-----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, OJAbHET9gwjkdJcqnPQ9TvhDDUWh6atonS+6UCEvhmYLt4GhbyzgPgr5VFeMVBf1 rf1CsDt8mU1p2B++s6FaIA== 0000898430-96-001789.txt : 19960514 0000898430-96-001789.hdr.sgml : 19960514 ACCESSION NUMBER: 0000898430-96-001789 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960329 FILED AS OF DATE: 19960513 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNRISE MEDICAL INC CENTRAL INDEX KEY: 0000720577 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 953836867 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11228 FILM NUMBER: 96562070 BUSINESS ADDRESS: STREET 1: 2382 FARADAY AVENUE STE 200 CITY: CARLSBAD STATE: CA ZIP: 92008 BUSINESS PHONE: 619-930-15 MAIL ADDRESS: STREET 1: 2382 FARADAY AVENUE SUITE 200 CITY: CARLSBAD STATE: CA ZIP: 92008 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ================================================================================ (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 29, 1996 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 No.0-12744 SUNRISE MEDICAL INC. (Exact name of registrant as specified in its charter) Delaware 95-3836867 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2382 FARADAY AVENUE, SUITE 200 CARLSBAD, CA 92008 (Address of principal executive offices) Registrant's telephone number, including area code: (619) 930-1500 Indicate by check mark whether 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 and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] --- --- Number of shares of common stock outstanding at April 30, 1996: 18,839,949 SUNRISE MEDICAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
March 29, June 30, 1996 1995 ----------- ----------- (unaudited) (restated) ASSETS - ------ Current assets: Cash and cash equivalents $ 2,390 $ 1,740 Trade receivables, net 125,226 123,007 Installment receivables, net 17,260 18,549 Inventories 85,014 81,941 Other current assets 30,753 11,865 -------- -------- Total current assets 260,643 237,102 Property, plant and equipment net of accumulated depreciation of $72,534 and $66,350 85,257 89,133 Goodwill and other intangible assets, net 295,385 270,478 Other assets, net 1,978 1,196 -------- -------- Total assets $643,263 $597,909 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Current installments of long-term debt $ 6,742 $ 2,328 Trade accounts payable 40,567 36,096 Accrued compensation and other expenses 87,801 72,485 Income taxes 9,908 1,102 -------- -------- Total current liabilities 145,018 112,011 Long-term debt, less current installments 208,471 182,029 Deferred income taxes 4,931 4,376 Stockholders' equity: Preferred stock, $1 par. Authorized 5,000 shares; none issued -- -- Common stock, $1 par. Authorized 40,000 shares; 18,826 and 18,597 shares, respectively, issued and outstanding 18,826 18,597 Additional paid-in capital 195,768 189,955 Retained earnings 68,672 86,276 Cumulative foreign currency translation adjustment 1,577 4,665 -------- -------- Total stockholders' equity 284,843 299,493 -------- -------- Total liabilities and stockholders' equity $643,263 $597,909 ======== ========
(See accompanying notes to condensed consolidated financial statements) 2 SUNRISE MEDICAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
Thirteen Thirty-nine Weeks Ended Weeks Ended March 29, March 29, 1996 1996 ----------- ----------- (unaudited) (unaudited) Net sales $169,574 $500,456 Cost of sales 113,370 335,395 -------- -------- Gross profit 56,204 165,061 Marketing, selling and administrative expenses 38,739 119,020 Research and development expenses 3,721 11,414 Corporate expenses 2,768 7,385 Amortization of goodwill and other intangibles 2,194 6,458 Unusual items -- 34,771 -------- -------- 47,422 179,048 Corporate operating income (loss) 8,782 (13,987) -------- -------- Other (expenses) income: Interest expense ( 4,455) (12,121) Other income and expense, net 553 1,625 -------- -------- ( 3,902) (10,496) -------- -------- Income (loss) before income taxes 4,880 (24,483) Income taxes (benefit) 2,186 ( 6,879) -------- -------- Net income (loss) $ 2,694 $(17,604) ======== ======== Net income (loss) per share $ .14 $( .94) ======== ======== Weighted average number of shares outstanding 18,987 18,799 ======== ========
(See accompanying notes to condensed consolidated financial statements) 3 SUNRISE MEDICAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Thirteen Thirty-nine Weeks Ended Weeks Ended March 29, March 29, 1996 1996 ----------- ----------- (unaudited) (unaudited) Cash flows from operating activities: Net income (loss) $ 2,694 $(17,604) Non-cash items 7,416 25,370 Changes in assets and liabilities, net of effect of acquisitions Receivables, net 4,714 5,704 Inventories ( 490) 2,599 Other current assets 1,120 (15,594) Accounts payable and other liabilities ( 4,504) 14,455 -------- -------- Net cash provided by operating activities 10,950 14,930 -------- -------- Cash flows from investing activities: Purchase of property, plant and equipment ( 3,525) (15,520) Proceeds from sale of air therapy rental business net assets 6,004 6,004 Net cash invested in acquisition of businesses -- (23,072) -------- -------- Net cash provided by (used for) investing activities 2,479 (32,588) -------- -------- Cash flows from financing activities: Borrowings of long-term debt 26,300 137,819 Repayments of long-term debt (42,923) (119,670) Proceeds from issuance of common stock 7 115 -------- -------- Net cash (used for) provided by financing activities (16,616) 18,264 -------- -------- Effect of exchange rate changes on cash 33 44 -------- -------- Net (decrease) increase in cash and cash equivalents ( 3,154) 650 Cash and cash equivalents at beginning of period 5,544 1,740 -------- -------- Cash and cash equivalents at end of period $ 2,390 $ 2,390 ======== ========
(See accompanying notes to condensed consolidated financial statements) 4 SUNRISE MEDICAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The information contained in the consolidated financial statements and footnotes is condensed from that which would appear in the annual consolidated financial statements. Accordingly, the condensed consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements and related notes thereto contained in the Annual Report on Form 10-K/A Amendment No. 1 for the fiscal year ended June 30, 1995 filed by Sunrise Medical Inc. (the "company") with the Securities and Exchange Commission. The unaudited condensed consolidated financial statements as of March 29, 1996 and for the thirteen-week and thirty-nine week periods then ended include all adjustments (consisting of normal recurring adjustments and the unusual items described in Note 3) considered necessary for a fair presentation. The results of operations for interim periods are not necessarily indicative of the results which may be expected for the entire year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. On January 4, 1996 the company reported the results of an internal investigation into accounting practices at its Bio Clinic subsidiary. The company reported that it had determined that net sales, operating income and assets at its Bio Clinic subsidiary had been overstated and liabilities had been understated as a result of actions by a small group of employees in the subsidiary's finance and management information systems departments who falsified accounting entries and computer reports, thereby circumventing the company's internal accounting controls and avoiding detection. Accordingly, the company has restated its financial statements for the years ended June 30, 1995 and July 1, 1994. Because it is not practicable to reconstruct reliable accounting records at its Bio Clinic subsidiary for interim periods during those years, it is not possible to allocate accurately to individual quarters the full year restatement adjustments for any financial statement item other than net sales. Accordingly, no interim financial statements for the thirteen-week and thirty-nine week periods ended March 31, 1995 are presented herein and previously reported interim results for fiscal 1995 should be disregarded. 2. Inventories Certain inventories are stated at the lower of last-in, first-out (LIFO) cost or market value. All other inventories are stated at the lower of the first-in, first-out (FIFO) cost or market value. Inventories consist of the following (in thousands):
