-----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, B8IebrYRfRPjcDEbp0sOco98+JJVFl5atMKPAVGDVxpfdawUtFvSQ2x9Y4opbeOQ zbQv2ba0APL9yQl3UBxUaA== 0001005477-97-000940.txt : 19970401 0001005477-97-000940.hdr.sgml : 19970401 ACCESSION NUMBER: 0001005477-97-000940 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAHAM FIELD HEALTH PRODUCTS INC CENTRAL INDEX KEY: 0000709136 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 112578230 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08801 FILM NUMBER: 97569688 BUSINESS ADDRESS: STREET 1: 400 RABRO DR E CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5165825800 MAIL ADDRESS: STREET 1: 400 RABNO DRIVE EAST CITY: HAUPPAUGE STATE: NY ZIP: 11788 FORMER COMPANY: FORMER CONFORMED NAME: PATIENT TECHNOLOGY INC DATE OF NAME CHANGE: 19880811 10-K405 1 FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1996. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] Commission File No.: 1-8801 GRAHAM-FIELD HEALTH PRODUCTS, INC. (Exact name of registrant as specified in its charter) Delaware 11-2578230 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 Rabro Drive East, Hauppauge, New York 11788 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (516) 582-5900 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common Stock, par value $.025 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Not Applicable - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. Based on the closing price on March 20, 1997, the aggregate market value of common stock held by non-affiliates of the registrant was approximately $170,069,266. As of the close of business on March 20, 1997, the registrant had 18,926,460 shares of common stock outstanding, of $.025 par value each. DOCUMENTS INCORPORATED BY REFERENCE Definitive proxy statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, incorporated by reference into Part III hereof. GRAHAM-FIELD HEALTH PRODUCTS, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 PART I Item 1. Business: The Company Graham-Field Health Products, Inc. and its wholly owned subsidiaries (collectively, the "Company") manufacture, market and distribute medical, surgical and a broad range of other healthcare products into the home healthcare and medical/surgical markets through a vast dealer network consisting of approximately 18,500 customers in North America. The Company also markets and distributes its products throughout Europe, Central and South America, and Asia. The acquisition of Everest & Jennings International Ltd. ("Everest & Jennings") on November 27, 1996 has positioned the Company as one of the leading manufacturers of durable medical equipment in North America. The Company's long-term strategic objective is to become the leading provider of medical products to the rapidly growing home healthcare and medical/surgical markets by offering the broadest product line in the industry, single-source purchasing and technologically advanced, cost-effective delivery systems. The cornerstone of the Company's sales and marketing strategy is the Company's Consolidation Advantage Program ("C.A.P."). Through C.A.P., the Company strives to become the most efficient, reliable low-cost provider of medical products by offering its customers the ability to significantly reduce their operating costs by consolidating the purchase of multiple product lines through a single source. C.A.P. significantly improves the level of service to the Company's customers by streamlining the purchasing process, decreasing order turnaround time, reducing delivery expenses, and providing on-demand inventory. The Company markets and distributes approximately 23,000 products under its own brand names and under suppliers' names throughout the United States, Canada, Mexico, Europe, Central and South America, and Asia. The Company believes that no single competitor serving the Company's markets offers as broad a product range as the Company. The Company maintains distribution and manufacturing facilities throughout the United States, Canada, Mexico and Puerto Rico. The Company's products are marketed to approximately 18,500 customers, principally hospital, nursing home, physician and home healthcare dealers, healthcare product wholesalers and retailers, including drug stores, catalog companies, pharmacies and home-shopping related businesses. During the five years ended December 31, 1996, the number of products offered by the Company expanded from approximately 19,000 to approximately 23,000. The expansion of the number of products offered is primarily the result of an increase in the number of distributorship agreements with suppliers and acquisitions of other companies and product lines. The Company's principal products and product lines include durable medical equipment (such as wheelchairs, homecare beds, ambulatory aids, bathroom and safety equipment), sphygmomanometers (blood pressure measuring devices), stethoscopes, ECG instruments, electronic thermometers, infrared heat treatment devices, adult incontinence products, nutritional supplements, specialty cushions and mattresses for the treatment and prevention of pressure sores, medicated and rubber elastic bandages, respiratory equipment and supplies, urologicals, ostomy products, wound care products, infection control products, first aid supplies, laboratory supplies, antiseptics, topical anesthetics and sterile disposable medical products. By offering a wide range of products from a single source, the Company enables its customers to reduce their costs associated with the purchasing process, including transaction, freight and inventory expenses. During the year ended December 31, 1996, approximately 28% of the Company's revenues were derived from products manufactured by the Company, approximately 18% of the Company's revenues were derived from imported products, and approximately 54% from products purchased from domestic sources, which includes products purchased from Everest & Jennings prior to the acquisition. As used herein, the term "product" means a Company stockkeeping unit. The Company was organized under the laws of the State of Delaware on April 6, 1981 under the name, Patient Technology, Inc. On May 27, 1988, the Company changed its name to Graham-Field Health Products, Inc. Except where the context otherwise requires, the word "Company" as used herein includes all of its subsidiaries. The Company's executive offices are located at 400 Rabro Drive East, Hauppauge, New York 11788 and its telephone number is (516) 582-5900. Everest & Jennings International Ltd. Acquisition of Everest & Jennings On November 27, 1996, the Company acquired Everest & Jennings in a merger transaction. Through its subsidiaries, Everest & Jennings manufactures one of the broadest wheelchair product lines in the world, and distributes homecare beds. Everest & Jennings is one of the largest manufacturers of wheelchairs in North America and, with its Canadian and Mexican subsidiaries, holds a material share of the North American wheelchair market. Everest & Jennings' principal subsidiaries include Everest & Jennings, Inc. ("E&J") located in Earth City, Missouri; Everest & Jennings Canadian Limited ("Everest & Jennings Canada") located in Toronto, Canada; and Everest & Jennings de Mexico, S.A. de C.V. ("Everest & Jennings Mexico") located in Guadalajara, Mexico. Each of Everest & Jennings' subsidiaries manufactures wheelchairs and wheelchair parts. The Company believes that the combination of Everest & Jennings' manufacturing operations with the Company's cost-effective delivery systems and advanced technology systems will increase the Company's presence in the home healthcare market with a greater level of service and efficiency, and a broader portfolio of products. The coordination of the manufacturing and distribution of the wheelchair and homecare bed product lines, which represent the leading product lines in the home healthcare market, will enhance the Company's position as -2- the leading "one-stop-shop" distributor in the medical products industry. The Everest & Jennings name, a symbol of quality for more than 50 years, has enabled the Company to introduce its Temco home healthcare product line and other proprietary product lines into the rehabilitation marketplace, a virtually untapped marketplace for the Company in the past. Dependence on Key Supply Contracts Everest & Jennings' business is heavily dependent on its maintenance of two key supply contracts. Everest & Jennings obtains the majority of its homecare wheelchairs and wheelchair components pursuant to an exclusive supply agreement (the "Exclusive Wheelchair Supply Agreement") with P.T. Dharma Polimetal ("P.T. Dharma"), an Indonesian manufacturer certified under the standard quality systems of ISO 9001. The term of this agreement extends until December 31, 1999, and on each January 1 thereafter shall be automatically extended for one additional year unless Everest & Jennings elects not to extend or Everest & Jennings has failed to order at least 50% of the contractually specified minimums and the manufacturer elects to terminate. If the Exclusive Wheelchair Supply Agreement with P.T. Dharma is terminated, there can be no assurance that Everest & Jennings will be able to enter into a suitable supply agreement with another manufacturer. In addition, Everest & Jennings obtains homecare beds for distribution pursuant to a supply agreement (the "Bed Supply Agreement") with Healthtech Products, Inc. ("Healthtech"), a wholly-owned subsidiary of Invacare Corporation (which is a major competitor of Everest & Jennings), which is scheduled to expire on October 15, 1997. Although the Company is in the process of securing alternative sources of supply with other manufacturers, there can be no assurance that arrangements as favorable as the current supply contract will be obtainable. Wheelchairs Everest & Jennings develops, designs, manufactures and markets wheelchairs into two primary categories -- rehabilitation and homecare. The rehabilitation market is characterized by individual needs, ongoing product innovation and government reimbursement levels. Rehabilitation products are more sophisticated, command higher prices and support a higher price margin structure. Most rehabilitation chairs are sold through rehabilitation dealers working in conjunction with therapists who prescribe the products for end users. The homecare market is characterized by lower priced, commodity products and includes significant institutional sales. Typically, end users are geriatrics, those temporarily disabled or individuals with long-term disabilities who are living at home. Funding for the homecare market is through private insurance or state and federal programs. Everest & Jennings' homecare chairs are sold directly through homecare dealers, as well as selected distributors selling to hospitals and nursing homes. Everest & Jennings develops, designs, manufactures and markets state-of-the-art -3- wheelchairs including ultra-lightweight wheelchairs in Everest & Jennings' Vision product line. Everest & Jennings continues to invest in the development of its rehabilitation wheelchair lines, both power and manual, with primary focus on products that are well matched to user needs and reimbursement levels and are easier to manufacture and support. During 1996, Everest & Jennings continued to launch new products, primarily in the rehabilitation market, as well as in new wheelchair market segments. Three new power wheelchairs were introduced in 1996. The new Lancer 2000 was launched mid-year as Everest & Jennings' new flagship, power wheelchair. In addition, the Metropower was launched earlier in the year as a lower cost alternative to the more sophisticated traditional, power wheelchair line of Everest & Jennings. The Sabre product line of wheelchairs, which was initially launched in 1995, was further expanded with the addition of a lower cost model, the Sabre LTD. In the manual rehabilitation product category, the Metro model was improved and formed the basis for several new products using the same design architecture. The Metro LX and Metro GT were added in 1996 to offer additional product features at slightly higher price and reimbursement points. The Company estimates that the aggregate domestic wheelchair market approximates $350 million with the total North American market slightly larger at approximately $425 million. The Company believes it has a material share of these combined markets. Homecare Beds Homecare beds generally are sold to the same homecare dealer network that purchases durable medical equipment. A patient who is discharged from a hospital or other institution may rent a homecare bed to aid in their recovery. Accordingly, dealers primarily retain homecare beds in a rental fleet. In addition, Everest & Jennings offers heavy-duty, rehabilitation beds to complement its other homecare products. The Company estimates that the aggregate domestic market for homecare beds is approximately $60 million. The Company believes it has a material share of the domestic homecare bed market. International Operations The Canadian market is served through Everest & Jennings Canada, while the Central and South American markets are served through Everest & Jennings Mexico. Although Everest & Jennings in the past has not placed great emphasis on expanding its markets beyond North America, the Company believes that there are significant opportunities for increased growth of the Everest & Jennings' product line in foreign markets. Product Research and Development Everest & Jennings continuously seeks to improve the quality, performance and reliability of its products to meet the needs of its customer base. Everest & Jennings has a design staff and research and development organization located in northern California. The Everest & -4- Jennings Design Center is responsible for new product design for Everest & Jennings, and conducts sponsored research and development activities. Products The Company manufactures, markets and distributes approximately 23,000 healthcare products under its own brand names and under suppliers' names. The Company's products are marketed to approximately 18,500 customers, principally hospital, nursing home, physician and home healthcare dealers, healthcare product wholesalers and retailers, including drug stores, catalog companies, pharmacies and home-shopping related businesses. For each of the three years during the period ended December 31, 1996, substantially all of the Company's revenues were derived from sales of products. Product lines marketed by the Company include durable medical equipment (such as wheelchairs, homecare beds, ambulatory aids, bathroom and safety equipment) sphygmomanometers (blood pressure measuring devices), stethoscopes, ECG instruments, electronic thermometers, infrared heat treatment devices, adult incontinence products, nutritional supplements, specialty cushions and mattresses for the treatment and prevention of pressure sores, medicated and rubber elastic bandages, respiratory equipment and supplies, urologicals, ostomy products, wound care products, infection control products, first aid supplies, laboratory supplies, antiseptics, topical anesthetics and sterile disposable medical products. Sales of the Company's line of sphygmomanometers accounted for 7%, 11% and 14% of the Company's annual revenues during the years ended December 31, 1996, 1995 and 1994, respectively. The Company's lines of incontinence products; wound care and ostomy products; bathroom safety equipment; wheelchairs and ambulatory aids accounted for approximately 8%, 7%, 6%, 6% and 5%, respectively, of the Company's annual revenues in 1996. No other product line or product accounted for more than 5% of annual revenues. Approximately 4% of all products offered by the Company during each of the years ended December 31, 1996, 1995 and 1994, respectively, accounted for approximately 80% of annual revenues in each such year. The number of products marketed by the Company increased from approximately 19,000 in 1991 to approximately 23,000 in 1996. Sales and Marketing The Company markets its products to approximately 18,500 customers, principally medical/surgical supply dealers and home healthcare retailers and wholesalers, which include drug store chains and home-shopping related businesses. The Company's products are marketed and distributed throughout the United States, Canada, Mexico, Europe, Central and South America and Asia. The Company's North American distribution network includes primary points of distribution located in Hauppauge, New York; St. Louis, Missouri; Jacksonville, Florida; Santa Fe Springs, California; Toronto, Canada; and Guadalajara, Mexico. Secondary points of distribution include Graham-Field Express satellite facilities located in Mount Vernon, New York, Dallas, Texas, and San Juan, Puerto Rico. -5- The Company's automated "paperless" warehouse and distribution center located in St. Louis, Missouri (the "St. Louis Facility") is a "state-of-the-art" facility designed by IBM. The St. Louis Facility incorporates sophisticated software and hardware technologies, and provides for the highest quality levels of customer service, delivery cycles, inventory turnover and distribution efficiency within the medical products industry. The St. Louis Facility ranks as one of the most technologically advanced distribution centers in the industry. Graham-Field Express The Company provides "same-day" and "next-day" service to home healthcare dealers of strategic home healthcare products, including Temco patient aids, adult incontinence products, Everest & Jennings wheelchairs, Smith & Davis homecare beds, nutritional supplements, and other freight intensive and time sensitive products through its satellite Graham-Field Express facilities. On March 7, 1996, the Company introduced its innovative Graham-Field Express program in the metropolitan New York area, which provides one of the most personalized service alternatives in the healthcare industry. Graham-Field Express enables customers to reduce inventory costs and eliminate warehousing and other costs associated with the purchasing process. On September 5, 1996, the Company opened its second Graham-Field Express facility through its acquisition of V.C. Medical Distributors Inc. ("V.C. Medical"), a wholesale distributor of medical products located in Puerto Rico, which currently operates as Graham-Field Express (Puerto Rico). On January 29, 1997, the Company opened its third Graham-Field Express facility in Dallas, Texas, which currently operates as Graham-Field Express (Dallas). Graham-Field Express supplements the Company's vast distribution network, enabling the Company to compete more aggressively in the home healthcare market. The Company plans to open an additional three (3) to four (4) Graham-Field Express sites in 1997 and eight (8) in 1998. A new Graham-Field Express location is scheduled to open in Baltimore, Maryland in April 1997. By late 1999, the Company plans to have a total of approximately twenty-five (25) Graham-Field Express locations serving all of the major U.S. markets. Drop-Ship Programs The Company has developed a seamless distribution program to enable orders to be shipped from Graham-Field's distribution facilities to end users on behalf of its customers. The Company's customers realize significant benefits from the Company's drop-ship program by significantly reducing their operating costs by eliminating the receiving and shipping process and inventory carrying costs, while reducing the product delivery time to end-users. Initially, the program will operate from the Company's distribution center located in St. Louis Facility. The Company plans to expand the drop-ship program to cover all major U.S. markets. Sales and Marketing The Company's sales force presents its C.A.P. program to customers as a means of reducing their operating costs associated with the purchasing process by consolidating purchases of multiple products through a single supplier - the Company. Other benefits realized -6- under C.A.P. include decreased order turnaround time, reduced delivery expenses associated with the consolidation of purchase orders, on-demand inventory for customers, which reduce customer warehousing costs, and reduced administrative costs and expenses through the streamlining of the purchasing process. The Company's sales representatives meet with customers to analyze individual customer's needs and to demonstrate cost reducing opportunities made possible by the C.A.P. program. The Company's domestic sales and marketing strategies are developed on a market-by-market basis through two primary business units: Medical/Surgical and Home Healthcare. While the Company's sales and marketing strategies are developed and conducted on a business unit basis, the sale of the Company's products overlap all business units. The Medical/Surgical business unit customer base consists of medical/surgical supply dealers who service hospitals, nursing homes, acute care facilities, out-patient surgicenters, physicians and other healthcare facilities. The Home Healthcare business unit customer base includes durable medical equipment suppliers, home healthcare equipment suppliers, respiratory supply dealers, specialty retailers, independent pharmacies, and catalog companies. The Home Healthcare business unit markets the Company's consumer products to retailers who distribute products to the consumer market, including drug store chains, mass merchandisers, department stores and home-shopping related businesses. In general, the dealers, wholesalers and retailers to whom the Company markets its products also sell other medical products, some of which compete with the Company's products. The Company's sales and marketing sales force is directed by a sales management team consisting of an Executive Vice President of Sales and Marketing, a Vice President of the Medical/Surgical business unit, a Vice President of the Home Healthcare business unit, a Vice President of Sales of Everest & Jennings, a Vice President of International Sales, and a President of Graham-Field (Canada), a newly-formed division of Everest & Jennings Canada. The Vice Presidents of the Home Healthcare and Medical/Surgical business units direct the sales and marketing strategy of the business units and oversee the Company's five (5) regional sales Vice Presidents. The international group consists of several in-house sales employees, as well as one representative in Taiwan. The Company's Canadian sales and marketing activities are directed by the President of Graham-Field (Canada), who oversees three (3) regional sales managers, fourteen (14) direct, full-time sales employees and two (2) independent manufacturers representatives. The Company's five (5) regional sales Vice Presidents oversee the day-to-day operations of the domestic sales force. The domestic sales force consists of approximately fifteen (15) direct, full-time sales employees and fifty (50) independent manufacturers representatives. The Company's specialty rehabilitation sales force, consisting of approximately forty (40) sales persons, is directed by the Vice President of Sales of Everest & Jennings. Everest & Jennings' specialty rehabilitation sales force conducts training activities for the benefit of dealers and their personnel, -7- physical and occupational therapists, and other healthcare professionals and reimbursement agencies. This training is primarily concerned with the features and benefits of Everest & Jennings' rehabilitation products, and the training also covers the proper fitting and use of wheelchairs and related equipment. The full-time sales employees receive both salary and commission, while the independent manufacturers representatives work solely on commission. During 1995, the Company introduced a new corporate campaign to clarify and strengthen the Company's identity, and increase the market presence of its proprietary product lines. As part of the campaign, the Company developed a new packaging theme and catalog, which the Company believes offers its customers the largest selection of healthcare products available from a single catalog. The "Sundry Times", the Company's monthly direct brochure, regarded by customers as one of the most useful purchasing tools in the industry, was redesigned and improved. The Company has also introduced an aggressive print advertising campaign with both product and image ads designed to support the new corporate image. In addition, the Company has introduced new product brochures, an extensive library of product line video tapes, cooperative advertising programs, and sales promotions to reinforce the Company's on-going commitment to satisfy the needs of its customers. A CD-ROM version of the Company's catalog and an Internet interactive website are in the process of being developed. Customers The Company's products are marketed to principally hospital, nursing home, physician and home healthcare dealers, healthcare product wholesalers and retailers, including drug stores, catalog companies, pharmacies and home shopping related businesses. No single customer or buying group accounted for more than 10% of the Company's revenues in 1996. The Company's Medical/Surgical business unit markets and sells its products to approximately 4,000 medical and surgical supply dealers. The Company believes that it sells to all significant medical and surgical supply dealers. The dealers in turn sell the Company's products principally to physicians, hospitals, nursing homes and other healthcare facilities. The Home Healthcare business unit markets and sells its products to approximately 14,500 customers which consist of durable medical equipment suppliers, home healthcare equipment suppliers, respiratory supply dealers, specialty retailers and independent pharmacies. The Company believes that it transacts business with substantially all of the significant home healthcare dealers in the United States. The Home Healthcare business unit also markets and sells its products to the consumer market consisting of drug store chains, mass merchandisers, department stores, and home shopping related businesses. Consumers who purchase from such customers of the Company usually do so upon the advice of physicians, hospital discharge planners, nurses or other professionals. -8- Product Sources During the year ended December 31, 1996, approximately 28% of the Company's revenues were derived from products manufactured by the Company, approximately 18% of the Company's revenues were derived from imported products, and approximately 54% from products purchased from domestic sources, which includes products purchased from Everest & Jennings prior to the acquisition. The Company is heavily dependent on its maintenance of two key supply contracts. Everest & Jennings obtains the majority of its homecare wheelchairs and wheelchair components under the Exclusive Wheelchair Supply Agreement with P.T. Dharma Polimetal. If the Exclusive Wheelchair Supply Agreement with P.T. Dharma is terminated, there can be no assurance that Everest & Jennings will be able to enter into a suitable supply agreement with another manufacturer. In addition, Everest & Jennings obtains homecare beds for distribution pursuant to the Bed Supply Agreement with Healthtech, which is scheduled to expire on October 15, 1997. Although the Company is in the process of securing alternative sources of supply with other manufacturers, there can be no assurance that arrangements as favorable as the current supply agreement will be obtainable. The Company purchases products from approximately 1,200 domestic and foreign suppliers. The Company has entered into exclusive and non-exclusive distribution agreements with a number of its domestic and foreign suppliers. Under such agreements, suppliers may designate the markets into which the Company can sell the products and may stipulate minimum annual sales volumes which are to be achieved by the Company. Most of the distribution agreements are cancelable by either party upon one to six months' notice. The Company does not believe that cancellation of any such agreements would have a material adverse effect on the Company, because comparable products are obtainable from alternative sources upon acceptable terms. The Company currently purchases a substantial portion of its sphygmomanometers and stethoscopes from a limited number of suppliers in the Far East. In addition, the Company sources component parts for sphygmomanometers and stethoscopes and assembles such products in its facility located in Hauppauge, New York. Principal products produced by the Company are EVEREST & JENNINGS(R) wheelchairs, SMITH & DAVIS(R) homecare beds, LABTRON(R) stethoscopes and blood pressure instruments, JOHN BUNN(R) respiratory aid products, MEDICOPASTE(R) medicated bandages, rubber elastic bandages, SURVALENT(R) electronic thermometry systems, silver nitrate applicators, examination lamps and sterile packages under the MSP(R) label, GRAFCO(R) medical supplies, including silver nitrate applicators and examination lamps, the TEMCO(R) product line of patient aids, bathroom safety equipment and patient room equipment, and Aquatherm specialty cushions and mattresses for the treatment and prevention of pressure sores. -9- Patents and Trademarks The Company believes that its business is dependent in part on its ability to establish and maintain patent protection for its proprietary technologies, products and processes, and the preservation of its trade secrets. The Company currently holds a number of United States patents relating to the EVEREST & JENNINGS(R) and TEMCO(R) product lines. In addition, the Company holds certain international patents relating to the components of its SURVALENT(R) electronic thermometry system. Other companies may provide similar products which may not be covered by the Company's issued patents. The Company must operate without infringing upon the proprietary rights of other parties. There can be no assurance that any United States or international patents issued or licensed to the Company will not be successfully challenged, invalidated or circumvented, or that patents will be issued in respect of patent applications to which the Company currently holds rights. In addition, the Company distributes certain patented products pursuant to licensing arrangements. In the event a licensing arrangement is terminated, the Company may not be able to continue to distribute the patented