-----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, RZJRuJx8SHk7Y0++w4lPz4Fs/hfki6V2ezznhTivnyuCBvy9VhrYaICBHXRsM+Hj XVUPmVWI2ke+gs9Y9Xignw== 0000950136-02-003186.txt : 20021113 0000950136-02-003186.hdr.sgml : 20021113 20021113162712 ACCESSION NUMBER: 0000950136-02-003186 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANGER INC CENTRAL INDEX KEY: 0000725460 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 112239561 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12991 FILM NUMBER: 02820343 BUSINESS ADDRESS: STREET 1: 450 COMMACK ROAD CITY: DEER PARK STATE: NY ZIP: 11729 BUSINESS PHONE: 6136671200 MAIL ADDRESS: STREET 1: 450 COMMACK ROAD CITY: DEER PARK STATE: NY ZIP: 11729 10-Q 1 file001.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q -------------------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-12991 ------- LANGER, INC. ------------ (Exact name of Registrant as specified in its charter) DELAWARE 11-2239561 -------- ---------- (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification number) 450 COMMACK ROAD, DEER PARK, NEW YORK 11729 - 4510 -------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (631) 667-1200 -------------- * * * * * * * * * * * 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 ______ ----------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, Par Value $.02 - 4,336,744 shares as of November 13, 2002. 1 INDEX LANGER, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets 3 Unaudited Consolidated Statements of Operations 4 Unaudited Consolidated Statements of Stockholders' Equity 5 Unaudited Consolidated Statements of Cash Flows 6 Notes to Unaudited Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition 15 and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 Item 4. Controls and Procedures 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 21 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LANGER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 DECEMBER 31, 2001 -------------------- ----------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 10,184,963 $ 15,796,922 Accounts receivable, net of allowance for doubtful accounts of $106,500 and $43,300, respectively 2,868,899 1,646,696 Inventories, net 2,200,455 1,141,151 Prepaid expenses and other current receivables 401,921 185,740 -------------- ------------- Total current assets 15,656,238 18,770,509 Property and equipment, net 975,548 701,996 Identifiable intangible assets, net 3,357,990 - Goodwill 3,011,694 - Other assets 1,104,996 1,227,741 -------------- ------------- $ 24,106,466 $ 20,700,246 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 1,000,000 $ - Accounts payable 1,024,743 429,531 Accrued liabilities 2,048,954 1,224,444 Unearned revenue 659,254 461,355 -------------- ------------- Total current liabilities 4,732,951 2,115,330 Long-term debt 15,389,000 14,589,000 Unearned revenue 162,727 113,740 Other 100,267 15,967 -------------- ------------- Total liabilities 20,384,945 16,834,037 -------------- ------------- Stockholders' Equity Common stock, $.02 par value, authorized 50,000,000 and 10,000,000 shares respectively; issued 4,336,744 and 4,268,022 respectively 86,735 85,361 Additional paid-in capital 12,818,724 12,258,724 Accumulated deficit (8,771,924) (8,048,012) Accumulated other comprehensive loss (296,557) (314,407) -------------- ------------- 3,836,978 3,981,666 Less: treasury stock at cost, 67,100 shares (115,457) (115,457) -------------- ------------- Total stockholders' equity 3,721,521 3,866,209 -------------- ------------- $ 24,106,466 $ 20,700,246 ============== =============
See accompanying notes to unaudited consolidated financial statements. 3 LANGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 ------------------ ----------------- ----------------- -------------- Net sales $ 5,230,438 $ 3,434,507 $12,704,043 $ 9,210,072 Cost of sales 3,206,064 2,072,966 7,732,793 6,099,846 --------- --------- ---------- ----------- Gross profit 2,024,374 1,361,541 4,971,250 3,110,226 Selling expenses 874,237 397,415 2,190,188 1,207,312 Research and development expenses 38,165 42,972 127,740 129,281 General and administrative expenses 1,005,108 912,289 2,875,388 2,158,597 Change in control and restructuring expenses - - - 795,667 --------- --------- ---------- ----------- Income (loss) from operations 106,864 8,865 (222,066) (1,180,631) --------- --------- ---------- ----------- Other income (expense): Interest income 43,966 20,478 176,987 22,974 Interest expense (165,548) (654) (471,182) (14,619) Other (79,717) (7,305) (187,151) (3,986) ---------- ---------- ---------- ----------- Other income (expense), net (201,299) 12,519 (481,346) 4,369 ---------- ---------- ---------- ----------- Income (loss) before income taxes (94,435) 21,384 (703,412) (1,176,262) Provision for income taxes 7,000 9,500 20,500 21,500 ---------- ---------- ---------- ----------- Net income (loss) $ (101,435) $ 11,884 $ (723,912) $ (1,197,762) =========== ========== ============ =========== Weighted average number of common shares used in computation of net income (loss) per share: Basic 4,269,644 4,190,054 4,237,645 3,857,981 Diluted 4,269,644 4,534,492 4,237,645 3,857,981 Net income (loss) per common share: Basic $ (0.02) $ 0.00 $ (0.17) $ (.31) =========== ============ ============= ============ Diluted $ (0.02) $ 0.00 $ (0.17) $ (.31) =========== ============ ============= ============
4 LANGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
Accumulated Other Comprehensive Loss ------------------ Common Stock ------------ Additional Foreign Minimum Total Treasury Paid-in Accumulated Currency Pension Stockholders' Shares Amount Stock Capital Deficit Translation Liability Equity ------------------------------------------------------------------------------------------------------ Balance at December 31, 2001 4,268,022 $ 85,361 $ (115,457) $ 12,258,724 $ (8,048,012) $ (52,787) $ (261,620) $ 3,866,209 Net loss for nine months ended September 30, (723,912) (723,912) Foreign currency adjustment 17,850 17,850 Issuance of stock to purchase business 64,895 1,298 528,214 529,512 Issuance of common stock and exercise of stock options 3,827 76 11,729 11,805 Compensation expense to accelerate stock options 20,057 20,057 -------------------------------------------------------------------------------------------------------- Balance at September 30, 2002 4,336,744 $ 86,735 $ (115,457) $ 12,818,724 $ (8,771,924) $ (34,937) $ (261,620) $ 3,721,521 ========================================================================================================
5
LANGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 --------------- ------------------- ---------------- ------------------ Cash Flows From Operating Activities: Net income (loss) $ (101,435) $ 11,884 $ (723,912) $ (1,197,762) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 203,752 91,356 531,262 238,470 Compensation expense for options acceleration -- -- 20,057 -- Provision for doubtful accounts receivable 26,476 6,000 45,556 31,051 Deferred income taxes (44) (43) (118) 1,735 Issuance of common stock and options for consulting services -- -- 5,242 245,000 Changes in operating assets and liabilities: Accounts receivable (292,750) (62,182) (430,833) (77,268) Inventories (240,247) (73,861) (376,150) 42,043 Prepaid expenses and other assets (926) 51,455 (165,785) (28,595) Accounts payable and accrued liabilities 36,636 95,916 340,448 247,723 Unearned revenue and other liabilities 10,280 20,261 (1,871) 28,529 --------------- ------------------- ---------------- ---------------- Net cash (used in) provided by operating activities (358,258) 140,786 (756,104) (469,074) --------------- ------------------- ---------------- ---------------- Cash Flows From Investing Activities: Purchase of businesses, net of cash acquired (38,068) -- (6,858,426) -- Purchases of fixed assets (128,330) (79,032) (333,504) (121,303) --------------- ------------------- --------------- ---------------- Net cash used in investing activities (166,398) (79,032) (7,191,930) (121,303) --------------- ------------------- --------------- ---------------- Cash Flows From Financing Activities: Proceeds from the exercise of stock options -- 30,562 6,563 66,912 Issuance of promissory notes for purchase of businesses -- -- 1,800,000 -- Issuance of common stock for purchase of businesses -- -- 529,512 -- Payments on debt -- -- -- (87,646) Issuance of shares from Options exercise -- -- -- 2,135,000 Proceeds from the issuance of common stock -- -- -- 225,000 --------------- ------------------- ---------------- ---------------- Net cash provided by financing activities -- 30,562 2,336,075 2,339,266 --------------- ------------------- ---------------- ---------------- Net (decrease) increase in cash and cash equivalents (524,656) 92,316 (5,611,959) 1,748,889 Cash and cash equivalents at beginning of period 10,709,619 2,074,526 15,796,922 417,953 --------------- ------------------- ---------------- ---------------- Cash and cash equivalents at end of period $ 10,184,963 $ 2,166,842 $ 10,184,963 $ 2,166,842 =============== =================== ================ ================ Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest expense $ 165,548 $ 654 $ 471,182 $ 14,619 =============== =================== ================ ================= Income taxes $ -- $ -- $ -- $ -- =============== =================== ================ =================