March 29, June 30, 1996 1995 --------- -------- Raw material $33,811 $35,126 Work-in-progress 9,041 8,490 Finished goods 42,162 38,325 ------- ------- $85,014 $81,941 ======= =======
Interim period inventory classifications involve a degree of estimation due to the timing of physical inventories throughout the fiscal year. 5 3. Unusual Items During the quarter ended December 29, 1995, the company recorded pre-tax charges of $34.8 million. These charges include: $13.1 million for costs of the internal investigation, restatement, and reissuance of historical financial statements and the estimated attorneys' fees associated with defending related litigation; $10.7 million for the write-down of assets at Bio Clinic and Comfort Clinic to reflect revised estimates of net asset realizations, including goodwill associated with the company's air therapy rental business (and including immaterial items related to periods prior to fiscal 1994); and $11.0 million related to the company's reorganization and cost reduction program, including severance costs, facility closing costs, and write-downs associated with discontinuance of low-volume products. 4. Acquisitions On July 19, 1995 the company acquired Coopers Healthcare Plc, a United Kingdom- based manufacturer of patient aids, for 222,266 shares of its common stock (valued at $5.8 million) and cash of $2.5 million. On October 6, 1995 the company acquired Parker Bath Group, a U.K. manufacturer and distributor of bathing systems and patient lifters, for cash and notes amounting to $30.2 million. These transactions have been accounted for as purchases. Pro forma results of operations, assuming the acquisitions had been made at the beginning of fiscal 1996, would not be materially different from the results reported. 5. Contingencies Following the announcement by the company on October 26, 1995 of its internal investigation into accounting practices at its Bio Clinic Corporation subsidiary (see Note 1), the company and certain of its current and former officers, directors and employees were named as defendants in a number of stockholder class action lawsuits, each alleging violations of the federal securities laws and seeking unspecified damages. These lawsuits have been consolidated in a single action filed in the U.S. District Court for the Southern District of California. In addition, a number of derivative actions seeking unspecified damages have been filed against the company and certain of its current and former officers, directors and employees in California and Delaware state courts. The company is vigorously defending this litigation. The Securities and Exchange Commission (the "SEC") has entered a formal order of private investigation into the circumstances underlying the restatement of the company's 1995 and 1994 financial results. The company is cooperating fully with the SEC in its investigation. 6 SUNRISE MEDICAL INC. AND SUBSIDIARIES ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for the first three quarters of fiscal 1995 were not affected by the restatement described in Note 1 of Notes to Condensed Consolidated Financial Statements. However, it is not practicable to determine the effect on other items in the company's consolidated financial statements for those periods (see Note 1). The quarterly trend in net sales may not be indicative of any similar trend with respect to other aspects of the company's consolidated financial statements. Accordingly, the following discussion involves only limited quarterly comparisons, and includes comparisons of profit contribution for all divisions of the company other than the two divisions (Bio Clinic and Comfort Clinic) affected by the restatement. Profit contribution is an internal measurement used by the company to measure divisional, product line and group performance; it does not include any allocations of unusual items, corporate office expense, goodwill amortization, interest, or income taxes. Thirteen Weeks ended March 29, 1996 - ----------------------------------- Net sales for the third quarter of fiscal 1996 were $169.6 million, an increase of 14% over net sales of $148.6 million in the third quarter of fiscal 1995. The company's base business accounted for 1% of the sales growth and acquisitions contributed 13% to the sales increase. Net sales of support surfaces (Bio Clinic and Comfort Clinic) were $19.2 million during the third quarter, a decline of 36% from last year's level of $29.9 million. Their combined loss (based on profit contribution) decreased to $2.9 million from $6.1 million in the second quarter of fiscal 1996, reflecting the impact of the profit improvement program implemented at the end of the second quarter. The company's other operating divisions, exclusive of the support surfaces business, had sales growth of 27% to $150.4 million in the third quarter of fiscal 1996, from $118.7 million in the comparable quarter last year. Internal growth represented 10% and acquisitions added 17%. Profit contribution, exclusive of support surfaces, was $16.6 million, 9% higher than the third quarter of last year. This increase occurred despite $1.7 million in increased expenses associated with the launch in February 1996 of SunMed Service (SMS). SMS is integrating the order entry, customer service and delivery functions for standard products from all U.S. manufacturing divisions. Through its new national network of eight distribution centers, SMS will improve service levels for both large national accounts and independent homecare providers. Once all U.S. divisions are distributing standard products through SMS, scheduled for June 1996, revenue benefits should begin to offset the incremental expense of this new customer service capability. During the third quarter of fiscal 1996, net sales of Rehabilitation Products were $86.2 million, an increase of 13% compared to net sales of $76.0 million in the prior year's third quarter. Wheelchair sales showed continued strong growth in 7 Europe. Patient aids sales grew from last year on the positive impact of Coopers, a U.K. ambulatory aids manufacturer acquired in July 1995. The group profit contribution increased in line with sales growth in the third quarter compared to the same period of fiscal 1995. Respiratory Products net sales were $34.1 million in the third quarter of 1996, an increase of 5% over sales of $32.3 million in the third quarter of fiscal 1995. Product demand in the United States continued to be negatively influenced by Congressional actions intended to cut the Medicare reimbursement rate for oxygen equipment. However, respiratory sales in Europe continued to grow. The group's profit contribution in the third quarter declined slightly from the prior year, as the impact of pressure on domestic prices and gross margins was substantially offset by international growth. Recovery Products net sales for the thirteen weeks ended March 29, 1996 were $49.3 million compared to $40.3 million in the comparable fiscal 1995 period, an increase of 22%. Excluding support surfaces, this group's third quarter net sales of $30.1 