief Executive Officer ATTEST: SELLER /s/ George Atkinson - -------------------------------- ----------------------------------- Nate Spunt, Individually ATTEST: /s/ George Atkinson - -------------------------------- ----------------------------------- Elaine Spunt, Individually ATTEST: SUBURBAN OSTOMY SUPPLY CO., INC. /s/ James Westra By: /s/ Stephen N. Aschettino - -------------------------------- -------------------------------- Stephen N. Aschettino, Vice President 44 EX-10.32 36 ESCROW AGREE AMONG CO AND PATIENT CARE EXHIBIT 10.32 ESCROW AGREEMENT ---------------- This Agreement is made as of the 14th day of June, 1996 by and among Suburban Ostomy Supply Co., Inc. (the "Buyer"), Nate Spunt and Elaine Spunt (collectively, the "Seller"), as defined in that certain Stock Purchase Agreement (the "Purchase Agreement") relating to the Purchase of Patient-Care Medical Sales (the "Company") and Hutchins, Wheeler & Dittmar, A Professional Corporation, as escrow agent (the "Escrow Agent"), acting through one of its stockholders, James Westra. WITNESSETH A. The Seller, the Buyer and the Company have executed the Purchase Agreement dated as of June ___, 1996. Capitalized terms used herein and not otherwise defined herein having the meanings ascribed to them in the Purchase Agreement. B. Pursuant to the terms of the Purchase Agreement, the Seller and the Buyer, among other things, have agreed that payment of a portion of the Purchase Price shall be deferred to fund payment of any indemnity Claims to which Buyer may be entitled as a result of the breach by the Company or the Seller of any representations, warranties or covenants contained in the Purchase Agreement. C. The Purchase Agreement provides that proceeds of a Letter of Credit in the benefit amount of $375,000 shall be paid to the Escrow Agent to be held in accordance with the terms of this Agreement. D. This Escrow Agreement is the escrow agreement provided for and contemplated in the Purchase Agreement. NOW THEREFORE, the Buyer, the Seller and the Escrow Agent hereby agree as follows: 1. Payment into Escrow ------------------- (a). Concurrently with the execution of this Escrow Agreement, the Buyer shall deliver to the Escrow Agent a letter of credit in the form of Exhibit A --------- attached hereto (the "Letter of Credit"). The Escrow Agent shall submit the Letter of Credit for payment within three Business Days after the same becomes due and payable. All amounts paid under the Letter of Credit (the "Escrow Amount") shall be deposited in a segregated escrow account (the "Escrow Account"). (b). If prior to the first anniversary of the Closing Date the Buyer delivers to the Escrow Agent written notice that it has asserted a Claim under the Purchase Agreement, specifying the amount of such Claim, then such of the Escrow Amount as equals the aggregate of all such Claims shall be retained in the Escrow Account until the first to occur of (i) receipt by the Escrow Agent of written directions, signed by each of the Seller and the Buyer, directing disposition of such retained amount, in which event the Escrow Agent shall distribute such retained amount in accordance with the terms of such instructions; or (ii) receipt by the Escrow Agent of an order of a court of competent jurisdiction, which order is not subject to appeal, to the effect that either the Buyer or the Seller, as the case may be, shall be entitled to the Escrow Amount, in which event the Escrow Agent shall distribute such Escrow Amount in accordance with such order. (c). To the extent that the Escrow Amount exceeds the aggregate amount of Claims asserted by the Buyer prior to the first anniversary of the Closing Date, then such excess shall be promptly paid to the Seller. (d). If no notice of an asserted Claim is received by the Escrow Agent prior to the first anniversary of the Closing Date, then promptly after such first anniversary the entire Escrow Amount shall be paid by the Escrow Agent to the Seller without further instructions from either party. 2. Investment of Funds; Payment of Interest. ---------------------------------------- The Escrow Amount shall be invested by the Escrow Agent only in an interest-bearing escrow account in a financial institution acceptable to both Buyer and Seller. Interest, if any, earned on such Escrow Amount shall be retained in escrow and shall be deemed to be part of such Escrow Amount to be distributed as provided in Section 1. The Escrow Agent shall cause the depository institution to deliver monthly account statements to Buyer and Seller. 3. General Terms as to Escrow Agent. -------------------------------- (a). The Escrow Agent shall not in any way be bound or affected by any notice of modification or cancellation of this Escrow Agreement unless in writing signed by Buyer and Seller. The Escrow Agent shall be entitled to rely upon any notice, certification, demand or other writing delivered to it hereunder, in the manner prescribed herein, by Buyer and Seller without being required to determine the authenticity or the correctness of any fact stated therein, the propriety or validity of the service thereof, or the jurisdiction of the court issuing any judgment. (b). The Escrow Agent may act in reliance upon any signature believed by it to be genuine, may assume that any person purporting to give any notice or receipt of advice or make any statements in connection with the provisions hereof has been duly authorized to do so, and may further assume that any notice given by it in the manner prescribed herein has been received in due course. (c). The Escrow Agent may act relative hereto in reliance upon advice of counsel in reference to any matter connected herewith, and shall not be liable for any mistake of fact or 2 error of judgment, or for any acts or omissions of any kind, unless caused by its willful misconduct or gross negligence. The Escrow Agent shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized hereby, nor for action taken or omitted by it in accordance with the advice of its counsel. Under no circumstance shall the Escrow Agent be liable for any consequential or punitive damages, or for any failure, refusal or inability on the part of the issuer of the Letter of Credit to make payment thereunder. (d). The Escrow Agent may resign and be discharged of its duties as Escrow Agent hereunder by giving ten (10) days written notice to Buyer and Seller. Such resignation shall take effect upon receipt by the Escrow Agent of an instrument of acceptance executed by a successor escrow agent approved in writing by Buyer and Seller and upon delivery by the Escrow Agent to such successor of all of the Escrow Amount then held by it. In the event that a successor escrow agent is not appointed, the Escrow Agent may petition a court of competent jurisdiction to appoint such successor escrow agent. In the event a dispute of any kind arises in connection with this Escrow Agreement, the Escrow Agent may, in its sole discretion, elect to pay all or any portion of the Escrow Amount to the Superior Court of the Commonwealth of Massachusetts for Suffolk County, to the in personam jurisdiction of which Court each of the parties hereto hereby irrevocably submits for the resolution of such dispute; or, in the alternative, in the event such Court lacks or declines to assert in rem jurisdiction over the Escrow Amount or such dispute, the payment may be made to the Superior Court of the Commonwealth of Massachusetts, the particular division of which Court, for venue purposes, shall be governed by appropriate Massachusetts statutory provision and rules of procedures, to the in personam jurisdiction of which Court each of the parties hereto, in such event, hereby irrevocably submits for a resolution of such dispute. In the event of such payment, it is understood that Escrow Agent will have no further obligation to the other parties hereto with respect to the amount so paid. (e). If Seller and Buyer do not join in instructions to the Escrow Agent in accordance with any final court order or an award of an arbitrator, the Escrow Agent may rely on such final court order or award and shall deliver or not deliver the Escrow Amount in accordance with said order or award. (f). Buyer and Seller hereby agree, jointly and severally, to indemnify and hold the Escrow Agent harmless from any loss, liability or expense, arising out of or related to this Escrow Agreement, and for all reasonable fees, costs and expenses, including the reasonable fees and expenses of counsel, incurred by Escrow Agent in connection with this Escrow Agreement. The Escrow Agent shall not receive any compensation for its services rendered hereunder. (g). The duties and obligations of the Escrow Agent shall be determined solely by the express provisions of this Escrow Agreement and are purely ministerial in nature, and the Escrow Agent shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Escrow Agreement. The Escrow Agent specifically shall have no liability under or duty to inquire into the terms and provisions of the Assignment Agreement. 3 (h). The Seller and Buyer acknowledge that the Escrow Agent is counsel for the Buyer, and so long as the Buyer and the Escrow Agent so desire, may continue to act as such counsel notwithstanding any dispute or litigation arising with respect to the Escrow Amount or the duties of the Escrow Agent. 4. Miscellaneous. ------------- (a). Termination of Escrow Agreement. This Escrow Agreement shall ------------------------------- terminate when the entire Escrow Amount held by the Escrow Agent shall have been delivered to the party or parties entitled thereto pursuant to the terms hereof. (b). Assignees. All the terms and provisions hereof shall be binding upon --------- and inure to the benefit of and be enforceable by the representatives, successors, heirs and assigns of the parties hereto. (c). Entire Understanding. This Escrow Agreement and the Purchase -------------------- Agreement together constitute the entire understanding between the parties with respect to the subject matters hereof (other than the Escrow Agent, for which this Escrow Agreement constitutes the entire understanding between it and Buyer and Seller), superseding all negotiations, prior discussion and preliminary agreements. In the event of any conflict in language between this Escrow Agreement and the Purchase Agreement, the language of this Escrow Agreement shall prevail. This Escrow Agreement may not be changed except in writing by an instrument executed by Seller, Buyer and the Escrow Agent. (d). Waivers. No waiver of any provisions of this Escrow Agreement nor ------- waiver of any breach or default under this Escrow Agreement shall be considered valid unless in writing and signed by the party purported to have given such waiver, and no such waiver shall be deemed a waiver of any other provision or any subsequent breach or default of a similar nature. Termination of this Escrow Agreement for any reason or insufficiency of the Escrow Amount or any release of the Escrow Amount, shall not be deemed to waive, terminate, diminish, limit, or modify the obligations of Seller under the indemnification agreements or other payment provisions within the Purchase Agreement, or otherwise limit Buyer's other rights and remedies as a result of any such default by Seller thereunder. (e). Severability of Provisions. The invalidity or unenforceability of -------------------------- any particular provision of this Escrow Agreement shall not affect the other provisions hereof and this Escrow Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. (f). Headings. Section headings are contained in this Escrow Agreement -------- only for purposes of convenience of reference and shall not affect the interpretation of this Escrow Agreement or modify any of its terms or provisions. 4 (g). Governing Law. This Escrow Agreement shall be construed and enforced ------------- according to the laws of The Commonwealth of Massachusetts. (h). Notices. Any notice, demand, offer or other writing required or ------- permitted pursuant to this Escrow Agreement shall be as provided in the Purchase Agreement if to the Buyer of the Seller and if to the Escrow Agent to Hutchins, Wheeler & Dittmar, A Professional Corporation, 101 Federal Street, Boston, Massachusetts 02110, Attention: James Westra, Esquire. Any party shall have the right to change the place to which such notice shall be given by similar notice sent in like manner to all other parties hereto. Any such notice, if sent by private express overnight courier service, shall be deemed delivered on the earlier of the date of actual delivery or the next business day following deposit, postage prepaid, with such private express overnight courier service. 5. No Limitation on Remedies. Nothing herein set forth shall prevent the ------------------------- parties from settling any dispute by mutual agreement at any time. Further, the parties recognize that in some instances damages may not afford an adequate or proper remedy and, therefore, agree that in the event it is determined by either party that such an instance exists, such violations of this Escrow Agreement shall be the proper subject for a suit for specific performance and/or injunctive relief, and in any such instance neither party shall be required to resort to arbitration but may seek equitable remedy in a court of competent jurisdiction. 6. Attorney's Fees. In the event of litigation between the Seller and the --------------- Buyer with respect to their respective rights and obligations under this Escrow Agreement, the party which prevails in any such litigation shall pay the reasonable fees and expenses of counsel for the other party. * * * * * * 5 IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be duly executed as of the day and year first written above. Witness: SUBURBAN OSTOMY SUPPLY CO., INC. /s/ James Westra By: /s/ Stephen N. Aschettino - ------------------------- ---------------------------------- Title: Witness: SELLER /s/ George Atkinson /s/ Nate Spunt - ------------------------- ------------------------------------- Nate Spunt Witness: /s/ George Atkinson /s/ Elaine Spunt - ------------------------- ------------------------------------- Elaine Spunt Witness: HUTCHINS, WHEELER & DITTMAR, A Professional Corporation /s/ Stephen N. Aschettino By: /s/ James Westra - ------------------------- ---------------------------------- James Westra, Stockholder 6 EX-10.33 37 NON COMPETITION BY NATE SPUNT EXHIBIT 10.33 NON-COMPETITION AGREEMENT ------------------------- This Non-Competition Agreement is made as of the 14th day of June, 1996 by Nate Spunt, an individual residing at 551 Eveningsong Lane, Anaheim, California 92808 ("Mr. Spunt") for the benefit of Suburban Ostomy Supply Co., Inc. ("Suburban") and Patient-Care Medical Sales (the "Company"). RECITALS -------- Pursuant to a certain Purchase Agreement, dated as of June , 1996, (the "Purchase Agreement") Suburban is acquiring all of the outstanding capital stock of the Company. Mr. Spunt is the President of the Company and the owner of all of the outstanding capital stock of the Company. Mr. Spunt is executing this Non-Competition Agreement as an inducement to Suburban to enter into and perform under the Purchase Agreement. WITNESSETH: ---------- NOW, THEREFORE, in consideration of (i) the execution by Suburban of the Purchase Agreement and its performance thereunder, (ii) the acquisition by Suburban of all of the shares of capital stock of the Company in accordance with the terms of the Purchase Agreement and (iii) the payment by the Company of those sums set forth in Section 3 below, Mr. Spunt hereby agrees as follows: 1. Non-Competition. Mr. Spunt hereby agrees to abide by the following --------------- non-competition covenants: (a) For a period of three (3) years after the date hereof, Mr. Spunt shall not, directly or indirectly, alone or as a member of any partnership or other business organization, or as a partner, officer, director, employee, stockholder, consultant or agent of any corporation, partnership or business organization, (i) engage in any business activity which is in competition with the products or services which are being developed, manufactured, marketed, provided or sold by the Company as of the date hereof, (ii) request or cause any customer of the Company to cancel or terminate any business relationship with the Company, or (iii) solicit or otherwise cause any employee of the Company to terminate such employee's relationship with the Company. (b) The geographic scope of the restrictive covenants set forth in this Section 1 shall be the following states: Alaska, Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Louisiana, Massachusetts, Minnesota, Missouri, North Carolina, New Mexico, Nevada, New York, Oklahoma, Ohio, Oregon, Pennsylvania, Texas, Virginia, Washington and Wyoming. 2. Non-Disclosure. -------------- (a) Mr. Spunt will not at any time, whether during or after the termination of cessation of his employment or engagement by the Company, reveal to any person, association or company any of the trade secrets or confidential information concerning the organization, business or finances of the Company or Suburban so far as they have come or may come to his knowledge, except as may be required in the ordinary course of performing his duties as an employee or consultant of the Company or except as may be in the public domain through no fault of Mr. Spunt, and Mr. Spunt shall keep secret all matters entrusted to him and shall not use or attempt to use any such information in any manner which may injure or cause loss or may be calculated to injure or cause loss, whether directly or indirectly, to the Company or Suburban. (b) Notwithstanding the foregoing, Mr. Spunt shall be entitled to disclose trade secrets and confidential information of the Company to the extent compelled to do so in response to judicial process or summons, or as otherwise required by law. In such event, Mr. Spunt shall give the Company prompt notice of the receipt of any judicial process or summons, and will cooperate with the Company to obtain a protective order with respect to the trade secrets or confidential information of the Company. If such an order cannot be obtained, Mr. Spunt will disclose only such information as he is advised by written opinion of his counsel that must be disclosed. 3. Consideration. This Agreement is being executed by Mr. Spunt as an ------------- inducement to Suburban to enter into and perform under the Purchase Agreement, and the parties agree that $100,000 of the Purchase Price (as defined in the Purchase Agreement) has been allocated to the covenants of Mr. Spunt contained in this Agreement. 4. Right to Injunction. Mr. Spunt acknowledges and agrees that ------------------- irreparable and immediate damage will result to the Company if he fails to, refuses to or neglects to perform his agreements and obligations hereunder. In the event of such a failure, refusal or neglect by Mr. Spunt, Suburban and the Company shall be entitled to injunctive relief or any other legal or equitable remedies including the recovery, by appropriate action, of the amount of the actual damage caused the Company by any such failure, refusal or neglect by Mr. Spunt. The remedies provided in this Agreement shall be deemed cumulative and the exercise of one shall not preclude the exercise of any other remedy at law or in equity for the same event or any other event. 5. No Guarantee of Employment or Engagement. Nothing herein shall be ---------------------------------------- deemed to constitute an agreement on the part of Suburban or the Company to employ or engage Mr. Spunt for any stated term or to limit the Company's right to terminate the employment or engagement of Mr. Spunt at any time, with or without notice and with or without cause. - 2 - 6. Miscellaneous. ------------- (a) Amendments. Mr. Spunt acknowledges that the execution and ---------- delivery of this Agreement is a condition to the closing of the transaction set forth in the Purchase Agreement. No amendment, modification or waiver of any of the terms of this Agreement shall be valid unless made in writing and signed by Mr. Spunt, the Company and Suburban. (b) Successors in Interest. All provisions of this Agreement shall ---------------------- survive the termination or cessation of Mr. Spunt's employment with the Company and shall be binding upon and inure to the benefit of and be enforceable by the Company, Suburban and their respective successors and assigns. (c) Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties with respect to the matters contained herein. (d) Waiver. The waiver by Suburban or the Company of a breach of ------ this Agreement by Mr. Spunt shall not operate or be construed as a waiver of any subsequent breach by Mr. Spunt. (e) Severability. If any provision of this Agreement shall ------------ contravene any law of any particular state where Mr. Spunt shall perform services for the Company, then this Agreement shall be first construed to be limited in scope and duration so as to be enforceable in that state, and if still unenforceable, shall then be construed as if such provision is not contained herein. (f) Governing Law. This Agreement shall be governed by the laws of ------------- the State of California applicable to agreements made and to be performed entirely in such State. * * * * * * - 3 - IN WITNESS WHEREOF, Mr. Spunt has caused this Non-Competition Agreement to be executed as of the date first above written. /s/ Nate Spunt -------------------------------- Nate Spunt - 4 - EX-10.34 38 EMPLOYMENT AGREE BTE CO. AND JOHN SONDERS EXHIBIT 10.34 EMPLOYMENT AGREEMENT -------------------- This Agreement is made as of the 14th day of June, 1996 between Patient- Care Medical Sales, a California corporation (the "Company"), and John M. Somers, an individual residing at 547 Eveningsong Lane, Anaheim, CA 92808 (the "Employee"). RECITALS -------- WHEREAS, the Company has entered into a Stock Purchase Agreement relating to the Purchase of Patient-Care Medical Sales dated as of June 14, 1996, by and among the Company, Nate Spunt ("Spunt") and Suburban Ostomy Supply Co., Inc. ("Suburban"), pursuant to which Suburban has agreed to purchase from Spunt all of the outstanding capital stock of the Company (the "Acquisition"); and WHEREAS, Patient Care desires to employ the Employee to serve as President of the Company after the Acquisition; WHEREAS, the Employee has indicated his willingness to serve as President of the Company after the Acquisition; and WHEREAS, the parties desire to set forth the terms and conditions under which the Employee shall be employed by the Company and upon which the Company shall compensate the Employee. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as its President, ---------- and the Employee accepts such employment for the Term of employment (as defined in Section 3 below). During the Term, the Employee shall, subject to the direction of the Board of Directors of the Company, be responsible for conducting the operations of the Company and shall perform such other duties of an executive nature as may from time to time be reasonably assigned to him by the Board of Directors. 2. Performance. The Employee agrees to devote his best efforts and ----------- substantially all of his business time to the performance of his duties hereunder during the Term; provided that during each twelve-consecutive-month period during the Term the Employee shall be entitled to not more than forty hours of paid time for the purpose of continuing his education to maintain his position as a certified public accountant. The Company will also reimburse up to $1,500 for each such twelve-month period of expenses incurred by the Employee in pursuing such education and dues to maintain such certification. 3. Employment Term. The Term shall begin on the date hereof and continue --------------- until the date twelve months from the date hereof (the "Initial Term"), unless earlier terminated in accordance with the terms of this Agreement, and thereafter shall automatically be extended for successive one year terms unless either party gives notice of its intent to terminate at least ninety (90) days prior to the expiration of the Initial Term or any extension thereof. The Initial Term, as it may be so extended, is referred to herein as the Term. 4. Compensation. ------------ (a) Salary. During the Term, the Company shall pay the Employee a ------ base salary, payable in equal monthly installments, subject to withholding and other applicable taxes, at an annual rate of One Hundred and Ten Thousand Dollars ($110,000.00). (b) Bonus Plan. Within ninety days after commencement of the Initial ---------- Term, the Company will develop an executive cash bonus plan in which the Employee will be entitled to participate, with any payments thereunder to be conditioned upon achievement by the Company of such objectives as the Board of Directors shall from time to time deem appropriate. (c) Insurance; Other Benefits. The Employee shall be entitled to ------------------------- participate in the employee benefit plans listed on Schedule 1 attached hereto, ---------- and any such plans as the Company may adopt from time to time to replace such plans. (d) Vacation. The Employee shall be entitled to take four weeks of -------- paid vacation during each year of the Employment Term, to be taken at such time or times as shall be mutually convenient and consistent with his duties and obligations to the Company. One-half of any vacation not used by the Employee during any year shall be carried forward to the immediately succeeding year; provided that in no event may more than two weeks be carried forward to any year. (e) Car. During the first year of the Term (or until the earlier --- termination of this Agreement), the Company shall make available to the Employee an automobile comparable to that currently made available by the Company to the Employee. The Company shall be responsible for insuring such automobile and for the costs of registration, but the Employee shall pay all costs associated with its operation, including gas and service. Within fifteen days after expiration of the Initial Term (or the earlier termination of this Agreement), the Employee may purchase such automobile at a price equal to the greater of (i) the amount at which such automobile is carried on the books and records of the Company, or (ii) the amount owed by the Company with respect to such automobile. 5. Expenses. The Employee shall be reimbursed by the Company for all -------- reasonable expenses incurred by him in connection with the performance of his duties hereunder and in -2- accordance with any policies established by the Board of Directors from time to time and upon receipt of appropriate documentation. 6. Agreement Not to Compete. ------------------------ (a) In consideration of the employment of the Employee hereunder and the equity arrangements being provided to the Employee, the Employee agrees that during the Non-Competition Period (defined below) he will not, directly or indirectly, alone or as a member of any partnership or other business organization, or as a partner, officer, director, employee, stockholder, consultant or agent of any corporation, partnership or business organization, (i) engage in any business activity which is in competition with the products or services which are being developed, manufactured, marketed, provided or sold by the Company or Suburban as of the date hereof, (ii) request or cause any customer of the Company or Suburban to cancel or terminate any business relationship with the Company or Suburban, as the case may be, or (iii) solicit or otherwise cause any employee of the Company to terminate such employee's relationship with the Company or Suburban, as the case may be. The "Non- Competition Period" shall mean the period ending one year after the termination of the Employee's employment hereunder for any reason in accordance with Section 8 hereof. (b) If a court determines that the foregoing restrictions are too broad or otherwise unreasonable tinder applicable law, including with respect to time or space, the court is hereby requested and authorized by the parties hereto to revise the foregoing restrictions to include the maximum restrictions allowed under the applicable law. 7. Secret Processes and Confidential Information. --------------------------------------------- (a) The Employee will not at any time, whether during or after the termination of cessation of his employment or engagement by the Company, reveal to any person, association or company any of the trade secrets of confidential information concerning the organization, business or finances of the Company so far as they have come or may come to his knowledge, except as may be required in the ordinary course of performing his duties as an employee or consultant of the Company or except as may be in the public domain through no fault of the Employee, and the Employee shall keep secret all matters entrusted to him and shall not use or attempt to use any such information in any manner which may injure or cause loss or may be calculated to injure or cause loss, whether directly or indirectly, to the Company. (b) Notwithstanding the foregoing, the Employee shall be entitled to disclose trade secrets and confidential information of the Company to the extent compelled to do so in response to judicial process or summons, or as otherwise required by law. In such event, the Employee shall give the Company prompt notice of the receipt of any judicial process or summons, and will cooperate with the Company to obtain a protective order with respect to the trade secrets or confidential information of the Company. If such an order cannot be -3- obtained, the Employee will disclose only such information as he is advised by written opinion of his counsel that must be disclosed. 8. Termination. ----------- (a) Termination at End of Term. The employment of the Employee hereunder -------------------------- may be terminated by either party by notice given to the other at least ninety (90) days prior to expiration of the Initial Term or any extension thereof. (b) Termination by the Company With Cause. The Company shall have the ------------------------------------- right at any time to terminate the Employee's employment hereunder upon the occurrence of any of the following (any such termination being referred to as a termination for "Cause"): (i) the commission by the Employee of any embezzlement or other deliberate and premeditated act of dishonesty against the financial or business interests of the Company; (ii) the habitual drug addiction or intoxication of the Employee; (iii) the conviction by the Employee of or the pleading by the Employee of nolo contendere to, a felony; (iv) the willful failure or refusal of the Employee to perform the duties specified in and pursuant to Section 1 hereof, which failure or refusal is not cured within 15 days subsequent to notice from the Company to the Employee specifying the nature of such failure or refusal; or (v) the breach by the Employee of any terms of this Agreement, which breach is not cured within 15 days subsequent to notice from the Company to the Employee specifying such breach. (c) Termination Upon Death or Disability. The Employee's employment ------------------------------------ hereunder shall automatically terminate upon the Employee's death or upon his inability to perform his duties hereunder by reason of any mental, physical or other disability for a period of at least six consecutive months, as determined by a qualified physician. (d) Termination by the Company Without Cause. The Company shall have the ---------------------------------------- right to terminate the Employee's employment at any time for any reason without Cause. 9. Effect of Termination of Employment. ----------------------------------- (a) With Cause; Resignation; Death or Disability. If the Employee's -------------------------------------------- employment is terminated in accordance with the provisions of Section 8(a) or is terminated -4- with Cause pursuant to Section 8(b), if the Employee's employment is terminated by the death or disability of the Employee pursuant to Section 8(c), or if the Employee elects to terminate his employment, the Employee's salary and other benefits specified in Section 4 shall cease at the time of such termination; provided, however, that the Employee shall be entitled to continue to participate in the Company's medical benefit plans to the extent required by law. (b) Without Cause by the Company. If the Employee's employment is ---------------------------- terminated by the Company without Cause pursuant to Section 8(d), the Employee's salary and other benefits specified in Sections 4 shall cease at the time of such termination, provided that the Employee shall be entitled to receive as severance benefits payments at the rate of his base salary in effect, which payments shall be made over the remaining balance of the Term. The Employee shall not be required to mitigate the amount of any payment provided for in his Section 9(b) by seeking other employment or otherwise, but if the Employee does obtain employment, the amount of compensation received from such other employment source during the period that the Company is required to make payments hereunder shall reduce on a dollar-for-dollar basis the amount of payments otherwise payable by the Company hereunder. The parties agree that severance payments under this Section 9(b) shall be paid in lieu of any and all obligations which the Company may have arising out of termination of this Agreement. 10. Right to Injunction. The Employee acknowledges and agrees that ------------------- irreparable and immediate damage will result to the Company if he fails to, refuses to or neglects to perform his agreements and obligations under Sections 6 and 7 hereof. In the event of such a failure, refusal or neglect by the Employee, Suburban and the Company shall be entitled to injunctive relief or any other legal or equitable remedies including the recovery, by appropriate action, of the amount of the actual damage caused the Company by any such failure, refusal or neglect by the Employee. The remedies provided in this Agreement shall be deemed cumulative and the exercise of one shall not preclude the exercise of any other remedy at law or in equity for the same event or any other event. 11. Notice. Any notices required or permitted hereunder shall be in ------ writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses or such other address as to which notice is given in the manner provided herein: If to the Employee: Mr. John M. Somers 547 Eveningsong Lane Anaheim, CA 92808 If to Patient Care: Patient Care Medical Sales 10425 Slusher Drive Santa Fe Springs, CA 90670 with a copy to: Suburban Ostomy Supply Co., Inc. -5- 75 October Hill Road Holliston, MA 01746 Attn: Stephen N. Aschettino 12. General. ------- (a) Governing Law. The terms of this Agreement shall be governed by ------------- and construed under the laws of the State of California without regard to its principles of conflicts of laws. (b) Assignability. The Employee may not assign his interest in or ------------- delegate his duties under this Agreement. The Company may not assign the Agreement or the rights and obligations hereunder without consent of Employee; provided however, that the Company may assign this Agreement, in whole or in - ---------------- part, to Suburban without the consent of Employee. (c) Enforcement Costs. In the event that either the Company or the ----------------- Employee initiates an action or claim to enforce any provision or term of this Agreement, the costs and expenses (including attorney's fees) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principle claims. (d) Binding Effect. This Agreement shall be binding upon and inure to -------------- the benefit of the Company, its permitted successors and assigns and the Employee, his representatives and heirs. (e) Entire Agreement; Modification. This Agreement constitutes the ------------------------------ entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, this -------- Agreement shall continue for so long as any obligations remain under this Agreement. * * * * * * -6- IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. PATIENT-CARE MEDICAL SALES By: /s/ Stephen N. Aschettino ------------------------------ Name: Stephen N. Aschettino ------------------------------ Title: Vice President ------------------------------ EMPLOYEE /s/ John M. Somers ------------------------------------- John M. Somers -7- Schedule 1 Benefits --------
Group Health Insurance: Monthly Premium Medical - Blue Cross: $ 91.71 Dental $ 35.05 Life $ 5.40 ------- Total: $132.16
-8- EX-10.35 39 UPS GROUND INCENTIVE PROGRAM EXHIBIT 10.35 SUBURBAN OSTOMY UPS GROUND INCENTIVE PROGRAM CONTRACT CARRIER AGREEMENT Suburban Ostomy (Customer) and United Parcel Service, Inc. (UPS) have entered into the following Agreement. UPS is authorized to provide contract carrier service between all points in the 48 contiguous United States. Customer agrees that the terms of this Agreement include the understanding that this Agreement will meet the distinct needs of the Customer and that UPS will be the Customer's preferred carrier of choice. Accordingly; 1) This Agreement, which includes the terms and conditions contained in the UPS tariff and UPS Ground Service Guide in effect at the time of shipping, applies to eligible packages tendered by the Customer at all shipping locations as listed on Attachment A (Shipping Locations), to destinations listed on the Ground ZIP Codes Served Chart in the UPS Ground Service Guide. Shipping Locations may be added or deleted from this Agreement only by mutual consent. The UPS Tariff is maintained at local US offices. 2) Customer agrees to provide UPS daily with the shipping record documentation as specified by UPS, including gross charges for ground packages shipped. If Customer cannot supply UPS weekly with the gross ground package charges, ground charges will be based on a calculation of total ground volume tendered (less service offerings subject to incentive, e.g. Hundredweight) multiplied by Customers' average ground package charge, as determined by UPS. 3) UPS will provide the following service to Customer during the life of this Agreement: Assistance of: . Dedicated National Accounts Manager . Dedicated Customer Service telephone contact . Dedicated UPS Account Executive(s) . Business activity reports . Electronic Data Interchange capabilities 4) UPS agrees to offer GroundTrac to the Customer at no additional charge as long as incentive levels are met. Customer agrees to place an address label on each package tendered to UPS. Customer agrees to the following GroundTrac procedures: . To place a GroundTrac label on each GroundTrac package tendered to UPS from all shipping locations. . To record all GroundTrac packages on the shipping record documentation as specified by UPS. 5) UPS reserves the right to charge the Customer a minimum of $50.00 per week in addition to any other charges due to UPS, if the Customer does not tender to UPS a minimum of fifty ground packages per week. This fee may not apply provided that the Customer notified UPS of closings due to vacations, holidays, etc. 6) UPS agrees to grant the Customer an eleven point five percent (11.5%) discount from the published UPS ground Service Rate Chart in effect at the time of shipping. This discount will apply to ground volume less service offerings subject to incentive e.g. Hundredweight. The discount amount is contingent upon the Customer shipping a minimum of 9,000 packages weekly in contact year 1, and a minimum of 10,620 packages weekly in contract year 2, and upon the Customer maintaining its current shipping characteristics under this Agreement. Customer further agrees that discounts do not apply to Additional Charges which are defined as those additional and accessorial charges set forth in the UPS tariff, which are subject to change at any time. 7) UPS will calculate the discount for all locations once per week and will bill the Customer net after discount. 8) In addition, should there be a substantial increase in the price of fuel due to world or economic crisis, UPS rates will be adjusted annually on the contract anniversary date based on the following guidelines: A. A base index, derived from the weighted average of diesel (50%) and unleaded (50%) fuel costs experienced in the previous published twelve months prior to the contract start date, will be stated as an index of 100. . The price for diesel (#2 heating oil) and unleaded gasoline will be obtained from NYMEX settlement prices of the first month's futures contract as published in The Wall Street Journal daily and averaged for the month. B. The fuel rate adjustment for the following year will be derived from the weighted average of the last twelve months of published information of the current year compared to the base index. C. The rate adjustments will be as follows: . An index change up to and including 109 will yield no adjustment . An index change between 110 and 129 will yield an adjustment of 1% . Each 10 index point increase over 129, will yield an adjustment of 0.5%. D. Fractions of a cent will be rounded up to the next full cent. 9) With the exception of UPS's right to assign some or all of this Agreement to its affiliates or subsidiaries, this Agreement and the Customer's rights and obligations hereunder are not assignable or transferable. Any attempted assignment or transfer hereof without the prior written consent of UPS shall be void and without force or effect. 10) This Agreement will remain in effect for a period of two years from the Effective Date below, unless terminated at any time by either party by written notice to the other at the address below given at least thirty (30) days prior to any termination date. 11) This Agreement, its Attachments, the UPS Service Guides in effect at the time of shipping and the UPS Tariff contain all the terms and conditions agreed to by the parties and supersede any prior agreements between the parties with respect tot UPS ground transportation services. 12) Customer agrees to maintain the confidentiality of this Agreement, both its existence and the conditions, unless disclosure is required by law. 13) This Agreement shall be considered withdrawn if not signed by both parties on or before June 14, 1996. (Customer) SUBURBAN OSTOMY By: /s/ -------------------------------------------------- (An Authorized Representative) Title: -------------------------------------------------- Address: -------------------------------------------------- -------------------------------------------------- Date Signed: -------------------------------------------------- 3 (Carrier) UNITED PARCEL SERVICE, INC. By: /s/ -------------------------------------------------- (An Authorized Representative) Title: -------------------------------------------------- Address: -------------------------------------------------- -------------------------------------------------- Date Signed: -------------------------------------------------- Effective Date: -------------------------------------------------- 4 EX-10.36 40 LETTER AGREE BET CO. AND UPS EXHIBIT 10.36 August 23, 1995 Suburban Ostomy Suburban Ostomy 75 October Hill Road Holliston, Massachusetts 01746 This Agreement-and all UPS Air Service Guides in effect at the time of shipment contain the basic terms under which United Parcel Service will provide UPS Next Day Air and UPS 2nd Day Air services. UPS Next Day Air 2nd UPS 2nd Day Air services are provided from points within the 48 contiguous states to locations in the 50 states and Puerto Rico. UPS Worldwide Express and UPS Worldwide Expedited services are available from the 50 states to any destination location in the UPS service network. UPS and Suburban Ostomy agree to the following: General Terms and Conditions - ---------------------------- Only letters, paks, and packages shipped under the account number(s) listed on Addendum A are eligible to participate in these designated incentives, and only these letters, paks, and packages will be used to determine whether Suburban Ostomy has reached the minimum requirements of this Agreement. Account numbers may be added or deleted only by mutual written agreement by both UPS and Suburban Ostomy. Additions to Addendum A require five business days advanced notice to become effective. Suburban 0stomy agrees that the rates, incentives, and terms of this agreement are only applicable to Suburban 0stomy and its subsidiaries as described in Addendum A - List of Eligible Account Numbers, as end users and may not be used for the resale to any other party without prior written agreement between UPS and Suburban 0stomy. Suburban Ostomy understands that breach of this clause of this agreement between UPS and Suburban 0stomy may result in immediate cancellation of this agreement. Suburban Ostomy agrees to provide a list of all its shipping locations, including the company name and address of each shipper covered by this Agreement. Suburban Ostomy agrees to supply package level shipping detail to UPS in a form acceptable to UPS. Suburban Ostomy agrees to actively endorse UPS as the recommended express delivery company for Suburban Ostomy and its related divisions, subsidiaries, and affiliates. Suburban Ostomy agrees to pay for all shipments in full within the time period required by UPS. Suburban Ostomy agrees to maintain the confidentiality of this incentive program, both its existence and the conditions, unless disclosure is required by law. Suburban Ostomy agrees not to post or otherwise publicly display the confidential incentives covered by this Agreement. This Agreement may be terminated by either party for any reason upon 30 calendar days prior written notice. This Agreement will be withdrawn if a signed copy is not received by UPS within 30 calendar days from the date at the top of this letter. Incentive Program - ----------------- The specific details of the discounts provided in this incentive program covered by this Agreement for Next Day Air Letters, Next Day Air Packages and Paks, 2nd Day Air Letters and 2nd Day Air Packages and Paks are included in Addendum B. The incentives in Addendum B are solely conditional upon Suburban Ostomy averaging 244 domestic air letters, paks, and packages per week exclusive of Air Hundredweight volume. If Suburban Ostomy's average weekly volume falls below the commitment specified above, UPS reserves the right to adjust the rates in the future after consulting with Suburban Ostomy, subject to either party's right of termination. Implementation - -------------- UPS will provide the incentive program as set forth in this Agreement and the attached addenda. These rates will remain in effect for 106 weeks. UPS agrees to apply the incentives set forth in Addendum B as follows:
Service Rebate Frequency - ------- ---------------- Next Day Air Letters Weekly Next Day Air Packages and Paks Weekly 2nd Day Air Letters Weekly 2nd Day Air Packages and Paks Weekly
2 The incentives specified in Addendum B for Next Day Air Letters, Next Day Air Packages and Paks, 2nd Day Air Letters and 2nd Day Air Packages and Paks are applicable for service to locations within the 48 contiguous states. Service to locations in Alaska, Hawaii and Puerto Rico will be billed at the Air service rates in effect at the time of shipment. This Agreement and its Addenda contain all the terms and conditions agreed to by the parties and supersedes any prior Agreement between the parties for the Service(s) at the shipping locations listed on the attached Addenda. The attached addenda are hereby made a part of this Agreement: Addendum A List of Eligible Account Number Addendum B Incentive Programs for Letters, Paks and Packages
(Carrier) UNITED PARCEL SERVICE, INC. (Shipper) Suburban Ostomy Supply Company /s/ /s/ - ---------------------------------- ---------------------------------- BY (An Authorized Representative) BY (An Authorized Representative) - ---------------------------------- ---------------------------------- Date Signed Title - ---------------------------------- ---------------------------------- Address Date Signed - ---------------------------------- ---------------------------------- Shipping Address - ---------------------------------- ---------------------------------- - ---------------------------------- ---------------------------------- Effective Date UPS Shipper Number 3 UPS Air Incentive Program Contract Carrier Agreement Addendum B Suburban Ostomy UPS will provide the following incentives from the Air service rates in effect at the time of shipment:
Service Incentive - ------- --------- Next Day Air Letters $2.50 Off List Rate 2nd Day Air Letters ** $1.50 Off List Rate ** Weight not to exceed 9 ounces
UPS will provide the following incentives from the 1995 Air service rates for the term of this contract as specified in the Letter of Agreement. A cell by cell rate chart is also attached.