See notes to condensed consolidated financial statements. 6 LANGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 (UNAUDITED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS ------------------------------------------------------------ (A) BASIS OF PRESENTATION --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited consolidated financial statements should be read in conjunction with the financial statements and footnotes included in the Company's annual report on Form 10-K and any amendments thereto for the fiscal period ended December 31, 2001. Operating results for the three and nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. (B) CHANGE IN NAME AND FISCAL YEAR END ---------------------------------- At the Company's July 17, 2001 annual meeting, the stockholders approved changing the name of the Company from The Langer Biomechanics Group, Inc. to Langer, Inc. Additionally, the stockholders approved changing the fiscal year end from February 28 to December 31. (C) CHANGE IN STATE OF INCORPORATION -------------------------------- At the Company's June 27, 2002 annual meeting, the stockholders approved the changing of the State of Incorporation of the Company from New York to Delaware. The new Certificate of Incorporation authorizes the issuance of 50,000,000 shares of common stock, par value $.02 per share and the issuance of 250,000 shares of blank check preferred stock. No shares of preferred stock are issued or outstanding. (D) INCOME (LOSS) PER SHARE ----------------------- Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are based on the weighted average number of shares of common stock and common stock equivalents (options and warrants) outstanding during the period, except where the effect would be antidilutive, computed in accordance with the treasury stock method. (E) PROVISION FOR INCOME TAXES -------------------------- For the three and nine months ended September 30, 2002 and 2001, there was no provision for income taxes on losses related to domestic operations. The provision for income taxes on foreign operations for the three and nine months ended September 30, 2002 was estimated at $7,000 and $20,500 respectively. The provision for income taxes on foreign operations for the three and nine months ended September 30, 2001 was estimated at $9,500 and $21,500 respectively. (F) RECLASSIFICATIONS ----------------- Certain amounts have been reclassified in the prior year consolidated financial statements to present them on a basis consistent with the current year. 7 NOTE 2-ACQUISITION OF BENEFOOT, INC. AND BENEFOOT PROFESSIONAL PRODUCTS, INC. - ----------------------------------------------------------------------------- On May 6, 2002 the Company, through a wholly owned subsidiary, acquired substantially all of the assets and liabilities of each of Benefoot, Inc. and Benefoot Professional Products, Inc. (jointly, "Benefoot"), pursuant to the terms of an asset purchase agreement (the "Asset Purchase Agreement"). The assets acquired include machinery and equipment, other fixed assets, inventory, receivables, contract rights, and intangible assets. In connection with the acquisition, the Company paid consideration of $6.1 million, of which $3.8 million was paid in cash, $1.8 million was paid through the issuance of promissory notes (the "Promissory Notes") and $500,000 was paid by issuing 61,805 shares of common stock (the "Shares"), together with certain registration rights. $1,000,000 of the Promissory Notes will be paid on May 6, 2003 and the balance will be paid on May 6, 2004. The Promissory Notes bear interest at 4%. The Company also assumed certain liabilities of Benefoot, including approximately $300,000 of long-term indebtedness. The Company also agreed to pay Benefoot up to an additional $1,000,000 upon satisfaction of certain performance targets on or prior to May 6, 2004. The Company funded the entire cash portion of the purchase price through working capital generated principally through the prior sale of the Company's 4% convertible subordinated notes due August 31, 2006. In connection with the Asset Purchase Agreement, the Company entered into an employment agreement with each of two former shareholders of Benefoot, each having a term of two years and providing for an annual base salary of $150,000 and benefits, including certain severance arrangements. One of these shareholders subsequently terminated his employment agreement with the Company. As a result, the Company accrued $94,000 for termination costs. The Company also entered into an agreement with Sheldon Langer as a medical consultant providing for an annual fee of $45,000 and a one-time grant of 3,090 shares of common stock, together with certain registration rights. The allocation of the purchase price among the assets acquired and liabilities assumed is based on the Company's valuation of the fair value of the assets and liabilities of Benefoot. The following table sets forth the components of the estimated purchase price: Cash consideration $ 3,800,351 Benefoot long term debt paid at closing 307,211 ------------------ Total cash paid at closing $ 4,107,562 Promissory note issued 1,800,000 Common stock issued 529,512 Transaction costs 647,305 ----------- Total purchase price $ 7,084,379 =========== The following table provides the allocation of the purchase price: Assets: Cash and cash equivalents $ 225,953 Accounts receivables 806,370 Inventories 660,559 Prepaid expenses and other 76,973 Property and equipment 223,398 Goodwill 3,011,694 Identified intangible assets 3,430,000 Other assets 6,162 ------------------- 8,441,109 ------------------- Liabilities: Accounts payable 647,873 Accrued liabilities 389,400 Unearned revenue 210,355 Long term debt & other liabilities 109,102 ------------------- 1,356,730 ------------------- Total purchase price $ 7,084,379 =================== 8 In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with SFAS No. 142. Other intangible assets will continue to be amortized over their useful lives. In accordance with the provisions of SFAS No. 142, Langer will not amortize goodwill and intangible assets with indefinite lives (trade names with an estimated fair value of $1,600,000) recorded in this acquisition. Unaudited pro forma results of operations for the nine months ended September 30, 2002 and 2001, as if the Company acquired Benefoot at the beginning of each year, include estimates and assumptions which management believes are reasonable. However, pro forma results do not include the realization of cost savings from operating efficiencies, synergies or other effects resulting from the acquisition, and are not necessarily indicative of the actual consolidated results of operations had the acquisition occurred on the date assumed, nor are they necessarily indicative of future consolidated results of operations. Unaudited Pro forma results were: Nine months ended September 30, 2002 2001 -------------- --------------- Net sales $ 15,092,623 $ 14,668,172 Net income (loss) $ (650,003) $ (1,014,809) Diluted earnings per share $ (.15) $ (.26) NOTE 3 - INVENTORIES ----------- Inventories consist of: September 30, December 31 2002 2001 ---- ---- (Unaudited) Raw Materials $ 1,250,486 $ 994,186 Work in progress 156,222 105,453 Finished goods 1,017,161 255,418 -------------- ------------ 2,423,869 1,355,057 Less: Allowance for obsolescence 223,414 213,906 -------------- ------------ $ 2,200,455 $ 1,141,151 ============== ============= 9 NOTE 4 - LONG TERM DEBT -------------- On October 31, 2001, the Company completed the