product. The Company believes that any such termination will not have a material adverse effect on the business of the Company, because products comparable to those currently distributed under such licensing arrangements are obtainable from other sources upon acceptable terms. The Company has registered a significant number of trademarks in the United States, including, but not limited to, "GRAHAM-FIELD," "EVEREST & JENNINGS," "SMITH & DAVIS," "JOHN BUNN," "BRISTOLINE," "SURVALENT," "MEDICOPASTE BANDAGE," "HEALTHTEAM," "LABTRON," "GRAFCO," "TEMCO" and "TENDERCLOUD." Product Liability Although the Company maintains product liability insurance, there can be no assurance that such coverage will be adequate to protect the Company from liabilities it may incur. Product liability insurance is expensive and there can be no assurance that the Company will be able to continue to obtain and maintain insurance at acceptable rates. Potential losses from any possible future liability claims and the effect which product liability litigation may have on the reputation and marketability of the Company's products could have a material adverse effect on the Company's business and financial condition. Government Regulation The healthcare industry is affected by extensive government regulation and funding at the federal and state levels. Changes in regulations and healthcare policy occur frequently and may impact the size and growth potential of the Company and profitability of products sold by the Company in each market. Although the Company is not a direct provider under Medicare and Medicaid, the Company's products are sold to its customers, many of which are providers under these programs and which depend upon Medicare and/or Medicaid reimbursement for a portion of their revenue. Changes in Medicare and Medicaid regulations may adversely impact the Company's revenues and collections indirectly by reducing the reimbursement rate received by the Company's -10- customers. The reduction in reimbursement rates will place downward pressure on prices charged for the Company's products sold to customers subject to Medicare and Medicaid reimbursement programs. The Company believes that its C.A.P. program will enable customers to respond to the reduction in reimbursement rates by consolidating the purchase of multiple product lines through a single supplier - the Company. The Federal Food, Drug and Cosmetic Act, the Safe Medical Devices Act and regulations issued or proposed thereunder, provide for regulation by the Federal Food and Drug Administration ("FDA") of the marketing, manufacturing, labeling, packaging and distribution of medical devices and drugs, including the Company's products. Among these regulations are requirements that medical device manufacturers register with the FDA, list devices manufactured by them and file various kinds of reports. The FDA's "Good Manufacturing Practice for Medical Devices" regulation sets forth requirements for, among other things, the Company's manufacturing process and associated record creation and maintenance, including tests and sterility. The Company uses the services of an unaffiliated outside firm to sterilize its GRAFCO(R) tampons and MSP(R) product line and tests of sterility are conducted by an unaffiliated laboratory. Records of sterilization and related tests are kept by the Company. The Company has also engaged the services of an outside consulting firm to monitor the quality control program in force to ensure that all manufactured products and supplier products comply with FDA requirements. The Company's outside consultants are in the process of implementing ISO 9001 certification on a company-wide basis, which will enhance the Company's overall standard quality systems, and enable the Company to comply with European regulatory requirements. Unscheduled FDA inspections of the Company's facilities may occur from time to time to determine compliance with FDA regulations. Certain requirements must be met prior to the initial marketing of medical devices. These range from a minimum obligation of waiting to receive a determination of substantial equivalence from the FDA before the introduction of a medical device which the Company has determined is substantially similar to devices already on the market, to a maximum obligation of complying with the potentially expensive and time-consuming testing process necessary to obtain FDA approval prior to the commercial marketing of new medical devices. In addition, the FDA has the authority to issue performance standards for devices manufactured by the Company. Should such standards be issued, the Company's products would be required to conform to them. To date, the Company has not experienced any significant difficulty or expense in complying with the requirements imposed on it by the FDA or other government agencies. The Company believes that the manufacturing and quality control procedures it employs conform to requirements of the "Good Manufacturing Practice for Medical Devices" regulation and does not anticipate having to make any material expenditures as a result of these requirements. -11- Competition The Company competes with many other manufacturers and distributors who offer one or more products competitive with the Company's products; however, the Company believes that no single competitor serving the Company's markets offers as broad a product range as the Company. The Company's principal means of competition are the breadth of its product range, quality, price and speed of delivery. The C.A.P. program enables the Company to compete by offering customers reduced operating costs associated with purchasing by consolidating purchases of multiple products. With respect to the Company's Everest & Jennings wheelchairs and Smith & Davis homecare beds, the Company's primary competitors include Invacare Corporation, Sunrise Medical Corporation and Fuqua Enterprises. Competition for the sale of wheelchairs and homecare beds is intense and is based on a number of factors, including quality, reliability, price, financing programs, delivery and service. The Company believes that the quality, reputation and recent technological advances relating to its Everest & Jennings wheelchairs and Smith & Davis homecare beds are favorable factors in competing with other manufacturers. Many of the Company's competitors have substantially greater financial and other resources than the Company. Employees As of March 8, 1997, the Company had 1,421 employees of which seven were executive officers, 268 were administrative and clerical personnel (of which 12 were part-time employees), 204 were sales, marketing and customer service personnel (of which four were part-time employees) and 942 were manufacturing and warehousing personnel (of which 43 were part-time employees). The Company is a party to five (5) collective bargaining agreements covering the Company's facilities located in Hauppauge, New York; Passaic, New Jersey; Earth City, Missouri; Ontario, Canada; and Guadalajara, Mexico. The collective bargaining agreements cover approximately 620 employees. The collective bargaining agreements for Hauppauge, New York; Passaic, New Jersey; Earth City, Missouri; Ontario, Canada; and Guadalajara, Mexico are scheduled to expire on September 30, 1997, July 27, 1999, September 13, 1999, July 24, 1998 and December 31, 1997, respectively. The Company has never experienced an interruption or curtailment of operations due to labor controversy, except for a three-day period during the summer of 1993 in which the Company experienced a strike at its Passaic, New Jersey facility, which did not have a material adverse effect on the Company's operations. The Company considers its employee relations to be satisfactory. -12- Business Combinations The Company has had an active acquisition program from its inception, and has completed 14 acquisitions since 1981. The Company focuses on acquisitions which enable the Company to increase its market share, expand its existing product lines, consolidate manufacturing and distribution facilities, and enable the Company to enter into new markets and complement the Company's existing business. Among other acquisitions, in 1983 the Company acquired Labtron, Inc. and in 1985 it acquired Graham-Field, Inc., both of which form the core of the Company's current business. On May 31, 1991, the Company acquired 90% of the outstanding stock of Horizon International Health Care, Inc., formerly known as AquaTherm Products Corporation ("Aquatherm"), a manufacturer and distributor of deodorizers and pressure control products for the treatment or prevention of decubitus ulcers (pressure sores). On June 11, 1991, the Company acquired the remaining 10% of the outstanding stock of Aquatherm. The total cash purchase price for the outstanding stock of Aquatherm was $2,356,000. On October 1, 1991, the Company acquired from TEMCO National Corp. ("TEMCO") substantially all of the operating assets (excluding the real estate) of the TEMCO Healthcare Division for a purchase price consisting of $5,849,000 in cash which is net of certain purchase price adjustments. In connection with the acquisition, the Company assumed certain liabilities and entered into a fifteen year lease for TEMCO's manufacturing and warehouse facility located in Passaic, New Jersey. See "Properties". The operating assets acquired by the Company included substantially all of the assets (excluding the real estate) used by TEMCO in the business of manufacturing and marketing medical supply products, including ambulatory aids, bath and shower accessories, geriatric seating units and patient room assistance and convenience accessories. On April 27, 1992, the Company acquired certain assets of ConvaTec, a division of E.R. Squibb & Sons, Inc. ("Bandage"), for a purchase price of $369,000 in cash. In connection with the acquisition, the Company assumed certain liabilities of Bandage, and entered into a long-term lease for Bandage's manufacturing facility located in Central Falls, Rhode Island. See "Properties." The assets acquired by the Company included substantially all of the assets used by Bandage in the business of manufacturing elastic bandages. On May 28, 1992, the Company acquired substantially all of the operating assets of Diamond Medical Equipment Corp. ("DEC") and National Health Care Equipment Inc. ("NHC") for a purchase price of $9,306,000 in cash, and the issuance and delivery to the principal stockholders of DEC and NHC of 210,176 shares of common stock of the Company. In addition, the Company repaid certain bank indebtedness of DEC and NHC in the amount of $3,200,000 and assumed certain liabilities of DEC and NHC. DEC and NHC, formerly privately-owned companies, are manufacturers of patient aids and distributors of adult incontinence products, nutritional supplements and other home healthcare products. -13- Effective July 1, 1995, the Company acquired substantially all of the assets and liabilities of National Medical Excess Corp., a distributor of used and refurbished medical products, including respiratory and durable medical equipment. The purchase price, including acquisition expenses, was approximately $723,000 in cash, plus the assumption of certain liabilities. On March 4, 1996, the Company sold its Gentle Expressions breast pump product line to The Lumiscope Company, Inc. for a purchase price of $1,000,000, of which $500,000 was paid in cash with the balance in a secured subordinated promissory note in the aggregate principal amount of $500,000, payable over 48 months with interest at the prime rate of interest plus 1%. On September 4, 1996, the Company acquired substantially all of the assets of V.C. Medical for a purchase price consisting of $1,703,829 in cash, and the issuance of 32,787 shares of common stock of the Company, valued at $7.625 per share representing the closing market price of the common stock of the Company on the last trading day immediately prior to the closing. In addition, the Company assumed certain liabilities of V.C. Medical in the amount of $296,721. Under the terms of the transaction, in the event the pre-tax income of the acquired business equals or exceeds $1,000,000 during the twelve (12) months following the closing date, an additional $500,000 in cash will be paid to V.C. Medical. The shares were delivered into escrow, and will be held in escrow until February 4, 1998, subject to any claims for indemnification or purchase price adjustments in favor of the Company. On November 27, 1996, the Company acquired Everest & Jennings in a merger transaction. In the merger, each share of the common stock of Everest & Jennings, other than shares of the common stock of Everest & Jennings cancelled pursuant to the merger, was converted into the right to receive .35 shares of the common stock of the Company. In connection with the merger, 2,522,691 shares of common stock of the Company were issued in exchange for the common stock of Everest & Jennings. The Company's common stock was valued at $7.64 per share, which represented the average closing market price of the Company's common stock for the period three business days immediately prior to and three business days immediately after the announcement of the execution of the merger agreement. In addition, in connection with, and at the effective time of the merger: (i) BIL (Far East Holdings) Limited, a Hong Kong corporation and the majority stockholder of Everest & Jennings ("BIL"), purchased 1,922,242 shares of common stock of the Company (valued at $7.64 per share) for $24,989,151, representing an amount equal to the outstanding principal and interest on Everest & Jennings' indebtedness to Hong Kong and Shanghai Banking Corporation Limited, which indebtedness (the "HSBC Indebtedness") was guaranteed by BIL. The proceeds of such stock purchase were contributed by the Company to Everest & Jennings -14- immediately following the merger and used to discharge the HSBC Indebtedness. (ii) The Company issued $61 million stated value of a new Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") to BIL in exchange for certain indebtedness of Everest & Jennings owing to BIL and shares of E&J preferred stock owned by BIL. The Series B Preferred Stock is entitled to a dividend of 1.5% per annum payable quarterly, votes on an as-converted basis as a single class with the common stock of the Company and the Series C Preferred Stock (as defined below), is not subject to redemption and is convertible into shares of the common stock of the Company (x) at the option of the holder thereof, at a conversion price of $20 per share (or, in the case of certain dividend payment defaults, at a conversion price of $15.50 per share), (y) at the option of the Company, at a conversion price equal to current trading prices (subject to a minimum conversion price of $15.50 and a maximum conversion price of $20 per share) and (z) automatically on the fifth anniversary of the date of issuance at a conversion price of $15.50 per share. Such conversion prices are subject to customary antidilution adjustments. Based on an independent valuation, the fair value ascribed to the Series B Preferred Stock was $28,200,000. (iii) BIL purchased for cash $10 million stated value of a new Series C Cumulative Convertible Preferred Stock (the "Series C Preferred Stock"), the proceeds of which are available to the Company for general corporate purposes. The Series C Preferred Stock is entitled to a dividend of 1.5% per annum payable quarterly, votes on an as-converted basis as a single class with the common stock of Company and the Series B Preferred Stock, is subject to redemption as a whole at the option of the Company on the fifth anniversary of the date of issuance at stated value and, if not so redeemed, will be convertible into shares of the common stock of the Company automatically on the fifth anniversary of the date of issuance at a conversion price of $20 per share, subject to customary antidilution adjustments. Based on an independent valuation, the fair value ascribed to the Series C Preferred Stock was $3,400,000. (iv) Certain indebtedness in the amount of $4 million owing by the Company to BIL was exchanged for an equal amount of unsecured subordinated indebtedness of the Company maturing on April 1, 2001 and bearing interest at the effective rate of 7.7% per annum. On February 28, 1997, Everest & Jennings Canada acquired substantially all of the assets and certain liabilities of Motion 2000 Inc. ("Motion 2000") and its wholly-owned subsidiary, Motion 2000 Quebec Inc. ("Motion Quebec"), for a purchase price equal to Cdn. $2.9 million (Canadian dollars), or approximately $2.15 million in U.S. dollars. The purchase price was paid by the issuance of 187,733 shares of the common stock of the Company valued at $11.437 per share, of which 28,095 shares were delivered into escrow. The purchase price is subject to adjustment if the final determination of the closing date net book value of the assets acquired by Everest & Jennings Canada is equal to or less than Cdn. $450,000 (Canadian dollars), or approximately $333,000 in U.S. dollars. All of the escrowed shares will be held in escrow until the earlier to occur (the "Initial -15- Release Date") of June 28, 1997, or the final resolution of the purchase price. On the Initial Release Date, a portion of the escrowed shares will be released in an amount equal to the difference between (i) 28,095 shares and (ii) the sum of the number of (x) any escrowed shares subject to any indemnification claims, (y) any escrowed shares used to satisfy any adjustment to the purchase price, and (z) 18,729 shares. The balance of the escrowed shares will be released on December 31, 1997, subject to any claims for indemnification. On March 7, 1997, E&J acquired Kuschall of America, Inc. ("Kuschall"), a manufacturer of pediatric wheelchairs, high-performance adult wheelchairs and other rehabilitation products, for a purchase price of $1,510,000, representing the net book value of Kuschall. The purchase price was paid by the issuance of 116,154 shares of the common stock of the Company valued at $13.00 per share, of which 23,230 shares were delivered into escrow. The escrow shares will be released on March 7, 1999, subject to any purchase price adjustments in favor of the Company and claims for indemnification. There can be no assurance that any additional acquisitions will be effected. -16- Item 2. Properties: The Company's principal executive offices are located in Hauppauge, New York. The Company's primary domestic distribution centers are located in Hauppauge, New York; St. Louis, Missouri; Santa Fe Springs, California; and Jacksonville, Florida. Additional points of distribution include Graham-Field satellite locations in Mount Vernon, New York; Dallas, Texas; and San Juan, Puerto Rico. The Company's primary manufacturing facilities are located in Passaic, New Jersey; Earth City, Missouri; Clay Falls, Rhode Island; Guadalajara, Mexico; and Toronto, Canada. The manufacturing facilities located in Toronto, Canada and Guadalajara, Mexico are owned by the Company. The Company plans to open a new leased facility in Baltimore, Maryland in April 1997, which will operate as a Graham-Field Express satellite location. The Company believes that its facilities are in good repair and provide adequate capacity for the near term growth of the Company's business. -17- Existing leases for the Company's principal facilities are summarized in the following table. A. Manufacturing Facilities:
Lease Approx. Expiration Location Sq. Ft. Date Principal Use Annual Rent -------- ------- ---------- ------------- ----------- 400 Rabro Drive East 105,000 12/31/06 Corporate Office, $ 934,000 1/01/96 - 12/31/01 Hauppauge, NY Manufacturing, 1,023,000 1/01/02 - 12/31/06 Distribution 3601 Rider Trail 147,000 7/31/02 Manufacturing, $ 279,300 1/01/96 - 7/31/97 Earth City, MO Distribution 323,400 8/01/97 - 7/31/02 125 South Street 120,000 12/31/04 Manufacturing, $ 336,000 1/01/96 - 12/31/99 Passaic, NJ Distribution 360,000 1/01/00 - 12/31/04 131 Clay Street 21,467 12/31/97 Manufacturing, $ 67,555 1/01/96 - 12/31/97 Central Falls, RI Distribution
B. Distribution Facilities:
Lease Approx. Expiration Location Sq. Ft. Date Principal Use Annual Rent -------- ------- ---------- ------------- ----------- 12055 Missouri 144,000 3/31/07 Warehouse, $ 504,300 1/01/96 - 3/31/97 Bottom Road(1) Distribution 561,950 4/01/97 - 3/31/02 St. Louis County, MO 648,400 4/01/02 - 3/31/07 11954 East Washington Blvd 52,810 2/01/02 Warehouse, $ 228,144 2/01/97 - 8/01/99 Santa Fe Springs, CA Distribution 250,956 9/01/99 - 2/01/02 8291 Forshee Drive 28,255 8/31/99 Warehouse, $ 112,185 7/01/96 - 8/31/99 Jacksonville, FL Distribution 144 East Kingsbridge 48,000 2/28/99 Warehouse, $ 162,000 3/01/96 - 2/28/97 Mount Vernon, NY Distribution 180,000 3/01/97 - 2/28/99 Puerto Rico Highway #1 21,600 10/08/99 Warehouse, $ 114,000 10/08/96 - 10/08/99 Rio Canas Ward Distribution Caguas, PR 135 Fell Court 30,000 12/31/06 Warehouse $ 202,500 1/01/96 - 12/31/96 Hauppauge, NY 222,750 1/01/97 - 12/31/01 240,000 1/01/02 - 12/31/06 7447 New Ridge Road 20,147 4/30/02 Warehouse, $ 90,660 4/15/97 - 4/30/99 Hanover, MD Distribution 95,700 5/01/99 - 4/30/02
-18-
1707 Falcon Drive 10,151 7/31/01 Warehouse, $ 35,520 8/01/96 - 7/31/99 DeSoto, TX Distribution 38,040 8/01/99 - 7/31/00 40,080 8/01/00 - 7/31/01
- ---------- (1) The lease payments for the St. Louis Facility for the period April 1, 1997 through March 31, 2007 are subject to fluctuations in the consumer price index. In no event shall the base rent exceed the amounts reflected in the table. -19- Item 3. Legal Proceedings: On June 19, 1996, a class action lawsuit was filed on behalf of all stockholders of Everest & Jennings (other than the named defendants) in the Delaware Court of Chancery, following announcement on June 17, 1996 of the original agreement in principle between Everest & Jennings and the Company. The class action names as defendants the Company, Everest & Jennings, Everest & Jennings' directors, and BIL. The class action challenges the transactions contemplated by the original agreement in principle, alleging, among other things, that (i) such transactions were an attempt to eliminate the public stockholders of Everest & Jennings at an unfair price, (ii) BIL will receive more value for its holdings in Everest & Jennings than its minority stockholders, (iii) the public stockholders will not be adequately compensated for the potential earnings of Everest & Jennings, (iv) BIL and the directors of Everest & Jennings breached or aided and abetted the breach of fiduciary duties owed to the stockholders (other than the defendants) by not exercising independent business judgment and having conflicts of interest, and (v) the Company aided and abetted and induced breaches of fiduciary duties by other defendants by offering incentives to members of management, either in the form of continued employment or monetary compensation and perquisites, in exchange for their approval of the merger. The class action seeks to rescind the merger or an award of rescissionary damages if it cannot be set aside, and also prays for an award of compensatory damages. The Company believes that it has valid defenses to the complaint's allegations of wrongdoing, and intends to vigorously defend the lawsuit. On May 21, 1996, the Company was sued by Minnesota Mining & Manufacturing Company ("3M") in a claim purportedly arising under federal, state and common law trademark, false advertising, and unfair competition laws, as well as for breach of, and interference with, contracts. 3M alleges that the Company is selling 3M products in violation of federal and state law, and seeks monetary damages in an unspecified amount, as well as injunctive relief against the Company's continued sale of 3M products. The claim was filed in the Southern District of New York. The Company vigorously denies the allegations of 3M's complaint, and has filed an answer denying the allegations of wrongdoing and asserting affirmative defenses. In addition, the Company has asserted counterclaims against 3M under federal antitrust laws, as well as an unfair competition claim. On October 16, 1996, 3M moved to dismiss the Company's antitrust counterclaims. Briefing of the motion has been completed and the parties are awaiting a decision. 3M has proposed a settlement of all claims pursuant to which the Company would, among other things, agree to restrict its purchases of 3M products to certain authorized 3M dealers, and make a payment of no more than $400,000. Although settlement discussions are ongoing, it is not possible to predict the outcome of such discussions. Everest & Jennings and its subsidiaries are parties to certain lawsuits and proceedings as described below (the "Everest & Jennings Proceedings"). Under the terms of the Amended and Restated Stockholder Agreement dated as of September 3, 1996, as amended on September 19, 1996, by and among BIL, the Company and Irwin Selinger (the "Stockholder -20- Agreement"), BIL has agreed to indemnify the Company and its subsidiaries against the Everest & Jennings Proceedings in the event the amount of losses, claims, demands, liabilities, damages and all related costs and expenses (including attorneys' fees and disbursements) in respect of the Everest & Jennings Proceedings exceeds in the aggregate the applicable amounts reserved for such proceedings on the books and records of Everest & Jennings as of September 3, 1996. In view of BIL's obligation to indemnify the Company and its subsidiaries with respect to such proceedings, management does not expect that the ultimate liabilities, if any, with respect to such proceedings, will have a material adverse effect on the consolidated financial position or results of operations of the Company. On July 17, 1990, a class action suit was filed in the United States District Court for the Central District of California by a stockholder of Everest & Jennings against Everest & Jennings and certain of its present and former directors and officers. The suit seeks unspecified damages for alleged non-disclosure and misrepresentation concerning Everest & Jennings in violation of federal securities laws. The district court dismissed the complaint on March 26, 1991, and plaintiff filed his first amended complaint on May 8, 1991. The district court again granted a motion to dismiss the entire action on November 26, 1991. Plaintiff then took an appeal to the Ninth Circuit, which reversed the district court's dismissal of the first amended complaint and remanded the case to the district court for further proceedings. On March 25, 1996, the district court granted Plaintiff's motion to certify a class composed of purchasers of the Everest & Jennings' common stock during the period from March 31, 1989 to June 12, 1990. Plaintiff's counsel has not as yet submitted to the court any proposed notice of class certification and, consequently, the members of the class have not been notified that the court has certified the case to proceed as a class action. Everest & Jennings has received and filed responses and objections to a document request, but further action has been deferred to allow the parties to discuss possible settlement. Everest & Jennings has ordered the parties to file and plaintiff's counsel has filed monthly reports on the status of settlement discussions since September 1996. There are numerous defenses which Everest & Jennings intends to assert to the allegations in the first amended complaint if settlement cannot be reached on acceptable terms. Under Everest & Jennings' directors and officers insurance policy, Everest & Jennings has coverage against liabilities incurred by its directors and officers, subject to a self-insured retention of $150,000 (which has been exceeded by defense costs incurred to date). The carrier has contended that fifty percent of the liability and expenses in the case must be allocated to Everest & Jennings, which is not an insured defendant, and fifty percent to the insured former director and officer defendants. This proceeding constitutes an Everest & Jennings Proceeding, which is covered under BIL's indemnification obligations pursuant to the terms and provisions of the Stockholder Agreement. Die Cast Products, Inc., a former subsidiary of Everest & Jennings, was named as a defendant in a lawsuit filed by the State of California pursuant to the Comprehensive Environmental Response, Compensation and Liability Act 42 U.S.C.ss.ss.9601 et seq. Everest & Jennings was originally notified of this action on December 10, 1992. A settlement was reached at an October 5, 1995 Mandatory Settlement Conference before Judge Rea in the Federal District -21- Court of the Central District of California. The state of California has agreed to accept the sum of $2.6 million as settlement for all past costs and future remedial work. Everest & Jennings' share of the settlement with the state of California has amounted to $41,292.30, which sum was paid on January 3, 1997. No further claims or assessments with respect to this matter are anticipated at this time. This proceeding constitutes an Everest & Jennings Proceeding, which is covered under BIL's indemnification obligations pursuant to the terms and provisions of the Stockholder Agreement. In March, 1993, E&J received a notice from the U.S. Environmental Protection Agency ("EPA") regarding an organizational meeting of generators with respect to the Casmalia Resources Hazardous Waste Management Facility ("Casmalia Site") in Santa Barbara County, CA. The EPA alleges that the Casmalia Site is an inactive hazardous waste treatment, storage and disposal facility which accepted large volumes of commercial and industrial wastes from 1973 until 1989. In late 1991, the Casmalia Site owner/operator abandoned efforts to actively pursue site permitting and closure and is currently conducting only minimal maintenance activities. An agreement in principle now has been reached between the Casmalia Steering Committee ("CSC") and the EPA for a settlement of the majority of the Casmalia site liability. The Steering Committee represents approximately 50 of the largest volume generators at the Casmalia site. It is anticipated that the agreement will be formalized and embodied in a Consent Decree in the summer and fall of 1997. Pursuant to the settlement, the CSC members are committing to perform and fund Phase I work at the site. It is estimated that the Phase I work being