Service Incentive - ------- --------- Next Day Air Packages and Paks 29% Off List Rates 2nd Day Air Packages and Paks 29% Off List Rates
UPS Signature Effective Date - ------------------------------- -------------------------------------- Effective Date - ------------------------------- EX-10.37 41 UPS COSIGNEE BILLING CONTRACT EXHIBIT 10.37 UPS Consignee Billing Contract Carrier Agreement Consignee as the entity controlling the transportation, and United Parcel Service. Inc., on behalf of itself and its affiliates ("UPS" or "carrier"), have entered into the following Agreement. UPS provides contract carrier service between all points in the United States and Puerto Rico and also provides UPS Next Day Air, UPS 2nd Day Air, UPS 3 Day Select and Ground services. Consignee agrees that this contract carrier service will meet its distinct needs. Accordingly: (1) UPS agrees to transport packages and UPS Air letter(s) tendered by Consignee's shipper(s) and to provide transportation and additional services in accordance with this Agreement and applicable tariffs, and the terms and conditions as set forth in the UPS Consignee Billing Service Explanation. UPS Consignee Billing can be used only by an authorized shipper to an authorized Consignee. No C.O.D., Call Tag or international service will be provided. (2) Consignee agrees to include UPS as a preferred carrier in its Routing Guide and to authorize its shippers to make collect shipments to the Consignee under the terms of UPS Consignee Billing. (3) Consignee agrees to instruct its shipper(s) to follow carrier's UPS Consignee Billing general rules and regulations set forth in the UPS Consignee Billing Service Explanation including the use of a separate UPS Consignee Billing Pickup Record and the placement of a UPS Consignee Billing bar-coded label on each authorized package or letter according to the carrier's instructions for preparing Consignee Billing packages and to pay all other charges except the per package and per letter transportation charges, which will be paid by the consignee. For unauthorized packages tendered by shipper(s), Consignee agrees to instruct its shipper(s) to pay the transportation charges shown on the then current UPS Rate Chart; and an Unauthorized Consignee Billing Package Charge as stated on the then current UPS Consignee Billing Service Explanation. (4) Consignee agrees to pay the charges listed in Addendum A. Consignee agrees that the discount levels will be subject to change every thirteen (13) weeks upon ten (10) days written notice to the Consignee by UPS. (5) Both parties agree to maintain the confidentiality of the rates under this Agreement, unless disclosure is required by law. (6) This Agreement will remain in effect for a period of one (1) year beginning 12/4/94 and from year to year thereafter, unless terminated by either party upon seven (7) days written notice to the other, and may be amended by UPS upon ten (10) days written notice subject to the right of the Consignee to terminate this Agreement. (7) With the exception of UPS's right to assign some or all of this Agreement to its affiliates or subsidiaries, this Agreement and the Consignee's rights and obligations hereunder are nor assignable or transferable. Any assignment or attempt to assign, transfer or subcontract hereof without the prior written consent of UPS shall be void and without force or effect. (CARRIER) UNITED PARCEL SERVICE, INC. -------------------------------------- (Consignee Company Name) - ------------------------------------ -------------------------------------- By Authorized Representative By Authorized Representative - ------------------------------------ -------------------------------------- Address Title - ------------------------------------ -------------------------------------- Billing Address - ------------------------------------ -------------------------------------- - ------------------------------------ -------------------------------------- Dated Dated UPS Consignee Billing Contract Carrier Agreement Addendum A UPS agrees to grant the Consignee a percent discount from the then current UPS Rate Chart for Ground Service (exclusive of UPS Hundredweight and 3 Day Select) based on the following. Rates apply only to shipments within the 48 contiguous states.
ZONE ZONE ZONE ZONE ZONE ZONE ZONE 2 3 4 5 6 7 8 Package Weight 01-10 lbs. 3% 3% 3% 3% 5% 5% 5% 11-20 lbs. 6% 8% 8% 8% 8% 8% 8% 21-50 lbs. 10% 10% 10% 10% 10% 10% 10% 51-70 lbs. 11% 11% 11% 11% 11% 11% 11% 71-150 lbs. 11% 11% 11% 11% 11% 11% 11%
In addition, UPS agrees to grant the Consignee a discount from or dollar amount off the then current UPS Rate Chart for UPS Air Service (exclusive of UPS Hundredweight) based on the following. $2.00 Off UPS Next Day Air Letters 25% Off UPS Next Day Air Packages $1.25 Off UPS 2nd Day Air Letters 25% Off UPS 2nd Day Air Packages Suburban Ostomy UPS Consignee Billing Hundredweight Pricing Contract Carrier Agreement Consignee as the entity controlling the transportations and United Parcel Service, Inc., on behalf of itself and its affiliates ("UPS" or "carrier"), hereby agree that the UPS Consignee Billing Contract Carrier Agreement effective _______________________ is amended as follows: UPS renders an integrated air and ground carrier service interstate between points in the 48 contiguous United States and intrastate, where available. and from points in the United States to other U.S. point where available, as described in the then current UPS Hundredweight Service(R) & rate charts and UPS Hundredweight Service guides. Accordingly: 1) UPS agrees to transport Consignee Billing ground packages tendered by Consignee's shipper and apply UPS Hundredweight pricing when the actual aggregate weight of all ground packages in each shipment delivered to one Consignee at one location on the same day from the same shipper is 200 pounds or more. Hundredweight pricing rates are based on Ground Service Tier ____________ as listed on the then current UPS Hundredweight Service(R) Multi-Tier Rate Chart. 2) A minimum charge for a ground shipment will be based on the minimum weight per package or minimum shipment charge, whichever is greater, as listed on the then current applicable UPS Hundredweight Service rate chart. 3) UPS agrees to transport Consignee Billing air packages tendered by Consignee's shipper and apply UPS Hundredweight pricing when the actual aggregate weight of all packages in each shipment via UPS Next Day Air or UPS 2nd Day Air service delivered to one Consignee at one location on the same day from the same shipper is 100 pounds or more. Hundredweight pricing rates are based on the Air Service Tier ______________ as listed on the then current UPS Hundredweight Service(R) Multi-Tier Rate Chart- 4) UPS agrees to transport Consignee Billing air packages tendered by Consignee's shipper and apply UPS Hundredweight pricing when the actual aggregate weight of all packages in each shipment via UPS 3 Day Selects' service delivered to one Consignee at one location on the same day from the same shipper is 100 pounds or more. Hundredweight pricing rates are based on the Air Service Tier __________ as listed on the then current UPS Hundredweight Service(R) Multi-Tier Rate Chart. (CARRIER) UNITED PARCEL SERVICE, INC. -------------------------------------- (Consignee Company Name) /s/ /s/ - ------------------------------------ -------------------------------------- By Authorized Representative By Authorized Representative - ------------------------------------ -------------------------------------- Address Title - ------------------------------------ -------------------------------------- Billing Address - ------------------------------------ -------------------------------------- - ------------------------------------ -------------------------------------- Dated Dated EX-10.38 42 LEASE OF NEW ENGLANDER INDUSTRIAL PARK EXHIBIT 10.38 LEASE OF NEW ENGLANDER INDUSTRIAL PARK 75 OCTOBER HILL ROAD HOLLISTON, MASSACHUSETTS TABLE OF CONTENTS ARTICLE NUMBER CAPTION PAGE - ------ ------- ---- I. BASIC LEASE PROVISIONS II. PREMISES III. BASIC RENT IV. COMMENCEMENT AND CONDITION V. USE OF PREMISES VI. ASSIGNMENT AND SUBLETTING VII. RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES VIII. REAL ESTATE TAXES IX. UTILITIES; OPERATING EXPENSES; NET LEASE X. INDEMNITY AND INSURANCE XI. LANDLORD'S ACCESS TO PREMISES XII. FIRE; EMINENT DOMAIN; ETC. XIII. DEFAULT XIV. MISCELLANEOUS PROVISIONS 14.1 Waiver -1- 14.2 Covenant of Quiet Enjoyment 14.3 Landlord's Liability 14.4 Notice to First Mortgagee 14.5 Assignment of Rents and Transfer of Title 14.6 Additional Charges 14.7 Invalidity of Particular Provisions 14.8 Provisions Binding, Etc. 14.9 Recording 14.10 Notices 14.11 When Lease Becomes Binding 14.12 Paragraph Headings 14.13 Rights of First Mortgagee 14.14 Status Report 14.15 Security Deposit 14.16 Remedying Defaults 14.17 Holding over 14.18 Waiver of Subrogation 14.19 Surrender of Premises 14.20 Brokerage 14.21 Governing Law EXHIBIT L (Legal Description of the Land) EXHIBIT PS (Landlord's Plans and Specifications) EXHIBIT SP (Site Plan) -2- L E A S E --------- THIS INSTRUMENT IS A LEASE, dated as of August ____, 1991, in which the Landlord and the Tenant are the parties hereinafter named, and which relates to the land and the Building constructed or to be constructed thereon known as New Englander Industrial Park, 75 October Hill Road, Holliston, Massachusetts. The parties to this instrument hereby agree with each other as follows: ARTICLE I --------- BASIC LEASE PROVISIONS ---------------------- 1.1 INTRODUCTION. The following set forth basic data and, where, ------------ appropriate, constitute definitions of the terms hereinafter listed. 1.2 BASIC DATA. ---------- Landlord: Melvin P. Aronson, Successor Trustee to Herbert P. Gray, of The GBA Realty Trust u/d/t dated December 17, 1990 recorded with the Middlesex South Registry of Deeds, Book 29032, Page 480. Landlord's Original Address: c/o Suburban Ostomy Supply Co., Inc., One Watson Place, Saxonville Industrial Park, Framingham, Massachusetts 01701. Tenant: Suburban Ostomy Supply Co., Inc. Tenant's Original Address: 75 October Hill Road, Holliston, Massachusetts 01746. Basic Rent: The Basic Rent shall be equal to those payments required to pay any and all amounts due and payable monthly under a certain promissory note between the Landlord and United of Omaha Life Insurance Company dated August _ , 1991 plus ten (10%) percent of such sum but in no event less than $329,037.00 per annum. Permitted Uses: Light industrial distribution and warehouse/office and accessory uses and any other lawful use, subject further, however, to the requirements of Article II, Article V and XVI of this Lease. Construction Completion Date: December 31, 1991. -3- Initial Term: Fifteen (15) years commencing on the Commencement Date and expiring at the close of the day immediately preceding the fifteenth anniversary of the Commencement Date, except that if the Commencement Date shall be other than the first day of a calendar month, the expiration of the Initial Term shall be at the close of the day on the last day of the calendar month on which such anniversary shall fall (unless adjusted pursuant to provisions relating to the Adjusted Initial Term). 1.3 ADDITIONAL DEFINITIONS. ---------------------- Agent: The GBA Realty Trust, c/o Suburban Ostomy Supply C., Inc., One Watson Place, Saxonville Industrial Park, Framingham, Massachusetts 01701. Commencement Date: As defined in Section 4.1. Default of Tenant: As defined in Section 13.1. Force Majeure: Collectively and individually, strike or other labor trouble, fire or other casualty, governmental preemption of priorities or other controls in connection with a national or other public emergency or shortages of fuel, supplies or labor resulting therefrom, or other cause, whether similar or dissimilar, beyond Landlord's reasonable control. Improvements: All improvements of any nature described in the Site Plan or the Plans and Specifications now or hereafter to be located on the Land and servicing the Building, including without limitation driveways, parking facilities, walkways, exterior lighting, irrigation devices, utility lines and septic fields. Initial Public Liability Insurance: $3,000,000 per occurrence (combined single limit) for property damage, personal injury or death. Landlord's Work: As defined in Section 4.2. Measurement Method: The Measurement Method shall be used to calculate the "Premises Rentable Area" being the number of gross square feet of the Building, meaning the number of interior square feet of the Building determined by measuring from the interior sides of the exterior walls of the Building to the interior sides of the opposite exterior walls of the Building, without any deduction whatsoever for any interior common areas, including, without limitation, hallways, columns and the like. -4- Premises: The Premises shall consist of the approximately 51,000 square foot warehouse type building (the "Building") being constructed on the Land, together with the improvements and the appurtenant rights described in Section 2.1. Land: The approximately 5 acres described in Exhibit L. Plans and Specifications: Landlord's plans and specifications for the Building and the Improvements, as identified in Exhibit PS hereto. Extra Rent: Amounts provided for and calculated pursuant to Section 15.3. Substantial Completion Date: As defined in Section 4.2(a). Tenant's Approved Plans: As defined in Section 4.2. Tenant's Removable Property: As defined in Section 5.2. Term of this Lease: The Initial Term and any extension thereof in accordance with the provisions hereof. Site Plan: Site Plan prepared by Cutler Associates, Inc., dated August _ , 1991 as previously furnished to Tenant. First Mortgagee: Any bank, insurance company or institutional lender of like character holding a first mortgage lien on the Landlord's fee simple interest in the Premises or any portion thereof. Until otherwise informed in writing by such First Mortgagee Tenant shall assume the First Mortgagee is United of Omaha Life Insurance Company (United), a Nebraska corporation having an address c/o Capital Realty Services, Inc., 65 Franklin Street, Suite 201, Boston, MA 02110. ARTICLE II ---------- PREMISES -------- 2.1 LEASE OF PREMISES. (a) Landlord hereby demises and leases to Tenant for ----------------- the Term of this Lease and upon the terms and conditions hereinafter set forth, and Tenant hereby accepts from Landlord, the Premises. Landlord agrees to complete construction of the Building and the Improvements in accordance with the Plans and Specifications and the Site Plan. Landlord further represents and warrants that the Premises and Tenant's use of the Premises (including parking areas and septic fields) for light industrial distribution and warehouse and accessory office use by approximately 100 employees shall comply with applicable zoning requirements, and that the septic system serving the Building from and after the Construction Completion Date -5- will comply with applicable state and local permits and other requirements and will adequately service the Premises and Tenant's intended use. (b) Landlord further covenants that if on the Commencement Date hereof a final occupancy permit has not been obtained from the Town of Holliston it will proceed in a commercially reasonable manner to complete, satisfy or perform any and all requirements and responsibilities to be performed on its part necessary to obtain a final occupancy permit and further agrees to hold Tenant harmless from any loss or damage resulting from Landlord's failure to obtain a final occupancy permit. (c) Tenant shall have as appurtenant rights to the Premises, in common with all others entitled thereto, use of all improvements, including utilities and septic fields located on the Land and servicing the Building and access to and egress from the Building by means of the driveways to October Hill road presently shown on the Site Plan. Tenant shall also have exclusive use cf parking area which provides the necessary number of parking spaces recruited by the Building Inspector of the Town of Holliston for the issuance of a final occupancy permit. 2.2 ADJUSTMENT TO PREMISES RENTABLE AREA. (a) Either party hereto, not later ------------------------------------ than 60 days after the Commencement Date, may request that an exact measurement of the Premises be made in accordance with the Measurement Method. Such measurement shall be made by Cutler Associates, Inc. (or other architect or engineer designated by Landlord) at the cost and expense of the requesting party. (b) If the Premises Rentable Area as so measured is more or less than Premises Rentable Area as set forth in Section 1.2: (i) The definition of Premises Rentable Area shall be modified to be as determined in accordance with such measurement; and (ii) Basic Rent shall, retroactively to the Commencement Date, be recomputed by multiplying Basic Rent by a fraction, the numerator of which shall be Premises Rentable Area as determined by such measurement and the denominator of which shall be the Premises Rentable Area set forth in Section 1.2. Any payment due either party as a result of such recomputations shall be paid within 15 days of such recomputations. -6- (c) If (i) neither Landlord nor Tenant requests any adjustment as herein provided within the time limit prescribed, then Landlord and Tenant shall be deemed to have consented to such Premises Rentable Area as set forth in Section 1.3 and shall be deemed to have waived any and all right to any adjustment or adjustments pursuant to the provisions of this Section. (d) In the event of any adjustment pursuant to this Section, Landlord and Tenant shall promptly execute a written statement setting forth the recomputed Premises Rentable Area and Basic Rent. ARTICLE III ------------ BASIC RENT ---------- 3.1 PAYMENT (a) Tenant agrees to pay to Landlord, or as directed by Landlord, commencing on the Commencement Date without offset, abatement (except as provided in Article 12.1 or in any case where Tenant is dispossessed of the Premises by any party claiming an interest in the Premises superior to that of the Landlord), deduction or demand, the Basic Rent. Such Basic Rent shall be payable in equal monthly installments, in advance, on the first day of each and every calendar month during the Term of this Lease, at Landlord's original Address, or at such other place as Landlord shall from time to time designate by notice, in lawful money of the United States however any payments made by Tenant hereunder an or before the third day of the month shall not be deemed a default. Until notice of some other designation is given, Basic Rent and all other charges for which provision is herein made shall be paid by remittance payable to the Agent, and all remittances so received as aforesaid, or by any subsequently designated recipient, shall be treated as a payment to Landlord. (b) Basic Rent for any partial month shall be prorated on a daily basis, and if the Term of this Lease commences on a day other than the first day of a calendar month, the first payment which Tenant shall make to Landlord shall be payable on the Commencement Date and shall be equal to a proportionate part of the monthly installment of Basic Rent for the partial month from the Commencement Date to the last day of the month in which such Date occurs plus the installment of Basic Rent for the succeeding calendar month. ARTICLE IV ---------- COMMENCEMENT AND CONDITION -------------------------- 4.1 COMMENCEMENT DATE The Commencement Date stall be the last to occur ----------------- of: (a) the Construction Completion Date, or -7- (b) the day following the date on which the Premises are ready for occupancy as provided in Section 4.2. Notwithstanding the foregoing, if Tenant's personnel shall occupy all or any part of the Premises for the conduct of its business prior to the Commencement Date as determined pursuant to the preceding sentence, such date of occupancy shall, for all purposes of this Lease, be the Commencement Date. 4.2 PREPARATION OF THE PREMISES (a) The Premises shall be deemed ready --------------------------- for occupancy on the first day (the. "Substantial Completion Date") as of which (i) a temporary certificate of occupancy has been issued for the Building, and (ii) Landlord's preparation of the Premises in accordance with the Plans and Specifications has been completed (the "Landlord's Work"), except for items of work (and, if' applicable, adjustment of equipment and fixtures) which can be completed after occupancy has been taken without causing undue interference with Tenant's use of the Premises (i.e. so-called "punch list" items) and Tenant has been given notice thereof. Landlord shall complete as soon as conditions permit all "punch list" items and Tenant shall afford Landlord access to -he Premises for such purposes. (b) Tenant shall have the right 60 terminate this Lease by giving notice to Landlord, not later than thirty (30) days after the Construction Completion Date (as so extended), of Tenant's desire so to do; and this Lease shall cease and come to an end without further liability or obligation on the part of either party sixty (60) days after the giving of such notice, unless, within such 60-day period, Landlord substantially completes Landlord's Work; and such right of termination shall be Tenant's sole and exclusive remedy at law or in equity for Landlord's failure so to complete such Work within such time. 4.3 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE. Except to the extent of ---------------------------------------- which Tenant shall have given Landlord notice, not later than the end of the second full calendar month next beginning after the Commencement Date, of respects in which Landlord has not performed Landlord's Work, Tenant shall have no claim that Landlord has failed to perform any of Landlord's Work; provided, however, that Tenant may raise claims relating to latent or hidden defects, not reasonably apparent to Tenant as of the Commencement Date, not later than one year after the Commencement Date. ARTICLE V --------- USE OF PREMISES --------------- 5.1 PERMITTED USE. (a) Tenant agrees that the Premises shall ------------- be used and occupied by Tenant continuously throughout the term of this Lease only for Permitted Uses. -8- (b) Tenant shall not perform any act or carry on any practice which may damage the Building or any other part of the Premises. (c) Tenant shall, in its use of the Premises, comply with the requirements of all applicable governmental laws, ordinances, rules and regulations. However, Tenant shall not be responsible for the completion of any renovation, alteration, or addition required by said laws, ordinances and rules and regulations, unless the requirements arise solely from Tenant's particular use of this structure or Tenant's particular operation therein. 5.2 INSTALLMENTS AYD ALTERATIONS BY TENANT. (a) Tenant may, at its sole -------------------------------------- cost and expense, at any time and from time to time, without Landlord's consent, make any alterations, chances, repairs, replacements and additions (hereinafter collectively referred to as "Changes") which are not "Structural Changes" (as hereinafter defined) to the Building and the Improvements provided that (i) the fair market value of the Premises shall not be lessened thereby; (ii) such work shall be expeditiously completed in a good and workmanlike manner and in compliance with all applicable laws and regulations; (iii) such work shall be of a quality at least equal to the original construction of the Building and the improvements; (iv) the general character of the Building and the Improvements shall not be materially altered; and (v) such Changes shall not materially affect the primary heating, plumbing, electrical, air-conditioning and similar primary systems servicing the Premises (hereinafter collectively referred to as the "Systems"). (b) Before proceeding with any Changes to the Systems or any Changes to the load bearing walls, poured concrete floors, slabs, footings, foundations, structural steel, facade (except glass) or roof of the Building (hereinafter collectively referred to as "Structural Changes"), Tenant shall submit plans and specifications therefor for Landlord's approval, which approval shall not be unreasonably withheld provided such changes have been approved by the First Mortgagee. (Such plans and specifications, the "Tenant's Approved Plans"). (c) All such Changes to the Building and Improvements (exclusive of Structural Changes and Changes to the Systems) shall become and remain part of the Premises and the property of Landlord without payment therefor by Landlord. (d) On the date on which Landlord shall approve any Structural Changes or Changes to the Systems, Landlord shall notify Tenant in writing (the "Removal Notice") whether or not Tenant shall be required to remove any such Structural Changes or Changes to the Systems from the Premises upon the expiration of this Lease. Landlord and Tenant, and their respective successors and assigns, shall be bound to the content of the Removal Notice. (e) All articles of personal property and all business machinery and equipment and furniture and trade fixtures owned or installed by Tenant solely at its expense in the Premises ("Tenant's Removable Property") shall remain the Property of Tenant and may be removed by Tenant at any time prior to the expiration of this Lease, provided that Tenant, at its expense, shall repair any damage to the Premises caused by such removal. Tenant's Removable Property not so -9- removed shall, at the option of the Landlord, either become the property of the Landlord or may be removed and disposed of by the Landlord, at Tenant's sole cost and expense, as set forth in Section 14.19 hereof. (f) Notice is hereby given that Landlord shall not be liable for any labor or materials furnished or to be fiurnished to Tenant upon credit, and that no mechanic's or other lien for any such labor or materials shall attach to or affect the reversion or other estate or interest of Landlord in and to the Premises. Whenever and as often as any mechanic's lien shall have been filed against the Property based upon any act or interest of Tenant or of anyone claiming through Tenant, Tenant shall forthwith take such action by bonding, deposit or payment as will remove or satisfy the lien. ARTICLE VI ---------- ASSIGNMENT AND SUBLETTING ------------------------- 6.1 PROHIBITION. (a) Subject to the provisions of this Article VI, ----------- Landlord agrees that the Tenant may sublet the Premises provided that such sublease conforms in all respects to this Lease and does not in any way relieve Tenant from any responsibility under this Lease and is with a subtenant at least as financially sound as Tenant and is otherwise reasonably acceptable to the First Mortgagee. (b) It is expressly understood and agreed that Tenant may assign, sublet or transfer by operation of law, its entire Interest in this Lease to a "successor corporation" of Tenant, or to a "parent" "subsidiary" or "affiliate" of Tenant as such terms are hereinafter defined, provided that (i) this Lease is in full force and effect and no Default of Tenant has occurred hereunder; (ii) such assignment or transfer shall not affect Permitted Uses of the Premises; and (iii) Landlord in its discretion reasonably exercised determines that such proposed assignee or transferee is as financially sound as Tenant. A "successor corporation" as used in this section shall mean (i) a corporation into which or with which Tenant is merged or consolidated, in accordance with applicable statutory provisions for the merger or consolidation of corporations; or (ii) a corporation to which all or substantially all of Tenant's assets are transferred, provided that by operation of law or by agreements with Landlord and First Mortgagee in form reasonably satisfactory to Landlord and First Mortgagee the terms, covenants and conditions of this Lease to be performed by Tenant are assumed by the corporation to which this Lease is assigned or transferred. A "parent" shall be deemed an entity owning the Tenant, a "subsidiary" shall be deemed an entity having substantially the same ownership as Tenant, or which is owned by Tenant. (c) If this Lease be assigned, or if the Premises or any part thereof be sublet or occupied by anyone other than Tenant, Landlord may, at any time and from time to time, collect rent and other charges from the assignee, subtenant or occupant, and apply the net amount collected to the rent and other charges herein reserved but no such assignment, subletting, -10- occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant, or occupant as a tenant or a release of Tenant from the further performance by Tenant of its obligations hereunder. No assignment or subletting to, and no use of the Premises by, a subsidiary wholly- owned by Tenant or controlling corporation of Tenant shall affect Permitted Uses. ARTICLE VII ----------- RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES ----------------------------------------------------- 7.1 LANDLORD'S REPAIRS. (a) Landlord agrees to keep in good order, ------------------ condition and repair the roof, exterior walls (excluding glass), load bearing interior walls, poured concrete floors, structural members and foundation of the Building (excluding any additions or alterations thereto made by Tenant), provided that Landlord shall in no event be responsible to Tenant for any condition in the Building or the Premises caused by any act or neglect of Tenant, its invitees and contractors. Landlord shall not be responsible to make any improvements or repairs to the Building or the Premises other than as expressly in this Section 7.1 provided, unless expressly provided otherwise in this Lease. (b) Landlord shall never be liable for any failure to make repairs which Landlord has undertaken to make under the provisions of this Section 7.1 or elsewhere in this Lease, unless Tenant has given written notice to Landlord of the need to make such repairs, and Landlord has failed to commence to make such repairs within a reasonable time after receipt of such notice, or fails to proceed with reasonable diligence to complete such repairs. 7.2 TENANT'S REPAIRS. (a) Tenant, at its sole cost and expense shall keep ---------------- and maintain the Premises and every part thereof in a neat, clean, sanitary condition and in as good order, repair and condition as same are in on the Commencement Date or in such better condition as same may be put in thereafter reasonable wear and tear excepted (but this exception for reasonable wear and tear shall not excuse Tenant from performing all customary and routine maintenance and all necessary replacements, which Tenant hereby agrees to make) including, without limitation, all electrical, plumbing, gas, heating, air- conditioning, drainage facilities (including without limitation retention basins and septic systems) within or serving the Premises, sprinklers, fixtures, floors, ceilings, signs (including exterior signs), outdoor sprinkler irrigation facilities, walkways, driveways and parking areas (including snow removal) and all building appliances and similar equipment and the exterior and the interior portions of ail windows, window frames, doors, door frames, and all other glass or plateglass thereon, and, in furtherance hereof, the Tenant shall at all times maintain contracts with professional services to perform the normal and routine maintenance required for the heating and air-conditioning facilities at the Premises. Without limiting the foregoing, Tenant shall make all remains to the Premises (and all replacements) interior and exterior ordinary and extraordinary, foreseen and unforseen required -11- to keep the Premises in the condition required above. In the event any replacement is required, including without limitation replacement of plumbing, heating, gas, electrical, air-conditioning, sprinklers or other fixtures and equipment, or of floor covering, plateglass, ceilings or any other part of the Premises or the systems and facilities serving same, Tenant shall make such replacement at its sole cost and expense, and each replacement shall be of type and quality equal to the original fixture, piece of equipment, covering, surface, glass or whatever. Without limiting the foregoing, the Tenant shall also maintain and keep in good order and repair (including necessary replacements) the sidewalks, grounds (including without limitation grass and shrubs), roadways and parking areas (including snow removal) and other improved areas of the Premises, all as required to keep the same neat, clean and in good order and condition. There is excepted from Tenant's obligations under this Section 7.2 only those matters which are the responsibility of the Landlord pursuant to Section 7.1. Landlord shall assign to Tenant, to the extent assignable or transferable, and shall use reasonable efforts to enforce on Tenant's behalf, any written warranties obtained by Landlord prior to the Commencement Date from contractors or manufacturers, applicable to repairs and replacements to be performed by Tenant. Upon the termination of this Lease, Tenant shall assign the balance of any warranties which it may have received from Landlord or otherwise to Landlord and shall use its reasonable efforts to enforce the same on Landlord's behalf. (b) If repairs are required to be made by Tenant pursuant to the terms hereof, Landlord may demand that Tenant make the same forthwith, and if Tenant refuses or neglects to commence such repairs and complete the same with reasonable dispatch, after such demand, Landlord may (but shall not be required to do so) make or cause such repairs to be made (the provisions of Section 14.16 being applicable to the costs thereof) and shall not be responsible to Tenant for any loss or damage that may accrue to Tenant's stock or business by reason thereof unless caused by Landlord's negligence. 7.3 FLOOR LOAD - HEAVY MACHINERY. Tenant shall not place a load upon any ---------------------------- floor in the Building exceeding the floor load per square foot of area which such floor was designed to carry and which is allowed by law. ARTICLE VIII ------------ REAL ESTATE TAXES ----------------- 8.1 TENANT'S PAYMENT OF REAL ESTATE TAXES. (a) Tenant shall, during each ------------------------------------- year or partial year of the Term of this Lease, pay as additional rent hereunder the real estate taxes (including all betterment assessments) assessed upon the Premises in an amount equal to 100% of the assessment on the building and the Land for such year or partial year. Such tax payments shall be paid to Landlord without the requirement of any demand by Landlord therefor or, at Landlord's option, directly to the relevant taxing authority. Should the assessing authority -12- provide payment options with respect to betterment assessments, Tenant shall have the right to elect the installment payment thereof and shall be responsible for paying only those installments which come due during the Initial Term of this Lease or any extension thereof. (b) If any First Mortgagee shall require Landlord to make monthly payments to it on account of real estate taxes which Tenant is obligated to pay under this Lease, then for so long as such deposits may be required, Tenant shall make monthly payments of such estimated taxes to Landlord on the same day Tenant pays its monthly installment of Basic Rent hereunder. Until otherwise informed in writing by such First Mortgagee, Tenant shall make such monthly payments to United of Omaha Life Insurance Company at its address as set forth in Section 1.3. 8.2 ABATEMENT. If Landlord shall receive any tax refund or reimbursement --------- of taxes or sum in lieu thereof with respect to any period of time during the Term of this Lease, then out of any balance remaining thereof after deducting Landlord's expenses reasonably incurred in obtaining such refund, Landlord shall pay to Tenant, provided there does not then exist a Default of Tenant, an amount equal to such refund or reimbursement or sum in lieu thereof together with any interest thereon paid by the governmental authority granting such refund or reimbursement. 8.3 ALTERNATE TAXES. (a) If some method or type of taxation shall replace --------------- the current method of assessment of real estate taxes in whole or part, or the type thereof, or if additional types are imposed upon the Premises or Landlord to supplement real estate taxes due to legal limits imposed thereon, Tenant agrees that Tenant shall pay an equitable share of the same as an additional charge, to the end that Tenant's share thereof shall be, to the maximum extent practicable, comparable to that which Tenant would bear under the foregoing provisions. (b) If a tax (other than a Federal or State net income tax) is assessed on account of the rents or other charges payable by Tenant to Landlord under this Lease, Tenant agrees to pay the same as an additional charge within ten (10) days after billing therefor, unless applicable law prohibits the payment of such tax by Tenant. ARTICLE IX ---------- UTILITIES; OPERATING EXPENSES; NET LEASE ---------------------------------------- 9.1 UTILITIES. Landlord shall be responsible, in accordance with the --------- Plans and Specifications and as of the Commencement Date for the installation of a septic system on the Land and for bringing gas, water and electric utility lines to the Building. Landlord shall pay for any installation or hook-up charges associated with bringing such utilities to the Premises. Tenant shall pay for any installation or hook-up charges associated with bringing any additional utilities to the Premises. Tenant shall pay all charges for utilities, communications and similar services consumed or used on the Premises, including without limitation water, gas, sewer, -13- electricity, fuel and telephone. Except as specifically provided in this Section 9.1 or elsewhere in this Lease, Landlord shall have no obligation to provide any services to the Premises or to pay the cost of same or the cost of any other operating expenses associated with the Premises. 9.2 NET LEASE. It is understood and agreed that this Lease is a net lease --------- and that, except for Landlord's specific obligations hereunder, Tenant shall be responsible for the payment of all costs, fees and other expenses relating to the Premises and in connection with the ownership, operation, use or maintenance thereof, and the tenancy herein established, including, without limitation, real estate taxes, insurance, repair and replacement costs, and operating expenses. ARTICLE X --------- INDEMNITY AND INSURANCE ----------------------- 10.1 TENANT'S INDEMNITY. Tenant agrees to indemnify and hold harmless ------------------ Landlord for all damages suffered, injuries sustained and claims advanced by third parties arising out of the negligence of Tenant or Tenant's agents, servants or employees, in connection with the use or occupancy of the Premises or arising out of or in connection with any breach of any term or condition of this Lease. Landlord agrees to indemnify and hold harmless Tenant from all damages suffered, injuries sustained and claims advanced by third parties arising out of the negligence of Landlord or Landlord's agents, servants or employees, in connection with the use, ownership or occupancy of the Premises or the land described herein or arising out of or in connection with any breach of any term or condition of this Lease. The above indemnity and hold harmless clauses shall include indemnity against all costs, expenses and liabilities incurred or in connection with any such claim or proceeding brought thereon and the defense thereof. 10.2 PUBLIC LIABILITY INSURANCE. Tenant agrees to maintain in full force -------------------------- from the date upon which Tenant first enters the Premises for any reason, throughout the Term of this Lease, and thereafter so long as Tenant is in occupancy of any part of the Premises, a policy of general liability and property damage insurance (including broad form contractual liability, independent contractor's hazard and completed operations coverage) under which Landlord, the First Mortgagee (and such other persons as are in privity of estate with Landlord as may be set out in notice from time to time) and Tenant are named as insureds. Each such policy shall be non-cancelable and non- amendable with respect to Landlord and Landlord's said designees without thirty (30) days prior notice to Landlord and shall be in at least the amounts of the Initial Public Liability Insurance specified in Section 1.3 or such greater amounts as Landlord shall from time to time reasonably request, and a duplicate original or certificate thereof shall be delivered to Landlord. -14- 10.3 FIRE AND EXTENDED COVERAGE INSURANCE. (a) In addition to the public ------------------------------------ liability insurance provided for in Section 10.2, Tenant shall, during the Term of this Lease, keep the Premises and all equipment or fixtures now or hereafter on or forming part of the Premises insured against loss by fire, windstorm, tornado and hail and against loss and damage by such other risks as are now or hereafter may be covered by the standard extended coverage forms of endorsement or (to the extent broader coverage may be available) by "all risk" policies, with an insurance company or companies authorized to do business in the Commonwealth of Massachusetts and approved by Landlord and any First Mortgagee, which approval Landlord agrees not to unreasonably withhold. Such insurance shall be in an amount equal to but not less than the actual full replacement value of the Building and the Improvements, without deduction for depreciation, and in any event an amount sufficient to prevent Landlord or Tenant from being deemed a co-insurer under the terms of the applicable policy or policies. The insurance provided by said policies shall include coverage against vandalism and malicious mischief. If a sprinkler system or boiler or similar apparatus shall be located on the Premises, Tenant shall provide and keep in force sprinkler leakage insurance and insurance against loss by boiler explosion, respectively, in amounts reasonably satisfactory to Landlord. Each such insurance policy shall name Landlord, the First Mortgagee and Tenant as insured parties, with loss payable to the holders of any mortgages on the Premises pursuant to a mortgage loss payable clause satisfactory to such holders to be evidenced by certificates of insurance satisfactory to Landlord and such holders of mortgages. (b) On the Commencement Date, and thereafter not less than thirty (30) days prior to the expiration date of the policies of insurance required by this Section 10.3, Tenant, shall deliver to Landlord copies of such policies or certificates of the insurer with respect, thereto in form reasonably satisfactory to Landlord, accompanied by evidence of the payment of premiums for the policies. Each insurance policy shall provide that no cancellation thereof or material chance therein shall be made unless Landlord and any First Mortgagee shall have first been given at least thirty (30) days prior written notice thereof, that no act or omission by Tenant shall invalidate such policy as it applies to Landlord and that Landlord shall not be liable for any premiums for or assessments on such policy. Each insurance policy shall, to the extent obtainable, also provide for waivers of all rights of subrogation against Landlord or Tenant. (c) Tenant shall not violate or permit violation of any of the conditions and provisions contained in the insurance Policies provided for hereunder. Tenant shall perform and satisfy the requirements of the insurance company writing any such policies so that at all times insurance companies of good standing shall be willing to write or to continue such insurance policies. Nothing herein shall prevent Landlord from carrying additional insurance. 10.4 DEDUCTIBLES; BLANKET POLICIES. It is understood and agreed that ----------------------------- every policy of insurance required by this Article X to be maintained by Tenant may contain a deductible provision not exceeding $10,000 and be blanket policies covering other business locations owned or operated by Tenant, its affiliates or subsidiaries provided that such blanket -15- policies otherwise comply with the requirements of this Article X. To the extent any such insurance policy contains a deductible provision, Tenant shall indemnify Landlord from any liability or loss as a result of the inclusion thereof. 10.5 TENANT'S RISK. To the maximum extent this Agreement may be made ------------- effective according to law, Tenant agrees to use and occupy the Premises at Tenant's own risk; and Landlord shall have no responsibility or liability for any loss of or damage to Tenant's Removable Property unless such loss or damage is caused by Landlord's negligence. The provisions of this Section shall be applicable from and after the execution of this Lease and until the end of the Term of this Lease, and during such further period as Tenant may use or be in occupancy of any part of the Premises. 10.6 If any First Mortgagee shall require Landlord to make monthly payments to it on account of insurance which Tenant is obligated to pay under this Lease, then for so long as such deposits may be required, Tenant shall make monthly payments of such insurance to Landlord on the same day Tenant pays its monthly installment of Basic Rent hereunder. Until otherwise informed in writing by such First Mortgagee, Tenant shall make such monthly payments to United of Omaha Life Insurance Company at its address as set forth in Section 1.3. ARTICLE XI ---------- LANDLORD'S ACCESS TO PREMISES ----------------------------- 11.1 LANDLORD'S RIGHTS. Landlord shall have the right to enter the ----------------- Premises at reasonable hours so as not to interfere unduly with the normal conduct of Tenant's business (or at any time in the case of emergency) for the purposes of inspecting or making repairs to the same, and Landlord shall also have the right to make access available at all reasonable hours to prospective or existing mortgagees, purchasers or tenants of any part of the Premises. Landlord shall also have the right, during the last six months of the Term, to place signs upon the Premises indicating that they are for rent, and shall have the right to place "for sale" signs thereon at any time. ARTICLE XI ---------- FIRE, EMINENT DOMAIN, ETC. -------------------------- 12.1 ABATEMENT OF RENT. If the Premises shall be damaged by fire or ----------------- casualty, Basic Rent payable by Tenant shall abate proportionately for the period in which, by reason of such damage, there is substantial interference with Tenant's use of the Premises, having regard to the extent to which Tenant may be required to discontinue Tenant's use of all or a portion of the Premises, but such abatement or reduction shall end if and when Landlord shall have substantially restored the Premises (excluding any alterations, additions or improvements made -16- by Tenant) to the condition in which they were prior to such damage. If the Premises shall be affected by any exercise of the power of eminent domain, Basic Rent payable by Tenant shall be justly and equitably abated and reduced according to the nature and extent of the loss of use thereof suffered by Tenant. 12.2 LANDLORD'S RIGHT OF TERMINATION. (a) If the Premises are ------------------------------- substantially damaged by fire or casualty (the term "substantially damaged" meaning damage of such a character that the same cannot, in ordinary course, reasonably be expected to be repaired within sixty (60) days from the time that repair work would commence), or if any part of the Premises is taken by any exercise of the right of eminent domain, then Landlord shall have the right to terminate this Lease by giving notice of Landlord's election so to do within 90 days after the occurrence of such casualty or the effective date of such taking, whereupon this Lease shall terminate 30 days after the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof. (b) If the Premises shall be damaged but not "substantially damaged" within the meaning of the preceding Section 12.2 (a) and subject to the use of any insurance proceeds as may be permitted by a First Mortgagee, the Landlord shall commence repairs within 30 days of such casualty and shall complete such restoration within 90 days of such casualty. If Landlord fails to commence or complete such restoration within the applicable time period, Tenant shall have the right to terminate this Lease upon 30 days prior written notice to Landlord and the First Mortgagee, which shall be Tenant's sole and exclusive remedy at law or in equity for such failure of Landlord. 