sale of $14,589,000 principal amount of its 4% convertible subordinated notes due August 31, 2006 (the "Notes"), in a private placement. The Notes are convertible into shares of the Company's common stock at a conversion price of $6.00 per share, (equal to the market value of the Company's stock on October 31, 2001), subject to anti-dilution protections and are subordinated to existing or future senior indebtedness of the Company. Among other provisions, the Company may, at its option, call, prepay, redeem, repurchase, convert or otherwise acquire (collectively, "Call") the Notes, in whole or in part, (1) after August 31, 2003 or (2) at any time if the closing price of the Company's common stock equals or exceeds $9.00 per share for at least ten consecutive trading days. If the Company elects to call any of the Notes, the holders of the Notes may elect to convert the Notes for the Company's common stock. Interest is payable semi-annually on the last day of June and December. Interest expense for the three and nine months ended September 30, 2002 on these Notes was $145,890 and $437,670 respectively. The Company received net proceeds of $13,668,067 from the offering of the Notes. The cost of raising these proceeds of $920,933 is being amortized over the life of the Notes. The amortization of these costs for the three and nine months ended September 30, 2002 was $48,443 and $144,662 respectively. The Company issued $1,800,000 in Promissory Notes in connection with the acquisition of Benefoot. $1,000,000 of the notes will be paid on May 6, 2003 and the balance will be paid on May 6, 2004. Interest expense for the three months ended September 30, 2002 was $18,000 and from the date of acquisition was $29,200. NOTE 5 - SEASONALITY ----------- A substantial portion of the Company's revenue is derived from the sale of custom orthotic devices. North American custom orthotic revenue has historically been significantly higher in the warmer months of the year, while custom orthotic revenue of the Company's United Kingdom subsidiary has historically not evidenced any seasonality. 10 NOTE 6 - SEGMENT INFORMATION ------------------- The Company operates in two segments (North America and United Kingdom) principally in the design, development, manufacture and sale of foot and gait-related products. Intersegment net sales are recorded at cost. Segment information for the three and nine months ended September 30, 2002 and September 30, 2001 are summarized as follows:
UNITED THREE MONTHS ENDED SEPTEMBER 30, 2002 NORTH AMERICA KINGDOM TOTAL --------------------------------------------------------------------------------------------------- Net sales to external customers $ 4,694,630 $535,808 $5,230,438 Intersegment net sales $ 66,180 $ -- $ 66,180 Gross margins $ 1,762,320 $262,054 $2,024,374 Operating (loss) profit $ (174) $107,038 $ 106,864
UNITED THREE MONTHS ENDED SEPTEMBER 30, 2001 NORTH AMERICA KINGDOM TOTAL ------------------------------------------------------------------------------------------------- Net sales to external customers $2,945,476 $489,031 $3,434,507 Intersegment net sales $ 74,700 $ -- $ 74,700 Gross margins $1,145,336 $216,205 $1,361,541 Operating (loss) profit $ (70,594) $ 79,459 $ 8,865
UNITED NINE MONTHS ENDED SEPTEMBER 30, 2002 NORTH AMERICA KINGDOM TOTAL -------------------------------------------------------------------------------------------------- Net sales to external customers $11,134,986 $1,569,057 $12,704,043 Intersegment net sales $ 231,581 $ -- $ 231,581 Gross margins $ 4,221,428 $ 749,822 $ 4,971,250 Operating (loss) profit $ (542,418) $ 320,352 $ (222,066)
UNITED NINE MONTHS ENDED SEPTEMBER 30, 2001 NORTH AMERICA KINGDOM TOTAL -------------------------------------------------------------------------------------------------- Net sales to external customers $ 7,828,371 $1,381,701 $ 9,210,072 Intersegment net sales $ 196,729 $ -- $ 196,729 Gross margins $ 2,503,306 $ 606,920 $ 3,110,226 Operating (loss) profit $(1,390,391) $ 209,760 $(1,180,631)
11 NOTE 7 - COMPREHENSIVE INCOME -------------------- The Company's comprehensive income (loss) was as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2002 2001 2002 2001 ---- ---- ---- ---- Net income (loss) $ (101,435) $ 11,884 $ (723,912) $ (1,197,762) Other comprehensive income (loss) net of tax: Change in equity resulting from translation of financial statements into U.S. dollars 5,758 8,825 17,850 (1,075) ------------ ---------- ------------ ------------ Comprehensive income (loss) $ (95,677) $ 20,709 $ (706,062) $ (1,198,837) ============= ========== ============ =============
12 NOTE 8 - INCOME (LOSS) PER SHARE ----------------------- The following table provides a reconciliation between basic and diluted earnings per share:
Three months ended September 30, 2002 2001 Income Shares Per Share Income Shares Per Share -------------- ---------- -------------- ----------------- ------------ --------- Basic income (loss) per common share Income (loss) available to common stockholders $(101,435) 4,269,644 $ (.02) $ 11,884 4,190,054 $ 0.00 Stock options -- -- -- -- 344,438 -- -------------- -------- -------------- ------------- ----------- --------- Diluted income (loss) per common share Income (loss) available to common stockholders plus assumed exercise of stock options $(101,435) 4,269,644 $ (.02) $ 11,884 4,534,492 $ 0.00 ============== ========== ============= ============= =========== =========
Nine months ended September 30, 2002 2001 Income Shares Per Share Income Shares Per Share -------------- -------- ---------------- ------------------ ----------- ---------- Basic income (loss) per common share Income (loss) available to common stockholders $(723,912) 4,237,645 $ (.17) $(1,197,762) 3,857,981 $ (.31) Stock options -- -- -- -- -- -- -------------- ------- ---------------- ------------------ ---------- ---------- Diluted income (loss) per common share Income (loss) available to common stockholders plus assumed exercise of stock options $(723,912) 4,237,645 $ (.17) $(1,197,762) 3,857,981 $ (.31) ============== ========= =============== ================== ========== ===========
13 NOTE 9 - CHANGE IN CONTROL ----------------- Effective February 13, 2001, Andrew H. Meyers, Greg Nelson and Langer Partners LLC, and its designees ("Offerors"), acquired a controlling interest in the Company when they purchased 1,362,509 validly tendered shares of the Company at $1.525 per share, or approximately 51% of the then outstanding common stock of the Company, under the terms of a December 27, 2000 Tender Offer Agreement (the "Tender") under which the Offerors offered to purchase up to 75% of the Company's common stock. In order to provide the Company with adequate equity to maintain the Company's compliance with the listing requirements of the NASDAQ small cap market and to enable the Company to finance its ongoing operations as well as potentially take advantage of opportunities in the marketplace and in order to induce the Offerors to enter into the Tender Offer Agreement, pursuant to its terms, the Offerors were granted 180 day options to purchase up to 1,400,000 shares of the Company's common stock, with an initial exercise price of $1.525 per share, rising up to $1.60 per share (the "Options"). These Options have been recorded as a non-cash dividend of $3,206,000, the fair market value of the Options on the date of grant. Upon the closing of the Tender, the Board of Directors of the Company resigned in favor of Andrew H. Meyers (President and Chief Executive Officer), Burtt Ehrlich (Chairman of the Board), Jonathan R. Foster, Greg Nelson and Arthur Goldstein. The Company issued 30,000 non-qualified options at $1.525 to each of the four new outside members of the Board of Directors in connection with their services as members of the Board. In connection with the Tender and the resultant change in control, the Company recorded expenses of approximately $1,008,000, of which $795,667 was incurred in the first quarter of 2001. These expenses included legal fees of $263,000, valuation and consultant fees of $95,000, severance and related expenses for terminated employees and executives of approximately $236,000, and other costs directly attributable to the change in control of approximately $169,000. As part of the change in control, a consulting firm, which is owned by the sole manager and voting member of Langer Partners LLC, a principal shareholder of the Company, was granted 100,000 fully vested stock options with an exercise price of $1.525 per share. Accordingly, the Company immediately recognized the fair value of the options of $245,000 as consulting fees associated with these options. Additionally, the Company entered into a consulting agreement with this consulting firm, whereby the consulting firm would receive an annual fee of $100,000 for three years for services provided. Upon closing of the Tender and the resultant change in control, the Company's existing revolving credit facility with a bank was terminated. In order to provide for the Company's short-term cash needs, in February 2001, the Company's Chief Executive Officer loaned the Company $500,000. As part of the change in control, new management determined that the Company required additional cash to potentially take advantage of opportunities in the marketplace. On February 13, 2001, three Directors of the Company purchased 147,541 restricted shares at $1.525 for total proceeds of $225,000. On May 11, 2001, the Offerors fully exercised the Options at $1.525 per share for $2,135,000, which was invested in the Company. The Company's Chief Executive Officer, Andrew H. Meyers, converted the $500,000 loan plus accrued interest as partial proceeds toward the exercise of these Options. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------------------------------ REVENUES - -------- Net sales for the three months ended September 30, 2002 were $5,230,438 or 52% above net sales of $3,434,507 for the comparable quarter in 2001. Net sales for the nine months ended September 30, 2002 were $12,704,043 or 38% above net sales of $9,210,072 for the nine months ended September 30, 2001. Net sales for the quarter and the nine-month period includes $1,909,337 and $3,139,636 respectively related to the acquisition of Benefoot on May 6, 2002. The increase in net sales for the quarter is primarily as a result of the acquisition of Benefoot. The increase in net sales for the nine month period is a result of the acquisition of Benefoot as well as increased sales in the Company's base business. Net sales for custom orthotic devices for the three months ended September 30, 2002 were $3,962,385 as compared to $3,046,089 for the comparable prior period, an increase of $916,296. Net sales of custom orthotic devices for the nine months ended September 30, 2002 were $10,099,730 as compared to $8,148,827 for the comparable prior period, an increase of $1,950,903. Net sales of custom orthotic devices related to the Benefoot acquisition were $1,088,387 and $1,844,700 respectively for the quarter and nine month period. Net sales of distributed products for the three months ended September 30, 2002 were $1,268,053 as compared to $388,418 for the three months ended September 30, 2001, an increase of 226%. Net sales of distributed products for the nine months ended September 30, 2002 were $2,604,313 as compared to $1,061,246 for the comparable prior period. Net sales of distributed products attributable to the Benefoot acquisition were $820,950 and $1,293,936 respectively for the quarter and the nine-month period. GROSS PROFIT - ------------ Gross profit as a percentage of sales for the three months ended September 30, 2002 was 38.7%, as compared to 39.6% for the three months ended September 30, 2001. Gross profit as a percentage of sales for the nine months ended September 30, 2002 was 39.1% as compared to 33.8% for the comparable prior quarter. Gross profit for the nine months in 2001 was impacted by the effects of recording reserves for product obsolescence and material cost variances, which were not encountered in 2002. Gross profit for 2002 continued to improve as a result of improvements in efficiencies in the manufacturing process, reductions in overhead costs and increased sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- Selling expenses for the three months ended September 30, 2002, were $874,237 or 16.7% of sales as compared to $397,415 or 11.6% of sales in the prior year. Selling expenses for the nine months ended September 30, 2002 was $2,190,188 or 17.2% of sales compared to $1,207,312 or 13.1% of sales for the 2001 comparable period. Selling expense increased due to the effect of the acquisition of Benefoot as well as increases in salaries and related costs for the investments made in the sales and marketing infrastructure. General and administrative expenses were $1,005,108 or 19.2% of sales for the three months ended September 30, 2002 as compared to $912,289 or 26.6% of sales for the comparable quarter of the prior year. General and administrative expenses for the nine months ended September 30, 2002 were $2,875,388 or 22.6% of sales as compared to $2,158,597 or 23.4% of sales for the comparable prior period. General and administrative expenses improved in the quarter as a percentage of sales as a result of the integration of the Benefoot acquisition into the Company. General and administrative expenses for the nine month period increased in dollars as a result of increased salary costs, costs attributable to a Company wide incentive program as well as integration costs attributable to the acquisition of Benefoot. 15 OTHER INCOME (EXPENSE), NET - --------------------------- Other income (expense), net was $(201,299) for the three months ended September 30, 2002 as compared to $12,519 for the comparable prior period. The increase in expense is primarily attributable to the interest expense on the Company's 4% Convertible Subordinated Notes, net of related interest income on the unused cash proceeds. INTEGRATION COSTS - ----------------- Costs included in the nine month period ended September 30, 2002 attributable to the integration of Benefoot into the Company approximated $184,000 or $.04 per share. Integration costs which were primarily attributable to severance and related costs were charged to expense in the second quarter of 2002 as follows: Cost of sales $ 3,000 Selling 28,000 General and administrative 153,000 ----------------- $ 184,000 ================= CHANGE IN CONTROL - ----------------- Effective February 13, 2001, Andrew H. Meyers, Greg Nelson and Langer Partners LLC, and its designees ("Offerors"), acquired a controlling interest in the Company when they purchased 1,362,509 validly tendered shares of the Company at $1.525 per share, or approximately 51% of the then outstanding common stock of the Company, under the terms of a December 27, 2000 Tender Offer Agreement (the "Tender") under which the Offerors offered to purchase up to 75% of the Company's common stock. In order to provide the Company with adequate equity to maintain the Company's compliance with the listing requirements of the NASDAQ small cap market and to enable the Company to finance its ongoing operations as well as potentially take advantage of opportunities in the marketplace and in order to induce the Offerors to enter into the Tender Offer Agreement, pursuant to its terms, the Offerors were granted 180 day options to purchase up to 1,400,000 shares of the Company's common stock, with an initial exercise price of $1.525 per share, rising up to $1.60 per share (the "Options"). These Options have been recorded as a non-cash dividend of $3,206,000, the fair market value of the Options on the date of grant. Upon the closing of the Tender, the Board of Directors of the Company resigned in favor of Andrew H. Meyers (President and Chief Executive Officer), Burtt Ehrlich (Chairman of the Board), Jonathan R. Foster, Greg Nelson and Arthur Goldstein. The Company issued 30,000 non-qualified options at $1.525 to each of the four new outside members of the Board of Directors in connection with their services as members of the Board. In connection with the Tender and the resultant change in control, the Company recorded expenses of approximately $1,008,000, of which $795,667 was incurred in the first quarter of 2001. These expenses included legal fees of $263,000, valuation and consultant fees of $95,000, severance and related expenses for terminated employees and executives of approximately $236,000, and other costs directly attributable to the change in control of approximately $169,000. As part of the change in control, a consulting firm, which is owned by the sole manager and voting member of Langer Partners LLC, a principal shareholder of the Company, was granted 100,000 fully vested stock options with an exercise price of $1.525 per share. Accordingly, the Company immediately recognized the fair value of the options of $245,000 as consulting fees associated with these options. Additionally, the Company entered into a consulting agreement with this consulting firm, whereby the consulting firm would receive an annual fee of $100,000 for three years for services provided. 