million grew 191% from $10.4 million in the same period last year. The related profit contribution growth rate was even greater. Both net sales and profit contribution were positively impacted by recent acquisitions; the group's results now include those of Corona, a French bed manufacturer, and Parker Bath, a U.K. institutional bathing and lifting products company, acquired in April and October 1995, respectively. Interest expense for the quarter was $4.5 million. The average amount borrowed increased compared to the prior year period as a result of additional debt used to finance acquisitions made in the previous 12 months. During the third quarter, the company paid down $17 million in long-term debt by generating $11 million from operating activities (including a tax refund of $5 million received during the quarter relating to the company's amended U.S. federal income tax return for 1995) and $6 million in cash proceeds from the sale of the air therapy rental business. The company's effective tax rate for the third quarter of fiscal year 1996 was 44.8%. The net income for the quarter was $2.7 million or $.14 per share. Thirty-Nine Weeks ended March 29, 1996 - -------------------------------------- Net sales for the thirty-nine week period ended March 29, 1996 were $500.5 million, an increase of 15% over net sales of $436.1 million in the corresponding period of fiscal 1995. Acquired businesses accounted for 13% of the total increase in net sales, while base business growth contributed 1% and foreign currency translation added 1%. Net sales of support surfaces were $65.0 million in the first nine months of fiscal 1996 compared to $94.4 million in the comparable period of 1995. This business incurred a loss of $11.6 million at the division contribution level during the same 1996 period. This loss was due primarily to the impact of escalating raw material costs which were not matched by price increases initiated during the third quarter. Sales of the company's other operating divisions, exclusive of support surfaces, grew 27%, increasing to $435.5 million in the 1996 period from $341.7 million in the first thirty-nine weeks of fiscal 1995. Internal growth was 9%, while acquisitions and foreign currency translation contributed 16 and 2 percentage points, respectively, to the total sales growth. The profit contribution of these other divisions was $46.3 million or 10% higher when compared to $42.0 million in the prior year period. Sales of Rehabilitation Products were $263.6 million, an increase of 20% compared to net sales of $218.8 million in the first nine months of fiscal 1995. Wheelchair sales grew nicely on strong European demand. Patient aids sales were positively affected by the inclusion of Coopers, 8 a U.K. business acquired in July 1995. Profit contribution from Rehabilitation Products increased in the first nine months of fiscal 1996 compared to the same period of fiscal 1995, but at a slightly lower rate than the increase in sales. Respiratory Products sales were $93.3 million in the first thirty-nine weeks of 1996, an increase of 3% over sales of $90.9 million in the corresponding period of fiscal 1995. Product demand in the United States was weak, attributable primarily to uncertainty as to Medicare reimbursement rates for oxygen equipment. However, this weakness was partially offset by continued sales growth in Europe. This group's profit contribution declined compared to the prior year period as a result of increasing pressure on domestic pricing. Recovery Products sales increased by 14% to $143.6 million in the first nine months of fiscal 1996 from $126.4 million in the same period of fiscal 1995. Significantly lower sales at Bio Clinic and Comfort Clinic were more than offset by the strong growth in the bed and bath divisions. The latter growth reflects the positive impact of Corona, acquired in April 1995, and Parker Bath, acquired in October 1995, as well as solid internal growth. Excluding support surfaces, the group's profit contribution growth rate was greater than the sales growth rate. In December 1995 the company completed an intensive review of its operations and businesses and initiated Operation Rebound, a corporate-wide profit improvement plan. This plan involved four major elements: the consolidation of the company's U.S. sales forces from twelve to six; the integration of a number of the company's smaller divisions operating within the same country or market; the establishment of profit improvement programs at all divisions; and the sale of Bio Clinic's air therapy rental business. Related to the actions discussed above, the company recorded pretax charges from unusual items of $34.8 million in the second quarter of fiscal 1996. These charges include: $13.1 million for costs of the internal investigation, restatement, and reissuance of historical financial statements and the estimated attorneys' fees associated with defending related litigation; $10.7 million for the write-down of assets at Bio Clinic and Comfort Clinic to reflect revised estimates of net asset realizations, including goodwill associated with the company's air therapy rental business (and including immaterial items related to periods prior to fiscal 1994); and $11.0 million related to the company's reorganization and cost reduction program, including severance costs, facility closing costs, and product line discontinuance expenses. Of the total charges of $34.8 million, approximately $21.3 million will require cash payments ($11.3 million of which was paid out during the period and $10.0 million of which is expected to be paid primarily before fiscal year end), while $13.5 million represent non-cash charges. Interest expense for the thirty-nine week period was $12.1 million. The average amount borrowed increased compared to the corresponding period in fiscal 1995 as a result of additional debt used to finance recent acquisitions. For the period the company recognized a tax benefit at an effective tax rate of only 28% due to nondeductible goodwill comprising a relatively large portion of the loss before income taxes. As a result of the unusual items, the company incurred a loss before income taxes of $24.5 million in the first nine months of fiscal 1996. The net loss for the period was $17.6 million or $.94 per share. Before unusual items, net income was $4.6 million or $.24 per share during this same period. 9 LIQUIDITY AND CAPITAL RESOURCES During the first nine months of fiscal 1996, the company's working capital decreased by $9.5 million to $115.6 million, primarily as a result of accruals for the portion of unusual charges requiring future cash payments. Net cash generated by operating activities reached $14.9 million in the first nine months of fiscal 1996, funding capital expenditures, net of disposals, of $9.5 million during this period. Capital expenditures were made primarily for new product tooling, building improvements, machinery and other equipment to improve efficiency or to expand capacity. Net cash used in the purchase of two businesses was $23.1 million. This amount was financed by additional borrowings under the company's bank credit facility and free cash flow. On May 2, 1996 the company amended its five and one-half year multi-currency bank credit facility. The amended credit facility provides for maximum borrowings of $250 million, and requires the company to comply with certain amended covenants such as maintenance of leverage ratio, tangible net worth, interest coverage and certain restrictions on acquisitions. IMPACT OF INFLATION The company attempts to minimize or offset the impact of inflationary pressures on labor and raw materials costs through increased sales volume, improved productivity and active cost control