12.3 RESTORATION. If this Lease shall not be terminated pursuant to ----------- Section 12.2, Landlord shall thereafter use due diligence to restore the Premises (excluding any alterations, additions or improvements made by Tenant) to proper condition for Tenant's use and occupation. If, for any reason, such restoration shall not reasonably be commenced within thirty (30) days of said election or shall not be substantially completed within three (3) months after the expiration of the 90-day period referred to in Section 12.2 (which three month period may be extended for such periods of time as Landlord is prevented from proceeding with or completing such restoration for any cause beyond Landlord's reasonable control, but in no event for more than an additional three months), Tenant shall have the right to terminate this Lease by giving notice to Landlord thereof within thirty (30) days after the expiration of such period (as so extended). Upon the giving of such notice, this Lease shall cease and come to an end without further liability or obligation on the part of either party unless, within such 30-day period, Landlord substantially completes such restoration. Such right of termination shall be Tenant's sole and exclusive remedy at law or in equity for Landlord's failure so to complete such restoration. 12.4 AWARD. Landlord shall have and hereby reserves and excepts, and ----- Tenant hereby grants and assigns to Landlord, all rights to recover for damages to the Premises and the -17- Landlord leasehold interest hereby created, and to compensation accrued or hereafter to accrue by reason of such taking, damage or destruction, and by way of confirming the foregoing, Tenant hereby grants and assigns to Landlord, all rights to such damages or compensation. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for the value of any of Tenant's Removable Property installed in the Premises by Tenant at Tenant's expense and for relocation expenses. ARTICLE XIII ------------ DEFAULT ------- 13.1 TENANT'S DEFAULT. (a) If at any time subsequent to the date of this ---------------- Lease any one or more of the following events (herein referred to as a "Default of Tenant") shall happen: (i) Tenant shall fail to pay the Basic Rent; or (ii) Tenant shall fail to pay other charges hereunder when due and such failure shall continue for five (5) full business days after notice to Tenant from Landlord; or (iii) Tenant shall neglect or fail to perform or observe any other covenant herein contained on Tenant's part to be performed or observed and Tenant shall fail to remedy the same within thirty (30) days after notice to Tenant specifying such neglect or failure, of if such failure is of such a nature that Tenant cannot reasonably remedy the same within such thirty (30) day period, Tenant shall fail to commence promptly to remedy the same and to prosecute such remedy to completion with diligence and continuity; or (iv) Tenant's leasehold interest in the Premises shall be taken on execution or by other process of law directed against Tenant; or (v) Tenant shall make an assignment for the benefit of creditors or shall file a voluntary petition in bankruptcy or shall be adjudicated bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future Federal, State or other statute, law or regulation for the relief of debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its -18- properties, or shall admit in writing its inability to pay its debts generally as they become due; or (vi) A petition shall be filed against Tenant in bankruptcy or under any other law seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future Federal, State or other statute, law or regulation and shall remain undismissed or unstayed for an aggregate of sixty (60) days (whether or not consecutive), or if any debtor in possession (whether or not Tenant) trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties or of the Premises shall be appointed without the consent or acquiescence of Tenant and such appointment shall remain unvacated or unstayed for an aggregate of sixty (60) days (whether or not consecutive); or (vii) If a Default of Tenant of the kind set forth in clauses (i), (ii) or (iii) above shall occur and if either (x) Tenant shall cure such Default within the applicable grace period or (y) Landlord shall, in its sole discretion, permit Tenant to cure such Default after the applicable grace period has expired, and an event which would constitute a similar Default shall occur within the next 365 days thereafter, provided, however, that Tenant's grace period of ten days after receipt of notice from Landlord for-the payment of rent shall continue to be effective and Tenant may cure any delinquency and make payment thereof as permitted herein twice before this subparagraph shall apply; then in any such case (1) if such Default of Tenant shall occur prior to the Commencement Date, this Lease, upon the written consent of the First Mortgagee to be given in its sole discretion shall terminate without further act on the part of Landlord, and (2) if such Default of Tenant shall occur after the Commencement Date, Landlord, with the written consent of the First Mortgagee to be given in its sole discretion, may terminate this Lease by notice to Tenant, specifying a date not less than ten (10) days after the giving of such notice on which this Lease shall terminate and this Lease shall come to an end on the date specified therein as fully and completely as if such date were the date herein originally fixed for the expiration of the Term of this Lease and Tenant will then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided. (b) If this Lease shall have been terminated as provided in this Article, or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the Premises shall be taken or occupied by someone other than Tenant, then Landlord may, without notice, re-enter the Premises, either by force, summary proceedings, ejectment or otherwise, and remove and dispossess Tenant and all other persons and any and all property from the same, as if this Lease had not been made. -19- (c) In the event of any termination, Tenant shall pay the Basic Rent and other sums payable hereunder up to the time such termination, and thereafter Tenant until the end of what would have been the Term of this Lease in the absence of such termination, and whether or not the Premises shall have been relet, shall be liable to Landlord for, and shall pay to Landlord, as liquidated current damages, the Basic Rent and other sums which would be payable hereunder if such termination had not occurred, less the net proceeds, if any, of any reletting of the Premises, after deducting all expenses in connection with such reletting, including, without limitation, all reasonable repossession costs, brokerage commissions, legal expenses, attorneys' fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting. Tenant shall pay such current damages to Landlord monthly on the days which the Basic Rent would have been payable hereunder if this Lease had not been terminated. (d) At any time after such termination, whether or not Landlord shall have collected any such current damages, as liquidated final damages and in lieu of all such current damages beyond the date of such demand, at Landlord's election Tenant shall pay to Landlord an amount equal to the excess, if any, of the Basic Rent and other sums as hereinbefore provided which would be payable hereunder from the date of such demand (assuming that, for the purposes of this paragraph, annual payments by Tenant on account of real estate taxes would be the same as the payments required for the immediately preceding Tax Year) for what would be the then unexpired Term of this Lease if the same remained in effect, over the then fair net rental value of the Premises for the same period said payments, however, shall be discounted in order to account for the present value of proceeds being used to pay for rents accruing in the future. If Landlord and Tenant are unable to agree on fair net rental value, the same shall be determined by arbitration in accordance with the rules of the American Arbitration Association. (e) In case of any Default by Tenant, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (i) in good faith re-let the Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord's reasonable option be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term of this Lease and may grant concessions or free rent to the extent that Landlord considers commercially reasonable and necessary in order to re-let the same and (ii) may make such reasonable alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable and necessary for the purpose of reletting the Premises; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure to re-let the Premises, or, in the event that the Premises are re-let, for failure to collect the rent under such relenting provided Landlord exercises reasonable efforts to re-let and/or collect rents. (f) The specified remedies to which Landlord may resort hereunder are not intended to be exclusive of any remedies or means of redress to which Landlord may at any time -20- be entitled lawfully, and Landlord may invoke any remedy (including the remedy of specific performance) allowed at law or in equity as if specific remedies were not herein provided for. (g) All reasonable costs and expenses incurred by or on behalf of Landlord (including, without limitation, attorneys' fees and expenses) in enforcing its rights hereunder or occasioned by any Default of Tenant shall be paid by Tenant. 13.2 LANDLORD'S DEFAULT. Landlord shall in no event be in default in the ------------------ performance of any of Landlord's obligations hereunder unless and until Landlord shall have failed to perform such obligations within thirty (30) days, or such additional time as is reasonably required to correct any such default, after notice-by Tenant to Landlord (with a copy thereof being sent by Tenant to First Mortgagee) specifying wherein Landlord has failed to perform any such obligations. ARTICLE XIV ----------- MISCELLANEOUS PROVISIONS ------------------------ 14.1 WAIVER. (a) Failure on the part of Landlord or Tenant to complain of ------ any action or non-action on the part of the other, no matter how long the same may continue, shall never be a waiver by Tenant or Landlord, respectively, of any of the other's rights hereunder. Further, no waiver at any time of any of the provisions hereof by Landlord or Tenant shall be construed as a waiver of any of the other provisions hereof, and a waiver at any time of any of the provisions hereof shall not be construed as a waiver at any subsequent time of the same provisions. The consent or approval of Landlord or Tenant to or of any action by the other requiring such consent or approval shall not be construed to waive or render unnecessary Landlord's or Tenant's consent or approval to or of any subsequent similar act by the other. (b) No payment by Tenant, or acceptance by Landlord of a lesser amount than shall be due from Tenant to Landlord shall be treated otherwise than as a payment on account. The acceptance by Landlord of a check for a lesser amount with an endorsement or statement thereon, or upon any letter accompanying such check, that such lesser amount is payment in full, shall be given no effect, and Landlord may accept such check without prejudice to any other rights or remedies which Landlord may have against Tenant. 14.2 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and --------------------------- provisions of this Lease, on payment of the Basic Rent and other charges and observing, keeping and performing all of the other terms and provisions of this Lease on Tenant's part to be observed, kept and performed, shall lawfully, peaceably and quietly have, hold, occupy and enjoy the Premises during the term hereof, without hindrance or ejection by any persons lawfully -21- claiming under Landlord to have title to the Premises superior to Tenant; the foregoing covenant of quiet enjoyment is in lieu of any other covenant, express or implied. 14.3 LANDLORD'S LIABILITY. (a) Tenant specifically agrees to look solely -------------------- to Landlord's then equity interest in the Property at the time owned, for recovery of any judgment from Landlord; it being specifically agreed that Landlord (original or successor) shall never be personally liable for any such judgment, or for the payment of any monetary obligation to Tenant. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest, or to take any action not involving the personal liability of Landlord (original or successor) to respond in monetary damages from Landlord's assets other than Landlord's equity interest in the Property. (b) With respect to any services or utilities to be furnished by Landlord to Tenant, Landlord shall in no event be liable for failure to furnish the same when prevented from doing so by strike, lockout, breakdown, accident, order or regulation of or by any governmental authority, or failure of supply, or inability by the exercise of reasonable diligence to obtain supplies, parts or employees necessary to furnish such services, or because of war or other emergency, or for any cause beyond Landlord's reasonable control, or for any cause due to any act or neglect of Tenant or Tenant's servants, agents, employees, licensees or any person claiming by, through or under Tenant. (c) In no event shall Landlord ever be liable to Tenant for any indirect or consequential damages suffered by Tenant from whatever cause unless the result of Landlord's negligence. 14.4 NOTICE TO FIRST MORTGAGEE. After receiving notice from any First ------------------------- Mortgagee no notice from Tenant to Landlord alleging any default by Landlord shall be effective unless and until a copy of the same is given to such First Mortgagee (provided Tenant shall have been furnished with the name and address of such First Mortgagee), and the curing of any of Landlord's defaults by such First Mortgagee shall be treated as Performance by Landlord. The parties hereto hereby acknowledge receipt of notice that United is the First Mortgagee, having an address as set forth in Section 1.3 hereof. 14.5 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE. (a) With reference to any ----------------------------------------- assignment by Landlord of Landlord's interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment may be made to a First Mortgagee, Tenant agrees that the execution thereof by Landlord, and the acceptance thereof by such First Mortgagee shall never be treated as an assumption by such holder of any of the obligations of Landlord hereunder unless such First Mortgagee shall, by notice sent to Tenant, specifically otherwise elect and that, except as aforesaid, shall be treated as having assumed Landlord's -22- obligations hereunder only upon foreclosure of such First Mortgagee's mortgage and the taking of possession of the Premises. (b) In the event of any transfer of title to the Premises by Landlord, Landlord shall thereafter be entirely freed and relieved from the performance and observance of all covenants and obligations hereunder. 14.6 ADDITIONAL CHARGES. If Tenant shall fail to pay when due any sums ------------------ under this Lease designated as an additional charge or otherwise to be paid by Tenant, Landlord shall have the same rights and remedies as Landlord has hereunder for failure to pay Basic Rent. 14.7 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of ----------------------------------- this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. 14.8 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the ------------------------ terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant and, if Tenant shall be an individual, upon and to his heirs, executors, administrators, successors and assigns. Each term and each provision of this Lease to be performed by Tenant shall be construed to be both a covenant and a condition. The reference contained to successors and assigns of Tenant is not intended to constitute a consent to assignment by Tenant, but has reference only to a particular assignment as required by those provisions of Article VI hereof. 14.9 RECORDING. Tenant agrees not to record this Lease, but each party --------- hereto agrees, on the request, of the other, to execute a so-called notice of lease in form recordable and complying with applicable law and reasonably satisfactory to Landlord's attorneys. In no event shall such document set forth the rent or other charges payable by Tenant under this Lease; and any such document shall expressly state that it is executed pursuant to the provisions contained in this Lease and is not intended to vary the terms and conditions of this Lease. 14.10 NOTICES. Whenever, by the terms of this Lease, notices shall or ------- may be given either to Landlord or to Tenant, such notice shall be in writing and shall be sent by registered or certified mail, postage prepaid: If intended for Landlord, addressed to Landlord at Landlord's original Address (or to such other address or addresses as may from time to time hereafter be designated by Landlord by like notice). -23- If intended for Tenant, addressed to Tenant at Tenant's Original Address until the Commencement Date and thereafter to the Premises (or to such other address or addresses as may from time to time hereafter be designated by Tenant by like notice). If to First Mortgagee, at its address as set forth in Section 1.3. All such notices shall be effective when deposited in the United States Mail within the Continental United States, provided that the same are received in ordinary course at the address to which the same were sent. 14.11 WHEN LEASE BECOMES BINDING. The submission of this document for -------------------------- examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises, and this document shall become effective and binding only upon the execution and delivery hereof by both Landlord and Tenant. All negotiations, considerations, representations and understandings between Landlord and Tenant are incorporated herein and this Lease expressly supersedes any proposals or other written documents relating hereto. This Lease may be modified or altered only by written agreement between Landlord and Tenant, and no act or omission of any employee or agent of Landlord shall alter, change or modify any of the provisions hereof. This Lease may be executed in counterparts. 14.12 PARAGRAPH HEADINGS. The paragraph headings throughout this ------------------ instrument are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease. 14.13 RIGHTS OF FIRST MORTGAGEE. This Lease shall be subordinate to ------------------------- any first mortgage from time to time encumbering the Premises, whether executed and delivered prior to or subsequent to the date of this Lease, if such First Mortgagee shall so elect. If this Lease is subordinate to any such mortgage and such First Mortgagee (or successor) shall succeed to the Interest of Landlord, at the election of such First Mortgagee (or successor) Tenant shall attorn to such First Mortgagee and this Lease shall continue in full force and effect between such holder (or successor) and Tenant. Tenant agrees to execute such instruments of subordination or attornment in confirmation of the foregoing agreement as such First Mortgagee may request. It is a condition of Tenant's agreements hereunder to subordinate that such First Mortgagee enters into an agreement with Tenant by the terms of which First Mortgagee will agree that in the event of foreclosure of its Mortgage, First Mortgagee (and its successors and assigns) will not disturb the possession of the Tenant under this Lease so long as the Tenant is not in default hereunder and will attorn to Tenant under the same terms and conditions of the Lease. The Tenant hereby acknowledges that it has entered into a satisfactory subordination, attornment and nondisturbance agreement with United as First Mortgagee. -24- 14.14 STATUS REPORT. Recognizing that both parties may find it ------------- necessary to establish to third parties, such as accountants, banks, mortgagees, or the like, the then current status of performance hereunder, either party, an the request of the other made from time to time, will promptly furnish to Landlord, or any First Mortgagee or to Tenant, as the case may be, a statement of the status of any matter pertaining to this Lease, including, without limitation, acknowledgments that (or the extent to which) each party is in compliance with its obligations under the terms of this Lease. 14.15 SECURITY DEPOSIT. ---------------- THIS SUBSECTION WAS NOT USED. 14.16 REMEDYING DEFAULTS. Landlord shall have the right, but shall not ------------------ he required, to pay such sums or do any act which requires expenditure of monies which may be necessary or appropriate by reason of the failure or neglect of Tenant to perform any of the provisions of this Lease, and in the event of the exercise of such right by Landlord, Tenant agrees to pay to Landlord forthwith upon demand all such sums, together with interest thereon at a rate equal to 3% over the prime rate in effect from time to time at the Bank of Boston as an additional charge. Any payment of Basic Rent or other sums payable hereunder and not paid when due shall, at the option of Landlord, bear interest at a rate equal to 3% over the prime rate in effect from time to time at the First National Bank of Boston from the due date thereof and shall be payable forthwith on demand by Landlord, as an additional charge. 14.17 HOLDING OVER. Any holding over by Tenant after expiration of the ------------ term of this Lease shall be treated as a daily tenancy at sufferance at a rate equal to 1 1/2 times the Basic Rent then in effect plus other charges herein provided (prorated on a daily basis) and shall otherwise be on the terms and conditions set forth in this Lease as far as applicable. 14.18 WAIVER OF SUBROGATION. Insofar as, and to the extent that, the --------------------- following provision may be effective without invalidating or making it impossible to secure insurance coverage obtainable from responsible insurance companies doing business in the locality in which the Premises are located (even though extra premium may result therefrom) Landlord and Tenant mutually agree that, with respect to any hazard, the loss from which is covered by insurance then being carried by them, respectively, the one carrying such insurance and suffering such loss releases the other of and from any and all claims with respect to such loss to the extent of the insurance proceeds paid with respect thereto; and they further mutually agree that their respective-insurance companies shall have no right of subrogation against the other on account thereof. 14.19 SURRENDER OF PREMISES. Upon the expiration or earlier --------------------- termination of the Term of this Lease, Tenant shall peaceably quit and surrender to Landlord the Premises in neat and clean condition and in good order, condition and repair, together with all alterations, -25- additions and improvements which may have been made or installed in, on or to the Premises prior to or during the Term of this Lease, excepting only ordinary wear and use and damage by fire or other casualty. Tenant shall remove all of Tenant's Removable Property and trade fixtures (except as otherwise required by Landlord pursuant to Section 5.2(d)) and, to the extent specified by Landlord, all alterations and additions made by Tenant and all partitions wholly within the Premises unless installed initially by Landlord in preparing the Premises for Tenant's occupancy pursuant to Article IV; and shall repair any damage to the Premises caused by such removal. Any Tenant's Removable Property which shall remain on the Premises after the expiration or termination of the Term of this Lease shall be deemed conclusively to have been abandoned, and either may be retained by Landlord as its property or may be disposed of in such manner as Landlord may see fit, at Tenant's sole cost and expense. 14.20 BROKERAGE. Tenant warrants and represents that Tenant has dealt --------- with no broker in connection with the consummation of this Lease other than the Broker(s) , if any, identified in Section 1.3, and, in the event of any brokerage claim against Landlord predicated upon prior dealings with Tenant, Tenant agrees to defend the same and indemnify Landlord against any such claim (except any claim by such Broker(s) for which Tenant shall have no responsibility for the payment of broker's commissions, fees or other expenses related thereto). 14.21 GOVERNING LAW. This Lease shall be governed exclusively by the ------------- provisions hereof and by the laws of the Commonwealth of Massachusetts, as the same may from time to time exist. IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly executed, under seal, by persons hereunto duly authorized, in multiple copies, each to be considered an original hereof, as of the date first set forth above. LANDLORD: Suburban Way Realty /s/ Melvin P. Aronson By:_________________________________________ Melvin P. Aronson, as Trustee And Not Individually TENANT: SUBURBAN OSTOMY SUPPLY CO., INC. /s/ Melvin P. Aronson By:_________________________________________ Melvin P. Aronson, Vice President -26- EX-10.39 43 LEASE AND AGREE BET CO AND GBA EXHIBIT 10.39 LEASE AND AGREEMENT between GBA REALTY CORP., an Indiana Corporation as Landlord and SUBURBAN OSTOMY SUPPLY CO., INC., as Massachusetts Corporation as Tenant Dated August 1, 1993 TABLE OF CONTENTS
PAGE ---- 1. Demise of Premises......................................................1 2. Title and Condition.....................................................1 3. Use of Leased Premises..................................................1 4. Terms...................................................................1 5. Rent....................................................................1 6. Net Lease; Non-Terminability............................................2 7. Taxes and Assessment; Compliance with Law; Environmental Matters...................................................3 8. Indemnification.........................................................5 9. Liens; grants of Easements..............................................6 10. Maintenance and Repair; Completion of Improvements......................6 11. Alterations.............................................................7 12. Insurance...............................................................7 13. Casualty...............................................................10 14. Condemnation...........................................................11 16. Permitted Contests.....................................................12 17. Conditional Limitations; Default Provisions............................13 18. Additional Rights of Landlord..........................................15 19. Notices, Demands and Other Instruments.................................16 20. Estoppel Certificates and Consents.....................................16
-i- TABLE OF CONTENTS 21. No Merger..............................................................17 22. Surrender..............................................................17 24. Savings Clause.........................................................18 25. Binding Effect.........................................................18 26. Table of Contents, Headings............................................18 27. Governing Law..........................................................18 28. Certain Definitions....................................................18
-ii- LEASE AND AGREEMENT, dated as of August 1, 1993 (herein called "Lease"), between GBA REALTY CORP. (herein called "Landlord"), having an address at c/o May, Oberfell & Lorber, 300 North Michigan, South Bend, IN 46601, and SUBURBAN OSTOMY SUPPLY CO., INC. (herein called "Tenant"), having an address at 75 October Hill Road, Holliston, MA 01746. 1. Demise of Premises. In consideration of the rents and covenants ------------------ herein stipulated to be paid and performed, Landlord hereby demises, lets to Tenant, and Tenant hereby lets from Landlord, for the terms herein described, the premises (herein called the "Premises") consisting of (i) the land described in Schedule A hereto (herein called the "Land Parcel"); (ii) all buildings, structures and other improvements constructed and to be constructed thereon (including all building equipment and fixtures, if any, owned by Landlord, but excluded trade equipment and fixtures owned by Tenant) herein called the "herein called the "Improvements"); and (iii) all easements, rights and appurtenances relating thereto, all upon the terms and conditions herein specified. 2. Title and Condition. The Premises are demised and let subject to (a) ------------------- the rights of any parties in possession and the existing state of the title as of the commencement of the term of this Lease, (b) any state of facts which an accurate survey or physical inspection thereof might show, (c) all zoning regulations, restrictions, rules and ordinances, building restrictions and other laws and regulations now in effect or hereafter adopted by any governmental authority having jurisdiction the condition of any buildings, structures or other improvements located thereon, as the commencement of the term of this Lease, without representation or warranty by Landlord. Tenant represents that it has examined the title to and the condition of the Premises and has found the same to be satisfactory to it. 3. Use of Leases Premises. ---------------------- (a) Tenant may occupy and use the Premises for the purpose of the receipt, storage and distribution of products and all office, administrative and related purposes. Tenant shall not create or suffer to exist any public or private nuisance, hazardous or illegal condition or waste on or with respect to the Premises. (b) Tenant shall not conduct its business operation in the Premises unless and until (and during such time as) all necessary certificates of occupancy permits, licenses and consents from any or all appropriate governmental authorities have been obtained by Tenant and are in full force and effect. 4. Terms. Subject to the terms and conditions hereof, Tenant shall have ----- and hold the Premises for a primary term (herein called the "Primary Term") commencing on August 1, 1993, and ending at midnight on July 31, 2003, unless this sooner terminated pursuant to the terms hereof. 5. Rent. ----- (a) Tenant covenants to pay to Landlord, as installments of rent for the Premises during the term of this Lease, minimum annual rent of Eight-Five Thousand Six Hundred Seventy-Four Dollars ($85,674.00), payable in twelve (12) equal monthly installments due and payable on the first day of each calender month, subject to Landlord's right to annually review such minimum rent and to increase such rent in its discretion, upon not less than thirty (30) days' prior written notice. (b) Tenant covenants that all other amounts, liabilities and obligations which Tenant assumes or agrees to pay or discharge pursuant to this Lease together with every fine, penalty, interest and cost which may be added for nonpayment or late payment thereof, shall constitute additional rent hereunder. In the event of any failure by Tenant to pay or discharge any of the foregoing, Landlord shall have all rights, powers and remedies provided herein or by law in the case or nonpayment of Basic Rent. Tenant also covenants to pay to Landlord on demand an amount equal to four percent (4%) of the payment amount then due, on (i) all overdue installments of Basic Rent and (ii) all overdue amounts of additional rent. In addition, Tenant further covenants to pay to Landlord on demand interest at the rate of fifteen percent (15%) per annum (or at the maximum rate not prohibited by applicable law, whichever is less) on all obligations which Landlord shall have paid on behalf of Tenant from the date of such payment by Landlord until Landlord is paid in full. 6. Net Lease; Non-Terminability. ---------------------------- (a) This is an absolutely net lease to Landlord. It is the intent of the parties hereto that the Basic Rent payable under this Lease shall be an absolutely net return to the Landlord and that the Tenant shall pay all costs and expense relating to the Premises and the business carried on therein, unless otherwise expressly provided in this Lease. Any amount or obligation herein relating to the Premises which is not expressly declared to be that of the Landlord shall be deemed to be an obligation of the Tenant to be performed by the Tenant at the Tenant's expense. Basic Rent, additional rent and all other sums payable hereunder by Tenant, shall be paid without notice (except as expressly provided herein), demand, setoff, counterclaim, abatement, suspension, deduction or defense. (b) This Lease shall not terminate, nor shall Tenant have any right to terminate this Lease (except as otherwise expressly provided herein), nor shall Tenant be entitled to any abatement or reduction of rent hereunder (except as otherwise expressly provided herein), nor shall the obligations of Tenant under this Lease be affected, by reason of (i) any damage to or destruction of all or any part of the Premises from whatever cause; (ii) the taking of the Premises or any portion thereof by condemnation, requisition or otherwise; (iii) the prohibition, limitation or restriction of Tenant's use of all or any part of the Premises, or any interference with such use; (iv) any eviction by paramount title or otherwise; (v) Tenant's acquisition or ownership or all or any part of the Premises otherwise than as -2- expressly provided herein; (vi) any default on the part of Landlord under this Lease, or under any other agreement to which Landlord and Tenant may be parties; (vii) the failure of Landlord to deliver possession of the Premises on the commencement of the term hereof or (viii) any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding. It is the intention of the parties hereto that the obligations of Tenant hereunder shall be separate and independent covenants and agreements, that the Basic Rent, the additional rent and all other sums payable by Tenant hereunder shall continue to be payable in all events and that the obligations of Tenant hereunder shall continue unaffected, unless the requirement to pay or perform the same shall have been terminated pursuant to an express provision of this Lease. (c) Tenant agrees that it will remain obligated under this Lease in accordance with its terms, and that it will not take any action to terminate, rescind or avoid this Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, or winding-up or other proceeding affecting Landlord or its successors in interest or (ii) any action with respect to this Lease which may be taken by any trustee or receiver of Landlord or its successors in interest or by any court in any such proceeding. (d) Tenant waives all rights which may now or hereafter be conferred by law (i) to quit, terminate or surrender this Lease or the Premises or any part thereof or (ii) to any abatement, suspension, deferment or reduction of the Basic Rent, additional rent or any other sums payable under this Lease, except as otherwise expressly provided herein. 7. Taxes and Assessments; Compliance with Law; Environmental Matters. ----------------------------------------------------------------- (a) Tenant shall pay or discharge all Impositions, as hereinafter defined, when due. Notwithstanding the foregoing provision of this paragraph 7(a), Tenant shall not be required to pay any franchise, corporate, estate, inheritance, succession, transfer (other than transfer taxes, recording fees, or similar charges payable in connection with a conveyance hereunder to Tenant), income, excess profits or revenue taxes of any Landlord hereunder (other than any gross receipts or similar taxes imposed or levied upon, assessed against or measured by the Basic Rent, additional rent or any other sums payable by Tenant hereunder or levied upon or assessed against the Premises, unless such taxes are in lieu of an income, profit or revenue tax of Landlord but only to the extent of such substitution and only to the extent that such tax, assessment or other charge would be payable if the Premises were the only property of Landlord subject thereto), except any such tax, assessment, charge or levy imposed or levied upon or assessed against Landlord in substitution for or in place of an Imposition. Tenant agrees to furnish to Landlord; within thirty (30) days after written demand therefor, evidence of the payment of all Impositions. In the event that any Imposition levied or assessed against the Premises becomes due and payable during the term hereof and may be legally paid in installments, Tenant shall have the option to pay such Imposition in -3- installments. In such event, Tenant shall be liable only for those installments which become due and payable during the term hereof. (b) Tenant shall at its expense, comply with and shall cause the Premises to comply with all governmental statutes, laws, rules, orders, regulations and ordinances the failure to comply with which at any time would affect the Premises or any part thereof, or the use thereof, including those which require the making of any structural, unforeseen or extraordinary changes, whether or not any of the same involve a change of policy or the part of the body enacting the same. Tenant shall, at its expense, comply with all changes required in order to obtain the Required Insurance (as hereinafter defined), and with the provisions of all contracts, agreements, instruments and restrictions existing at the commencement of this Lease or thereafter suffered or permitted by Tenant affecting the Premises or any part thereof or the ownership, occupancy or use thereof. (c) Tenant shall: (i) not cause, suffer or permit any Hazardous Material to exist on or discharge from the Premises (whether originating thereon or migrating to the Premises from other property), and shall promptly: (A) pay any claim against Tenant, Landlord, Permitted Beneficiary or the Premises, (B) remove any charge or lien upon any of the Premises, and (C) defend, indemnify and hold Landlord and Permitted. Beneficiary harmless from any and all claims, expenses, liability, loss or damage, resulting from any Hazardous Material that exist on or is discharged from the Premises; (ii) not cause, suffer or permit any Hazardous Material to exist on or discharge from any property owned or used by Tenant which would result in any charge or lien upon the Premises and shall promptly: (A) pay any claim against Tenant, Landlord, Permitted Beneficiary or the Premises; (B) remove any charge or lien upon the Premises and (C) defend, indemnify and hold Landlord and Permitted Beneficiary harmless from any and all claims, expenses, liability, loss or damage, resulting from the existence of any such Hazardous Material; (iii) notify Landlord and Permitted Beneficiary of any Hazardous Material that exists on or is discharged from or onto the Premises (whether originating thereon or migrating to the Premises from other property) within ten (10) days after Tenant first has knowledge of such existence of discharge; and -4- (iv) comply, and cause the Premises to comply, with all statutes, laws, ordinances, rules and regulations of all local, state or federal authorities having authority over the Premises or any portion thereof or their use, including without limitation, relative to any Hazardous Material, petroleum products, asbestos containing materials or PCB's. (v) "Hazardous Material" means any hazardous or toxic material, ------------------ substance or waste which is defined by those or similar terms or is regulated as such under any Environmental Laws. "Environmental Laws" means any statute, law, ordinance, rule or regulation of any local, county, state or federal authority having jurisdiction over the Property or any portion thereof or its use, including but not limited to: the Federal Water Pollution Control Act (33 U.S.C. (S) 1317) as amended; (b) the Federal Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.) as amended; (c) the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. (S) 9601 et seq.) as amended; (d) the Toxic Substance Control Act 15 U.S.C. 2601, as amended; and (e) the Clean Air Act, 42 U.S. (S)7401, as amended. (vi) The Tenant's obligations and liabilities under paragraph 7(c) shall survive the expiration of this Lease. 8. Indemnification. Tenant agrees to pay, and to protect, defend, --------------- indemnify Landlord, Permitted Beneficiary and their agents from and against any and all liabilities, losses, damages, costs, expenses (including all reasonable attorneys' fees and expenses of Landlord), causes of action, suits, claims, demands or judgments of any nature whatsoever (i) arising from any injury to, or the death of, any person or damage to property on the Premises or upon adjoining sidewalks, streets or ways, in any manner growing out of or connected with the use, non-use, condition or occupation of the Premises or any part thereof or resulting from the condition thereof or adjoining sidewalks, streets or ways, so long as not occasioned by the affirmative negligent act of Landlord, Permitted Beneficiary, their agents, servants, employees or assigns and/or (ii) arising from violation by Tenant of any agreement or condition of this Lease, or any contract or agreement to which Tenant is a party or any restriction, law, ordinance or regulation, in each case affecting the Premises or any part thereof or the ownership, occupancy or use thereof, so long as not occasioned by the intentional fault of Landlord, Permitted Beneficiary, their agents, servants, employees or assigns. If Landlord, Permitted Beneficiary or any agent of Landlord or Permitted Beneficiary shall be made a party to any such litigation commenced against Tenant, and if Tenant, at its expense, shall fail to provide Landlord, Permitted Beneficiary or their agents with counsel (upon Landlord's request) approved by Landlord, Tenant shall pay all costs and attorneys' fees -5- and expenses incurred or paid by Landlord, Permitted Beneficiary or their agents in connection with such litigation. The Tenant's obligations and liabilities under paragraph 8 herein shall survive the expiration of this Lease. 9. Liens: grants of Easements. Tenant will not, directly or indirectly, -------------------------- create or permit to be created or to remain, and will promptly discharge, at its expense, any mortgage, lien, encumbrance or charge on, pledge of, or conditional sale or other title retention agreement with respect to, the Premises or any part thereof or Tenant's interest therein or the Basic Rent, additional rent or other sums payable by Tenant under this Lease. Nothing contained in this Lease shall be construed as constituting the consent or request, expressed or implied, by Landlord to the performance of any labor or services or of the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to the Premises or any part thereof by any contractor, subcontractor, laborer, materialman or vendor. Notice is hereby given that Landlord will not be liable for any labor, services or materials furnished or to be furnished to Tenant, or to anyone holding the Premises or any part thereof, and that no mechanic's or other liens for any such labor, services or materials shall attach to or affect the interest of Landlord in and to the Premises. 10. Maintenance and Repair: Completion of Improvements. -------------------------------------------------- (a) Tenant acknowledges that it has received the Premises in good condition, repair and appearance. Tenant agrees that, at its expense, it will keep and maintain the Premises, including any altered, rebuilt, additional or substituted buildings, structures or other improvements thereto, in good repair and appearance, except for ordinary wear and tear, it will make promptly, all structural and non-structural, foreseen and unforeseen, ordinary and extraordinary changes and repairs of every kind which may be required to be made to keep and maintain the Premises in such good condition, repair and appearance and it will keep the Premises orderly and free and clear of rubbish. Tenant covenants to perform or observe all terms, covenants or conditions or any reciprocal easement or maintenance agreement to which it may at any time be a party or to which the Premises are currently subject. Tenant shall, at its expense, use its best efforts enforce compliance with any reciprocal easement or maintenance agreement benefitting the Premises by any other person subject to such agreement. Landlord shall not be required to maintain, repair or rebuild, or to make any alterations, replacements or renewals of any nature to the Premises, or any part thereof, whether ordinary or extraordinary, structural or nonstructural, foreseen or not foreseen to maintain the Premises or any part thereof in any way. Tenant hereby expressly waives the right to make repairs at the expense of Landlord which may be provided for in any law in effect at the time of the commencement of the term of this Lease or which may thereafter be enacted. If Tenant shall abandon the Premises, it shall give Landlord and any Permitted Beneficiary immediate notice thereof. -6- (b) If any Improvements situated on the Premises at knylirne during the Term of this Lease shall encroach upon any property, street or right-of-way adjoining or adjacent to the Premises, or shall violate the agreements or conditions contained in any restrictive covenant affecting the Premises or any part thereof, or shall impair the rights of others under or hinder or obstruct any easement or right-of-way to which the Premises are subject, then, promptly after the written request of Landlord or any person affected by any such encroachment, violation, impairment, hindrance or obstruction, Tenant shall, at its expense, either (i) obtain effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, impairment, hindrance or obstruction whether the same shall affect Landlord, Tenant shall, at its expense, either (i) obtain effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, impairment, hindrance or obstruction whether the same shall affect Landlord, Tenant or both, or (ii) make such changes in the improvements on the Premises and take such other action as shall be necessary to remove such encroachments, hindrances or obstructions and to end such violations or impairments, including, if necessary, the alteration or removal of any improvement on the Premises. Any such alteration or removal shall be made in conformity with the requirements of paragraph 11(a) to the same extent as if such alteration or removal were an alteration under the provisions of paragraph 11(a). 11. Alterations. Subject to the prior written approval of Landlord, which ----------- approval shall not be unreasonably withheld, Tenant may, at its expense, after not less than forty-five (45) days' prior Written notice to Landlord of its plans (which notice shall include a description of the proposed additions or alterations), make additions to and alterations of the Improvements to the Premises, and make substitutions and replacements therefor, provided, that (i) the market value of the Premises shall not thereby be lessened; (ii) is architecturally consistent with existing Improvements; (iii) such actions shall be performed in a good and workmanlike manner; and (iv) such additions, alterations, substitutions and replacements shall not violate any term of any agreement or restriction to which the Premises are subject and shall be expeditiously completed in compliance with all laws, ordinances, rules, regulations and requirements applicable thereto. Tenant shall promptly pay all costs and expenses of each such addition, alteration, substitution or replacement, discharge all liens arising therefrom and procure and pay for all permits and licenses required in connection therewith. All such Improvements shall be and remain part of the realty and the property of Landlord and subject to this Lease. Tenant may, at its expense, install, assemble or place any items of trade fixtures, machinery or equipment upon the Premises. Such trade fixtures, machinery or equipment shall be and remain the property of Tenant and Tenant may remove the same from the Premises at any time prior to the termination of this Lease, provided that Tenant shall repair any damage to the Premises resulting from such removal. 