16 Upon closing of the Tender and the resultant change in control, the Company's existing revolving credit facility with a bank was terminated. In order to provide for the Company's short-term cash needs, in February 2001, the Company's Chief Executive Officer loaned the Company $500,000. As part of the change in control, new management determined that the Company required additional cash to potentially take advantage of opportunities in the marketplace. On February 13, 2001, three Directors of the Company purchased 147,541 restricted shares at $1.525 for total proceeds of $225,000. On May 11, 2001, the Offerors fully exercised the Options at $1.525 per share for $2,135,000, which was invested in the Company. The Company's Chief Executive Officer, Andrew H. Meyers, converted the $500,000 loan plus accrued interest as partial proceeds toward the exercise of these Options. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working capital as of September 30, 2002 was $10,923,287 as compared to $16,655,179 as of December 31, 2001. Cash balances at September 30, 2002 were $10,184,963, a decrease of $5,611,959 from December 31, 2001. This decrease is attributable to cash payments in connection with the acquisition of Benefoot, payments in the first quarter for annual insurance premiums, payout of the Company incentive plan and a consulting agreement, which were included in accrued liabilities at the fiscal year ended December 31, 2001. On October 31, 2001, the Company sold $14,589,000 of its 4% convertible subordinated notes, due August 31, 2006, in a private placement (the "Notes"). The Notes are convertible into the Company's common stock at a conversion price of $6.00 per share and are subordinated to all existing or future senior indebtedness of the Company. The Company received net proceeds of $13,668,067 from this offering. The costs of raising these proceeds, including placement and legal fees, was $920,933, which is being amortized over the life of the Notes. The amortization of these costs for the three month and nine month period ended September 30, 2002 was $48,443 and $144,662 respectively. Interest is payable semi-annually on the last day of June and December. Interest expense for the three month and nine month period ended September 30, 2002 on these Notes was $145,890 and $437,670 respectively. In connection with the Tender, the Company's then existing revolving credit facility with a bank was terminated. In order to provide for the Company's short-term cash needs, in February 2001, the Company's Chief Executive Officer loaned the Company $500,000 evidenced by a promissory note, bearing interest at prime plus 1%. Upon exercise of the Options on May 11, 2001, the principal amount of the loan, together with accrued interest in the amount of $11,112 was exchanged as partial consideration for the payment of the shares of stock. On May 11, 2001, the Offerors fully exercised the Options at $1.525 per share for $2,135,000, which was invested in the Company. In connection with the acquisition of Benefoot, the Company issued $1,800,000 of 4% Promissory notes. $1,000,000 of the Promissory notes are due on May 6, 2003 with the remaining balance due on May 6, 2004. Interest expense, which is payable quarterly, for the three months and nine months ended September 30, 2002 on these notes was $18,000 and $29,200 respectively. The Company's United Kingdom subsidiary maintains a line of credit with a local bank in the amount of 50,000 British pounds, which is guaranteed by the Company pursuant to a standby Letter of Credit. If this credit facility, which has been renewed through February 2003, would not be available, the Company believes it can readily find a suitable replacement or the Company would supply the necessary capital. Repurchases of the Company's common stock may be made from time to time in the open market at prevailing prices or in privately negotiated transactions, subject to available resources. The Company may also finance acquisitions of other companies or product lines in the future from existing cash balances, from borrowings from institutional lenders, and/or the public or private offerings of debt or equity securities. Management believes that its existing cash balances will be adequate to meet the Company's cash needs during the fiscal year ending December 31, 2002. 17 RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD - ----------------------------------------------------------------- In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations". SFAS No. 141 applies prospectively to all business combinations initiated after June 30, 2001, and all business combinations accounted using the purchase method for which the date of acquisition is July 1, 2001, or later. This statement requires all business combinations to be accounted for using one method, the purchase method. Under previously existed accounting rules, business combinations were accounted for using one of two methods, pooling-of-interests method or the purchase method. As of January 1, 2002 the Company adopted the provisions of SFAS No. 141. The adoption of SFAS No. 141 did not have a significant impact on the Company's financial statements. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and some intangible assets will no longer be amortized, but rather reviewed for impairment on a periodic basis. The provisions of the statement are required to be applied starting with fiscal years beginning after December 15, 2001. This statement is required to be applied at the beginning of the Company's fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and certain intangible assets that arise due to the initial application of this statement are to be recorded as resulting from a change in accounting principle. Goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to the provisions of this statement. As of January 1, 2002 the Company adopted the provisions of SFAS No. 142. The adoption of SFAS No. 142 did not have a significant impact on the Company's financial statements. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 is not expected to have a material impact on the Company's financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. As of January 1, 2002 the Company adopted the provisions of SFAS No. 144. The adoption of SFAS No. 144 did not have a significant impact on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145, among other things, rescinds SFAS No. 4, which required all gains and losses from the extinguishment of debt to be classified as an extraordinary item and amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. The rescission of SFAS No. 4 is effective for fiscal years beginning after May 15, 2002. The remainder of the statement is generally effective for transactions occurring after May 15, 2002 with earlier application encouraged. The Company does not expect the adoption of SFAS No. 145 to have a material impact on its results of operations, financial position or cash flows. 18 In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." This statement addresses the recognition, measurement and reporting of costs that are associated with exit and disposal activities. This statement includes the restructuring activities that are currently accounted for pursuant to the guidance set forth in EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and other Costs to exit an Activity (including Certain Costs Incurred in a Restructuring)," costs related to terminating a contract that is not a capital lease and one-time benefit arrangements received by employees who are involuntarily terminated- nullifying the guidance under EITF 94-3. Under SFAS No. 146 the cost associated with an exit or disposal activity is recognized in the periods in which it is incurred rather than at the date the company committed to the exit plan. This statement is effective for exit or disposal activities initiated after December 31, 2002 with earlier application encouraged. The Company is currently evaluating the impact that SFAS No. 146 will have on its consolidated financial statements. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS - ---------------------------------------------- Information contained or incorporated by reference in this quarterly report on Form 10-Q, in other SEC filings by the Company, in press releases, and in presentations by the Company or its management, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 which can be identified by the use of forward-looking terminology such as "believes," "expects," "plans," intends," "estimates," "projects," "could," "may," "will," "should," or "anticipates" or the negative thereof, other variations thereon or comparable terminology, or by discussions of strategy. No assurance can be given that future results covered by the forward-looking statements will be achieved, and other factors could also cause actual results to vary materially from the future results covered in such forward-looking statements. Such forward-looking statements include, but are not limited to, those relating to the Company's financial and operating prospects, future opportunities, the Company's acquisition strategy, outlook of customers, and reception of new products, technologies, and pricing. In addition, such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Also, the Company's business could be materially adversely affected and the trading price of the Company's common stock could decline if any such risks and uncertainties develop into actual events. The Company undertakes no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- In general, business enterprises can be exposed to market risks, including fluctuation in commodity and raw materials prices, foreign currency exchange rates, and interest rates that can adversely affect the cost and results of operating, investing, and financing. In seeking to minimize the risks and/or costs associated with such activities, the Company manages exposure to changes in commodities and raw material prices, interest rates and foreign currency exchange rates through its regular operating and financing activities. The Company does not utilize financial instruments for trading or other speculative purposes, nor does the Company utilize leveraged financial instruments or other derivatives. The following discussion about our market rate risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The Company's exposure to market rate risk for changes in interest rates relates primarily to the Company's short-term monetary investments. There is a market rate risk for changes in interest rates earned on short-term money market instruments. There is inherent rollover risk in the short-term money market instruments as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. However, there is no risk of loss of principal in the short-term money market instruments, only a risk related to a potential reduction in future interest income. Derivative instruments are not presently used to adjust the Company's interest rate risk profile. The majority of the Company's business is denominated in United States dollars. There are costs associated with the Company's operations in foreign countries, primarily the United Kingdom and Canada, that require payments in the local currency and payments received from customers for goods sold in these countries are typically in the local currency. The Company partially manages its foreign currency risk related to those payments by maintaining operating accounts in these foreign countries, and by having customers pay the Company in those same currencies. ITEM 4. CONTROLS AND PROCEDURES ----------------------- (a) Based on their evaluation of the Company's disclosure controls and procedures as of a date within 90 days of the filing of this report, the Company's principal executive officer and chief financial officer have concluded that such controls and procedures are effective. (b) There were no significant changes in the Company's internal controls or in other factors that could significantly affect such controls subsequent to the date of their evaluation. 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Form of Indemnification Agreement for Directors and Executive Officers of the Registrant. 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K The Company filed a current report on Form 8-K on May 13, 2002 to report the acquisition of substantially all of the assets and liabilities of Benefoot, Inc. and Benefoot Professional Products, Inc. On July 2, 2002, the Company amended such Form 8-K to report the filing of financial statements and proforma financial information relating to the acquisition. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LANGER, INC. Date: November 13, 2002 By: /s/ Andrew H. Meyers --------------------- Andrew H. Meyers President and Chief Executive Officer (Principal Executive Officer) By: /s/ Anthony J. Puglisi ---------------------- Anthony J. Puglisi Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 22 CERTIFICATIONS I, Andrew H. Meyers, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Langer, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Andrew H. Meyers - -------------------- Andrew H. Meyers President and Chief Executive Officer 23 CERTIFICATIONS I, Anthony J. Puglisi, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Langer, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Anthony J. Puglisi - ---------------------- Anthony J. Puglisi Vice President and Chief Financial Officer 24 EX-10.1 3 file002.txt FORM OF INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT This Indemnity Agreement ("Agreement") is made as of ________________, 2002 by and between Langer, Inc., a Delaware corporation (the "Company"), and ________________________ ("Indemnitee"). RECITALS WHEREAS, it is essential to the Company and its stockholders to attract and retain highly qualified and capable directors, officers, employees, and agents; WHEREAS, the Certificate of Incorporation of the Company (the "Certificate of Incorporation") allows the Company to indemnify and advance expenses to its directors and officers; WHEREAS, this Agreement is a supplement to and in furtherance of the Certificate of Incorporation of the Company and any resolutions adopted pursuant thereto and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; WHEREAS, in recognition of Indemnitee's need for protection against personal liability in order to induce Indemnitee to serve the Company in an effective manner, and to supplement the Company's directors' and officers' liability insurance coverage, and, in part, to provide Indemnitee with specific contractual assurance that the protection provided by the Certificate of Incorporation will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Certificate of Incorporation), the Company wishes to provide the Indemnitee with the benefits contemplated by this Agreement; and WHEREAS, as a result of the provision of such benefits Indemnitee has agreed to serve or continue to serve the Company as a director, officer, employee, or agent; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: 1. DEFINITIONS. As used in this Agreement: (a) "Beneficial Owner" shall have the meaning given to such term in Rule l3d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity. (b) "Board" or "Board of Directors" shall mean the board of directors or the Company from time to time. (b) A "Change in Control" shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events: (i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; (ii) Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 1(b)(i), 1(b)(iii) or 1(b)(iv)) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a least a majority of the members of the Board; (iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66.67% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; (iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company's assets; and (v) Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement. (c) "Corporate Status" describes the status of a person who is or was a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of the Company or of any other Enterprise (as defined below) which such person is or was serving at the request of the Company. (d) "DGCL" means the General Corporation Law of the State of Delaware, as in effect from time to time. 2 (e) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (f) "Enterprise" shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise or entity of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent. (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (h) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements, costs, or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedes bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee. (i) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (j) "Loss" means all judgments, fines, penalties, damages, liabilities, claims, and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties, damages, liabilities, claims, and amounts paid in settlement). (k) Reference to "other enterprise" shall include employee benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; 3 and a person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. (k) A "Potential Change in Control" shall occur if the Company (a) enters into an agreement, the consummation of which would result in the occurrence of a Change in Control or (b) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a potential Change in Control has occurred. (l) "Person" shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company and any of its direct and indirect subsidiaries, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (m) The term "Proceeding" shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director, officer, employee, or agent of the Company, by reason of any action taken (or failure to act) by him or of any action (or failure to act) on his part while acting as director or officer of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of any other Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses can be provided under this Agreement. 2. INDEMNITY IN THIRD-PARTY PROCEEDINGS. The Company shall indemnify Indemnitee, his executors, and administrators in accordance with the provisions of this Section 2 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 2, Indemnitee shall be indemnified against all Expenses and Losses incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal action or proceeding had no reasonable cause to believe that his conduct was unlawful. 3. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee, his executors, and administrators in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses incurred by him or 4 on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 3 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that any court in which the Proceeding was brought or the Delaware Court of Chancery shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses which the Delaware Court of Chancery or such other court shall deem proper. 4. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses incurred by him or on his behalf in connection therewith. 5. ADDITIONAL INDEMNIFICATION. (a) Notwithstanding any limitation in Sections 2 or 3, the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses and Losses incurred by Indemnitee in connection with the Proceeding. No indemnity shall be made under this Section 5(a) on account of Indemnitee's conduct which constitutes a breach of Indemnitee's duty of loyalty to the Company or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law, (b) For purposes of Section 5(a), the meaning of the phrase "to the fullest extent permitted by law" shall include, but not be limited to: (i) to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL, and (ii) to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors. 6. EXCLUSIONS. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee: (a) for which payment has actually been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount actually received under any insurance policy or other indemnity provision; 5 (b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or (c) for any Loss which the Company is prohibited by applicable law from paying as indemnity or for any other reason. 7. ADVANCES OF EXPENSES; DEFENSE OF CLAIM; SETTLEMENT (a) Notwithstanding any provision of this Agreement to the contrary, the Company shall advance the Expenses incurred by Indemnitee in connection with any Proceeding within ten (10) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee's ability to repay the expenses and without regard to Indemnitee's ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. The Indemnitee shall qualify for advances solely upon the execution and delivery to the Company of an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 7(a) shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 6. (b) In the event the Company shall be obligated hereunder to provide indemnification for Expenses or Losses, or shall be required to make an advance in accordance with Section 7(a) hereof, the Company, if appropriate, shall be entitled to assume the defense of such Proceeding, with counsel reasonably satisfactory to Indemnitee, upon the delivery to Indemnitee of reasonable written notice of its election to do so. After delivery of such notice, the Company will not be liable to Indemnitee under this Agreement for any legal or other Expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable Expenses of investigation; provided that Indemnitee shall have the right to employ its counsel in such Claim but the Expenses of such counsel incurred after delivery of notice from the Company of its assumption of such defense shall be at the Indemnitee's expense; provided further that if: (i) the employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there will be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such action or having employed counsel, such counsel is not diligently prosecuting a defense on behalf of the Indemnitee, the Expenses of counsel shall be at the expense of the Company. (c) The Company shall not settle any action, claim or Proceeding (in whole or in part) which would impose any Expense, Loss, or limitation on the Indemnitee without the Indemnitee's prior written consent, and no settlement of any Proceeding shall be entered into unless, if applicable, in the Indemnitee's discretion, such settlement includes, as an unconditional term 6 thereof, the delivery by the claimant or plaintiff in such Proceeding to Indemnitee of a duly executed written release of Indemnitee from all liability or obligation in respect of such Proceeding, which release shall be reasonably satisfactory in form and substance to Indemnitee and Indemnitee's counsel. The Company shall have no obligation to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without the Company's prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed. 8. PROCEDURE FOR NOTIFICATION AND APPLICATION FOR INDEMNIFICATION. (a) Within forty-five (45) days after the actual receipt by Indemnitee of notice that he or she is a party to or a participant (as a witness or otherwise) in any Proceeding, Indemnitee shall submit to the Company a written notice identifying the Proceeding. The omission by the Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee (i) otherwise than under this Agreement, and (ii) under this Agreement only to the extent the Company can establish that such omission to notify resulted in actual prejudice to the Company. (b) Indemnitee shall thereafter deliver to the Company a written application to indemnify Indemnitee in accordance with this Agreement. Such application(s) may be delivered from time to time and at such time(s) as Indemnitee deems appropriate in his or her sole discretion. Following such a written application for indemnification by Indemnitee, the Indemnitee's entitlement to indemnification shall be determined according to Section 9(a) of this Agreement. 9. PROCEDURE UPON APPLICATION FOR INDEMNIFICATION. (a) Upon written request by Indemnitee for indemnification pursuant to Section 8(b), a determination, if required by law, with respect to Indemnitee's entitlement to indemnification hereunder shall be made (i) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, or if there are no Disinterested Directors by a majority vote of the Board or (ii) if so requested by the Indemnitee in his or her sole discretion, by Independent Counsel in a written opinion to the Board and the Indemnitee, which shall supersede any determination made by the Board. If (i) it is so determined that Indemnitee is entitled to indemnification or (ii) a determination is not required by applicable law, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. (b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 9(a) hereof, the Independent Counsel shall be selected 7 as provided in this Section 9(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 1 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(b) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 9(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). (c) The Company agrees to pay the reasonable fees of Independent Counsel and to fully indemnify such Independent Counsel against any and all Expenses and Losses arising out of or relating to this Agreement or its engagement pursuant hereto. 