committed to will cost approximately $30 to $35 million dollars and will take three to five years to complete. This cost will be allocated to Steering Committee members based upon their volume of waste sent to the site. Everest & Jennings accounts for 0.8% of the waste. Thus, by participating in the Phase I settlement, Everest & Jennings has committed to payments of approximately $280,000 to be spread over a three to five year period. Pursuant to the settlement, Everest & Jennings will be released from further obligation for thirty (30) years. In addition, the Steering Committee companies are seeking to recover from the owner and operator of the site. Any such recovery will diminish E&J's' payout pursuant to the settlement. This proceeding constitutes an Everest & Jennings Proceeding, which is covered under BIL's indemnification obligations pursuant to the terms and provisions of the Stockholder Agreement. In 1989, a patent infringement case was initiated against E&J and other defendants in the U.S. District Court, Central District of California. E&J prevailed at trial with a directed verdict of patent invalidity and non-infringement. The plaintiff filed an appeal with the U.S. Court of Appeals for the Federal Circuit. On March 31, 1993, the Court of Appeals vacated the District Court's decision and remanded the case for trial. Impacting the retrial of this litigation was a re-examination proceeding before the Board of Patent Appeals with respect to the subject patent. A ruling was rendered November 23, 1993 sustaining the claim of the patent which E&J Inc. has been charged with infringing. Upon the issuance of a patent re-examination certificate by the U.S. Patent Office, the plaintiff presented a motion to the District Court requesting a retrial of the case. E&J presented a Motion for Summary Judgment of Noninfringement based in part -22- upon the November 23, 1993 decision of the Board of Patent Appeals. The Motion was granted in follow-up conferences and an official Judgment was entered November 17, 1994. Following the appeal by the plaintiffs, the case has been remanded to the U.S. District Court, Central District of California, for further consideration. E&J believes that this case is without merit and intends to contest it vigorously. The ultimate liability of E&J, if any, cannot be determined at this time. This proceeding constitutes an Everest & Jennings Proceeding, which is covered under BIL's indemnification obligations pursuant to the terms and provisions of the Stockholder Agreement. Following a jury trial on July 15, 1996, a verdict was rendered in the District Court of the First Judicial District of the State of New Mexico in a civil product liability law suit (Chris Trew et al. vs. Smith and Davis Manufacturing Company, Inc., No. SF95-354) against Smith & Davis Manufacturing Company, a wholly-owned subsidiary of Everest & Jennings ("Smith & Davis"), in the amount of $635,698.12 actual damages, prejudgment interest and costs, plus $4 million punitive damages. The suit was instituted on February 25, 1995 by the children and surviving heirs and personal representatives of a nursing home patient in Carlsbad, New Mexico who died on September 28, 1993 after her head became pinned between a bed rail allegedly manufactured by Smith & Davis and her bed. The suit alleged that the bed rail in question was defective and unsafe for its intended purpose, that Smith & Davis was negligent in designing, manufacturing, testing and marketing such bed rails, and that the negligence of the nursing home in question was the proximate cause of decedent's injuries and death. The nursing home reached a settlement with Plaintiffs prior to trial. Judgment was entered on the jury verdict, which bears interest at the rate of 15% from August 30, 1996 until paid. On October 15, 1996, Plaintiffs filed a related case in the Circuit Court of the County of St. Louis, Missouri (Chris Trew, et. al. v. Everest & Jennings, et al., Cause No. 96CC-000456, Division 39), which seeks a declaratory judgment against Everest & Jennings and BIL to pierce their respective corporate veils and holding them jointly and severally liable for the full amount of the New Mexico judgment. On February 26, 1997, the parties agreed in principle to a proposed settlement in which the Plaintiffs would receive $3 million, of which Everest & Jennings estimates that approximately $1.5 million will be paid by Everest & Jennings' insurance carriers, however, Everest & Jennings may seek additional recovery from the insurance carriers. The amounts required to be paid in the proposed settlement in excess of any insurance recoveries will be borne, in whole or in part, by BIL under the indemnification terms and provisions contained in the Stockholder Agreement and/or through the Company's right of offset under the Company's subordinated promissory note to BIL dated as of December 10, 1996 (the "BIL Note"), in the principal amount of $4 million. The Company and its subsidiaries are parties to other lawsuits and other proceedings arising out of the conduct of its ordinary course of business, including those relating to product liability and the sale and distribution of its products. While the results of such lawsuits and other proceedings cannot be predicted with certainty, management does not expect that the ultimate liabilities, if any, will have a material adverse effect on the consolidated financial position or results of operations of the Company. -23- Item 4. Submission of Matters to a Vote of Security Holders: A special meeting (the "Special Meeting") of the Company's stockholders was held on November 27, 1996 to approve the following matters: 1. The issuance of shares of capital stock of the Company pursuant to an Amended and Restated Agreement and Plan of Merger dated as of September 3, 1996 and amended as of October 1, 1996, by and among the Company, E&J Acquisition Corp. ("Acquisition Corp."), a wholly-owned subsidiary of the Company, Everest & Jennings, and BIL, providing for the merger of Acquisition Corp. with and into Everest & Jennings. 2. To adopt an amendment to Article FOURTH of the Certificate of Incorporation of the Company (the "Certificate of Incorporation") to increase the number of authorized shares of the common stock of the Company from 40,000,000 shares to 60,000,000 shares. 3. To adopt an amendment to Article NINTH of the Certificate of Incorporation to require that stockholder action be taken at an annual meeting of stockholders or at a special meeting of stockholders and prohibit stockholder action by written consent. 4. To adopt an amendment to Article ELEVENTH of the Certificate of Incorporation to, among other things, provide that directors be removed only for cause and only with the approval of the holders of at least 50% of the voting power of the Company entitled to vote generally in the election of directors. 5. To adopt an amendment to Article TWELFTH of the Certificate of Incorporation to provide that the stockholder vote required to alter, amend, or repeal certain provisions of the Company Bylaws, or to adopt any provision inconsistent therewith, shall be 80% of the voting power of the Company entitled to vote generally in the election of directors. 6. To approve an amendment to the Company's Incentive Program to increase the maximum number of shares of the common stock of the Company available under the Incentive Program by 900,000 shares. -24- As of the record date of October 11, 1996, 14,209,895 shares of common stock of the Company were issued and outstanding. Tabulations for the proposals voted at the Special Meeting are set forth below: For Against/Withheld Abstain --- ---------------- ------- Proposal No. 1 8,974,876 130,669 107,024 Proposal No. 2 9,225,439 307,202 38,124 Proposal No. 3 7,848,233 1,192,439 171,906 Proposal No. 4 7,164,461 1,866,451 181,657 Proposal No. 5 7,108,604 1,930,334 173,631 Proposal No. 6 8,155,494 962,591 93,584 All of such proposals were approved at the Special Meeting. -25- PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters: (a) The Common Stock of the Company is traded on the New York Stock Exchange (Symbol: GFI). The following provides the high and low sales prices for the period from January 1, 1995 through March 20, 1997 as reported on the New York Stock Exchange. High Sales Price Low Sales Price ---------------- --------------- 1995 First Quarter 4 1/2 3 1/4 Second Quarter 4 1/4 3 Third Quarter 4 5/8 3 Fourth Quarter 4 5/8 3 1/4 1996 First Quarter 5 3 1/8 Second Quarter 9 7/8 4 1/4 Third Quarter 9 1/8 6 1/2 Fourth Quarter 9 1/2 6 5/8 1997 First Quarter, through March 20, 1997 13 3/4 8 1/2 (b) As of the close of business on March 20, 1997, the number of holders of record of Common Stock of the Company was 595. (c) On December 10, 1996, the Company entered into a syndicated three-year senior secured revolving credit facility (the "Credit Facility") for up to $55 million of borrowings, including letters of credit and banker's acceptances, arranged by IBJ Schroder Bank & Trust Company ("IBJ Schroder"), as agent. The proceeds from the Credit Facility were used to (i) refinance certain existing indebtedness of the Company, including the indebtedness (a) under the terms of the Note and Warrant Agreement dated as of March 12, 1992, as amended (the "John Hancock Note and Warrant Agreement"), with John Hancock Mutual Life Insurance Company ("John Hancock"), and (b) to Chase Manhattan Bank, and (ii) provide for the nationwide roll-out of the Graham-Field Express program and for the ongoing working capital needs of the Company. The credit facility is secured by the Company's receivables, inventory and proceeds thereof. -26- Under the terms of the Credit Facility, the Company is prohibited from declaring, paying or making any dividend or distribution on any shares of the common stock or preferred stock of the Company (other than dividends or distributions payable in its stock, or split-ups or reclassifications of its stock) or apply any of its funds, property or assets to the purchase, redemption or other retirement of any common or preferred stock, or of any options to purchase or acquire any such shares of common or preferred stock of the Company. Notwithstanding the foregoing restrictions, the Company is permitted to pay cash dividends in any fiscal year in an amount not to exceed the greater of (i) the amount of dividends due BIL under the terms of the Series B and Series C Preferred Stock in any fiscal year, or (ii) 12.5% of net income of the Company on a consolidated basis, provided, that no event of default shall have occurred -------- and be continuing or would exist after giving effect to the payment of the dividends. The Company anticipates that for the foreseeable future any earnings will be retained for use in its business and accordingly, does not anticipate the payment of cash dividends, other than to BIL in accordance with the terms and provisions of the Series B and Series C Preferred Stock. -27- Item 6. Selected Financial Data: Selected Financial Data
Year Ended December 31, ----------------------- 1996 1995 1994 1993 1992 ------------- ------------ ------------ ------------ ----------- Statement of Operations Data: Net Revenues $ 127,245,000 $100,403,000 $ 94,501,000 $ 92,552,000 $84,103,000 ============= ============ ============ ============ =========== (Loss) Income before extraordinary item and cumulative effect of change in accounting principle $ (12,215,000) $ 738,000 $ (2,356,000) $ (3,398,000) $ 1,244,000 Extraordinary item (736,000) -- -- -- -- Cumulative effect of change in accounting principle -- -- -- 530,000 -- ------------- ------------ ------------ ------------ ----------- Net (loss) income $ (12,951,000) $ 738,000 $ (2,356,000) $ (2,868,000) $ 1,244,000 ============= ============ ============ ============ =========== Net (loss) income per common share: Before extraordinary item and cumulative effect of change in accounting principle $ (.84) $ .06 $ (.18) $ (.26) $ .10 Extraordinary item (.05) -- -- -- -- Cumulative effect of change in accounting principle -- -- -- .04 -- ------------- ------------ ------------ ------------ ----------- Net (loss) income per common share $ (.89) $ .06 $ (.18) $ (.22) $ .10 ============= ============ ============ ============ =========== Weighted average number of common and equivalent shares outstanding 14,574,000 13,332,000 12,879,000 12,796,000 12,719,000 ============= ============ ============ ============ ===========
-28- Selected Financial Data
Year Ended December 31, ----------------------- Balance Sheet Data: 1996 1995 1994 1993 1992 ------------ ----------- ----------- ----------- ----------- Current Assets $ 94,270,000 $53,979,000 $51,078,000 $47,866,000 $50,887,000 ------------ ----------- ----------- ----------- ----------- Current Liabilities $ 81,865,000 $20,216,000 $22,796,000 $18,601,000 $17,309,000 ------------ ----------- ----------- ----------- ----------- Total Assets $202,476,000 $99,799,000 $99,494,000 $97,995,000 $97,994,000 ------------ ----------- ----------- ----------- ----------- Long-term debt (including capital leases due after one year) $ 6,057,000 $ 972,000 $ 1,596,000 $ 2,170,000 $ 1,272,000 ------------ ----------- ----------- ----------- ----------- Guaranteed Senior Notes (net of current maturities) $ - $19,000,000 $20,000,000 $20,000,000 $20,000,000 ------------ ----------- ----------- ----------- ----------- Stockholders' equity $112,802,000 $59,611,000 $55,102,000 $57,224,000 $59,324,000 ------------ ----------- ----------- ----------- -----------
-29- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include plans and objectives of management for future operations, including plans and objectives relating to the future economic performance and financial results of the Company. The forward-looking statements relate to (i) the expansion of the Company's market share, (ii) the Company's growth into new markets, (iii) the development of new products and product lines to appeal to the needs of the Company's customers, (iv) the opening of new distribution and warehouse facilities, including the expansion of the Graham-Field Express program, (v) obtaining regulatory and governmental approvals, (vi) the upgrading of the Company's technological resources and systems and (vii) the retention of the Company's earnings for use in the operation and expansion of the Company's business. Important factors and risks that could cause actual results to differ materially from those referred to in the forward-looking statements include, but are not limited to, the effect of economic and market conditions, the impact of the consolidation of healthcare practitioners, the impact of healthcare reform, opportunities for acquisitions and the Company's ability to effectively integrate acquired companies, the Company's ability to obtain an alternative source of supply for homecare beds, the termination of the Company's Exclusive Wheelchair Supply Agreement with P.T. Dharma, the ability of the Company to maintain its gross profit margins, the ability to obtain additional financing to expand the Company's business, the failure of the Company to successfully compete with the Company's competitors that have greater financial resources, the loss of key management personnel or the inability of the Company to attract and retain qualified personnel, adverse litigation results, the acceptance and quality of new software and hardware products which will enable the Company to expand its business, the acceptance and ability to manage the Company's operations in foreign markets, possible disruptions in the Company's computer systems or distribution technology systems, possible increases in shipping rates or interruptions in shipping service, the level and volatility of interest rates and currency values, the impact of current or pending legislation and regulation, as well as the risks described from time to time in the Company's filings with the Securities and Exchange Commission, which include this Annual Report on Form 10-K, and the section entitled "Risk Factors" in the Company's Registration Statement on Form S-4 dated as of October 18, 1996. The forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results, performance and/or achievements of the Company to differ materially from any future results, performance or achievements, express or implied, by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and that in light -30- of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. RESULTS OF OPERATIONS Operating Revenues - ------------------ 1996 compared to 1995. Operating revenues were $126,715,000 for the year --------------------- ended December 31, 1996, or 27% higher than the year ended December 31, 1995. The increase in operating revenues was primarily attributable to the Company's expansion of its C.A.P. program, the introduction of the Graham-Field Express program, the addition of new product lines and the acquisition of Everest & Jennings on November 27, 1996. In March 1996, Graham-Field Express was introduced to offer "same-day" and "next-day" service to home healthcare dealers of certain strategic home healthcare products, including Temco patient aids, adult incontinence products, Everest & Jennings wheelchairs, Smith & Davis homecare beds, nutritional supplements and other freight and time sensitive products. Revenues attributable to Graham-Field Express were approximately $14,431,000 for the year ended December 31, 1996. The Company plans to open an additional three (3) to four (4) Graham-Field Express sites in 1997 and eight (8) in 1998. A new Graham-Field Express location is scheduled to open in Baltimore, Maryland in April 1997. By late 1999, the Company plans to have a total of approximately twenty-five (25) Graham-Field Express locations serving all of the major U.S. markets. On September 4, 1996, the Company acquired V.C. Medical, a regional home healthcare wholesaler located in Puerto Rico. V.C. Medical currently operates as Graham-Field Express (Puerto Rico). Revenues attributable to Graham-Field Express (Puerto Rico) were approximately $1,766,000 for the year ended December 31, 1996. On November 27, 1996, the Company completed its acquisition of Everest & Jennings. The Company believes that the combination of Everest & Jennings' manufacturing operations with the Company's cost-effective delivery systems and advanced technology systems will increase the Company's presence in the home healthcare market with a greater level of service and efficiency, and a broader portfolio of products. The coordination of the manufacturing and distribution of the wheelchair and homecare bed product lines, which represent the leading product lines in the home healthcare market, will enhance the Company's position as the leading "one-stop-shop" distributor in the medical products industry. The Everest & Jennings name, a symbol of quality for more than fifty years, has enabled the Company to introduce its Temco home healthcare product line and other proprietary product lines into the rehabilitation marketplace, a virtually untapped marketplace for the Company in the past. Revenues attributable -31- to Everest & Jennings for the period from the date of acquisition to December 31, 1996 were approximately $3,634,000. The increase in operating revenues was achieved despite the decline in sales of approximately $5,905,000 to Apria Healthcare Group, Inc. ("Apria") for the year ended December 31, 1996 as compared to the prior year. The Company's supply agreement with Apria expired on December 31, 1995. 1995 compared to 1994. Operating revenues were $100,113,000 for the year ---------------------- ended December 31, 1995, or 6% higher than the year ended December 31, 1994. The increase in operating revenues was primarily attributable to improved service levels, improvements in the Company's distribution network, the development of new sales and marketing programs and the expansion of the Company's product lines. During 1995, the Company introduced over 100 new products including the Temco deluxe four-wheel walkabout, the John Bunn Nebulite II medication compressor and the Labtron automatic wrist blood pressure monitor. In addition, 1995 revenues also included approximately $935,000, net of elimination of intercompany sales, attributable to the acquisition of National Medical Excess Corp., effective as of July 1, 1995. The revenue increase was achieved despite the decline in sales to Apria of 21% for the year ended December 31, 1995 as compared to the prior year. The Company's supply agreement with Apria terminated on December 31, 1995. During 1995 and 1994, the Company's product sales to Apria were approximately $8.1 million and $10.3 million, respectively, which represented approximately 8% and 11%, respectively, of the Company's product sales. The Company's sales to Apria generated gross profit margins of approximately 20%, which is significantly lower than the Company's sales to its other customers which generate gross profit margins of approximately 33%. Interest and Other Income - ------------------------- 1996 compared to 1995. Interest and other income increased from $290,000 in ---------------------- 1995 to $530,000 in 1996. The increase is primarily due to the gain recognized by the Company and royalties received by the Company in connection with the sale of the Gentle Expressions(R) breast pump product line, and interest income on certain notes receivable. 1995 compared to 1994. Interest and other income increased from $72,000 in ---------------------- 1994 to $290,000 in 1995. The increase is primarily due to the receipt of approximately $200,000 relating to an insurance recovery and a favorable settlement of a contractual dispute. Cost of Revenues - ---------------- 1996 compared to 1995. Cost of revenues as a percentage of operating ---------------------- revenue for 1996 decreased to 68% from 69% in 1995. The decrease is primarily related to the -32- Company's ability to maintain selling prices while benefiting from improved purchasing and manufacturing efficiencies. 1995 compared to 1994. Cost of revenues as a percentage of operating ---------------------- revenue remained relatively unchanged from the prior year, at 69%. Due to manufacturing efficiencies and improved purchasing activities, the Company maintained its gross profit margin despite increased competition. Selling, General and Administrative Expenses - -------------------------------------------- 1996 compared to 1995. Selling, general and administrative expenses as a ---------------------- percentage of operating revenues decreased to 25% in 1996 from 28% in 1995. The decrease is attributable to a number of factors, including the expansion of the Graham-Field Express program in 1996, which contributes revenue with a lower percentage of selling, general and administrative expenses, as well as continued efficiencies generated by the Company's distribution network. 1995 compared to 1994. Selling, general and administrative expenses ---------------------- decreased $2,576,000 or 9% in 1995. As a percentage of operating revenues, selling, general and administrative expenses decreased to 28% from 32%. The decrease was primarily due to cost reduction programs, the continued efficiencies generated by the Company's distribution network and investments in new business systems, and the non-recurring cost of approximately $1,321,000 recorded in the fourth quarter of 1994. Interest Expense - ---------------- 1996 compared to 1995. Interest expense for 1996 decreased by $164,000 or ---------------------- 6% as compared to 1995. The decrease is primarily due to lower interest rates on reduced average borrowings. 1995 compared to 1994. Interest expense increased $26,000 or 1%, ---------------------- principally due to an increase in interest rates from the prior year. Interest expense for the last six months of 1995 decreased compared to the same period in the prior year due to a decrease in borrowings during the period. The Company reduced its borrowings as a result of increased earnings, and the net proceeds of $3,471,000 realized from an offshore private placement of 1,071,655 shares of common stock completed in September 1995. Merger and Other Related Charges - -------------------------------- 1996 compared to 1995. During the fourth quarter of 1996, the Company ---------------------- recorded non-recurring charges of $15.8 million related to the acquisition of Everest & Jennings. The charges included $12.8 million associated with the write-off of -33- purchased in-process research and development costs and $3.0 million of non-recurring merger expenses related to severance payments, the write-off of certain unamortized catalog and software costs with no future value, the accrual of costs to vacate certain of the Company's facilities, and the cost of certain insurance policies. Net (Loss) Income - ----------------- 1996 compared to 1995. Loss before income taxes and extraordinary item was $9,542,000, as compared to income before income taxes of $1,298,000 for the prior year. The loss before income taxes and extraordinary item for 1996 includes certain charges of $15.8 million relating to the acquisition of Everest & Jennings. The charges include $12,800,000 associated with the write-off of purchased in-process research and development costs and $3,000,000 related to the merger expenses. Net loss after the charge for the extraordinary item related to the early retirement of the indebtedness underlying the John Hancock Note and Warrant Agreement (the "John Hancock Indebtedness") was $12,951,000 in 1996, as compared to net income of $738,000 for 1995. The extraordinary item of $736,000 (net of tax benefit of $383,000) relates to the "make-whole" payment and write-off of unamortized deferred financing costs associated with the early retirement of the John Hancock Indebtedness. Net income, without giving effect to the charges and extraordinary item, was $3,585,000 as compared to $738,000 in 1995. The increase in net income is due to increased revenues, an increase in the gross profit margin and the decrease as a percentage of revenues in selling, general and administrative expenses. The Company recorded income tax expense of $2,673,000 for the year ended December 31, 1996, as compared to $560,000 for the prior year. As of December 31, 1996, the Company had a deferred tax asset of $911,000, primarily comprised of net operating loss carryforwards (including those acquired in connection with an acquisition) and investment, research and development, jobs tax and alternative minimum tax credits. The Company has provided a valuation allowance of approximately $400,000 in the fourth quarter of 1996 because certain tax credits are available only through their expiration dates, and only after the utilization of available net operating loss carryforwards. A full valuation allowance has been recognized to offset the deferred assets related to the acquired tax attributes. If realized, the tax benefit for those items will be recorded as a reduction of goodwill. In addition, the Company has provided an additional valuation allowance of $600,000 in the fourth quarter of 1996 as a charge to income tax expense against a portion of the remaining net deferred tax asset at December 31, 1996 due to the recent acquisition of Everest & Jennings. The balance of the deferred tax asset will continue to be evaluated by management as to its realizability on a quarterly basis. The amount of the deferred tax asset considered realizable could be reduced in the near future if estimates of future taxable income during the carryforward period are reduced. Uncertainties which may impact the future realizability but are not expected to occur, include a decline in sales and margins resulting from a possible loss of market share and increased competition. 