12. Insurance. --------- (a) Tenant shall maintain, or cause to be maintained, at its sole expense, the following insurance on the Premises (herein called the "Required Insurance"); -7- (i) Insurance against loss or damage by fire, lightning and other risks from time to time included under "all risk" policies, including, without limitation, vandalism and malicious mischief coverage, in amounts sufficient to prevent Landlord or Tenant from becoming a co-insurer of any loss under the applicable policies by in any event in amounts not less than the full insurable value of the Premises. The term "full insurable value," as used herein, means actual replacement value (i.e., including the cost of debris removal but excluding foundation and excavations) as reasonably determined by Landlord from time to time. (ii) General public liability insurance for the benefit of Landlord, Tenant and Permitted Beneficiary against claims for damages to person or property occurring on, in or about the Premises and the adjoining street, sidewalks, gutters, curbs, passageways and other areas adjacent thereto, if any. (iii) Worker's compensation insurance covering all persons employed in connection with any work done on or about the Premises with respect to which claims for death or bodily injury could be asserted against Landlord, Tenant or the Premises, complying with the laws of the state in which Premises is located. (iv) At any time when any portion of the Premises are being constructed, altered or replaced, builder's risk insurance (in completed value nonreporting form) in an amount not less than the actual replacement value of the Improvements, exclusive of foundations and excavations. (v) The insurance contemplated in subparagraphs (i) and (ii) above shall be furnished in the form, type of casualty, and with insurers and in amounts satisfactory to the Permitted Beneficiary, with the originals of any and all such policies to be held by Permitted Beneficiary's designee and including the provision of such certificates of insurance as the Permitted Beneficiary, its agents and representatives shall reasonably require. Such insurance shall also include rental income insurance as an additional endorsement insuring the Landlord and the Permitted Beneficiary against rental loss for a minimum period of twelve (12) months after any damage to or destruction of the Premises, specifically including but not limited to any improvements thereon. (vi) Such other insurance on the Premises, including but not limited to boiler or sprinkler leakage insurance, in such amounts and against such other hazards which at the time are commonly obtained in the case of property similar to the Premises, including war risk insurance (at an during such times as war risk insurance is commonly obtained in the case of property similar to the Premises), when and to the extent obtainable from the United States Government or any agency thereof. (b) Insurance claims by reason of damage to or destruction of any portion of the Premises shall be adjusted by Tenant, both Landlord and any Permitted Beneficiary shall have the right to join with Tenant in adjusting any such loss. Proceeds of such insurance shall be made available to Tenant but only against certificates of Tenant delivered to Landlord from time to time as such work or repair progresses, each such certificate describing the work or repair for which Tenant is requesting payment and the cost incurred by Tenant in connection therewith and stating that Tenant has not theretofore received payment for such work and has sufficient funds remaining to complete the work free of liens or claims. Any proceeds remaining after Tenant has repaired the Premises pursuant to paragraph 13, shall be delivered to Tenant. (c) Every policy referred to in clauses (i), (iv) and (v) paragraph 12(a) shall bear a first mortgage endorsement in favor of the then Permitted Beneficiary (if any); and any loss under such policy shall be made payable to such Permitted Beneficiary, provided that any recovery under any such policy shall be applied by such Permitted Beneficiary in the manner provided in paragraph 12(c). Every policy of Required Insurance shall contain an agreement that the insurer will not cancel such policy except after thirty (30) days' written notice to Landlord and Permitted Beneficiary and that any loss otherwise payable thereunder shall be payable notwithstanding any act or negligence of Landlord, Tenant or Permitted Beneficiary which might, absent such agreement, result in a forfeiture of all or a part of such insurance payment and notwithstanding (i) any foreclosure or other action taken by a Permitted Beneficiary pursuant to any provision of any Permitted Deed of Trust upon the happening of a default of Event of Default thereunder or (ii) any change in ownership of the Premises. (d) Tenant shall, within thirty (30) days prior to the expiration of any such policy, deliver to the Permitted Beneficiary, with a copy to Landlord, any other original or duplicate policies, additional endorsements for the new policy year, or such certificates evidencing the renewal of any such policy, in relation to any policy of insurance to be held by the Permitted Beneficiary in accordance with paragraph 12(a)(v) above. If Tenant fails to maintain or renew any Required Insurance, or to pay the premium therefor, or to deliver any such policy or certificate, then Landlord, at its option, but without obligation to do so, may, upon five (5) days' notice to Tenant, procure such insurance. Any sums so expended by Landlord shall be additional rent hereunder and shall be repaid by Tenant within five (5) days after notice to Tenant of such expenditure and the amount thereof. -9- (e) Neither Tenant nor Landlord shall obtain or carry separate insurance covering the same risks as any Required Insurance unless Tenant, Landlord and the Permitted Beneficiary are included therein as named insured, with loss payable as provided in this Lease and the policy contains a first mortgagee and endorsement in favor of the Permitted Beneficiary. Tenant and Landlord shall immediately notify each other whenever any such separate insurance is obtained and shall deliver to each other the policies or certificates evidencing the same. (f) Anything contained in this paragraph 12 to the contrary notwithstanding, all Required Insurance may be carried under a "blanket" or "umbrella" policy or policies covering other properties or liabilities of Tenant, provided, that such policies otherwise comply with the provisions of this Lease and specify the coverage and amounts thereof with respect to the Premises. (g) Landlord and Permitted Beneficiary shall not be limited in the proof of any damages which Landlord or Permitted Beneficiary may claim against Tenant arising out of or by reason of Tenant's failure to provide and keep in force insurance, as provided above, to the amount of the insurance premium or premiums not paid or incurred by Tenant and which would have been payable under such insurance; but Landlord and Permitted Beneficiary shall also be entitled to recover as damages for such breach, the uninsured amount of any loss, to the extent of any deficiency in the Required Insurance and damages, costs and expenses of suit suffered or incurred by reason of or damage to, or destruction of, the Premises, occurring during any period when Tenant shall have failed or neglected to provide the Required Insurance. Tenant shall indemnify and hold harmless Landlord and Permitted Beneficiary for and liability incurred by Landlord or Permitted Beneficiary arising out of any deductibles for Required Insurance. 13. Casualty. If a part of the Premises shall be damaged or destroyed by -------- casualty, and if the estimated cost of rebuilding, replacing and repairing the same shall be or exceed Five Thousand Dollars ($5,000.00), Tenant shall promptly notify Landlord thereof, and (whether or not such estimated cost shall be or exceed Five Thousand Dollars [$5,000.00]) Tenant shall, with reasonable promptness and diligence, rebuild, replace and repair any damage or destruction to the Premises, at its expense, in conformity with the requirements of paragraph 11(a) in such manner as to restore the same to the same condition, as nearly as possible, as existed prior to such casualty and there shall be no abatement of Basic Rent of additional rent. 14. Condemnation. Subject to the rights of Tenant set forth in this ------------ paragraph 14, Tenant hereby irrevocably assigns to Landlord any award or payment to which Tenant may be or become entitled with respect to the taking of the Premises or any part thereof, by condemnation or other eminent domain proceedings pursuant to any law, general or special, or by reasons of the temporary requisition of the use or occupancy of the Premises or any part thereof, by any governmental authority, civil or military, whether the same shall be paid or -10- payable in respect of Tenant's leasehold interest hereunder or otherwise. Landlord shall be entitled to participate in any such proceeding and the expenses thereof (including counsel fees and expenses) shall be paid by Tenant. If the entire Premises, or such portion thereof as will make the remainder unsuitable for the use permitted under this Lease and Agreement, is condemned by any legally constituted authority, as contemplated in this paragraph, or if a conveyance or other acquisition in lieu of such condemnation is made, then this Lease and Agreement shall terminate as of the date possession is required by the condemnor. If a portion of the leased Premises is condemned but the remainder is still suitable for the use permitted by this Lease and Agreement, this Lease and Agreement shall not terminate but a portion of the rent for the rest of the term shall be abated in proportion to the amount of the Premises taken which are actually and regularly employed by the Tenant in the operation of its business at the time the Tenant is first notified by any such condemnor. Any and all compensation paid in connection with condemnation shall belong to and be the sole property of the Landlord, except Tenant shall be entitled to any compensation specifically awarded to it for its trade fixtures, moving expenses and in relation to the termination of its leasehold interest. 15. Assignment and Subletting. Tenant may sublet all or any part of the ------------------------- Premises without the consent of Landlord (provided, that each such sublease shall expressly be made subject to the provisions of this Lease) and, may assign all its rights and interests under this Lease. If Tenant assigns all its rights and interests under this Lease, the assignee under such assignment shall expressly assume all the obligations of Tenant hereunder in an instrument, approved by Landlord as to form and substance (which approval will not be unreasonably withheld or delayed), delivered to Landlord at the time of such assignment. No assignment or sublease made as permitted by this paragraph 16 shall affect or reduce any of the obligations of Tenant hereunder, and all such obligations shall continue in full force and effect as obligations of a principal and not as obligation of a guarantor of surety, to the same extent as though no assignment or subletting had been made, provided that performance by any such assignee or sublease of any of the obligations of Tenant under this Lease shall be deemed to be performed by Tenant. No sublease or assignment made as permitted by this paragraph 16 shall impose any obligations on Landlord or otherwise affect any of the rights of Landlord under this Lease. Neither this Lease nor the Term hereby demised shall be mortgaged by Tenant, nor shall Tenant mortgage or pledge the interest of Tenant in and to any sublease of the Premises or the rentals payable thereunder. Any mortgage, pledge, sublease or assignment made in violation of this paragraph 16 shall be void. Tenant shall, within ten (10) days after the execution and delivery of any such assignment or the sublease or all or substantially all of the Premises, deliver a conformed copy thereof to Landlord. Within ten (10) days after the execution and delivery sublease of a portion of the Premises, Tenant shall give notice to Landlord of the existence and term thereof, and of the name and address of the sublease thereunder. 16. Permitted Contests. Tenant shall not be required to (i) pay any ------------------ Imposition; (ii) comply with any statue, law, rule, order, regulation or ordinance; (iii) discharge or remove any lien, encumbrance or charge; or (iv) obtain any waivers or settlements or make any -11- changes to take any action with respect to any encroachment, hindrance, obstruction, violation or impairment referred to in paragraph 10(b), so long as Tenant shall contest, in good faith and at its expense, the existence, the amount or the validity thereof, the amount of the damages caused thereby, or the extent of its liability therefor, by appropriate proceedings during the pendency of which there is prevented (a) the collection of, or other realization upon, the tax, assessment, levy, fee, rent or charge or lien, encumbrance or charge so contested; (b) the sale, forfeiture or loss of the Premises, or any part thereof, or the Basic Rent or any additional rent, or any portion thereof; (c) any interference with the use or occupancy of the Premises or any part thereof; and (d) any interference with the payment of the Basic Rent or any additional rent, or any portion thereof. While any such proceedings are pending, Landlord shall not have the right to pay, remove or cause to be discharged the tax, assessment, levy, fee, rent or charge or lien, encumbrance or charge thereby being contested. Tenant further agrees that each such contest shall be promptly prosecuted to a final conclusion. Tenant shall pay, indemnify and save Landlord harmless against any and all losses, judgments, decrees and costs (including all attorneys' fees, appearance costs and expenses) in connection with any such contest and shall, promptly after the final settlement, compromise or determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, and perform an acts, the performance of which shall be ordered or decreed as a result thereof; provided, however, that nothing herein contained shall be construed to required Tenant to pay or discharge any lien encumbrance or other charge created by any act or failure to act of Landlord or the payment of which by Tenant is not otherwise required to perform hereunder. No such contest shall subject Landlord or any Permitted Beneficiary to the risk of any criminal liability. Tenant shall give such reasonable security to Landlord or such Permitted Beneficiary as may be demanded by Landlord or such Permitted Beneficiary to insure compliance with the foregoing provision of this paragraph 19. 17. Conditional Limitations: Default Provision. ------------------------------------------ (a) Any of the following occurrences or acts shall constitute an event of default (herein called an "Event of Default") under this Lease: i) the failure to pay when due any rent or other payment, including but not limited to insurance premiums, utility payments, taxes and any expense incurred in the maintenance or improvement of the premises; which failure continues for a period of ten (10)days. ii) any failure to perform or observe any other term or agreement herein, which failure of performance or observance continues for a period of thirty (30) days after notice thereof is given to Tenant. -12- (iii) any of the Tenant's property seized or levied upon under any legal or governmental process against Tenant or against Tenant's property. (iv) Tenant becomes insolvent or subject to an insolvency proceeding or has any property placed in the control of a trustee, receiver or other custodian. (v) Tenant's abandonment of the leased premises. (vi) the initiation and prosecution of dissolution, liquidation or receivership proceedings against the Tenant or its failure to maintain its corporate or partnership existence in good standing and conformance with Indiana law. (b) If an Event of Default shall have happened and be continuing, Landlord shall have the right at its election to give Tenant written notice of Landlord's intention to terminate the term of this Lease on a date specified in such notice. Thereupon, the term of this Lease and the estate hereby granted shall terminate on such date as completely and with the same effect as if such date were the date fixed herein for the expiration of the term of this Lease, and all rights of Tenant hereunder shall terminate, but Tenant shall remain liable as provided herein. (c) Upon the occurrence of any of the above-stated events of default and Tenant's breach of this Lease and Agreement, Landlord shall have the following remedies in addition to its other rights and remedies as provided at law and in equity: (i) Landlord may re-enter the premises immediately and remove all of Tenant's personnel and property therefrom; provided, however, that any retaking or possession by the Landlord shall be without prejudice to the rights and remedies of the Landlord to recover for any damages sustained by reason of the Tenant's failure to perform under the terms and conditions of this Lease. (ii) After re-entry, the Landlord may terminate the lease by giving fifteen (15) days' written notice of such termination to Tenant. Re-entry only, without notice of termination, shall not terminate this Lease. (iii) After re-entry, Landlord may relet the premises or any part thereof, for any terms, without terminating the lease, at such rent and on such terms as it may choose. -13- (iv) The Landlord may further pursue any and all available legal remedies for damage to the premises or breach of any of Tenant's covenants contained herein. The Landlord shall further be entitled to the recovery of reasonable attorneys' fees and costs incurred as a result of Tenant's breach of any of the covenants of this Lease and Agreement. (d) At any time or from time to time after the repossession of the Premises or any part thereof pursuant to paragraph 20(c), whether or not the term of this Lease shall have been terminated pursuant to paragraph 20(b), Landlord may (but shall be under no obligation to) relet the Premises or any part thereof for the account of Tenant, in the name of Tenant or Landlord or otherwise, without notice to Tenant, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the term of this Lease) and on such conditions (which may include concessions or free rent) and for such uses Landlord, in its absolute discretion, may determine, and Landlord may collect and receive any rents payable by reason of such reletting. Landlord shall not be responsible or liable for any failure to relet the Premises or any part thereof or for any failure to collect any rent due upon any such reletting. (e) No termination of the term of this Lease pursuant to paragraph 20(b), by operation of law or otherwise, and no repossession of the Premises or any part thereof pursuant to paragraph 20(c) or otherwise, and no reletting of the Premises or any part thereof pursuant to paragraph 20(d), shall relieve Tenant of its liabilities and obligations hereunder, all of which shall survive such expiration, termination, repossession or reletting. (f) In the event of any such termination or repossession, Tenant will pay to Landlord the Basic Rent, additional rent and other sums required to be paid by Tenant to and including the date of such termination or repossession; and, thereafter, Tenant shall, until the end of what would have been the term of this Lease in the absence of such termination or repossession, and whether or not the Premises or any part thereof shall have been relet, be liable to Landlord for, and shall pay to Landlord, as liquidated and agreed current damages: (i) the Basic Rent, additional rent and other sums which would be payable under this Lease by Tenant in the absence of such termination or repossession, less (ii) the net proceeds, if any, of any reletting effected for the account of Tenant pursuant to paragraph 20(d), after deducting from such proceeds all Landlord's expenses incurred in connection with such reletting (including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, employees' expenses, alteration costs and expenses of preparation for such reletting). Tenant will pay such current damages on the days on which the Basic Rent would have been payable under this Lease in the absence of such termination or repossession, and Landlord shall be entitled to recover the same from Tenant on each such day. (g) At any time after such termination or repossession by reason of the occurrence of any Event of Default, whether or not Landlord shall have collected any current -14- damages pursuant to paragraph 20(f), Landlord shall be entitled to recover from Tenant, and Tenant will pay to Landlord on demand, as and for liquidated and agreed final damages for Tenant's default and in lieu of all current damages beyond the date of such demand (it being agreed that it would be impracticable or extremely difficult to fix the actual damages), an amount determined in accordance with Exhibit C. If any law shall limit the amount of such liquidated final damages to less than the amount above agreed upon, Landlord shall be entitled to the maximum amount allowable under such statute as rule of law. (h) Notwithstanding any thing to the contrary stated herein, if an Event of Default shall have happened to be continuing, whether or not Tenant shall have abandoned the Premises, Landlord may elect to continue this Lease in effect for so long as Landlord does not terminate Tenant's right to possession of the Premises and Landlord may enforce all of its rights and remedies hereunder including without limitation the right to recover all Basic Rent, additional rent and other sums payable hereunder as the same become due. 18. Additional Rights of Landlord. ----------------------------- (a) No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity or by statute. The failure of Landlord to insist at any time upon the strict performance of any covenant or agreement or to exercise any option, right, power or remedy contained in this Lease shall not be construed as a waiver or a relinquishment thereof for the future. A receipt by Landlord of any Basic Rent, any additional rent or any other sum payable hereunder with knowledge of the breach of any covenant or agreement contained in this Lease shall not be deemed a waiver of such breach, and no waiver by Landlord any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. In addition to other remedies provided in this Lease, Landlord shall be entitled, to the extent permitted by applicable law, to injunctive relief in case of the violation, or attempted or threatened violation, of any of the covenants, agreements, conditions or provision of this Lease, or to decree compelling performance of any of the covenants, agreements, conditions or provisions of this Lease, or to any other remedy allowed to landlord at law or in equity. (b) Tenant hereby waives and surrenders for itself and all those claiming under it, including creditors of all kinds, (i) any right or privilege which it or any of them may have under any present or future constitution, statute or rule of law to redeem the Premises or to have a continuance of this Lease for the term hereby demised after termination of Tenant's right of occupancy by order or judgment of any court or by any legal process or writ, or under the terms of this Lease or after the termination of the term of this Lease as herein provided, and (ii) the benefits of any present or future constitution, statute or rule of law which exempts property from liability for debt or for distress for rent. -15- (c) In the event an action shall be brought for the enforcement of any right hereunder, the losing party shall pay to the prevailing party all the expenses incurred in connection therewith including attorneys' fees. 19. Notice, Demands and Other Instruments. All notices, demands, ------------------------------------- requests, consents, approvals and other instruments required or permitted to be given pursuant to the terms of this Lease shall be in writing and shall be deemed to have been properly given if (a) with respect to Tenant, sent by registered mail, postage prepaid, or sent by facsimile transmission, overnight express carrier or delivered by hand, in each case addressed to Tenant at its address first above set forth, and (b) with respect to Landlord, sent by registered mail, postage prepaid, or sent by facsimile transmission, overnight express courier or delivered by hand in each case, addressed to Landlord at its address first above set forth along with a copy to the Permitted Beneficiary. Landlord and Tenant shall each have the right from time to time to specify at its address for purposes of this Lease any other address in the United States of America upon giving fifteen (15) days' written notice thereof, similarly given, to the other party. 20. Estoppel Certificates and Consents. ---------------------------------- (a) Tenant and Landlord will, at any time and from time to time, upon not less than twenty (20) days' prior request by the other party or by Permitted Beneficiary, execute, acknowledge and deliver to the other party a Certificate, certifying that (i) this Lease is unmodified and in full effect (or setting forth any modifications and that this Lease is in full effect as modified); (ii) the Basic Rent and additional rent and other sums payable hereunder have been paid; (iii) to the knowledge of the signer, any default of which the signer may have knowledge; (iv) the commencement and expiration dates of the Lease; (v) the amount of any security or other deposits; (vi) either the Tenant is in possession of the Premises or who is in possession; (vii) as to any concessions or other rights that Tenant (including first refusal, option or other occupancy claims) or Landlord may have; and (viii) such other matters as may reasonably be requested by the requesting party. Any such certificate may be relied upon by any mortgagee or prospective purchaser or prospective mortgage of the Premises. (b) From time to time during the term of this Lease, Landlord expects to secure financing of its interest in the Premises by assigning Landlord's interest in this Lease and the sums payable hereunder. In the event of any such assignment to a Permitted Beneficiary, Tenant will, upon not less than ten (10) days' prior request by Landlord, execute, acknowledge and deliver to Landlord a consent to such assignment addressed to such produce, at Tenant's expense, such certificates, opinions of counsel and other documents as may be reasonably requested by such Permitted Beneficiary. -16- 21. No Merger. There shall be no merger of this Lease or the leasehold --------- estate hereby created with the fee estate in the Premises or any part thereof by reason of the same person acquiring or holding, directly or indirectly, this Lease or the leasehold estate hereby created or any interest in this Lease or in such leaseholder estate as well as the fee estate in the Premises or any portion thereof. 22. Surrender. Upon the termination of this Lease, Tenant shall peaceably --------- surrender the Premises to Landlord in the same condition in which they were received from Landlord at the commencement of this Lease, except as altered as permitted or required by this Lease and except for ordinary wear and tear. Provided that Tenant is not in default hereunder, Tenant shall remove from the Premises prior to or within a reasonable time after (not to exceed thirty (30) days) such termination all property not owned by Landlord, and, at Tenant's expense, shall at such times of removal, repair any damage caused by such removal. Property not so removed shall become the property of Landlord. Landlord may thereafter cause such property to be removed and disposition and the cost or repairing any damage caused by such removal shall be borne by Tenant. Notwithstanding anything to the contrary contained herein, upon termination of this Lease pursuant to a default by Tenant, the heating, ventilation and air conditioning systems shall remain on the Premises and shall become the property of Landlord. 23. Separability. Each and every covenant and agreement contained in this ------------ Lease is separate and independent, and the breach of any thereof by Landlord shall not discharge or relieve Tenant from any obligation hereunder. If any term or provision of this Lease or the application thereof to any person or circumstances or at any time to any extent be invalid and unenforceable, the remainder of this Lease or the application of such term or provision to persons or circumstances or at any time other than those to which it is invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and shall be enforced to the extent permitted by law. 24. Savings Clause. No provision contained in this Lease which purports -------------- to obligate the Tenant to pay any amount of interest or any fees, costs or expenses which are in excess of the maximum permitted by applicable law, shall be effective to the extent that it calls for payment of any interest or other sums in excess of such maximum. 25. Binding Effect. All of the covenants, conditions and obligations -------------- contained in this Lease shall be binding upon and inure to the benefit of the respective successors and assigns of Landlord and Tenant to the same extent as if each successor and assign were in each case named as discharged except by a writing signed by Landlord and Tenant. 26. Table of Contents, Heading. The table of contents and headings used -------------------------- in this Lease are for convenient reference only and shall not to any extent have the effect of modifying, amending or changing the provisions of this Lease. -17- 27. Governing Law. This Lease shall be governed by and interpreted under ------------- the laws of the state in which the Premises are located. 28. Certain Definitions. ------------------- (a) The term "Imposition" means: (i) all taxes, assessments (including assessments for benefits from public works or improvements, whether or not begun or completed prior to the commencement of the term of this Lease and whether or not to be completed within said term), levies, fees, water and sewer rents and charges, and all governmental charges of every kind, general and special ordinary and extraordinary, whether or not the same shall have been within the express contemplating of the parties hereto, together with any interest and penalties thereon, which are, at any time, imposed or levied upon or assessed against (A) the Premises or any part thereof, (B) any Basic Rent, any additional rent reserved or payable hereunder, (C) this Lease or the leasehold estate hereby created or which arise in respect of the operation, possession, occupancy or use of the Premises; (ii) any gross receipts or similar taxes imposed or levied upon, assessed against or measured by the Basic Rent, additional rent or any other sums payable by Tenant hereunder or levied upon or assessed against the Premises; (iii) all sales and use taxes which may be levied or assessed against or payable by Landlord or Tenant on account of the acquisition, leasing or use of the Premises or any portion thereof; and (iv) all charges for water, gas, light, heat, telephone, electricity, power and other utilities and communications services rendered or used on or about the Premises. (b) The term "Lease" means: this lease agreement as amended and modified from time to time together with any memorandum or short form of lease entered into for the purpose of recording. (c) The term "Tenant's Certificate" means: -18- a written certificate signed by the Chairman of the Board, the President or any Vice President of Tenant. (d) The term "Landlord" means: the owner, for the time being, of the rights of the lessor under this lease and his heirs, successors and assigns, and upon any assignments or transfer of such rights, except an assignment or transfer made as security for an obligation, the assignor or transferor shall be relieved of all future duties and obligations under this Lease and the assignee or the transferee shall expressly agree in writing to be bound by and to assume all the covenants of Landlord hereunder. (e) The term "Permitted Beneficiary" means: Guaranty Mutual Life Company and its assigns. (f) The term "Termination Date" means: and business day not immediately preceding or succeeding a Saturday, Sunday or legal holiday. -19- IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above set forth. LANDLORD: GBA Realty Corp. /s/ Attest: By:_______________________________ ______________________________ TENANT: Suburban Ostomy Supply Co., Inc, /s/ Attest: By:_______________________________ ______________________________ -20- ADDENDUM TO LEASE AGREEMENT between GBA Realty Corp. Landlord and Suburban Ostomy Supply Co., Inc. Tenant RENT ADJUSTMENT Effective March 1, 1994, the minimum annual rent for the South Bend distribution facility will be One Hundred Eight Thousand Dollars ($108,000). All other terms and conditions will remain the same. LANDLORD: TENANT: GBA Realty Corp. Suburban Ostomy Supply Co., Inc. ______________________________ ___________________________________ Herb Gray, President Stephen N. Aschettino, Treasurer Dated:____________ Dated:____________ -21- THIS AMENDMENT TO LEASE AND AGREEMENT (the "Amendment"), dated as of July 3, 1995, amends the Lease and Agreement (the "Lease") dated August 1, 1993, made by ----- and between GBA Realty Corp. ("Landlord") and Suburban Ostomy Supply Co., Inc. -------- ("Tenant"). Each capitalized term used herein shall have the same meaning ------ ascribed to such term in the Lease unless otherwise defined herein. WHEREAS, Landlord and Tenant mutually desire to alter and amend section 5(a) of the Lease; NOW, THEREFORE, in consideration of the mutual agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 5(a) of the Lease is hereby amended to read as follows: "5. Rent. (a) Tenant covenants to pay Landlord, as installments of ---- rent for the Premises during the term of this Lease, minimum annual rent of One Hundred and Eight Thousand Dollars ($108,000), payable in twelve (12) equal monthly installments due and payable on the first day of each calendar month, subject to Landlord's right to annually review such minimum rent and to increase such rent to the then existing fair market rental value for the Premises, upon not less than thirty (30) days' prior written notice. If any dispute between the parties as to the fair market rental value of the Premises has not been resolved before the commencement of Tenant's obligation to pay such minimum annual rent, after such adjustment to reflect the fair market rental value, then Tenant shall pay the minimum annual rent under the Lease based upon the prior rent until the agreement of the parties as to the fair market rental value at which time Tenant shall pay any underpayment of the minimum annual rent to Landlord, or Landlord shall refund any overpayment of the minimum annual rent to Tenant." IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first written. LANDLORD: -------- GBA REALTY CORP, Attest: By:______________________ Name: Title: __________________________ TENANT: ------ SUBURBAN OSTOMY SUPPLY CO., INC. Attest: By:______________________ Name: Title: __________________________ EX-10.40 44 LEASE AGREE BET CO SUBURBAN GREYSON ATLANTA EXHIBIT 10.40 LEASE AGREEMENT STATE OF Georgia COUNTY OF Fulton THIS LEASE, made as of the 1st day of August, 1986, by and between Suburban Grayson Atlanta Partnership, first party, (hereinafter called "Landlord"); and Suburban Ostomy Supply Co., second party (hereinafter called "Tenant"); WITNESSETH: Premises 1. The Landlord, for and in consideration of the rents, covenants, agreements, and stipulations hereinafter mentioned, reserved, and contained, to be paid, kept and performed by the Tenant, has leased and rented, and by these presents does lease and rent, unto the Tenant, and the Tenant hereby agrees to lease and take upon the terms and conditions which hereinafter appear, the following described property (exclusive of any easements for light or air), hereinafter called "premises", to wit: All that tract or parcel of land more particularly described on Exhibit "A" ----------- attached hereto and made a part hereof. Term SEE SPECIAL STIPULATION NO. 35 2. To have and to hold the same for the term to commence on the ____ day of _______, 19__, and ending on the ____ day of ___________, 19__, at midnight, unless sooner terminated as hereinafter provided. SEE SPECIAL STIPULATION NO. 36 Rental 3. The Tenant agrees to pay to the Landlord promptly on the first day of each month in advance, during the term of this lease, a monthly rental of ____________________. The aforesaid payments of rent are to be made to: Suburban Grayson Atlanta Partnership One Watson Place Framingham, Massachusetts 01701 Construction of this Agreement 4. No failure of Landlord to exercise any power given Landlord hereunder, or to insist upon strict compliance by Tenant with his obligation hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof. Time is of the essence of this agreement. Definitions 5. "Landlord" as used in this lease shall include first party, his heirs, representatives, assigns and successors in title to premises. "Tenant" shall include second party, his heirs and representatives, and if this lease shall be validly assigned to sublet, shall include also Tenant assignees or subleasses' as to premises covered by such assignment or sublease. "Landlord", and "Tenant", include male and female, singular and plural, corporation, partnership or individual, as may fit the particular parties. Utility Bills 6. Tenant shall pay water, sewer, gas, electricity, fuel, light, heat, power bills and sprinkler system service charges (if any) for leased premises, or used by Tenant in connection therewith. If Tenant does not pay the same, Landlord may pay the same and such payment shall be added to the rental of the premises. Use of Premises 7. Premises shall be used for office, sales distribution and warehousing purposes and no other. Premises shall not be used for any illegal purpose; nor in any manner to create any nuisance or trespass; nor in any manner to vitiate the insurance or increase the rate of insurance on premises. Abandonment of Leased Premises 8. Tenant agrees not to abandon or vacate leased premises during the period of this lease, and agrees to use said premises for the purpose herein leased until the expiration hereof. Repairs by Landlord 9. The Landlord agrees to keep in good repair the roof, foundations, and exterior walls of the building on the premises and underground utility and sewer pipes outside of the exterior walls of said building; provided, however, the Landlord shall not be responsible for the repair of glass and exterior doors and any and all repairs rendered necessary by the negligence of Tenant, its agents, employees or invitees Landlord gives to Tenant exclusive control of premises and shall be under no obligation to inspect said premises. Tenant shall promptly report in writing 2 to Landlord any defective condition known it which Landlord is required to repair, and failure to so report such defects shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such defects. Repairs by Tenant 10. Tenant accepts the leased premises in their present condition and as suited for the uses intended by Tenant. Tenant shall, throughout the initial term of this lease and all renewals thereof, at its expense, maintain in good order and repair the leased premises, including the building, heating and air conditioning equipment including but not limited to replacement of parts, compressors, air handling units and heating units, and other improvements located thereon, except those repairs expressly required to be made by Landlord. Tenant further agrees to care for the grounds around the building, including the mowing of grass, paving, care of shrubs and general landscaping. In the event Tenant fails to make said repairs or maintain said grounds, then Landlord may, but shall not be obligated to, make such repairs or maintain said grounds, in which event, Tenant shall promptly reimburse Landlord for all expenses incurred thereby. If this is a multi-tenanted building, Tenant's responsibility to maintain said grounds shall be limited to all outside areas of the building adjacent or opposite to the exterior walls of the area covered by this Lease. Tenant agrees to return said premises to Landlord at the expiration, or prior termination, of this lease in as good condition and repair as when first received, natural wear and tear, damage by storm, fire, lightning, earthquake or other casualty alone excepted. Aside from the aforesaid repairs, Tenant shall not make any alterations, additions or improvements to the premises without the prior written consent of Landlord. Tax Escalation 11. Tenant shall pay to Landlord upon demand, as additional rental during the term of this lease and any extension or renewal thereof, the amount by which all taxes (including, but not limited to, ad valorem taxes, special assessments and governmental charges on the premises for each tax year exceeds all taxes on the premises for the first full tax year during the lease term. In the event the premises are less than the entire property assessed for such taxes for any such tax year, then the tax for any such year applicable to the premises shall be determined by proration on the basis that the rentable floor area of the premises bears to the rentable floor area of the entire property assessed. If the final year of the lease term fails to coincide with the tax year, then any excess for the tax year during which the term ends shall be reduced by the pro rata part of such tax year beyond the lease term. Destruction of or Damage to Premises 12. If premises are totally destroyed by storm, fire, lightning, earthquake or other casualty, this lease shall terminate as of the date of such destruction, and rental shall be accounted for as between Landlord and Tenant as of that date. If premises are damaged but not wholly destroyed by any of such casualties, rental shall abate in such proportion as use of 3 premises has been destroyed, and Landlord shall restore premises to substantially the same condition as before damage as speedily as practicable, whereupon full rental shall recommence. Indemnity 13. Tenant agrees to indemnify and save harmless the Landlord against all claims for damages to persons or property by reason of the use or occupancy of the leased premises, and all expenses incurred by Landlord because thereof, including attorney's fees and court costs. Governmental Orders 14. Tenant agrees, at his own expense, to promptly comply with all requirements of any legally constituted public authority made necessary by reason of Tenant's occupancy of said premises. Landlord agrees to promptly comply with any such requirements if not made necessary by reason of Tenant's occupancy. It is mutually agreed, however, between Landlord and Tenant, that if in order to comply with such requirements, the cost to Landlord or Tenant, as the case may be, shall exceed a sum equal to one year's rent, then Landlord or Tenant who is obligated to comply with such requirements is privileged to terminate this lease by giving written notice of termination to the other party, by registered mail, which termination shall become effective sixty (60) days after receipt of such notice, and which notice shall eliminate necessity of compliance with such requirement by party giving such notice, unless party receiving such notice of termination shall, before termination becomes effective, pay to party giving notice all cost of compliance in excess of one year's rent, or secure payment of said sum in manner satisfactory to party giving notice. Condemnation 15. If the whole of the leased premises, or such portion thereof as will make premises unusable for the purposes herein leased, shall be condemned by any legally constituted authority or taken by private purchase in lieu thereof for any public use or purpose, then in either of said events the term hereby granted shall cease from the time when possession thereof is taken by public authorities, and rental shall be accounted for as between Landlord and Tenant as of that date. Such termination, however, shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by condemnation from the condemnor. It is further understood and agreed that neither the Tenant nor Landlord shall have any rights in any award made to the other by any condemnation authority. Assignment and Subletting 16. Tenant may not, without the prior written consent of Landlord which shall not be unreasonably withheld by Landlord, assign this lease or any interest hereunder, or sublease premises or any part thereof, or permit the use of premises by any party other than Tenant. Consent to one or more assignments or subleases shall not destroy or waive this provision. 4 Subtenants and assignees shall become directly liable to landlord for all obligations of Tenant hereunder without relieving Tenant's liability. Removal of Fixtures 17. Tenant may (if not in default hereunder), prior to the expiration of this Lease or any extension thereof, remove all fixtures and equipment which Tenant has placed in the premises; provided, however, that Tenant shall not remove: (a) air conditioning, air ventilating and heating fixtures; (b) lighting fixtures; (c) dock levelers; and (d) carpeting. Upon removal of said fixtures and equipment which Tenant is allowed to remove as set forth in the preceding sentence, Tenant shall repair all damage to premises caused by such removal. Cancellation of Lease by Landlord 18. It is mutually agreed that in the event the Tenant shall default in the payment of rent herein reserved, when due, and fails to cure said default within five (5) days after written notice thereof from Landlord; or if Tenant shall be in default in performing any of the terms or provisions of this lease other than the provision requiring the payment of rent, and fails to cure such default within thirty (30) days after the date of receipt of written notice of default from Landlord; or if Tenant is adjudicated bankrupt; or if a permanent receiver is appointed for Tenant's property and such receiver is not removed within sixty days after written notice from Landlord to Tenant to obtain such removal; or if, whether voluntarily or involuntarily, Tenant takes advantage of any debtor relief proceedings under any present or future law, whereby the rent or any part thereof is, or is proposed to be, reduced or payment thereof deferred; or if Tenant makes an assignment for benefit of creditors; or if Tenant's effects should be levied upon or attached under process against Tenant, not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof; then, and in any of said events, Landlord at his option may at once, or within six (6) months thereafter (but only during continuance of such default or condition), terminate this lease by written notice to Tenant; whereupon this lease shall end. After an authorized assignment or subletting of the entire premises covered by this lease, the occurring of any of the foregoing defaults or events shall affect this lease only if caused by, or happening to, the assignee or sublessee. Any notice provided in this paragraph may be given by Landlord, or his attorney, or Agent herein named. Upon such termination by Landlord, Tenant will at once surrender possession of the premises to Landlord and remove all of Tenant's effects therefrom; and Landlord may forthwith re-enter the premises and repossess himself thereof, and remove all persons and effects therefrom, using such force as may be necessary without being guilty of trespass, forcible entry or detainer or other tort. Reletting by Landlord 19. Landlord, as Tenant's agent, without terminating this lease, upon Tenant's failure to cure any default within the time permitted as set forth in paragraph 18 hereof, may at Landlord's option enter upon and rent premises at the best price obtainable by reasonable effort, 5 without advertisement and by private negotiations and for any term Landlord deems proper. Tenant shall be liable to Landlord for the deficiency, if any, between Tenant's rent hereunder and the price obtained by Landlord on reletting. Exterior Signs 20. Tenant shall place no signs upon the outside walls or roof of the leased premises except with the written consent of the Landlord. Any and all signs placed on the within leased premises by Tenant shall be maintained in compliance with rules and regulations governing such signs and the Tenant shall be responsible to Landlord for any damage caused by installation, use, or maintenance of said signs, and Tenant agrees upon removal of said signs to repair all damage incident to such removal. Entry for Carding, etc. 21. Landlord may card premises "For Rent" or "For Sale" thirty (30) days before the termination of this lease. Landlord may enter the premises at reasonable hours to exhibit same to prospective purchasers or tenants and to make repairs required of Landlord under the terms hereof, or to make repairs to Landlord's adjoining property, if any. Effect of Termination of Lease 22. No termination of this lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Landlord's right to collect rent for the period to termination thereof. Mortgagee's Rights 23. Tenant's rights shall be subject to any bona fide mortgage or deed to secure debt which is now, or may hereafter be, placed upon the premises by Landlord, and Tenant agrees to execute and deliver such documentation as may be required by any such lender to effect such subordination. No Estate in Land 24. This contract shall create the relationship of Landlord and Tenant between the parties hereto; no estate shall pass out of Landlord. Tenant has only a usufruct, not subject to levy and sale, and not assignable by Tenant except by Landlord's consent. Holding Over 25. If Tenant remains in possession of premises after expiration of the term hereof, with Landlord's acquiescence and without any express agreement of parties, Tenant shall be a 6 tenant at will at rental rate in effect at end of lease; and there shall be no renewal of this lease by operation of law. Attorney's Fees and Homestead 26. If any rent owing under this lease is collected by or through an attorney at law, Tenant agrees to pay ten percent (10%) thereof as attorneys' fees. Tenant waives all homestead rights and exemptions which he may have under any law as against any obligation owing under this lease. Tenant hereby assigns to Landlord his homestead and exemption. Rights Cumulative 27. All rights, powers and privileges conferred hereunder upon parties hereto shall be cumulative but not restrictive to those given by law. Service of Notice 28. Tenant hereby appoints as his agent to receive service of all dispossessory or distraint proceedings and notices thereunder, and all notices required under this lease, the person in charge of leased premises at the time, or occupying said premises; and if no person is in charge of, or occupying said premises, then such service or notice may be made by attaching the same on the main entrance of said premises. A copy of all notices under this lease shall also be sent to Tenant's last known address, if different from said premises. Statement of Acceptance 29. After completion of the premises in accordance with the terms of this Lease Contract, Tenant will furnish Landlord with a written statement confirming Tenant's acceptance of the premises and confirming the commencement date of the term of this Lease. Special Stipulations In so far as the following stipulation conflict with any of the foregoing provisions, the following shall control: See the Special Stipulations attached hereto as Exhibit "B" ----------- and made a part hereof. This lease contains the entire agreement of the parties hereto and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein, shall be of any force or effect. 