10. ESTABLISHMENT OF TRUST. In the event of a Potential Change in Control, the Company shall, upon written request by Indemnitee, create a trust (the "Trust") for the benefit of Indemnitee and from time to time upon written request of Indemnitee shall fund the Trust in an amount sufficient, in the reasonable opinion of the Board or the Independent Counsel, as the case may be, to satisfy any and all Losses and Expenses which are actually paid or which Indemnitee reasonably determines from time to time may be payable by the Company under this Agreement. The terms of the Trust shall provide that upon a Change in Control: (i) the Trust shall not be revoked or the principal thereof invaded without the written consent of Indemnitee; (ii) the trustee of the Trust shall advance, within 20 days of a request by Indemnitee, any and all Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the Trust under the circumstances under which Indemnitee would be required to reimburse the Company under Section 7(a) of this Agreement); (iii) the Company shall continue to fund the Trust from time to time in accordance with the funding obligations set forth above; (iv) the trustee of the Trust shall promptly pay to Indemnitee 8 all Expenses and Losses for which Indemnitee shall be entitled to indemnification pursuant to Sections 2 or 3 of this Agreement; and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by a court of competent jurisdiction in a final decision from which there is no further right of appeal that Indemnitee has been fully indemnified under the terms of this Agreement. The trustee of the Trust shall be chosen by Indemnitee and shall be approved by the Company, which approval shall not be unreasonably withheld, conditioned, or delayed. 11. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. (a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 8(b) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. (b) If the person, persons or entity empowered or selected under Section 9 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within thirty (30) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent a prohibition of such indemnification under applicable law; provided, however, that such 30-day period may be extended for a reasonable time, not to exceed an additional fifteen (15) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto. (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that the Indemnitee's conduct was unlawful. (d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee's action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public 9 accountant or by an appraiser or other expert selected by the Enterprise. The provisions of this Section 11(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement. (e) The knowledge and/or actions, or failure to act, of any other director, trustee, partner, managing member, fiduciary, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. 12. REMEDIES OF INDEMNITEE. (a) In the event that (i) a determination is made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 9(a) of this Agreement within forty-five (45) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 4 or 5 or the last sentence of Section 9(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to Section 2 or 3 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitee's right to seek any such adjudication or award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 9(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 9(a) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 12, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 7 until a final determination is made with respect to Indemnitee's entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed). (c) If a determination shall have been made pursuant to Section 9(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent a prohibition of such indemnification under applicable law. 10 (d) In the event that Indemnitee, pursuant to this Section 12, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses incurred by him in such judicial adjudication or arbitration. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration. (e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. (f) The Company shall indemnify Indemnitee to the fullest extent permitted by law against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company's receipt of such written request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee for (i) indemnification or advances of Expenses by the Company under this Agreement or any other agreement or provision of the Company's Certificate of Incorporation or By-laws now or hereafter in effect or (ii) recovery or advances under any insurance policy maintained by any person for the benefit of Indemnitee, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance or insurance recovery, as the case maybe. 13. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION. (a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company's Certificate of Incorporation, the Company's By-laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company's By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. 11 (b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, partners, managing members, fiduciaries, employees, or agents of the Company or of any other Enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, trustee, partner, managing member, fiduciary, officer, employee or agent under such policy or policies. If, at the time the Company receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise), the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies. (c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. (e) The Company's obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such Enterprise. 14. DURATION OF AGREEMENT. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; or (b) one (1) year after the final termination of any Proceeding (including any rights of appeal thereto) then pending, or reasonably related to, or arising out of the same facts of, any Proceeding then pending, in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto (including any rights of appeal of any Section 12 Proceeding). 15. SEVERABILITY. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or 12 unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. 16. ENFORCEMENT AND BINDING EFFECT. (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company. (b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. (c) The indemnification and advancement of expenses provided by, or granted pursuant to this Agreement shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 17. MODIFICATION AND WAIVER. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver. 18. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise. 19. NOTICES. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company. 13 (b) If to the Company to: Langer, Inc. 450 Commack Road Deer Park, NY 11729 Attn: Chief Executive Officer or to any other address as may have been furnished to Indemnitee in writing by the Company. 20. CONTRIBUTION. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for Expenses or Losses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s). 21. APPLICABLE LAW AND CONSENT TO JURISDICTION. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the "Delaware Court"), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum. 22. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. 23. MISCELLANEOUS. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 14 IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written. Langer, Inc. By: ______________________________ Name: ___________________________ Title: ___________________________ Indemnitee By: ______________________________ Name: ___________________________ Address: ___________________________ 15 EX-99.1 4 file003.txt CERTIFICATION OF CEO AND CFO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Langer, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies in his capacity as an officer of the Company, (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Andrew H. Meyers /s/ Anthony J. Puglisi - -------------------- ---------------------- Andrew H. Meyers Anthony J. Puglisi President and Vice President Chief Executive Officer Chief Financial Officer November 13, 2002 November 13, 2002 -----END PRIVACY-ENHANCED MESSAGE-----