-----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, EhFMYNdNscqeQEpr9lUbAInJ5wEZNlyUHNmuW6FDc1v4wPBb5gkvLbaIvHgPwPyt wZuuI/JTKLYeIhOnaQ8JbQ== 0000950123-98-005175.txt : 19980518 0000950123-98-005175.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950123-98-005175 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAHAM FIELD HEALTH PRODUCTS INC CENTRAL INDEX KEY: 0000709136 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 112578230 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08801 FILM NUMBER: 98625287 BUSINESS ADDRESS: STREET 1: 400 RABRO DR E CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5165825800 MAIL ADDRESS: STREET 1: 400 RABNO DRIVE EAST CITY: HAUPPAUGE STATE: NY ZIP: 11788 FORMER COMPANY: FORMER CONFORMED NAME: PATIENT TECHNOLOGY INC DATE OF NAME CHANGE: 19880811 10-Q 1 FORM 10-Q 1 FORM 10-Q Securities and Exchange Commission Washington, D.C. 20549 (MARK ONE) [ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1998 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From ______________ to ________________ Commission file number 1-8801 GRAHAM-FIELD HEALTH PRODUCTS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 11-2578230 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 Rabro Drive East, Hauppauge, New York 11788 ------------------------------------------------- (Address of principal executive offices) (516) 582-5900 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes / / No / / Applicable Only to Corporate Issuers: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Common Stock, $.025 Par Value --- 31,181,140 shares as of May 13, 1998 2 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES I N D E X
Part I. Financial Information: Page ---- Item 1. Financial Statements: Condensed Consolidated Balance Sheets - March 31, 1998 (Unaudited) and December 31, 1997 (Audited) 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (Unaudited) 5-6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7-16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17-20 Part II. Other Information: Item 1. Legal Proceedings 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Matters 22 Item 6. Exhibits and Reports on Form 8-K 22-23
- 2 - 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
March 31, December 31, ASSETS 1998 1997 ------------- ------------- (unaudited) (audited) CURRENT ASSETS: Cash and cash equivalents $ 3,136,000 $ 4,430,000 Accounts receivable - less allowances for doubtful accounts of $13,642,000 and $13,199,000, respectively 99,747,000 91,451,000 Inventories 73,992,000 73,532,000 Other current assets 12,014,000 8,103,000 Recoverable and prepaid income taxes 4,314,000 4,422,000 Deferred tax assets 10,695,000 10,695,000 Asset held for sale -- 61,706,000 ------------- ------------- TOTAL CURRENT ASSETS 203,898,000 254,339,000 PROPERTY, PLANT AND EQUIPMENT - net 36,961,000 35,955,000 EXCESS OF COST OVER NET ASSETS ACQUIRED - net of accumulated amortization of $13,476,000 and $11,512,000, respectively $238,608,000 $240,071,000 DEFERRED TAX ASSETS 2,254,000 3,044,000 OTHER ASSETS 14,716,000 13,709,000 ------------- ------------- TOTAL ASSETS $496,437,000 $547,118,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Credit facility $ 19,780,000 $ 65,883,000 Current maturities of long-term debt 2,230,000 2,619,000 Accounts payable 36,451,000 33,888,000 Accrued expenses 43,647,000 54,331,000 ------------- ------------- TOTAL CURRENT LIABILITIES 102,108,000 156,721,000 Long-term debt and Senior Subordinated Notes 107,544,000 107,733,000 Other long-term liabilities 14,284,000 13,816,000 ------------- ------------- TOTAL LIABILITIES 223,936,000 278,270,000 STOCKHOLDERS' EQUITY: Series A preferred stock -- -- Series B preferred stock 28,200,000 28,200,000 Series C preferred stock 3,400,000 3,400,000 Common stock 798,000 764,000 Additional paid-in capital 283,946,000 279,341,000 (Deficit) (43,932,000) (42,953,000) Cumulative translation adjustment 89,000 96,000 ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 272,501,000 268,848,000 COMMITMENTS AND CONTINGENCIES ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 496,437,000 $ 547,118,000 ============= =============
See notes to condensed consolidated financial statements. - 3 - 4 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited)
Three Months Ended March 31 -------------------------------- 1998 1997 ------------ ----------- NET REVENUES: Medical equipment and supplies $ 97,727,000 $56,191,000 Interest and other income 415,000 144,000 ------------ ----------- 98,142,000 56,335,000 COSTS AND EXPENSES: Cost of revenues 67,102,000 38,438,000 Selling, general and administrative 28,210,000 13,193,000 Interest expense 2,743,000 994,000 ------------ ----------- 98,055,000 52,625,000 ---------- ---------- INCOME BEFORE INCOME TAXES 87,000 3,710,000 INCOME TAXES 800,000 1,527,000 ------------ ----------- NET (LOSS) INCOME (713,000) 2,183,000 PREFERRED STOCK DIVIDENDS 266,000 -- ------------ ----------- NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS $ (979,000) $ 2,183,000 ============ =========== PER SHARE DATA: Common shares outstanding - basic 30,839,000 19,763,000 ------------ ----------- Convertible preferred stock -- 4,435,000 Common equivalent shares outstanding -- 966,000 ------------ ----------- Common shares outstanding - diluted 30,839,000 25,164,000 ============ =========== Basic (loss) earnings per share $ (.03) $ .11 Diluted (loss) earnings per share $ (.03) $ .09
See notes to condensed consolidated financial statements. - 4 - 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited)
Three Months Ended March 31, --------------------------------- 1998 1997 ------------ ------------ OPERATING ACTIVITIES Net (loss) income $ (713,000) $ 2,183,000 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 3,872,000 1,472,000 Deferred income taxes 790,000 833,000 Provisions for losses on accounts receivable 443,000 177,000 Changes in operating assets and liabilities: Accounts receivable (8,739,000) (5,212,000) Inventories (460,000) (2,323,000) Other current assets and recoverable and prepaid income taxes (3,803,000) (573,000) Accounts payable, accrued expenses and other liabilities (7,926,000) (8,740,000) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (16,536,000) (12,183,000) ------------ ------------ INVESTING ACTIVITIES Purchases of property, plant and equipment (2,551,000) (900,000) Proceeds from sale of asset held for sale 60,167,000 -- Acquisitions, net of cash acquired -- (616,000) Increase in excess of cost over net assets acquired (501,000) -- Proceeds from sale of property, plant & equipment -- 24,000 Net decrease in other assets 169,000 14,000 ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ 57,284,000 $ (1,478,000) ------------ ------------
See notes to condensed consolidated financial statements. - 5 - 6 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited)
Three Months Ended March 31, ---------------------------------- 1998 1997 ------------- ------------ FINANCING ACTIVITIES: Proceeds from credit facility and long-term debt $ 93,371,000 $ 61,929,000 Principal payments on credit facility and long-term debt (140,052,000) (42,798,000) Proceeds from acceptances -- 3,500,000 Payments on acceptances -- (8,500,000) Proceeds on exercise of stock options 4,639,000 203,000 ------------- ------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (42,042,000) 14,334,000 ------------- ------------ (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,294,000) 673,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,430,000 1,241,000 ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,136,000 $ 1,914,000 ============= ============ SUPPLEMENTARY CASH FLOW INFORMATION: Interest paid $ 5,426,000 $ 895,000 ============= ============ Income taxes paid $ -- $ 31,000 ============= ============ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Investment in preferred stock received as partial proceeds from sale of asset $ 1,539,000 =============
See notes to condensed consolidated financial statements. - 6 - 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited) 1. GENERAL In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position as of March 31, 1998 (unaudited), the results of operations for the three months ended March 31, 1998 and 1997 (unaudited) and the statements of cash flows for the three months ended March 31, 1998 and 1997 (unaudited). Additionally, it should be noted that the accompanying financial statements and notes thereto do not purport to be complete disclosures in conformity with generally accepted accounting principles. While the Company believes that the disclosures presented are adequate to make the information contained herein not misleading, it is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Inventories at March 31, 1998 have been valued at standard cost for manufactured goods and at average cost for other inventories based primarily on perpetual records or the gross profit method. As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components, however, the adoption of this Statement had no impact on the Company's net income or shareholders' equity. SFAS No. 130 requires foreign translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. During the first quarter of 1998 and 1997, total comprehensive (loss) income amounted to $(720,000) and $2,195,000, respectively. Accumulated other comprehensive (loss) income, primarily related to foreign currency translation adjustments amounted to $89,000 at March 31, 1998. The results of operations for the three months ended March 31, 1998 and 1997 are not necessarily indicative of results for the full year. Certain amounts in the 1997 financial statements have been reclassified to conform to the 1998 presentation. 2. EARNINGS PER SHARE Earnings per share amounts are calculated in accordance with SFAS No. 128 "Earnings per Share." Diluted earnings per share is calculated for the quarter ended March 31, 1997 assuming the conversion of the Series B and Series C Cumulative Convertible Preferred Stock and elimination of the related dividends and conversion of dilutive common equivalent shares outstanding using the treasury stock method. Conversion of the preferred stock and common stock equivalent shares was not assumed for the quarter ended March 31, 1998 since the result would have been antidilutive. - 7 - 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited) 3. INVENTORIES Inventories consist of the following:
March 31, December 31, 1998 1997 ----------- ----------- Raw materials $15,730,000 $16,553,000 Work-in-process 7,182,000 6,735,000 Finished goods 51,080,000 50,244,000 ----------- ----------- $73,992,000 $73,532,000 =========== ===========
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
March 31, December 31, 1998 1997 ------------ ------------ Land and buildings $ 17,530,000 $ 17,323,000 Equipment 28,496,000 26,845,000 Furniture and fixtures 2,650,000 2,619,000 Leasehold improvements 2,779,000 2,668,000 Construction in progress 2,000,000 1,566,000 ------------ ------------ 53,455,000 51,021,000 Accumulated depreciation and amortization (16,494,000) (15,066,000) ------------ ------------ $ 36,961,000 $ 35,955,000 ============ ============
5. INCOME TAXES At March 31, 1998, the Company had aggregate net operating loss carryforwards of approximately $25,600,000 for income tax purposes which expire in 2011, which were acquired primarily in connection with the acquisition of Everest & Jennings International Ltd. ("Everest & Jennings") and are limited as to use in any particular year. In addition, the Company had approximately $890,000 of investment, research and development, jobs tax and AMT credits, for income tax purposes which expire primarily in 1999, and which include alternative minimum tax credits of $500,000 which have no expiration date. For financial reporting purposes, due to losses of Everest & Jennings prior to the Company's acquisition and SRLY limitations, a full valuation allowance of approximately $13,338,000 has been recorded against the Everest & Jennings net operating losses and other deferred tax assets. When realized, the tax benefit for those items will be recorded as a reduction of the excess of cost over net assets acquired. In addition, the Company has a valuation allowance of approximately $1,167,000 against a portion of its remaining net deferred tax assets as a result of recent acquisitions. The amount of the remaining deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. - 8 - 9 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited) The effective tax rate for the three months ended March 31, 1998 is in excess of 100% primarily due to non-deductible goodwill amortization expense. Deferred taxes have not been provided on the undistributed earnings of foreign entities since it is management's intention to invest such earnings in the entities indefinitely. The effective tax rate for 1997 approximates the statutory rate after adjustment for state taxes and non-deductible goodwill amortization expense. 6. ACQUISITION OF BUSINESSES On December 30, 1997, the Company acquired Fuqua Enterprises, Inc. (currently, Lumex/Basic American Holdings, Inc.) ("Fuqua") pursuant to an Agreement and Plan of Merger (the "Fuqua Merger Agreement"), dated as of September 5, 1997 and amended as of September 29, 1997, by and among Fuqua, GFHP Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company ("Sub"), and the Company. Under the terms of the Fuqua Merger Agreement, Sub was merged with and into Fuqua with Fuqua continuing as the surviving corporation wholly-owned by the Company (the "Fuqua Merger"). In the Fuqua Merger, each share of Fuqua's common stock, par value $2.50 per share (the "Fuqua Common Stock"), other than shares of Fuqua Common Stock canceled pursuant to the Fuqua Merger Agreement, was converted into the right to receive 2.1 shares of common stock, par value $.025 per share of the Company (the "Company Common Stock"). There were 4,482,709 shares of Fuqua Common Stock outstanding on December 30, 1997, which converted into 9,413,689 shares of the Company Common Stock. In accordance with the terms of the Fuqua Merger Agreement, each Fuqua stock option was assumed by Graham-Field and was converted into the right to purchase shares of the Company Common Stock. As of the effective date of the Fuqua Merger, there were Fuqua stock options outstanding representing the right to purchase 421,500 shares of Fuqua Common Stock. The equivalent number of shares of the Company Common Stock to be issued, after giving effect to the exercise price of the Fuqua stock options as adjusted for the exchange ratio of 2.1, is approximately 364,319 shares of the Company Common Stock. For purposes of calculating the purchase price, the Company Common Stock was valued at $16.69 per share, which represents the average closing market price of the Company Common Stock for the period three business days immediately prior to and three business days immediately after the announcement on September 8, 1997 of the execution of the Fuqua Merger Agreement. The acquisition of Fuqua has been accounted for under the purchase method of accounting and, accordingly, the operating results of Fuqua have been included in the Company's consolidated financial statements from the date of acquisition. The Company allocated $3,300,000 of the purchase price to purchased in-process research and development projects which have not reached technological feasibility and have no probable alternative future uses. The Company expensed the purchased in-process and research and development projects at the date of acquisition. The excess of the aggregate purchase price over the estimated fair market value of the net assets acquired was approximately $134,900,000, which is being amortized on a straight line basis over 30 years. The purchase price allocations have been made on a preliminary basis, subject to adjustment. In connection with the Fuqua Merger, the Company acquired the leather operations of Fuqua ("Leather Operations"). It was the Company's intention to dispose of this Leather Operations as soon as reasonably practicable following the consummation of the Fuqua Merger. Accordingly, the net assets of the Leather Operations - 9 - 10 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited) have been reflected as "Assets held for sale" in the accompanying consolidated balance sheet as of December 31, 1997. The net asset value of the Leather Operations includes the value of the proceeds that were realized from the sale of the Leather Operations. The Company did not record any earnings or losses for the Leather Operations for the period December 30, 1997 to January 27, 1998 (date of disposal). On January 27, 1998, Fuqua disposed of the Leather Operations (the "Leather Sale Transaction") through the sale of all of the capital stock of Irving Tanning Company ("ITC"), Hancock Ellsworth Tanners, Inc., Kroy Tanning Company, Incorporated and Seagrave Leather Corporation (collectively, the "Leather Companies"), to the management of ITC pursuant to a (i) Stock Purchase Agreement dated as of January 27, 1998, by and among IT Acquisition Corporation ("ITAC"), the Company and Fuqua, and (ii) Stock Purchase Agreement dated as of January 27, 1998, by and among HEKS Corporation, the Company and Fuqua. The aggregate selling price for the Leather Companies consisted of (a) $60,167,400 in cash, (b) an aggregate of 5,000 shares of Series A Preferred Stock of ITAC with a stated value of $4,250,000 (which has been valued at $1,539,000), and (c) the assumption of debt of $2,341,250. In addition, as the holder of the ITAC Preferred Stock, the Company is entitled to appoint one director to the Board of Directors of ITAC. On August 28, 1997, the Company acquired all of the issued and outstanding shares of the capital stock of Medical Supplies of America, Inc., a Florida corporation ("Medapex"), pursuant to an Agreement and Plan of Reorganization (the "Reorganization Agreement") dated August 28, 1997, by and among the Company, S.E. (Gene) Davis and Vicki Ray (collectively the "Medapex Selling Stockholders"). In accordance with the terms of the Reorganization Agreement, Medapex became a wholly-owned subsidiary of the Company and the Medapex Selling Stockholders received in the aggregate 960,000 shares of Company Common Stock in exchange for all of the issued and outstanding shares of the capital stock of Medapex. Pursuant to a Real Estate Sales Agreement dated as of August 28, 1997 (the "Real Estate Sales Agreement"), by and between the Company and BBD&M, a Georgia Limited Partnership and an affiliate of Medapex, the Company acquired Medapex's principal corporate headquarters and distribution facility in Atlanta, Georgia for a purchase price consisting of (i) $622,335 payable (a) by the issuance of 23,156 shares of the Company Common Stock and (b) in cash in the amount of $311,167, and (ii) the assumption of debt in the amount of $477,664. Each of the Medapex Selling Stockholders entered into a two-year employment agreement and non-competition agreement with the Company. The Medapex transaction was accounted for as a pooling of interests and the Company's historical financial statements have been restated to reflect this transaction. The results of operations previously reported by the separate enterprises and the combined amounts presented in the accompanying consolidated financial statements are summarized below.