measures. The company believes that inflationary material cost increases may continue and that the markets in which it sells its products will remain price-sensitive, thereby limiting its ability to offset higher costs with pricing actions. FORWARD-LOOKING STATEMENTS Any statements contained in this Form 10-Q which are not historical facts are forward-looking statements that involve risks and uncertainties. The company wishes to caution the reader that forward-looking statements, such as the future impact of SunMed Service on company profitability, are only predictions; actual events or results may differ materially as a result of risks facing the company. These risks include, but are not limited to: the impact of competitive products and pricing pressures; the costs of raw materials; future product demand and market acceptance risks; the effect of economic conditions in the U.S. and abroad; product development, commercialization and technological difficulties; shifts in industry distribution channels; acceleration of the current trend of consolidation of the company's customer base; governmental regulation of medical device design and manufacturing (such as by the F.D.A. in the U.S.); and other risks referenced in this and other Securities and Exchange Commission filings of the company. 10 SUNRISE MEDICAL INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Number Description ------ ----------- 3.1 Amendment to Bylaws to reduce the number of directors to eight. 10.1 Amended and Restated Stock Option Plan for Key Associates. (Incorporated herein by reference to the 1990 Definitive Proxy Statement of the company) 10.2 1993 Stock Option Plan. (Incorporated herein by reference to the 1993 Definitive Proxy Statement of the company) 10.3 Management Incentive Bonus Plan. (Incorporated herein by reference to the company's Registration Statement No. 2-86314 filed with the Securities and Exchange Commission) 10.4 Special Bonus Plan. (Incorporated herein by reference to the company's fiscal 1992 Form 10-K) 10.5 First Amended and Restated Credit Agreement dated as of September 29, 1995 among Sunrise Medical Inc. and certain subsidiary borrowers and guarantors, Bank of America as agent and other lenders. (Incorporated herein by reference to the company's Form 10-K/A for the year ended June 30, 1995) 10.6 First Amendment to Second Amended and Restated Credit Agreement and Waiver dated as of May 2, 1996 among Sunrise Medical Inc. and certain subsidiary borrowers and guarantors, Bank of America as agent and other lenders. 27 Financial Data Schedule. (b) Reports on Form 8-K On January 4, 1996, the company filed a Current Report on Form 8-K relating to a press release announcing the results of an internal investigation into financial reporting irregularities at one of its subsidiaries and discussing other corporate developments. 11 SUNRISE MEDICAL INC. AND SUBSIDIARIES SIGNATURES 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. SUNRISE MEDICAL INC. Date: May 10, 1996 /s/ Ted N. Tarbet ------------------------------------- Ted N. Tarbet Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: May 10, 1996 /s/ John M. Radak ------------------------------------- John M. Radak Vice President and Controller (Principal Accounting Officer) 12 EX-3.1 2 AMENDMENT TO BYLAWS EXHIBIT 3.1 Resolutions Adopted at the January 30, 1996 Meeting of the Board of Directors of Sunrise Medical, Inc. Exhibit A --------- BD1996.19 AMENDMENT TO THE BY-LAWS ------------------------ RESOLVED, that the first sentence of Article III, Section 1 be amended to read: "The number of directors which shall constitute the whole Board shall be eight (8)." EX-10.6 3 AMENDMENT TO CREDIT AGREEMENT DATED 5/2/96 EXHIBIT 10.6 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND WAIVER THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND WAIVER (this "First Amendment") is made and dated as of May 2, 1996, among SUNRISE MEDICAL, INC., a Delaware corporation (the "Borrower"), the subsidiaries of Borrower signatory hereto as "Subsidiary Borrowers" or "Guarantors", the lenders (the "Lenders") party to the Second Amended and Restated Credit Agreement referred to below, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent (the "Agent") and amends that certain Second Amended and Restated Credit Agreement dated as of September 29, 1995 among the parties hereto (the "Agreement"). RECITALS -------- A. By letter dated April 25, 1996, the Borrower requested that the Total Commitment be reduced by $25,000,000 to $250,000,000, effective upon the effectiveness of this First Amendment and, pursuant to Section 2.10(a) of the Agreement, requested that such reduction be applied towards the scheduled reductions of the Total Commitment required by Section 2.10(b) in order of occurrence. B. The Borrower has requested that the Lenders agree to amend certain covenants in the Agreement and to waive prior defaults under other covenants, and the Lenders and the Agent are willing to agree thereto on the terms and conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Terms. All terms used herein shall have the same meanings as in ----- the Agreement unless otherwise defined herein. All references to the Agreement herein, in the Agreement, in the Notes and in any other Loan Documents shall mean the Agreement as hereby amended. 2. Amendments to Agreement. The Loan Parties, the Lenders and the ----------------------- Agent hereby agree that the Agreement is amended as follows: 2.1 The definition of "Amortization Date" in Section 1.01 of the Agreement is amended and restated in its entirety as follows: - 1 - "'Amortization Date' means, subject to Section 2.10(b), ----------------- July 15, 1997, January 15, 1999 and January 15 of each year thereafter." 2.2 The chart in the definition of "Applicable Margin" in Section 1.01 of the Agreement is amended and restated in its entirety as follows:
Eurocurrency Rate Advance Base Rate Commit- Margin and LC Advance ment Leverage Ratio Fee Margin Fee - --------------------------- -------------- ---------- -------- greater than 1.75:1 0.450% 0.000% 0.150 less than 1.75:1 but greater than 2.25:1 0.550 0.000 0.175 less than 2.25:1 but greater than 2.75:1 0.625 0.000 0.200 less than 2.75:1 but greater than 3.25:1 0.750 0.000 0.250 less than 3.25:1 but greater than 3.50:1 1.000 0.000 0.300
2.3 The definition of "Applicable Margin" in Section 1.01 of the Agreement is further amended by inserting the following at the end thereof before the period: "provided, however, for the period from the First Amendment Closing -------- ------- Date until Agent's receipt of the Compliance Certificate for the Fiscal Quarter ending December 27, 1996, the Applicable Margin for Eurocurrency Rate Advances and fees for Standby Letters of Credit shall be 1.25% per annum, the Applicable Margin for Base Rate Advances shall be 0% and the Applicable Margin for the Commitment fee shall be 0.375% per annum." 