1995 compared to 1994. Income before income taxes was $1,298,000 as ---------------------- compared to a loss before income taxes of $3,303,000 for the prior year. The increase in income before -34- income taxes is primarily due to the increase in revenues and the decrease in selling, general and administrative expenses. Net income was $738,000 as compared to a net loss of $2,356,000 for the prior year. The Company recorded income tax expense of $560,000 for the year ended December 31, 1995, as compared to an income tax benefit of $947,000 for the prior year. As of December 31, 1995, the Company had recorded a deferred tax asset of $3,012,000, primarily comprised of net operating loss carryforwards and investment, research and development, jobs tax and alternative minimum tax credits. At December 31, 1995, based upon the Company's expectation that future taxable income will be sufficient to utilize the carryforwards prior to December 31, 2009, the Company did not record a valuation allowance on the deferred tax assets, except for an allowance of $55,000 related to tax assets recorded for acquired carryforwards. The Company's business has not been materially affected by inflation. Liquidity and Capital Resources - ------------------------------- The Company had working capital of $12,405,000, $33,763,000 and $28,282,000 at December 31, 1996, 1995 and 1994, respectively. The decrease in working capital for the period ended December 31, 1996 is primarily attributable to the early retirement of the John Hancock Indebtedness and certain accrued expenses related to the Everest & Jennings acquisition. The Company retired the John Hancock Indebtedness with a portion of the proceeds from the Company's Credit Facility with IBJ Schroder, which borrowings are classified as current liabilities. The increase in working capital for the period ended December 31, 1995 is primarily attributable to the cash provided by the Company's net income of $738,000, which reflects $3,260,000 of depreciation and amortization expense. In addition, the Company raised $3,471,000 of additional capital, net of expenses, through an offshore private placement of 1,071,655 shares of its common stock completed in September 1995. Cash provided by operations for the year ended December 31, 1996 was $3,981,000. The principal reason for the cash provided by operations was the Company's operating income after adjustments for non-cash charges, partially offset by the aggregate increase in accounts receivable and inventory in excess of payables. Financing - --------- On December 10, 1996, the Company entered into a Credit Facility for up to $55 million of borrowings, including letters of credit and banker's acceptances, arranged by IBJ Schroder, as agent. The proceeds from the Credit Facility were used to (i) refinance certain existing indebtedness of the Company, including the indebtedness (a) under the John Hancock Note and Warrant Agreement and (b) to The Chase Manhattan Bank and (ii) to provide for -35- working capital needs of the Company. Under the terms of the Credit Facility, borrowings bear interest, at the option of the Company at the bank's prime rate (8.25% at December 31, 1996) or 2.25% above LIBOR, or 1.5% above the bank's bankers' acceptance rate. The Credit Facility is secured by the Company's receivables, inventory and proceeds thereof. The Credit Facility contains certain customary terms and provisions, including limitations with respect to the incurrence of additional debt, liens, transactions with affiliates, consolidations, mergers and acquisitions, sales of assets, dividends and other distributions (other than the payment of dividends to BIL in accordance with the terms of the Company's Series B and Series C Cumulative Convertible Preferred Stock). In addition, the Credit Agreement contains certain financial covenants, which become effective as of the end of the fiscal quarter ending June 30, 1997, including a cash flow coverage and leverage ratio, and an earnings before interest and taxes covenant. Under the terms of the Credit Facility, the Company is prohibited from declaring, paying or making any dividend or distribution on any shares of the common stock or preferred stock of the Company (other than dividends or distributions payable in its stock, or split-ups or reclassifications of its stock) or apply any of its funds, property or assets to the purchase, redemption or other retirement of any common or preferred stock, or of any options to purchase or acquire any such shares of common or preferred stock of the Company. Notwithstanding the foregoing restrictions, the Company is permitted to pay cash dividends in any fiscal year in an amount not to exceed the greater of (i) the amount of dividends due BIL under the terms of the Series B and Series C Preferred Stock in any fiscal year, or (ii) 12.5% of the net income of the Company on a consolidated basis, provided that no event of default shall have occurred and be continuing or would exist after giving effect to the payment of the dividends. On July 18, 1996, an affiliate of BIL provided the Company with a loan in the amount of $4,000,000, at an effective interest rate of 8.8%. The loan was used to fund the acquisition of V.C. Medical and for general corporate purposes. On December 10, 1996, the loan was converted into the BIL Note, which matures on April 1, 2001, with interest payable quarterly at an effective rate of 7.7% per year. Under the terms of the BIL Note, the Company has the right to reduce the principal amount of the BIL Note in the event punitive damages are awarded against the Company or any of its subsidiaries which relate to any existing product liability claims of Everest & Jennings and/or its subsidiaries involving a death prior to September 3, 1996. On November 27, 1996, the Company acquired Everest & Jennings in a merger transaction. In the merger, each share of the common stock of Everest & Jennings, other than shares of the common stock of Everest & Jennings cancelled pursuant to the merger, was converted into the right to receive .35 shares of the common stock of the Company. In connection with the merger, 2,522,691 shares of common stock of the Company were issued in exchange for the common stock of Everest & Jennings. The Company's common stock was valued at $7.64 per share, which represented the average closing market price of the Company's common stock for the period three business days immediately prior to and three business days immediately after the announcement of the execution of the merger agreement. -36- In addition, in connection with, and at the effective time of the merger: (i) BIL purchased for cash 1,922,242 shares of common stock of the Company (valued at $7.64 per share) for $24,989,151, representing an amount equal to the outstanding principal and interest on the HSBC Indebtedness, which was guaranteed by BIL. The proceeds of such stock purchase were contributed by the Company to Everest & Jennings immediately following the merger and used to discharge the HSBC Indebtedness. (ii) The Company issued $61 million stated value of the Series B Preferred Stock to BIL in exchange for certain indebtedness of Everest & Jennings owing to BIL and shares of E&J preferred stock owned by BIL. The Series B Preferred Stock is entitled to a dividend of 1.5% per annum payable quarterly, votes on an as-converted basis as a single class with the common stock of the Company and the Series C Preferred Stock (as defined below), is not subject to redemption and is convertible into shares of the common stock of the Company (x) at the option of the holder thereof, at a conversion price of $20 per share (or, in the case of certain dividend payment defaults, at a conversion price of $15.50 per share), (y) at the option of the Company, at a conversion price equal to current trading prices (subject to a minimum conversion price of $15.50 and a maximum conversion price of $20 per share) and (z) automatically on the fifth anniversary of the date of issuance at a conversion price of $15.50 per share. Such conversion prices are subject to customary antidilution adjustments. Based on an independent valuation, the fair value ascribed to the Series B Preferred Stock was $28,200,000. (iii) BIL purchased for cash $10 million stated value of the Series C Preferred Stock, the proceeds of which are available to the Company for general corporate purposes. The Series C Preferred Stock is entitled to a dividend of 1.5% per annum payable quarterly, votes on an as-converted basis as a single class with the common stock of Company and the Series B Preferred Stock, is subject to redemption as a whole at the option of the Company on the fifth anniversary of the date of issuance at stated value and, if not so redeemed, will be convertible into shares of the common stock of the Company automatically on the fifth anniversary of the date of issuance at a conversion price of $20 per share, subject to customary antidilution adjustments. Based on an independent valuation, the fair value ascribed to the Series C Preferred Stock was $3,400,000. (iv) Certain indebtedness in the amount of $4 million owing by the Company to BIL was exchanged for an equal amount of unsecured subordinated indebtedness of the Company maturing on April 1, 2001 and bearing interest at the effective rate of 7.7% per annum, which was evidenced by the BIL Note. -37- On March 4, 1996, the Company sold its Gentle Expressions breast pump product line to The Lumiscope Company, Inc. for a purchase price of $1,000,000, of which $500,000 was paid in cash with the balance in a secured subordinated promissory note in the aggregate principal amount of $500,000, payable over 48 months plus interest at the prime rate of interest plus 1%. On September 4, 1996, the Company acquired substantially all of the assets of V.C. Medical for a purchase price consisting of $1,703,829 in cash and the issuance of 32,787 shares of common stock valued at $7.625 per share. On February 28, 1997, Everest & Jennings Canada acquired substantially all of the assets of Motion 2000 and Motion 2000 Quebec, in consideration of the issuance of 187,733 shares of common stock valued at $11.437 per share. On March 7, 1997, E&J acquired all of the capital stock of Kuschall, in consideration of the issuance of 116,154 shares of common stock valued at $13.00 per share. The Company anticipates that the cash flow from operations, together with the current cash balance, and the proceeds from the Credit Facility will be sufficient to meet its working capital requirements. -38- ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(a)(1) and (2), (c) and (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE FINANCIAL STATEMENTS CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULE YEAR ENDED DECEMBER 31, 1996 GRAHAM-FIELD HEALTH PRODUCTS, INC. HAUPPAUGE, NEW YORK FORM 10-K--ITEM 8, ITEM 14(a)(1) and (2) and (d) GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The following consolidated financial statements of Graham-Field Health Products, Inc. and subsidiaries are included in Item 8: Report of Independent Auditors...............................................F-2 Consolidated balance sheets-- December 31, 1996 and 1995..................................................F-3 Consolidated statements of operations-- Years ended December 31, 1996, 1995 and 1994................................F-5 Consolidated statements of stockholders' equity-- Years ended December 31, 1996, 1995 and 1994................................F-6 Consolidated statements of cash flows-- Years ended December 31, 1996, 1995 and 1994................................F-7 Notes to consolidated financial statements-- December 31, 1996...........................................................F-9 The following consolidated financial statement schedule of Graham-Field Health Products, Inc. and subsidiaries is included in Item 14(d): Schedule II--Valuation and qualifying accounts..............................F-36 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-1 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Graham-Field Health Products, Inc. We have audited the accompanying consolidated balance sheets of Graham-Field Health Products, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Graham-Field Health Products, Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Melville, New York March 10, 1997 F-2 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1996 1995 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 1,552,000 $ 214,000 Accounts receivable, less allowance for doubtful accounts of $7,207,000 and $1,740,000, respectively 43,651,000 21,936,000 Inventories 45,810,000 29,819,000 Other current assets 3,001,000 1,789,000 Recoverable and prepaid income taxes 256,000 221,000 ------------ ----------- TOTAL CURRENT ASSETS 94,270,000 53,979,000 Property, plant and equipment, net 10,771,000 8,120,000 Excess of cost over net assets acquired, net of accumulated amortization of $8,185,000 and $7,212,000, respectively 91,412,000 29,291,000 Investment in leveraged lease -- 487,000 Deferred tax assets 911,000 3,012,000 Other assets 5,112,000 4,910,000 ------------ ----------- TOTAL ASSETS $202,476,000 $99,799,000 ============ =========== See notes to consolidated financial statements. F-3 GRAHAM-FIELD HEALTH PRODUCTS, INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -- (Continued)
December 31 1996 1995 ---- ---- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable to bank $ 13,985,000 $ 2,100,000 Current maturities of long-term debt and Guaranteed Senior Notes 2,016,000 1,578,000 Accounts payable 20,781,000 8,750,000 Acceptances payable 19,800,000 5,000,000 Accrued expenses 25,283,000 2,788,000 ------------- ------------ TOTAL CURRENT LIABILITIES 81,865,000 20,216,000 Long-term debt 6,057,000 972,000 Other long-term liabilities 1,752,000 -- Guaranteed Senior Notes -- 19,000,000 ------------- ------------ TOTAL LIABILITIES 89,674,000 40,188,000 STOCKHOLDERS' EQUITY Series A preferred stock, par value $.01 per share: authorized shares 1,000,000, none issued Series B preferred stock, par value $.01 per share: authorized shares 6,100, issued and outstanding 6,100 28,200,000 -- Series C preferred stock, par value $.01 per share: authorized shares 1,000, issued and outstanding 1,000 3,400,000 -- Common stock, par value $.025 per share: authorized shares 60,000,000, issued and outstanding 18,667,588 and 14,082,130, respectively 467,000 352,000 Additional paid-in capital 101,569,000 66,887,000 (Deficit) (20,667,000) (7,628,000) Cumulative translation adjustment (12,000) -- ------------- ------------ Subtotal 112,957,000 59,611,000 Notes receivable from sale of shares (155,000) -- ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 112,802,000 59,611,000 Commitments and contingencies ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 202,476,000 $ 99,799,000 ============= ============
See notes to consolidated financial statements. F-4 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 1996 1995 1994 ------------- ------------ ------------ Net revenues: Medical equipment and supplies $ 126,715,000 $100,113,000 $ 94,429,000 Interest and other income 530,000 290,000 72,000 ------------- ------------ ------------ 127,245,000 100,403,000 94,501,000 Costs and expenses: Cost of revenues 86,315,000 68,883,000 65,032,000 Selling, general and administrative 32,180,000 27,566,000 30,142,000 Interest expense 2,492,000 2,656,000 2,630,000 Purchased in-process research & development costs 12,800,000 -- -- Merger related charges 3,000,000 -- -- ------------- ------------ ------------ 136,787,000 99,105,000 97,804,000 ------------- ------------ ------------ (Loss) income before income taxes (benefit) and extraordinary item (9,542,000) 1,298,000 (3,303,000) Income taxes (benefit) 2,673,000 560,000 (947,000) ------------- ------------ ------------ (Loss) income before extraordinary item (12,215,000) 738,000 (2,356,000) Extraordinary loss on early retirement of debt (net of tax benefit of $383,000) (736,000) -- -- ------------- ------------ ------------ NET (LOSS) INCOME $ (12,951,000) $ 738,000 $ (2,356,000) ============= ============ ============ Net (loss) income per common share: (Loss) income before extraordinary item $ (.84) $ .06 $ (.18) Extraordinary loss on early retirement of debt (.05) -- -- ------------- ------------ ------------ Net (loss) income per common share $ (.89) $ .06 $ (.18) ============= ============ ============ Weighted average number of common and common equivalent shares 14,574,000 13,332,000 12,879,000 ============= ============ ============
See notes to consolidated financial statements. F-5 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Series B Series C Common Stock Additional Preferred Preferred -------------------- Paid-in Total Stock Stock Shares Amount Capital ----- ----- ----- ------ ------ ------- BALANCE, DECEMBER 31, 1993 $ 57,224,000 12,818,186 $ 320,000 $62,914,000 Issuance of common stock on exercise of stock options 192,000 149,250 4,000 314,000 Tax benefit from exercise of stock options 42,000 - - 42,000 Retirement of Treasury Stock - (28,943) (1,000) (125,000) Net loss (2,356,000) - - - ------------ ----------- ----------- ---------- ---------- ------------ BALANCE, DECEMBER 31, 1994 55,102,000 12,938,493 323,000 63,145,000 Issuance of common stock on exercise of stock options 172,000 86,500 2,000 220,000 Regulation S offering, net 3,471,000 1,071,655 27,000 3,444,000 Tax benefit from exercise of stock options 38,000 - - 38,000 Retirement of Treasury Stock - (14,518) - (50,000) Warrants issued in connection with debt 90,000 - - 90,000 Net income 738,000 - - - ------------ ----------- ----------- ---------- ---------- ------------ BALANCE, DECEMBER 31, 1995 59,611,000 14,082,130 352,000 66,887,000 Issuance of common stock on exercise of stock options 550,000 153,255 4,000 711,000 Issuance of stock in connection with acquisitions 65,809,000 $28,200,000 $ 3,400,000 4,477,720 112,000 34,097,000 Tax benefit from exercise of stock options 38,000 - - - - 38,000 Retirement of Treasury Stock - - - (45,517) (1,000) (164,000) Dividend accrued on Preferred Stock (88,000) - - - - - Translation adjustment (12,000) - - - - - Notes receivable from officers for sale of shares (155,000) - - - - - Net loss (12,951,000) - - - - - ------------ ----------- ----------- ---------- ---------- ------------ BALANCE, DECEMBER 31, 1996 $112,802,000 $28,200,000 $ 3,400,000 18,667,588 $ 467,000 $101,569,000 ============ =========== =========== ========== ========== ============ Treasury Stock Cumulative ---------------------- Translation Notes Recievable (Deficit) Shares Amount Adjustment From Sale of Shares --------- ------ ------ ---------- ------------------- BALANCE, DECEMBER 31, 1993 $ (6,010,000) 0 $ 0 Issuance of common stock on exercise of stock options - (28,943) (126,000) Tax benefit from exercise of stock options - - - Retirement of Treasury Stock - 28,943 126,000 Net loss (2,356,000) - - ------------- ----------- ------------- ----------- ----------- BALANCE, DECEMBER 31, 1994 (8,366,000) 0 0 Issuance of common stock on exercise of stock options - (14,518) (50,000) Regulation S offering, net - - - Tax benefit from exercise of stock options - - - Retirement of Treasury Stock - 14,518 50,000 Warrants issued in connection with debt - - - Net income 738,000 - - ------------- ----------- ------------- ----------- ----------- BALANCE, DECEMBER 31, 1995 (7,628,000) 0 0 Issuance of common stock on exercise of stock options - (45,517) (165,000) Issuance of stock in connection with acquisitions - - - Tax benefit from exercise of stock options - - - Retirement of Treasury Stock - 45,517 165,000 Dividend accrued on Preferred Stock (88,000) - - Translation adjustment - - - $ (12,000) Notes receivable from officers for sale of shares - - - - $ (155,000) Net loss (12,951,000) - - ------------- ----------- ------------- ----------- ----------- BALANCE, DECEMBER 31, 1996 $(20,667,000) 0 $ 0 $ (12,000) $ (155,000) ============= =========== ============= =========== ===========
See notes to consolidated financial statements. F-6 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1996 1995 1994 ------------ ----------- ----------- OPERATING ACTIVITIES Net (loss) income $(12,951,000) $ 738,000 $(2,356,000) Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 3,443,000 3,260,000 3,448,000 Leveraged lease valuation adjustment -- -- 500,000 Deferred income taxes 2,139,000 519,000 (947,000) Provisions for losses on accounts receivable 621,000 448,000 586,000 Gain on sale of product line (360,000) -- -- Loss on disposal of property, plant and equipment -- 3,000 -- Purchased in-process research and development cost 12,800,000 -- -- Non-cash amounts included in merger related charges 1,191,000 -- -- Non-cash amounts included in extraordinary loss 476,000 -- -- Other -- -- 7,000 Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable (10,467,000) (3,034,000) (3,639,000) Inventories, other current assets and recoverable and prepaid income taxes (4,793,000) 44,000 (2,601,000) Accounts and acceptances payable and accrued expenses 11,882,000 (5,228,000) 3,485,000 ------------ ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,981,000 (3,250,000) (1,517,000) INVESTING ACTIVITIES Purchase of short-term investments -- -- 1,998,000 Purchase of property, plant and equipment (1,017,000) (610,000) (1,094,000) Acquisitions, net of cash acquired (4,558,000) (668,000) -- Proceeds from the sale of property, plant, and equipment -- 19,000 -- Proceeds from sale of product line 500,000 -- -- Proceeds from sale of assets under leveraged lease 487,000 -- -- Start up cost related to the St. Louis Distribution Center -- -- (171,000) Notes receivable from officers (155,000) -- -- Net (increase) decrease in other assets (228,000) 116,000 (30,000) ------------ ----------- ----------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES $ (4,971,000) $(1,143,000) $ 703,000
F-7 GRAHAM-FIELD HEALTH PRODUCTS, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)
Year Ended December 31 1996 1995 1994 ------------ ----------- ----------- FINANCING ACTIVITIES Proceeds from notes payable to bank and long-term debt $ 27,310,000 $ 2,100,000 $ 1,673,000 Principal payments on long-term debt and notes payable (35,532,000) (1,257,000) (1,495,000) Proceeds on exercise of stock options 550,000 172,000 192,000 Proceeds from issuance of common stock, net -- 3,471,000 -- Proceeds from issuance of preferred stock in connection with an acquisition 10,000,000 -- -- ------------ ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,328,000 4,486,000 370,000 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,338,000 93,000 (444,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 214,000 121,000 565,000 ------------ ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,552,000 $ 214,000 $ 121,000 ============ =========== =========== SUPPLEMENTARY CASH FLOW INFORMATION: Interest paid $ 2,889,000 $ 2,458,000 $ 2,701,000 ============ =========== =========== Income taxes paid $ 87,000 $ 74,000 $ 23,000 ============ =========== ===========
See notes to consolidated financial statements. F-8 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business: Graham-Field Health Products, Inc. and its wholly-owned subsidiaries (the "Company") manufacture, market and distribute medical, surgical and a broad range of other healthcare products into the home healthcare and medical/surgical markets through a vast dealer network, consisting of approximately 18,500 customers, principally hospital, nursing home, physician and home health care dealers, health care product wholesalers and retailers, including drug stores, catalog companies, pharmacies, and home-shopping related businesses in North America. In addition, the Company has increased its presence in Central and South America, Canada, Mexico, Europe and Asia. The Company markets and distributes approximately 23,000 products under its own brand names and under suppliers' names. For the year ended December 31, 1996, approximately 28% of the Company's revenues were derived from products manufactured by the Company, approximately 18% of the Company's revenues were derived from imported products and approximately 54% were derived from products purchased from domestic sources, which includes products purchased from Everest & Jennings prior to the acquisition. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries, each of which is wholly-owned. All material intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Inventories: Inventories are valued at the lower of cost or market value. Cost is determined principally on the standard cost method for manufactured goods and on the average cost method for other inventories, each of which approximates actual cost on the first-in, first-out method. Property, Plant and Equipment: Property, plant and equipment is recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed on the straight-line method over the lesser of the estimated useful lives of the related assets or the lease term, where appropriate. Excess of Cost Over Net Assets Acquired: Excess of cost over net assets acquired is generally amortized on a straight-line basis over 30 to 40 years. The carrying value of such costs are reviewed by management as to whether the facts and circumstances indicate that an impairment may have occurred. If this review indicates that such costs or a portion thereof will not be recoverable, as determined based on the undiscounted cash flows of the entities acquired over the remaining amortization period, the carrying value of these costs will be reduced by the estimated shortfall of cash flows. F-9 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of Long-Lived Assets: Effective January 1, 1996, the Company adopted - -------------------------------- Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This standard establishes the accounting for the impairment of long-lived assets, certain identifiable intangibles and the excess of cost over net assets acquired, related to those assets to be held and used in operations, whereby impairment losses are required to be recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets and certain identifiable intangibles that are expected to be disposed of. The adoption of SFAS No. 121 did not have a material effect on the results of operations or financial condition of the Company. Revenue Recognition Policy: The Company recognizes revenue when products are - --------------------------- shipped, with appropriate provisions for uncollectible accounts and credits for returns. Buy-Back Program: During the first quarter of 1996, the Company's inventory - ----------------- buy-back program was introduced to provide an outlet for its customers to eliminate their excess inventory. Under the program, the Company purchases certain excess inventory from its customers, who in turn place additional purchase orders with the Company exceeding the value of the excess inventory purchased. The Company is able to utilize its vast customer base and distribution network to market and distribute the excess inventory through its division, National Medical Excess Corp. Substantially all of the medical products purchased by the Company as part of the inventory buy-back program are items not generally offered for sale by the Company. Items repurchased by the Company which are identified as items previously sold by the Company to a customer have been deminimus based on the Company's experience, and have been recorded in accordance with the Company's normal revenue recognition policy. Income Taxes: The Company and its subsidiaries file a consolidated Federal - ------------- income tax return. The Company uses the liability method in accounting for income taxes in accordance with SFAS No. 109. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Net Loss/Income Per Common Share Information: Net loss per common share for 1996 - --------------------------------------------- was computed using the weighted average number of common shares outstanding and by assuming the accrual of a dividend of 1.5% on both the Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") and Series C Cumulative Convertible Preferred Stock (the "Series C Preferred Stock") in the aggregate amount of $88,000. Conversion of the preferred stock and common equivalent shares was not assumed since the result would have been antidilutive. Net income per common share for 1995 was computed using the weighted average number of common shares and dilutive common equivalent shares outstanding during the period. Net loss per common share for 1994 was computed using the weighted average number of common shares outstanding during the period. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." This standard changes the method of calculating earnings per share and will be effective for periods ending after December 15, 1997. Earlier application is not permitted; however, when adopted, all prior period earnings per share data presented will be required to be restated to conform with the new standard when completed. F-10 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Employee Stock Options: The Company has a stock option program which is more - ----------------------- fully described in Note 9. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under the Company's stock option program, options are granted with an exercise price equal to the market price of the underlying common stock of the Company on the date of grant. Accordingly, no compensation expense is recognized in connection with the grant of stock options. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." The new standard defines a fair value method of accounting for the issuance of stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Pursuant to SFAS No. 123, companies are encouraged, but are not required, to adopt the fair value method of accounting for employee stock-based transactions. Companies are also permitted to continue to account for such transactions under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but are required to disclose in the financial statement footnotes, proforma net income and per share amounts as if the Company had applied the new method of accounting for all grants made during 1995 and 1996. SFAS No. 123 also requires increased disclosures for stock-based compensation arrangements. Effective January 1, 1996, the Company adopted the disclosure requirements of SFAS No. 123. Concentration of Credit Risk: The Company manufactures, markets and distributes - ----------------------------- medical, surgical and a broad range of other healthcare products into the home healthcare and medical/surgical markets through a vast dealer network consisting of approximately 18,500 customers, principally hospital, nursing home, physician and home healthcare dealers, healthcare product wholesaler and retailers, including drug stores, catalog companies, pharmacies and home-shopping related business in North America. As a result of the acquisition of Everest & Jennings International Ltd. ("Everest & Jennings") (see Note 2), third party reimbursement through private or governmental insurance programs and managed care programs impacts the Company's customers, which affects a portion of the Company's business. Such impact is not material for 1996. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables generally are due within 30 to 120 days. Credit losses relating to customers have been consistently within management's expectations. Concentration of Sources of Supply: Everest & Jennings' business is heavily - ----------------------------------- dependent on its maintenance of two key supply contracts. Everest & Jennings obtains the majority of its homecare wheelchairs and wheelchair components pursuant to an exclusive supply agreement (the "Exclusive Wheelchair Supply Agreement") with P.T. Dharma Polimetal ("P.T. Dharma"). The term of this agreement extends until December 31, 1999, and on each January 1 thereafter shall be automatically extended for one additional year unless Everest & Jennings elects not to extend or Everest & Jennings has failed to order at least 50% of the contractually specified minimums and the manufacturer elects to terminate. If the Exclusive Wheelchair Supply Agreement with P.T. Dharma is terminated, there can be no assurance that Everest & Jennings will be able to enter into a suitable supply agreement with another manufacturer. In addition, Everest & Jennings obtains homecare beds for distribution pursuant to a supply agreement with Healthtech Products, Inc., a wholly-owned subsidiary of Invacare Corporation (which is a major competitor of Everest & Jennings), which is scheduled to expire on October 15, 1997. Although the Company is in the process of securing alternative sources of supply with other manufacturers, there can be no assurance that arrangements as favorable as the current supply contract will be obtainable. F-11 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign Currency Translation: The financial statements of the Company's foreign - ----------------------------- subsidiaries are translated into U.S. dollars in accordance with the provisions of SFAS No. 52, "Foreign Currency Translation." Assets and liabilities are translated at year-end exchange rates. Revenues and expenses are translated at the average exchange rate for each year. The resulting translation adjustments for each year are recorded as a separate component of stockholders' equity. All foreign currency transaction gains and losses are included in the determination of income and are not significant. 