Three Months Ended March 31, 1997 --------------------- Net revenues: Graham-Field $51,332,000 Medapex 5,003,000 ----------- Combined $56,335,000 ===========
- 10 - 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited) Net income: Graham-Field $2,084,000 Medapex 99,000 ---------- Combined $2,183,000 ==========
On August 17, 1997, the Company acquired substantially all of the assets and certain liabilities of Medi-Source, Inc. ("Medi-Source"), a privately-owned distributor of medical supplies, for $4.5 million in cash. The Company also entered into a five (5) year non-competition agreement with the previous owner in the aggregate amount of $301,000 payable over the five (5) year period. The acquisition was accounted for as a purchase, and accordingly, assets and liabilities were recorded at fair value at the date of acquisition and the results of operations are included subsequent to that date. The excess of the purchase price over net assets acquired was approximately $3.7 million. On June 25, 1997, the Company acquired all of the capital stock of LaBac Systems, Inc., a Colorado corporation ("LaBac"), in a merger transaction pursuant to an Agreement and Plan of Merger dated June 25, 1997, by and among the Company, LaBac Acquisition Corp., a wholly-owned subsidiary of the Company, LaBac, Gregory A. Peek and Michael L. Peek (collectively, the "LaBac Selling Stockholders"). In connection with the acquisition, LaBac became a wholly-owned subsidiary of the Company, and the LaBac Selling Stockholders received in the aggregate 772,557 shares of Company Common Stock valued at $11.77 per share in exchange for all of the issued and outstanding shares of the capital stock of LaBac. Of this amount, 77,255 shares of Company Common Stock were placed in escrow for a period of one (1) year following the effective date of the merger for payment of indemnity claims to the Company or purchase price adjustments in favor of the Company. The Company also entered into a three (3) year consulting agreement with the LaBac Selling Stockholders and an entity controlled by the LaBac Selling Stockholders, and non-competition agreements with each of the LaBac Selling Stockholders. The acquisition was accounted for as a purchase and accordingly, assets and liabilities were recorded at fair value at the date of acquisition and the results of operations are included subsequent to that date. The excess of cost over net assets acquired amounted to approximately $7.3 million. On March 7, 1997, Everest & Jennings, a wholly-owned subsidiary of the Company, acquired Kuschall of America, Inc. ("Kuschall"), a manufacturer of pediatric wheelchairs, high-performance adult wheelchairs and other rehabilitation products, for a purchase price of $1.51 million representing the net book value of Kuschall. The purchase price was paid by the issuance of 116,154 shares of Company Common Stock valued at $13.00 per share, of which 23,230 shares were delivered into escrow. The escrow shares will be released on March 7, 1999, subject to any purchase price adjustments in favor of the Company and claims for indemnification. The acquisition was accounted for as a purchase and accordingly, assets and liabilities were recorded at fair value at the date of acquisition and the results of operations are included subsequent to that date. On February 28, 1997, Everest & Jennings Canadian Limited ("Everest & Jennings Canada"), a wholly-owned subsidiary of the Company, acquired substantially all of the assets and certain liabilities of Motion 2000 Inc. and its wholly-owned subsidiary, Motion 2000 Quebec Inc., for a purchase price equal to Cdn. $2.9 million (Canadian Dollars) (approximately U.S.$2.15 million). The purchase price was paid by the issuance of 187,733 shares of the Company Common Stock valued at $11.437 per share. The acquisition was accounted for as a purchase and accordingly, assets and liabilities were recorded at fair value - 11 - 12 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited) at the date of acquisition and the results of operations are included subsequent to that date. The excess of cost over the net assets acquired amounted to approximately $2.5 million. On November 27, 1996, the Company acquired Everest & Jennings pursuant to the terms and provisions of the Amended and Restated Agreement and Plan of Merger dated as of September 3, 1996 and amended as of October 1, 1996, by and among the Company, Everest & Jennings, Everest & Jennings Acquisition Corp., a wholly-owned subsidiary of the Company and BIL (Far East Holdings) Limited ("BIL"), the majority stockholder of Everest & Jennings. The acquisition of Everest & Jennings has been accounted for under the purchase method of accounting and, accordingly, assets and liabilities were recorded at fair value at the date of acquisition and the operating results of Everest & Jennings have been included in the Company's consolidated financial statements since the date of acquisition. The excess of the aggregate purchase price over the estimated fair market value of the net assets acquired is approximately $65.5 million, as adjusted. The following summary presents unaudited pro forma consolidated results of operations for the three months ended March 31, 1997 as if the acquisitions described above occurred at the beginning of 1997. This information gives effect to the adjustment of interest expense, income tax provisions, and to the assumed amortization of fair value adjustments, including the excess of cost over net assets acquired. The pro forma information does not include the write-off of certain purchased in-process research and development costs of $3.3 million, merger, restructuring and other related charges of $31,202,000 associated with the Company's strategic restructuring initiatives recorded in the fourth quarter ended December 31, 1997.
Pro Forma --------- Three Months Ended March 31, 1997 -------------- Net Revenues $88,503,000 =========== Income Before Income Taxes $ 3,746,000 Income Taxes 1,895,000 ----------- Net Income $ 1,851,000 =========== Net income per common share: Net income $ 1,851,000 Preferred stock dividends - (a) ----------- Net income available to common shareholders $ 1,851,000 =========== Common shares outstanding - basic 30,160,000 ----------- Convertible preferred stock 4,435,000 Incremental shares using treasury stock method 1,330,000 ----------- Common shares outstanding - diluted 35,925,000 ===========
- 12 - 13 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited)
Basic earnings per share $ .06 Diluted earnings per share $ .05
(a) Assumes conversion of the preferred stock and elimination of any dividends relating to such preferred stock. 7. ACQUISITION INTEGRATION AND RESTRUCTURING PLAN In connection with the acquisition of Fuqua on December 30, 1997, the Company adopted a plan to implement certain strategic restructuring initiatives (the "Restructuring Plan") and recorded restructuring reserves of approximately $23,470,000. The plan consists of a broad range of efforts, including the consolidation of the Company's Temco manufacturing operations in New Jersey into Fuqua's Lumex manufacturing facility in New York and relocation of the Company's corporate headquarters to the Lumex facility. In addition, the Company plans to consolidate distribution facilities and other operations in an effort to improve manufacturing, distribution and operating efficiencies. Throughout 1998, the Company will continue to evaluate its Restructuring Plan and additional restructuring charges may be necessary. The following summarizes the activity in the restructuring reserves for the first quarter of 1998:
Merger and Restructuring Reserve Reserve charges Write-offs and Balances Balances recorded in cash payments December 31, Provision/ March 31, 1997 in 1997 1997 Utilized Reallocation 1998 ---- ------- ---- -------- ------------ ---- Exit costs $18,237,000 $(1,294,000) $16,943,000 $ (366,000) -- $16,577,000 Severance 650,000 -- 650,000 (31,000) -- 619,000 Merger related 4,583,000 (1,788,000) 2,795,000 (1,896,000) -- 899,000 ----------- ----------- ----------- ----------- ---- ----------- Total reserves $23,470,000 $(3,082,000) $20,388,000 $(2,293,000) -- $18,095,000 =========== =========== =========== =========== ==== ===========
8. LEGAL PROCEEDINGS Following the Company's public announcement on March 23, 1998 of its financial results for the fourth quarter and year ended December 31, 1997, the Company and certain of its directors and officers were named as defendants in at least thirteen putative class action lawsuits filed primarily in the United States District Court for the Eastern District of New York on behalf of all purchasers of common stock of the Company (including former Fuqua shareholders who received shares of the Company Common Stock when the Company acquired Fuqua in December 1997) during various periods within the time period May 1997 to March 1998. The complaints assert claims against the Company and the other defendants for violations of Sections 11, 12(2) and 15 of the Securities Act of 1933, as amended, and Sections 10(b) and 20(a) - 13 - 14 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder with respect to alleged material misrepresentations and omissions in public filings made with the Securities and Exchange Commission and certain press releases and other public statements made by the Company and certain of its officers relating to the Company's business, results of operations, financial condition and future prospects, as a result of which, it is alleged, the market price of the Company Common Stock was artificially inflated during the putative class periods. Several of the complaints focus on statements made concerning the Company's integration of its various recent acquisitions. The plaintiffs seek unspecified compensatory damages and costs (including attorneys and expert fees), expenses and other unspecified relief on behalf of the putative classes. The Company believes that it has complied with all of its obligations under the Federal securities laws, considers the plaintiffs' allegations to be without merit and intends to defend these suits vigorously. On March 27, 1998, agents of the U.S. Customs Service and the Food and Drug Administration arrived at the Company's principal headquarters and one other Company location and retrieved several documents pursuant to search warrants. The Company has subsequently been advised by an Assistant United States Attorney for the Southern District of Florida that the Company is a target of an ongoing grand jury investigation involving alleged fraud by one or more of the Company's suppliers relating to the unauthorized diversion of medical products intended for sale outside of the United States into United States markets. The Company has also been advised that similar search warrants were obtained with respect to approximately 14 other participants in the distribution of medical products. The Company is presently investigating these matters. The Company does not know when the grand jury investigation will conclude or what action, if any, may be taken by the government against the Company or any of its employees, so it cannot yet assess the impact of this investigation on the Company. The Company intends to cooperate fully with the government in its investigation. ENVIRONMENTAL CONTINGENCY: In March 1994, the Suffolk County Authorities initiated an investigation to determine whether regulated substances had been discharged in excess of permitted levels from Fuqua's Lumex division (the "Lumex Division") located in Bayshore, New York. An environmental consulting firm was engaged by the Lumex Division to conduct a more comprehensive site investigation, develop a remediation work plan and provide a remediation cost estimate. These activities were performed to determine the nature and extent of contaminants present on the site and to evaluate their potential off-site extent. In connection with Fuqua's April 1996 acquisition of the Lumex Division, Fuqua assumed the obligations associated with this environmental matter. In late 1996, Fuqua conducted surficial soil remediation at the Bayshore facilities and reported the results to the Suffolk County Authorities in March 1997. A ground water work plan was submitted concurrently with the soil remediation report and Fuqua is waiting for the necessary approvals from the Suffolk County Authorities before proceeding with execution of the ground water work plan. Management is not currently able to determine when any required remediation and monitoring efforts with respect to the ground water contamination will be completed. In May 1997, the Suffolk County Authorities approved the soil remediation conducted by Fuqua and provided comments on the ground water work plan. In November 1997, the Lumex Division received the results of additional ground water testing that had been performed in August and September 1997. The results revealed significantly lower concentrations of contaminants than were known at the time the "Ground Water Work Plan" was prepared in March 1997. In January 1998, additional confirmatory samples were taken, including two additional wells, but the results of this sampling have not yet been received from the laboratory. Management is not currently able to determine whether or when additional remediation or monitoring efforts will be required. - 14 - 15 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited) At March 31, 1998, the Lumex Division had reserves for remediation costs and additional investigation costs which will be required. Reserves are established when it is probable that a liability has been incurred and such costs can be reasonably estimated. The Lumex Division's estimates of these costs were based upon currently enacted laws and regulations and the professional judgment of independent consultants and counsel. Where available information was sufficient to estimate the amount of liability, that estimate has been used. Where information was only sufficient to establish a range of probable liability and no point within the range is more likely than another, the lower end of the range has been used. The Lumex Division has not assumed that any such costs would be recoverable from third parties nor has the Lumex Division discounted any of its estimated costs, although a portion of the remediation work plan will be performed over a period of years. The amount of environmental liabilities are difficult to estimate due to such factors as the extent to which remedial actions may be required, laws and regulations change or the actual costs of remediation differ when the final work plan is performed. DISPUTE WITH CYBEX: On April 3, 1996, Fuqua acquired the Lumex Division from Cybex International, Inc. (formerly, Lumex, Inc.). The purchase price for the Lumex Division was $40.7 million, subject to a final purchase price adjustment in the asset sale agreement. The final purchase price adjustment was disputed and, pursuant to the asset sale agreement, was to be resolved through arbitration. On April 18, 1997, the seller obtained an interim stay of the arbitration proceedings pending a hearing on May 9, 1997. On May 9, 1997, the New York County Supreme Court vacated its stay of the arbitration proceedings and directed Fuqua and the seller to proceed to arbitration. On June 10, 1997, the seller filed a motion for a stay of arbitration pending the hearing and determination of the seller's appeal with the Appellate Division of the New York County Supreme Court. On June 24, 1997, the Appellate Division denied the seller's motion to stay the arbitration proceedings pending appeal. Accordingly, Fuqua and the seller continued the arbitration proceedings. The Appellate Division subsequently affirmed the Supreme Court's denial of the stay, and seller's motion for reconsideration has been denied. On February 13, 1998, the arbitrator accepted $3,179,685 in claims by Fuqua, with interest of $350,690, yielding a net award to Fuqua of $2,384,606. In March 1997, Fuqua gave notice to the seller to preserve Fuqua's indemnification rights provided in the asset sale agreement. In February 1998, Fuqua filed in the State Court of Fulton County a lawsuit against the seller and certain former officers and it states claims for fraud, breach of warranty, negligent misrepresentation, Georgia RICO, and attorney's fees. Defendants filed an answer and counterclaim on April 7, 1998, denying liability and asserting fifteen defenses. Defendant Cybex has asserted four counterclaims, seeking $1,284,288 in damages, plus attorneys' fees and costs. Fuqua believes that the counterclaims lack merit for several reasons, including, among others, that the punitive claim for $1,284,288, was decided adversely to Cybex in the arbitration. GENERAL The Company and its subsidiaries are parties to lawsuits and other proceedings arising out of the conduct of its ordinary course of business, including those relating to product liability and the sale and - 15 - 16 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES (Unaudited) distribution of its products. While the results of such lawsuits and other proceedings cannot be predicted with certainty, management does not expect that the ultimate liabilities, if any, will have a material adverse effect on the consolidated financial position or results of operations of the Company. - 16 - 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This report on Form 10-Q contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include plans and objectives of management for future operations, including plans and objectives relating to the future economic performance and financial results of the Company. The forward-looking statements relate to (i) the expansion of the Company's market share, (ii) the Company's growth into new markets, (iii) the development of new products and product lines to appeal to the needs of the Company's customers, (iv) the opening of new distribution and warehouse facilities, (v) obtaining regulatory and governmental approvals, (vi) the upgrading of the Company's technological resources and systems and (vii) the retention of the Company's earnings for use in the operation and expansion of the Company's business. Important factors and risks that could cause actual results to differ materially from those referred to in the forward-looking statements include, but are not limited to, the effect of economic and market conditions, the impact of the consolidation of healthcare practitioners, the impact of healthcare reform, the Company's ability to effectively integrate acquired companies, the termination of the Company's Exclusive Wheelchair Supply Agreement with P.T. Dharma Polimetal ("P.T. Dharma"), an Indonesian company, the ability of the Company to maintain its gross profit margins, the ability to obtain additional financing to expand the Company's business, the failure of the Company to successfully compete with the Company's competitors that have greater financial resources, the loss of key management personnel or the inability of the Company to attract and retain qualified personnel, adverse litigation results, the acceptance and quality of new software and hardware products which will enable the Company to expand its business, the acceptance and ability to manage the Company's operations in foreign markets, possible disruptions in the Company's computer systems or distribution technology systems, possible increases in shipping rates or interruptions in shipping service, the level and volatility of interest rates and currency values, the impact of current or pending legislation and regulation, as well as the risks described from time to time in the Company's filings with the Securities and Exchange Commission, which include this report on Form 10-Q, the Company's annual report on