7 IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals, in triplicate, the day and year first above written. Signed, sealed and delivered Suburban Grayson Atlanta as to Landlord, Partnership in the presence of: ______________________________ By:_________________________ (SEAL) Unofficial Witness General Partner ______________________________ By:_________________________ (SEAL) Notary Public (Landlord) General Partner Signed, sealed and delivered By:_________________________ (SEAL) as to Tenant, in the presence of: (Landlord) General Partner Suburban Ostomy Supply Co. ______________________________ Unofficial Witness By:_________________________ (SEAL) (Tenant) Title: ______________________________ ____________________________ (SEAL) Notary Public (Tenant) Title: 8 The subleasing of the within described premises in no way releases Tenant from Tenant's liability under said lease contract. IN WITNESS WHEREOF, the undersigned Tenant and Subtenant have hereunto set their hands and seals, with the consent of Landlord, the ____ day of ___________, 19__. As to Tenant, signed, sealed and delivered in the presence of: ______________________________ ____________________ (SEAL) Unofficial Witness As Tenant ______________________________ Notary Public As to Subtenant, signed, sealed and delivered in the presence of: ______________________________ ____________________ (SEAL) Unofficial Witness As Subtenant ______________________________ Notary Public As to Landlord, signed, sealed and delivered in the presence of: ______________________________ ____________________ (SEAL) Unofficial Witness As Landlord ______________________________ Notary Public 9 TRANSFER CLAUSE FOR SALE OF PROPERTY GEORGIA FULTON COUNTY The within and foregoing lease contract, for a value received by the undersigned Assignor, is hereby transferred and assigned by said Assignor to the undersigned Assignee, who purchased the premises subject to all of the terms and conditions of said lease contract and said Assignee does hereby assume all obligations of the Assignor as Landlord under said lease contract. IN WITNESS WHEREOF, the undersigned Tenant and Subtenant have hereunto set their hands and seals, with the ____________________ on this ____ day of ____________, 19__. As to Assignor, signed, sealed and delivered in the presence of: ______________________________ _____________________ (SEAL) Unofficial Witness As Assignor ______________________________ Notary Public As to Assignee, signed, sealed and delivered in the presence of: ______________________________ ____________________ (SEAL) Unofficial Witness As Assignee ______________________________ Notary Public 10 EXHIBIT "A" ----------- ALL THAT TRACT OR PARCEL OF LAND lying and being in Land Lot 261 of the 17th District, Fulton County, Georgia and being more particularly described as follows: BEGINNING at an iron pin found on the easterly right-of-way line of Atlanta Industrial Parkway (100-foot right-of-way) which iron pin found is located 1,085.06 feet as measured along said easterly right-of-way line of Atlanta Industrial Parkway from the point formed by the intersection of the northerly right-of-way line of Bankhead Highway with said easterly right-of-way line of Atlanta Industrial Parkway, and running thence along said easterly right-of-way line of Atlanta Industrial Parkway in arc distance of 210.50 feet to a point (said arc having a radius of 1,075.00 feet and being subtended by a chord to the left bearing North 03 degrees 32 minutes 31 seconds West a chord distance of 210.17 feet); thence an arc distance of 45.97 feet to a point (said arc having a radius of 30.00 feet and being subtended by a chord to the right bearing North 34 degrees 44 minutes 50 seconds East a chord distance of 41.60 feet); thence an arc distance of 6.03 feet to a point (said arc having a radius of 86.00 feet and being subtended by a chord to the left bearing North 76 degrees 38 minutes 13 seconds East a chord distance of 6.03 feet); thence South 40 degrees 38 minutes 57 seconds East a distance of 4.72 feet to a point; thence North 77 degrees 56 minutes 38 seconds East a distance of 45.56 feet to a point; thence North 40 degrees 38 minutes 57 seconds West to a distance of 18.35 feet to a point; thence an arc distance of 17.50 feet to a point (said arc having a radius of 86.00 feet and being subtended by a chord to the left bearing North 41 degrees 20 minutes 07 seconds East a chord distance of 17.47 feet); thence South 75 degrees 04 minutes 44 seconds East a distance of 345.26 feet to an iron pin found; thence South 55 degrees 48 minutes 25 seconds East a distance of 106.50 feet to an iron pin found; thence South 34 degrees 10 minutes 21 seconds West a distance of 249.04 feet to a Rail Found; thence South 87 degrees 41 minutes 58 seconds West a distance of 51.00 feet to a Rail Found; and thence North 75 degrees 04 minutes 44 seconds West a distance of 304.96 feet to the iron pin found at the POINT OF BEGINNING; said parcel containing 2.769 acres and being as shown on Boundary Survey for Parkway Associates & Decatur Federal Savings and Loan & DFS Services, Inc. as Mortgagees, prepared by Venable & Associates, bearing the certification of Allen L. Venable, Jr., Georgia Registered Land Surveyor No. 1761, dated May 9, 1985 and last revised July 14, 1986. 11 Addendum to Lease Agreement between Suburban Grayson Atlanta Partnership Landlord and Suburban Ostomy Supply Co., Inc. Tenant Rent Adjustment Effective April 1, 1995, the minimum annual rent for the Atlanta distribution facility will be One Hundred Sixty Thousand Dollars ($160,000). All other terms and conditions will remain the same. Landlord Tenant Suburban Grayson Atlanta Partnership Suburban Ostomy Supply Co., Inc. ____________________________________ ___________________________________ Herb Gray, Partner Stephen N. Aschettino, VP Treasurer Date:__________ Date:__________ 12 The following tract or parcel is conveyed without warranty or title: EXHIBIT A All that tract or parcel of land lying and being in Land Lot 261, 17th District, Fulton County, Georgia and being more particularly described as follows: To find the TRUE POINT OF BEGINNING, being at an iron pin found on the easterly right-of-way line of Atlanta Industrial Parkway (100-foot right-of-way) which iron pin is located 1085.06 feet as measured along said easterly right-of-way line of the Atlanta Industrial Parkway from the point formed by the intersection of the northerly right-of-way line of Bankhead Highway with said easterly right- of-way line of Atlanta Industrial Parkway; running thence along said easterly right-of-way line of Atlanta Industrial Parkway an arc distance of 210.50 feet to an iron pin set (said arc having a radius of 1075.00 feet and being subtended by a chord to the left bearing north 03 degrees 32 minutes 31 seconds west a chord distance of 210.17 feet); thence leaving said easterly right-of-way line of Atlanta Industrial Parkway and running an arc distance of 45.97 feet to an iron pin set (said arc having a radius of 30.00 feet and being subtended by a chord to the right bearing 34 degrees 44 minutes 50 seconds each a chord distance of 41.60 feet); running thence an arc distance of 6.03 feet to a point, said point being the TRUE POINT OF BEGINNING (said arc having a radius of 86.00 feet and being subtended by a chord to the left bearing north 76 degrees 38 minutes 13 seconds east a chord distance of 6.03 feet); from the TRUE POINT OF BEGINNING as thus established, running thence south 40 degrees 38 minutes 57 seconds east 4.72 feet to a point; running thence north 77 degrees 56 minutes 38 seconds east 45.56 feet to a point; running thence north 40 degrees 38 minutes 57 seconds west 18.35 feet to a point; running thence an arc distance of 41.22 feet to a point, said point being the TRUE POINT OF BEGINNING (said arc having a radius of 86.00 feet and being subtended by a chord to the right bearing south 60 degrees 53 minutes 46 seconds west a chord distance of 40.83 feet); said parcel containing 0.009 acres (394 square feet) as shown on that certain boundary survey for Parkway Associates & Decatur Federal Savings & Loan & DFS Services, Inc. as mortgagees, prepared by Venable & Associates, bearing the certification of Allen L. Venable, Jr., Georgia Registered Land Surveyor No. 1761, dated May 9, 1985, and last revised August 15, 1985. 13 EXHIBIT "B" ----------- Special Stipulations 30. PROTECTIVE COVENANTS. This Lease is subject to the Protective -------------------- Covenants for Atlanta Industrial Park imposed upon the premises and recorded at Deed Book 8931, Page 284, Fulton County, Georgia Records, and all amendments thereto. Tenant covenants and agrees with Landlord to comply with said Covenants. 31. REPAIRS AND MAINTENANCE. Notwithstanding anything to the ----------------------- contrary contained in the Lease, Tenant shall at its sole expense maintain in good repair all improvements located on the premises including, without limitation, the roof, foundations and exterior walls thereof, and underground utility and sewer pipes whether inside or outside said exterior walls. To the full extent permitted by law, Landlord shall not be responsible for any repairs or maintenance to the premises. 32. INSURANCE. Tenant shall maintain at its sole expense policies of --------- casualty and liability insurance covering the premises in amounts and with companies reasonably acceptable to Landlord. Said insurance shall show Landlord as an additional insured. Evidence of such insurance shall be delivered to Landlord prior to occupancy of the premises and evidence of renewal or replacement thereof shall be delivered to Landlord prior to the expiration dates thereof. 33. SUBLETTING. Notwithstanding anything to the contrary contained ---------- in the Lease, Landlord may withhold consent to any proposed subletting or assignment in its sole discretion. Without any limitation of the foregoing, all proposed assignees or subtenants shall complete the Certificate and Agreement attached hereto as Exhibit "C" and made a part hereof. ----------- 34. MORTGAGEE'S RIGHTS. This Lease and the rights of the Tenant ------------------ hereunder are and shall be subject and subordinate to all security deeds or similar instruments which may now or hereafter affect this Lease or the premises, including, without limitation, the Deed to Secure Debt and Security Agreement dated as of August 1, 1986, from Landlord, or its successors and assigns, to The First National Bank of Atlanta, recorded in the Records of Fulton County, and also to all renewals, modifications, extensions, consolidations and replacements of such instruments. The holders of any such instruments may sell premises subject to this Lease. Tenant agrees, in favor of such holders, to be bound by the provisions of such instruments. However, at the option of any such holder who has enforced remedies provided by law or by any such instrument, Tenant will automatically become the lessee of and attorn to such holder without change in the terms or provisions of this Lease. No such holder shall be bound (i) by any payment of rent or other monies more than one month in advance (other than security deposits controlled by such holder), or (ii) by any amendment or modification of this Lease made without express written consent of such holder. Tenant shall, from time to time at the request of 14 Landlord or any such holder, execute, acknowledge and deliver such further instruments as may be desired by any such holder to confirm the foregoing, and upon the failure of Tenant to do so, the Tenant hereby appoints Landlord Tenant's agent and attorney-in-fact so to do. Tenant shall further, from time to time, at the request of Landlord or the holder of any such instrument, execute, acknowledge and deliver certificates with respect to the status and effect of this Lease, the date to which rental and other charges have been paid, and whether in any defaults, off-sets or defenses exist in connection with this Lease. This Lease is subject to the prior written consent of The First National ------------------------------------------------------------------------ Bank of Atlanta. - --------------- 35. TERM. The term of this Lease shall commence on the fifth (5th) ---- day of August, 1986, and shall continue until the indebtedness evidenced by that certain Development Authority of Fulton County Revenue Bond (Suburban Ostomy Supply Co. Project) dated as of August 1, 1986 (the "Bond") has been paid in full. 36. RENT. Tenant shall pay as monthly rental the amount due each ---- month under the Bond. 15 EXHIBIT "C" ----------- CERTIFICATE AND AGREEMENT __________, 1986 [Landlord Name and Address] ______________________________ ______________________________ The First National Bank of Atlanta P.O. Box 4148 Atlanta, Georgia 30302 Re: Proposed Lease by and between [Landlord] and the undersigned, dated __________, (the "Lease") Dear Sirs: Subject to your consent, pursuant to the Deed to Secure Debt and Security Agreement dated as of August 1, 1986, by and between The First National Bank of Atlanta and Suburban Grayson Atlanta Partnership, we will enter into the above-referenced Lease with respect to the "Premises" described therein. We understand that you have financed the Premises with an industrial development bond (the "Bond") issued on August 5, 1986 (the "Closing Date"), pursuant to an election under the provisions of Section 103(b)(6)(D) of the Internal Revenue Code of 1954, as amended (the "Code"). We further understand that we may be deemed a "principal user" of the Premises, as said term is used in Section 103 of the Code, and that as such certain other bond issues of which we or a person related to us are a principal user and certain capital expenditures paid or incurred with respect to facilities we or a person related to us use in Fulton County (the "Jurisdiction"), in the six-year period beginning three years prior to the Closing Date and ending three years after the Closing Date may influence the qualification of the Bond as a small issue of bonds under Section 103(b)(6) of the Code exempt from Federal income taxation on the interest thereon. In consideration of the financing of the Premises and the entering into and performance of the Lease and other good and valuable considerations we have received, we agree that, without your prior written consent, from the date hereof until three years from the date the Bond was issued, neither we nor any "related person" (as that term is used in Section 103(b)(6)(c) in the Code) will pay or incur any capital expenditures (within the meaning of Section 103(b)(6) of the Code) totaling in excess of $__________ with respect to any facilities located in the Jurisdiction (or facilities that are contiguous or integrated with such facilities); or (b) will become a "principal user" of facilities in the jurisdiction with respect to which capital expenditures attributable to our use have been made since the date three years prior to the Closing Date, which 16 capital expenditures exceed in the aggregate $__________; or (c) will become a "principal user" of facilities, wherever located, with respect to which industrial development bonds have been issued pursuant to Code (S) 103(b) and remain outstanding which exceed in the aggregate $__________. We further agree that we will comply with the requirements concerning the filing with the Internal Revenue Service of any return, schedule or other documents required of "principal users" of bond-financed facilities. In order that you may engage in financial and tax planning in connection with the issuance of the Bond, we make the following representations: 1. Neither we nor any "related person" (as that term is used in Section 103(b)(6)(c) of the Code) is a "principal user" (as that term is used in Section 103(b)(6) of the Code) of facilities (other than the Premises) located in the Jurisdiction (or facilities that are contiguous or integrated with such facilities) with respect to which there is outstanding any small issue industrial development bond issued under Code Section 103(b)(6)(A). 2. The date (by quarter) and amount of capital expenditures (within the meaning of Section 103 (b)(6) of the Code) paid or incurred by us or any related person (as that term is used in Section 103 of the Code) with respect to facilities in the Jurisdiction (or facilities contiguous or integrated with such facilities) during the period beginning three years prior to the date of the issuance of the Bond are set forth in Schedule "1" attached hereto. -------- --- 3. Neither we nor any person who is or was a "related person" is a "principal user" of facilities (other than the Premises), wherever located, that have been financed with outstanding industrial bonds issued pursuant to Code (S) 103(b), other than as set forth in Schedule "2" attached hereto. -------- --- 4. Our federal income tax returns are filed at the Internal Revenue Service Center, __________, and our federal employer identification number is __________. ______________________________________ By:___________________________________ Title: (SEAL) Attest:_________________________________ Title: 17 [THIS PAGE IS BLANK] 18 SCHEDULE "1" ------------ Capital Expenditures -------------------- Quarter Amount ------- ------ 19 SCHEDULE "2" ------------ BOND-FINANCED FACILITIES ------------------------ Facility Amount of Outstanding Bonds - -------- --------------------------- 20 STATE OF GEORGIA COUNTY OF FULTON FIRST AMENDMENT TO LEASE AGREEMENT ---------------------------------- THIS FIRST AMENDMENT TO LEASE AGREEMENT (this "Amendment") dated as of the 19th day of December, 1986 by and between SUBURBAN GRAYSON ATLANTA PARTNERSHIP, a Georgia general Partnership ("Landlord") and SUBURBAN OSTOMY SUPPLY CO., INC., a Georgia corporation ("Tenant"); W I T N E S S E T H: - - - - - - - - - - WHEREAS, Landlord and Tenant entered into that certain Lease Agreement dated as of August 1, 1986 (such Lease Agreement and attached Exhibits referred to collectively as the "Lease Agreement"), which Lease Agreement is hereby incorporated by reference; and WHEREAS, Landlord and Tenant desire to amend certain terms of the Lease Agreement; and WHEREAS, the Lease Agreement stipulates that it is subject to the prior written consent of The First National Bank of Atlanta ("FNBA"); and WHEREAS, FNBA is willing to consent to this Amendment under the terms and conditions herein set forth; NOW, THEREFORE, for and in consideration of the above premises, and other consideration, the adequacy and sufficiency of which is hereby acknowledged, the parties hereby agree and consent as follows: 1. Term. Special Stipulation 35 of Exhibit "B" of the Lease ---- ------- --- Agreement is amended by deleting said Special Stipulation 35 in its entirety and substituting in lieu thereof the following revised Special Stipulation 35: 35. TERM. The term of this Lease shall commence on the fifth (5th) ---- day of August, 1986, and shall continue for a period of ten (10) years from such commencement date, ending on the fourth (4th) day of August, 1996. Tenant shall have an option to renew this Lease for an additional ten (10) years, such renewal period to commence on the fifth (5th) day of August, 1996 and ending on the fourth (4th) day of August, 2006; provided, however, that Tenant shall have -------- ------- given written notice to Landlord and FNBA of intent to exercise this option no later than one hundred twenty (120) days prior to August 4, 1996. 21 2. Other Terms. All other terms, conditions and covenants of the ----- ----- Lease Agreement shall remain in full force and effect and the Lease Agreement, as hereby amended, is hereby preserved, adopted and ratified. IN WITNESS WHEREOF, the parties hereto have set their respective names and seals through their authorized officers as of the day and year first above written. LANDLORD: -------- Signed, sealed and delivered as to SUBURBAN GRAYSON ATLANTA Landlord, this 22nd day of PARTNERSHIP December 1986 in the presence of: ____________________________________ By:_____________________________(SEAL) Unofficial Witness General Partner ____________________________________ By:_____________________________(SEAL) Notary Public General Partner Commission expires:___________________ By:_____________________________(SEAL) General Partner [NOTARY SEAL] TENANT: ------ Signed, sealed and delivered as to SUBURBAN OSTOMY SUPPLY CO., Tenant, this 22nd day of December 1986 PARTNERSHIP in the presence of: ______________________________________ By:_____________________________(SEAL) Unofficial Witness Title: ____________________________________ Attest:_____________________________ Notary Public Title: 22 Commission expires:___________________ [NOTARY SEAL] 76082-1 CONSENT TO FIRST AMENDMENT -------------------------- TO LEASE AGREEMENT ------------------ THE FIRST NATIONAL BANK OF ATLANTA ("FNBA") hereby approves and consents to the attached First Amendment to Lease Agreement as of the 19th day of December, 1986. [SEAL] THE FIRST NATIONAL BANK OF ATLANTA By:_____________________________________ Title:_________________________________ STATE OF GEORGIA: COUNTY OF FULTON: The undersigned Notary Public in and for the jurisdiction aforesaid hereby certifies that __________, whose name as Comm. Officer of The First ------------- National Bank of America is signed to the foregoing consent to First Amendment to Lease Agreement acknowledged the same before me in the jurisdiction aforesaid, this 19th day of December, 1986. _____________________________________ NOTARY PUBLIC Commission expires: [NOTARY SEAL] 23 EX-10.41 45 LEASE AGREE BET CO. AND CHRISTMAS JOINT VENTURE EXHIBIT 10.41 GREATER DALLAS BOARD OF REALTORS OFFICIAL FORM L-1 (C) 1976 STATE OF TEXAS COUNTY OF DALLAS LEASE AGREEMENT THIS LEASE AGREEMENT made and entered into by and between CHRISTMAS JOINT VENTURE hereinafter referred to as "Landlord," and SUBURBAN 0STOMY SUPPLY CO., a Massachusetts corporation with principal offices situated at 75 October Rill Road, Holliston, Massachusetts 01746 hereinafter referred to as "Tenant"; WITNESSETH: Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord the following described premises (hereinafter referred to as the "demised premises") situated within the County of Dallas, State of Texas: Being a free standing office/warehouse building containing approximately 24,270 square feet situated on Lot 6 and part of Lot 5, Block 6/7941, of Kings Row Industrial District, Third Installment, an Addition to the City of Dallas, Dallas County, Texas and being more commonly known as 1255 Viceroy Drive, Dallas, Texas together with all rights, privileges, easements and appurtenances belonging to or in any way pertaining to the demised premises and together with the building and other improvements now situated or to be erected upon the demised premise -1- TO HAVE AND TO HOLD the same for a term of seven (7) years beginning on July 1, 1994, upon the following terms, conditions and covenants: 1. RENT: Tenant agrees to pay Landlord named herein, without offset or deduction, rent for the demised premises at the rate of Six Thousand Five Hundred Seventy-Three and 12/100 Dollars ($6,573.12) per month in advance for the first five (5) years of the term of this lease and $7,078.75 per month in advance for the remainder of the term hereof. The first monthly installment shall be due and payable on or before the beginning date of this lease, and subsequent monthly installments shall be due and payable on or before the first day of each succeeding calendar month during the term hereof; provided that, in the event the term hereof shall commence or end during a calendar month, the rent for any fractional calendar month following the commencement or preceding the end of the term of this lease shall be pro rated by days. (If percentage rent is to be payable to Landlord, refer to Exhibit A attached to this lease. In such case Exhibit A shall be incorporated into and become a part of this lease when physically attached hereto.) Tenant has deposited with Landlord, upon delivery of this lease, Six Thousand Five Hundred Seventy-Three and 12/100 Dollars ($6,573.12) to be applied as follows: (a) $6,573.12 for rent for the first month of the term hereof. 2. ACCEPTANCE OF PREMISES: Tenant acknowledges that it has fully inspected the demised premises and accepts the demised premises, and any buildings and improvements situated thereon, as suitable for the purposes for which the same are leased in their present condition, subject to the Landlord refurbishing the building in accordance with the plans attached hereto as Exhibit A and made a part hereof. (If this lease provides for a building to be - --------- constructed -2- for Tenant, refer to Exhibit B attached to this lease. In such case this paragraph 2 shall become inapplicable, and Exhibit B shall be incorporated into and become a part of this lease when physically attached hereto.) 3. USE OF PREMISES: The demised premises shall be used and occupied only for the purpose of storage and distribution and general office use and other business activities incident to Tenant's business and not otherwise. Tenant shall at its own expense obtain any and all governmental licenses and permits necessary for such use. 4. COMPLIANCE WITH LAW: Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the demised premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with the demised premises, all at Tenant's sole expense. 5. REAL ESTATE TAXES: A. Tenant shall pay as additional rental upon receipt of statement any increase in real estate taxes on the property of which the demised premises form a part. The based year shall be _____________, 1994. 6. MAINTENANCE BY LANDLORD A. Landlord shall at its expense maintain the roof, foundation and the structural soundness of the exterior walls (excluding all windows, window glass, plate glass and all doors) of the building in good repair and condition, reasonable wear and tear excepted. Landlord shall not be required to make repairs occasioned by the act or negligence of Tenant, its employees, subtenants, licensees or concessionaires (unless such act or negligence results in damage covered by valid and collectible fire and extended coverage insurance policies and is collectible -3- thereunder). Tenant shall give immediate written notice to Landlord of the need for repairs or corrections, and Landlord shall proceed promptly to make such repairs or corrections. In the event any repairs are required to be made by Landlord, Tenant shall, at Tenant's sole cost and expense promptly remove Tenant's fixtures, inventory and other property and equipment maintained by Tenant to the extent required to enable Landlord to make such repairs. Landlord's liability hereunder shall be limited to the cost of such repairs or corrections. B. Landlord represents that at the commencement of the lease term, the plumbing, electrical system and exterior doors, and any fire protection sprinkler system, heating system, air conditioning equipment and elevators existing on the date of this lease or to be provided by Landlord, are or will be in good operating condition. 7. MAINTENANCE BY TENANT: A. Tenant shall maintain in good repair and condition at its expense and risk all other parts of the building and other improvements and equipment on the demised premises not required to be maintained by Landlord including but not limited to repairs (including all necessary replacements) of the windows, window glass, plate glass, doors, heating system, air conditioning equipment, fire protection sprinkler system, elevators, interior and exterior plumbing, and the interior of the building in general, and including care of landscaping and regular mowing of grass, and maintenance of any paving. B. Tenant shall, throughout the lease term, take good care of the building and other improvements and keep them free from waste or nuisance and, at the expiration or termination of this lease, deliver up the demised premises clean and free of trash and in good repair and condition, with all equipment situated in the demised premises on the beginning date of -4- this lease, or replacements thereof, in working order (reasonable wear and tear and damage by fire, tornado or other casualty excepted). C. In the event Tenant shall fail to maintain the demised premises and any paving or landscaping in accordance with this paragraph 7, Landlord shall have the right (but not the obligation) to cause all repairs or other maintenance to be made and the reasonable costs therefor expended by Landlord shall be reimbursed by Tenant on demand. 8. ALTERATIONS, ADDITIONS AND IMPROVEMENTS: Tenants shall not create any openings in the roof or exterior walls, or make any alterations, additions or improvements to the demised premises without prior written consent of Landlord. Consent for non-structural alterations, additions or improvements shall not be unreasonably withheld by Landlord. Tenant shall have the right to erect or install shelves, bins, machinery, air conditioning or heating equipment and trade fixtures, provided that Tenant complies with all applicable governmental laws, ordinances and regulations. At the expiration or termination of this lease, Tenant shall have the right to remove such items so installed, provided Tenant is not in default at the time of such removal and provided further that Tenant shall, at the time of removal of such items, repair in a good and workmanlike manner any damage caused by installation or removal thereof. Tenant shall pay for all costs incurred or arising out of alterations, additions or improvements in or to the demised premises and shall not permit a mechanic's or materialman's lien to be asserted against the demised premises. Upon request by Landlord, Tenant shall delivery to Landlord proof of payment reasonably satisfactory to Landlord of all costs incurred or arising out of any such alterations, additions or improvements. -5- All alterations, additions or improvements in or to the demised premises made by Tenant shall become the property of Landlord at the expiration or termination of this lease; however, if, at the time any alterations, additions or improvements were approved by Landlord, Landlord advised Tenant in writing that Tenant would be required to remove such alterations, additions or improvements upon termination of this lease, Landlord may direct the removal of such alterations, additions or improvements by giving written notice to that effect to Tenant prior to the expiration or termination of this lease. At the direction of Landlord, Tenant shall promptly remove any alterations, additions or improvements it is required to remove pursuant to the preceding sentence and any other property placed in the demised premises by Tenant and Tenant shall repair in a good and workmanlike manner any damage caused by such removal. 9. SIGNS: Tenant shall not place or affix any signs or other objects upon or to the roof or exterior walls of the demised premises or paint or otherwise deface the exterior walls of the demised premises without the prior written consent of Landlord. Any signs installed by Tenant shall conform with applicable laws and deed and other restrictions. Tenant shall remove all signs at the termination of this lease and shall repair any damage and close any holes caused or revealed by such removal. 10. INCREASING PREMIUMS OR CAUSING SUSPENSION OR CANCELLATION OF LANDLORD'S INSURANCE POLICY. A. Tenant shall not permit any operation or activity to be conducted or storage or use of any volatile or any other materials in the demised premises that would cause suspension or cancellation of any fire and extended coverage insurance policy carried by Landlord, or increase the premiums therefor, without prior written consent of Landlord. -6- B. Any insurance which may be carried by Landlord or Tenant against loss or damage to the building and other improvements situated on the demised premises shall be for the sole benefit of the party carrying such insurance and under its sole control. 11. WAIVER OF SUBROGATION: Each party hereto waives any and every claim which arises or may arise in its favor against the other party hereto during the term of this lease or any renewal or extension thereof for any and all loss of, or damage to, any of its property located within or upon, or constituting a part of, the demised premises, which loss or damage is covered by valid and collectible fire and extended coverage insurance policies, to the extent that such loss or damage is recoverable under such insurance policies. Such mutual waivers shall be in addition to, and not in limitation or derogation of, any other waiver or release contained in this lease with respect to any loss of, or damage to, property of the parties hereto. Inasmuch as such mutual waivers will preclude the assignment of any aforesaid claim by way of subrogation or otherwise to an insurance company (or any other person), each party hereby agrees immediately to give to each insurance company which has issued to it policies of fire and extended coverage insurance, written notice of the terms of such mutual waivers, and to cause such insurance policies to be properly endorsed, if necessary, to prevent the invalidations of such insurance coverages by reason of such waivers. 12. LANDLORD'S RIGHT OF ENTRY: Landlord and its authorized agents shall have the right, during normal business hours and after reasonable prior notice to Tenant, to enter the demised premises (a) to inspect the general condition and state of repair thereof, (b) to make repairs required or permitted under this lease, (c) to show the premises to any prospective tenant or purchaser or (d) for any other reasonable purpose. -7- During the final 150 days of the lease term, Landlord and its authorized agents shall have the right to erect and maintain on or about the demised premises customary signs advertising the property for lease or for sale. 13. UTILITY SERVICES: Tenant shall pay the cost of all utility services, including but not limited to all charges for gas, water and electricity used on the demised premises, and for all electric lights, lamps and tubes. 14. ASSIGNMENT AND SUBLEASING: Tenant shall not, without the prior written consent of Landlord, which consent shall not unreasonably be withheld, assign this lease or sublet the demised premises or any portion thereof. Any assignment or subletting shall be expressly subject to all terms and provisions of this lease, including the provisions of paragraph 3 pertaining to the use of the demised premises. In the event of any assignment or subletting, Tenant shall remain fully liable for the full performance of all Tenant's obligations under this lease. Tenant shall not assign his rights hereunder or sublet the premises without first obtaining a written agreement from assignee or sublessee whereby assignee or sublessee agrees to be bound by the terms of this lease. No such assignment or subletting shall constitute a novation. In the event of the occurrence of an event of default while the demised premises are assigned or sublet, Landlord, in addition to any other remedies provided herein by law, may at Landlord's option, collect directly from such assignee or subtenant all rents becoming due under such assignment or subletting and apply such rent against any sums due to Landlord hereunder. No direct collection by Landlord from any such assignee or subtenant shall release Tenant from the performance of its obligations hereunder. -8- 15. FIRE AND CASUALTY DAMAGE: A. If the building or other improvements on the demises premises should be damaged or destroyed by fire, tornado or other casualty, Tenant shall give immediate written notice thereof to Landlord. B. If the building situated on the demised premises should be substantially or totally destroyed by fire, tornado or other casualty, or so damaged that rebuilding of repairs cannot reasonably be competed within 120 days from the date of written notification by Tenant to Landlord of the happening of the damage, this lease shall terminate at the option of Landlord and rent shall be abated for the unexpired portion of this lease, effective from the date of actual receipt by Landlord of such written notification. If this lease is not terminated, the building and other improvements shall be rebuilt or repaired and rent abated to the extent provided under Section C. C. If the building or other improvements situated on the demised premises should be damaged by fire, tornado or other casualty but not to such an extent that rebuilding or repairs cannot reasonably be completed within 120 days from the date of written notification by Tenant to Landlord of the happening of the damage, this lease shall not terminate, but Landlord shall, at its sole cost and risk, proceed forthwith and use reasonable diligence to rebuild or repair such building and other improvements on the demised premises (other than leasehold improvements made by Tenant or any assignee, subtenant or other occupant of the demised premises) to substantially the condition in which they existed prior to such damage; provided, however, if the casualty occurs during the final 18 months of the lease term, Landlord shall not be required to rebuild or repair such damage unless tenant shall exercise its renewal option (if any is contained herein) within 15 days after the date of receipt by Landlord of the notification of the -9- occurrence of the damage. If Tenant does not elect to exercise its renewal option or if there is no renewal option contained herein or previously unexercised at such time, this lease shall terminate at the option of Landlord and rent shall be abated for the unexpired portion of this lease effective from the date of actual receipt by Landlord of the written notification of the damage. If the building and other improvements are to be rebuilt or repaired and are untenantable in whole or in part following such damage, the rent payable hereunder during the period in which they are untenantable shall be adjusted equitably. 16. INDEMNITY AND PUBLIC LIABILITY INSURANCE: A. Landlord shall not be liable to Tenant or to Tenant's employees, agents or visitors, or to any other person whomsoever, for any injury to persons or damage to property on or about the demised premises or any adjacent area owned by Landlord caused by the negligence or misconduct of Tenant, it employees, subtenants, licensees or concessionaires or any other person entering the demised premises under express or implied invitation of Tenant, or arising out of the use of the demised premises by Tenant and the conduct of its business therein, or arising out of any breach or default by Tenant in the performance of its obligation hereunder; and Tenant hereby agrees to indemnify Landlord and hold it harmless from any loss, expense or claims arising out of such damage or injury. Tenant shall not be liable for any injury or damage caused by the negligence or misconduct of Landlord, or its employees or agents, and Landlord agrees to indemnify Tenant and hold it harmless from any loss, expense or damage arising out of such damage or injury. B. Landlord and Landlord's agents and employees shall not be liable to Tenant for any injury to persons or damage to property resulting from the demised premises, or other -10- premises owned by Landlord becoming out of repair or by defect in or failure of equipment, pipes, or wiring, or broken glass, or by the backing up of drains, or by gas, water, steam, electricity or oil leaking, escaping or flowing into the demised premises, regardless of the source, or by dampness (except where due to Landlord's willful failure to make repairs required to be made hereunder, after the expiration of a reasonable time after written notice to Landlord of the need for such repairs or to any other breach of this lease by Landlord) or by fire, explosion, falling plaster or ceiling. Landlord shall not be liable to Tenant for any loss or damage that may be occasioned by or through the acts or omissions of other tenants of the Landlord or caused by operations in construction of any private, public or quasi-public work, or of any other persons whomsoever, excepting only duly authorized employees and agents of Landlord. 17. CONDEMNATION: A. If, during the term of this lease or any extension or renewal thereof, all or a substantial part of the demised premises should be taken for any public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain, or should be sold to the condemning authority under threat of condemnation, this lease shall terminate and the rent shall be abated during the unexpired portion of this lease, effective from the date of taking of the demised premises by the condemning authority. B. If less than a substantial part of the demised premises is taken for public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or is sold to the condemning authority under threat of condemnation, Landlord, at its option, may by written notice terminate this lease or shall forthwith at its sole expense restore and reconstruct the buildings and improvements (other than leasehold improvements made by Tenant -11- or any assignee, subtenant or other occupant of the demised premises) situated on the demised premises in order to make the same reasonable tenantable and suitable for the uses for which the demised premises are leased as defined in paragraph 3. The rent payable hereunder during the unexpired portion of this lease shall be adjusted equitably. C. Landlord and Tenant shall each be entitled to receive and retain such separate awards and portions of lump sum awards as may be allocated to their respective interests in any condemnation proceedings. The termination of this lease shall not affect the rights of the respective parties to such awards. 18. HOLDING OVER: Should Tenant, or any of its successors in interest fail to surrender the demised premises, or any part thereof, on the expiration of the term of this lease, such holding over shall constitute a tenancy from month to month, at a monthly rental equal to 125% of the rent paid for the last month of the term of this lease unless otherwise agreed in writing. 19. DEFAULT BY TENANT: The following events shall be deemed to be events of default under this lease: A. Failure of Tenant to pay any installment of the rent or other sum payable to Landlord hereunder on the date that same is due and such failure shall continue for a period of 10 days. B. Failure of Tenant to comply with any term, condition or covenant of this lease, other than the payment of rent or other sum of money, and such failure shall not be cured within 30 days after written notice thereof to tenant. -12- C. Insolvency, the making of a transfer in fraud of creditors, or the making of an assignment for the benefit of creditors by Tenant or any guarantor of Tenant's obligation. D. Filing of a petition under any section or chapter of the National Bankruptcy Act, as amended, or under any similar law or statute of the United States or any State thereof by Tenant or any guarantor of Tenant's obligations, or adjudication as a bankrupt or insolvent in proceedings filed against Tenant or such guarantor. E. Appointment of a receiver or trustee for all or substantially all of the assets of Tenant or any guarantor of Tenant's obligations hereunder. F. Abandonment by Tenant of any substantial portion of the demised premises or cessation of use of the demised premises for the purpose leased. 20. REMEDIES OF LANDLORD: Upon the occurrence of any of the events of default listed in Section 19, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever: A. Terminate this lease, in which event Tenant shall immediately surrender the demised premises to Landlord. If Tenant fails to so surrender such premises, Landlord may, without prejudice to any other remedy which it may have for possession of the demised premises or arrearage in rent, enter upon and take possession of the demised premises and expel or remove Tenant and any other person who may be occupying such premises or any part thereof, by force if necessary, without being liable for prosecution or any claim for damages therefor. Tenant shall pay to Landlord on demand the amount of all loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the demised premises on satisfactory terms or otherwise. -13- B. Enter upon and take possession of the demises premises, by force if necessary, without terminating this lease and without being liable for prosecution or for any claim for damages therefor, and expel or remove Tenant and any other person who may be occupying such premises or any part thereof. Landlord may relet the demised premises and receive the rent therefor. Tenant agrees to pay to Landlord monthly or on demand from time to time any deficiency that may arise by reason of any such reletting. In determining the amount of such deficiency, the brokerage commission, attorney's fees, remodeling expenses and other costs of reletting shall be subtracted from the amount of rent received under such reletting. C. Enter upon the demised premises, by force, if necessary, without terminating this lease and without being liable for prosecution or for any claim for damages therefor, and do whatever Tenant is obligated to do under the terms of this lease. Tenant agrees to pay Landlord on demand for expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this lease, together with interest thereon at the rate of 10% per annum from the date expended until paid. Landlord shall not be liable for any damages resulting to the Tenant from such action, whether caused by negligence of Landlord or otherwise. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, conditions and covenants herein contained. In the event of any default by Tenant, Landlord shall use reasonable efforts to mitigate its damages, but Landlord shall not be required to lease the demised premises in preference to other property owned by Landlord. -14- 21. ATTORNEYS' FEES: If, on account of any breach or default by Landlord or Tenant of their respective obligations under this lease, it shall become necessary for the other to employ an attorney to enforce or defend any of its rights or remedies hereunder, and should such party prevail, it shall be entitled to any reasonable attorneys' fees incurred in such connection. 