2. ACQUISITIONS OF BUSINESSES AND DISPOSAL OF PRODUCT LINE On November 27, 1996, the Company acquired Everest & Jennings, pursuant to the terms and provisions of the Amended and Restated Agreement and Plan of Merger dated as of September 3, 1996 and amended as of October 1, 1996 (the "Merger Agreement"), by and among the Company, Everest & Jennings, Everest & Jennings Acquisition Corp., a wholly-owned subsidiary of the Company ("Sub"), and BIL (Far East Holdings) Limited, a Hong Kong corporation and the majority stockholder of Everest & Jennings ("BIL"). Under the terms of the Merger Agreement, Sub was merged with and into Everest & Jennings with Everest & Jennings continuing as the surviving corporation wholly-owned by the Company (the "Merger"). In the Merger, each share of Everest & Jennings' common stock, par value $.10 per share (the "Everest & Jennings Common Stock"), other than shares of Everest & Jennings Common Stock cancelled pursuant to the Merger Agreement, was converted into the right to receive .35 shares of common stock, par value $.025 per share, of the Company. The Company's common stock was valued at $7.64 per share, which represents the average closing market price of the Company's common stock for the period three business days immediately prior to and three business days immediately after the announcement of the execution of the Merger Agreement. There were 7,207,689 shares of Everest & Jennings common stock outstanding on November 26, 1996, which converted into 2,522,691 shares of the Company's common stock. In addition, in connection with, and at the effective time of the Merger: (i) BIL purchased 1,922,242 shares of common stock of the Company for $24,989,151, representing an amount equal to the outstanding principal and interest on Everest & Jennings' indebtedness to Hong Kong and Shanghai Banking Corporation Limited, which indebtedness (the "HSBC Indebtedness") was guaranteed by BIL. The proceeds of such stock purchase were contributed by the Company to Everest & Jennings immediately following the Merger and used to discharge the HSBC Indebtedness. The Company's common stock was valued at $7.64 per share, which represents the average closing market price of the Company's common stock for the period three business days immediately prior to and three business days immediately after the announcement of the execution of the Merger Agreement. F-12 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITIONS OF BUSINESSES AND DISPOSAL OF PRODUCT LINE (continued) (ii) The Company issued $61 million stated value of the Series B Preferred Stock to BIL in exchange for certain indebtedness of Everest & Jennings owing to BIL and shares of Everest & Jennings preferred stock owned by BIL. The Series B Preferred Stock is entitled to a dividend of 1.5% per annum payable quarterly, votes on an as-converted basis as a single class with the Company's common stock and the Series C Preferred Stock (as defined below), is not subject to redemption and is convertible into shares of the common stock of the Company (x) at the option of the holder thereof, at a conversion price of $20 per share (or, in the case of certain dividend payment defaults, at a conversion price of $15.50 per share), (y) at the option of the Company, at a conversion price equal to current trading prices (subject to a minimum conversion price of $15.50 and a maximum conversion price of $20 per share) and (z) automatically on the fifth anniversary of the date of issuance at a conversion price of $15.50 per share. Such conversion prices are subject to customary antidilution adjustments. Based on an independent valuation, the fair value ascribed to the Series B Preferred Stock is $28,200,000. (iii) BIL purchased for cash $10 million stated value the Series C Preferred Stock, the proceeds of which are available to the Company for general corporate purposes. The Series C Preferred Stock is entitled to a dividend of 1.5% per annum payable quarterly, votes on an as-converted basis as a single class with the Company Common Stock and the Series B Preferred Stock, is subject to redemption as a whole at the option of the Company on the fifth anniversary of the date of issuance at stated value and, if not so redeemed, will be convertible into shares of the common stock of the Company automatically on the fifth anniversary of the date of issuance at a conversion price of $20 per share, subject to customary antidilution adjustments. Based on an independent valuation, the fair value ascribed to the Series C Preferred Stock is $3,400,000. (iv) Certain indebtedness in the amount of $4 million owing by the Company to BIL was exchanged for an equal amount of unsecured subordinated indebtedness of the Company maturing on April 1, 2001 and bearing interest at the effective rate of 7.7% per annum (the "BIL Note"). The acquisition of Everest & Jennings has been accounted for under the purchase method of accounting and, accordingly, the operating results of Everest & Jennings have been included in the Company's consolidated financial statements since the date of acquisition. Based on an independent valuation, $12,800,000 of the purchase price was allocated to purchased in-process research and development projects which have not reached technological feasibility and have no probable alternative future uses. The Company expensed the purchased in-process and research development projects at the date of acquisition. As a result of the acquisition, the Company incurred $3.0 million of merger related expenses, principally for severance payments, the write-off of certain unamortized catalog and software costs with no future value, the accrual of costs to vacate certain of the Company's facilities, and certain insurance policies. The excess of the aggregate purchase price over the estimated fair market value of the net assets acquired was approximately $62.2 million, which is being amortized on a straight line basis over 30 years. The purchase price allocations have been completed on a preliminary basis, subject to adjustment should new or additional facts about the business become known. From the date of acquisition, Everest & Jennings contributed approximately $3,634,000 of revenue for the quarter and year ended December 31, 1996. F-13 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITIONS OF BUSINESSES AND DISPOSAL OF PRODUCT LINE (continued) On September 4, 1996, the Company acquired substantially all of the assets of V.C. Medical Distributors Inc. ("V.C. Medical"), a wholesale distributor of medical products in Puerto Rico, for a purchase price consisting of $1,703,829 in cash, and the issuance of 32,787 shares of common stock of the Company, valued at $7.625 per share representing the closing market price of the common stock of the Company on the last trading day immediately prior to the closing. In addition, the Company assumed certain liabilities of V.C. Medical in the amount of $296,721. Under the terms of the transaction, in the event the pre-tax income of the acquired business equals of exceeds $1,000,000 during the twelve (12) months following the closing date, an additional $500,000 will be paid to V.C. Medical. The shares were delivered into escrow, and will be held in escrow until February 4, 1998, subject to any claims for indemnification for purchase price adjustments in favor of the Company. The acquisition was accounted for as a purchase and accordingly, assets and liabilities were recorded at fair value at the date of acquisition and the results of operations are included subsequent to that date. The excess of cost over the net assets acquired amounted to approximately $988,000. The following summary presents unaudited proforma consolidated results of operations for the years ended December 31, 1996 and 1995 as if the acquisitions described above occurred at the beginning of each of 1996 and 1995. This information gives effect to the adjustment of interest expense, income tax provisions, and to the assumed amortization of fair value adjustments, including the excess of cost over net assets acquired. Both the 1996 and 1995 pro forma information includes the write-off of certain purchased in-process research and development costs of $12,800,000, merger related expenses of $3,000,000, and the extraordinary item relating to the early retirement of indebtedness applicable to the Guaranteed Senior Notes. The pro forma net loss per common share has been calculated by assuming the payment of a dividend of 1.5% on both the Series B Preferred Stock and Series C Preferred Stock in the aggregate amount of $1,065,000 for each of the years ended December 31, 1996 and 1995. Conversion of the preferred stock was not assumed since the result would have been antidilutive. Pro-forma --------- 1996 1995 Net Revenues $187,522,000 $172,353,000 ============ ============ Loss Before Extraordinary Item $(17,565,000) $(19,001,000 ============ ============ Net loss $(18,301,000) $(19,737,000) ============ ============ Common Per Share Data: Loss Before Extraordinary Item $ (1.00) $ (1.13) ============ ============ Net Loss $ (1.04) $ (1.17) ============ ============ Weighted Average Number of Common Shares Outstanding 18,649,000 17,772,000 ============ ============ On March 4, 1996, the Company sold its Gentle Expressions(R) breast pump product line for $1,000,000 of which $500,000 was paid in cash with the balance in a secured subordinated promissory note in the aggregate principal amount of $500,000, payable over 48 months with interest at the prime rate plus one percent. The Company recorded a gain of $360,000, which is included in other revenue in the accompanying condensed consolidated statements of operations. F-14 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITIONS OF BUSINESSES AND DISPOSAL OF PRODUCT LINE (continued) Effective July 1, 1995, the Company acquired substantially all of the assets and liabilities of National Medical Excess Corp. ("NME"), a distributor of used and refurbished medical products, including respiratory and durable medical equipment. The NME acquisition was accounted for under the purchase method of accounting and accordingly, assets and liabilities were recorded at fair values at the date of acquisition. Results of operations of NME are included in the consolidated financial statements of the Company subsequent to that date. The purchase price, including acquisition expenses, was approximately $723,000 in cash, plus the assumption of certain liabilities. The excess of cost over the net assets acquired amounted to approximately $677,000. 3. INVENTORIES Inventories consist of the following: December 31 1996 1995 ----------- ----------- Raw materials $ 8,423,000 $ 2,871,000 Work-in-process 4,430,000 1,620,000 Finished goods 32,957,000 25,328,000 ----------- ----------- $45,810,000 $29,819,000 =========== =========== 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: December 31 1996 1995 ------------ ------------ Land and buildings $ 1,129,000 $ -- Equipment 17,030,000 14,399,000 Furniture and fixtures 1,629,000 1,600,000 Leasehold improvements 2,222,000 1,958,000 ------------ ------------ 22,010,000 17,957,000 Accumulated depreciation and amortization (11,239,000) (9,837,000) ------------ ------------ $ 10,771,000 $ 8,120,000 ============ ============ The Company recorded depreciation and amortization expense on the assets included in property, plant and equipment of $1,682,000, $1,617,000 and $1,679,000 for the years ended December 31, 1996, 1995 and 1994, respectively. F-15 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. INVESTMENT IN LEVERAGED LEASE The Company was the lessor in a leveraged lease agreement entered into in December 1983, under which helicopters, having an estimated economic life of at least 22 years, were leased for a term of 16 years. The Company's equity investment represented 9% of the purchase price; the remaining 91% was furnished by third-party financing in the form of long-term debt that provided for no recourse against the Company and was secured by a first lien on the property. At the end of the lease term, the equipment was to be returned to the Company. The residual value was estimated to be 57% of the cost. As a result of certain market conditions and technological advancements, the Company recorded a charge in the fourth quarter of 1994 of approximately $500,000, which was included in selling, general and administrative expenses, to reflect the estimated impairment of the residual value of the helicopters. In May 1996, the Company liquidated its investment in the leveraged lease agreement. The cash proceeds of $487,000 approximated the recorded net investment in the lease at December 31, 1995. 6. NOTES AND ACCEPTANCES PAYABLE On December 10, 1996, the Company entered into a syndicated three-year senior secured revolving credit facility (the "Credit Facility") for up to $55 million of borrowings, including letters of credit and banker's acceptances, arranged by IBJ Schroder Bank & Trust Company ("IBJ Schroder"), as agent. The proceeds from the Credit Facility were used to (i) refinance certain existing indebtedness of the Company, including the indebtedness (a) under the terms of the Note and Warrant Agreement dated March as of 12, 1992, as amended (the "John Hancock Note and Warrant Agreement"), with John Hancock Mutual Life Insurance Company ("John Hancock") (see Note 8), and (b) to The Chase Manhattan Bank, under the line of credit, (see below); and (ii) to provide for working capital needs of the Company. Under the terms of the Credit Facility, borrowings bear interest, at the option of the Company, at IBJ Schroder's prime rate (8.25% at December 31, 1996) or 2.25% above LIBOR, or 1.5% above the IBJ Schroder's bankers' acceptance rate. The Credit Facility is secured by the Company's inventory and proceeds thereof. The Credit Agreement contains certain customary terms and provisions, including limitations with respect to the incurrence of additional debt, liens, transactions with affiliates, consolidations, mergers and acquisitions, sales of assets, dividends and other distributions (other than the payment of dividends to BIL in accordance with the terms of the Series B and Series C Preferred Stock). In addition, the Credit Facility contains certain financial covenants, which become effective as of the end of the fiscal quarter ending June 30, 1997, and include a cash flow coverage and leverage ratio, and require specified levels of earnings before interest and taxes. Pursuant to the terms of the Credit Facility, the Company is prohibited from declaring, paying or making any dividend or distribution on any shares of the common stock or preferred stock of the Company (other than dividends or distributions payable in its stock, or split-ups or reclassifications of its stock) or apply any of its funds, property or assets to the purchase, redemption or other retirement of any common or preferred stock, or of any options to purchase or acquire any such shares of common or preferred stock of the Company. Notwithstanding the foregoing restrictions, the Company is permitted to pay cash dividends in any fiscal year in an amount not to exceed the greater of (i) the amount of dividends due BIL under the terms of the Series B and Series C Preferred Stock in any fiscal year, or (ii) 12.5% of net income of the Company on a consolidated basis, provided, that no event of default or default shall have occurred and be continuing or would exist after giving effect to the payment of the dividends. F-16 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. NOTES AND ACCEPTANCES PAYABLE (continued) At December 31, 1995, the Company had an unsecured line of credit with The Chase Manhattan Bank available for letters of credit, acceptances and direct borrowings. The total amount available under the line of credit was $15,000,000. The line was available for direct borrowings in the amount of up to $5,000,000 and provided for commercial letter of credit and bankers acceptances. This line of credit expired on December 31, 1996; however, amounts outstanding at that date for bankers acceptances and letters of credit mature through March 31, 1997. At December 31, 1996, the Company had aggregate direct borrowings under both banks' facilities of $13,985,000 and acceptances payable of $19,800,000. The weighted average interest rate on the amounts outstanding as of December 31, 1996 was 7.65%. Open letters of credit at December 31, 1996 were $1,568,000 relating to trade credit and $6.0 million for other requirements. At December 31, 1995, the Company had direct borrowings of $2,100,000 and $5,000,000 utilized under acceptances payable. The weighted average interest rate on the amounts outstanding as of December 31, 1995 was 8.6%. 7. LONG-TERM DEBT Long-term debt consists of the following: December 31, 1996 1995 ---------- ---------- Note payable to BIL (a) $4,000,000 -- Notes payable to International Business Machines Corp. ("IBM") (b) 1,019,000 $1,550,000 Capital lease obligations (c) 1,344,000 -- Other (d) 1,710,000 -- ---------- ---------- 8,073,000 1,550,000 Less current maturities 2,016,000 578,000 ---------- ---------- $6,057,000 $ 972,000 ========== ========== (a) On July 18, 1996, an affiliate of BIL provided the Company with a loan in the amount of $4,000,000, at an effective interest rate of 8.8%. The loan was used to fund the acquisition of V.C. Medical and for general corporate purposes. In connection with the acquisition of Everest & Jennings, the indebtedness owing by the Company to BIL was exchanged for the BIL Note. Under the terms of the BIL Note, the Company has the right to reduce the principal amount of the BIL Note in the event punitive damages are awarded against the Company or any of its subsidiaries which relate to any existing product liability claims of Everest & Jennings and/or its subsidiaries involving a death prior to September 3, 1996. F-17 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT (continued) (b) In connection with the development of the Company's St. Louis Distribution Center, the Company entered into an agreement with IBM to provide the computer hardware and software, and all necessary warehousing machinery and equipment including installation thereof. This project was primarily financed through IBM by the issuance of the Company's unsecured notes which corresponded to various components of the project. The unsecured notes mature through October 2000, with interest rates ranging from 7.68% to 11.53%. (c) At December 31, 1996, the Company is obligated under certain lease agreements for equipment which have been accounted for as capital leases. The capital leases were acquired in connection with the acquisition of Everest & Jennings. Future minimum payments by year, and in the aggregate are as follows: Year Ended December 31 Amount ---------------------- ------ 1997 $ 954,000 1998 476,000 1999 13,000 ---------- Total 1,443,000 Less amounts representing interest 99,000 ---------- Present value of future minimum lease payments $1,344,000 ========== The net book value of assets held under capital lease obligations amounted to $424,000 at December 31, 1996. (d) Other long-term debt consists primarily of a mortgage payable in the amount of $1,100,000 due in monthly installments of $22,906 through November 1998, with a final payment of approximately $570,000 due on November 30, 1998, and bearing interest at prime plus one-half percent. In addition, the Company has a credit facility for its Mexican subsidiary, of which $500,000 was outstanding as of December 31, 1996. Borrowings under the credit facility bear interest at approximately 13%. The Mexican borrowings are secured by the assets of the Mexican subsidiary. The borrowings are payable in semi-annual installments of $100,000 through 1999. The scheduled maturities of the long-term debt obligations, excluding the present value of minimum payments on capital lease obligations, are as follows: Year Ended December 31 Amount ---------------------- ------ 1997 $1,148,000 1998 1,427,000 1999 132,000 2000 22,000 Thereafter 4,000,000 ---------- $6,729,000 ========== F-18 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. GUARANTEED SENIOR NOTES On March 12, 1992, under the John Hancock Note and Warrant Agreement, the Company privately sold at par to John Hancock its 8.28% Guaranteed Senior Notes due February 29, 2000 (the "Guaranteed Senior Notes"), in the aggregate principal amount of $20,000,000 (the "John Hancock Indebtedness"), and five-year warrants to purchase 125,000 shares of the common stock of the Company at an exercise price of $12 per share. During 1993, the John Hancock Note and Warrant Agreement was amended to modify the terms of certain financial covenants and the terms of the warrants issued to John Hancock. The amendment to the John Hancock Note and Warrant Agreement provided for, among other things, an increase in the number of shares available for issuance under the warrants from 125,000 shares to 250,000 shares of the common stock of the Company (the "Initial Warrants"), a reduction in the exercise price of the warrants from $12.00 to $5.50 per share, and an extension of the expiration date of the warrants to February 29, 2000. The Initial Warrants, which were revalued as of the date of amendment, have been valued at $365,000, and are being amortized as additional interest over the remaining term of the debt. At December 30, 1994, the John Hancock Note and Warrant Agreement was amended to modify the terms of certain financial covenants. In connection with the amendment, the Company issued to John Hancock additional warrants to purchase 90,000 shares of the common stock of the Company (the "Additional Warrants") at an exercise price of $5.25 per share, with an expiration date of February 29, 2000. The Additional Warrants were valued at $90,000 and were amortized as additional interest over the remaining term of the debt. As a result of the Company's offshore private placement of 1,071,655 shares of common stock completed in September 1995, additional warrants to purchase 5,336 shares of the common stock of the Company were issued to John Hancock. In connection with the Company's offshore private placement, the exercise prices of the warrants were adjusted from $5.50 per share to $5.42 per share with respect to the Initial Warrants and from $5.25 per share to $5.17 per share with respect to the Additional Warrants. In connection with the issuance and amendments to the Guaranteed Senior Notes, issuance costs of approximately $506,000, net of accumulated amortization of $331,000, were included in other assets at December 31, 1995. Such costs were amortized over the term of the Guaranteed Senior Notes. During December 1996, the Company retired the John Hancock Indebtedness with proceeds from the Company's Credit Facility with IBJ Schroder. In connection with the early retirement of the John Hancock Indebtedness, the Company incurred charges relating to the "make-whole" payment and the write-off of all unamortized financing costs associated with the John Hancock Note and Warrant Agreement. The charges amounted to $736,000 (net of a tax benefit of $383,000), and are reported as an extraordinary item in the accompanying consolidated statements of operations. 9. STOCKHOLDERS' EQUITY On March 23, 1989, the Company declared, and on July 21, 1989 the stockholders approved, a dividend distribution to stockholders of record on July 21, 1989 of one right for each outstanding share of the Company's common stock pursuant to a Rights Agreement dated as of July 21, 1989, between the Company and American Stock Transfer & Trust Company, as Rights Agent (the "1989 Rights Agreement"). F-19 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCKHOLDERS' EQUITY (continued) On September 3, 1996, immediately prior to the execution of the Merger Agreement, the Company entered into an amendment to the 1989 Rights Agreement, with the effect of exempting the events and transactions contemplated by the Merger Agreement and the Amended and Restated Stockholder Agreement dated as of September 3, 1996, as amended on September 19, 1996, by and among the Company and Irwin Selinger (the "Stockholder Agreement"), from the 1989 Rights Agreement. In addition, on that date the rights previously issued under the 1989 Rights Agreement were called for redemption on September 17, 1996. On September 3, 1996, the Company also entered into a new Rights Agreement with American Stock Transfer & Trust Company, as Rights Agent (the "1996 Rights Agreement"). As contemplated by the 1996 Rights Agreement, the Company's Board of Directors declared a dividend of one new preferred share purchase right (a "Right") for each outstanding share of the common stock of the Company outstanding on September 17, 1996. Each Right entitles the holder thereof to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $.01 per share, of the Company (the "Preferred Shares") at a price of $35.00 per one one-hundredth of a Preferred Share, subject to adjustment as provided in the 1996 Rights Agreement. Until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons have acquired (an "Acquiring Person") beneficial ownership of 15% or more of the outstanding shares of capital stock of the Company entitled generally to vote in the election of directors ("Voting Shares") or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in a person or group becoming an Acquiring Person (the earlier of such dates being called the "Distribution Date"), the Rights will be evidenced, with respect to any of the common stock certificates outstanding as of the record date, by such common stock certificate. Notwithstanding the foregoing, BIL will not be an Acquiring Person by virtue of its ownership of any Voting Shares acquired in accordance with the Merger Agreement or the Stockholder Agreement (the "BIL Voting Shares"), but BIL will become an Acquiring Person if it acquires any Voting Shares other than BIL Voting Shares or shares distributed generally to the holders of any series or class of capital stock of the Company. In addition, the 1996 Rights Agreement contains provisions exempting the Merger and the other events and transactions contemplated by the Merger Agreement and the Stockholder Agreement from the 1996 Rights Agreement. The 1996 Rights Agreement provides that, until the Distribution Date (or earlier redemption or expiration of the Rights), the Rights will be transferred with and only with the common stock of the Company. The Rights are not exercisable until the Distribution Date. The Rights will expire on September 3, 2006. F-20 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCKHOLDERS' EQUITY (continued) Preferred Shares purchasable upon exercise of the Rights will not be redeemable. Each Preferred Share will be entitled to a minimum preferential quarterly dividend payment of $1 per share but will be entitled to an aggregate dividend of 100 times the dividend declared per share of common stock of the Company. In the event of liquidation, the holders of the Preferred Shares will be entitled to a minimum preferential liquidation payment of $100 per share but will be entitled to an aggregate payment of 100 times the payment made per share of common stock. Each Preferred Share will have 100 votes, voting together with the shares of common stock of the Company. In the event of any merger, consolidation or other transaction in which the common stock of the Company is exchanged, each Preferred Share will be entitled to receive 100 times the amount received per share of common stock of the Company. The Rights are protected by customary antidilution provisions. Because of the nature of the Preferred Shares' dividend, liquidation and voting rights, the value of the one one-hundredth interest in a Preferred Share purchasable upon exercise of each Right should approximate the value of one share of common stock of the Company. In the event the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold after a person or group has become an Acquiring Person, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, the 1996 Rights Agreement provides that proper provision shall be made so that each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive (subject to adjustment) upon exercise that number of shares of common stock of the Company having a market value of two times the exercise price of the Right. At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding Voting Shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group, which will have become void), in whole or in part, at an exchange ratio of one share of common stock, or one one-hundredth of a Preferred Share (or of a share of a class or series of the Company's preferred stock having equivalent rights, preferences and privileges), per Right (subject to adjustment). At any time prior to a person or group of affiliated or associated persons becoming an Acquiring Person, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption Price"). The redemption of the Rights may be made effective at such time on such basis with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the Rights in accordance with this paragraph, the right to exercise the Rights will terminate and the only right of the holder of the Rights will be to receive the Redemption Price. F-21 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCKHOLDERS' EQUITY (continued) The terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, including an amendment to (a) lower certain thresholds described above to not less than the greater of (i) any percentage greater than the largest percentage of the outstanding Voting Shares then known to the Company to be beneficially owned by any person or group of affiliated or associated persons and (ii) 10%, (b) fix a Final Expiration Date later than September 3, 2006, or (c) reduce the Redemption Price, (d) increase the Purchase Price, except that from and after such time as any person or group of affiliated or associated persons becomes an Acquiring Person no such amendment may adversely affect