Form 10-K for the year ended December 31, 1997, and the section entitled "Risk Factors" in the Company's Registration Statement on Form S-4 dated as of December 19, 1997. The forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results, performance and/or achievements of the Company to differ materially from any future results, performance or achievements, express or implied, by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and that in light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. Operating Revenues Operating revenues for the quarter ended March 31, 1998 were $97,727,000 representing an increase of approximately 74% over the same period in the prior year. Revenues for the first quarter of 1998 included revenues of approximately $24.6 million attributable to the first full quarter of results for the Fuqua entities acquired on December 30, 1997, as well as the revenues of five additional companies acquired in 1997 (see Note 6 to the Condensed Consolidated Financial Statements). The Company's revenues on a pro forma basis (as if all acquisitions completed in 1997 were recorded as of January 1, 1997) increased approximately 11%, as compared to the same period in the prior year. The increase in operating revenues was primarily attributable to the six acquisitions completed in 1997, the growth of the Company's "Graham-Field Express" program and expansion of the Company's Consolidation Advantage - 17 - 18 Program ("CAP"). Management believes that intense competition within the healthcare industry will continue in 1998. In March 1996, Graham-Field Express was introduced to offer "same-day" and "next-day" service to home healthcare dealers of certain strategic home healthcare products, including Lumex and Temco patient aids, adult incontinence products, Everest & Jennings wheelchairs, Smith & Davis homecare beds, nutritional supplements and other freight and time sensitive products. As of March 31, 1998, the Company had opened six (6) Graham-Field Express facilities operating in the Bronx, New York; San Juan, Puerto Rico; Dallas, Texas; Baltimore, Maryland; Cleveland, Ohio; and Bowling Green, Kentucky. The Graham-Field Express facilities in Baltimore, Maryland; Cleveland, Ohio; and Bowling Green, Kentucky were opened subsequent to March 31, 1997. Management intends to moderate the growth of the Graham-Field Express program in 1998. Interest and Other Income Interest and other income for the three month period ended March 31, 1998 was $415,000, as compared to $144,000 for the same period in the prior year. The increase is primarily due to interest of approximately $40,000 earned on an advance to P.T. Dharma (see Liquidity and Capital Resources), dividends of $44,000 earned on preferred stock acquired in connection with the sale of the Leather Operations, and net sublease income of approximately $98,000 attributable to certain Fuqua properties. Cost of Revenues Cost of revenues as a percentage of operating revenues was 68.7% for the three months ended March 31, 1998, as compared to 68.4% recorded in the prior year. The Fuqua entities and LaBac contributed higher gross profit margins, partially offset by operating inefficiencies incurred at the Company's Temco manufacturing facility due to the close-down of that facility which is expected to be completed by the end of 1998. Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of operating revenues for the three month period ended March 31, 1998 was 28.9% as compared to 23.5% recorded in the same period in the prior year. The increase is primarily attributable to higher corporate office and administrative overhead to absorb and integrate the acquisitions completed in 1997, and the contribution of revenue by the Fuqua entities and LaBac at a higher percentage of selling, general and administrative expenses. Interest Expense Interest expense for the three month period ended March 31, 1998 increased to $2,743,000, as compared to $994,000 for the same period in the prior year. The increase is primarily due to increased borrowings attributable to the Company's growth, expansion of the Graham-Field Express Program, and the sale of the Company's $100 million Senior Subordinated Notes (the "Senior Subordinated Notes") in August 1997. Net Income Income before income taxes for the three months ended March 31, 1998 was $87,000, as compared to $3,710,000 for the same period in the prior year. The decrease is primarily due to increased selling, general and administrative expenses as a percentage of operating revenue, and the increase in interest expense. - 18 - 19 The Company had a net loss for the period ended March 31, 1998 of $713,000 as compared to net income of $2,183,000 for the same period last year. The Company recorded income tax expense of $800,000 for the three months ended March 31, 1998, as compared to $1,527,000 for the same period last year. The increase in the effective tax rate for the three month period ended March 31, 1998 is attributable to the non-deductible goodwill associated with acquisitions in relation to the level of pre-tax income. Deferred taxes have not been provided on the undistributed earnings of the foreign entities as it is management's intention to invest such earnings in the entities indefinitely. As of March 31, 1998, the Company had net deferred tax assets, a portion of which was acquired in connection with acquisitions. A full valuation allowance has been recognized to offset the net deferred asset related to certain of the acquired tax attributes. When realized, the tax benefit for those items will be recorded as a reduction of the excess of cost over net assets acquired. The Company's business has not been materially affected by inflation. Liquidity and Capital Resources The Company had net working capital of $101,790,000 at March 31, 1998, as compared to $97,618,000 at December 31, 1997. The increase in working capital is primarily attributable to working capital generated from operations of $3,949,000, comprised of the net loss of $713,000, adjusted for $3,872,000 of depreciation and amortization expense and $790,000 of deferred tax provisions; plus proceeds of $4,639,000 from the exercise of stock options, offset by payments of $2,551,000 for the purchase of property, plant and equipment and by the receipt of preferred stock (a long-term asset) valued at $1,539,000 as a component of the proceeds from the sale of the Leather Operations. Cash used in operations for the three months ended March 31, 1998 was $16,536,000, as compared to $12,183,000 in the same period in the prior year. The principal reason for the increase in cash used in operations was an increase in accounts receivable of $8,739,000, other assets of $3,803,000, and inventory of $460,000. The increase in accounts receivable is due to changes in reimbursement patterns and slowing payments resulting in an increased number of days outstanding for accounts receivable. The increase in other assets is due to the advance in February 1998 of $3.5 million to P.T. Dharma, the Company's supplier of commodity wheelchairs, in consideration of the grant of a six month option to purchase the wheelchair assets of P.T. Dharma for a price to be determined. During the option period, the Company is paid interest on the advance at an annual interest rate of 10.3 percent. The advance is collateralized by shares of the capital stock of P.T. Dharma, and is to be applied against the purchase price if a purchase transaction is ultimately consummated. In the event the Company and P.T. Dharma are unable to agree upon the terms of the transaction, the advance is to be returned to the Company. The Company periodically evaluates recoverability of its tangible and intangible assets in accordance with SFAS No. 121. In addition, based on projected results for the remainder of 1998, the Company believes that it will be in compliance with the financial covenants contained in its Senior Secured Revolving Credit Facility, as amended (the "Credit Facility"), arranged by IBJ Schroder Business Credit Corporation ("IBJ Schroder"). The Company anticipates that its cash flow from operations, together with its current cash balance, and the proceeds from its Credit Facility will be sufficient to meet its working capital requirements. However, actual results and performance could differ. The Credit Facility. The Credit Facility provides for up to $100 million of borrowings on a revolving credit basis, including letters of credit and banker's acceptances, arranged by IBJ Schroder, as agent. The Credit Facility terminates on December 10, 1999. Under the terms of the Credit Facility, borrowings bear interest, at Graham-Field's option, at IBJ Schroder's prime rate (8.50% at March 31, 1998) or 2.25% above LIBOR, or 1.5% above IBJ Schroder's bankers' acceptance rate. The Credit Facility is secured by all of Graham-Field's assets. The Credit Facility contains certain customary terms and provisions, including limitations with - 19 - 20 respect to the repayment or prepayment of principal on subordinated debt, including the Senior Subordinated Notes, the incurrence of additional debt, liens, transactions with affiliates and certain consolidations, mergers and acquisitions and sales of assets. In addition, Graham-Field is prohibited from declaring or paying any dividend or making any distribution on any shares of common stock or preferred stock of Graham-Field (other than dividends or distributions payable in its stock, or split-ups or reclassifications of its stock) or applying any of its funds, property or assets to the purchase, redemption or other retirement of any such shares, or of any options to purchase or acquire any such shares. Notwithstanding the foregoing restrictions, Graham-Field is permitted to pay cash dividends in any fiscal year in an amount not to exceed the greater of (i) the amount of dividends due BIL under the terms of the Series B and Series C Preferred Stock in any fiscal year, or (ii) 12.5% of the net income of Graham-Field on a consolidated basis, provided that no event of default under the Credit Facility shall have occurred and be continuing or would exist after giving effect to the payment of the dividends. The Credit Facility contains certain financial covenants, including a cash flow coverage and leverage ratio, and an earnings before interest, taxes, depreciation and amortization covenant, as well as the requirement that Graham-Field reduce outstanding borrowings with the net cash proceeds of certain asset sales. The Company was not in compliance with certain financial covenants contained in the Credit Facility as of December 31, 1997. On April 13, 1998, these covenants were waived effective as of December 31, 1997 by IBJ Schroder and amended for the balance of the term of the Credit Facility. At March 31, 1998, the Company was in compliance with the financial covenants contained in the Credit Facility. The Senior Subordinated Notes. On August 4, 1997, Graham-Field issued the Senior Subordinated Notes under Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"). On February 9, 1998, Graham-Field completed its exchange offer to exchange the outstanding Senior Subordinated Notes for an equal amount of the new Senior Subordinated Notes, which have been registered under the Securities Act. The new Senior Subordinated Notes are identical in all material respects to the previously outstanding Senior Subordinated Notes. The Senior Subordinated Notes bear interest at the rate of 9.75% per annum and mature on August 15, 2007. The Senior Subordinated Notes are general unsecured obligations of Graham-Field, subordinated in right of payment to all existing and future senior debt of Graham-Field, including indebtedness under the Credit Facility. The Senior Subordinated Notes are guaranteed (the "Subsidiary Guarantees"), jointly and severally, on a senior subordinated basis by all existing and future restricted subsidiaries of Graham-Field (the "Guaranteeing Subsidiaries"). The Subsidiary Guarantees are subordinated in right of payment to all existing and future senior debt of the Guaranteeing Subsidiaries, including any guarantees by the Guaranteeing Subsidiaries of Graham-Field's obligations under the Credit Facility. The net proceeds from the offering of the Senior Subordinated Notes were used to repay $60.3 million of indebtedness under the Credit Facility and $5 million of indebtedness due to BIL. The balance of the proceeds were used for general corporate purposes. Under the terms of the Indenture, the Senior Subordinated Notes are not redeemable at Graham-Field's option prior to August 15, 2002. Thereafter, the Senior Subordinated Notes are redeemable, in whole or in part, at the option of Graham-Field, at certain redemption prices plus accrued and unpaid interest to the date of redemption. In addition, prior to August 15, 2000, Graham-Field may, at its option, redeem up to 25% of the aggregate principal amount of Senior Subordinated Notes originally issued with the net proceeds from one or more public offerings of common stock at a redemption price of 109.75% of the principal amount, plus accrued and unpaid interest to the date of redemption; provided that at least 75% of the aggregate principal amount of Senior Subordinated Notes originally issued remain - 20 - 21 outstanding after giving effect to any such redemption. The Indenture contains customary covenants including, but not limited to, covenants relating to limitations on the incurrence of additional indebtedness, the creation of liens, restricted payments, the sales of assets, mergers and consolidations, payment restrictions affecting subsidiaries and transactions with affiliates. In addition, in the event of a change of control of Graham-Field as defined in the Indenture, each holder of the Senior Subordinated Notes will have the right to require Graham-Field to repurchase such holder's Senior Subordinated Notes, in whole or in part, at a purchase price of 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. In addition, Graham-Field will be required in certain circumstances to make an offer to purchase Senior Subordinated Notes at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the date of purchase, with the net cash proceeds of certain asset sales. The Credit Facility, however, prohibits Graham-Field from purchasing the Senior Subordinated Notes without the consent of the lenders thereunder. In addition, the Indenture prohibits the Company from declaring or paying any dividend or making any distribution or restricted payment as defined in the Indenture (collectively, the "Restricted Payments") (other than dividends or distributions payable in capital stock of the Company), unless, at the time of such payment (i) no default or event of default shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Company would be able to incur at least $1.00 of additional indebtedness under the fixed charge coverage ratio contained in the Indenture; and (iii) such Restricted Payment, together with the aggregate of all Restricted Payments made by the Company after the date of the Indenture is less than the sum of (a) 50% of the consolidated net income of the Company for the period (taken as one accounting period) beginning on April 1, 1997 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such consolidated net income for such period is a deficit, minus 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by the Company from contributions of capital or the issue or sale since the date of the Indenture of capital stock of the Company or of debt securities of the Company that have been converted into capital stock of the Company. - 21 - 22 Part II. Other Information Item 1. Legal Proceedings See Note 8 to the Condensed Consolidated Financial Statements. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Matters On April 17, 1998, the Company, J.B. Fuqua, J. Rex Fuqua and certain members of the Fuqua family and other entities controlled by the Fuqua family (collectively, the "Fuqua Family Stockholders") terminated that certain Stockholders Agreement dated as of September 5, 1997 (the "Fuqua Stockholder Agreement"), by and among the Company, BIL, BIL Securities (Offshore) Ltd. and the Fuqua Family Stockholders, and entered into a new agreement dated as of April 17, 1998 (the "New Fuqua Agreement"), which incorporates certain of the provisions of the Fuqua Stockholder Agreement. Simultaneously with the execution of the New Fuqua Agreement, J. Rex Fuqua resigned from the Board of Directors to pursue his many other interests. Under the terms of the New Fuqua Agreement, the Fuqua Family Stockholders were permitted within a two week period following April 17, 1998 to purchase a number of shares of the Company Common Stock in the open market (the "Permitted Purchases") equal to the greater of (i) 370,000 shares and (ii) a number of shares which, when added to the Fuqua Family Stockholders' current holdings, will not exceed 10% of the outstanding voting power of the capital stock of the Company. The New Fuqua Agreement provides, for among other things, that the Fuqua Family Stockholders will not purchase or acquire any additional shares of the Company Common Stock (other than the Permitted Purchases, and in connection with stock splits, stock dividends and similar transactions applicable to all stockholders of the Company generally). In addition, the New Fuqua Agreement provides that the Fuqua Family Stockholders will not engage in proxy contests, hostile tender offers or other similar transactions currently prohibited by the Existing Fuqua Stockholders Agreement; provided that the Fuqua Family Stockholders shall be free to tender their shares in connection with a third party tender offer for the Company regardless of whether such tender offer is recommended by the Board of Directors of the Company. The New Fuqua Agreement also provides that the Fuqua Family Stockholders will continue to vote their shares of the Company Common Stock consistent with the requirements contained in the Existing Fuqua Stockholders Agreement through and including the 1998 Annual Meeting of stockholders of the Company, after which time they shall be free to vote their shares in their absolute discretion. Item 6. Exhibits and Reports on Form 8-K Exhibits: 1. Employment Agreement dated as of April 17, 1998, by and between Graham-Field Health Products, Inc. and Andrew A. Giordano. 2. Employment Agreement dated as of April 17, 1998, by and between Graham-Field Health Products, Inc. and Richard S. Kolodny. 3. Employment Agreement dated as of April 17, 1998, by and between Graham-Field Health Products, Inc. and Ralph Liguori. 4. Employment Agreement dated as of April 17, 1998, by and between Graham-Field Health - 22 - 23 Products, Inc. and Peter Winocur. 5. Stockholders Agreement dated as of April 17, 1998, by and between Graham-Field Health Products, Inc., certain entities of the Fuqua family, Irwin Selinger, BIL (Far East Holdings) Limited and BIL Securities (Offshore) Ltd. Reports on Form 8-K: The Company's Current Report on Form 8-K dated as of February 11, 1998 (Date of Event: January 27, 1998). - 23 - 24 S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GRAHAM-FIELD HEALTH PRODUCTS, INC. (Registrant) Date: May 14, 1998 /s/Irwin Selinger -------------------------------------- Irwin Selinger Chairman of the Board and Chief Executive Officer Date: May 14, 1998 /s/Paul Bellamy -------------------------------------- Paul Bellamy Vice President - Finance Principal Financial Officer - 24 - EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AS INCLUDED IN THE FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 MAR-31-1998 3,136 0 99,747 0 73,992 203,898 36,961 0 496,437 102,098 107,544 0 31,600 798 240,103 496,437 97,727 98,142 67,102 67,102 28,210 0 2,743 87 800 (713) 0 0 0 (713) .03 .03 REPRESENTS EPS-BASIC.