22. QUIET ENJOYMENT: Landlord warrants that it has full right and power to execute and perform this lease and to grant the estate demised herein and that Tenant, on payment of the rent and performing the covenants herein contained, shall peaceably and quietly have, hold and enjoy the demised premises during the full term of this lease and any extension or renewal hereof; provided, however, that Tenant accepts this lease subject and subordinate to any recorded mortgage, deed of trust or other lien presently existing upon the demised premises. Landlord is hereby irrevocably vested with full power and authority to subordinate Tenant's interest hereunder to any mortgage, deed of trust or other lien hereafter placed on the demised premises, and Tenant agrees upon demand to execute such further instruments subordinating this lease as Landlord may request, provided such further subordination shall be upon the express condition that this lease shall be recognized by the mortgagee and that the rights of Tenant shall remain in full force and effect during the term of this lease so long as Tenant shall continue to perform all of the covenants of this lease. 23. WAIVER OF DEFAULT: No waiver by the parties hereto of any default or breach of any term, condition or covenant of this lease shall be deemed to be waiver of any subsequent default or breach of the same or any other term, condition or covenant contained herein. -15- 24. REALTOR'S COMMISSIONS: A. Landlord agrees to pay to Robert Lynn & Co. ("Broker") a commission for negotiating this lease in accordance with a separate agreement between Landlord and Broker. B. The Principal Realtor is hereby granted a lien against the demised premises to secure payment of all commissions (including not only the commission originally payable hereunder but also any additional commissions which may hereafter become payable by reason of renewals, new leases, rental agreements, sale or otherwise). This lien is subject to the rights of Tenant under this lease, but prior and superior to any liens hereafter created against the demised premises, excepting only liens in favor of banks, insurance companies, building and loan associations and similar regulated financial institutions securing indebtedness incurred for the purpose of acquiring the demised premises or constructing, repairing, rebuilding or remodeling buildings and other improvements thereon, to all of which liens the lien hereby created shall be subordinate and inferior. 25. CERTIFICATE OF OCCUPANCY: Tenant may, prior to the commencement of the term of this lease, apply for a Certificate of Occupancy to be issued by the municipality in which the demised premises are located, but this lease shall not be contingent upon issuance thereof. Nothing herein contained shall obligate Landlord to install any additional electrical wiring, plumbing or plumbing fixtures which are not presently existing in the demised premises, or which have not been expressly agreed upon by Landlord in writing. 26. FORCE MAJEURE: In the event performance by Landlord of any term, condition or covenant in this lease is delayed or prevented by any Act of God, strike, lockout, shortage of material or labor, restriction by any governmental authority, civil riot, flood, and any other cause -16- not within the control of Landlord, the period for performance of such term, condition or covenant shall be extended for a period equal to the period Landlord is so delayed or hindered. 27. EXHIBITS: All exhibits, attachments, annexed instruments and addenda referred to herein shall be considered a part hereof for all purposes with the same force and effect as if copied at full length herein. 28. USE OF LANGUAGE: Words of any gender used in this lease shall be held and construed to include any other gender, and words in the singular shall be held to include the plural, unless the context otherwise requires. 29. CAPTIONS: The captions or headings of paragraphs in this lease are inserted for convenience only, and shall not be considered in construing the provisions hereof if any question of intent should arise. 30. SUCCESSORS: The terms, conditions and covenants contained in this lease shall apply to, inure to the benefit of, and be binding upon the parties hereto and their respective successors in interest and legal representatives except as otherwise herein expressly provided. All rights, powers, privileges, immunities and duties of Landlord under this lease, including, but not limited to, any notices required or permitted to be delivered by Landlord to Tenant hereunder, may, at Landlord's option, be exercised or performed by Landlord's agent or attorney. 31. SUBLEASE: If this lease is in fact a sublease, Tenant accepts this lease subject to all of the terms and conditions of the lease under which Landlord holds the demised premises as lessee. Tenant covenants that it will do no act or thing which would constitute a violation by Landlord of its obligations under such lease. -17- 32. SEVERABILITY: If any provision in this lease should be held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this lease shall not be affected thereby. 33. NOTICES: Any notice or document required or permitted to be delivered hereunder may be delivered in person or shall be deemed to be delivered, whether actually received or not, when deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the parties at the addresses indicated below, or at such other addresses as may have theretofore been specified by written notice delivered in accordance herewith. LANDLORD: Christmas Joint Venture TENANT: Suburban Ostomy Supply Co. 16475 Dallas Parkway, Suite 500 75 October Hill Road Dallas, Texas 75248 Holliston, Massachusetts 01746 PRINCIPAL REALTOR: Robert Lynn & Co. 2720 N. Stemmons Freeway, Suite 500 Dallas, Texas 75207 34. SPECIAL CONDITIONS: See Exhibit B attached hereto and made a part hereof. --------- Executed the _____ day of __________________________, 19____. ATTEST: ______________________________ LANDLORD: Christmas Joint Venture By ___________________________________ William E. Campbell, Jr. Venture Manager ---------------------------------- Title -18- ATTEST: ______________________________ TENANT: Suburban Ostomy Supply Co. /s/ Herbert Grey By _______________________________ Chairman ------------------------------- Title REALTORS Robert Lynn & Co. _______________________________________ -------------------------------- COOPERATING REALTOR* PRINCIPAL REALTOR, MEMBER OF THE GREATER DALLAS BOARD OF REALTORS, INC. /s/ Bob Spletter _______________________________________ ________________________________ By By Bob Spletter *Note: If this Lease Agreement is negotiated by Principal Realtor in cooperation with another Realtor, Landlord shall be liable for payment of all commissions to Principal Realtor only, whereupon it shall be protected from any claims from said Cooperating Realtor. -19- EXHIBIT B 1. Throughout the term of this Lease, Landlord shall cause to be maintained fire and extended coverage insurance upon the building and all other improvements (exclusive of foundations and exterior paving) situated on the demised premises for not less than full insurable value thereof. Tenant shall promptly reimburse Landlord for the premium paid by Landlord to obtain such insurance, up to a maximum reimbursement of $1,000 per year. 2. Throughout the term of this Lease, including any renewals or extensions hereof, Tenant shall procure and maintain at Tenant's sole cost and expense a policy or policies of insurance insuring both Landlord and Tenant against any and all liability for injury to or death of any person or persons and for damage to or destruction of property occasioned by or arising out of or in connection with the use and occupancy of the demised premises or by the condition of the demised premises, the limits of such policy or policies of insurance to be in an amount of not less than $1,000,000 in respect of personal injury or death in any one accident or disaster, and in an amount not less than $250,000 in respect of property damaged or destroyed. Such policy or policies of insurance shall be written by solvent insurance companies satisfactory to Landlord duly licensed to transact business in the State of Texas and shall provide for at least ten (10) days written notice to Landlord prior to cancellation thereof. Tenant shall cause a certificate or certificates of the insurance required to be maintained by Tenant to be delivered to Landlord and certificates evidencing the renewals thereof shall be delivered at least thirty (30) days prior to the expiration of the respective policy terms. 3. Landlord shall complete the refurbishing work described in paragraph 2 of this lease by July 1, 1994. 4. Tenant may, at its option, and at its sole cost and expense, in the name of the Landlord if necessary, protest, appeal or institute such other proceedings as it may consider appropriate to affect a reduction or abatement of any real estate taxes assessed against the demised premises for which Tenant is responsible under the terms of this lease, and Landlord shall cooperate with Tenant in connection with any such contest. Prior to any such contest, Tenant shall be required to furnish Landlord a bond for any contested taxes, and any applicable penalties or interest. In the event a refund is obtained pursuant to any contest conducted under the foregoing provisions, the tax refund, less any costs or expenses of Landlord, shall be paid to Tenant to the extent to which such refund is based on a payment made by Tenant. -20- EX-10.42 46 SINGLE TENENT INDUSTRIAL LEASE EXHIBIT 10.42 LEASE LANDLORD: Watson Land Company, a California corporation TENANT: Suburban Ostomy Supply Company Inc., a Massachusetts corporation DATED: August 18, 1994 THE SUBMISSION OF THIS DOCUMENT FOR EXAMINATION AND NEGOTIATION DOES NOT CONSTITUTE AN OFFER TO LEASE, OR A RESERVATION OF, OR OPTION FOR, THE PREMISES; THIS DOCUMENT BECOMES EFFECTIVE AND BINDING ONLY UPON EXECUTION AND DELIVERY HEREOF BY LANDLORD. NO ACT OR OMISSION OF ANY EMPLOYEE OR AGENT OF LANDLORD OR OF LANDLORD'S BROKER SHALL ALTER, CHANGE OR MODIFY ANY OF THE PROVISIONS HEREOF. [Single Tenant/W 5 Base Form]
Article INDEX Page - ------- ----- ---- ARTICLE I - Basic Lease Provisions 1 ARTICLE II - Condition of Premises 2 ARTICLE III - Term of Lease 2 ARTICLE IV - Rent 3 ARTICLE V - Taxes and Assessments 3 ARTICLE VI - Utility Charges 5 ARTICLE VII - Hold Harmless 5 ARTICLE VIII - Insurance 6 ARTICLE IX - Repairs and Maintenance 7 ARTICLE X - Inspection of Premises by Landlord 12 ARTICLE XI - Mechanics' Liens 13 ARTICLE XII - Damage or Destruction of Premises 14 ARTICLE XIII - Condemnation 14 ARTICLE XIV - Use Of Premises - Assignments 15 ARTICLE XV - Event of Default 19 ARTICLE XVI - Surrender of Premises 21 ARTICLE XVII - Delays - Extensions of Time 22 ARTICLE XVIII - Attorneys' Fees 22 ARTICLE XIX - Statement of Lease 23 ARTICLE XX - Rights Reserved by Landlord 24 ARTICLE XXI - Covenant of Quiet Enjoyment 25 ARTICLE XXII - Recordation 25 ARTICLE XXIII - Subordination 25 ARTICLE XXIV - Security Deposit 26 ARTICLE XXV - Holding Over 27 ARTICLE XXVI - General 27 26.1 Remedies Cumulative 27 26.2 Successors and Assigns 27 26.3 Payments and Interest 27 26.4 Late Charge 27 26.5 Late Payments and Impounds 28 26.6 Notices 29 26.7 Captions 29 26.8 Pronouns and Singular/Plural 29 26.9 Time of Essence 29 26.10 Reasonable Consent 29 26.11 Fair Meaning 29 26-12 Entire Agreement 29 26.13 No Accord and Satisfaction 29 26.14 Choice of Law 29
26.15 Non-Discrimination 29 26.16 Counterparts 29 26.17 Corporate Resolution 29 26-18 Reimbursements to Landlord 29 26-19 No Guard Service 30 26-20 Brokers 30 26.21 Brokerage Commission 30 26.22 Parking 31 26.23 Lease Reviewed 31 26.24 Financial Statements 31 26.25 Least Interest Rate 31 26.26 Limitation of Liability 31
EXHIBITS - -------- Exhibit A - Legal Description Exhibit B - Form of Lease Addendum Exhibit C - Hazardous Material Certificate Exhibit D - Form of Estoppel Certificate Exhibit E - Initial Improvement Work Exhibit F - Insurance Summary LEASE RIDER - ----------- Lease Rider Number I SINGLE TENANT INDUSTRIAL LEASE THIS SINGLE TENANT INDUSTRIAL LEASE ("Lease") is made and entered into as of August 18. 1994, by and between Watson Land Company, a California corporation ("Landlord") and Suburban Ostomy Supply Company, Inc., a Massachusetts corporation ("Tenant"). Landlord and Tenant mutually covenant and agree that Landlord, in consideration of the rent payable by Tenant and the covenants and agreements to be kept, observed and performed by Tenant, hereby rents and leases to Tenant, and Tenant hereby takes and hires from Landlord, the "Premises" (as defined herein), pursuant to the provisions of this Lease, subject to (i) all applicable zoning, municipal, county, state and federal laws; and (ii) covenants, conditions, restrictions, reservations, casements, rights and rights-of-way of record. ARTICLE I --------- Basic Lease Provisions ---------------------- 1.1 Description or Premises. The Premises, as referred to herein, shall ----------------------- consist of the parcel of land located in the County of San Bernadino, State of California, as more particularly described in the attached Exhibit A (the "Land"); the multi-purpose office, warehouse and industrial building located on the Land (the "Building") together with the appurtenant improvements located on the Land; and any other improvements or additions made by either Landlord or Tenant which become a part of the Premises in accordance with the provisions of this Lease. Tenant acknowledges its understanding and awareness that the Premises are located in a multi-phase business center owned by Landlord and that subsequent phases of the business center may be constructed by Landlord from time to time. Tenant further acknowledges that as the business center is further developed, other owners, tenants or occupants of the business center may be afforded access rights across, over or through portions of the Land in accordance with covenants, conditions and restrictions which may now or hereafter affect the Land. Tenant hereby consents to and agrees to comply with and be bound by any such covenants. conditions and restrictions currently recorded against the Land, and Tenant further agrees that it will consent to any reasonable amendment to such covenants, conditions and restrictions as may be requested by Landlord from time to time in order to facilitate the development or the 1-15 Business Center. 1.2 Street Address or Premises: 8513 Rochester Avenue, Rancho Cucamonga, -------------------------- California. 1.3 Approximate Building Square Footage: 22,928 square feet. ----------------------------------- 1.4 Lease Term: Six (6) years beginning on October 1, 1994 or such other ---------- date as is determined pursuant to the provisions of this Lease (the "Commencement Date") and ending on September 30, 2000 (the "Termination Date"). 1.5 Extension Option: One (1) single period of five (5) years. See ---------------- paragraphs 1 and 2 of the attached Lease Rider. 1.6 Initial Minimum Rent: Six Thousand Four Hundred Twenty Dollars -------------------- ($6,420.00). 1.7 Periodic Rent Adjustments: See Paragraph 3 of the attached Lease ------------------------- Rider. 1.8 Annual Tax Base Amount: Eight Thousand Two Hundred Forty-One Dollars ---------------------- ($8,241.00). 1.9 Annual Insurance Base Amount: Two Thousand Four Hundred Thirty-One ---------------------------- Dollars ($2,431.00). 1.10 Initial Security Deposit: Six Thousand Four Hundred Twenty Dollars ------------------------ ($6,420.00). 1.11 Brokers: CB Commercial (Chris Atkinson). ------- 1.12 Initial Improvement Work: See Paragraph 4 of the attached Lease Rider. ------------------------ 1.13 Exhibits and Riders: The following Exhibits and Riders are attached ------------------- to this Lease and made a part hereof. 1.14 Annual CAM Expense Base Amount: Four Thousand Three Hundred Ninety-Two ------------------------------ Dollars ($4,392 00). Exhibit A - Legal Description Exhibit B - Form of Lease Addendum Exhibit C - Hazardous Material Certificate Exhibit D - Form of Estoppel Certificate Exhibit E - Initial Improvement Work Exhibit F - Insurance Summary Lease Rider Number I 1.14 Mailing Addresses: ----------------- Landlord: Watson Land Company 22010 Wilmington Avenue, Suite 400 Carson, California 90745 Tenant: Suburban Ostomy Supply Company, Inc. ______________________________ ______________________________ ARTICLE II ---------- Condition of Premises --------------------- 2.1 Tenant acknowledges that prior to the execution of this Lease, Tenant has been furnished full access to, and has inspected the Premises. Tenant accepts the Premises in its present condition, state of repair and operating order and in present "AS IS" condition. Tenant further acknowledges that neither Landlord nor any real estate agent or broker representing Landlord or Tenant has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Tenant's business. Tenant specifically acknowledges that Landlord makes no representation or warranty with respect to any laws, codes, ordinances, rules or regulations affecting the Premises including, without limitation, laws, codes ordinances, rules or regulations relating to fire or life safety, or access by disabled persons (collectively "Codes") affecting the Premises or Tenant's proposed use of the Premises, and Tenant shall be responsible for determining the suitability and conformity of the Premises with respect to such Codes, and Tenant shall be responsible for making any necessary modifications to the Premises in order to comply with such Codes. ARTICLE III ----------- Term of Lease ------------- 3.1 The term of this Lease (the "Lease Term") shall be the period set forth in Item 1.4 of the Basic Lease Provisions. Subject to the terms and conditions of this Lease, the Lease Term shall commence on the Commencement Date and shall terminate on the Termination Date, which dates are specified in Item 1.4 of the Basic Lease Provisions. Tenant shall be permitted to use and occupy the warehouse area of the Premises prior to the Commencement Date (the "Early Occupancy Period") for the purpose of storing goods and materials and installing Tenant's trade mixtures and equipment (the "Limited Occupancy"), at such time as Landlord reasonably consents to such Limited Occupancy, so long as such Limited Occupancy does not interfere with or delay completion of the Initial Improvement Work. Tenant agrees to coordinate its use of the Premises during the Limited Occupancy Period with Landlord so as to avoid any interference or delay in the completion of the Initial Improvement Work. Except for Tenant's obligation to pay Minimum Rent, real estate taxes and insurance premiums (which shall be waived during the Limited Occupancy Period), any use or occupancy of the Premises by Tenant during the Early Occupancy Period pursuant to this Paragraph 3.1 shall be subject to and in accordance with all terms and conditions of this Lease, and all other terms and conditions of this Lease shall be in full force and effect. 3.2 If Landlord is unable to deliver possession of the Premises to Tenant by the Commencement Date specified in Item 1.4 of the Basic Lease Provisions, for any reason (other than a delay which is attributable to any act or omission of Tenant, in which event the Lease Term shall be deemed to have commenced on the date specified in Item 1.4 of the Basic Lease Provisions), the Lease Term shall not commence until possession of the Premises is delivered to Tenant. For the purposes of this Paragraph 3.2, delivery of possession of the Premises to Tenant shall be deemed to occur on the date on which this date is fully executed and delivered by Landlord and Tenant and Landlord has provided keys to the Premises to Tenant. If Landlord so desires, Landlord and Tenant shall execute a Lease Addendum in the form attached to this Lease as Exhibit B, confirming the actual Commencement Date and Termination Date. Landlord shall not be liable for any damage caused by any delay in delivery of the Premises to Tenant, and this Lease shall not be void or voidable as a result of any such delay. Tenant shall not be liable for rent until the commencement of the Lease Term. If the Lease Term commences on a day other than the First day of a calendar month, the Lease Term shall end on the last day of the calendar month in which said Lease Term would otherwise end. If Landlord does not deliver possession of the Premises to Tenant within ninety (90) days of the date specified in Item 1.4 of the Basic Lease Provisions, Tenant may terminate this Lease by giving written notice to Landlord at any time after lapse of said ninety (90) day period, provided Landlord has not delivered possession of the Premises to Tenant before Tenant gives such notice to Landlord. ARTICLE IV ---------- Rent ---- 4.1 Tenant agrees to pay to Landlord at the office of Landlord or at such other place as may be designated by, Landlord from time to time, without any prior demand therefor and without any deduction or setoff whatsoever, as minimum monthly rent ("Minimum Rent"), the sum specified as the Initial Minimum Rent in Item 1.6 of the Basic Lease Provisions. Minimum Rent shall be payable in advance on the first day of each calendar month of the Lease Term. If the Lease Term shall commence upon a day other than the first day of a calendar month, then Tenant shall pay, upon the Commencement Date, a pro rata portion of the Minimum Rent for the first fractional calendar month. Minimum Rent payable by Tenant under this Lease is subject to adjustment in accordance with the provisions of Item 1.7 or the Basic Lease Provisions. In addition to the Minimum Rent, Tenant shall pay to Landlord, as additional rent, the amount by which all "CAM Expenses" (as defined herein) for each calendar year of the Lease Term exceed the Annual CAM Base Amount specified in Item 1.14 of the Basic Lease Provisions. As used herein, "CAM Expenses" shall consist of the costs of the following items: common area sweeping, common area lighting, common area landscaping and Premises landscaping. In the partial calendar year in which the Lease Term commences, and in the partial calendar year in which the Lease Term expires, CAM Expenses and the Annual CAM Base Amount shall be prorated on a daily basis (using a 365-day year), and Tenant's payment obligations shall be computed accordingly. Unless specifically designated otherwise in this Lease, all fees, charges, costs, expenses or other payments to be paid by Tenant to Landlord pursuant to this Lease shall be deemed to be additional rent. ARTICLE V --------- Taxes and Assessments --------------------- 5.1 Tenant covenants and agrees to pay to Landlord, as additional rent hereunder, the amount by which all real estate taxes and assessments, and installments thereof which may be taxed, charged, levied, assessed or imposed during any fiscal tax year occurring during the LeasteTerm (and any extensions or renewals thereto upon all or any portion of or in relation to the Premises and the improvements at any time erected thereon and the appurtenances thereof, exceed the Annual Tax Base Amount specified in Item 1.8 of the Basic Lease Provisions. In the partial fiscal tax year in which the Lease Term shall commence, and in the partial fiscal tax Year in which the Lease Term shall terminate, such taxes and assessments and the Annual Tax Base Amount shall be prorated on a daily basis (using a 365-day year), and Tenant's payment obligations shall be computed accordingly. If any assessments or taxes are levied or assessed against the Premises which are payable or may be paid in monthly or more frequent installments, Tenant shall be required to pay only such installments as shall become due and payable during the Lease Term; provided however, if an assessment or tax is imposed upon the Premises because of the acts or upon the request of Tenant, then Tenant shall pay the total amount thereof in equal annual installments during the Lease Term, on a date established by Landlord. 5.2 Tenant shall pay the amount of any taxes and assessments which it is obligated to pay hereunder directly to Landlord within seven (7) days after receipt of Landlord's invoice therefor, but in no event later than ten (10) days before the delinquency date for payment of such taxes and assessments. Landlord agrees, in turn, to promptly pay such taxes and assessments to the appropriate taxing authority. If any lender whose loan is secured in whole or in part by a lien upon the Premises ("Landlord's Lender") requires Landlord to impound real estate taxes and/or assessments on a periodic basis, then Tenant agrees, upon receipt of written notice from Landlord, to pay to Landlord on a periodic basis the sum required to satisfy the tax impound requirement of Landlord's Lender. Landlord shall impound the tax payments received from Tenant in accordance with the requirements of Landlord's Lender. If the Premises is not separately assessed, the real estate taxes payable by Tenant under this Lease shall be calculated based on an equitable proportion of the real estate taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Landlord from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Landlord's reasonable determination thereof, made in good faith, shall be conclusive. 5.3 Tenant shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal properly of Tenant contained in the Premises or elsewhere. Whenever possible, Tenant shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Landlord. If any of Tenant's said personal property shall be assessed with Landlord's real property, Tenant shall pay to Landlord the taxes attributable to Tenant within ten (10) days after receipt of a written statement from Landlord setting forth the taxes applicable to Tenant's property. 5.4 As used herein, the term "real estate taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, rental excise tax, improvement bond or bonds, levy or tax (other than income taxes) imposed on the Premises by any authority having the direct or indirect power to tax, including any city, state or the federal government, or any school, agricultural. sanitary, fire, street, drainage, water or other improvement district thereof, as against any legal or equitable interest of Landlord in the Premises or in the real property of which the Premises are a part, as against Landlord's right to rent or other income therefrom, and as against Landlord's business of leasing the Premises. The term "real estate taxes' shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax"; or (ii) the nature of which was hereinbefore included within the definition of "real property tax"; or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978; or (iv) which is imposed as a result of a transfer, either partial or total, of Landlord's interest in the Premises or which is added to a tax or charge previously included within the definition of real property tax by reason of such transfer; or (v) which is imposed by reasons of this transaction, any modifications or changes hereto, or any transfers hereof. ARTICLE VI ---------- Utility Charges --------------- 6.1 Tenant shall contract for, in Tenant's name, and shall pay or cause to be paid, all charges for gas, electricity, light, heat, air-conditioning, power, telephone, sewer, trash collection and waste removal and/or disposal, security or guard service, alarm systems, or other service, and any taxes, levies or excises thereon, used, rendered or supplied to Tenant in connection with the Premises. and for all connection and closing charges, and any tax or excise thereon; and for any governmental service or service subject to governmental regulation, however described, furnished to the Premises during the Lease Term and during any other period in which Tenant uses or occupies the Premises. Landlord and Tenant (or Landlord only, in Landlord's name, if Landlord so elects) shall contract for water service for the Premises, but Tenant shall be solely responsible for any fees, charges or costs of any nature imposed or incurred in connection with such water service. Landlord may elect to have bills for such water service delivered directly to Tenant, or Landlord may have such bills delivered to Landlord and separately invoice Tenant for the actual cost of such water service, Tenant shall pay any such bill or invoice within ten (10) days following Tenant's receipt thereof. Landlord shall not be liable to Tenant for any loss, injury, damage, disruption of business or any other harm resulting from any interruption of utility services to the Premises, unless such interruption results solely from the gross negligence or willful misconduct of Landlord. ARTICLE VII ----------- Hold Harmless ------------- 7.1 Tenant covenants and agrees that Landlord shall not at any time or to any extent whatsoever be liable, responsible, or in any way be accountable for any loss, injury, death or damage to persons or property (collectively, "Losses") which at any time may be suffered or sustained by Tenant or by any person whomsoever who may at any time be using, occupying or visiting the Premises, or be in, on, or about the same, whether such Losses shall be caused by or in any way result from or arise out of any act, omission or negligence of Tenant or of any occupant, subtenant, visitor or user of any portion of the Premises, or from fire, steam, electricity, water, rain, act of God, or from breakage or leakage or any defect in any pipes, sprinklers, or plumbing, electrical or heating and air conditioning systems or fixtures, or from any other cause, except to the extent any such Losses result directly from Landlord's breach of an obligation owed to Tenant under the terms of this Lease, or from the negligence or willful misconduct of Landlord. Tenant hereby releases Landlord and agrees to indemnify, defend, hold and save Landlord free and harmless of, from, and against any and all Losses which are caused by, in whole or in part, or which arise out of, any use or occupancy of the Premises by Tenant or any of Tenant's agents, employees, invitees or contractors, including attorneys' fees and costs on account of any such Losses, except to the extent any Losses result directly from the active negligence or willful misconduct of Landlord. Landlord hereby agrees to indemnify, defend, hold and save Tenant free and harmless of, from and against any and all Losses, including attorneys' fees and costs on account of any such Losses, to the extent such Losses result directly from Landlord's breach of an obligation owed to Tenant under the terms of this Lease, or from the negligence or willful misconduct of Landlord or Landlord's agents or employees on the Premises. ARTICLE VIII ------------ Insurance --------- 8.1 Landlord shall, throughout the Lease Tenn. keep all buildings and improvements which may from time to time be upon or a part of the Premises (but not Tenant's personal property, fixtures or equipment) insured against all risks (as the term "all risk" is used in the insurance industry), and against earthquake and flood risks, in such form and with such policy limits as Landlord may determine from time to time, so as to provide adequate protection of Landlord's ownership interests in the Premises at a reasonable cost. Notwithstanding the foregoing, Landlord shall not be required to maintain any insurance which becomes unavailable, or which is not commercially reasonable for landlords to carry, in the Southern California insurance marketplace. In the event of any insured loss, Tenant shall be liable to Landlord for any deductible amount claimed by the insurance carrier. However, Tenant shall not be required to pay any insurance deductible in excess of Fifty Thousand Dollars ($50,000) (the "Deductible Cap Amount"). Tenant shall not be responsible for paying any coinsurance amount applicable under any insurance policies carried by Landlord pursuant to the terms of this Lease, and, notwithstanding any provision of this Lease to the contrary, Tenant shall not be required to pay for any casualty damage or losses which are not covered by insurance as a result of Landlord's failure, for any reason, to obtain and maintain in effect insurance for the Premises. Tenant covenants and agrees to pay to Landlord, as additional rent hereunder, the amount by which the annual premiums and related fees for the insurance specified in this Paragraph 8.1 exceed the Annual Insurance Base Amount specified in Item 1.9 of the Basic Lease Provisions. Such amount shall be paid by Tenant to Landlord within seven (7) days after receipt by Tenant of Landlord's statement of the cost thereof. In the insurance policy year in which the Lease Term shall commence and in the insurance policy year in which it shall terminate, such insurance premiums and the Annual Insurance Base Amount shall be prorated on a daily basis (using a 365-day year), and Tenant's payment obligations shall be computed accordingly. If Landlord's Lender requires the impounding of insurance premiums on a periodic basis, Tenant shall pay the cost thereof to Landlord on a periodic basis as required by Landlord's Lender. Such insurance shall have attached thereto such form of lender's loss payable endorsement as Landlord's Lender may require. Notwithstanding the foregoing, Tenant shall not be responsible for paying any excess insurance premiums during the first Policy Year occurring during the Lease Term. The current Policy Year for the insurance to be carried by Landlord pursuant to this Paragraph 8.1 runs from July 22, 1994 through July 21, 1995. Furthermore, beginning with the second Policy Year occurring during the Least Term, and for each Policy Year thereafter, the Tenant shall only be responsible during each such Policy Year for so much of said premiums as shall represent a ten percent (10%) cumulative annual increase over the Annual Base Insurance Amount of $2,431 (the "Recalculated Base Insurance Amount") plus fifty percent (50%) of the amount by which said premiums exceed such Recalculated Base Insurance Amount. 8.2 Landlord and Tenant agree that if the building and improvements at any time forming a part of the Premises shall be damaged or destroyed by risks insured against under Paragraph 8.1, or if any of Tenant's machinery, fixtures, furniture, merchandise or other property, real or personal, are damaged or destroyed from any cause covered by a property policy obtained by Tenant, then and to the extent allowable and without invalidating such insurance, and whether or not such damage or destruction was caused by the negligence of the other party, neither party shall have any liability to the other nor to any insurer of the other for or in respect of such damage or destruction. If obtainable, each party shall require all policies of fire or other insurance carried by such party during the Lease Term upon the Premises or contents therein to include a provision whereby the insurer designated therein shall waive its right of subrogation against the other party. 8.3 During the entire Lease Term, Tenant, at Tenant's sole cost and expense, shall procure and maintain in full force and effect personal injury and property damage liability insurance with a combined single limit of not less than Five Million Dollars ($5,000,000). Such insurance may be evidenced by a Primary Policy or a combination of a Primary Policy and an Umbrella Excess Policy. Tenant's liability insurance shall be primary and any liability insurance maintained by Landlord shall not be contributory. Landlord shall be named as an additional insured in such policies, and a policy endorsement so naming Landlord shall be furnished to Landlord. All such insurance shall insure the performance by Tenant of the indemnity provisions of Article VII of this Lease. The limits of said policies shall not limit the liability of Tenant under this Lease. In the event that either party hereto shall at any time deem the limits of such liability insurance then carried to be insufficient, the parties shall endeavor to agree upon the proper and reasonable limits for such insurance then to be carried. If the panics shall be unable to agree thereon, the proper and reasonable limits for such insurance then to be carried shall be determined by an impartial third person knowledgeable of insurance risk matters selected by the parties, or should they be unable to agree upon a selection by an impartial third person such third person shall be chosen by the Presiding Judge of the Superior Court of Los Angeles County upon application by either party made after rive (5) days written notice to the other party of the time and place of application. The decision of such impartial third person as to such limits then to be carried shall be binding upon the parties. Such insurance shall be carried with the limits as agreed upon or determined pursuant to this Paragraph until such limits shall again be changed pursuant to the provisions of this Paragraph. The expenses of such determination shall be borne equally between Landlord and Tenant. 8.4 All of the insurance provided by Tenant under this Article VIII and all renewals thereof shall be issued by such good, responsible and standard companies rated at least A:Class XII in the current edition of Best's Insurance Guide, and authorized to do business in California. The policy or policies of insurance provided for in Paragraph 8.1 hereof shall be payable to Landlord, or jointly to Landlord and Landlord's Lender, and Tenant agrees to endorse any check to the order of Landlord which might be made payable jointly to Landlord and Tenant by the insurance company. Tenant agrees to immediately comply with any request of the insurance carrier providing insurance described in Paragraph 8.1 if the failure to comply therewith will cause cancellation of such insurance. All policies provided by Tenant shall expressly provide that the policy shall not be cancelled or altered without thirty (30) days' prior written notice to Landlord. Neither Landlord nor Tenant shall do or permit to be done anything which will invalidate the insurance policies provided for in this Article VIII. Upon the issuance or renewal of the liability insurance policy described in this Article VIII, or upon commencement of the Lease Term if such policy is then in force or effect, Tenant shall have its insurance carrier furnish Landlord with a Certificate of said insurance. If requested in writing by Landlord, Tenant shall reproduce and forward to Landlord a true copy of any insurance policy described in this Lease and obtained by Tenant. Tenant shall obtain such fire insurance and other insurance on Tenant's machinery, fixtures, furniture and other property, real or personal, as Tenant deems appropriate, and with which Landlord shall not otherwise be concerned. ARTICLE IX ---------- Repairs and Maintenance ----------------------- 9.1 Landlord shall maintain and repair the foundation, exterior walls, exterior paint, exterior concrete pads, asphalt paving, concrete paving and roof of the Premises at its own cost and expense, provided. however, that if any maintenance or repair work for the foundation, exterior walls, exterior paint, exterior concrete pads, asphalt paving, concrete paving or roof of the Premises is required as a result of any negligence or willful misconduct of Tenant or any of Tenant's agents, employees, shippers, customers, invitees or contractors, such work shall be at Tenant's sole cost and expense. Tenant shall keep all other portions and components of the Premises, and including all plumbing, HVAC systems, electrical and lighting systems, ceilings, plate glass, in good order, condition and repair during the Lease Term and the Extended Term. Tenant shall also maintain any of Tenant's property visible from outside the building in the same condition, with the surfaces thereof painted at such intervals and such colors as Landlord shall approve. Except as provided above, Tenant shall promptly replace any portion of the Premises or system or equipment in the Premises which cannot be fully repaired, regardless of whether the benefit of such replacement extends beyond the Lease Term or any Extended Term. Tenant shall maintain the Premises in an orderly, first-class and fully operative condition. Landlord shall maintain the exterior landscaping for the Premises and the exterior landscaping for the Watson I-15 Business Center in accordance with Landlord's then-prevailing landscape maintenance standards. Except for Landlord's obligations for maintenance and repair of the foundations, exterior walls, exterior paint, exterior concrete pads, asphalt paving, concrete paving and roof of the Premises, Landlord shall have no obligation to repair or maintain the improvements or any areas adjacent thereto. Tenant waives the provisions of any law permitting Tenant to make repairs at Landlord's expense. 9.2 All of Tenant's obligations to maintain and repair shall be accomplished at Tenant's sole expense. If Tenant fails to maintain and repair the Premises, Landlord may, at its election, notify Tenant of Tenant's obligation to undertake such repair and maintenance work. If Tenant fails to commence such work within forty-eight (48) hours of receipt of such notice Landlord may enter the Premises and perform any such work on behalf of Tenant. Notwithstanding the foregoing, no notice to Tenant shall be required in case of emergency, and in the event of an emergency Landlord may enter the Premises and perform such repair and maintenance on behalf of Tenant. In any such case, Tenant shall reimburse Landlord for all costs so incurred immediately upon demand, together with interest thereon at the "Lease Interest Rate" (as defined in Paragraph 26.26, below). Landlord's right to perform maintenance and repair work pursuant to this Paragraph 9.2 shall not be deemed to create any obligation on the part of Landlord to do so, and shall not in any way limit Landlord's remedies under this Lease. Any design or construction work undertaken by or at the direction of Tenant which affects the Premises or any improvements located on the Premises (including, without limitation, any repair work, maintenance work, tenant improvement work or restoration work) shall be performed by duly qualified and properly licensed and insured design professionals or contractors (as the case may be) reasonably satisfactory to Landlord. Tenant shall submit the names of any such design professionals and contractors to Landlord prior to the commencement of any construction work on the Premises. If Landlord, acting reasonably and in good faith, disapproves of any design professional or contractor selected by Tenant, Tenant shall select a new design professional or contractor reasonably satisfactory to Landlord 9.3 Upon the expiration or sooner termination of this Lease, Tenant shall surrender the Premises to Landlord, broom clean and in the same condition as received, except for ordinary wear and tear which Tenant is not otherwise obligated to remedy under any provision of this Lease, and except for repair and maintenance items which are the obligation of Landlord pursuant to Paragraph 9.1, above. Any damage to, or deterioration of, the Premises shall be deemed not to be ordinary wear and tear if the same could have been prevented by good maintenance practices. In addition, Landlord may require Tenant to remove any alterations, additions or improvements (whether or not made with Landlord's consent) prior to the termination of the Lease and to restore the Premises to its prior condition, or Landlord may perform such removals and restorations itself, all at Tenant's expense. All alterations, additions and improvements which Landlord has not required Tenant to remove or which Tenant has not elected to remove, as provided herein, shall become Landlord's property and shall be surrendered to Landlord upon the expiration or sooner termination of the Lease, except that Tenant may remove any of Tenant's machinery or equipment which can be removed without damage to the Premises. If, whether in violation of this Lease or pursuant to Landlord's permission (which may be granted or withheld in Landlord's sole and absolute discretion), Tenant installs any "Underground Storage Tanks' (as defined herein) on the Premises, Tenant shall, at its sole cost and expense, remove any such Underground Storage Tanks immediately upon the request of Landlord, the expiration or sooner termination of this Lease, or the order of any governmental authority, whichever occurs first. Notwithstanding any provisions of this Lease to the contrary, such Underground Storage Tanks shall at all times be and remain the property of Tenant. As used herein, the term "Underground Storage Tank" means any one or combination of tanks, including all pipes, sumps, valves and other equipment connected thereto, which are used for the storage of petroleum products, hydrocarbon substances or fractions thereof, or other Hazardous Materials, and which are located wholly or partially beneath the surface of the ground. Tenant shall repair, at Tenant's expense, any damage to the Premises caused by the removal of any such machinery or equipment. 9.4 Tenant shall not, without the prior written approval of Landlord, make any additions, alterations, changes or improvements to the Premises or any portion thereof Any request for approval of additions, alterations, changes or improvements shall be presented to Landlord in writing, accompanied by detailed drawings and specifications. No addition, alteration, change or improvement shall be made which will weaken the structural strength, lessen the value of, interfere with, or make inoperable any portion of the Premises or the "building service equipment", or change the architectural appearance of the Premises. All approved additions. alterations, changes and improvements shall be made in workmanlike manner, in full compliance with all laws and ordinances applicable thereto. Except for any Underground Storage Tanks, which shall, at all times be and remain the property of Tenant. all such additions, alterations, changes and improvements shall become a part of the Premises, and become the property of Landlord when installed; and, unless Landlord shall require removal thereof as required pursuant to Paragraph 16.2, all such improvements, including all building service equipment improvements (but specifically excluding any Underground Storage Tanks). shall remain in and be surrendered as a pan of the Premises upon the expiration or sooner termination of this Lease. Tenant shall furnish Landlord with a set of "as built" drawings which accurately set forth the nature and extent of improvements made by Tenant to the Premises. Tenant and any assignee or sublessee of Tenant shall obtain Landlord's prior written consent before any signs are installed on the Premises. Such signs shall remain the property of Tenant or any assignee or sublessee who installs the same and they shall be removed from the Premises at the expiration or sooner termination of the Lease Term. Any damage arising out of or resulting from the installation, placement or removal of such signs shall be repaired by Tenant at Tenant's sole cost and expense. The term "building service equipment" shall include, without limitation, equipment and property ordinarily necessary or convenient for the operation and utilization of a building, such as heaters, air conditioners, solar panels, power panels, transformers, light fixtures, sprinklers, suspended ceilings, plumbing fixtures, walls, cabinets, shelving affixed to walls in office areas, doors, floor coverings, fixtures. fencing, paging systems, emission or pollution control facilities, security and alarm systems, dock revelers, and utility services such as gas, electricity, water, steam, telephone, sewer and other similar services used in connection with the foregoing items. Building service equipment shall also include any related power installations, plumbing installations, pollution control installations, sprinkler installations, energy conservation installations, and security installations, including wiring, conduits, ducts, lines, pipes and meters for the transportation. distribution, measuring and/or disposal thereof. Building service equipment shall also include installations affixed to the Building which serve machinery and equipment, including, without limitation, air lines, crane ways, dust collectors, paint booths, buss ducting, power panels and related power installations, but excluding conveyors and other material handling equipment. 