the interests of the holders of the Rights (other than the Acquiring Person and its affiliates and associates). As long as the Rights are attached to the common stock of the Company, the Company will issue one Right with each new share of common stock so that all such shares will have Rights attached. The Company's Board of Directors has reserved for issuance 300,000 Preferred Shares upon exercise of the Rights. On November 27, 1996, in connection with the acquisition of Everest & Jennings (see Note 2), the Company issued $61 million stated value of Series B Preferred Stock and $10 million stated value of Series C Preferred Stock to BIL, and issued an aggregate of 4,444,933 shares of the Company's common stock. The Series B Preferred Stock is entitled to a dividend of 1.5% per annum payable quarterly, votes on an as-converted basis as a single class with the common stock of the Company and the Series C Preferred Stock, is not subject to redemption and is convertible into shares of the common stock of the Company (x) at the option of the holder thereof, at a conversion price of $20 per share (or, in the case of certain dividend payment defaults, at a conversion price of $15.50 per share), (y) at the option of the Company, at a conversion price equal to current trading prices (subject to a minimum conversion price of $15.50 and a maximum conversion price of $20 per share) and (z) automatically on the fifth anniversary of the date of issuance at a conversion price of $15.50 per share. Such conversion prices are subject to customary antidilution adjustments. The Series C Preferred Stock is entitled to a dividend of 1.5% per annum payable quarterly, votes on an as-converted basis as a single class with the common stock of Company and the Series B Preferred Stock, is subject to redemption as a whole at the option of the Company on the fifth anniversary of the date of issuance at stated value and, if not so redeemed, will be convertible into shares of the common stock of the Company automatically on the fifth anniversary of the date of issuance at a conversion price of $20 per share, subject to customary antidilution adjustments. In September 1995, the Company completed an offshore private placement of 1,071,655 shares of the common stock of the Company with various European institutional investors. The net proceeds of $3,471,000 realized from the offering were used for general corporate purposes. On November 27, 1996, the Company amended its certificate of incorporation to provide for, among other things, an increase in the number of authorized shares of common stock from 40,000,000 to 60,000,000 shares. On September 4, 1996, the Company acquired substantially all of the assets of V.C. Medical , in consideration of the issuance of 32,787 shares of the common stock. F-22 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCKHOLDERS' EQUITY (continued) Under the Company's stock option program, the Company is authorized to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock grants and restored options. Incentive stock options may be granted at not less than 100% (110% for owners of more than 10% of the Company's outstanding common stock) of the fair market value of the Company's common stock at the date of grant. Stock options outstanding under the program generally vest and are exercisable at a rate of 50% per annum. Effective as of December 21, 1995, directors' options to purchase 10,000 shares of the common stock of the Company are granted to eligible directors each January 2, at an exercise price equal to the fair market value of the common stock at the date of grant. Directors' options are exercisable one-third each year for three years, and have a term of ten years. Incentive and non-qualified options expire five years from the date of grant. In 1992, the Company amended its stock option program to increase the maximum number of shares available under the program from 900,000 to 1,500,000. In 1995, the Company amended its stock option program to increase the maximum number of shares available under the program from 1,500,000 to 2,100,000. In 1996, the plan was further amended to increase the maximum number of shares available from 2,100,000 to 3,000,000. During 1996, 1995 and 1994, officers of the Company surrendered 45,517, 14,518 and 28,943 shares, respectively, of the Company's common stock with a fair market value of $165,000, $50,000 and $126,000, respectively, in satisfaction of the exercise price of stock options to purchase 50,000, 25,000 and 58,187 shares, respectively, of common stock of the Company. The shares received in satisfaction of the exercise price of stock options were recorded as treasury stock and were retired on a quarterly basis as authorized by the Board of Directors. Accordingly all such shares have been restored as authorized and unissued shares of common stock. The Company has elected to comply with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options because the alternate fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models which were not developed for use in valuing employee stock options. Under APB 25, no compensation expense is recognized in connection with the grant of stock options under the Company's stock option program. In accordance with FASB Statement No. 123, pro-forma information regarding net loss and loss per common share has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1996 and 1995, respectively: risk-free interest rate of 6.5%; dividend yields on the preferred stock of 1.5%, volatility factors of the expected market price of the Company's common stock of .41 and .42; and a weighted-average expected life of the option of 3.2 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. In management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options due to changes in subjective input assumptions which may materially affect the fair value estimate, and because the Company's employee stock options have characteristics significantly different from those of traded options. F-23 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCKHOLDERS' EQUITY (continued) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro-forma information is as follows: 1996 1995 ---- ---- Pro forma net (loss) income $ (13,440,000) $ 644,000 Pro forma net (loss) income per share: $ (.93) $ .05 FASB Statement No. 123 is applicable only to options granted subsequent to December 31, 1994. Accordingly, the pro forma effect will not be fully reflected until 1997. Information with respect to options during the years ended December 31, 1996 and 1995 under FASB statement No. 123 and for the year ended December 31, 1994 under APB 25 is as follows:
1996 1995 1994 ---- ---- ---- Weighted Weighted Average Average Option Options Exercise Price Options Exercise Price Options Exercise Price ------- -------------- ------- -------------- ------- -------------- Options outstanding - beginning of year 912,645 $ 5.49 818,379 $ 6.10 824,886 $2.00 - $11.75 Options granted: Incentive options 699,121 6.45 257,432 3.47 144,278 $4.125 - $5.913 Directors' options 90,000 3.25 91,852 3.65 50,000 $4.75 - $5.375 Non-qualified options 91,764 6.02 - 29,165 $4.125 - $5.913 Options exercised (103,255) (3.83) (86,500) (2.58) (149,250) $2.00 - $3.00 Options cancelled and expired (47,100) (4.87) (168,518) (5.79) (80,700) $2.00 - $11.75 Options outstanding - end of year 1,643,175 $ 5.77 912,645 $ 5.49 818,379 $2.00 - $11.75 ========= ====== ======= ====== ======= Options exercisable at end of year 582,244 $ 5.45 483,929 $ 4.95 507,686 ========= ====== ======= ====== ======= Weighted average fair value of options granted during the year $ 2.10 $ 1.20 =========== ==========
F-24 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCKHOLDERS' EQUITY (continued) Exercise prices for options outstanding as of December 31, 1996 were as follows: Number of Range of Exercise Prices --------- ------------------------ Options ------- 20,000 $2.00 - $2.99 409,535 3.00 - 3.99 198,922 4.00 - 4.99 194,400 5.00 - 5.99 44,000 6.00 - 6.99 725,050 7.00 - 7.99 51,268 Over 8.00 --------- 1,643,175 ========= The weighted average remaining contractual life of those options is 5 years. Shares of common stock reserved for future issuance as of December 31, 1996 are as follows: Number of Shares ---------------- Stock options 2,240,163 Warrants issued to John Hancock 345,336 Series B Preferred Stock 3,935,483 Series C Preferred Stock 500,000 --------- 7,020,982 ========= The exercise of non-qualified stock options and disqualifying dispositions of incentive stock options resulted in Federal and state income tax benefits to the Company equal to the difference between the market price at the date of exercise or sale of stock and the exercise price of the option. Accordingly, during 1996, 1995 and 1994, approximately $38,000, $38,000 and $42,000, respectively, was credited to additional paid in capital. 10. INCOME TAXES At December 31, 1996, the Company had aggregate net operating loss carryforwards of approximately $22,745,000 for income tax purposes which expire at various dates from 2008 to 2010, of which approximately $20,480,000 were acquired in connection with the Everest & Jennings acquisition and expire primarily in 2010 and are limited as to use in any particular year. In addition, at December 31, 1996, the Company had approximately $890,000 (net of a 35% reduction of investment tax credits as a result of the Tax Reform Act of 1986) of investment, research and development, jobs tax and AMT credits, for income tax purposes which expire primarily in 1999, and which includes alternative minimum tax credits of $500,000 which have no expiration date. The Company has provided a valuation allowance in the fourth quarter of 1996 amounting to approximately $400,000, since the credits are available only through the expiration dates, and only after the utilization of available net operating loss carryforwards. In 1995, the Company recorded deferred State tax benefits previously not recognized as a component of the net operating loss carryforwards. For financial reporting purposes, due to prior years losses of Everest & Jennings, and SRLY limitations, a full valuation allowance of approximately $14,494,000 has been recognized in the purchase of Everest & Jennings to offset the net deferred tax assets related to the acquired tax attributes. If realized, the tax benefit for those items will be recorded as a reduction to the excess cost over net assets acquired. In addition, the Company has provided an additional valuation allowance of $600,000 against a portion of its remaining net deferred tax asset at December 31, 1996 due to the recent acquisition of Everest & Jennings. The amount of the remaining deferred tax asset considered realizable could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. F-25 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. INCOME TAXES (continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1996 and 1995 are as follows: 1996 1995 ------------ ----------- Deferred Tax Assets: Net operating loss carryforwards $ 7,893,000 $ 3,043,000 Tax credits 890,000 744,000 Accounts receivable allowances 2,600,000 723,000 Inventory related 2,575,000 1,226,000 Deferred rent 382,000 403,000 Other reserves and accrued items 4,738,000 5,000 ------------ ----------- 19,078,000 6,144,000 Valuation allowance for deferred assets (15,549,000) (55,000) ------------ ----------- Total deferred tax assets 3,529,000 6,089,000 ------------ ----------- Deferred Tax Liabilities: Tax in excess of book depreciation 1,696,000 1,713,000 Leveraged lease - 506,000 Prepaid expenses 254,000 250,000 Amortization of intangibles 668,000 477,000 Other - 131,000 ------------ ----------- Total deferred tax liabilities 2,618,000 3,077,000 ------------ ----------- Net deferred tax assets $ 911,000 $ 3,012,000 ============ =========== Significant components of the provision (benefit) for income taxes are as follows: 1996 1995 1994 ---------- --------- --------- Current: Federal $ 166,000 $ 36,000 $ -- State and local 48,000 5,000 -- Foreign 9,000 -- -- ---------- --------- --------- 223,000 41,000 -- Deferred Federal and state 2,450,000 519,000 (947,000) ---------- --------- --------- $2,673,000 $ 560,000 $(947,000) ========== ========= ========= F-26 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. INCOME TAXES (continued) The following is a reconciliation of income tax computed at the Federal statutory rate to the provision for taxes: 1996 1995 1994 ---- ---- ---- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- Tax expense (benefit) computed at statutory rate $(3,244,000) (34%) $ 441,000 34% $(1,123,000) (34%) Expenses not deductible for income tax purposes: Amortization of excess of cost over net assets acquired 276,000 3% 286,000 22% 239,000 7% In-process R&D costs 4,352,000 46% -- -- -- -- Other 11,000 -- 54,000 4% 46,000 1% State tax expense (benefit), net of Federal benefit 278,000 3% 91,000 7% (109,000) (3%) Previously unrecognized State tax benefits -- -- (312,000) (24%) -- -- Valuation allowance on net deferred tax assets 1,000,000 10% -- -- -- -- ----------- -- --------- -- ----------- --- $ 2,673,000 28% $ 560,000 43% $ (947,000) (29%) =========== == ========= == =========== === F-27 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11 EMPLOYEE BENEFIT PLANS The Company has a non-contributory defined benefit pension plan covering employees of its subsidiary, Everest & Jennings Inc. and two non-contributory defined benefit pension plans for the non-bargaining unit salaried employees ("Salaried Plan") and employees subject to collective bargaining agreements ("Hourly Plan") at its Smith & Davis subsidiary. Effective May 1, 1991, benefits accruing under the Everest & Jennings, Inc. Pension Plan were frozen. During 1991, Everest & Jennings froze the Hourly Plan and purchased participating annuity contracts to provide for accumulated and projected benefit obligations. Everest & Jennings also froze the Salaried Plan effective as of January 1, 1993. Accordingly, no pension cost has been reflected in the accompanying statement of operations. The following table sets forth the status of these plans and the amounts recognized in the Company's consolidated financial statements. 1996 ----------- Actuarial present value of benefit obligations: Vested benefit obligation $17,567,000 ----------- Accumulated benefit obligation $17,567,000 ----------- Projected benefit obligation for services rendered to date $17,567,000 Plan assets at fair value, primarily listed stocks, bonds, investment funds and annuity contracts 14,746,000 ----------- Projected benefit obligation in excess of plan assets 2,821,000 Unrecognized transition amount -- Unrecognized loss from change in discount rate -- ----------- Pension liability (current portion of $1,069,000) $ 2,821,000 =========== The following assumptions were used to determine the projected benefit obligations and plan assets: Everest & Jennings, Inc. Smith & Davis Plan Plans ------------------------ ------------- 1996 1996 ------------------------ ------------- Weighted-average discount rate 7.5% 7.5% Expected long-term rate of return on assets 9.0% 9.0% No long-term rate for compensation increases were assumed as all participants are inactive and the plans are frozen. The Company also sponsors two 401(k) Savings and Investment Plans. One plan covers all full-time employees of the Company's wholly-owned subsidiary, Everest & Jennings, and the other plan covers the remaining employees of the Company. The Company does not contribute to the plans. F-28 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of December 31, 1996 and 1995, for which it is practicable to estimate that value: Cash and cash equivalents: The carrying amounts reported in the accompanying balance sheets approximate fair value. Notes and acceptances payable: The carrying amounts of the Company's borrowings under its credit facility approximate their fair value. Long-term debt: The fair values of the Company's long-term debt are estimated using discounted cash flow analyses, based on the Company's incremental borrowing rates for similar types of borrowing arrangements. At December 31, 1996 and 1995, the carrying amount reported approximates fair value. Investment in leveraged lease: The carrying amounts reported in the accompanying balance sheet for 1995 approximate fair value. Fair value is determined based on the current value of the underlying assets. Guaranteed Senior Notes: The fair value of the Company's Guaranteed Senior Notes is estimated using a discounted cash flow analysis based on current rates offered to the Company for debt of the same remaining maturity. At December 31, 1995, the fair value of such debt was approximately $19,200,000. 13. COMMITMENTS AND CONTINGENCIES Operating Leases The Company is a party to a number of noncancellable lease agreements for warehouse space, office space and machinery and equipment rental. As of December 31, 1996 the agreements extend for various periods ranging from 1 to 11 years and certain leases contain renewal options. Certain leases provide for payment of real estate taxes and include escalation clauses. For those leases which have escalation clauses, the Company has recorded rent expense on a straight-line basis. At December 31, 1996 and 1995, $933,000 and $984,000, respectively, of rent expense was accrued in excess of rental payments made by the Company. As of December 31, 1996, minimal annual rental payments under all noncancellable operating leases are as follows: Year Ended December 31: ----------------------- 1997 $ 3,174,000 1998 3,132,000 1999 3,007,000 2000 2,806,000 2001 2,788,000 Thereafter 11,230,000 ----------- $26,137,000 =========== Rent expense for the years ended December 31, 1996, 1995 and 1994 approximated $2,769,000, $2,363,000, and $2,527,000, respectively. F-29 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. COMMITMENTS AND CONTINGENCIES (continued) Legal Proceedings On June 19, 1996, a class action lawsuit was filed on behalf of all stockholders of Everest & Jennings (other than the named defendants) in the Delaware Court of Chancery, following announcement on June 17, 1996 of the original agreement in principle between Everest & Jennings and the Company. The class action names as defendants the Company, Everest & Jennings, Everest & Jennings' directors, and BIL. The class action challenges the transactions contemplated by the original agreement in principle, alleging, among other things, that (i) such transactions were an attempt to eliminate the public stockholders of Everest & Jennings at an unfair price, (ii) BIL will receive more value for its holdings in Everest & Jennings than its minority stockholders, (iii) the public stockholders will not be adequately compensated for the potential earnings of Everest & Jennings, (iv) BIL and the directors of Everest & Jennings breached or aided and abetted the breach of fiduciary duties owed to the stockholders (other than the defendants) by not exercising independent business judgment and having conflicts of interest, and (v) the Company aided and abetted and induced breaches of fiduciary duties by other defendants by offering incentives to members of management, either in the form of continued employment or monetary compensation and perquisites, in exchange for their approval of the merger. The class action seeks to rescind the merger or an award of rescissionary damages if it cannot be set aside, and also prays for an award of compensatory damages. The Company believes that it has valid defenses to the complaint's allegations of wrongdoing, and intends to vigorously defend the lawsuit. On May 21, 1996, the Company was sued by Minnesota Mining & Manufacturing Company ("3M") in a claim purportedly arising under federal, state and common law trademark, false advertising, and unfair competition laws, as well as for breach of, and interference with, contracts. 3M alleges that the Company is selling 3M products in violation of federal and state law, and seeks monetary damages in an unspecified amount, as well as injunctive relief against the Company's continued sale of 3M products. The claim was filed in the Southern District of New York. The Company vigorously denies the allegations of 3M's complaint, and has filed an answer denying the allegations of wrongdoing and asserting affirmative defenses. In addition, the Company has asserted counterclaims against 3M under federal antitrust laws, as well as an unfair competition claim. On October 16, 1996, 3M moved to dismiss the Company's antitrust counterclaims. Briefing of the motion has been completed and the parties are awaiting a decision. 3M has proposed a settlement of all claims pursuant to which the Company would, among other things, agree to restrict its purchases of 3M products to certain authorized 3M dealers, and make a payment of no more than $400,000. Although settlement discussions are ongoing, it is not possible to predict the outcome of such discussions. Everest & Jennings and its subsidiaries are parties to certain lawsuits and proceedings as described below (the "Everest & Jennings Proceedings"). Under the terms of the Stockholder Agreement, BIL has agreed to indemnify the Company and its subsidiaries against the Everest & Jennings Proceedings in the event the amount of losses, claims, demands, liabilities, damages and all related costs and expenses (including attorneys' fees and disbursements) in respect of the Everest & Jennings Proceedings exceeds in the aggregate the applicable amounts reserved for such proceedings on the books and records of Everest & Jennings as of September 3, 1996. In view of BIL's obligation to indemnify the Company and its subsidiaries with respect to such proceedings, management does not expect that the ultimate liabilities, if any, with respect to such proceedings, will have a material adverse effect on the consolidated financial position or results of operations of the Company. F-30 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. COMMITMENTS AND CONTINGENCIES (continued) On July 17, 1990, a class action suit was filed in the United States District Court for the Central District of California by a stockholder of Everest & Jennings against Everest & Jennings and certain of its present and former directors and officers. The suit seeks unspecified damages for alleged non-disclosure and misrepresentation concerning Everest & Jennings in violation of federal securities laws. The district court dismissed the complaint on March 26, 1991, and plaintiff filed his first amended complaint on May 8, 1991. The district court again granted a motion to dismiss the entire action on November 26, 1991. Plaintiff then took an appeal to the Ninth Circuit, which reversed the district court's dismissal of the first amended complaint and remanded the case to the district court for further proceedings. On March 25, 1996, the district court granted Plaintiff's motion to certify a class composed of purchasers of the Everest & Jennings' common stock during the period from March 31, 1989 to June 12, 1990. Plaintiff's counsel has not as yet submitted to the court any proposed notice of class certification and, consequently, the members of the class have not been notified that the court has certified the case to proceed as a class action. Everest & Jennings has received and filed responses and objections to a document request, but further action has been deferred to allow the parties to discuss possible settlement. Everest & Jennings has ordered the parties to file and plaintiff's counsel has filed monthly reports on the status of settlement discussions since September 1996. There are numerous defenses which Everest & Jennings intends to assert to the allegations in the first amended complaint if settlement cannot be reached on acceptable terms. Under Everest & Jennings' directors and officers insurance policy, Everest & Jennings has coverage against liabilities incurred by its directors and officers, subject to a self-insured retention of $150,000 (which has been exceeded by defense costs incurred to date). The carrier has contended that fifty percent of the liability and expenses in the case must be allocated to Everest & Jennings, which is not an insured defendant, and fifty percent to the insured former director and officer defendants. This proceeding constitutes an Everest & Jennings Proceeding, which is covered under BIL's indemnification obligations pursuant to the terms and provisions of the Stockholder Agreement. Die Cast Products, Inc., a former subsidiary of Everest & Jennings, was named as a defendant in a lawsuit filed by the State of California pursuant to the Comprehensive Environmental Response, Compensation and Liability Act 42 U.S.C.ss.ss.9601 et seq. Everest & Jennings was originally notified of this action on December 10, 1992. A settlement was reached at an October 5, 1995 Mandatory Settlement Conference before Judge Rea in the Federal District Court of the Central District of California. The state of California has agreed to accept the sum of $2.6 million as settlement for all past costs and future remedial work. Everest & Jennings' share of the settlement with the state of California has amounted to $41,292.30, which sum was paid on January 3, 1997. No further claims or assessments with respect to this matter are anticipated at this time. This proceeding constitutes an Everest & Jennings Proceeding, which is covered under BIL's indemnification obligations pursuant to the terms and provisions of the Stockholder Agreement. F-31 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. COMMITMENTS AND CONTINGENCIES (continued) In March, 1993, E&J received a notice from the U.S. Environmental Protection Agency ("EPA") regarding an organizational meeting of generators with respect to the Casmalia Resources Hazardous Waste Management Facility ("Casmalia Site") in Santa Barbara County, CA. The EPA alleges that the Casmalia Site is an inactive hazardous waste treatment, storage and disposal facility which accepted large volumes of commercial and industrial wastes from 1973 until 1989. In late 1991, the Casmalia Site owner/operator abandoned efforts to actively pursue site permitting and closure and is currently conducting only minimal maintenance activities. An agreement in principle now has been reached between the Casmalia Steering Committee ("CSC") and the EPA for a settlement of the majority of the Casmalia site liability. The Steering Committee represents approximately 50 of the largest volume generators at the Casmalia site. It is anticipated that the agreement will be formalized and embodied in a Consent Decree in the summer and fall of 1997. Pursuant to the settlement, the CSC members are committing to perform and fund Phase I work at the site. It is estimated that the Phase I work being committed to will cost approximately $30 to $35 million dollars and will take three to five years to complete. This cost will be allocated to Steering Committee members based upon their volume of waste sent to the site. Everest & Jennings accounts for 0.8% of the waste. Thus, by participating in the Phase I settlement, Everest & Jennings has committed to payments of approximately $280,000 to be spread over a three to five year period. Pursuant to the settlement, Everest & Jennings will be released from further obligation for thirty (30) years. In addition, the Steering Committee companies are seeking to recover from the owner and operator of the site. Any such recovery will diminish E&J's payout pursuant to the settlement. This proceeding constitutes an Everest & Jennings Proceeding, which is covered under BIL's indemnification obligations pursuant to the terms and provisions of the Stockholder Agreement. In 1989, a patent infringement case was initiated against E&J and other defendants in the U.S. District Court, Central District of California. E&J prevailed at trial with a directed verdict of patent invalidity and non-infringement. The plaintiff filed an appeal with the U.S. Court of Appeals for the Federal Circuit. On March 31, 1993, the Court of Appeals vacated the District Court's decision and remanded the case for trial. Impacting the retrial of this litigation was a re-examination proceeding before the Board of Patent Appeals with respect to the subject patent. A ruling was rendered November 23, 1993 sustaining the claim of the patent which E&J Inc. has been charged with infringing. Upon the issuance of a patent re-examination certificate by the U.S. Patent Office, the plaintiff presented a motion to the District Court requesting a retrial of the case. E&J presented a Motion for Summary Judgment of Noninfringement based in part upon the November 23, 1993 decision of the Board of Patent Appeals. The Motion was granted in follow-up conferences and an official Judgment was entered November 17, 1994. Following the appeal by the plaintiffs, the case has been remanded to the U.S. District Court, Central District of California, for further consideration. E&J believes that this case is without merit and intends to contest it vigorously. The ultimate liability of E&J, if any, cannot be determined at this time. This proceeding constitutes an Everest & Jennings Proceeding, which is covered under BIL's indemnification obligations pursuant to the terms and provisions of the Stockholder Agreement. F-32 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. COMMITMENTS AND CONTINGENCIES (continued) Following a jury trial on July 15, 1996, a verdict was rendered in the District Court of the First Judicial District of the State of New Mexico in a civil product liability law suit (Chris Trew et al. vs. Smith and Davis Manufacturing Company, Inc., No. SF95-354) against Smith & Davis Manufacturing Company, a wholly-owned subsidiary of Everest & Jennings ("Smith & Davis"), in the amount of $635,698.12 actual damages, prejudgment interest and costs, plus $4 million punitive damages. The suit was instituted on February 25, 1995 by the children and surviving heirs and personal representatives of a nursing home patient in Carlsbad, New Mexico who died on September 28, 1993 after her head became pinned between a bed rail allegedly manufactured by Smith & Davis and her bed. The suit alleged that the bed rail in question was defective and unsafe for its intended purpose, that Smith & Davis was negligent in designing, manufacturing, testing and marketing such bed rails, and that the negligence of the nursing home in question was the proximate cause of decedent's injuries and death. The nursing home reached a settlement with Plaintiffs prior to trial. Judgment was entered on the jury verdict, which bears interest at the rate of 15% from August 30, 1996 until paid. On October 15, 1996, Plaintiffs filed a related case in the Circuit Court of the County of St. Louis, Missouri (Chris Trew, et. al. v. Everest & Jennings, et al., Cause No. 96CC-000456, Division 39), which seeks a declaratory judgment against Everest & Jennings and BIL to pierce their respective corporate veils and holding them jointly and severally liable for the full amount of the New Mexico judgment. On February 26, 1997, the parties agreed in principle to a proposed settlement in which the Plaintiffs would receive $3 million, of which Everest & Jennings estimates that approximately $1.5 million will be paid by Everest & Jennings' insurance carriers, however, Everest & Jennings may seek additional recovery from the insurance carriers. The amounts required to be paid in the proposed settlement in excess of any insurance recoveries will be borne, in whole or in part, by BIL under the indemnification terms and provisions contained in the Stockholder Agreement and/or through the Company's right of offset under the BIL Note. The Company and its subsidiaries are parties to other lawsuits and other proceedings arising out of the conduct of its ordinary course of business, including those relating to product liability and the sale and distribution of its products. While the results of such lawsuits and other proceedings cannot be predicted with certainty, management does not expect that the ultimate liabilities, if any, will have a material adverse effect on the consolidated financial position or results of operations of the Company. Collective Bargaining Agreements The Company is a party to five (5) collective bargaining agreements covering the Company's facilities located in Hauppauge, New York; Passaic, New Jersey; Earth City, Missouri; Ontario, Canada; and Guadalajara, Mexico. The collective bargaining agreements cover approximately 620 employees. The collective bargaining agreements for Hauppauge, New York; Passaic, New Jersey; Earth City, Missouri; Ontario, Canada; and Guadalajara, Mexico are scheduled to expire on September 30, 1997, July 27, 1999, September 13, 1999, July 24, 1998 and December 31, 1997, respectively. The Company has never experienced an interruption or curtailment of operations due to labor controversy, except for a three-day period during the summer of 1993 in which the Company experienced a strike at its Passaic, New Jersey facility, which did not have a material adverse effect on the Company's operations. The Company considers its employee relations to be satisfactory. F-33 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. OTHER MATTERS During the fourth quarter of 1996, the Company recorded charges of $15,800,000 related to the acquisition of Everest & Jennings. The charges included $12,800,000 related to the write-off of purchased in-process research and development costs (see Note 2) and $3,000,000 for other merger related charges (see Note 2). In addition, the Company recorded an extraordinary item of $736,000 (net of tax benefit of $383,000) related to the early extinguishment of the John Hancock Indebtedness in the fourth quarter of 1996 (see Note 8). During the fourth quarter of 1994, the Company recorded non-recurring expenses of approximately $1,321,000 which were included in selling, general and administrative expenses at December 31, 1994, of which approximately $612,000 was included in accrued expenses. These non-recurring expenses were related to the estimated impairment of the residual value related to the Company's investment in leveraged lease (see Note 5), an accrual for severance and other employee costs related to employees terminated during the fourth quarter of 1994 and first quarter of 1995, an accrual for sales and franchise taxes related to in process audits being conducted by multiple states for the periods of 1988 through 1992, and costs related to a terminated acquisition attempt and a lease arbitration proceeding with respect to the Company's principal manufacturing facility. 