EX-99.1 3 EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, made as of April 17, 1998, by and between GRAHAM-FIELD HEALTH PRODUCTS, INC., a Delaware corporation having its principal place of business at 400 Rabro Drive East, Hauppauge, New York 11788 (the "Company"), and ANDREW A. GIORDANO, residing at 1811 South 24th Street, Arlington, Virginia 22202-1534 (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to retain the Executive as its President and Chief Operating Officer to advance the business and interests of the Company on the terms and conditions set forth herein; and WHEREAS, the Executive desires to provide his services to the Company in such capacities, on and subject to the terms and conditions hereof; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Employment. Subject to all of the terms and conditions hereof, the Company does hereby employ the Executive, effective as of April 17, 1998 (the "Effective Date") for a term commencing on the date hereof and ending on the date which is three (3) years after the date hereof (subject to early termination as 2 provided herein) (the "Term") as its President and Chief Operating Officer, and the Executive does hereby accept such employment. 2. Duties of Executive. The Executive shall, during the Term, perform such executive and administrative duties and functions as may from time to time be appropriate to and consistent with his position as President and Chief Operating Officer of the Company, subject at all times to the control and direction of the Board of Directors and Chief Executive Officer of the Company. The Executive agrees to devote substantially all of his business time to the business and affairs of the Company. The Executive agrees to perform his duties hereunder faithfully, diligently and to the best of his abilities and to refrain from engaging in any other business activity that does, will or could be deemed to interfere with the performance of his duties hereunder or does, will or could reasonably be deemed to conflict with the best interests of the Company. The Executive agrees to accept the payments to be made to him under this Agreement as full and complete compensation for the services required to be performed by, and the covenants of, the Executive under this Agreement. 3. Compensation. 3.1 Base Salary. The Company agrees to pay the Executive an annual base salary at the rate of Three Hundred Fifty Thousand Dollars ($350,000) per annum (the "Base Salary") payable in substantially equal installments every week or in such other manner as the Company may generally pay its employees. Nothing -2- 3 contained herein shall be deemed to obligate the Company to increase the Base Salary at any time. 3.2 Bonus Program. In order to provide performance-based incentive compensation to the Executive, the Executive shall be eligible to participate in the Company's Incentive Program and bonus program, which are administered by the Stock Option and Compensation Committee of the Company. 3.3 Regular Benefits. The Executive shall be entitled to participate in any health insurance, accident insurance, hospitalization insurance, life insurance, pension, or any other similar plan or benefit afforded by the Company to its executive officers generally, if and to the extent that the Executive is eligible to participate in accordance with the provisions of any such insurance, plan or benefit generally. 3.4 Automobile Allowance. The Company recognizes that the Executive will require the use of an automobile for business purposes. Therefore, the Company will provide the Executive with an automobile allowance of $500 per month. In addition, the Company will reimburse the Executive for his costs associated with the operation of the automobile, including gas expenses for the operation of the automobile. 4. Reimbursement of Business Expenses. The Company shall reimburse the Executive for reasonable travel and business expenses incurred on behalf of the Company, subject to the approval and substantiation requirements and other procedures from time to -3- 4 time established by the Company. The Executive may reasonably incur such expenses in the manner permitted by the executive officers of the Company. 5. Termination and Severance Arrangements. (a) The Executive's employment hereunder may be terminated under the following circumstances: (i) The Executive may terminate his employment hereunder at any time on not less than sixty (60) days prior written notice to the Company. (ii) During the original Term, the Company may terminate the Executive's employment hereunder without Cause by providing written notice of termination on not less than three (3) months prior written notice to the Executive. (iii) In the event of the death of or adjudicated incompetency of the Executive during the Term, this Agreement and all benefits payable hereunder shall terminate on the date of death or adjudication of incompetency of the Executive. (iv) If the Executive, because of illness, injury or other incapacitating condition, is unable to perform the services required to be performed by him under this Agreement for a period or periods aggregating more than forty-five (45) days in any twelve (12) consecutive months or a period of forty-five (45) consecutive days during any twelve (12) month period, then the Company, in its sole discretion, may terminate this Agreement by giving notice thereof to the Executive, and this Agreement and all -4- 5 benefits payable hereunder shall terminate upon the date of such notice. (v) The Company may terminate the Executive's employment at any time for Cause. For purposes of this Agreement, the term "Cause" shall mean: (A) gross negligence of the Executive in the performance of his duties, (B) willful neglect of his duties, (C) the Executive's conviction of any felony, (D) the Executive's conviction of any misdemeanor involving theft or fraud, (E) any embezzlement of the Company's or its subsidiaries' property or any misappropriation of any property material to the Company or any of its subsidiaries (whether or not a felony or misdemeanor), (F) the willful engagement by the Executive in conduct which is injurious to the Company or any of its subsidiaries, (G) the persistent and willful disobedience or material breach by the Executive of any of the Company's written rules, instructions or orders, or (H) the Executive's persistent and willful and material breach of the covenants contained herein. b. Upon any termination of the Executive's employment under Section 5(a)(i), (iii), (iv) or (v) of this Agreement, the Executive shall be entitled to receive solely all amounts and benefits to be paid or provided by the Company under Sections 3.1, 3.3, and 4 to the date of such termination. c. Upon any termination of the Executive's employment under Section 5(a)(ii) of this Agreement, the Executive shall be entitled to receive solely all amounts and benefits to be paid or provided by the Company under Sections 3.1, 3.3, 3.4, and -5- 6 4 to the date of such termination plus (i) a lump sum payment equal to the sum of the aggregate amount of Base Salary that would have been paid to the Executive from the date of such termination through the end of the original Term but for such early termination, and (ii) all amounts and benefits to be paid or provided by the Company under Sections 3.3, 3.4, and 4 from the date of termination through the end of the original Term but for such early termination. 6. Executive Covenants. 6.1 Confidential Information. The Executive expressly covenants and agrees that he will not at any time, whether during or after his employment by the Company, directly or indirectly, use or permit the use of any trade secrets, confidential information, or proprietary information (including, without limitation, customer lists, costing information, technical information, software techniques, business plans, marketing data, financial information or similar items) of, or relating to, the Company, or any affiliate of the Company, in connection with any activity or business, whether for his own account or otherwise (except solely the business of the Company, if and to the extent that the Executive is then an employee of the Company) and will not divulge such trade secrets, confidential information or proprietary information to any person, firm, corporation or other entity whatsoever. Any information which becomes known to the public without breach by the Executive of any of the terms hereof or of -6- 7 Executive's common law duties shall not be deemed to be a trade secret or confidential or proprietary information of the Company. 6.2 Ownership by Company. The Executive acknowledges and agrees that all of his work product created, produced or conceived in connection with his association with the Company shall be deemed work for hire and shall be deemed owned exclusively by the Company. Without limiting the generality of the foregoing, the Executive agrees that the Company shall have and possess all proprietary rights, patent rights, copyright rights and trade secret rights as may exist in such work product or as which are inherent therein or appurtenant thereto. The Executive agrees to execute and deliver all documents required by the Company to document or perfect the Company's proprietary rights in and to the Executive's work product. 6.3 Remedies. It is expressly understood and agreed that the services to be rendered hereunder by the Executive are special, unique, and of extraordinary character, and in the event of the breach by the Executive of any of the terms and conditions of this Agreement on his part to be performed hereunder, or in the event of the breach or threatened breach by the Executive of the terms and provision of this Section 6 of this Agreement, then the Company shall be entitled, if it so elects, to institute and prosecute any proceedings in any court of competent jurisdiction, either in law or equity, for such relief as it deems appropriate. -7- 8 6.4 Covenants Non-Exclusive. The Executive acknowledges and agrees that the covenants contained in this Section 6 shall not be deemed exclusive of any common law rights of the Company in connection with the relationships contemplated hereby; and that the Company shall have any and all rights as may be provided by law in connection with the relationships contemplated hereby. 7. General. 7.1 Applicable Law and Expenses. This document shall, in all respects, be governed by the laws of the State of New York. With regard to such choice of law, the parties acknowledge that substantially all of the negotiations relating to this Agreement were conducted in New York State and that this Agreement has been executed by both parties in New York State. 7.2 Venue; Process. The parties to this Agreement agree that jurisdiction and venue shall properly lie in the Supreme Court of the State of New York, New York County, or in the United States District Court for the Southern District of New York, with respect to any legal proceedings arising from this Agreement. Such jurisdiction and venue are merely permissive; jurisdiction and venue shall also continue to lie in any court where jurisdiction and venue would otherwise be proper. The parties agree that they will not object that any action commenced in the foregoing jurisdictions is commenced in a forum non conveniens. Notwithstanding the foregoing, however, nothing contained in this Section 7.2 shall be deemed to limit or waive any right of the -8- 9 parties to remove any dispute to federal court which might otherwise properly be removed to such court. 7.3 Survival. The parties hereto agree that the covenants contained in Section 6 hereof shall survive any termination of employment by the Executive and any termination of this Agreement. 7.4 Independent Representation. The Executive acknowledges that he has had the opportunity to seek independent counsel and tax advice in connection with the execution of this Agreement, and the Executive represents and warrants to the Company (a) that he has sought such counsel and advice as he has deemed appropriate in connection with the execution hereof and the transactions contemplated hereby; and (b) that he has not relied on any representation of the Company as to tax matters or as to the consequences of the execution hereof. 7.5 Notices. Any and all notices required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party if delivered either personally, by telex, facsimile transmission, same day delivery service, overnight expedited delivery service, or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested. If notice is served personally, notice shall be deemed effective upon receipt. If notice is served by telex or by facsimile transmission, notice shall be deemed effective upon transmission, provided that such notice is confirmed in writing by the sender within one day after transmission. If -9- 10 notice is served by same day delivery service or overnight expedited delivery service, notice shall be deemed effective the day after it is sent, and if notice is given by United States mail, notice shall be deemed effective five days after it is sent. In all instances, notice shall be sent to the parties at the following addresses: If to the Company: Graham-Field Health Products, Inc. 400 Rabro Drive East Hauppauge, New York 11788 Attention: Richard S. Kolodny Vice President, General Counsel If to the Executive: Mr. Andrew A. Giordano 1811 South 24th Street Arlington, Virginia 22202-1534 Any party may change its address for the purpose of receiving notices by a written notice given to the other party. 7.6 Modifications or Amendments. No amendment, change or modification of this document shall be valid unless in writing and signed by all of the parties hereto. 7.7 Waiver. No reliance upon or waiver of one or more provisions of this Agreement shall constitute a waiver of any other provisions hereof. 7.8 Successors and Assigns. All of the terms and provisions contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. However, no -10- 11 party shall voluntarily assign any rights hereunder, or delegate any duties hereunder, except upon the prior written consent of the other. 7.9 Separate Counterparts. This document may be executed in one or more separate counterparts, each of which, when so executed, shall be deemed to be an original. Such counterparts shall, together, constitute and shall be one and the same instrument. 7.10 Headings. The captions appearing at the commencement of the sections hereof are descriptive only and are for convenience of reference. Should there be any conflict between any such caption and the section at the head of which it appears, the substantive provisions of such section and not such caption shall control and govern in the construction of this document. 7.11 Further Assurances. Each of the parties hereto shall execute and deliver any and all additional papers, documents and other assurances, and shall do any and all acts and things reasonably necessary in connection with the performance of their obligations hereunder and to carry out the intent of the parties hereto. 7.12 Entire Agreement. This Agreement constitutes the entire understanding and agreement of the parties with respect to the subject matter of this Agreement, and any and all prior agreements, understandings or representations are hereby terminated and canceled in their entirety. -11- 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. GRAHAM-FIELD HEALTH PRODUCTS, INC. By: ----------------------------------- Name: Richard S. Kolodny Title: Vice President, General Counsel -------------------------------------- ANDREW A. GIORDANO -12- EX-99.2 4 EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, made as of April 17, 1998, by and between GRAHAM-FIELD HEALTH PRODUCTS, INC., a Delaware corporation having its principal place of business at 400 Rabro Drive East, Hauppauge, New York 11788 (the "Company"), and RICHARD KOLODNY, residing at 44 Spring Court, Muttontown, New York 11791 (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to retain the Executive as its Vice President and General Counsel to advance the business and interests of the Company on the terms and conditions set forth herein; and WHEREAS, the Executive desires to provide his services to the Company in such capacities, on and subject to the terms and conditions hereof; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Employment. Subject to all of the terms and conditions hereof, the Company does hereby employ the Executive, effective as of April 17, 1998 (the "Effective Date") for a term commencing on the date hereof and ending on the date which is three (3) years after the date hereof (subject to early termination as 2 provided herein) (the "Term") as its Vice President and General Counsel, and the Executive does hereby accept such employment. 2. Duties of Executive. The Executive shall, during the Term, perform such executive and administrative duties and functions as may from time to time be appropriate to and consistent with his position as Vice President and General Counsel of the Company, subject at all times to the control and direction of the Board of Directors and Chief Executive Officer of the Company. The Executive agrees to devote substantially all of his business time to the business and affairs of the Company. The Executive agrees to perform his duties hereunder faithfully, diligently and to the best of his abilities and to refrain from engaging in any other business activity that does, will or could be deemed to interfere with the performance of his duties hereunder or does, will or could reasonably be deemed to conflict with the best interests of the Company. The Executive agrees to accept the payments to be made to him under this Agreement as full and complete compensation for the services required to be performed by, and the covenants of, the Executive under this Agreement. 3. Compensation. 3.1 Base Salary. The Company agrees to pay the Executive an annual base salary at the rate of Two Hundred Thousand Dollars ($200,000) per annum (the "Base Salary") payable in substantially equal installments every week or in such other manner as the Company may generally pay its employees. Nothing contained -2- 3 herein shall be deemed to obligate the Company to increase the Base Salary at any time. 3.2 Bonus Program. In order to provide performance-based incentive compensation to the Executive, the Executive shall be eligible to participate in the Company's Incentive Program and bonus program, which are administered by the Stock Option and Compensation Committee of the Company. 3.3 Regular Benefits. The Executive shall be entitled to participate in any health insurance, accident insurance, hospitalization insurance, life insurance, pension, or any other similar plan or benefit afforded by the Company to its executive officers generally, if and to the extent that the Executive is eligible to participate in accordance with the provisions of any such insurance, plan or benefit generally. 