9.5 Tenant shall have the right. without Landlord's prior approval, to install within the Premises Tenant's equipment. trade fixtures, furniture and furnishings (hereinafter collectively called "Tenant's Equipment"), Under no circumstances, however, shall Underground Storage Tanks be installed on the Premises. However, Tenant shall notify Landlord in writing and Tenant shall obtain Landlord's prior written approval before the installation of heavy equipment, or heavy trade fixtures in the Premises, and prior to placing any load on the roof or attaching any load to the walls or the underside of the roof of any building. Tenant shall not install any of Tenant's Equipment in such manner to weaken the structural strength of the improvements on the Premises. interfere with, or make inoperable any portion of the Premises or the building service equipment. If Tenant makes any addition, alteration, change, or improvement to the Premises described in Paragraph 9.4 without Landlord's consent, or if Tenant installs any of Tenant's Equipment in violation of this Paragraph 9.5, then Tenant shall, upon receipt of written notice from Landlord, promptly remove, replace, or otherwise correct such installations in such manner as Landlord shall reasonably require and direct, and Tenant shall reimburse Landlord, on demand and as additional rent, for all architect's, engineer's and legal fees incurred by Landlord in connection with such installations. If Tenant or any person with whom Tenant is engaged in business causes any damage to the Premises or the improvements, structural or otherwise, Tenant assumes all risk of such damage to any improvements and Tenant shall, upon demand, promptly repair all such damage to the reasonable satisfaction of Landlord. Tenant shall promptly repair any damage to the Premises arising from the installation, use, and removal of Tenant's Equipment; and Tenant shall restore the Premises to a clean and orderly condition and appearance, state of repair and operating order with all remaining improvements thereon in a good, safe, fully operable condition and in full compliance with all federal, state and local laws, rules, regulations and ordinances. If Tenant fails to perform any act or obligation required of Tenant under this Paragraph 9.5, Landlord she have the right, but not the obligation, after ten (10) days' written notice to Tenant specifying the action required by Tenant, to enter upon the Premises and perform such act or obligation. In that event, Tenant agrees to pay Landlord, as additional rent within ten (10) days of receipt of Landlord's invoice, for all costs incurred by Landlord in performing Tenant's act or obligation, plus an overhead allowance of fifteen percent (15%) of such cost. 9.6 Landlord shall not be obligated to maintain or to make any repairs, replacements, or renewals of any kind, nature or description whatsoever to the Premises or any buildings or improvements thereon, except as specifically provided in Paragraphs 9.1, 12.1, 13.3 and Exhibit A of this Lease. 9.7 Tenant shall comply with and abide by all federal, state, county, municipal and other governmental statutes, ordinances, laws, and regulations affecting the Premises, the improvements thereon, the business to be conducted therein and thereon by Tenant, or any activity or condition on or in the Premises. Without limiting the generality of the foregoing, Tenant shall comply with all environmental laws and laws relating to "Hazardous Materials" (as defined herein) affecting the Premises, the improvements therein, the business conducted thereon by Tenant, or any activity or condition on or in the Premises. Tenant shall not install, place, construct or maintain any Underground Storage Tanks on the Premises. Any and all Hazardous Materials and their containers which are brought upon the Premises by, at the direction of, or with the consent or approval of Tenant shall, at all times, remain the property of Tenant. Tenant warrants that Tenant's business and all activities to be performed by Tenant in, on or about the Premises shall comply with such statutes, ordinances, laws and regulations; and Tenant agrees to change any such activity or install necessary equipment, safety devices, pollution control systems, or other installations at any time during the Lease Term to so comply therewith. If the Premises are, or become subject to, any congestion management program (including, without limitation, any program mandated by Sections 65088 et seq. of the California Government Code), Tenant shall be responsible, at its sole cost and expense, for complying with all requirements of such programs and ordinances, including, without limitation. any provisions of such programs and ordinances requiring improvements or modifications to the Premises. If, during the Lease Term, Landlord or Tenant is required to convert or replace the HVAC system serving the Premises in order to comply with federal, state or local statutes, laws, ordinances, rules or regulations concerning the use ofchlorofluorocarbons (including, without limitation, Freon), Tenant shall be responsible for paying the costs of any such conversion or replacement, including, without limitation, the purchase and installation of new equipment, and the alteration of existing HVAC equipment in the Premises to accommodate any new equipment. Tenant agrees not to commit or permit waste upon the Premises. 9.8 Tenant shall not cause or permit any "Hazardous Material" (as hereinafter defined) to be brought upon, kept, used, stored, discharged or released (collectively "used") in or about the Premises during the Lease Term, without the prior written consent of Landlord. If Tenant breaches the obligations stated in the preceding sentence, or if any Hazardous Material used on the Premises during the Lease Term results in contamination of the Premises or any adjacent property, then Tenant shall indemnify, defend and hold Landlord harmless from any and all claims, judgments, damages, penalties, mines, costs, liabilities or losses (including, without limitation, diminution in value of the Premises and/or adjacent property, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises and/or adjacent property, damages arising from any adverse impact on marketing of the Premises and/or adjacent property, and sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Lease Term or any Extended Term as a result of Hazardous Material so used. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Material present in the soil or ground water on or under the Premises and/or adjacent property. Without limiting the foregoing, if any Hazardous Material is used on the Premises during the Lease Term and results in any contamination of the Premises and/or adjacent property, Tenant shall promptly take all actions at its sole expense as are necessary to return the Premises and/or adjacent property to the condition existing prior to the use of any such Hazardous Material on the Premises and/or adjacent property; provided that Landlord's approval of such actions shall first be obtained, which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or adjacent property. As used herein, the term "Hazardous Material" means any petroleum products or other hydrocarbon substances (and fractions thereof) and any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or the United States Government. Upon expiration or earlier termination of this Lease, Tenant shall duly execute and deliver to Landlord a certificate (the "Hazardous Material Certificate") in the form of Exhibit C attached hereto, and, if requested by Landlord, Tenant shall cause a properly licensed and qualified environmental consultant reasonably acceptable to Landlord to conduct an environmental audit of the Premises, and to deliver a copy of the completed environmental audit to Landlord. The scope and detail of such environmental audit shall be reasonably determined by Landlord based on all relevant facts and circumstances then existing. If any environmental audit recommends or suggests that additional testing be conducted, Landlord may require that such additional testing be conducted, at Tenant's expense. In the event Tenant shall fail to so deliver the Hazardous Material Certificate or to conduct such an environmental audit, such failure shall, without further notice or the passage of time constitute a default under the Least and, without in any way limiting or impairing Landlord's remedies against Tenant, shall entitle Landlord to retain the entire security deposit held by Landlord to be applied toward payment of the cost of assessing the presence of Hazardous Material on the Premises and/or adjacent property, and toward payment of all loss, cost, liability, damage and expense of Landlord arising as a result of any such contamination and toward such other costs and expense of Landlord as Landlord may designate in its sole discretion. If, at any time during the Lease Term or upon the termination or earlier expiration of the Lease, Landlord reasonably believes that the Premises or any adjacent property has been contaminated as a result of Hazardous Materials which were used on or about the Premises during the Lease Term, Landlord may require Tenant, at Tenant's sole cost and expense, to conduct an environmental audit (in accordance with the above described criteria) to evaluate the presence of any Hazardous Materials on the Premises and to cleanup, remediate, and otherwise mitigate the effects of the presence of any such Hazardous Materials on the Premises, or Landlord may, if it so elects, undertake such an environmental audit and any such cleanup, remediation or mitigation work on behalf of Tenant, at Tenant's sole cost and expense. In any event, any such environmental audit and any cleanup, remediation or mitigation work shall be performed by qualified environmental professionals acceptable to Landlord. Nothing contained herein shall be deemed or construed to limit the liability of Tenant to Landlord hereunder for the breach of any covenant of Tenant under this Paragraph 9.8. The provisions of this Paragraph 9.8 shall survive the expiration or earlier termination of this Lease and Tenant's surrender of the Premises to Landlord. 9.9 On or before the Fifteenth (15th) day of each calendar year during the Lease Term (the "Disclosure Dates"), Tenant shall disclose to Landlord in writing the common and chemical names and the quantities of all Hazardous Materials which were stored, used or disposed of on the Premises during the preceding calendar year. Tenant shall immediately notify Landlord of Tenant's receipt of any notice, citation or other communication received by Tenant relating to the presence, storage, use or release of any Hazardous Materials in, on or about the Premises. 9.10 Landlord shall have the right, but not the duty, to inspect the Premises at any time to determine whether Tenant is complying with the requirements of this Lease. If Tenant is not in compliance with the requirements of the provisions of this Lease relating to Hazardous Materials, Landlord shall have the right, but not the obligation, to immediately enter upon the Premises to remedy any condition caused by Tenant's failure to comply with the requirements of this Lease Landlord shall use reasonable efforts to minimize interference with Tenant's business as a result of any such entry by Landlord but shall not be liable for any interference caused thereby. 9.11 Any failure of Tenant to comply with the provisions of Paragraphs 9.7, 9.8 and 9.9 of this Lease shall be a material default under this Lease, enabling Landlord to exercise any of the remedies set forth in this Lease. ARTICLE X --------- Inspection of Premises by Landlord ---------------------------------- 10.1 Tenant agrees that Landlord and the authorized representatives of Landlord shall have the right to enter the Premises at all reasonable times during usual business hours, or at any time in the case of an emergency, for the purpose of (a) inspecting same; and (b) making such repairs or reconstruction to the Premises required by or permitted to be made by Landlord, and (c) performing any work therein that may be necessary by reason of Tenant's default under the provisions of this Lease. Nothing herein shall imply any duty of Landlord to do any work which, under the provisions of this Lease, Tenant is required to perform and the performance thereof by Landlord shall not constitute a waiver of Tenant's default in failing to perform the same. Landlord may, during the progress of any work on the Premises, keep and store upon the parking area of or within the Premises, all necessary materials, tools and equipment. Landlord shall not in any event be liable for any inconvenience, annoyance, disturbance, loss of business, or other damage sustained by Tenant while making such repairs or the performance of any such work on the Premises, or on account of bringing materials, supplies and equipment into or through the Premises during the course thereof In the event Landlord makes any repairs or maintenance which Tenant has failed to do or perform, the cost thereof plus an overhead allowance of fifteen percent (15%) of such cost shall constitute additional rent and shall be paid to Landlord within ten (10) days of receipt of Landlord's invoice. 10.2 Landlord is hereby given the right during usual business hours to enter the Premises and to exhibit the same for purposes of sale or mortgage, and during the last six (6) months of the Lease Term to exhibit the same to any prospective tenant. ARTICLE XI ---------- Mechanics' Liens ---------------- 11.1 Tenant covenants and agrees to keep all of the Premises and every part thereof and all buildings and other improvements thereon free and clear of and from any and all mechanics', materialmen's and other liens for work or labor done, services performed, materials, appliances, transportation or power contributed, used or furnished or to be used in or about the Premises for or in connection with any operations of Tenant, any alterations, improvements, repairs or additions, which Tenant may make or permit or cause to be made, or any work or construction by, for or permitted by Tenant on or about the Premises; and at all times Tenant shall promptly and fully pay and discharge any and all claims upon which any such lien may or could be based; and Tenant shall save and hold Landlord and all of the Premises free and harmless of and from any and all such liens and claims of liens and suits or other proceedings pertaining thereto. Tenant, or any subtenant, assignee or other occupant of the Premises covenants and agrees to give Landlord written notice not less than ten (10) days in advance of the commencement of any construction, alteration, addition, improvements or repair to the Premises in order that Landlord may post an appropriate notice of Landlord's non- responsibility. 11.2 No mechanics' or materialmen's liens or mortgages, deeds of trust, or other liens of any character whatsoever created or suffered by Tenant shall in any way or to any extent affect the interest or rights of Landlord in any buildings or other improvements on the Premises, or attach to or affect Landlord's title to or rights in the Premises. 11.3 Tenant shall have the right to contest any mechanic's lien or other lien claim filed against the Premises provided that Tenant gives Landlord written notice or such contest, Tenant diligently prosecutes such contest, at all times effectually stays or prevents any official or judicial sale of the Premises under execution or otherwise, and pays or otherwise satisfies any final judgment adjudging or enforcing such contested lien and thereafter procures record satisfaction or release thereof If requested in writing by Landlord, Tenant shall furnish to Landlord a surety bond issued by a surety company acceptable to Landlord in an amount not less than one and one-half times the amount of any such mechanic's lien or other lien claim filed against the Premises. ARTICLE XII ----------- Damage or Destruction of Premises --------------------------------- 12.1 In the event the Building is damaged or destroyed, then so long as the cost of repairing such damage or destruction is covered by insurance policies carried by the Landlord (except for deductible amounts, which shall be paid by Tenant, subject to the Deductible Cap Amount), Landlord shall repair and restore such improvements then owned by Landlord to their condition prior to said damage or destruction, and this Lease shall continue in full force and effect. Any damage or destruction of the type described above is referred to herein as an "Insured Loss." The proceeds of insurance maintained pursuant to Paragraph 8.1 which are paid to Landlord shall be utilized by Landlord to defray the cost and expense of repairing and rebuilding the Building. 12.2 In the event the Building is damaged or destroyed, and the cost of repairing such damage or destruction (exclusive of deductible amounts paid by Tenant) is not fully covered by insurance policies carried by the Landlord (an "Uninsured Loss"), then, Landlord may, at its election, either: (a) terminate this Lease upon written notice to Tenant (which notice shall be given, if at all, within thirty (30) days following the occurrence of such damage or destruction); or (b) repair and reconstruct the Building, in which event this Lease shall remain in effect. However, if Landlord has elected to terminate this Lease pursuant to this Paragraph 12.2, Tenant may prevent termination of the Lease pursuant to this Paragraph 12.2 by agreeing to pay the uninsured portion of the cost of repairing such damage or destruction. Notwithstanding the foregoing, in the event of any Uninsured Loss resulting from any act or omission or Tenant, Tenant shall be responsible for paying to Landlord any and all uninsured losses and costs which would be incurred if the Building was repaired or reconstructed, regardless of whether such repair or reconstruction actually occurs. If Landlord fails to maintain in effect the property insurance for the Premises as required pursuant to Paragraph 8.1 of this Lease, Tenant's obligation for uninsured losses pursuant to the preceding sentence shall be limited to the amount of the losses which would not have been covered by insurance had Landlord maintained the insurance coverage required pursuant to Paragraph 8.1. 12.3 The Minimum Rent payable by Tenant pursuant to the provisions of Paragraph 4.1 shall abate, in the proportion that the part of the Premises rendered unusable to Tenant bears to the whole thereof, from the date of the damage or destruction through the time required by Landlord to repair and rebuild the Premises, but only to the extent to which Landlord receives reimbursement for such abatement pursuant to the rental value insurance maintained under Paragraph 8.1 of this Lease. Except for abatement of such Minimum Rent. if any, Tenant shall have no claim against Landlord by reason of any damage, destruction, repair or rebuilding of the Premises. 12.4 If the Premises are materially damaged or destroyed during the last year of the Lease Term, Landlord or Tenant may, at such party's option, cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to the other party of the electing party's election to do so within thirty (30) days after the date of occurrence of such damage. For the purposes of this Paragraph 12.4, the Premises shall be deemed to have been "materially damaged" if, in Landlord's reasonable judgment, the cost to repair such damage is greater than One Hundred Thousand Dollars ($100,000). 12.5 Upon the occurrence of any damage or destruction to the Building, Landlord shall, within thirty (30) days following the date of occurrence of such damage or destruction, provide to Tenant a written notice of Landlord's reasonable and good faith estimate of the time required to complete the repair and restoration of the Premises ("Landlord's Time Estimate"). If Landlord reasonably estimates that such repair and restoration will take more than three hundred sixty-five (365) days to complete either Landlord or Tenant may elect to terminate this Lease upon written notice to the other, which notice shall be given, if at all, within ten (10) days following Tenant's receipt of Landlord's Time Estimate. Once such notice has been delivered and the ten (10) day response period has expired, neither party shall have the right to terminate this Lease as a result of the occurrence of such damage or destruction, regardless of the actual time necessary to complete such repair and restoration work. 12.6 Tenant waives the provisions of any statutes which relate to termination of leases when the Premises are destroyed; and Tenant agrees that such event shall be governed by the terms of this Lease and not by such statute. ARTICLE XIII ------------ Condemnation ------------ 13.1 If title to all or any portion of the Premises shall be taken by any public or quasipublic use or authority under any statute or by right of eminent domain, or by private purchase in lieu thereof, then the rights of the parties to share in the condemnation award or purchase price thereby resulting shall be governed by the provisions of this Article XIII. 13.2 Should all or such portion of the Premises be taken in such a manner as to materially interfere with Tenant's use and occupancy thereof, then this Lease shall terminate as of the date that possession of said Premises or pan thereof shall be taken. Landlord shall be entitled to (a) any amount paid for the taking of Landlord's fee interest in the Premises, (b) any severance damages included in the award, (c) any amount paid for the taking of the Premises except that paid for any improvements made to the Premises by Tenant which remain the property of Tenant, and (d) any amount which represents the present worth of rent payments to be made in the future under the provisions of this Lease; and none of Landlord's interests in the above shall be subject to any diminution or apportionment whatsoever. Tenant shall be entitled to compensation paid under condemnation for the taking of any improvements made to the Premises by Tenant which remain the property of Tenant. 13.3 In the event of a partial taking of the Premises which does not materially interfere with Tenant's continued use and occupancy of the Premises and there remains sufficient of the Premises for the continued use of Tenant, then this Lease shall terminate only as to the part so taken, as of the date that possession of such part of the Premises is taken, and the Minimum Rent herein provided for shall be reduced in proportion as the square footage of building floor area taken bears to the total building floor area existing before such taking. In the event of a partial taking, Landlord agrees to replace or repair the building facility constituting a portion of the Premises to its condition as existed when the Lease Term commenced, and without regard to improvements made by Tenant, by reinstalling plumbing, electrical, wiring, walls and paving, if necessary, so that said building facility shall be completely operable and an integral whole, but at a cost to Landlord not to exceed the condemnation award received by Landlord. In the event of such partial taking, Landlord shall be entitled to receive all amounts described im the second sentence of Paragraph 13.2; and none of Landlord's interest in the above shall be subject to any diminution or apportionment whatsoever. Tenant shall be entitled to compensation paid under condemnation for the taking of any improvements made to the Premises by Tenant which remain the properly of Tenant. 13.4 Landlord and Tenant agree to execute all documents and assignments necessary to carry out this Article X111 in the event of condemnation or purchase in lieu thereof. ARTICLE XIV ----------- Use Of Premises - Assignments ----------------------------- 14.1 Tenant shall have the right to use the Premises for warehousing and general office purposes in compliance with all applicable laws and regulations, including, without limitation, environmental laws and laws relating to Hazardous Materials; and Tenant agrees such use shall comply with all applicable laws and regulations in effect when this Lease Term commences and as may be amended or newly enacted during the Lease Term. Tenant shall not use the Premises for the retail sale of property or for any other use not specifically permitted pursuant to this Paragraph 14. Tenant shall not conduct nor permit to be conducted any auction or auction sale at the Premises. Tenant covenants and agrees that it shall not permit any of its employees, agents, contractors, vendors or shippers to park trucks, automobiles, trailers or other vehicles on any of the public or private streets in the general vicinity of the Premises or the or business park in which the Premises are located. Any violation of this restriction shall constitute a default under this Lease. 14.2 Tenant shall not assign, sublet or otherwise transfer this Lease, or Tenant's interest in and to the Premises, nor enter into any license or concession agreements with respect thereto, without first procuring the written consent of Landlord. Any such attempted or purported assignment, subletting, transfer or license or concession agreement (collectively "Transfer") without Landlord's prior written consent shall be void and of no force and effect, and shall not confer any interest or estate in the purported transferee (the "Transferee") and shall, at Landlord's option, constitute an incurable default under this Lease. Tenant shall have no right to mortgage, hypothecate or otherwise encumber its leasehold estate in the Premises or its rights under this Lease, and Landlord and Tenant specifically agree that any such mortgage, hypothecation or encumbrance by Tenant is strictly and absolutely prohibited. Landlord agrees that, in the event of a proposed Transfer to an "Affiliate" (as defined herein), Landlord will not withhold its consent to such Transfer so long as (i) such Affiliate's use of the Premises is in conformance with Paragraph 14.1; (ii) such Affiliate's use of the Premises will not result in any material increase in the potential risk to Landlord arising out of or relating to Hazardous Materials; and (iii) such Transfer will not cause any portion of the amounts received by Landlord pursuant to this Lease or any sublease to fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Internal Revenue Code, or which could cause any other income received by Landlord to fail to qualify as income described in Section 856(c)(2) of the Internal Revenue Code. As used herein, the term "Affiliate" shall mean any corporation for which fifty percent (50%) or more of the voting stock (i) is owned by Tenant; or (ii) is owned, directly or indirectly, by a corporation owning more than fifty percent of the voting stock of Tenant. Any transfer of stock or other ownership interest of Tenant which is made with the purpose or which has the practical effect of circumventing the Transfer restrictions imposed under this Article XIV shall be deemed to be a Transfer requiring Landlord's consent. The consent of Landlord required hereunder shall not be unreasonably withheld; however, a condition precedent to any consent to a Transfer shall be Tenant's agreement to pay to Landlord as rent any reasonable costs and expenses incurred by Landlord for review and consultation by Landlord's legal counsel, securing credit reports, administrative overhead and the like. Notwithstanding the foregoing, Landlord and Tenant agree that, in determining whether to reasonably consent to a proposed transfer, (i) it shall not be unreasonable for Landlord to withhold its consent to any Transfer if a proposed Transferee's anticipated or proposed use of the Premises involves the generation, storage, use, treatment or disposal of any Hazardous Material; and (ii) that Landlord may consider. among other things, any or all of the following factors: 14.2.1 The reputation of the Transferee (including any principals, partners or shareholders of such assignee, subtenant to Transferee). including, without limitation, the Transferee's reputation for dishonesty, criminal conduct or unethical business practices: 14.2.2 The financial capacity of the proposed Transferee to perform its obligations under this Lease; 14.2.3 Whether the business experience and quality of business operations of the proposed Transferee is comparable to that of Tenant; 14.2.4 The credit history of the proposed Transferee; 14.2.5 The intended use of the Premises by the proposed Transferee, and Landlord's assessment of the impact of such use upon the Premises and neighboring properties; 14.2.6 Whether the proposed Transferee's use of the Premises will involve the generation. storage, use, treatment or disposal or any Hazardous Materials, or will in any way increase any potential risk or liability to Landlord arising out of or relating to Hazardous Materials. 14.3 Notwithstanding any permitted Transfer, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of rent and for compliance with all obligations under the terms, provisions and covenants of this Lease. All Transfer agreements shall expressly provide that, in the event of a default by Tenant under this Lease, the Transferee covenants and agrees with Landlord, contemporaneously with receipt of written notice from Landlord that Tenant is in default of this Lease, and for so long as such default continues, but not for a period of time in excess of the term of the Transfer, to accept Landlord as Landlord of Transferee, to attorn to Landlord as Landlord, to thereafter perform all duties and responsibilities under the Transfer agreement directly to Landlord for Landlord's sole benefit, and to cure any default of Tenant under this Lease. Upon the occurrence of any default by Tenant, if the Premises or any part thereof are then sublet, Landlord, in addition to any other remedies herein provided or provided by law, may at its option collect directly from such subtenant all rents becoming due to Tenant under such sublease and apply such rent against any sums due to Landlord from Tenant hereunder, and no such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant's obligations under this Lease any sale, assignment, transfer or hypothecation of Tenant's interest under this Lease, and any proposed subletting or occupancy of the Premises not in compliance with this Article XIV shall be void and shall, at the option of Landlord exercisable by notice to Tenant, terminate this Lease. 14.4 Should Tenant desire to make a Transfer of the Premises, Tenant shall give not less than ninety (90) days' prior written notice thereof to Landlord setting forth the name of the proposed Transfeee, the term, use, rental rate and other relevant particulars of the proposed Transfer, including, without limitation, evidence satisfactory to Landlord that the proposed Transferee will not use, store or dispose of any Hazardous Materials in or on the Premises, and that the proposed Transferee will immediately occupy and thereafter use the Premises for the entire term of the Lease or the sublease (as the case may be). Such notice shall be accompanied, in the can of a sublease, by a copy of the proposed sublease, and in the case of any Transfer, any documents or financial information Landlord may require in order to make a determination as to the suitability of the Transferee. 14.5 Landlord shall have the right to condition its consent to any subletting or assignment upon payment by Tenant to Landlord of eighty percent (80%) of all "Transfer Consideration" (as defined herein) received or to be received, directly or indirectly, by Tenant on account of such subletting or assignment. For the mutual benefit of Landlord and Tenant, Tenant shall use reasonable and good faith efforts to secure Transfer Consideration from any such assignee, sublessee or transferee which would be generally equivalent to then current market rent, but in no event shall Tenant's monetary obligations to Landlord, as set forth in this Lease, be reduced. Such Transfer Consideration shall be paid to Landlord at the same time or times as the same is paid to or used by Tenant. "Transfer Consideration" shall mean (i) in the case of a sublease, any consideration paid or given, directly or indirectly, by the sublessee to Tenant pursuant to the sublease for the use of the Premises, or any portion thereof, over and above the rent, however denominated, in this Lease, payable by Tenant to Landlord for the use of the Premises (or portion thereof), prorating as appropriate the amount payable by Tenant to Landlord under this Lease if less than all of the Premises is sublet, and (ii) in the case of an assignment, the gross amount of any consideration paid or given, directly or indirectly, by the assignee to Tenant in exchange for entering into the assignment Notwithstanding anything contained in this Lease to the contrary, Tenant shall not (i) sublet or assign the Premises or this Least on any basis such that the rent or other amounts to be paid by the sublessee or assignee thereunder would be based, in the whole or in part, on the income or profits derived by the business activities of the sublessee or assignee; (ii) furnish or render any services to the sublessee or assignee or operate the Premises so subleased or assigned; (iii) sublet or assign the Premises or this Lease to any person that Tenant or Landlord owns, directly or indirectly (by applying the constructive ownership rules set forth in Section 856(d)(5) of the Internal Revenue Code [the "Code"]), provided, however, that the restriction contained in this item (iii) shall not apply to an assignment of this Lease to an Affiliate of Tenant if no Transfer Consideration arises and if Landlord does not own, directly or indirectly (as described above), an interest in such assignee; (iv) sublet or assign less than substantially all of the Premises or this Lease pursuant to a sublease or assignment under which Transfer Consideration is paid; or (v) sublet or assign the Premises or this Lease in any other manner which could cause any portion of the amounts received by Landlord pursuant to this Lease or any sublease to fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or which could cause any other income received by Landlord to fail to qualify as income described in Section 856(c)(2) of the Code. 14.6 In addition to Landlord's right of approval pursuant to Paragraph 14.2. above, and Landlord's right to share in Transfer Consideration pursuant to Paragraph 14.5, above, Landlord shall have the option, in the event of any proposed Transfer, to cancel this Lease as to the affected portion of the Premises as of the effective date of the Transfer set forth in Tenant's notice. The option shall be exercised, if at all, by Landlord giving Tenant written notice thereof within sixty (60) days following Landlord's receipt of Tenant's written request. Upon any such cancellation, Tenant shall pay to Landlord all amounts, as estimated by Landlord, payable by Tenant to such termination date with respect to that portion of any obligations, costs or charges which are the responsibility of Tenant under this Lease and allocable to the affected portion of the Premises. Further, upon any such cancellation Landlord and Tenant shall have no further obligations or liabilities to each other with respect to the affected portion of the Premises, except with respect to obligations or liabilities which have accrued as of such cancellation date (in the same manner as if such cancellation date were the date originally Fixed for the expiration of the Lease Term, or Extended Term, as the case may be). Without limitation, Landlord may lease the affected portion of the Premises to the prospective Transferee, without liability to the Tenant. Landlord's failure to exercise said cancellation right as herein provided shall not be construed as Landlord's consent to the proposed Transfer. 14.7 Tenant shall in no event assign less than its entire interest in this Lease. This Lease shall not be assignable by operation of law, except that if Tenant is a natural person, this Least shall be binding upon and inure to the benefit of the estate of Tenant. 14.8 If this Lease is assigned to any person or entity pursuant to the provisions of the "Revised Bankruptcy Act" (Title 11 of the United States Code; 11 U.S.C. (S)101 et seq.), any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord, and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Revised Bankruptcy Act. Any and all monies or other considerations constituting Landlord's property under this Article XIV not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and shall be promptly paid or delivered to Landlord. Any person or entity to which this Lease is assigned pursuant to the provisions of the Revised Bankruptcy Act shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. 14.9 Landlord shall have the right to sell, transfer, delegate or assign any of its rights or obligations under this Lease ARTICLE XV ---------- Event of Default ---------------- 15.1 Tenant shall be in default under this Lease if 15.1.1 Tenant shall fail to make any payment of Minimum Rent, any additional rent payable hereunder, or any other monetary obligation required of Tenant under this Lease (including, without limitation, restoration of any security deposit as required under this Lease) and such failure shall continue for three (3) days after Tenant's receipt of written notice from Landlord that said rent or monetary obligation is due and payable as provided in this Lease; or 15.1.2 Tenant shall neglect or fail to perform or observe any of the covenants herein contained on Tenant's part to be performed or observed, and Tenant shall fail to remedy the same within thirty (30) days after Landlord shall have given to Tenant written notice specifying such neglect or failure; or 15.1.3 Tenant shall abandon the Premises and such abandonment shall continue for a period of fourteen (14) consecutive days during which Minimum Rent for the Premises has remained unpaid; or 15.1.4 Tenant repeatedly fails to comply with the restrictions contained in Paragraph 14.1 of this Lease prohibiting on-street parking. 15.2 In the event of any default by Tenant, and without any further notice or demand, Landlord shall have the right at Landlord's election, then or at any time thereafter, to: 15-2.1 Terminate this Lease, which shall terminate Tenant's right to the use, occupancy and possession of the Premises, and Tenant shall immediately surrender possession of the Premises to Landlord; or 15.2.2 Re-enter and take possession of the Premises or any part thereof as provided by law, in which event this Lease shall terminate effective when Landlord takes possession; or 15.2.3 Continue this Lease in effect and enforce any or all rights and remedies of Landlord under this Lease, including the right to recover Minimum Rent, additional rent and charges equivalent to rent (sometimes collectively referred to herein as "rent") as they become due under this Lease, for so long as Landlord does not terminate Tenant's right to possession of the Premises; or 15.2.4 Seek any legal or equitable relief permitted by law. 15.3 If Landlord terminates this Lease as provided in subparagraphs 15.2.1 or 15.2.2 hereof, Landlord shall have the right to recover from Tenant: 15.3.1 The worth, at the time of the award, of the unpaid rent that had been earned at the time of termination of this Lease; and 15.3.2 The worth, at the time of the award, of the amount by which the unpaid rent that would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; and 15.3.3 The worth, at the time of the award, of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; and 15.3.4 Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's breach or which in the ordinary course of things would be likely to result therefrom; such as, the cost of recovering possession of the Premises, expenses of reletting including attorneys's fees and any real estate commissions paid or payable, necessary repair, restoration, renovation, or alteration of the Premises, and care and safekeeping of the Premises. "The worth, at the time of the award," as used in subparagraphs 15-3.1 and 15.3.2 of this paragraph, is to be computed by allowing interest at the Lease Interest Rate in effect when each installment of rent referred to in said subparagraphs became payable. "The worth, at the time of the award," as referred to in subparagraph 15.3.3 of this paragraph, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). Landlord agrees that following any termination of this Lease pursuant to subparagraphs 15.2.1 or 15.2.2, above, Landlord shall act reasonably and in good faith to mitigate the damages suffered by Landlord as a result of Tenant's default. 15.4 If Tenant shall breach this Lease and abandon the Premises, this Lease shall continue in full force and effect for so long as Landlord does not terminate Tenant's right to possession of the Premises, and Landlord may enforce all of its rights and remedies under this Lease, including but not limited to the right to recover rent and charges equivalent to rent as they become due under this Lease. For the purposes of this Paragraph 15.4 and Paragraph 15.2, the following acts by Landlord shall not constitute a termination of Tenant's right to possession of the Premises: (i) maintenance or preservation of the Premises, (ii) efforts to relet the Premises, or (iii) the appointment of a receiver upon initiative of Landlord to protect Landlord's interest under the Lease. 15.5 In the event Landlord re-enters and takes possession of the Premises, Landlord may at Landlord's option require Tenant to remove from the Premises any of Tenant's property located therein. If Tenant fails to do so, Landlord shall not be responsible for the care or safekeeping thereof and may remove any of the same from the Premises and place the same in storage in a public warehouse at the cost, expense and risk of Tenant with authority to the warehouseman to sell the same in the event that Tenant shall fail to pay the costs of transportation and storage, all in accordance with the rules and regulations applicable to the operation of a public warehouseman's business. Any refusal by a public warehouseman to accept personal property located in the Premises upon such condition shall be conclusive evidence that the same is of no substantial value, and shall be an unconditional warrant to Landlord for disposing of the same in any manner Landlord may see fit, and without accountability for any alleged value thereof. In addition, Landlord may, at Landlord's election, dispose of said property pursuant to the provisions of Sections 1980 through 1991 of the California Civil Code. In any and all such cases of re-entry, Landlord may make any repairs in, to or upon the Premises which may be necessary, desirable or convenient, and Tenant hereby waives any and all claims for damages which may be caused or occasioned by such reentry or any of the aforesaid acts of Landlord or by reason of any loss or destruction or damage to any property in or about the Premises or any part thereof. 15.6 Tenant further covenants and agrees that if Landlord fails or neglects for any reason to take advantage of any of the terms hereof provided for the termination of this Lease or for the termination or forfeiture of the estate hereby leased, or if Landlord, having the right to declare this Lease terminated or the estate hereby leased terminated or forfeited, shall fail so to do, any such failure or neglect of Landlord shall not be or be deemed or be construed to be a waiver of any provisions for the termination of this Lease continuing to exist or for the termination or forfeiture of the estate hereby leased subsequently arising, or as a waiver of any of the covenants, terms or conditions of this Lease or of the prompt performance thereof by Tenant. None of the covenants, terms or conditions of this Lease can be waived by conduct of the parties or by estoppel; any claim or waiver must be in writing and signed by the party entitled to the benefit thereof. ARTICLE XVI ----------- Surrender of Premises --------------------- 16.1 Upon any termination of this Lease, whether by lapse of time, cancellation pursuant to an election provided for herein, forfeiture, or otherwise, Tenant shall immediately surrender possession of the Premises and all buildings and improvements on the same (excepting those improvements which Landlord shall have required Tenant to remove therefrom pursuant to Paragraph 9.3 hereon to Landlord in a clean and orderly condition and appearance, state of repair and operating order (subject, however to the provisions of this Lease relating to condemnation and casualty), and with all such improvements thereon in a good, safe, fully operable condition, and in full compliance with all Federal, State and local laws, rules, regulations and ordinances (including, without limitation, any laws, rules, regulations and ordinances relating to Hazardous Materials, but only to the extent that Tenant has caused or contributed to any Hazardous Material conditions on the Premises) and each provision of this Lease, including without limitation the provisions of Article IX hereof. If possession is not immediately surrendered, Landlord may, with process of law, enter the Premises and repossess the same and expel Tenant or any subtenant or occupant therefrom. If Tenant's business operations on the Premises or uses of the Premises involve any generation, storage, use. treatment or disposal of any Hazardous Material, Tenant shall be responsible for removing any such Hazardous Materials from the Premises and for decontaminating the Premises and any neighboring properties affected by such Hazardous Materials 16.2 Upon the termination of this Lease, Tenant, if not in default hereunder at the time, shall have the right to remove, and if directed so to do by Landlord shall remove, from the Premises, all of Tenant's machinery, equipment (excluding building service equipment), trade fixtures, signs, furniture, furnishings, supplies and inventory then installed or in place in, on or about the Premises. Except as hereinafter expressly set forth, such removal shall be completed prior to the expiration or earlier termination of this Lease; provided, however, if Tenant is in default of this Lease at such time, then Tenant may not remove the foregoing items of property from the Premises; and Landlord shall have a lien thereon as security against loss or damage resulting from Tenant's default. Tenant shall make all repairs to the Premises required because of such removal and Tenant shall restore the Premises to their condition as existed when the Lease Term commenced. If this Lease shall terminate at any time other than the time herein fixed as the expiration of the Lease Term, and occurring not due to a default by Tenant, then Tenant, if not in default hereunder at the time, shall have a reasonable time thereafter to effect the removal of the foregoing items, not to exceed thirty (30) days. Tenant shall pay Minimum Rent and items designated in this Tease as additional rent to Landlord on a per them basis during the time such removal is taking place. 16.3 If any of Tenant's machinery, equipment, trade fixtures, signs, furniture, furnishings, supplies and inventory remain on the Premises after the end of the term hereof or time allowed to remove the same, such property shall be deemed abandoned by Tenant and it shall become the property of Landlord without any claim therein of Tenant should Landlord so elect. 