15. MAJOR CUSTOMERS In 1994, the Company derived 11% of its revenues from Apria Healthcare Group, Inc. (formerly Abbey Home Healthcare, which merged with Homedco in June 1995). On September 1, 1995, the Company announced that its current supply agreement with Apria would not be renewed in 1996, and will expire by its terms on December 31, 1995. During fiscal year 1995 and 1994, the Company's product sales to Apria were approximately $8.1 million and $10.3 million, respectively, which represented approximately 8% and 11%, respectively, of the Company's product sales. The Company's sales to Apria generate gross profit margins of approximately 20%, which is significantly lower than the Company's sales to its other customers which generate gross profit margins of approximately 33%. During 1996, no single customer or buying group accounted for more than 10% of the Company's revenues. 16. SUBSEQUENT EVENTS On February 28, 1997, Everest & Jennings Canada acquired substantially all of the assets and certain liabilities of Motion 2000 Inc. and its wholly-owned subsidiary, Motion 2000 Quebec Inc., for a purchase price equal to Cdn. $2.9 million (Canadian Dollars) (approximately $2.15 million). The purchase price was paid by the issuance of 187,733 shares of the common stock of the Company valued at $11.437 per share, of which 28,095 shares were delivered into escrow. The purchase price is subject to adjustment if the final determination of the closing date net book value of the assets acquired by Everest & Jennings Canada is equal to or less than Cdn. $450,000 (Canadian Dollars) (approximately $333,000). All of the escrowed shares will be held in escrow until the earlier to occur (the "Initial Release Date") of June 28, 1997, or the final resolution of the purchase price. On the Initial Release Date, a portion of the escrowed shares will be released in an amount equal to the difference between (i) 28,095 shares and (ii) the sum of the number of (x) any escrowed shares subject to any indemnification claims, (y) any escrowed shares used to satisfy any adjustment to the purchase price, and (z) 18,729 shares. The balance of the escrowed shares will be released on December 31, 1997, subject to any claims for indemnification. F-34 GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. SUBSEQUENT EVENTS (continued) On March 7, 1997, E&J acquired Kuschall of America, Inc., a manufacturer of pediatric wheelchairs, high-performance adult wheelchairs and other rehabilitation products, for a purchase price of $1,510,000, representing the net book value of Kuschall. The purchase price was paid by the issuance of 116,154 shares of the common stock of the Company valued at $13.00 per share, of which 23,230 shares were delivered into escrow. The escrow shares will be released on March 7, 1999, subject to any purchase price adjustments in favor of the Company and claims for indemnification. F-35 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
========================================================================================================================== COL. A COL. B COL. C COL. D COL. E ADDITIONS - -------------------------------------------------------------------------------------------------------------------------- 1 2 Balance at Additions Other Changes -- Balance at Beginning Charged to Costs Charged to Other Add (Deduct) -- End of DESCRIPTION of Period and Expenses Accounts-Describe Describe Period ========================================================================================================================== Allowance for doubtful accounts: Year Ended December 31, 1996 $ 1,740,000 $ 621,000 $5,077,000(2) $ (231,000)(1) $ 7,207,000 Year ended December 31, 1995 1,907,000 448,000 10,000(2) (625,000)(1) 1,740,000 Year ended December 31, 1994 2,451,000 586,000 (1,130,000)(1) 1,907,000 Valuation allowance for net deferred tax assets: Year ended December 31, 1996 $ 55,000 $1,000,000 $14,494,000(2) - $15,549,000 Year Ended December 31, 1995 55,000 - - - 55,000 Year Ended December 31, 1994 55,000 - - - 55,000
(1) Net write-offs of accounts receivable. (2) Represents an allocation of the purchase price of the Everest & Jennings and V.C. Medical acquisitions. F-36 Item 8. Financial Statements and Supplementary Data: The response to this Item is submitted as a separate section of this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures: None. PART III Item 10. Directors and Executive Officers of the Registrant: Executive Officers of the Registrant The Company's executive officers are elected by, and serve at the discretion of the Board of Directors. The following table sets forth certain information concerning the present executive officers of the Company: Position(s) with Year Became Name Age Company Executive Officer - ---------------- ----- ---------------------------- ----------------- Irwin Selinger 56 Chairman of the 1981 Board and Chief Executive Officer Gary M. Jacobs 39 Vice President - Finance 1992 and Chief Financial Officer Richard S. Kolodny 38 Vice President, General 1993 Counsel, and Secretary Peter Winocur 41 Executive Vice President 1996 of Sales and Marketing Ralph Liguori 51 Executive Vice President 1995 of Operations Beatrice Scherer 58 Vice President - Administration 1981 Donald J. Cantwell 47 Vice President of Information 1997 Systems -49- Mr. Selinger, a founder and principal stockholder of the Company, has been the Chairman of the Board and Chief Executive Officer of the Company since April 1981. Mr. Selinger was a founder and the Chief Executive Officer of Surgicot, Inc., a manufacturer of sterilization indicators, and its predecessor from 1968 to April 1980. In 1979, Surgicot, Inc. was acquired by E. R. Squibb & Sons, Inc., a subsidiary of Squibb Corporation. From April 1980 to June 1984, Mr. Selinger was a consultant to E. R. Squibb & Sons, Inc. Mr. Jacobs has been Vice President-Finance and the Chief Financial Officer of the Company since August 1992. Since 1979, Mr. Jacobs was employed by the accounting firm of Ernst & Young LLP, and most recently, held the position of senior manager. Mr. Kolodny has been Vice President, General Counsel and Secretary of the Company since August 1993. From 1990 to 1993, Mr. Kolodny was associated with the law firm of Carro, Spanbock, Kaster & Cuiffo. Prior to such time, Mr. Kolodny was associated with the law firm of Shea & Gould. Mr. Winocur has held various positions with the Company since May 1992, and has been the Executive Vice President of Sales and Marketing of the Company since January 1996. Prior to 1992, Mr. Winocur was the founder and President of National Health Care Equipment, Inc., which was acquired by the Company in May 1992. Mr. Liguori has been the Executive Vice President of Operations of the Company since July 1995. From 1990 to 1995, Mr. Liguori was the Group Vice President of Operations of Del Laboratories, Inc. Prior to such time, Mr. Liguori was the Senior Vice President of U.S. Operations of Coleco Industries, Inc. Ms. Scherer has been Vice President-Administration of the Company since 1985. From 1981 to 1985, Ms. Scherer was Vice-President-Finance for the Company. Mr. Cantwell has been the Vice President of Information Systems of the Company since May 1996, and became an executive officer of the Company as of January 1, 1997. From 1995 to 1996, Mr. Cantwell was the Chief Information Officer of Dial-A-Mattress, Inc. Prior to such time, Mr. Cantwell held various management positions with Grumman Corporation for over ten years. -50- The information to be furnished with respect to the directors of the Company is incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A. Item 11. Executive Compensation: Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A. Item 12. Security Ownership of Certain Beneficial Owners and Management: Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A. Item 13. Certain Relationships and Related Transactions: Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A. -51- PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K. 14(a). Documents filed as part of this Form 10-K: 1. Financial Statements. The following financial statements are included in Part II, Item 8: Page ---- Report of Independent Auditors F-2 Consolidated Balance Sheets -- December 31, 1996 and 1995 F-3 Consolidated Statements of Operations -- Years ended December 31, 1996, 1995 and 1994 F-5 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1996, 1995 and 1994 F-6 Consolidated Statements of Cash Flows -- Years ended December 31, 1996, 1995 and 1994 F-7 Notes to Consolidated Financial Statements -- December 31, 1996 F-9 2. Financial Statement Schedules. The following consolidated financial statement schedule for the company is included in Part II, Item 14(d): Schedule VIII--Valuation and Qualifying Accounts F-26 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3. Exhibits filed under Item 601 of Regulation S-K. (Numbers assigned to the following correlate to those used in such Item 601; asterixes indicate that an Exhibit is incorporated by reference). 3. (a) The Company's Certificate of Incorporation, as amended, is * incorporated by reference to Exhibit 3(1) to the Company's Registration Statement on Form S-1 (File No. 33-40442) (the "1991 Registration Statement"). - -------- * Incorporated by reference. -52- (b) Certificate of Amendment of Certificate of Incorporation of the Company dated as of November 27, 1996. (c) Certificate of Merger dated as of November 27, 1996, by and between E&J Acquisition Corp. and Everest & Jennings International Ltd. (d) The Company's By-Laws, as amended, are incorporated by * reference as an Exhibit to the Company's Current Report on Form 8-K dated as of July 14, 1995. 4. (a) Certificate of Designations of the Company's Series B * Cumulative Convertible Preferred Stock is incorporated by reference to Annex D to the Company's S-4 Registration Statement filed on October 18, 1996 (Registration No.: 333-14423) (the "1996 S-4 Registration Statement"). (b) Certificate of Designations of the Company's Series C * Cumulative Convertible Preferred Stock is incorporated by reference to Annex E to the 1996 S-4 Registration Statement. (c) Certificate of Designations of Series A Junior Participating * Preferred Stock, is incorporated by reference to Exhibit 4(c) to the Company's Report on Form 8-K dated as of September 3, 1996 (the "1996 Form 8- K"). (d) Rights Agreement dated as of September 3, 1996 between the * Company and American Stock Transfer & Trust Company, as Rights Agent (the "1996 Rights Agreement") is incorporated by reference to Exhibit 4(b) to the 1996 Form 8-K. 10. (a) Supply Agreement dated as of October 15, 1996, between Healthtech Products, Inc., Invacare Corporation and Everest & Jennings, Inc. (b) Supply Agreement, by and between Everest & Jennings, Inc. and P.T. Dharma Polimetal. (c) Employment Agreement dated as of July 8, 1981 (the "Selinger * Agreement"), between the Company and Irwin Selinger is incorporated by reference to Exhibit 10(a) to the Company's Registration Statement on Form S-18 (Registration No. 2-80107-NY). (d) Amendment to the Selinger Agreement dated as of July 8, 1991, * is incorporated by reference to Exhibit 10.1 to the 1991 Registration Statement. (e) Amendment to the Selinger Agreement dated as of May 3, 1996. (f) Agreement dated June 6, 1986 between the Company and Gould * Investors, LP with respect to the sale and leaseback of 400 Rabro Drive, Hauppauge, NY is incorporated by reference to Exhibit 10(rr) to the Company's Annual Report on Form 10-K for the year ended December 31, 1986 (the "1986 10-K"). - -------- * Incorporated by reference. -53- (g) Second Amendment to Lease, dated January 1, 1990, between the * Company and Gould Investors, L.P. in incorporated by reference to Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990 (the "1990 10-K"). (h) Lease dated January 1, 1987, between the Company and R-Three * Investors with respect to the renting of 30,000 square feet at 135 Fell Court, Hauppauge, is incorporated by reference to Exhibit 10(tt) to the 1986 10-K. (i) Lease Extension Agreement, dated March 8, 1990 between the * Company and R-Three Investors with respect to the renting of 30,000 square feet at 135 Fell Court, Hauppauge is incorporated by reference to Exhibit 10(hh) to the 1990 10-K. (j) Lease Agreement dated as of March 19, 1992, by and between NET 2, L.P. and Everest & Jennings, Inc. (k) Lease Agreement dated as of October 1, 1991 (the "Temco Lease * Agreement"), by and between TEMCO National Corp. and Graham-Field, Inc. is incorporated by reference to Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (the "1991 10-K"). (l) Modification of Temco Lease Agreement dated as of May 18, * 1992, by and between TEMCO National Corp. and Graham-Field Temco, Inc. is incorporated by reference to Exhibit 10(dd) to the Company's Annual Report on Form 10-K for the Year ended December 31, 1992 (the "1992 10-K"). (m) Amendment No. 2 to Temco Lease Agreement dated as of April * 13, 1994, by and between The Wendt-Bristol Health Services Corporation and Graham-Field Temco, Inc. is incorporated by reference to Exhibit 10(x) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 10-K"). (n) Amendment No. 3 to Temco Lease Agreement dated as of May 1, * 1995, by and between The Wendt-Bristol Health Services Corporation and Graham-Field Temco, Inc. is incorporated by reference to Exhibit 10(y) to the 1995 10-K. (o) Lease Agreement dated as of March 23, 1992, by and between * The Equitable Life Assurance Society of the United States and Graham-Field, Inc. is incorporated by reference to Exhibit 10(ff) to the 1991 10-K. (p) Lease Agreement dated as of March 21, 1996, by and between * Graham-Field, Inc. and HIP Realty, Inc. is incorporated by reference to Exhibit 10(jj) to the 1995 10-K. (q) Lease Agreement dated as of April 10, 1996, by and between the Company and Stone Mountain Industrial Park, Inc. - -------- * Incorporated by reference. -54- (r) Lease Agreement dated as of August 1, 1996, by and between Owen Bros. Enterprises and Bobeck Medical Distribution. (s) Assignment, Assumption and Consent Agreement dated as of January 27, 1997 by and among Bobeck Medical Distribution, Owen Bros. Enterprises and the Company. (t) Lease Agreement dated as of September 19, 1996, by and between J & M, S.E. and Graham-Field Express (Puerto Rico), Inc. (u) Lease Agreement dated as of December 27, 1996, by and between Adaya Asset Washington, L.P. and Graham-Field, Inc. (v) Lease Agreement dated as of February 27, 1997, by and between Security Capital Industrial Trust and the Company. (w) Union contract dated April 16, 1996, between Graham-Field and Local 966 of International Brotherhood of Teamsters with respect to the collective bargaining agreement at the Hauppauge, New York facility. (x) Union contract dated September 10, 1996, between Graham-Field and Local 945 of International Brotherhood of Teamsters with respect to the collective bargaining agreement at the Temco, New Jersey facility. (y) Union contract dated July 24, 1996, between Everest & Jennings Canadian Limited and the United Steelworkers' of America on behalf of its Local 5338. (z) Union contract dated September 13, 1996, between Everest & Jennings Inc. and District No. 9, International Association of Machinists and Aerospace Workers. (aa) The Incentive Program is incorporated by reference to the * Company's Registration Statements on Form S-8 (File Nos. 33-37179, 33-38656, 33-48860, 033-60679 and 333-16993). (bb) Amendment No. 1 to the Incentive Program is incorporated by * reference to Exhibit A to the Company's Proxy Statement dated as of May 10, 1991. (cc) Amendment No. 2 to the Incentive Program is incorporated by * reference to Exhibit A to the Company's Proxy Statement dated as of May 14, 1992. (dd) Amendment No. 3 to the Incentive Program dated as of January * 28, 1993 is incorporated by reference to Exhibit 10(y) to the 1992 10-K. (ee) Amendment No. 4 to the Incentive Program dated as of June * 20, 1995 is incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 (File No. 033-60679). (ff) Amendment No. 5 to the Incentive Program dated as of * December 21, 1995 is incorporated by reference to Exhibit 10(s) to the 1995 10-K. - -------- * Incorporated by reference. -55- (gg) Amendment No. 6 to the Incentive Program dated as of * November 27, 1996 is incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 (File No. 333-16993). (hh) Agreement and Plan of Merger dated as of May 9, 1991, by and * among Horizon International Healthcare, Inc., Aquatherm Acquisition Corp., Graham-Field, Inc., the Company, Tyler Schueler and John Shepherd is incorporated by reference to Exhibit 10 (cc) to the Company's 1991 10-K. (ii) Asset Purchase Agreement dated as of August 30, 1991, by and * between TEMCO National Corp. and Graham-Field, Inc. is incorporated by reference to Exhibit (c)(1) to the Company's Current Report on Form 8-K dated as of October 12, 1991. (jj) John Hancock Mutual Life Insurance Note and Warrant * Agreement dated as of March 12, 1992 is incorporated by reference to Exhibit 10(ee) to the 1992 10-K. (kk) Amendment dated as of December 31, 1992, to the John Hancock * Mutual Life Insurance Note and Warrant Agreement is incorporated by reference to Exhibit 10(ff) to the 1992 10-K. (ll) Amendment dated as of June 30, 1993, to the John Hancock * Mutual Life Insurance Note and Warrant Agreement is incorporated by reference as an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. (mm) Amendment dated as of December 31, 1993, to the John Hancock * Mutual Life Insurance Note and Warrant Agreement is incorporated by reference to Exhibit 10(dd) to the Company's Annual Report on Form 10- K for the year ended December 31, 1993. (nn) Amendment dated as of December 30, 1994, to the John Hancock * Mutual Life Insurance Note and Warrant Agreement is incorporated by reference to Exhibit 10(ee) to the Company's Annual Report on Form 10- K for the year ended December 31, 1994. (oo) Asset Purchase Agreement dated as of May 28, 1993, by and * among Graham-Field, Inc., Diamond Medical Equipment Corp., National Health Care Equipment, Inc., Harvey Diamond and Peter Winocur is incorporated by reference to Exhibit (c)(1) to the Company's Current Report on Form 8-K dated as of June 5, 1992. (pp) Asset Purchase Agreement dated as of September 22, 1995, by * and among Graham-Field Health Products, Inc., National Medical Excess Corp. and John Wittenberg is incorporated by reference to Exhibit 10(gg) to the 1995 10-K. - -------- * Incorporated by reference. -56- (qq) Asset Purchase Agreement dated as of March 4, 1996, by and * between Graham-Field, Inc. and the Lumiscope Company, Inc. is incorporated by reference to Exhibit 10(hh) to the 1995 10-K. (rr) Rights Agreement dated as of September 3, 1996 between the * Company and American Stock Transfer & Trust Company, as Rights Agent (the "1996 Rights Agreement") is incorporated by reference to Exhibit 4(b) to the Company's Report on Form 8-K dated as of September 3, 1996. (ss) Registration Rights Agreement, dated as of September 3, * 1996, between the Company and BIL is incorporated by reference to Exhibit 4(g) to the Company's Report on Form 8-K dated as of September 3, 1996. (tt) Amended and Restated Agreement and Plan of Merger dated as * of September 3, 1996, and amended as of October 1, 1996, by and among the Company, E&J Acquisition Corp., Everest & Jennings International Ltd. and BIL is incorporated by reference to Exhibit 2(a) to the Company's Report on Form 8-K dated as of December 12, 1996. (uu) Stockholder Agreement, dated as of September 3, 1996, and * amended and restated as of October 1, 1996, among the Company, BIL and Irwin Selinger is incorporated by reference to Exhibit 4(b) to the Company's Report on Form 8-K dated as of December 12, 1996. (vv) Promissory Note dated as of December 10, 1996, in the principal amount of $4 million made by the Company and payable to BIL Securities (Offshore) Limited. (ww) Asset Purchase Agreement dated as of September 4, 1996, by * and among the Company, Graham-Field Express (Puerto Rico), Inc. ("GFPR"), and V.C. Medical Distributors, Inc. is incorporated by reference to Exhibit 2(a) to the Company's Report on Form 8-K dated as of September 17, 1996. (xx) Revolving Credit and Security Agreement dated as of December * 10, 1996 (the "Revolving Credit Agreement"), by and among IBJ Schroder Bank & Trust Company (as lender and as agent), the Company, Graham- Field, Inc., Graham-Field Express, Inc., Graham-Field Temco, Inc., Graham-Field Distribution, Inc., Graham-Field Bandage, Inc., Graham- Field Express (Puerto Rico), Inc., and Everest & Jennings, Inc. is incorporated by reference to Exhibit 10 to the Company's Report on Form 8-K dated as of December 23, 1996. (yy) Asset Purchase Agreement dated as of February 10, 1997, by * and among the Company, Everest & Jennings Canadian Limited ("E&J Canada"), Motion 2000 Inc. ("Motion 2000"), and Motion 2000 Quebec Inc. ("Motion Quebec") is incorporated by reference to Exhibit 2(a) to the Company's Report on Form 8-K dated as of March 12, 1997. - -------- * Incorporated by reference. -57- (zz) Stock Purchase Agreement dated as of March 7, 1997, by and * among the Company, Everest & Jennings, Inc., Michael H. Dempsey, and Naomi C. Dempsey is incorporated by reference to Exhibit 2(a) to the Company's Report on Form 8-K dated as of March 20, 1997. - -------- * Incorporated by reference. -58- 22. Subsidiaries of the Company: Labtron Scientific Corporation (a New York corporation) Patient Technology, Inc. (a New York corporation) Graham-Field Express, Inc. (a Delaware corporation) Bristoline, Inc. (a New York corporation) Ventilator Corp. (a New York corporation) Graham-Field, Inc. (a New York corporation) Medisco, Inc. (a Delaware corporation) ExNewt, Inc. (a New York corporation) M.E. Team, Inc. (a New Jersey corporation) Graham-Field Temco, Inc. (a New Jersey corporation) AquaTherm Corp. (a New Jersey corporation) Health and Medical Techniques, Inc. (a Connecticut corporation) Graham-Field Distribution, Inc. (a Missouri corporation) Graham-Field Bandage, Inc. (a Rhode Island corporation) G.F.E. Healthcare Products Corp. (a Delaware corporation) Graham-Field European Distribution Corporation Limited (an Ireland corporation) HealthTeam, Inc. (a Delaware corporation) Graham-Field Express (Puerto Rico), Inc. (a Delaware corporation) Graham-Field Express (Dallas), Inc. (a Delaware corporation) Everest & Jennings International Ltd. (a Delaware corporation) Everest & Jennings, Inc. (a California corporation) Smith & Davis Manufacturing Company -59- (a Missouri corporation) Everest & Jennings de Mexico S.A. de C.V. (a Mexico corporation) The Jennings Investment Company (a California corporation) Everest & Jennings Canadian Ltd. (a Canadian corporation) MCT Acquisition Corp. (a Missouri corporation) Thompson Blair, Inc. (a Missouri corporation) Freeway Investment Corp. (a California corporation) Metal Products Corp. (a California corporation) Professional Securities Corp. (a Missouri corporation) International Medical Equipment Corp. (a California corporation) Everest & Jennings Lifestyles (a California corporation) Rabson Medical Sales, Ltd. (a New York corporation) Kuschall of America, Inc. (a California corporation) 24. Consent of Independent Auditors. 14(b). Reports on Form 8-K. The Company's Report on Form 8-K dated as of December 12, 1996 (Date of Event: November 27, 1996). The Company's Report on Form 8-K dated as of December 23, 1996 (Date of Event: December 10, 1996). -60- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GRAHAM-FIELD HEALTH PRODUCTS, INC. By: /s/ Irwin Selinger --------------------------------------- Irwin Selinger, Chairman of the Board and Chief Executive Officer Date: March 28, 1997 Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Irwin Selinger Chairman of the Board and Chief Execu- March 28, 1997 - ----------------------------- tive Officer (Principal Executive Officer Irwin Selinger and Director) /s/ Gary M. Jacobs Vice President/Finance and Chief Finan- March 28, 1997 - ----------------------------- cial Officer (Principal Financial Officer) Gary M. Jacobs /s/ David P. Delaney, Jr. Director March 28, 1997 - ----------------------------- David P. Delaney /s/ Rodney F. Price Director March 28, 1997 - ----------------------------- Rodney F. Price /s/ Bevil J. Hogg Director March 28, 1997 - ----------------------------- Bevil J. Hogg /s/ Dr. Harold Lazarus Director March 28, 1997 - ----------------------------- Dr. Harold Lazarus /s/ Louis A. Lubrano Director March 28, 1997 - ----------------------------- Louis A. Lubrano /s/ Andrew A. Giordano Director March 28, 1997 - ----------------------------- Andrew A. Giordano /s/ Robert Spiegel Director March 28, 1997 - ----------------------------- Robert Spiegel /s/ Steven D. Levkoff Director March 28, 1997 - ----------------------------- Steven D. Levkoff /s/Donald Press Director March 28, 1997 - ----------------------------- Donald Press s /s/ Peter Handal Director March 28, 1997 - ----------------------------- Peter Handal