3.4 Automobile Allowance. The Company recognizes that the Executive will require the use of an automobile for business purposes. Therefore, the Company will provide the Executive with an automobile allowance of $500 per month. In addition, the Company will reimburse the Executive for his costs associated with the operation of the automobile, including gas expenses for the operation of the automobile. 4. Reimbursement of Business Expenses. The Company shall reimburse the Executive for reasonable travel and business expenses incurred on behalf of the Company, subject to the approval and substantiation requirements and other procedures from time to -3- 4 time established by the Company. The Executive may reasonably incur such expenses in the manner permitted by the executive officers of the Company. 5. Termination and Severance Arrangements. (a) The Executive's employment hereunder may be terminated under the following circumstances: (i) The Executive may terminate his employment hereunder at any time on not less than sixty (60) days prior written notice to the Company. (ii) During the original Term, the Company may terminate the Executive's employment hereunder without Cause by providing written notice of termination on not less than three (3) months prior written notice to the Executive. (iii) In the event of the death of or adjudicated incompetency of the Executive during the Term, this Agreement and all benefits payable hereunder shall terminate on the date of death or adjudication of incompetency of the Executive. (iv) If the Executive, because of illness, injury or other incapacitating condition, is unable to perform the services required to be performed by him under this Agreement for a period or periods aggregating more than forty-five (45) days in any twelve (12) consecutive months or a period of forty-five (45) consecutive days during any twelve (12) month period, then the Company, in its sole discretion, may terminate this Agreement by giving notice thereof to the Executive, and this Agreement and all -4- 5 benefits payable hereunder shall terminate upon the date of such notice. (v) The Company may terminate the Executive's employment at any time for Cause. For purposes of this Agreement, the term "Cause" shall mean: (A) gross negligence of the Executive in the performance of his duties, (B) willful neglect of his duties, (C) the Executive's conviction of any felony, (D) the Executive's conviction of any misdemeanor involving theft or fraud, (E) any embezzlement of the Company's or its subsidiaries' property or any misappropriation of any property material to the Company or any of its subsidiaries (whether or not a felony or misdemeanor), (F) the willful engagement by the Executive in conduct which is injurious to the Company or any of its subsidiaries, (G) the persistent and willful disobedience or material breach by the Executive of any of the Company's written rules, instructions or orders, or (H) the Executive's persistent and willful and material breach of the covenants contained herein. b. Upon any termination of the Executive's employment under Section 5(a)(i), (iii), (iv) or (v) of this Agreement, the Executive shall be entitled to receive solely all amounts and benefits to be paid or provided by the Company under Sections 3.1, 3.3, and 4 to the date of such termination. c. Upon any termination of the Executive's employment under Section 5(a)(ii) of this Agreement, the Executive shall be entitled to receive solely all amounts and benefits to be paid or provided by the Company under Sections 3.1, 3.3, 3.4, and -5- 6 4 to the date of such termination plus (i) a lump sum payment equal to the sum of the aggregate amount of Base Salary that would have been paid to the Executive from the date of such termination through the end of the original Term but for such early termination, and (ii) all amounts and benefits to be paid or provided by the Company under Sections 3.3, 3.4, and 4 from the date of termination through the end of the original Term but for such early termination. 6. Executive Covenants. 6.1 Confidential Information. The Executive expressly covenants and agrees that he will not at any time, whether during or after his employment by the Company, directly or indirectly, use or permit the use of any trade secrets, confidential information, or proprietary information (including, without limitation, customer lists, costing information, technical information, software techniques, business plans, marketing data, financial information or similar items) of, or relating to, the Company, or any affiliate of the Company, in connection with any activity or business, whether for his own account or otherwise (except solely the business of the Company, if and to the extent that the Executive is then an employee of the Company) and will not divulge such trade secrets, confidential information or proprietary information to any person, firm, corporation or other entity whatsoever. Any information which becomes known to the public without breach by the Executive of any of the terms hereof or of -6- 7 Executive's common law duties shall not be deemed to be a trade secret or confidential or proprietary information of the Company. 6.2 Ownership by Company. The Executive acknowledges and agrees that all of his work product created, produced or conceived in connection with his association with the Company shall be deemed work for hire and shall be deemed owned exclusively by the Company. Without limiting the generality of the foregoing, the Executive agrees that the Company shall have and possess all proprietary rights, patent rights, copyright rights and trade secret rights as may exist in such work product or as which are inherent therein or appurtenant thereto. The Executive agrees to execute and deliver all documents required by the Company to document or perfect the Company's proprietary rights in and to the Executive's work product. 6.3 Remedies. It is expressly understood and agreed that the services to be rendered hereunder by the Executive are special, unique, and of extraordinary character, and in the event of the breach by the Executive of any of the terms and conditions of this Agreement on his part to be performed hereunder, or in the event of the breach or threatened breach by the Executive of the terms and provision of this Section 6 of this Agreement, then the Company shall be entitled, if it so elects, to institute and prosecute any proceedings in any court of competent jurisdiction, either in law or equity, for such relief as it deems appropriate. -7- 8 6.4 Covenants Non-Exclusive. The Executive acknowledges and agrees that the covenants contained in this Section 6 shall not be deemed exclusive of any common law rights of the Company in connection with the relationships contemplated hereby; and that the Company shall have any and all rights as may be provided by law in connection with the relationships contemplated hereby. 7. General. 7.1 Applicable Law and Expenses. This document shall, in all respects, be governed by the laws of the State of New York. With regard to such choice of law, the parties acknowledge that substantially all of the negotiations relating to this Agreement were conducted in New York State and that this Agreement has been executed by both parties in New York State. 7.2 Venue; Process. The parties to this Agreement agree that jurisdiction and venue shall properly lie in the Supreme Court of the State of New York, New York County, or in the United States District Court for the Southern District of New York, with respect to any legal proceedings arising from this Agreement. Such jurisdiction and venue are merely permissive; jurisdiction and venue shall also continue to lie in any court where jurisdiction and venue would otherwise be proper. The parties agree that they will not object that any action commenced in the foregoing jurisdictions is commenced in a forum non conveniens. Notwithstanding the foregoing, however, nothing contained in this Section 7.2 shall be deemed to limit or waive any right of the -8- 9 parties to remove any dispute to federal court which might otherwise properly be removed to such court. 7.3 Survival. The parties hereto agree that the covenants contained in Sections 5(b) and 5(c) and in Section 6 hereof shall survive any termination of employment by the Executive and any termination of this Agreement. 7.4 Independent Representation. The Executive acknowledges that he has had the opportunity to seek independent counsel and tax advice in connection with the execution of this Agreement, and the Executive represents and warrants to the Company (a) that he has sought such counsel and advice as he has deemed appropriate in connection with the execution hereof and the transactions contemplated hereby; and (b) that he has not relied on any representation of the Company as to tax matters or as to the consequences of the execution hereof. 7.5 Notices. Any and all notices required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party if delivered either personally, by telex, facsimile transmission, same day delivery service, overnight expedited delivery service, or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested. If notice is served personally, notice shall be deemed effective upon receipt. If notice is served by telex or by facsimile transmission, notice shall be deemed effective upon transmission, provided that such notice is confirmed in writing by the sender within one day after transmission. If -9- 10 notice is served by same day delivery service or overnight expedited delivery service, notice shall be deemed effective the day after it is sent, and if notice is given by United States mail, notice shall be deemed effective five days after it is sent. In all instances, notice shall be sent to the parties at the following addresses: If to the Company: Graham-Field Health Products, Inc. 400 Rabro Drive East Hauppauge, New York 11788 Attention: Irwin Selinger Chairman of the Board, Chief Executive Officer If to the Executive: Richard S. Kolodny, Esq. 44 Spring Court Muttontown, New York 11791 (516) 677-9117 Any party may change its address for the purpose of receiving notices by a written notice given to the other party. 7.6 Modifications or Amendments. No amendment, change or modification of this document shall be valid unless in writing and signed by all of the parties hereto. 7.7 Waiver. No reliance upon or waiver of one or more provisions of this Agreement shall constitute a waiver of any other provisions hereof. 7.8 Successors and Assigns. All of the terms and provisions contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. However, no -10- 11 party shall voluntarily assign any rights hereunder, or delegate any duties hereunder, except upon the prior written consent of the other. 7.9 Separate Counterparts. This document may be executed in one or more separate counterparts, each of which, when so executed, shall be deemed to be an original. Such counterparts shall, together, constitute and shall be one and the same instrument. 7.10 Headings. The captions appearing at the commencement of the sections hereof are descriptive only and are for convenience of reference. Should there be any conflict between any such caption and the section at the head of which it appears, the substantive provisions of such section and not such caption shall control and govern in the construction of this document. 7.11 Further Assurances. Each of the parties hereto shall execute and deliver any and all additional papers, documents and other assurances, and shall do any and all acts and things reasonably necessary in connection with the performance of their obligations hereunder and to carry out the intent of the parties hereto. 7.12 Entire Agreement. Except for the Agreement dated as of August 16, 1993 between the Executive and the Company (the "Change in Control Agreement") relating to payments to be made to the Executive in the event of the termination of the Executive's employment with the Company within two years following a Change in Control (as defined therein), this Agreement constitutes the entire -11- 12 understanding and agreement of the parties with respect to the subject matter of this Agreement, and any and all prior agreements (other than the Change in Control Agreement), understandings or representations are hereby terminated and canceled in their entirety; provided that notwithstanding anything to the contrary contained in Section 4(e) of the Change in Control Agreement, in the event that the amount payable under Section 5(c) of this Agreement to the Executive upon the termination of his employment following a Change in Control is greater than the amount payable to the Executive under the Change in Control Agreement as a result of such termination, the Executive shall be entitled to the amount payable under Section 5(c) of this Agreement in lieu of the amount payable to the Executive under the Change in Control Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. GRAHAM-FIELD HEALTH PRODUCTS, INC. By: --------------------------------- Name: Irwin Selinger Title: Chairman of the Board, Chief Executive Officer ------------------------------------ RICHARD S. KOLODNY -12- EX-99.3 5 EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, made as of April 17, 1998, by and between GRAHAM-FIELD HEALTH PRODUCTS, INC., a Delaware corporation having its principal place of business at 400 Rabro Drive East, Hauppauge, New York 11788 (the "Company"), and RALPH LIGUORI, residing at 699 Tower Mews, Oakdale, New York 11769 (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to retain the Executive as its Executive Vice President of Operations to advance the business and interests of the Company on the terms and conditions set forth herein; and WHEREAS, the Executive desires to provide his services to the Company in such capacities, on and subject to the terms and conditions hereof; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Employment. Subject to all of the terms and conditions hereof, the Company does hereby employ the Executive, effective as of April 17, 1998 (the "Effective Date") for a term commencing on the date hereof and ending on the date which is three (3) years after the date hereof (subject to early termination as provided herein) (the "Term") as its Executive Vice President of Operations, and the Executive does hereby accept such employment. 2 2. Duties of Executive. The Executive shall, during the Term, perform such executive and administrative duties and functions as may from time to time be appropriate to and consistent with his position as Executive Vice President of Operations of the Company, subject at all times to the control and direction of the Board of Directors and Chief Executive Officer of the Company. The Executive agrees to devote substantially all of his business time to the business and affairs of the Company. The Executive agrees to perform his duties hereunder faithfully, diligently and to the best of his abilities and to refrain from engaging in any other business activity that does, will or could be deemed to interfere with the performance of his duties hereunder or does, will or could reasonably be deemed to conflict with the best interests of the Company. The Executive agrees to accept the payments to be made to him under this Agreement as full and complete compensation for the services required to be performed by, and the covenants of, the Executive under this Agreement. 3. Compensation. 3.1 Base Salary. The Company agrees to pay the Executive an annual base salary at the rate of Two Hundred Twenty Thousand Dollars ($220,000) per annum (the "Base Salary") payable in substantially equal installments every week or in such other manner as the Company may generally pay its employees. Nothing contained herein shall be deemed to obligate the Company to increase the Base Salary at any time. -2- 3 3.2 Bonus Program. In order to provide performance-based incentive compensation to the Executive, the Executive shall be eligible to participate in the Company's Incentive Program and bonus program, which are administered by the Stock Option and Compensation Committee of the Company. 3.3 Regular Benefits. The Executive shall be entitled to participate in any health insurance, accident insurance, hospitalization insurance, life insurance, pension, or any other similar plan or benefit afforded by the Company to its executive officers generally, if and to the extent that the Executive is eligible to participate in accordance with the provisions of any such insurance, plan or benefit generally. 3.4 Automobile Allowance. The Company recognizes that the Executive will require the use of an automobile for business purposes. Therefore, the Company will lease for Executive's exclusive benefit a Cadillac Seville or such other comparable vehicle. In addition, the Company will reimburse the Executive for his costs associated with the operation of the automobile, including gas expenses for the operation of the automobile. 4. Reimbursement of Business Expenses. The Company shall reimburse the Executive for reasonable travel and business expenses incurred on behalf of the Company, subject to the approval and substantiation requirements and other procedures from time to time established by the Company. The Executive may reasonably -3- 4 incur such expenses in the manner permitted by the executive officers of the Company. 