2.4 The definition of "Consolidated Tangible Net Worth" in Section 1.01 of the Agreement is amended and restated in its entirety as follows: "'Consolidated Tangible Net Worth' means, as of any date of ------------------------------- determination, Shareholders' Equity of the Borrower and its Subsidiaries on that date, excluding the cumulative translation --------- adjustment reported for each applicable Fiscal Quarter, commencing with the Fiscal Quarter ending March 29, 1996, minus the Adjusted ----- Dollar Equivalent of any Intangible Assets of Borrower and its Subsidiaries on that date." 2.5 The definition of "Interest Coverage Ratio" in Section 1.01 of the Agreement is amended by inserting the following at the end before the period: "; provided, however, that for purposes of calculating the Interest -------- ------- Coverage Ratio, all components of Adjusted - 2 - Cash Flow and the Interest Charges component of Debt Service for the Fiscal Quarters ending March 29, 1996, June 28, 1996 and September 27, 1996 shall be annualized using the following conventions: (i) with respect to the Fiscal Quarter ending on March 29, 1996, Adjusted Cash Flow and Interest Charges for the Fiscal Quarter ending March 29, 1996 only shall be used and then multiplied by four, (ii) with respect to the Fiscal Quarter ending on June 28, 1996, Adjusted Cash Flow and Interest Charges for the Fiscal Quarters ending on March 29, 1996 and June 28, 1996 only shall be used and then multiplied by two, and (iii) with respect to the fiscal period ending on September 27, 1996, Adjusted Cash Flow and Interest Charges for the Fiscal Quarters ending on March 29, 1996, June 28, 1996 and September 27, 1996 only shall be used and then multiplied by four-thirds." 2.6 The definition of "Leverage Ratio" in Section 1.01 of the Agreement is amended by inserting the following at the end before the period: "; provided, however, that for purposes of calculating the Leverage -------- ------- Ratio, Consolidated EBITDA for the Fiscal Quarters ending March 29, 1996, June 28, 1996 and September 27, 1996 shall be annualized using the following conventions: (i) with respect to the Fiscal Quarter ending on March 29, 1996, Consolidated EBITDA for the Fiscal Quarter ending March 29, 1996 only shall be used and then multiplied by four, (ii) with respect to the Fiscal Quarter ending on June 28, 1996, Consolidated EBITDA for the Fiscal Quarters ending on March 29, 1996 and June 28, 1996 only shall be used and then multiplied by two, and (iii) with respect to the fiscal period ending on September 27, 1996, Consolidated EBITDA for the Fiscal Quarters ending on March 29, 1996, June 28, 1996 and September 27, 1996 only shall be used and then multiplied by four-thirds." 2.7 The following new definitions are inserted in Section 1.01 of the Agreement in proper alphabetical order as follows: "'Adjusted Dollar Equivalent' means, with respect to Intangible -------------------------- Assets acquired in Acquisitions completed on or prior to December 29, 1995, the Dollar equivalent of such assets utilized by the Company in its books and records as of December 29, 1995; and, with respect to Intangible Assets acquired in Acquisitions completed after December 29, 1995, the Dollar equivalent of such assets utilized by the Company in its books and records as of the date such Intangible Asset was acquired. In - 3 - each case, for purposes of this Agreement, no subsequent adjustments shall be made to the Dollar equivalent of Intangible Assets as a result of subsequent fluctuations in foreign currency exchange rates used to translate Intangible Assets denominated in foreign currencies." "'First Amendment Closing Date' means the date the First ---------------------------- Amendment to Second Amended and Restated Credit Agreement and Waiver is declared effective by the Agent." "'Permitted Acquisitions' means Acquisitions of the stock or ---------------------- assets of a Person engaged in business of the same general type as that of the Borrower and its Subsidiaries (a) which do not violate Section 7.04 and (b) with respect to which no Default or Event of Default exists before and after giving effect thereto." 2.8 Section 1.05(b) of the Agreement is amended by deleting the second sentence in its entirety. 2.9 Section 2.07(a) of the Agreement is amended by inserting the following at the end thereof: "provided, further, that no Bid Borrowings may be requested nor be -------- available prior to the Agent's receipt of the financial statements and the Compliance Certificate for the Fiscal Quarter ended December 27, 1996 as required by Sections 6.01(a) and (l)." 2.10 Section 2.10(c) of the Agreement is amended by deleting "October 14, commencing October 14, 1996, nor later than November 14" and inserting "March 14, commencing March 14, 1996, nor later than April 15" in lieu thereof. 2.11 Section 5.05 of the Agreement is amended by inserting "as restated February 21, 1996" after "Such financial statements" in the second sentence. 2.12 Section 7.03 of the Agreement is amended by deleting "and" at the end of subsection (d), and amending and restating subsection (e) and the last paragraph as three new subsections as follows: "(e) Acquisitions of Parker Bath Company Ltd. and its Subsidiaries, and Coopers Health Care PLC and its Subsidiaries; "(f) Permitted Acquisitions where the purchase price paid therefor, and the Indebtedness assumed therein, do not exceed $7,000,000 in the aggregate; and - 4 - "(g) Additional Permitted Acquisitions, where: (i) the purchase price paid for, and the Indebtedness assumed in, all such Permitted Acquisitions during any calendar year, do not exceed 12.5% of Shareholders' Equity calculated as of the end of the most recently ended Fiscal Quarter (adjusted to exclude the effect of all such Permitted Acquisitions completed during such calendar year); and (ii) after giving effect to all Permitted Acquisitions in any Fiscal Quarter: (A) the Leverage Ratio, calculated as of the end of the most recently ended Fiscal Quarter (adjusted to include all Consolidated Funded Indebtedness incurred in any completed Permitted Acquisitions since the most recently ended Fiscal Quarter), shall be less than 3.25 to 1.00; and (B) Consolidated Tangible Net Worth, calculated as of the end of the most recently ended Fiscal Quarter (adjusted to include the Adjusted Dollar Equivalent of all Intangible Assets acquired in any completed Permitted Acquisitions since the most recently ended Fiscal Quarter) shall exceed $5,000,000; provided, further, that no Permitted Acquisitions shall be made -------- ------- pursuant to this subsection (g) prior to the Agent's receipt of the financial statements and the Compliance Certificate for the Fiscal Quarter ended December 27, 1996 as required by Sections 6.01(a) and (l)." 2.13 Section 7.06(e) of the Agreement is amended and restated in its entirety as follows: "(e) Other Liens securing Indebtedness not exceeding 10% of Shareholders' Equity at any time." 2.14 Sections 7.09, 7.10 and 7.11 of the Agreement are amended and restated in their entirety as follows: "SECTION 7.09 Leverage Ratio. Commencing with the Fiscal -------------- Quarter ending March 29, 1996, permit the - 5 - Leverage Ratio, as of the end of any Fiscal Quarter, to exceed the following ratio:
Fiscal Quarter Ending Maximum Ratio --------------------- ------------- 3/29/96 3.65 to 1.00 6/28/96 through 3/28/97 3.50 to 1.00 6/27/97 and thereafter 3.25 to 1.00