16.4 Upon termination of this Lease, Tenant shall surrender the Premises in a "broom-clean" condition, with all refuse and debris removed therefrom, and with all electrical, plumbing, heating and air conditioning installations in a good, safe and fully operable condition, and prior to such termination, Tenant shall fill or repair any holes or openings made by Tenant in the walls, roof or floor of the building, remove any protuberance, and perform any maintenance or repairs required of Tenant by this Lease. Nothing contained in this Paragraph 16.4 shall be deemed to limit Tenant's repair and maintenance obligations pursuant to Article IX of this Lease. If directed so to do by Landlord, Tenant shall also remove any improvements, additions or alterations made to the Premises by Tenant and thereafter restore the Premises to their original condition, even though such improvements by the terms of this Lease become a part of the Premises and the property of Landlord. ARTICLE XVII ------------ Delays - Extensions of Time --------------------------- 17.1 The time within which Landlord or Tenant is obligated herein to construct, repair or rebuild any building, improvement or other structure shall be extended and the performance excused when the delay is occasioned by the other party (such as failure to promptly give required approvals, or installation of machinery and equipment during construction which interferes with or delays the contractor); or by strikes, threats of strikes or lockouts; blackouts, war, threats of war, bombing, insurrection, riot or invasion; wits of God, calamities, civil commotions, violent action of the elements or fire; action, inaction or delayed action of any governmental agency; regulations or laws of any national, state or local governmental authority; unavailability of materials at reasonable prices, delays in delivery of materials by suppliers or weather conditions which impair or delay construction; or other matters or things, whether similar or dissimilar to the foregoing, beyond the reasonable control of the obligated party. Delayed action by a governmental agency shall be deemed to occur if a grading and foundation only permit is not issued within twenty-one (21) days after drawings and specifications for such permit are filed for plan check with the appropriate governmental agency, or if a building permit is not issued within forty-five (45) days after drawings, specifications, and engineering calculations for such permit are filed for plan check with such governmental agency. ARTICLE XVIII ------------- Attorneys' Fees --------------- 18.1 In the event that either Landlord or Tenant brings any action or proceeding against the other for possession of the Premises or for the recovery of any sum due hereunder, or because of the breach of any covenant, condition or provision hereof, or for any other relief against the other, declaratory or otherwise, including appeals therefrom, and whether being an action based upon a tort or contract, then the prevailing party to this Lease in any such proceeding shall be paid reasonable attorneys' fees and costs of such action or proceeding which shall be enforceable whether or not such action or proceeding, is prosecuted to final judgment, and including an allowance for reasonable attorneys' fees for appeals and rehearings. In addition to the foregoing award of attorneys' fees to the prevailing party, the prevailing party in any such lawsuit shall be entitled to its reasonable attorneys' fees incurred in any post-judgment proceedings to collect or enforce the judgment. This provision is separate and several and shall survive the merger of this Lease into any judgment on this Lease. Should Landlord be made a party to any suit or proceeding brought by a third party, arising by reason of Tenant's use or occupancy of the Premises and not being a dispute essentially between Landlord and Tenant, then Tenant shall defend Tenant and Landlord therein, at Tenant's sole cost and expense, and shall hold Landlord free and harmless from any claim, loss, liability, duty or obligation therein, including any reasonable attorneys' fees of Landlord. ARTICLE XIX ----------- Statement of Lease ------------------ 19.1 Tenant shall, at any time and from time to time during the Lease Term (or any Extended Term), upon not less than five (5) days' prior written notice from Landlord, execute, acknowledge and deliver to Landlord a written certificate substantially in the form attached hereto as Exhibit D, certifying: (i) that this Lease represents the entire agreement between Landlord and Tenant, and is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect); (ii) the dates to which Minimum Rent and other charges or additional rent have been paid in advance, if any; (iii) the Commencement Date and Termination Date of the Lease Term; (iv) whether Tenant has assigned, subleased or otherwise transferred the Premises, this Lease or any interest of Tenant therein; (v) the then-current amount of Minimum Rent and any Security Deposit paid by Tenant to Landlord under this Lease; (vi) the date upon which, and the amount or method by which, Minimum Rent, additional rent or other charges payable under this Lease will next be adjusted or increased (if at all); (vii) that there are no options to extend the term of this Lease, or if any such options exist, describing any such options and stating the terms and conditions upon which any such options may be exercised; (viii) that there are no rights of first refusal to purchase the Premises or lease additional space contiguous to the Premises, or if any such rights of first refusal exist, stating the terms and conditions upon which the same may be exercised; (ix) that to the best knowledge of Tenant there are not any uncured defaults on the part of Landlord under this Lease, and that Tenant has no right of offset, counterclaim or deduction against Minimum Rent or other payment obligations of Tenant under this Lease, or specifying such defaults if any are claimed together with the amount of any offset, counterclaim or deduction alleged by Tenant; and (x) that Landlord has fully performed each and all of its construction, repair and maintenance obligations (if any), as required under this Lease, except as may be specifically set forth in said statement (if applicable), and that Tenant, subject to any such stated exception(s), accepts the Premises in their present condition. 19.2 In addition to the certificate required pursuant to Paragraph 19.1, above, Landlord shall have the right to require Tenant to execute a statement or certificate in a form requested by an existing or potential purchaser, lender or other party which may acquire the Premises or hold a security interest in the Premises (or the real property or Building of which the Premises are a part), or any other certificate or form as may be requested by Landlord. 19.3 Any such certificate or statement referred to in this Article XIX may be relied upon by any such existing or potential purchaser, lender, other secured party, and Tenant's failure or refusal to execute and deliver such statement within such time shall, at the option of Landlord, constitute a material default under this Lease, and in any event, shall be conclusive and binding upon Tenant that: (a) this Lease is in full force and effect, without modification, except as may be represented by Landlord; (b) there are no uncured defaults in Landlord's performance and that Tenant has no right of offset, counterclaim or deduction against Minimum Rent or other payment obligations under this Lease; and (c) no more than one (1) months' Minimum Rent or other payment obligations under this Lease has been paid in advance. 19.4 Landlord is hereby irrevocably appointed and authorized as agent and attorney-in-fact of Tenant to execute and deliver any such certificate or statement in the event that Tenant fails or refuses to execute and deliver such certificate or statement within Five (5) days after notice from Landlord requesting execution and delivery thereof. 19.5 If Landlord desires to finance, refinance, or sell all or any portion of the real property of which the Building or the Premises are a part, Tenant hereby agrees to deliver to any lender or purchaser designated by Landlord updated copies of any financial statements and other documents and instruments of Tenant as were provided to Landlord prior to the execution of this Lease. All such financial statements and other information shall be received by Landlord and any such lender or purchaser in confidence (except for disclosures to auditors and regulatory authorities, and except for other disclosures required by law), and shall be used only for the purposes herein set forth. 19.6 Tenant acknowledges and agrees that Tenant's obligation to provide such certificates or statements constitutes a material inducement to Landlord to execute this Lease, and Tenant shall provide Landlord with such certificates and statements within rive (5) days following Tenant's receipt of Landlord's written request therefor. ARTICLE XX ---------- Rights Reserved by Landlord --------------------------- 20.1 Landlord expressly reserves all rights in and with respect to the land hereby leased not inconsistent with Tenant's use of the Premises as provided in this Lease, including (without in any way limiting the generality of the foregoing) all rights to the subsurface of the land more than five (5) feet below ground level, except where building improvements extend more than five (5) feet below ground level; and all rights to the airspace more than ten (10) feet above the roof of any building; and the rights to enter upon the Premises for itself or to give easements to others for the purpose of installing, using, maintaining, renewing and replacing such overhead or underground water, oil, gas, sewer drainage, and other pipe lines, and telephone, electric, power, television and other lines, cables and conduits as Landlord may deem desirable in connection with the development or use of any other property in the neighborhood of the Premises, whether owned by Landlord or not, all of which pipelines, lines and conduits shall be buried to a sufficient depth or raised to a sufficient height so as not to interfere with the use or stability of the Premises. ARTICLE XXI ----------- Covenant of Quiet Enjoyment --------------------------- 21.1 Landlord does hereby covenant, promise and agree to and with Tenant that Tenant, for so long as it is not in default hereof and is in compliance with all of the terms and conditions of this Lease, shall and may at all times peaceable and quietly have, hold, use, occupy and possess the Premises throughout the term of this Lease, subject to all of the terms and conditions of this Lease, without any molestation or eviction by Landlord or any persons claiming by or through Landlord. ARTICLE XXII ------------ Recordation ----------- 22.1 Neither this Lease nor a short form of memorandum of this Lease shall be recorded in the office of any county recorder without Landlord's express written consent. In the event of any such recordation, Tenant shall be solely responsible for any documentary transfer taxes or other taxes relating to or arising out of any such recordation. ARTICLE XXIII ------------- Subordination ------------- 23.1 This Lease and Tenant's rights hereunder are and will remain subject and subordinate to any ground lease, mortgage, deed of trust or any other hypothecation for security now or hereafter placed upon the real property of which the Premises are a part (the "Property"), and to all increases, renewals, modifications, consolidations, replacements, and extensions thereof (collectively referred to as the "Mortgage"). If the holder of a Mortgage becomes the owner of the Property by reason of foreclosure or acceptance of a deed in lieu of foreclosure, at such holder's election Tenant will be bound to such holder or its successor-in-interest under all terms and conditions of this Lease, and Tenant will be deemed to have attorned to and recognized such holder or successor as Landlord's successor-in-interest for the remainder of the Lease Term or any extension thereof. The foregoing is self-operative and no further instrument of subordination and/or attornment will be necessary unless required by Landlord or the holder of a Mortgage, in which case Tenant will, within ten (10) days after written request, execute and deliver without charge any documents reasonably required by Landlord or such holder in order to confirm the subordination and attornment set forth above. Should the holder of a Mortgage request that this Lease and Tenant's rights hereunder be made superior, rather than subordinate, to the Mortgage, then Tenant will, within ten (10) days after written request, execute and deliver without charge such agreement as may be reasonably required by such holder in order to effectuate and evidence such superiority of the Lease to the Mortgage. 23.2 If Tenant fails to execute and deliver any documents as and when required above, such failure will constitute a default under this Lease, entitling Landlord to the same rights and remedies as if such default were with respect to non-payment of Minimum Rent. With respect to each Mortgage that may encumber the Property at or after the commencement of the Lease Term, Landlord agrees that promptly following its receipt of written request by Tenant, Landlord will request the holder of the Mortgage to grant Tenant a "nondisturbance agreement," in the usual form used by such holder. The term "non-disturbance agreement" as used herein means, in general, an agreement that as long as Tenant is not in default under this Lease, this Lease will not be terminated if such holder acquires title to the Property by reason of foreclosure proceedings or acceptance of a deed in lieu of foreclosure, provided that Tenant attorns to such holder in accordance with such holder's requirements. Except for making such written request, Landlord will be under no duty or obligation hereunder, nor will the failure or refusal of such holder to grant a non-disturbance agreement render Landlord liable to Tenant, or affect this Lease in any manner. Tenant will bear all costs and expenses (including attorneys' fees) of such Mortgage holder in connection with any such non-disturbance agreement. ARTICLE XXIV ------------ Security Deposit ---------------- 24.1 As security for the faithful performance of the terms, covenants, conditions and provisions of this Lease, as well as to indemnify Landlord from any damages, costs, expenses, real estate brokerage commissions or attorneys' fees which Landlord may incur or suffer by reason of any default by Tenant, Tenant hereby agrees to deposit with Landlord, upon execution of this Lease, the sum set forth in item 1.10 of the Basic Lease Provisions. If the Minimum Rent shall, from time to time, increase during the term of this Lease, Tenant shall thereupon deposit with Landlord additional security deposit so that the amount of security deposit held by Landlord shall at all times bear the same proportion to current Minimum Rent as the original security deposit bears to the original Minimum Rent set forth in Item 1.6 of the Basic Least Provisions. Landlord shall not be required to keep said deposit separate from its general accounts. No interest shall be paid by Landlord to Tenant on said deposit, and no trust relationship is created between Landlord and Tenant with respect to the security deposit. 24.2 In the event Tenant shall be in default hereof at any time prior to the end of the term hereof, then Landlord may apply all or any portion of the security deposit in payment of Landlord's costs, expenses, damages, real estate broker's commissions, and attorneys' fees in enforcing the terms, covenants, conditions and provisions hereof. Nothing herein contained shall be construed to mean that the recovery of damages by Landlord against Tenant shall be limited to the sum of the security deposit, In the event any portion or all of the security deposit is applied by Landlord in accordance with the foregoing, then Tenant shall immediately deposit with Landlord additional sums so that the security deposit in the hands of Landlord shall be at all times not less than the sum of the deposit herein provided for. 24.3 Should the Lease Term and the occupancy of the Premises by Tenant fail to commence through no fault of Tenant, then Landlord shall return the security deposit and any prepaid rent then possessed by Landlord to Tenant within thirty (30) days after such event occurs. If this Lease should terminate for any reason other than the default of Tenant, Landlord shall return the security deposit to Tenant promptly after Landlord's inspection of the Premises and confirmation that the Premises are surrendered in the condition as required under the terms of this Lease. ARTICLE XXV ----------- Holding Over ------------ 25.1 If Tenant remains in possession of the Premises after the expiration of the Lease Term or any extension or renewal hereof, such holding over shall not operate to extend or renew this Lease but shall be construed as a tenancy from month-to-month which may be terminated by Landlord upon three (3) days' prior written notice if Tenant is then in default of this Lease, or by either party upon at least thirty (30) days' prior written notice directed to the end of a calendar month. Such month-to-month tenancy by Tenant shall be subject to all the terms and provisions of this Lease, except that the Minimum Rent payable during the period of holding over shall be the greater of. (a) Minimum Rent set forth in Item 1.6 of the Basic Lease Provisions, plus a percentage of such rent equal to the percentage change in the CPI between the Commencement Date of this Lease and the period of holding over; or (b) one hundred fifty percent (150%) of the average monthly Minimum Rent payable by Tenant during the last twelve (12) months of the Lease Term or any extension or renewal thereof. Any options, rights, or privileges granted to Tenant, if any, to extend the Lease Term, to acquire the Premises, or re-lease the same, shall not be applicable during said period of holding over. ARTICLE XXVI ------------ General ------- 26.1 Remedies Cumulative. The specific remedies to which Landlord ------------------- may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which Landlord may be lawfully entitled in case of any breach or threatened breach by Tenant of any provision of this Lease. 26.2 Successors and Assigns. The covenants and agreements herein ---------------------- contained shall bind and inure to the benefit of Landlord, its successors and assigns, and Tenant, its successors and assigns, subject to the provisions of this Lease. 26.3 Payments and Interest. Except as otherwise specifically --------------------- provided in this Lease, each covenant, agreement or stipulation by a party hereto shall be performed at such party's own cost and expense, and without cost or expense to the other party. Any monetary obligations due from Tenant to Landlord which are not paid when due shall bear interest from the due date until paid to Landlord at the Lease Interest Rate. Such interest shall be paid at the time of payment of the principal obligation as a condition of remedy of such principal obligation. Any check tendered by Tenant which is dishonored by the drawee bank shall not constitute payment of any obligation under this Lease. 26.4 Late Charge. Tenant acknowledges that late payment of Minimum ----------- Rent and items designated in this Lease as additional rent will cause Landlord to incur costs and suffer damages not contemplated by this Lease, the exact amount of which will be impracticable to ascertain. Such costs and damages include, but are not limited to, late charges which may be imposed on Landlord by the terms of any trust deed covering the Premises,- additional administrative duties of Landlord's personnel in determining delinquent rents and attempts to collect such rents by reasonable means other than litigation; additional accounting and budgetary duties of Landlord's personnel; possible adverse effects on Landlord's credit rating resulting from impairment of Landlord's cash flow; and attorneys' fees resulting from consultations with counsel. Accordingly, if any installment of Minimum Rent or items designated as additional rent are not received by Landlord within ten (10) days after the same are due, Tenant shall pay Landlord, as additional rent, a late charge equal to five percent (5%) of such overdue amount. Landlord and Tenant agree that such late charge represents a fair, equitable, and reasonable estimate of the costs and damages Landlord will incur because of Tenant's late payment. 26.5 Late Payments and Impounds. In the event that a late charge is -------------------------- payable pursuant to Paragraph 26.4, whether or not collected, for two (2) consecutive installments of rent, then (i) rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary; (ii) if requested by Landlord, Tenant shall furnish to Landlord Tenant's latest financial statements covering at least the past two fiscal years and any interim statements covering the current fiscal year; and (iii) Tenant shall pay to Landlord, if Landlord shall so request, in addition to any other payments required under this Lease, a quarterly advance installment payable at the same time as the quarterly rent, as estimated by Landlord, for real property taxes and insurance expenses on the Premises which are payable by Tenant to Landlord under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of any or all such real property taxes and insurance premiums. If the amounts paid to Landlord by Tenant under the provisions of this Paragraph are insufficient to discharge the obligations of Tenant to pay such real property taxes and insurance premiums as the same become due, Tenant shall pay to Landlord, upon Landlord's demand, such additional sums necessary to pay such obligations. All monies paid to Landlord under this Paragraph may be intermingled with other monies of Landlord and shall not bear interest. In the event of a default in the obligations of Tenant to perform under this Lease, then any balance remaining from funds paid to Landlord under the provisions of this Paragraph may, at the option of Landlord, be applied to the payment of any monetary default of Tenant in lieu of being applied to the payment of real property tax and insurance premiums. All advance payments provided for in this Paragraph shall be deemed rent under this Lease. 26.6 Notices. Any notice or demand required or permitted by law or ------- by any of the provisions of this Lease shall be in writing. All notices or demands by either party shall be deemed to have been properly given upon delivery when served personally; two (2) business days after being deposited with the U.S. Postal Service when sent by registered or certified mail, postage prepaid; or by noon on the business day following the day of deposit with an overnight express carrier when sent by overnight express service, such as Federal Express. Notices from Landlord to Tenant shall be given to Tenant at the address of the Premises. Notices or demands to Landlord shall be given to Landlord at 22010 Wilmington Avenue, Suite 400, Carson, California 90745. Either party hereto may change the place to which notices are to be given by advising the other party in writing. 26.7 Captions. The headings or captions of Articles in this Lease -------- are for convenience and reference only, and they in no way define, limit or describe the scope or intent of this Lease or the provisions of such Articles. 26.8 Pronouns and Singular/Plural. Feminine or neuter pronouns shall ---------------------------- be substituted for those masculine form or vice versa, and the plural shall be substituted for the singular number of vice versa, in the place or places herein where the context may require such substitution or substitutions. 26.9 Time of Essence. Time is hereby declared to be of the essence --------------- of this Lease and of each and every covenant, term, condition or provision hereof. 26.10 Reasonable Consent. Unless otherwise provided in this Lease, ------------------ whenever the consent or approval of Landlord or Tenant is required by the provisions of this Lease, such consent or approval shall not be unreasonably withheld or delayed. 26.11 Fair Meaning. The language in all parts of this Lease shall be ------------ in all cases construed as a whole according to its fair meaning, and not strictly for nor against either Landlord or Tenant. 26.12 Entire Agreement. This Lease contains all of the agreements of ---------------- the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. 26.13 No Accord and Satisfaction. No payment by Tenant or receipt by -------------------------- Landlord of a lesser amount than that stipulated herein for Minimum Rent, additional rent or any other charge shall be deemed to be other than on account of the earliest stipulated Minimum Rent, additional rent or other charge then due, nor shall any endorsement or statement on a check or letter accompanying any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to rights to recover the balance of such Minimum Rent, additional rent, or other charges or pursue any other remedy in this Lease, at law or in equity. 26.14 Choice of Law. This Lease shall be governed by and construed ------------- pursuant to the laws of the State of California. 26.15 Non-Discrimination. Tenant herein covenants by and for itself, ------------------ its heirs, executors, administrators and assigns, and all persons claiming under or through it; and this Lease is made and accepted upon and subject to the following conditions: That there shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, national origin, or ancestry in the leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the Premises, nor shall the Tenant itself, or any person claiming under or through it, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of Tenant's lessees, sublessees or vendees on the Premises. 26.16 Counterparts. This Lease may be executed in several ------------ counterparts, each of which shall constitute an original. 26.17 Corporate Resolution. If Tenant is a corporation, Tenant shall -------------------- deliver to Landlord, contemporaneously with delivery of this Lease executed by Tenant, a certified copy of a resolution of Tenant's Board of Directors authorizing the execution of this Lease and naming the representatives authorized to execute this Lease on behalf of Tenant. 26.18 Reimbursements to Landlord. If Tenant, or any third party on -------------------------- behalf of Tenant or with whom Tenant is engaged or contemplates engaging in business, requests that Landlord review or approve any drawings, specifications or engineering calculations respecting any improvements Tenant intends to install in the Premises or execute any agreement or written instrument, and if Landlord refers such matter to any third party architect, engineer, surveyor or other professional who is not a direct employee of Landlord for review and advice to Landlord, then Tenant agrees to reimburse Landlord as additional rent for all professional fees and costs actually and reasonably incurred by Landlord. If Tenant requests that Landlord consent to an assumption and/or assignment of this Lease or a subletting of the Premises to a third party for which Landlord's written consent is required, Tenant agrees to reimburse Landlord, as additional rent, for all attorney's fees actually and reasonably incurred by Landlord in reviewing the proposed form of all legal documents submitted by Tenant and preparing necessary additional legal documents relating to such assignment or subletting. 26.19 No Guard Service. Tenant hereby acknowledges that the rent ---------------- payable to Landlord hereunder does not include the cost of guard service or other security measures, and that Landlord shall have no obligation whatsoever to provide any such service or measures. Tenant assumes all responsibility for the protection of Tenant, its agents and invitees from acts of third parties. 26.20 Brokers. Tenant represents and warrants to Landlord that ------- Tenant has had no dealings with any real estate broker, finder or other person with respect to this Lease in any manner, excepting only the brokers specifically named in Item 1.11 of the Basic Lease Provisions. Tenant hereby indemnities and holds Landlord harmless from any liability or claim that may be asserted against Landlord by any broker, finder or person with whom Tenant has purportedly dealt whose name is not inserted in this paragraph. 26.21 Brokerage Commission. Tenant acknowledges its understanding -------------------- that Landlord has paid a real estate brokerage commission for securing Tenant's tenancy at the Premises for the term of this Lease. If Tenant defaults under this Lease and discontinues paying the rent specified herein. Tenant shall, within thirty (30) days of such event, reimburse Landlord for the unamortized portion of such brokerage commission pursuant to the following formula: Total amount of Number of months of brokerage commission x unexpired lease term. - -------------------------------------------------------------------------- Number of months of lease term 26.22 Limitation of Liability. Tenant hereby agrees that, in the ----------------------- event of any actual or alleged failure, breach or default hereunder by Landlord, Tenant's sole and exclusive remedy shall be against and shall be satisfied from the Landlord's equity interest in the Premises. Tenant agrees that the obligations of Landlord under this Lease do not constitute personal obligations of the individual directors, officers or shareholders of Landlord, and Tenant shall not seek recourse against the individual directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability with respect to this Lease. 26.23 Parking. Tenant shall instruct and require that Tenant's ------- employees, agents, visitors and business invitees park motor vehicles within the parking areas included on the Premises; and such employees, agents, visitors and invitees shall not park on the streets within the Watson industrial Center. If there is insufficient parking area included on the Premises for parking of such motor vehicles, Tenant shall use its best efforts to obtain off-street parking privileges on other properties in the vicinity of the Premises. 26.24 Lease Reviewed. Landlord and Tenant have carefully read and -------------- reviewed this Lease and each term and provision contained herein, and each of them has referred this Lease to its own legal counsel for review and advice as to the legal consequences of this Lease. Landlord and Tenant acknowledge their informed and voluntary consent thereto. Landlord and Tenant further agree that, at the time this Lease is executed, the terms of this Lease are commercially reasonable and effectuate the intent and purpose of Landlord and Tenant with respect to the Premises. 26.25 Financial Statements. Throughout the Lease Term, Tenant shall, -------------------- within ten (10) days following Landlord's request, provide Landlord with updated copies of any financial statements and other documents and instruments of Tenant as were provided to Landlord prior to the execution of this Lease. Landlord shall maintain such financial statements in confidence, except for disclosure to prospective purchasers of the Premises and prospective lenders whose loans would be secured in whole or in part by this Lease or the Premises. Throughout the Lease Term, Tenant will furnish to Landlord prompt notice of (i) any material obligation or material adverse development with respect to the business, financial condition or results of operations of Tenant; and (ii) any default under this Least or any event, the occurrence or nonoccurrence of which constitutes, or which with the giving of notice or the passage of time or both would constitute, a default under Lease. 26.26 Lease Interest Rate. As used in this Lease, the "Lease ------------------- Interest Rate' shall be a rate equal to two percent (2%) per year in excess of the "Reference Rate" most recently announced by Bank of America, Los Angeles from time to time, provided however that if Bank of America ceases to announce such Reference Rate, then such rate shall be a rate comparable to such Reference Rate; and provided further, however, that in no event shall the Lease Interest Rate exceed (lie highest lawful rate of interest permissible by law. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written. "LANDLORD" "TENANT" Watson Land Company, Suburban Ostomy Supply Company, Inc. a California corporation a Massachusetts corporation By: /s/ By: /s/ ------------------------------ ------------------------------ Its: Its: By: ------------------------------ Its: EXHIBIT A LEGAL DESCRIPTION ----------------- PARCEL 7, IN THE CITY OF RANCHO CUCAMONGA, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 10782 RECORDED AS DOCUMENT NO. 88-160040 ON MAY 20, 1988 IN BOOK 127, PAGES 29 THROUGH 31 OF PARCEL MAPS, OFFICIAL RECORDS OF SAID COUNTY, EXHIBIT B LEASE ADDENDUM -------------- In accordance with the terms of that certain lease ("Lease") dated August 18, 1994, between Watson Land Company, as Landlord, and Suburban Ostomy Supply Company, Inc., as Tenant, the undersigned Landlord and Tenant hereby confirm and agree that the commencement date of the Lease Term is __________, 19__ and the expiration date of the Lease Term is __________, 19__. Landlord: Tenant: Watson Land Company, Suburban Ostomy Supply Company, Inc. a California corporation By: By: ----------------------- -------------------------- Its Its -------------------- ----------------------- EXHIBIT C HAZARDOUS MATERIAL CERTIFICATE [Letterhead of Tenant) __________, 19__ Watson Land Company 22010 South Wilmington Avenue Carson, California 90745 Re: Lease dated August 18, 1994, between Watson Land Company, a California corporation ("Landlord"), and Suburban Ostomy Supply Company, Inc., a Massachusetts corporation ("Tenant"). Gentlemen: The undersigned, Suburban Ostomy Supply Company, Inc., a Massachusetts corporation, as Tenant under the above-captioned Lease, hereby certifies to Watson Land Company that, as of the date hereof, there are no "Hazardous Materials" in or about the "Premises" (as those terms are defined in the Lease), except as follows [if none, so state]: ________________________________________________________________________________ ________________________________________________________________________________ _______________________________________________________________________________. Tenant hereby acknowledges its continuing obligation under Paragraph 9.8 of the Lease, notwithstanding the expiration or other termination of the Lease term, to indemnify, defend and hold Landlord harmless from and against any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses (as more fully set forth in said Paragraph 9.8) as a result of the presence of Hazardous Material brought upon, kept or used in or about the Premises by Tenant, its agents, employees, contractors or invitees. The undersigned understands that Landlord will be relying upon the statements of Tenant contained herein in Landlord's continued maintenance and operation of the Premises. Suburban Ostomy Supply Company, Inc., a Massachusetts corporation By: ------------------------------ Its: -------------------------- By: ------------------------------ Its: -------------------------- EXHIBIT D ESTOPPEL CERTIFICATE To: ____________________ ____________________ ____________________ ("Lender") Re: Lease Date: August 18, 1994 Tenant: Suburban Ostomy Supply Company, Inc. Landlord: Watson Land Company The undersigned hereby states, declares, represents, warrants and agrees, on behalf of itself and its successors and assigns, for the benefit of Lender and its successors and assigns, as follows: 1. Suburban Ostomy Supply Company, Inc., a Massachusetts corporation, as "Tenant" and Watson Land Company, a California corporation, as "Landlord" entered into a written Lease dated August 18, 1994 (the "Lease"), pursuant to which Landlord leased to Tenant certain Premises located in the County of San Bernadino, State of California, commonly known as 8513 Rochester Avenue, Rancho Cucamonga, California ("Premises"). 2. The Lease is in full force and effect, has not been modified, changed, altered or amended in any respect (except as otherwise disclosed herein), and is the only Lease between Tenant and Landlord affecting the Premises. A true and complete copy of the Lease, together with all amendments, supplements, extensions and other modifications thereto, is attached thereto as Schedule E-1. 3 . Tenant is paying the full Lease rent, and no rent, security deposit, additional rent, or other charges under the Lease have been paid for more than thirty (30) days in advance of its due date except $__________ (for __________) $__________ (for __________), and $__________ (for__________). The monthly Minimum Rent, and the amount of any security deposit, additional rent and other charges Tenant has paid or is presently paying under the Lease are as follows: current monthly Minimum Rent $__________; security deposit $__________; additional monthly rent and other charges $__________ (for __________ __________), $__________ (for _________) and $__________ (for__________). 4. The Commencement Date of the initial Lease Term is __________, 19__ and the Termination Date of the initial Lease Term is ____________________. 5. Tenant has not assigned, subleased, encumbered or otherwise transferred the Lease, the leasehold estate created by the Lease, or any interest of the Tenant therein, except as follows: ________________________________________________________________________________ ________________________________________________________________________________ 6. The date upon which, and the amount or method by which the monthly Minimum Rent, and if applicable, additional rent, the security deposit, and other charges payable under the Lease, will next be adjusted or increased (if at all), is as follows: ________________________________________________________________________________ ________________________________________________________________________________ 7. There are no option(s) to extend the Lease Term, or if any such option(s) exist, the commencement and expiration dates thereof, and the terms and conditions upon which any such option(s) may be exercised, are as follows: ________________________________________________________________________________ ________________________________________________________________________________ 8. There are no rights of first refusal in favor of Tenant to purchase the Premises or to lease additional space contiguous to the Premises, or if any such rights of first refusal exist, the time periods within which, and the terms and conditions upon which, the same may be exercised, are set forth as follows: ________________________________________________________________________________ ________________________________________________________________________________ 9. To the best of the knowledge of the undersigned as of the date hereof, there are no uncured defaults of Landlord under the Lease, and Tenant has no right of offset, counterclaim or deduction against Minimum Rent or any other amount due under the Lease, or if any such defaults, offsets, counterclaims or deductions are claimed or alleged by Tenant, the nature and extent of the same, including the dollar amounts and current status thereof, are as follows: ________________________________________________________________________________ ________________________________________________________________________________ 10. As of the date hereof, Landlord has fully performed each and all of Landlord's construction, repair and maintenance obligations (if any), as well as any work required of Landlord under the Lease, except (if applicable) for and Tenant, subject to any such stated exception(s), accepts the Premises in their present condition. ________________________________________________________________________________ ________________________________________________________________________________ 13. To the best knowledge of the undersigned as of the date hereof, no condition or event has occurred or exists which would prevent the Lease ;rom becoming effective or would permit a cancellation or termination of the Lease by Landlord or by Tenant except as follows: ________________________________________________________________________________ ________________________________________________________________________________ 14. Tenant agrees to deliver to Lender written notice of any default by the Landlord, concurrently with giving such notice to Landlord, and Tenant agrees to give such notice directly to Lender if Lender acquires Landlord's interest in the Lease. 15. The person or persons signing this Statement of Lease on behalf of the Tenant have the power and authority to execute and deliver this Statement of Lease. 16. This Statement of Lease is intended for use by Landlord in connection with the Landlord's dealings with any existing or potential institutional purchaser, lender or other party which may now or hereafter hold a security interest in the real property of which the Premises are a part, and it is also intended that this Statement of Lease may be relied upon by any such existing or potential purchaser, lender or other secured party, in connection with any such dealings with Landlord. Capitalized terms which are not otherwise defined in this Statement of Lease shall have the meanings ascribed to such terms in the Lease. DATED: -------------------- Suburban Ostomy Supply Company, Inc., a Massachusetts corporation By: ------------------------------ Its: -------------------------- EXHIBIT E INITIAL IMPROVEMENT WORK ------------------------ The Initial Improvement Work shall consist of the following items only: 1. Blacken and cover all non-office windows. 2. Seal warehouse area floor with acrylic sealer 42001 3. Install four (4) evaporative coolers (Arvin Industries model #ES213A/ED213B) in warehouse area. Proposed locations and mechanical specifications of such evaporative coolers shall be submitted to Landlord for review and approval no later than August 8, 1994. 4. Install roof or wall mounted fans in ventilation system. (Mechanical specifications be submitted to Landlord for review and approval no later than August 8, 1994). EXHIBIT F INSURANCE SUMMARY ----------------- Property-All Risk Excluding Earthquake & Flood: Blanket coverage $140,000,000* Deductible $10,000 Earthquake Difference in Conditions: Blanket coverage $60,000,000* Deductible 5% of value of $100,000 minimum Flood Difference in Conditions: Blanket coverage $60,000,000* Deductible $50,000
The minimum required coverage for the Building consists of replacement value and one year's rent as follows: Replacement Value $959,000** Rental Value $75,000** * Applies to all property insured under blanket policy. ** Subject to periodic adjustments. LEASE RIDER NUMBER 1 1. Option to Extend Lease. Tenant shall have the option, provided it is ---------------------- not then in default hereunder, to extend the term of the Lease for one single period of five (5) years (the "Extended Term"), upon the same terms and conditions as provided herein, except that: (a) Minimum Rent shall be adjusted as provided in Paragraph 2 below; and (b) no further Extended Term shall be available to Tenant following the expiration of the Extended Term. Tenant shall exercise such option by serving written notification ("Option Notice") upon Landlord not more than twelve (12) months and no less than six (6) months prior to the expiration of the Lease Term of Tenant's election to extend this Lease. The option to extend this Lease shall be exercisable by Tenant on the express conditions that at the time of exercise, and at all times prior to the commencement of the Extended Term, Tenant shall not be in default in any monetary or other material obligation under this Lease, and Tenant shall not have suffered any adverse change in its financial position which, in Landlord's reasonable judgment, impairs Tenant's ability to fulfill its obligations pursuant to this Lease. Wherever the context of this Lease so requires, the term "Lease Term" shall be deemed to include any Extended Term for which Tenant has exercised its option. The option to extend this Lease is personal to Tenant. If Tenant subleases any portion of the Premises or assigns or otherwise transfers any interest under this Lease prior to the exercise of any option, such option and any succeeding option shall terminate and be of no further force or effect. 2. Minimum Rent for Extended Term. Minimum Rent for the Premises at the ------------------------------ commencement of any Extended Term shall be determined in accordance with the following procedure: (a) Promptly following receipt by Landlord of Tenant's Option Notice, Landlord and Tenant shall attempt to reach agreement on the initial Minimum Rent for the Extended Term in question which Minimum Rent shall be at the then current fair market value for the highest and best use of the Premises. If Landlord and Tenant are able to agree on the initial Minimum Rent for the Extended Term in question, Landlord and Tenant shall immediately execute an amendment to this Lease stating the initial Minimum Rent for such Extended Tenn. In no event, however, shall the initial Minimum Rent for such Extended Term be less than the full Minimum Rent for the last full month of the Lease Term (or preceding Extended Term, as the case may be). (b) If the parties are unable to agree on the initial Minimum Rent for the Extended Term in question within forty-five (45) days following Landlord's receipt of the Option Notice, then each party, at its cost and by giving notice to the other party, shall have twenty (20) days within which to appoint an MAI certified real estate appraiser with at least five (5) years' full-time commercial appraisal experience in the area in which the Premises are located, to appraise and set the initial Minimum Rent for such Extended Term in accordance with the then current fair market value for the highest and best use of the Premises. If a party does not appoint an appraiser within such twenty (20) day period, the single appraiser appointed shall be the sole appraiser and shall set the initial Minimum Rent for such Extended Term. If two appraisers are appointed by the parties as stated in this Paragraph, they shall meet promptly and attempt to set the initial Minimum Rent for such Extended Term. If they are unable to agree within forty-five (45) days after the second appraiser has been appointed, they shall attempt to elect a third appraiser meeting the qualifications stated in this paragraph within twenty (20) days after the last day the two appraisers are given to set the initial Minimum Rent for such Extended Term. If they are unable to agree on the third appraiser, either of the parties to this Lease, by giving ten (10) days notice to the other party can apply to the presiding judge of the superior court of that county, for the selection of a third appraiser who meets the qualifications stated in this paragraph. Each of the parties shall bear one-half (1/2) of the cost of appointing the third appraiser and of paying the third appraiser's fee. The third appraiser, however, selected, shall be a person who has not previously acted in any capacity for either party. (c) Within twenty (20) days after the selection of the third appraiser, a majority of the appraisers shall set the initial Minimum Rent for the Extended Term in question. If a majority of the appraisers are unable to set the initial Minimum Rent within the stipulated period of time, the two closest appraisals shall be added together and their total divided by two; the resulting quotient shall be the initial Minimum Rent for the Premises during such Extended Term. In no event, however, shall the initial Minimum Rent for such Extended Term be less than the adjusted Minimum Rent for the immediately preceding period. 3. Minimum Rent Adjustments. Minimum Rent payable under Paragraph 4.1 of ------------------------ the Lease shall be subject to adjustment on the first day of the thirty-seventh (37th) month of the Lease Term (the "First Adjustment Date"), and, if Tenant exercises its option to extend the Lease Term pursuant to Paragraph 1, above, Minimum Rent shall also be subject to adjustment on the first day of the thirty- first (31st) month of the Extended Term (the "Second Adjustment Date"). Commencing on the First Adjustment Date, and continuing for each month of the remainder of the original Lease Term, Minimum Rent shall be in the amount of Seven Thousand Two Hundred Twenty Two Dollars ($7,222.00). Commencing on the Second Adjustment Date, and continuing for each month of the remainder of the Extended Term, Minimum Rent shall be increased by ten and 32/100% percent (10.32%) over the full Minimum Rent payable for each of the first thirty (30) months of the Extended Term. 4. Initial Improvement Work. Landlord shall, on Tenant's behalf, ------------------------ complete the improvements described in the attached Exhibit E (the "Initial Improvement Work"). The Initial Improvement Work shall include only those items specified in the attached Exhibit E. 5. Improvement Allowance. Landlord agrees to provide Tenant with an --------------------- allowance (the "Tenant Improvement Allowance") to be applied against the costs of performing the Initial Improvement Work in the amount of Eleven Thousand Five Hundred Dollars ($1 1,500). To the extent the cost of performing such designated elements of the Initial Improvement Work is more than Eleven Thousand Five Hundred Dollars ($11,500), Tenant shall pay the excess amount (up to a maximum excess amount of Ten Thousand Dollars) to Landlord prior to the commencement of the Initial Improvement Work. Any cost of such work in excess of Twenty- One Thousand Five Hundred Dollars ($21,500) shall be paid by Landlord, so long as Landlord has previously approved all plans and specifications for the Initial Improvement Work, and Tenant shall not be responsible for any costs of such Initial Improvement Work in excess of the Ten Thousand Dollar amount noted above. Tenant shall not be required to pay any architectural fees or other "soft costs" relating to the Initial Improvement Work. EX-23.1 47 CONSENT OF ARTHUR ANDERSON EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our firm included in or made a part of this Registration Statement on Form S-1, including the reference to us under the heading "Experts." Arthur Andersen LLP Boston, Massachusetts June 21, 1996 EX-27.1 48 FINANCIAL DATA SCHEDULE
5 YEAR 9-MOS SEP-02-1995 AUG-31-1996 SEP-04-1994 SEP-03-1995 SEP-02-1995 JUN-01-1996 3,970,113 1,714,889 0 0 4,791,991 7,366,679 25,000 175,000 3,659,499 5,465,948 12,600,498 14,995,599 1,477,253 1,747,059 739,630 863,230 13,832,310 26,808,174 5,133,184 6,433,647 21,830,000 31,419,950 6,760,833 7,267,893 0 0 142,857 161,607 (20,069,283) (18,551,398) 13,832,310 26,808,174 52,667,379 49,301,866 52,667,379 49,301,866 39,872,671 37,475,443 39,872,671 37,475,443 7,873,423 6,613,363 21,384 167,518 369,575 1,840,885 4,551,710 3,372,175 357,422 1,446,010 4,194,288 1,926,165 0 0 0 0 0 0 4,194,288 1,926,165 1.19 .65 1.19 .65
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