5. Termination and Severance Arrangements. (a) The Executive's employment hereunder may be terminated under the following circumstances: (i) The Executive may terminate his employment hereunder at any time on not less than sixty (60) days prior written notice to the Company. (ii) During the original Term, the Company may terminate the Executive's employment hereunder without Cause by providing written notice of termination on not less than three (3) months prior written notice to the Executive. (iii) In the event of the death of or adjudicated incompetency of the Executive during the Term, this Agreement and all benefits payable hereunder shall terminate on the date of death or adjudication of incompetency of the Executive. (iv) If the Executive, because of illness, injury or other incapacitating condition, is unable to perform the services required to be performed by him under this Agreement for a period or periods aggregating more than forty-five (45) days in any twelve (12) consecutive months or a period of forty-five (45) consecutive days during any twelve (12) month period, then the Company, in its sole discretion, may terminate this Agreement by giving notice thereof to the Executive, and this Agreement and all benefits payable hereunder shall terminate upon the date of such notice. -4- 5 (v) The Company may terminate the Executive's employment at any time for Cause. For purposes of this Agreement, the term "Cause" shall mean: (A) gross negligence of the Executive in the performance of his duties, (B) willful neglect of his duties, (C) the Executive's conviction of any felony, (D) the Executive's conviction of any misdemeanor involving theft or fraud, (E) any embezzlement of the Company's or its subsidiaries' property or any misappropriation of any property material to the Company or any of its subsidiaries (whether or not a felony or misdemeanor), (F) the willful engagement by the Executive in conduct which is injurious to the Company or any of its subsidiaries, (G) the persistent and willful disobedience or material breach by the Executive of any of the Company's written rules, instructions or orders, or (H) the Executive's persistent and willful and material breach of the covenants contained herein. b. Upon any termination of the Executive's employment under Section 5(a)(i), (iii), (iv) or (v) of this Agreement, the Executive shall be entitled to receive solely all amounts and benefits to be paid or provided by the Company under Sections 3.1, 3.3, and 4 to the date of such termination. c. Upon any termination of the Executive's employment under Section 5(a)(ii) of this Agreement, the Executive shall be entitled to receive solely all amounts and benefits to be paid or provided by the Company under Sections 3.1, 3.3, 3.4, and 4 to the date of such termination plus (i) a lump sum payment equal to the sum of the aggregate amount of Base Salary that would have -5- 6 been paid to the Executive from the date of such termination through the end of the original Term but for such early termination, and (ii) all amounts and benefits to be paid or provided by the Company under Sections 3.3, 3.4, and 4 from the date of termination through the end of the original Term but for such early termination. 6. Executive Covenants. 6.1 Confidential Information. The Executive expressly covenants and agrees that he will not at any time, whether during or after his employment by the Company, directly or indirectly, use or permit the use of any trade secrets, confidential information, or proprietary information (including, without limitation, customer lists, costing information, technical information, software techniques, business plans, marketing data, financial information or similar items) of, or relating to, the Company, or any affiliate of the Company, in connection with any activity or business, whether for his own account or otherwise (except solely the business of the Company, if and to the extent that the Executive is then an employee of the Company) and will not divulge such trade secrets, confidential information or proprietary information to any person, firm, corporation or other entity whatsoever. Any information which becomes known to the public without breach by the Executive of any of the terms hereof or of Executive's common law duties shall not be deemed to be a trade secret or confidential or proprietary information of the Company. -6- 7 6.2 Ownership by Company. The Executive acknowledges and agrees that all of his work product created, produced or conceived in connection with his association with the Company shall be deemed work for hire and shall be deemed owned exclusively by the Company. Without limiting the generality of the foregoing, the Executive agrees that the Company shall have and possess all proprietary rights, patent rights, copyright rights and trade secret rights as may exist in such work product or as which are inherent therein or appurtenant thereto. The Executive agrees to execute and deliver all documents required by the Company to document or perfect the Company's proprietary rights in and to the Executive's work product. 6.3 Remedies. It is expressly understood and agreed that the services to be rendered hereunder by the Executive are special, unique, and of extraordinary character, and in the event of the breach by the Executive of any of the terms and conditions of this Agreement on his part to be performed hereunder, or in the event of the breach or threatened breach by the Executive of the terms and provision of this Section 6 of this Agreement, then the Company shall be entitled, if it so elects, to institute and prosecute any proceedings in any court of competent jurisdiction, either in law or equity, for such relief as it deems appropriate. 6.4 Covenants Non-Exclusive. The Executive acknowledges and agrees that the covenants contained in this Section 6 shall not be deemed exclusive of any common law rights of -7- 8 the Company in connection with the relationships contemplated hereby; and that the Company shall have any and all rights as may be provided by law in connection with the relationships contemplated hereby. 7. General. 7.1 Applicable Law and Expenses. This document shall, in all respects, be governed by the laws of the State of New York. With regard to such choice of law, the parties acknowledge that substantially all of the negotiations relating to this Agreement were conducted in New York State and that this Agreement has been executed by both parties in New York State. 7.2 Venue; Process. The parties to this Agreement agree that jurisdiction and venue shall properly lie in the Supreme Court of the State of New York, New York County, or in the United States District Court for the Southern District of New York, with respect to any legal proceedings arising from this Agreement. Such jurisdiction and venue are merely permissive; jurisdiction and venue shall also continue to lie in any court where jurisdiction and venue would otherwise be proper. The parties agree that they will not object that any action commenced in the foregoing jurisdictions is commenced in a forum non conveniens. Notwithstanding the foregoing, however, nothing contained in this Section 7.2 shall be deemed to limit or waive any right of the parties to remove any dispute to federal court which might otherwise properly be removed to such court. -8- 9 7.3 Survival. The parties hereto agree that the covenants contained in Sections 5(b) and 5(c) and in Section 6 hereof shall survive any termination of employment by the Executive and any termination of this Agreement. 7.4 Independent Representation. The Executive acknowledges that he has had the opportunity to seek independent counsel and tax advice in connection with the execution of this Agreement, and the Executive represents and warrants to the Company (a) that he has sought such counsel and advice as he has deemed appropriate in connection with the execution hereof and the transactions contemplated hereby; and (b) that he has not relied on any representation of the Company as to tax matters or as to the consequences of the execution hereof. 7.5 Notices. Any and all notices required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party if delivered either personally, by telex, facsimile transmission, same day delivery service, overnight expedited delivery service, or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested. If notice is served personally, notice shall be deemed effective upon receipt. If notice is served by telex or by facsimile transmission, notice shall be deemed effective upon transmission, provided that such notice is confirmed in writing by the sender within one day after transmission. If notice is served by same day delivery service or overnight expedited delivery service, notice shall be deemed effective the -9- 10 day after it is sent, and if notice is given by United States mail, notice shall be deemed effective five days after it is sent. In all instances, notice shall be sent to the parties at the following addresses: If to the Company: Graham-Field Health Products, Inc. 400 Rabro Drive East Hauppauge, New York 11788 Attention: Richard S. Kolodny Vice President, General Counsel If to the Executive: Mr. Ralph Liguori 699 Tower Mews Oakdale, New York 11769 Any party may change its address for the purpose of receiving notices by a written notice given to the other party. 7.6 Modifications or Amendments. No amendment, change or modification of this document shall be valid unless in writing and signed by all of the parties hereto. 7.7 Waiver. No reliance upon or waiver of one or more provisions of this Agreement shall constitute a waiver of any other provisions hereof. 7.8 Successors and Assigns. All of the terms and provisions contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. However, no party shall voluntarily assign any rights hereunder, or delegate -10- 11 any duties hereunder, except upon the prior written consent of the other. 7.9 Separate Counterparts. This document may be executed in one or more separate counterparts, each of which, when so executed, shall be deemed to be an original. Such counterparts shall, together, constitute and shall be one and the same instrument. 7.10 Headings. The captions appearing at the commencement of the sections hereof are descriptive only and are for convenience of reference. Should there be any conflict between any such caption and the section at the head of which it appears, the substantive provisions of such section and not such caption shall control and govern in the construction of this document. 7.11 Further Assurances. Each of the parties hereto shall execute and deliver any and all additional papers, documents and other assurances, and shall do any and all acts and things reasonably necessary in connection with the performance of their obligations hereunder and to carry out the intent of the parties hereto. 7.12 Entire Agreement. Except for the Agreement dated as of January 1, 1997 between the Executive and the Company (the "Change in Control Agreement") relating to payments to be made to the Executive in the event of the termination of the Executive's employment with the Company within two years following a Change in Control (as defined therein), this Agreement constitutes the entire understanding and agreement of the parties with respect to the -11- 12 subject matter of this Agreement, and any and all prior agreements (other than the Change in Control Agreement), understandings or representations are hereby terminated and canceled in their entirety; provided that notwithstanding anything to the contrary contained in Section 4(e) of the Change in Control Agreement, in the event that the amount payable under Section 5(c) of this Agreement to the Executive upon the termination of his employment following a Change in Control is greater than the amount payable to the Executive under the Change in Control Agreement as a result of such termination, the Executive shall be entitled to the amount payable under Section 5(c) of this Agreement in lieu of the amount payable to the Executive under the Change in Control Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. GRAHAM-FIELD HEALTH PRODUCTS, INC. By: ----------------------------------- Name: Richard S. Kolodny Title: Vice President, General Counsel -------------------------------------- RALPH LIGUORI -12- EX-99.4 6 EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, made as of April 17, 1998, by and between GRAHAM-FIELD HEALTH PRODUCTS, INC., a Delaware corporation having its principal place of business at 400 Rabro Drive East, Hauppauge, New York 11788 (the "Company"), and PETER WINOCUR, residing at 14 Woodlee Road, Cold Spring Harbor, New York 11724 (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to retain the Executive as its Executive Vice President of Sales and Marketing to advance the business and interests of the Company on the terms and conditions set forth herein; and WHEREAS, the Executive desires to provide his services to the Company in such capacities, on and subject to the terms and conditions hereof; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Employment. Subject to all of the terms and conditions hereof, the Company does hereby employ the Executive, effective as of April 17, 1998 (the "Effective Date") for a term commencing on the date hereof and ending on the date which is three (3) years after the date hereof (subject to early termination as provided herein) (the "Term") as its Executive Vice President of 2 Sales and Marketing, and the Executive does hereby accept such employment. 2. Duties of Executive. The Executive shall, during the Term, perform such executive and administrative duties and functions as may from time to time be appropriate to and consistent with his position as Executive Vice President of Sales and Marketing of the Company, subject at all times to the control and direction of the Board of Directors and Chief Executive Officer of the Company. The Executive agrees to devote substantially all of his business time to the business and affairs of the Company. The Executive agrees to perform his duties hereunder faithfully, diligently and to the best of his abilities and to refrain from engaging in any other business activity that does, will or could be deemed to interfere with the performance of his duties hereunder or does, will or could reasonably be deemed to conflict with the best interests of the Company. The Executive agrees to accept the payments to be made to him under this Agreement as full and complete compensation for the services required to be performed by, and the covenants of, the Executive under this Agreement. 3. Compensation. 3.1 Base Salary. The Company agrees to pay the Executive an annual base salary at the rate of Two Hundred Thirty Thousand Dollars ($230,000) per annum (the "Base Salary") payable in substantially equal installments every week or in such other manner as the Company may generally pay its employees. Nothing -2- 3 contained herein shall be deemed to obligate the Company to increase the Base Salary at any time. 3.2 Bonus Program. In order to provide performance-based incentive compensation to the Executive, the Executive shall be eligible to participate in the Company's Incentive Program and bonus program, which are administered by the Stock Option and Compensation Committee of the Company. 3.3 Regular Benefits. The Executive shall be entitled to participate in any health insurance, accident insurance, hospitalization insurance, life insurance, pension, or any other similar plan or benefit afforded by the Company to its executive officers generally, if and to the extent that the Executive is eligible to participate in accordance with the provisions of any such insurance, plan or benefit generally. 3.4 Automobile Allowance. The Company recognizes that the Executive will require the use of an automobile for business purposes. Therefore, the Company will provide the Executive with an automobile allowance of $500 per month. In addition, the Company will reimburse the Executive for his costs associated with the operation of the automobile, including gas expenses for the operation of the automobile. 4. Reimbursement of Business Expenses. The Company shall reimburse the Executive for reasonable travel and business expenses incurred on behalf of the Company, subject to the approval and substantiation requirements and other procedures from time to -3- 4 time established by the Company. The Executive may reasonably incur such expenses in the manner permitted by the executive officers of the Company. 5. Termination and Severance Arrangements. (a) The Executive's employment hereunder may be terminated under the following circumstances: (i) The Executive may terminate his employment hereunder at any time on not less than sixty (60) days prior written notice to the Company. (ii) During the original Term, the Company may terminate the Executive's employment hereunder without Cause by providing written notice of termination on not less than three (3) months prior written notice to the Executive. (iii) In the event of the death of or adjudicated incompetency of the Executive during the Term, this Agreement and all benefits payable hereunder shall terminate on the date of death or adjudication of incompetency of the Executive. (iv) If the Executive, because of illness, injury or other incapacitating condition, is unable to perform the services required to be performed by him under this Agreement for a period or periods aggregating more than forty-five (45) days in any twelve (12) consecutive months or a period of forty-five (45) consecutive days during any twelve (12) month period, then the Company, in its sole discretion, may terminate this Agreement by giving notice thereof to the Executive, and this Agreement and all -4- 5 benefits payable hereunder shall terminate upon the date of such notice. (v) The Company may terminate the Executive's employment at any time for Cause. For purposes of this Agreement, the term "Cause" shall mean: (A) gross negligence of the Executive in the performance of his duties, (B) willful neglect of his duties, (C) the Executive's conviction of any felony, (D) the Executive's conviction of any misdemeanor involving theft or fraud, (E) any embezzlement of the Company's or its subsidiaries' property or any misappropriation of any property material to the Company or any of its subsidiaries (whether or not a felony or misdemeanor), (F) the willful engagement by the Executive in conduct which is injurious to the Company or any of its subsidiaries, (G) the persistent and willful disobedience or material breach by the Executive of any of the Company's written rules, instructions or orders, or (H) the Executive's persistent and willful and material breach of the covenants contained herein. b. Upon any termination of the Executive's employment under Section 5(a)(i), (iii), (iv) or (v) of this Agreement, the Executive shall be entitled to receive solely all amounts and benefits to be paid or provided by the Company under Sections 3.1, 3.3, and 4 to the date of such termination. c. Upon any termination of the Executive's employment under Section 5(a)(ii) of this Agreement, the Executive shall be entitled to receive solely all amounts and benefits to be paid or provided by the Company under Sections 3.1, 3.3, 3.4, and -5- 6 4 to the date of such termination plus (i) a lump sum payment equal to the sum of the aggregate amount of Base Salary that would have been paid to the Executive from the date of such termination through the end of the original Term but for such early termination, and (ii) all amounts and benefits to be paid or provided by the Company under Sections 3.3, 3.4, and 4 from the date of termination through the end of the original Term but for such early termination. 6. Executive Covenants. 6.1 Confidential Information. The Executive expressly covenants and agrees that he will not at any time, whether during or after his employment by the Company, directly or indirectly, use or permit the use of any trade secrets, confidential information, or proprietary information (including, without limitation, customer lists, costing information, technical information, software techniques, business plans, marketing data, financial information or similar items) of, or relating to, the Company, or any affiliate of the Company, in connection with any activity or business, whether for his own account or otherwise (except solely the business of the Company, if and to the extent that the Executive is then an employee of the Company) and will not divulge such trade secrets, confidential information or proprietary information to any person, firm, corporation or other entity whatsoever. Any information which becomes known to the public without breach by the Executive of any of the terms hereof or of -6- 7 Executive's common law duties shall not be deemed to be a trade secret or confidential or proprietary information of the Company. 