"SECTION 7.10 Minimum Consolidated Tangible Net Worth. Permit --------------------------------------- at the end of any Fiscal Quarter Consolidated Tangible Net Worth to be less than (a) -$19,000,000 plus (b) 50% of Consolidated Net Income for ---- each fiscal quarter ending after December 29, 1995 (not to be reduced by any losses incurred) plus (c) 50% of the net proceeds from the ---- issuance of any equity securities of the Borrower after December 29, 1995 less (d) 50% of the Adjusted Dollar Equivalent of Intangible ---- Assets related to Acquisitions completed after December 27, 1996. "SECTION 7.11 Interest Coverage Ratio. Permit the Interest ----------------------- Coverage Ratio, as of the end of any Fiscal Quarter, to be less than 1.75 to 1.00." 2.15 Section 7.14 of the Agreement is amended by amending and restating subsection (a) in its entirety as follows: "(a) Restricted Junior Payments that in the aggregate do not exceed, during any 12-month period, an amount equal to the lesser of (i) 10% of Shareholders' Equity calculated as of the end of the most recently ended Fiscal Quarter and (ii) 50% of Consolidated Net Income during such period; provided, however, that after giving effect to -------- ------- such Restricted Junior Payment (a) the Leverage Ratio, calculated as of the end of the most recently ended Fiscal Quarter (adjusted to give effect to such Restricted Junior Payment) shall be less than 3.25 to 1.00, and (b) no Default or Event of Default shall exist; provided, -------- further, that no Restricted Junior Payments shall be made pursuant to ------- this subsection (a) prior to the Agent's receipt of the financial statements and the Compliance Certificate for the Fiscal Quarter ended December 27, 1996 as required by Sections 6.01(a) and (l)." 2.16 Schedule 1.01(b) to the Agreement is amended and restated in its entirety as set forth in Schedule 1.01(b) to this First Amendment. - 6 - 2.17 Exhibit I (Compliance Certificate) to the Agreement is amended and restated in its entirety as set forth in Exhibit I to this First Amendment. 3. Certain Waivers. The Lenders and the Agent hereby waive any --------------- Defaults or Events of Default that may have occurred under Sections 4.02(i) of the Agreement, by reason of its reference to Borrower representing and warranting that Section 5.05 of the Agreement was true and correct at each Borrowing, and Sections 7.09, 7.10 and 7.11 of the Agreement on or prior to the date hereof. For all purposes of the Agreement, (i) the adjustments to the Borrower's financial statements for the fiscal periods ended June 30, 1995, September 29, 1995 and December 29, 1995 shall not be deemed to constitute a Material Adverse Effect, and (ii) certain shareholder litigation disclosed to the Agent and the Lenders prior to the date hereof shall not be deemed to have resulted in an Material Adverse Effect to the date hereof based on the current status of such litigation. 4. Representations and Warranties. Each of the Loan Parties ------------------------------ represent and warrant to Lenders and Agent: 4.1 Authorization. The execution, delivery and performance of this ------------- First Amendment have been duly authorized by all necessary corporate action by each of them and has been duly executed and delivered by each of them. 4.2 Binding Obligation. This First Amendment is the legally valid ------------------ and binding obligation of each Loan Party, enforceable in accordance with its terms against each of them respectively, except as such enforcement may be limited by Debtor Relief Laws or equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion. 4.3 No Legal Obstacle to Agreement. Neither the execution of this ------------------------------ First Amendment, the making by any Borrower of any borrowing under the Agreement, nor the performance of the Agreement has constituted or resulted in or will constitute or result in a breach of the provisions of any Contractual Obligation to which any Loan Party is a party, or the violation of any Requirement of Law, or result in the creation under any agreement or instrument of any security interest, lien, charge, or encumbrance upon any of the assets of any of them. No approval or authorization of any Governmental Agency is required by any Loan Party to permit the execution, delivery or performance by any Loan Party of this First Amendment, the Agreement, or the transactions contemplated hereby or thereby, or the making of any borrowing under the Agreement. - 7 - 4.4 Incorporation of Certain Representations. The representations ---------------------------------------- and warranties set forth in Article 5 of the Agreement, as amended hereby, are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof except to the extent any such representation or warranty is made as of any other date. As of the First Amendment Closing Date, and after giving effect to this First Amendment, no event or circumstance has occurred since June 30, 1995 that constitutes a Material Adverse Effect, it being understood that certain shareholder litigation disclosed to the Agent and the Lenders prior to the date hereof shall not be deemed to have resulted in an Material Adverse Effect to the date hereof based on the current status of such litigation. 4.5 Default. Except as waived herein, no Event of Default under the ------- Agreement has occurred and is continuing. 5. Conditions, Effectiveness. The effectiveness of this First ------------------------- Amendment shall be subject to the delivery of the following to the Agent in form and substance satisfactory to the Agent: 5.1 Corporate Resolutions. A copy of a resolution or resolutions --------------------- passed by the Board of Directors of Borrower authorizing the amendments to the Agreement herein provided for, certified by the respective Secretary or an Assistant Secretary of such entity as being in full force and effect on the date hereof. 5.2 Authorized Signatories. A certificate, signed by a Senior ---------------------- Officer of Borrower dated the date hereof, as to the incumbency of the person or persons authorized to execute and deliver this First Amendment and any instrument or agreement required hereunder on behalf of such entity. 5.3 Fees. An amendment fee equal to 0.20% of the Total Commitment, ---- after giving effect to the reduction in the Total Commitment provided for in Section 6.1 of this First Amendment, for the benefit of each Lender in accordance with its Pro Rata Share, and an arrangement fee for the sole use and benefit of Bank of America and Arranger in an amount agreed upon by the Borrower, Bank of America and Arranger. 5.4 Other Evidence. Such other evidence with respect to any Loan -------------- Party or any other person as the Agent or any Lender may reasonably request to establish the consummation of the transactions contemplated hereby, the taking of all corporate action in connection with this First Amendment and the Agreement and the compliance with the conditions set forth herein. - 8 - 6. Miscellaneous. ------------- 6.1 Reduction in Total Commitment. As requested by Borrower in its ----------------------------- letter dated April 25, 1996 to the Agent, the Total Commitment is reduced to $250,000,000 effective as of the date hereof, and the revised Commitment of each Lender is set forth in the amended and restated Schedule 1.01(b) attached hereto. As directed by the Borrower, such reduction shall be applied towards the scheduled reductions of the Total Commitment required by Section 2.10(b) of the Agreement in order of occurrence. 6.2 Effectiveness of the Agreement and Notes. Except as hereby ---------------------------------------- expressly amended, the Agreement and the Notes shall remain in full force and effect, and are hereby ratified and confirmed in all respects. 6.3 Waivers. This First Amendment is specific in time and in intent ------- and does not constitute, nor should it be construed as, a waiver of any other right, power or privilege under the Agreement or the Notes, or under any agreement, contract, indenture, document or instrument mentioned in the Agreement; nor does it preclude any exercise thereof or the exercise of any other right, power or privilege, nor shall any future waiver of any right, power, privilege or default hereunder, or under any agreement, contract, indenture, document or instrument mentioned in the Agreement or the Notes, constitute a waiver of any other default of the same or of any other term or provision. This First Amendment supersedes all prior waivers and agreements. 6.4 Counterparts. This First Amendment may be executed in any number ------------ of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. This First Amendment shall not become effective until each Loan Party, the Lenders and the Agent shall have signed a copy hereof, whether the same or counterparts, and the same shall have been delivered to the Agent. 