6.2 Ownership by Company. The Executive acknowledges and agrees that all of his work product created, produced or conceived in connection with his association with the Company shall be deemed work for hire and shall be deemed owned exclusively by the Company. Without limiting the generality of the foregoing, the Executive agrees that the Company shall have and possess all proprietary rights, patent rights, copyright rights and trade secret rights as may exist in such work product or as which are inherent therein or appurtenant thereto. The Executive agrees to execute and deliver all documents required by the Company to document or perfect the Company's proprietary rights in and to the Executive's work product. 6.3 Remedies. It is expressly understood and agreed that the services to be rendered hereunder by the Executive are special, unique, and of extraordinary character, and in the event of the breach by the Executive of any of the terms and conditions of this Agreement on his part to be performed hereunder, or in the event of the breach or threatened breach by the Executive of the terms and provision of this Section 6 of this Agreement, then the Company shall be entitled, if it so elects, to institute and prosecute any proceedings in any court of competent jurisdiction, either in law or equity, for such relief as it deems appropriate. -7- 8 6.4 Covenants Non-Exclusive. The Executive acknowledges and agrees that the covenants contained in this Section 6 shall not be deemed exclusive of any common law rights of the Company in connection with the relationships contemplated hereby; and that the Company shall have any and all rights as may be provided by law in connection with the relationships contemplated hereby. 7. General. 7.1 Applicable Law and Expenses. This document shall, in all respects, be governed by the laws of the State of New York. With regard to such choice of law, the parties acknowledge that substantially all of the negotiations relating to this Agreement were conducted in New York State and that this Agreement has been executed by both parties in New York State. 7.2 Venue; Process. The parties to this Agreement agree that jurisdiction and venue shall properly lie in the Supreme Court of the State of New York, New York County, or in the United States District Court for the Southern District of New York, with respect to any legal proceedings arising from this Agreement. Such jurisdiction and venue are merely permissive; jurisdiction and venue shall also continue to lie in any court where jurisdiction and venue would otherwise be proper. The parties agree that they will not object that any action commenced in the foregoing jurisdictions is commenced in a forum non conveniens. Notwithstanding the foregoing, however, nothing contained in this Section 7.2 shall be deemed to limit or waive any right of the -8- 9 parties to remove any dispute to federal court which might otherwise properly be removed to such court. 7.3 Survival. The parties hereto agree that the covenants contained in Sections 5(b) and 5(c) and in Section 6 hereof shall survive any termination of employment by the Executive and any termination of this Agreement. 7.4 Independent Representation. The Executive acknowledges that he has had the opportunity to seek independent counsel and tax advice in connection with the execution of this Agreement, and the Executive represents and warrants to the Company (a) that he has sought such counsel and advice as he has deemed appropriate in connection with the execution hereof and the transactions contemplated hereby; and (b) that he has not relied on any representation of the Company as to tax matters or as to the consequences of the execution hereof. 7.5 Notices. Any and all notices required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party if delivered either personally, by telex, facsimile transmission, same day delivery service, overnight expedited delivery service, or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested. If notice is served personally, notice shall be deemed effective upon receipt. If notice is served by telex or by facsimile transmission, notice shall be deemed effective upon transmission, provided that such notice is confirmed in writing by the sender within one day after transmission. If -9- 10 notice is served by same day delivery service or overnight expedited delivery service, notice shall be deemed effective the day after it is sent, and if notice is given by United States mail, notice shall be deemed effective five days after it is sent. In all instances, notice shall be sent to the parties at the following addresses: If to the Company: Graham-Field Health Products, Inc. 400 Rabro Drive East Hauppauge, New York 11788 Attention: Richard S. Kolodny Vice President, General Counsel If to the Executive: Mr. Peter Winocur 14 Woodlee Road Cold Spring Harbor, New York 11724 Any party may change its address for the purpose of receiving notices by a written notice given to the other party. 7.6 Modifications or Amendments. No amendment, change or modification of this document shall be valid unless in writing and signed by all of the parties hereto. 7.7 Waiver. No reliance upon or waiver of one or more provisions of this Agreement shall constitute a waiver of any other provisions hereof. 7.8 Successors and Assigns. All of the terms and provisions contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. However, no -10- 11 party shall voluntarily assign any rights hereunder, or delegate any duties hereunder, except upon the prior written consent of the other. 7.9 Separate Counterparts. This document may be executed in one or more separate counterparts, each of which, when so executed, shall be deemed to be an original. Such counterparts shall, together, constitute and shall be one and the same instrument. 7.10 Headings. The captions appearing at the commencement of the sections hereof are descriptive only and are for convenience of reference. Should there be any conflict between any such caption and the section at the head of which it appears, the substantive provisions of such section and not such caption shall control and govern in the construction of this document. 7.11 Further Assurances. Each of the parties hereto shall execute and deliver any and all additional papers, documents and other assurances, and shall do any and all acts and things reasonably necessary in connection with the performance of their obligations hereunder and to carry out the intent of the parties hereto. 7.12 Entire Agreement. Except for the Agreement dated as of October 31, 1995 between the Executive and the Company (the "Change in Control Agreement") relating to payments to be made to the Executive in the event of the termination of the Executive's employment with the Company within two years following a Change in Control (as defined therein), this Agreement constitutes the entire -11- 12 understanding and agreement of the parties with respect to the subject matter of this Agreement, and any and all prior agreements (other than the Change in Control Agreement), understandings or representations are hereby terminated and canceled in their entirety; provided that notwithstanding anything to the contrary contained in Section 4(e) of the Change in Control Agreement, in the event that the amount payable under Section 5(c) of this Agreement to the Executive upon the termination of his employment following a Change in Control is greater than the amount payable to the Executive under the Change in Control Agreement as a result of such termination, the Executive shall be entitled to the amount payable under Section 5(c) of this Agreement in lieu of the amount payable to the Executive under the Change in Control Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. GRAHAM-FIELD HEALTH PRODUCTS, INC. By: --------------------------------- Name: Irwin Selinger Title: Chairman of the Board, Chief Executive Officer ------------------------------------ PETER WINOCUR -12- EX-99.5 7 STOCKHOLDER AGREEMENT 1 This AGREEMENT dated as of April 17, 1998 is made and entered into by and between Graham-Field Health Products, Inc., a Delaware corporation (the "Company"), and each of the stockholders of the Company listed on the signature pages hereto (the "Fuqua Family Stockholders"). WHEREAS, the Company and the Fuqua Family Stockholders have entered into a Stockholders Agreement, dated as of September 5, 1997, by and among the Company, the Fuqua Family Stockholders, Irwin Selinger, BIL (Far East Holdings) Limited and BIL Securities (Offshore) Ltd. (the "Stockholders Agreement"); WHEREAS, the Company and the Fuqua Family Stockholders have entered into a Registration Rights Agreement, dated as of September 5, 1997 (the "Registration Rights Agreement"); and WHEREAS, the Company and the Fuqua Family Stockholders wish to terminate the Stockholders Agreement and to enter into alternative arrangements; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Except as otherwise specifically indicated, the following terms have the following meanings for all purposes of this Agreement: "Affiliate" shall have the meaning assigned thereto in Rule 405, as presently promulgated under the Securities Act. "beneficially owns" (or comparable variations thereof) has the meaning set forth in Rule 13d-3 promulgated under the Exchange Act. "Board of Directors" means the Board of Directors of the Company. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) 2 of the Exchange Act) other than an Exempt Person, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than an Exempt Person, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of 50% or more of the Voting Securities of the Company (measured by Voting Power rather than number of shares), (iv) during any period of 12 consecutive months after the date of this Agreement, individuals who at the beginning of any such 12-month period constituted the Board of Directors of the Company, together with any Continuing Directors, cease for any reason to constitute a majority of the Board of Directors of the Company then in office; and (v) the Company consolidates with, or merges with or into, any Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Securities of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Securities of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance), but only if the condition specified in clause (iv) also has occurred. "Continuing Director" means (i) any individual serving as a member of the Board of Directors at the time of this Agreement for so long as such individual is a member of the Board of Directors, and (ii) any individual who is recommended or elected to serve as a member of the Board of Directors by at least a majority of the Continuing Directors then in office, for so long as such individual is a member of the Board of Directors. "DGCL" means the General Corporation Law of the State of Delaware. "Equity Securities" means Voting Securities, Convertible Securities and Rights to Purchase Voting Securities. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated 2 3 thereunder. "Exempt Person" means the Company or any employee benefit plan or stock ownership plan of either the Company or any of its subsidiaries. "Liens" means any lien, claim, mortgage, encumbrance, pledge, security interest, equity or charge of any kind. "Person" means any individual, corporation, partnership, trust, other entity or group (within the meaning of Section 13(d)(3) of the Exchange Act). "Representatives" of any entity means such entity's directors, officers, employees, legal, investment banking and financial advisors, accountants and any other agents and representatives of such entity. "Restricted Group" means (i) any Fuqua Family Stockholder, (ii) any and all Persons directly or indirectly controlled by or under common control with any Fuqua Family Stockholder, (iii) if such Fuqua Family Stockholder is an individual, (a) any member of such Fuqua Family Stockholder's family (including any spouse, parent, sibling, child, grandchild or other lineal descendant, including adoptive children), (b) the heirs, executors, personal representatives and administrators of any of the foregoing persons, (c) any trust established for the benefit of any of the foregoing persons and (d) any charitable foundations established by any of the foregoing persons, and (iv) any and all groups (within the meaning of Section 13(d)(3) of the Exchange Act) of which any Fuqua Family Stockholder or any Person directly or indirectly controlling, controlled by or under common control with such Fuqua Family Stockholder is a member, other than any such group not acting for the purpose of acquiring, holding or beneficially owning Equity Securities. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Subsidiary" means any Person in which the Company or the Fuqua Family Stockholders, as the case may be, directly or indirectly through Subsidiaries or otherwise, beneficially owns more than fifty percent (50%) of either the equity interest in, or the Voting Power of, such Person. "Voting Power" means, with respect to any Outstanding Voting Securities, the highest number of votes that the holders of all such Outstanding Voting Securities would be entitled to cast for the election of directors or on any other matter (except to the extent such voting rights are dependent upon events of 3 4 default or bankruptcy), assuming, for purposes of this computation, the conversion or exchange into Voting Securities of Convertible Securities (whether presently convertible or exchangeable or not) and the exercise of Rights to Purchase Voting Securities (whether presently exercisable or not), in either case to the extent that any such action would increase the number of such votes. "Voting Securities" means the Company Common Stock and any other securities of the Company of any kind or class having power generally to vote for the election of directors; "Convertible Securities" means securities of the Company which are convertible or exchangeable (whether presently convertible or exchangeable or not) into Voting Securities; "Rights to Purchase Voting Securities" means options and rights issued by the Company (whether presently exercisable or not) to purchase Voting Securities or Convertible Voting Securities; and "Outstanding Voting Securities" means at any time the then issued and outstanding Voting Securities, Convertible Securities (which shall be counted at the maximum number of Voting Securities for which they can be converted or exchanged) and Rights to Purchase Voting Securities (which shall be counted at the maximum number of Voting Securities for which they can be exercised). 2. Termination of Stockholders Agreement; Continuation of Registration Rights Agreement. The Stockholders Agreement is hereby terminated in all respects. The Registration Rights Agreement will continue in full force and effect in accordance with its terms. In connection with any transaction permitted pursuant to this Agreement, the Company shall or shall cause any legend not otherwise required by applicable law to be promptly removed from certificates evidencing Equity Securities. 3. Board of Directors. Effective as of the date of this Agreement, J. Rex Fuqua hereby resigns his seat on the Board of Directors and the Fuqua Family Stockholders relinquish their entitlement, pursuant to the Stockholders Agreement, to a seat on the Board of Directors; provided that J. Rex Fuqua is not prohibited from becoming a director of the Company in the future following a Change in Control. 4. Press Release. Prior to the opening of the New York Stock Exchange on April 20, 1998, the Company will issue a press release in the form of Exhibit A attached hereto (the "Press Release"). 5. Purchases of Company Common Stock. Commencing on the second business day following the issuance of the Press Release, the Fuqua Family Stockholders intend, subject to market 4 5 conditions and to the extent permitted by applicable laws, to initiate, within a two-week period (the "Purchase Period"), the purchase in the open market of up to a number of shares of common stock, par value $.025 per share, of the Company (the "Company Common Stock"), equal to the greater of (i) 370,000 shares of Company Common Stock and (ii) a number of shares of Company Common Stock which, when added to the Fuqua Family Stockholders current holdings, will not exceed 10% of the Voting Power of the Outstanding Voting Securities (the "Stock Purchases"). 6. Limitation on Acquisition of Equity Securities. For a period of five (5) years from the date of this Agreement, other than any Stock Purchases completed during the Purchase Period, no Fuqua Family Stockholder shall, directly or indirectly, purchase or acquire, or make any offer to or agree to purchase or acquire, beneficial ownership of any additional Equity Securities if, after giving effect to such purchase or acquisition, the beneficial ownership of Company Common Stock by the Fuqua Family Stockholders would exceed ten percent (10%) of the Voting Power of the Outstanding Voting Securities, except for acquisitions by way of stock dividends, stock splits or other distributions or offerings made available to holders of Company Common Stock generally. 7. Standstill. For a period of five (5) years from the date of this Agreement, but only during such periods as members of the Restricted Group own in the aggregate five percent (5%) of the Voting Power of the Outstanding Voting Securities, no member of the Restricted Group will, and they will not assist or encourage others (including by providing financing) to, directly or indirectly (i) acquire or agree, offer, seek or propose (whether publicly or otherwise) to acquire ownership (including but not limited to beneficial ownership) of any substantial portion of the assets or Equity Securities of the Company, whether by means of a negotiated purchase of assets, tender or exchange offer, merger or other business combination, recapitalization, restructuring or other extraordinary transaction (a "Business Combination"), or (ii) engage in any "solicitation" of "proxies" (as such terms are used in the proxy rules promulgated under the Exchange Act, but disregarding clause (iv) of Rule 14 1(1)(2) and including any exempt solicitation pursuant to Rule 14a-2(b)(1) or (2)), or form, join or in any way participate in a "group" (as defined under the Exchange Act), other than a group consisting solely of members of the Restricted Group, with respect to any Equity Securities; provided that the Fuqua Family Stockholders will be free to (x) tender their shares of Company Common Stock in connection with a third party tender or exchange offer for the Company regardless of whether such tender offer is recommended by the Board of Directors, (y) participate in any other offer made generally to 5 6 holders of any class of Equity Securities and (z) conduct a "solicitation" of "proxies" of other members of the Restricted Group. No member of the Restricted Group will request the Company or any of its Representatives to amend or waive any provision of this paragraph (including this sentence) or Section 5. Nothing contained in this Section 7 is intended to or shall limit the rights of the Fuqua Family Stockholders to purchase additional Equity Securities as permitted by Section 6, to vote their Equity Securities as provided in Section 8(b) or to dispose of their Equity Securities to a person engaged in activities described in clause (i) or (ii) above or otherwise. 