6.5 Jurisdiction. This First Amendment, and any instrument or ------------ agreement required hereunder, shall be governed by and construed under the laws of the State of California. - 9 - IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered as of the date first written above. SUNRISE MEDICAL, INC. By: __________________________ Ted N. Tarbet Senior Vice President and Chief Financial Officer BIO CLINIC CORPORATION DEVILBISS HEALTH CARE, INC. GUARDIAN PRODUCTS, INC. JAY MEDICAL LTD. JOERNS HEALTHCARE, INC. QUICKIE DESIGNS, INC. SUNMED FINANCE, INC. SUNMED SERVICE, INC. SUNRISE MARIN HOLDINGS, INC. By: __________________________ Ted N. Tarbet Treasurer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: __________________________ Charles Graber Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Lender By: __________________________ Gina West Vice President (Signatures continue) - 10 - NATIONSBANK OF TEXAS, N.A. By: __________________________ Name: ________________________ Title: _______________________ ABN AMRO BANK, Los Angeles International Branch By: __________________________ Name: ________________________ Title: _______________________ UNION BANK By: __________________________ Name: ________________________ Title: _______________________ MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: __________________________ Name: ________________________ Title: _______________________ DEUTSCHE BANK AG, Los Angeles Branch and/or Cayman Islands Branch By: __________________________ Name: ________________________ Title: _______________________ By: __________________________ Name: ________________________ Title: _______________________ PNC BANK, N.A. By: __________________________ Name: ________________________ Title: _______________________ - 11 - SCHEDULE 1.01(B) Commitment and Pro Rata Share -----------------------------
Lender Commitment Pro Rata Share ------ --------------- -------------- Bank of America National Trust and Savings Association $61,363,636.36 24.545454545% NationsBank of Texas, N.A. 45,454,545.45 18.181818182% ABN AMRO Bank, N.V. 45,454,545.45 18.181818182% Union Bank 36,363,636.36 14.545454545% Deutsche Bank AG 20,454,545.46 8.181818182% Morgan Guaranty Trust Company of New York 20,454,545.46 8.181818182% PNC Bank, N.A. 20,454,545.46 8.181818182% =============== =========== $250,000,000 100%
- 1 - EXHIBIT I --------- COMPLIANCE CERTIFICATE ---------------------- TO: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent Reference is made to that certain Second Amended and Restated Credit Agreement dated as of September 29, 1995, by and among Sunrise Medical Inc., a Delaware corporation (the "Borrower"), the Subsidiary Borrowers, the Guarantors, the Lenders party thereto (the "Lenders"), and Bank of America National Trust and Savings Association, as Agent for the Lenders (as amended, further restated, supplemented or otherwise modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement and not otherwise defined in this Compliance Certificate ("Certificate") shall have the meanings assigned thereto in the Credit Agreement. This Certificate is delivered in accordance with Section 6.01(l) of the Credit Agreement. All balance sheet items are as of the date of the attached financial statements. Certain Definitions: ------------------- "Annualized" means, for each fiscal period indicated below, multiplying the applicable item for the indicated Test Period by the applicable annualization factor: Applicable Test Multiplied by For Fiscal Period is Fiscal Annualization Period Ended Quarter(s) Ended Factor - -------------------- ------------------------- ------------- 3/29/96 3/29/96 4 6/28/96 3/29/96, 6/28/96 2 9/27/96 3/29/96, 6/28/96, 9/27/96 4/3 12/27/96 and Thereafter Subject Period None "Prior Fiscal Quarter" means the Fiscal Quarter ending before the Fiscal Quarter or Fiscal Year ending as of the date of the attached financial statements. I - 1 "Subject Period" means the fiscal period consisting of the Fiscal Quarter ending on the date of the attached financial statements and the three immediately preceding Fiscal Quarters. A. COMPLIANCE WITH FINANCIAL COVENANTS ----------------------------------- Computations showing compliance with Sections 7.03, 7.09, 7.10, 7.11 and 7.14 of the Credit Agreement are as follows: 1. 7.03; Investments and Acquisitions. As of the date of the attached ---------------------------------- financial statements: A. The following Acquisitions were made during the Fiscal Quarter ending on the date of the attached financial statements (also list and indicate Permitted Acquisitions, whenever completed, included in $7,000,000 basket): (C) Purchase (B) Price/ (A) Completion Indebtedness Acquisition Date Assumed ----------- ----------- ------------ 1. _____________________________ ___________ $___________ 2. _____________________________ ___________ ___________ 3. _____________________________ ___________ ___________ 4. Total for Acquisitions in Fiscal Quarter (Total of Column C): $___________ 5. Prior period Acquisitions since First Amendment Date: $___________ 6. Acquisitions permitted under Section 7.03(g) (the greater of (i) $0 and (ii) Lines 4 + 5 less $7,000,000): $ ---- =========== Subsection 1.B below is to be computed only for additional Permitted Acquisitions permitted under Section 7.03(g) of the Agreement. B. Leverage Ratio after giving effect to Acquisitions during Fiscal Quarter: 1. Consolidated Funded Indebtedness as of end of Prior Fiscal Quarter: $_________ 2. Total of Column C in above table: $_________ 3. Consolidated Funded Indebtedness after giving effect to above Acquisitions (Lines B1 + B2): $_________ I - 2 4. Consolidated EBITDA for four quarters ending with the Prior Fiscal Quarter: $_________ 5. Adjusted Leverage Ratio (Line B3 / by Line B4): to 1:00 ====== Leverage Ratio for this covenant shall be less than 3.25 to 1.00 Subsection 1.C below is to be computed only for additional Permitted Acquisitions permitted under Section 7.03(g) of the Agreement. C. Consolidated Tangible Net Worth after giving effect to Acquisitions during Fiscal Quarter: 1. Consolidated Tangible Net Worth as of end of Prior Fiscal Quarter: $_________ 2. Increase in Shareholders' Equity due to such Acquisitions: $_________ 3. Adjusted Dollar Equivalent of Intangible Assets attributable to such Acquisitions per Generally Accepted Accounting Principles: $_________ 4. Adjusted Consolidated Tangible Net Worth (Line C1 plus Line C2 less Line C3): $_________ ---- ---- Minimum required Consolidated Tangible Net Worth required for this covenant: exceed $5,000,000 Subsection 1.D below is to be computed only for additional Permitted Acquisitions permitted under Section 7.03(g) of the Agreement. D. The following information relates to Acquisitions made during the calendar year or portion thereof covered by the attached financial statements: 1. Shareholders' Equity as of end of Prior Fiscal Quarter: $_________ 2. 12.5% of such Shareholders' Equity (Line D1 x 12.5%): $_________ 3. Aggregate purchase prices and Indebtedness assumed in Acquisitions completed during the calendar year to date less (the portion ---- of Acquisitions permitted in Section 7.03(f) I - 3 (the $7,000,000 basket) and completed during the calendar year to date: $_________ Line D2 to exceed Line D3. Note: No Acquisitions in excess of $7,000,000 permitted prior to Agent's receipt of financial statements and Compliance Certificate for year ended December 27, 1996. 2. 7.09; Leverage Ratio. As of the date of the attached financial -------------------- statements, the Leverage Ratio was ____:1.00, computed as follows: A. Consolidated Funded Indebtedness: 1. Principal amount of all obligations and liabilities for borrowed money: $_________ 2. Portion of obligations with respect to capital leases which is capitalized in the consolidated balance sheet: $_________ 3. All Contingent Obligations for Persons other than Borrower and its Subsidiaries (without duplication): $_________ 4. Consolidated Funded Indebtedness (Lines A1+A2+A3): $ ========= B. Annualized Consolidated EBITDA: 1. Consolidated Net Income for Test Period: $_________ 2. Interest Charges for Test Period: $_________ 3. Taxes on Consolidated Net Income for Test Period: $_________ 4. Depreciation and amortization for Test Period: $_________ 5. Consolidated EBITDA for Test Period (Lines Bl+B2+B3+B4): $ ========= 6. Line B5 Annualized: $ ========= C. Leverage Ratio (Line A4 / by Line B6): to 1:00 ====== I - 4 D. Maximum Permitted Leverage Ratio: Fiscal Quarter Ending Maximum Ratio --------------------- ------------- 3/29/96 3.65 to 1.00 6/28/96 through 3/28/97 3.50 to 1.00 6/27/97 and thereafter 3.25 to 1.00 3. 7.10; Minimum Consolidated Tangible Net Worth. --------------------------------------------- A. Actual Consolidated Tangible Net Worth: 1. Shareholders' Equity: $_________ 2. Cumulative translation adjustment to Shareholders' Equity reported for each applicable Fiscal Quarter, commencing with Fiscal Quarter ending March 29, 1996: $_________ 3. Adjusted Shareholders' Equity (Line A1 less Line A2): $_________ ---- 4. Intangible Assets per Generally Accepted Accounting Principles: $_________ 5. Change in translated Dollar value of Intangible Assets denominated in foreign currencies as calculated in accordance with the definition of "Adjusted Dollar Equivalent": $_________ 6. Adjusted Dollar Equivalent of Intangible Assets (Line A4 less Line A5, if increase; ---- Line A4 + Line A5, if decrease): $_________ 7. Consolidated Tangible Net Worth for covenant (Lines A3 less Line A6): $ ---- ========= B. 50% of Consolidated Net Income for each fiscal quarter ending after December 29, 1995 (no reduction for losses): $_________ C. 50% of the net proceeds from issuance of equity securities of Borrower after December 29, 1995: $_________ D. 50% of Adjusted Dollar Equivalent of Intangible Assets related to Acquisitions completed after December 27, 1996: $_________ I - 5 E. Minimum required Consolidated Tangible Net Worth (Lines B + C less Line D ---- plus -$19,000,000): $_________ ---- F. Excess (Deficient) Consolidated Tangible Net Worth (Line A7 less Line E): ---- $_________ 4. 7.11; Interest Coverage Ratio. As of the date of the attached ----------------------------- financial statements, the Interest Coverage Ratio was _____:1.00, computed as follows: A. Adjusted Cash Flow for the Test Period: 1. As computed below: $_________ 2. Line 4A.1 Annualized: $ ========= B. Debt Service for Test Period: 1. Interest Charges: $_________ 2. Line B.1 Annualized: $_________ 3. Current Maturities of Long Term Debt: $_________ 4. Debt Service (Line B2+B3): $ ========= C. Interest Coverage Ratio (Line A2 / line B4): :1.00 ------- D. Minimum Requirement: 1.75:1.00 I - 6 INTEREST COVERAGE RATIO - ADJUSTED CASH FLOW COMPUTATION -------------------------------------------------------- In the computation of Interest Coverage Ratio, "Adjusted Cash Flow" is computed as follows, without duplication, and, in the case of depreciation, amortization, deferred taxes and other non-Cash expenses, including non-Cash amounts relating to non-recurring charges to the extent that such charges will not result in future cash outflows, and Interest Charges, in each case only to the extent deducted from revenues to arrive at Consolidated Net Income for Test Period:
Most First Second Third Recent Preceding Preceding Preceding Fiscal Fiscal Fiscal Fiscal For Test Period Quarter Quarter/1/ Quarter/1/ Quarter/1/ Total Consolidated Net Income $ $ ------- ------- ------- ------- ------- plus depreciation and amortization $ $ ------- ------- ------- ------- ------- plus deferred taxes $ $ ------- ------- ------- ------- ------- plus other non-Cash expenses, $ $ ------- ------- ------- ------- ------- including non-Cash amounts relating to non-recurring charges to the extent that such charges will not result in future cash outflows plus Interest Charges expensed $ $ ------- ------- ------- ------- ------- minus Capital Expenditures made by $ $ Borrower or any Subsidiary ------- ------- ------- ------- ------- minus the aggregate dividends made $ $ by Borrower to its shareholders and ------- ------- ------- ------- ------- by any Subsidiary which is not a wholly-owned subsidiary to its minority shareholders equals Adjusted Cash Flow $ $ ------- ------- ------- ------- -------
- ------------------------------------ /1/ See definition of "Annualized" on page one of this Compliance Certificate to determine whether this quarter's actual results are to be used or subsequent quarters' results are to be annualized in accordance with the such definition. I - 7 5. 7.14; Restricted Junior Payments. -------------------------------- A. Restricted Junior Payments made during Subject Period: $_________ B. 10% of Shareholders' Equity (Line 3A.1 x 10%): $_________ C. 50% of Consolidated Net Income during Subject Period: $_________ D. Leverage Ratio after giving effect to Restricted Junior Payments made during Fiscal Quarter: 1. Consolidated Funded Indebtedness as of end of Prior Fiscal Quarter: $_________ 2. Consolidated Funded Indebtedness incurred to make such Restricted Junior Payments: $_________ 3. Consolidated Funded Indebtedness after giving effect to Restricted Junior Payments made during Fiscal Quarter (Lines D1 + D2): $_________ 4. Consolidated EBITDA for Test Period: $_________ 5. Adjusted Leverage Ratio (Line D3 / by Line D4): to 1:00 ====== After giving effect to all Restricted Junior Payment during Subject Period: (a) Line 5A to be less than lesser of (i) Line 5B and (ii) Line 5C and (b) adjusted Leverage Ratio to be less than 3.25 to 1.00. Note: No Restricted Junior Payments of above type permitted prior to Agent's receipt financial statements and compliance certificate for December 27, 1996. E. Amount of purchases and redemptions in clause (c) of Section 7.14: $_________ Maximum Permitted: $200,000 B. PERFORMANCE OF OBLIGATIONS -------------------------- A review of the activities of Borrower and its Subsidiaries during the fiscal period covered by the attached financial statements has been made under my supervision with a view to determining whether during such fiscal period Borrower and its respective Subsidiaries performed and observed all of their respective Obligations under the Loan Documents. Except as described in an attached document (which includes the response I - 8 thereto which Borrower has taken or proposes to take) or in an earlier Compliance Certificate, to the best of my knowledge, as of the date of this Compliance Certificate there is no Default or Event of Default. C. NO MATERIAL ADVERSE CHANGE. -------------------------- To the best of my knowledge, except as described in an attached document or in an earlier Compliance Certificate, no Material Adverse Effect has occurred since the date of the most recent Compliance Certificate delivered to the Lenders. Dated: ________________, 19___ SUNRISE MEDICAL, INC. By: ____________________________ Title: ________________________ I - 9 EX-27 4 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 29, 1996 AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-28-1996 MAR-29-1996 2,390 0 152,884 10,398 85,014 260,643 157,791 72,534 643,263 145,018 208,471 0 0 18,826 266,017 643,263 500,456 500,456 335,395 335,395 179,048 0 12,121 (24,483) (6,879) (17,604) 0 0 0 (17,604) (.94) (.94)
-----END PRIVACY-ENHANCED MESSAGE-----