8. Ownership and Voting of Company Shares. (a) Each Fuqua Family Stockholder represents and warrants to the Company that such Stockholder owns, beneficially and of record, as of the date hereof, the number of shares of Company Common Stock listed on Schedule I hereto (collectively, the "Company Shares"), subject to no rights of others and free and clear of all Liens. Such Fuqua Family Stockholder's right to vote or assign, pledge, hypothecate or otherwise transfer or dispose of (" Dispose" or a "Disposition") of the Company Shares beneficially owned by such Fuqua Family Stockholder is not subject to any voting trust, voting agreement, voting arrangement or proxy and such Fuqua Family Stockholder has not entered into any contract, option or other arrangement or undertaking with respect thereto. The representations and warranties in this Section 8(a) are subject to the rights, Liens and arrangements relating to Fuqua Holdings--I, L.P., The Jennifer Calhoun Fuqua Trust, The Lauren Brooks Fuqua Trust and The J.B. Fuqua Foundation, Inc. (b) Each Fuqua Family Stockholder will, with respect to those Company Shares that such Stockholder either owns of record on the record date for voting at the 1998 Annual Meeting of Stockholders of the Company (the "1998 Annual Meeting") or special meeting of Company stockholders prior to the 1998 Annual Meeting or for granting any written consent in connection with the solicitation of written consents in lieu of such a meeting or with respect to which such Fuqua Family Stockholder otherwise controls the vote, vote or cause to be voted such shares (or execute written consents with respect to such shares) (x) for the nominees recommended by the Board of Directors, (y) on all other proposals of the Board of Directors, as the Restricted Group determines in its sole discretion and (z) on all proposals of any other stockholder of the Company, in accordance with the recommendation of the Board of Directors. Notwithstanding the foregoing, (i) to the extent that any member of the Restricted Group holds or is empowered to vote or to effect the voting of 6 7 Voting Securities in a fiduciary or comparable capacity and, in the exercise of such duties, such member of the Restricted Group determines that it is not appropriate to vote such Voting Securities in accordance with the recommendation of the Board of Directors as contemplated by clause (z) above, then such member of the Restricted Group may vote such Voting Securities in such manner as he or she determines is appropriate. The provisions of this paragraph (b) shall terminate after the 1998 Annual Meeting, after which time the Restricted Group shall be free to vote their shares in their absolute discretion. 9. No Litigation. (a) The Fuqua Family Stockholders will not commence any lawsuits against the Company or any of its former, current or future officers, directors or Affiliates arising out of or related to matters occurring on or prior to the date of this Agreement and will not become active participants in any of the class action lawsuits currently pending against the Company at the date of this Agreement (the "Current Class Action Lawsuits") or any class action lawsuits that may be filed arising out of circumstances leading or related to the Current Class Action Lawsuits; provided that the Fuqua Family Stockholders (i) may participate in any recovery to which they are entitled in such class action lawsuits as stockholders of the Company, (ii) may participate in depositions or interrogatories or otherwise act as witnesses or otherwise participate to the extent required by applicable law, regulation or legal process and (iii) may assert affirmative defenses and, to the extent they determine in good faith that the Company's directors' and officers' insurance and ability to provide indemnity will not be sufficient to hold them harmless in the event of any litigation in which they are named as defendants, bring counterclaims, cross-claims, claims for contribution and other assertions of claims against the Company or any of its former, current or future officers, directors or Affiliates if and when, as to any such counterclaims, cross-claims, claims for contribution and other assertions of claims, it becomes necessary to do so in light of applicable rules of procedure, statutes of limitation or other time bars. (b) Nothing contained in the immediately preceding paragraph is intended to or shall limit or impair the existing contractual arrangements of the Company or any of its Affiliates with the Fuqua Family Stockholders or the right of any Fuqua Family Stockholder to share in the proceeds of the Company's or its Affiliates' directors' and officers' insurance or benefit from rights to indemnity provided under any state corporation law or the Company's or any Affiliate's Certificate of Incorporation or Bylaws or other contractual arrangements, or to limit or impair the right of any Fuqua Family Stockholder to enforce or seek redress for the breach of any of the foregoing rights. 7 8 (c) The Company will not commence any lawsuits against any Fuqua Family Stockholder or any of their former, current or future officers, directors, partners, trustees or Affiliates arising out of or related to matters occurring on or prior to the date of this Agreement; provided that nothing in this paragraph in intended to or shall limit or impair the Fuqua Family Stockholders' contractual arrangements with the Company or any of its Affiliates or to limit or impair the right of the Company to enforce or seek redress for the breach of any of such contractual arrangements. 10. Non-Disparagement. The Company and the Fuqua Family Stockholders will not hereafter make any oral or written statements or reveal any information to any person, company or agency which is disparaging or damaging to the reputation or business of the Company and/or any of its Affiliates (and their respective former, current or future directors and officers) or the Fuqua Family Stockholders, respectively; provided that the foregoing will not restrict any statement or revelation required by applicable law, regulation or judicial process. 11. Fuqua Family Stockholders' Schedule 13D. The Fuqua Family Stockholders will either (i) replace their existing Schedule 13D filing with a Schedule 13G filing or (ii) amend their Schedule 13D filing to reflect the terms of and transactions contemplated by this Agreement and will set forth in Item 4 of such Schedule 13D that the Fuqua Family Stockholder hold their shares of Company Common Stock as a "passive investor" for investment purposes only and that they have no plans or proposals that would result in any of the events listed in sections (a) through (j) of Item 4 of Schedule 13D. Similar statements will be made in any other regulatory filings required in connection with the Stock Purchases. 12. Amendment and Waiver. (a) This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each party hereto. (b) Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative. 8 9 13. Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the parties at the following addresses or facsimile numbers: If to any Fuqua Family Stockholder, to: c/o Fuqua Capital Corporation One Atlantic Center 1201 West Peachtree Street Suite 500 Atlanta, GA 30309 Facsimile No.: (404) 815-4528 Attn: J. Rex Fuqua with a copy to: Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, NY 10022-3903 Facsimile No.: (212) 715-8066 Attn: Thomas E. Constance, Esq. If to the Company, to: Graham-Field Health Products, Inc. 400 Rabro Drive East Hauppauge, New York 11788 Facsimile No.: (516) 582-5608 Attn: Richard S. Kolodny, Esq. with a copy to: Milbank, Tweed, Hadley & McCloy 1 Chase Manhattan Plaza New York, NY 10005 Facsimile No.: (212) 530-5219 Attn: Robert S. Reder, Esq. 9 10 All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other parties hereto. 14. Irrevocable Appointment of Agent. By the execution and delivery of this Agreement, including counterparts hereof, each Fuqua Family Stockholder hereby irrevocably constitutes and appoints J. Rex Fuqua as the true and lawful agent and attorney-in-fact of each such Fuqua Family Stockholder (such individual, or such other individual as Fuqua Family Stockholders who own a majority of the aggregate Equity Securities then owned by all the Fuqua Family Stockholders (the "Requisite Stockholders") shall designate in writing to the Company from time to time, is herein referred to as the "Agent"), to do or refrain from doing all such further acts and things, and to execute all such documents, as the Agent shall deem necessary or appropriate in connection with this Agreement. Unless there is no existing person that has been designated to act as Agent by the Requisite Stockholders, all rights of the Fuqua Family Stockholders under this Agreement shall be exercised by the Fuqua Family Stockholders only through or by the Agent in his or her capacity as agent of the Fuqua Family Stockholders hereunder, and the Company shall not be required to take directions from any other Stockholder for so long as such Agent continues to serve and has not otherwise been removed as Agent pursuant to notice to the Company from the Requisite Stockholders. If at any time no Person is serving as Agent, the Company shall not be required to take action except upon the direction of the Requisite Stockholders. 15. Entire Agreement. This Agreement supersedes all prior discussions and agreements among the parties hereto with respect to the subject matter hereof, and contains, together with the Registration Rights Agreement, the sole and entire agreement among the parties hereto with respect to the subject matter hereof. 16. No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit 10 11 of each party hereto, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person. 17. No Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any parties hereto without the prior written consent of the other party hereto and any attempt to do so will be void. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and assigns and legal representatives. 18. Specific Performance; Legal Fees. The parties acknowledge that money damages are not an adequate remedy for violations of any provision of this Agreement and that any party may, in such party's sole discretion, apply to a court of competent jurisdiction for specific performance for injunctive or such other relief as such court may deem just and proper in order to enforce any such provision or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. The parties hereto agree that, in the event that any party to this Agreement shall bring any legal action or proceeding to enforce or to seek damages or other relief arising from an alleged breach of any term or provision of this Agreement by any other party, the prevailing party in any such action or proceeding shall be entitled to an award of, and the other party to such action or proceeding shall pay, the reasonable fees and expenses of legal counsel to the prevailing party. 19. Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. 20. Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof and (iii) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. 21. Governing Law. Except to the extent that the DGCL is mandatorily applicable to the rights and obligations of the parties, this Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to a 11 12 contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof. 22. Consent to Jurisdiction and Service of Process. Each party hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York or any court of the State of New York located in the Borough of Manhattan in the City of New York in any action, suit or proceeding arising in connection with this Agreement, agrees that any such action, suit or proceeding shall be brought only in such court (and waives any objection based on forum non conveniens or any other objection to venue therein to the extent permitted by law), and agrees to delivery of service of process by any of the methods by which notices may be given pursuant to Section 13, with such service being deemed given as provided in such Section; provided, however, that such consent to jurisdiction is solely for the purpose referred to in this Section 22 and shall not be deemed to be a general submission to the jurisdiction of said courts or in the State of New York other than for such purpose. Nothing herein shall affect the right of any party to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the other in any other jurisdiction. 23. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 12 13 IN WITNESS WHEREOF, each party hereto has signed this Agreement, or caused this Agreement to be signed by its officer thereunto duly authorized, as of the date first above written. GRAHAM-FIELD HEALTH PRODUCTS, INC. By: __________________________ Name: Title: ___________________________________ J. B. FUQUA ___________________________________ J. REX FUQUA FUQUA HOLDINGS - I, L.P. By: FUQUA HOLDINGS, INC., its General Partner By: _____________________ Name: J. Rex Fuqua Title: President THE JENNIFER CALHOUN FUQUA TRUST By: __________________________ Name: J. B. Fuqua Title: Trustee THE LAUREN BROOKS FUQUA TRUST By: __________________________ Name: J. B. Fuqua Title: Trustee 13 14 THE J. B. FUQUA FOUNDATION, INC. By: __________________________ Name: J. B. Fuqua Title: Chairman, President 14 15 SCHEDULE I Company Shares Owned by the Fuqua Family Stockholders
Stockholder Number ----------- ------ J. B. Fuqua 781,687 J. Rex Fuqua 651,299 Fuqua Holdings - I, L.P. 768,600 The Jennifer Calhoun Fuqua Trust 337,770 The Lauren Brooks Fuqua Trust 337,768 The J. B. Fuqua Foundation, Inc. 146,366
16 EXHIBIT A Press Release FOR IMMEDIATE RELEASE Contacts: Andrew A. Giordano President and Chief GRAHAM-FIELD HEALTH PRODUCTS, INC. Operating Officer (516) 582-5900 400 RABRO DRIVE EAST Richard S. Kolodny HAUPPAUGE, NEW YORK 11788 Vice President and General Counsel (516) 582-5900 GRAHAM-FIELD ANNOUNCES AGREEMENT TO ALLOW FUQUA FAMILY TO PURCHASE ADDITIONAL SHARES OF COMMON STOCK OF GRAHAM-FIELD IN THE OPEN MARKET HAUPPAUGE, NEW YORK, April 20, 1998 - Graham-Field Health Products, Inc. (NYSE-GFI), a manufacturer and supplier of healthcare products, today reported that the Fuqua family has informed the Company that it intends to purchase additional shares of common stock of Graham-Field in the open market based on current market prices in an amount not to exceed the greater of 370,000 additional shares of common stock of the Company or such amount which, when added to the Fuqua family's current holdings, will not exceed 10% of the voting power of the Company's outstanding stock. Currently, the Fuqua family owns shares of common stock representing approximately 9% of the voting power of the Company's outstanding stock. In order to facilitate the Fuqua family's open market purchases, the Graham-Field Board of Directors has approved termination of the Stockholders Agreement with the Fuqua family and entry into another agreement incorporating certain of the provisions of such agreement so as to 17 enable the Fuqua family to purchase additional shares in the open market. In addition, Graham-Field announced that J. Rex Fuqua has resigned from the Board of Directors. Irwin Selinger, Chairman of the Board and Chief Executive Officer stated that "J. Rex Fuqua has decided to leave our Board of Directors in order to give him more time to pursue his many other interests. We will miss his wisdom and foresight. I admire and respect J.B. Fuqua and J. Rex Fuqua, and look forward to their continued participation as major stockholders of Graham-Field. I am pleased the Fuqua family is interested in increasing their ownership in our Company." On December 30, 1997, Graham-Field acquired Fuqua Enterprises, Inc, which included the medical products business of Lumex, Basic American and Prism, all leading companies in their respective markets. The Fuqua acquisition has positioned Graham-Field as one of the leading suppliers of durable medical products in North America. Graham-Field maintains distribution and manufacturing facilities throughout North America. Graham-Field manufactures, markets and distributes more than 45,000 healthcare and rehabilitation products for hospital, long-term care, assisted living, physician and home use to home healthcare, physician, hospital supply and pharmaceutical distributors, retailers and wholesalers. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward- 2 18 looking statements. This press release contains forward-looking statements based on current expectations that could be affected by the risks and uncertainties involved in Graham-Field's business. These risks and uncertainties include, but are not limited to, the effect of economic and market conditions, the impact of the consolidation of health care practitioners, the impact of health care reform, opportunities for acquisitions and Graham-Field's ability to effectively integrate acquired companies, the acceptance and quality of software products, the ability to manage operations in foreign markets, possible disruptions in Graham-Field's computer systems or telephone systems, possible increases in shipping rates or interruptions in shipping service, the level and volatility of interest rates and currency values, the impact of current or pending legislation and regulation, as well as the risks described from time to time in Graham-Field's reports to the Securities and Exchange Commission, which include Graham-Field's Annual Report on Form 10-K for the year ended December 31, 1997 and Graham-Field's Registration Statement on Form S-4 dated as of December 19 1997. Any actual purchases of common stock will depend on numerous factors beyond Graham-Field's control, including market conditions. Subsequent written or oral statements attributable to Graham-Field or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this press release and those in Graham-Field's reports previously filed with the Securities and Exchange Commission. 3 -----END PRIVACY-ENHANCED MESSAGE-----