EX-3.(B) 2 CERTIFICATE OF AMENDMENT EXHIBIT 3(b) Certificate of Amendment of Certificate of Incorporation of the Company dated as of November 27, 1996. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION GRAHAM-FIELD HEALTH PRODUCTS, INC. (Pursuant to Section 242 of the General Corporation Law of the State of Delaware) GRAHAM-FIELD HEALTH PRODUCTS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: At a meeting held on August 12, 1996, the Board of Directors of the Corporation duly adopted resolutions setting forth the proposed amendment (the "Amendment") to the Certificate of Incorporation of the Corporation, declaring the Amendment to be advisable and calling for the submission of the Amendment to the stockholders of the Corporation pursuant to Section 242 of the General Corporation Law of the State of Delaware (the "DGCL"). The resolutions setting forth the Amendment are as follows: RESOLVED, that the number of shares of Corporation Common Stock which this Corporation shall have the authority to issue be increased from 40,000,000 to 60,000,000, and, accordingly, the first paragraph of Article FOURTH of the Certificate of Incorporation be amended and restated in its entirety to read as follows: "FOURTH: the total number of shares of all classes of stock which the Company is authorized to issue is 61,000,000 shares. All such shares are to have a par value and are classified as 1,000,000 shares of Preferred Stock, each share of such class having a par value of $.01, and 60,000,000 shares of Common Stock, each share of such class having a par value of $.025.;" -2- SECOND: Thereafter, pursuant to a resolution of the Board of Directors of the Corporation, the Amendment was submitted to the holders of all of the outstanding shares of Common Stock of the Corporation at a Special Meeting of Stockholders, duly called and held on November 27, 1996, upon notice in accordance with the DGCL, at which meeting the requisite number of shares as required by statute were voted in favor of such Amendment. THIRD: The Amendment was duly adopted in accordance with the provisions of Section 242 of the DGCL. -3- IN WITNESS WHEREOF, said Corporation has caused this certificate to be signed by Richard S. Kolodny, its Vice President, General Counsel and Secretary, as of the 27 day of November, 1996. GRAHAM-FIELD HEALTH PRODUCTS, INC. By: /s/ Richard S. Kolodny ------------------------------ Richard S. Kolodny Vice President, General Counsel and Secretary -4- EX-3.(C) 3 CERTIFICATE OF MERGER EXHIBIT 3(c) Certificate of Merger dated as of November 27, 1996, by and between E&J Acquisition Corp. and Everest & Jennings International Ltd. - 2 - CERTIFICATE OF MERGER MERGING E&J ACQUISITION CORP. (a Delaware corporation) INTO EVEREST & JENNINGS INTERNATIONAL LTD. (a Delaware corporation) (Pursuant to Section 251 of the General Corporation Law of the State of Delaware) The undersigned corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: The name and state of incorporation of each of the constituent corporations (the "Constituent Corporations") to the merger (the "Merger") are as follows: Name State of Incorporation ---- ---------------------- Everest & Jennings Delaware International Ltd. E&J Acquisition Corp. Delaware SECOND: An Amended and Restated Agreement and Plan of Merger, dated as of September 3, 1996 and amended as of October 1, 1996, among the Constituent Corporations and other parties thereto (the "Merger Agreement") has been approved, adopted, certified, executed and acknowledged by each of the Constituent Corporations in accordance with the requirements of Section 251(c) of the General Corporation Law of the State of Delaware. THIRD: The name of the surviving corporation of the Merger is Everest & Jennings International Ltd. (the "Surviving Corporation"). FOURTH: The Certificate of Incorporation of Everest & Jennings International Ltd., a Delaware corporation which will survive the Merger, shall be the Certificate of Incorporation of the Surviving Corporation. FIFTH: The executed Merger Agreement is on file at the principal place of business of the Surviving Corporation. The address of the principal place of business of the Surviving Corporation is 4203 Earth City Expressway, Earth City, Missouri 63045. SIXTH: A copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without - 3 - cost, to any stockholder of either of the Constituent Corporations. IN WITNESS WHEREOF, this Certificate of Merger has been executed by Bevil J. Hogg, President & Chief Executive Officer of Everest & Jennings International Ltd., as of this 27th day of November, 1996. EVEREST & JENNINGS INTERNATIONAL LTD. By: /s/ Bevil J. Hogg ---------------------------- Bevil J. Hogg President & Chief Executive Officer EX-10.(A) 4 SUPPLY AGREEMENT EXHIBIT 10(a) Supply Agreement dated as of October 15, 1996, between Healthtech Products, Inc., Invacare Corporation and Everest & Jennings, Inc. AMENDED AND RESTATED SUPPLY AGREEMENT Dated as of October 15, 1996 Between HEALTHTECH PRODUCTS, INC., INVACARE CORPORATION and EVEREST & JENNINGS, INC. TABLE OF CONTENTS SECTION PAGE - ------- ---- 1. MANUFACTURE AND SUPPLY............................................... 1 2. DELIVERY, CLAIMS, DELAYS, RETURNS.................................... 3 3. PRICES AND PAYMENT................................................... 4 4. TAXES AND OTHER GOVERNMENTAL CHARGES................................. 6 5. TERM AND TERMINATION................................................. 6 6. WARRANTIES........................................................... 6 7. RELATIONSHIP OF THE PARTIES.......................................... 7 8. TOOLING.............................................................. 7 9. OPERATIONS AT THE FACILITY........................................... 8 10. INSPECTION AND REPORTS CONCERNING THE FACILITY....................... 8 11. SUBMISSIONS TO REGULATORY AGENCIES................................... 9 12. EVENTS OF CUSTOMER DEFAULT........................................... 10 13. EVENTS OF MANUFACTURER DEFAULT....................................... 11 14. PATENT INFRINGEMENT.................................................. 12 15. FORCE MAJEURE........................................................ 13 16. NONDISCLOSURE OF INFORMATION......................................... 13 17. HEADINGS............................................................. 14 18. FAILURE TO ENFORCE................................................... 14 19. SEVERABILITY......................................................... 14 20. ENTIRE AGREEMENT..................................................... 15 i 21. NOTICES.............................................................. 15 22. CHOICE OF LAW........................................................ 16 23. RESOLUTION BY NEGOTIATION; ARBITRATION............................... 16 24. BINDING AGREEMENT.................................................... 18 Appendix A - Products and Specifications Appendix B - Standard Costs Appendix C - Warranty Terms Appendix D - List of Tooling Appendix E - Manufacturer's Insurance Coverages Appendix F - Customer's Insurance Coverages DEFINED TERMS The meanings of the following terms as used in this Exclusive Supply Agreement can be found in the Paragraph, Recital and Sections referenced below: Affiliate.................................................. Section 7 Answer..................................................... Section 23.3(i) Assignment................................................. Section 24 Customer................................................... First Paragraph Demand..................................................... Section 23.3(i) E&J....................................................... First Paragraph Events of Customer Default................................. Section 12.1 Events of Manufacturer Default............................. Section 13.1 Existing Supply Agreement.................................. Recital A Facility................................................... Section 9.1 FDA........................................................ Section 2.5 Instituting Party.......................................... Section 23.3(i) Invacare................................................... First Paragraph Manufacturer............................................... First Paragraph Other Party................................................ Section 23.3(i) Products................................................... Section 1.1 Specifications............................................. Section 1.1 Tooling.................................................... Section 8.1 UL......................................................... Section 2.5 Wright City Facility....................................... Section 2.1 ii AMENDED AND RESTATED SUPPLY AGREEMENT THIS AMENDED AND RESTATED SUPPLY AGREEMENT is made and entered into as of October 15, 1996 ("Agreement") by and between HEALTHTECH PRODUCTS, INC., a Missouri corporation ("Manufacturer"), a wholly-owned subsidiary of Invacare Corp., a Delaware Corporation ("Invacare"), Invacare and EVEREST & JENNINGS, INC., a California corporation ("Customer"), a wholly-owned subsidiary of Everest & Jennings International, Ltd., a Delaware corporation ("E&J"). RECITALS A. Smith & Davis Manufacturing Company, a wholly-owned Missouri subsidiary of E&J ("Smith & Davis"), and Manufacturer entered into a Supply Agreement dated as of April 3, 1995, which was amended and restated as of March 15, 1996 (the "Existing Supply Agreement") and assigned as of March 15, 1996 by Smith & Davis to Customer, pursuant to which Manufacturer has agreed to manufacture and supply to Customer, utilizing tooling provided by Customer, and Customer has agreed to purchase from Manufacturer, home healthcare beds and replacement parts for home healthcare beds, on the terms and conditions set forth therein. B. Customer and Manufacturer have agreed that, notwithstanding the provisions of the Existing Supply Agreement, it will terminate on October 15, 1997 and the parties have agreed to the revisions to the Existing Supply Agreement embodied in this Agreement. C. This Agreement, amends and restates the Existing Supply Agreement in its entirety. NOW, THEREFORE, in consideration of the premises and of the mutual covenants of the parties hereinafter expressed, it is hereby agreed as follows: 1. MANUFACTURE AND SUPPLY. 1.1. Manufacturer shall, subject to the terms and conditions of this Agreement, manufacture and sell exclusively to Customer certain products comprising Customer's home healthcare bed product line and parts and accessories related thereto, as described more fully in Appendix "A" hereto (the "Products") conforming in all material respects to the specifications referenced in Appendix "A" hereto, as the same may be revised from time to time as provided herein (the "Specifications"). 1.2. On or prior to the last day of each calendar month of the term of this Agreement, Customer will place firm orders for beds it desires to purchase during the next two (2) calendar months of the term of this Agreement and Customer will provide an 1 estimate of its purchase requirements for beds during the next three (3) calendar months of the term of this Agreement. Except with the Manufacturer's consent, which shall not be unreasonably withheld, firm orders for beds for any calendar month will not differ from the estimate for that month by more than twenty percent (20%). Customer's firm orders will specify a mix of bed Products reasonably acceptable to Manufacturer. 1.3. If Manufacturer fails to supply beds in quantities ordered by Customer up to 22,000 beds during the twelve month period ending October 15, 1997, Manufacturer shall pay Customer, as liquidated damages, an amount equal to the product of (i) $40.00 and (ii) the difference between 44,000 beds and the number of beds supplied by Manufacturer during such applicable period. If Manufacturer supplies at least 5,500 beds, or the number of beds ordered by Customer pursuant to Section 1.2, whichever is less, to Customer during each three month period ending January 15, April 15, July 15, and October 15 during the term of this Agreement, Manufacturer will have no obligation under this Section 1.3 to pay Customer liquidated damages for any failure to supply any quantity of beds in excess of 5,500 beds during such three month period which may be ordered by Customer, provided Manufacturer uses its best efforts to supply Customer's requirements for such excess quantity of beds ordered in accordance with the provisions of Section 1.2. Any amount payable under this Section 1.3 shall be payable quarterly on or prior to the 25th day of January, April and July following any three month period in which Manufacturer falls to supply beds in quantities ordered by Customer up to 5,500 beds, and the balance, if any, shall be paid on October 25, 1997. 1.4. New Products may be added to Appendix A from time to time upon such terms, including pricing and quantities, as Manufacturer and Customer shall agree in writing. Customer shall supply Manufacturer with specifications for any new Products. After a new bed Product is added to Appendix "A" orders therefor shall be used to satisfy the minimum purchase requirements for all subsequent periods. 1.5. Manufacturer represents that it has filed all required documentation, and obtained all required authorizations, approvals and consents under any and all applicable laws, regulations, directives and/or requirements in order for Manufacturer to be able to manufacture and sell the Products to Customer pursuant to the terms of this Agreement. Manufacturer further covenants that it will at all times during the term of this Agreement continue to obtain and maintain in full force and effect any and all such required filings, authorizations, approvals and consents, and will comply in all material respects with any and all such applicable laws, regulations, directives and/or requirements in connection with the manufacture and sale of the Products to Customer pursuant to this Agreement. 1.6. Manufacturer may not unreasonably decline any purchase order for Products from Customer under and in accordance with the terms of this Agreement and it will be deemed accepted unless declined within fifteen (I 5) days of receipt. 1.7. Manufacturer agrees to procure and maintain the product liability insurance coverages described on Appendix E to this Agreement, and Customer agrees to maintain the product liability insurance coverages described on Appendix F to this 2 Agreement, or, in each case substantially similar coverages, covering all Products manufactured and sold under this Agreement, and each party shall cause the other party to be named as loss payee and an additional insured under each of its policies. Each party shall furnish to the other party a copy of each of its policies or a certificate from the insurance company or companies attesting such coverage. Each such policy shall contain provisions that the issuing company will not cancel or change such policy except upon thirty (30) days' prior written notice to the party so named as loss payee and additional insured. 2. DELIVERY, CLAIMS, DELAYS, RETURNS. 2.1. All Products will be sold and delivered F.O.B. Manufacturer's plant and facilities in Wright City, Missouri (the "Wright City Facility") or other location reasonably specified by Manufacturer upon prior written notice to Customer. Manufacturer shall be responsible for all costs of shipment in excess of those that would have been incurred if the Products were delivered F.O.B. the Wright City Facility. Customer shall be responsible for all other costs of shipping Products. Partial shipments are allowed under this Agreement, provided that no shipment of beds (other than a shipment out of warehouse storage) shall be in less than a truckload quantity without Customer's prior approval. 2.2. Delivery of any order for Products shall be in accordance with the agreed upon schedule for the period in question. Manufacturer will make all reasonable efforts to accommodate schedule changes when requested by Customer. 2.3. Upon Customer's request, Manufacturer will warehouse at the Wright City Facility or any other location specified pursuant to Section 2.1 which provides the same level of service, reasonable quantities of beds, replacement parts, accessory Products and Customer owned inventories of mattresses and side rails, to be shipped to designated accounts of Customer from time to time at Customer's direction. Customer shall be responsible for obtaining liability and casualty insurance on all such items so warehoused (Customer shall furnish Manufacturer a copy of each such policy or a certificate from the insurance company or companies attesting such coverage and each such policy shall contain provisions that the issuing company will not cancel or change such policy except upon thirty (30) days' prior written notice to Manufacturer). Beds shall be deemed intended for warehouse storage when requested by Customer or three (3) business days after delivery by Manufacturer to Customer in the event Customer has not given Manufacturer other shipment instructions with respect to such delivered beds. The fee for such warehousing shall be Six Thousand Two Hundred Fifty Dollars ($6,250) per month for up to four thousand (4,000) square feet of storage space and the personnel necessary to move items in and out of warehouse space as requested by Customer. 2.4. The parties hereby acknowledge that time is of the essence with respect to the delivery dates specified in individual orders. Customer reserves the right to cancel, without liability, part or all of any order not shipped within fifteen (15) days from the period specified in the order (or twenty (20) days in the case of replacement shipments for previously shipped nonconforming goods), provided that Customer shall have given Manufacturer written notice, in accordance with the terms of this Agreement for giving 3 notice, of Customer's intent to cancel and Manufacturer has not shipped the Products within five (5) days after the date of such notice; notwithstanding the foregoing, Customer shall not be obligated to give Manufacturer such opportunity to cure prior to cancellation more than three (3) times in any calendar quarter. 2.5. All Products shall conform to the Specifications, all applicable generally recognized industry standards (including Underwriters' Laboratories ("UL") requirements and standards) and all applicable U.S. Food and Drug Administration ("FDA") requirements. Manufacturer acknowledges that Customer will acquire Products for resale to Customer's customers and, accordingly, the ultimate purchaser will not be in a position to inspect the same for any nonconformance, defect, damage or shortage until delivery thereof to said purchaser; Customer will notify Manufacturer within two (2) business days following receipt by Customer of any notice from the ultimate purchaser of any Product of any claim that the Product does not conform with the Specifications or any defect, damage or shortage therein (and will promptly notify Manufacturer of any such nonconformance, defect, damage or shortage observed by Customer). Any disputes that arise regarding the nature or existence of any nonconformance, defect, damage or shortage shall be resolved pursuant to Section 23 hereof. 3. PRICES AND PAYMENT. 3.1. The unit prices to be paid for the beds listed on Appendix "A" hereto ordered pursuant to this Agreement in quantities up to the first 22,000 beds ordered during the twelve months ending October 15, 1997 shall be the prices specified on Appendix "B" hereto; the addition of new bed Products to Appendix "A" shall be subject to agreement by Customer and Manufacturer on appropriate pricing for such new bed Products, which will be specified in an addendum to Appendix "B". The unit price to be paid for quantities of beds in excess of the first 22,000 beds ordered during the twelve months ending October 15, 1997 shall be as agreed upon by the parties when the firm order for any such excess quantity of beds is placed by Customer and accepted by Manufacturer. The unit prices to be paid for replacement parts and accessories ordered pursuant to this Agreement shall be an amount determined as specified on Appendix "B" hereto. In no event shall the unit prices on Appendix A and B be increased. 3.2. Payment terms for bed Products shall be net thirty (30) days from delivery by Manufacturer to Customer and issuance of Manufacturer's weekly invoice confirming such delivery; invoices shall be issued on Friday of each week (or on the following business day if Friday is a holiday) for all uninvoiced deliveries through the close of business on the previous business day. Each weekly invoice for bed Products issued under this Agreement shall identify, at a minimum, the dates of delivery, Customer's applicable purchase order numbers, a full description of the bed Products included, and the purchase prices. Manufacturer reserves the right to cease shipments of part or all of any order(s) for bed Products, without liability, in the event Customer falls to pay any weekly invoice within five (5) business days after Manufacturer has given written notice to Customer, in accordance with the terms of this Agreement for giving notice, that such payment is five (5) or more days past due, provided that Manufacturer shall not be obligated 4 to give Customer such opportunity to cure prior to ceasing shipment more than three (3) times in any calendar quarter. Manufacturer shall resume shipments of bed Products following any such cessation upon payment by Customer of all past due invoices. During the term of this Agreement, Customer shall provide and maintain for the benefit of Manufacturer a $500,000 letter of credit in form reasonably satisfactory to Manufacturer to secure payment of Manufacturer's outstanding invoices hereunder. Notwithstanding the foregoing, Manufacturer shall have no obligation to ship Products hereunder to Customer at any time when (1) such letter of credit is not so provided and maintained or (2) the aggregate amount of Manufacturer's outstanding unpaid weekly invoices hereunder are more than $500,000 unless Customer provides Manufacturer with an additional letter of credit in the amount of the excess over $500,000 in form reasonably satisfactory to Manufacturer, to secure payment for such Products. 3.3. Replacement parts and accessories will be shipped directly to Customer's purchaser pursuant to Customer's directions. Upon each such shipment, Manufacturer will issue a shipment conformation to Customer. For replacement parts and accessories shipped pursuant to this Agreement, Manufacturer shall issue weekly invoices to Customer on Friday of each week (or on the following business day if Friday is a holiday) which shall cover Manufacturer's costs for all replacement parts and accessories shipped during the previous week. Within five (5) business days after the end of each month, Manufacturer shall invoice Customer for the excess of (i) the unit prices of all replacement parts and accessories shipped by Manufacturer pursuant to Customer's directions during the previous month over (ii) the aggregate amount of the weekly invoices issued during the previous month for said replacement parts and accessories. Payment terms for all invoices for replacement parts and accessories shall be net thirty (30) days from issuance of Manufacturer's shipment confirmation and delivery of Manufacturer's invoice to Customer. 4. TAXES AND OTHER GOVERNMENTAL CHARGES. Any and all use, sales and other taxes, fees or charges of any nature whatsoever imposed by any governmental authority on or with respect to the sale of the Products to Customer shall be paid by and invoiced to Customer as an addition to the purchase price of Products (unless a sale for resale or other exemption is available which is supported by documentation reasonably satisfactory to Manufacturer). 5. TERM AND TERMINATION. 5.1. This Agreement shall become effective upon execution by both parties and its term shall expire on October 15, 1997 unless sooner terminated (i) by Customer, in its sole discretion, upon at least six (6) months prior written notice from Customer to Manufacturer at any time, (ii) by Customer upon written notice to Manufacturer at any time following the occurrence and during the continuance of an Event of Manufacturer Default (as hereinafter defined) or (ill) by Manufacturer upon written notice to Customer at any time following the occurrence and during the continuance of an Event of Customer Default (as hereinafter defined). 5 5.2. All payment obligations of Customer for Products theretofore ordered and delivered prior to termination and all obligations of Manufacturer and rights of Customer in Sections 6, 8, 14, 15, 16, 22 and 23 shall survive the termination or expiration of this Agreement. 6. WARRANTIES. All Products delivered by Manufacturer to Customer pursuant to this Agreement shall be warranted by Manufacturer to be free from defects in materials and workmanship and to be manufactured in accordance with the Specifications, all applicable generally recognized industry standards (including UL requirements and standards, if applicable) and all applicable FDA requirements in accordance with the terms specified in Appendix "C" hereto; provided, however, it is understood and agreed that Manufacturer may not affix the Listing Mark of any industry standards group to any Product until the standards group has satisfied itself that such Product meets its requirements and has authorized Manufacturer to affix 'is Listing Mark to such Product; as of the date hereof, UL has not completed its engineering investigation of the following bed Products and has not authorized Manufacturer to affix the UL Listing Mark thereto: 5522; 5523; 5622; and 5623. Any claim for breach of such warranty must be submitted within the specified warranty period. During said warranty period, Manufacturer shall, at Manufacturer's option, either replace or repair, at no charge to Customer, any Products (or parts of Products) that are found to be defective by Manufacturer. Customer shall return such defective Products or parts or dispose of them as Manufacturer requests. In no event shall Manufacturer's liability under this warranty provision exceed the replacement cost of any defective Product. 7. RELATIONSHIP OF THE PARTIES. This Agreement shall not be construed to make either party (or its Affiliates, principals, officers, employees or agents) an Affiliate, agent, partner or joint venturer with the other party. Neither party shall have any right or authority whatsoever to incur any liability, obligation (express or implied), or to otherwise act in any manner in the name or on behalf of the other, or to make any promise, warranty or representation binding on the other. For purposes of this Agreement, the term "Affiliate" means any entity in which Manufacturer or Customer, as the case may be, controls at least twenty percent (20%) of the indicia of ownership or control, or which controls or is under common control by a third party controlling such indicia of ownership or control with Manufacturer or Customer, as the case may be. 8. TOOLING. 8.1. Manufacturer shall have the right to use Customer's tooling described on Appendix "D" hereto (the "Tooling"), free of charge, exclusively for purpose of manufacturing the Products for Customer hereunder. As part of the Standard Cost of Products, Manufacturer shall provide normal maintenance to the Tooling provided, however, that, in the event Manufacturer reasonably determines that any major repair or replacement of any Tooling is required to manufacture Products hereunder (other than as a result of 6 Manufacturer's failure to provide normal maintenance or operator negligence), Manufacturer shall advise Customer of such requirement and Manufacturer shall be responsible for effecting such repair or replacement and Customer shall reimburse Manufacturer for the reasonable costs of such major repair or replacement. Customer shall be responsible for the cost of all additional Tooling purchased by Manufacturer at the request of Customer. All Tooling provided to Manufacturer under this Agreement shall be returned to or for the account of Customer upon the earlier to occur of (1) the Customer's request and direction for the return of such Tooling or (ii) within fifteen (I 5) days following the termination or expiration of this Agreement. 8.2. Manufacturer agrees to procure and maintain in full force and effect throughout the term of this Agreement a policy of general insurance in favor of Customer (as loss payee and additional insured) covering the replacement value of the Tooling against loss or damage and any claims, liabilities or expenses asserted by any person arising o ut of the use of such Tooling. Manufacturer shall furnish to Customer a copy of such policy or policies or a certificate from the insurance company or companies attesting to such coverage. Such policy or policies shall contain provisions that the issuing companies will not cancel or change such policy or policies except upon thirty (3 0) days' prior written notice to Customer. 8.3. Manufacturer agrees that the Tooling provided by Customer will be used solely for the production of the Products sold to Customer and that neither Manufacturer nor any of its Affiliates will use the Tooling to produce products of any kind for Invacare or any other party. 9. OPERATIONS AT THE FACILITY. 9.1. Manufacturer shall manufacture, package and test the Products at the Wright City Facility or other location which complies with the requirements of Sections 1.5 and 11.3 hereof (the "Facility"). During the course of this Agreement, Manufacturer and Customer will closely cooperate with each other in order to assure satisfactory compliance by Manufacturer with Customer's manufacturing, packaging and testing standards and requirements. Each party shall share with the other such party's manufacturing, packaging and testing know-how relating to the procedures used for the manufacture of Products subject to the confidentiality provisions set forth herein. 9.2. Prior to full scale manufacturing, packaging and testing by Manufacturer of any Product that it has not previously manufactured (upon agreement by Manufacturer and Customer to engage in such activities as contemplated by Section 1.4), Customer's employees shall be permitted to instruct, advise and inform the employees of Manufacturer with respect to such of Customer's manufacturing, packaging, testing and other production processes as may be necessary for Manufacturer to perform its obligations hereunder (and shall do so at Manufacturer's request). 9.3. Customer's employees and representatives shall at all times adhere to the safety regulations and practices and work schedules established by Manufacturer. 7 10. INSPECTION AND REPORTS CONCERNING THE FACILITY. 10.1. Manufacturer shall keep appropriate records regarding its manufacture of the Products at the Facility, in such form as Customer may reasonably request, including monthly inventory and production reports indicating quantities of raw materials, work-in-process and finished Products (1) on hand at the beginning of each month, (ii) produced during the month, and (iii) on hand at the end the month. All such records shall be made available to Customer for inspection at any time during regular business hours upon reasonable prior notice. 10.2. Upon prior request, Manufacturer shall provide Customer or its designees access at all reasonable times to the Facility to observe and inspect all phases of the work performed by Manufacturer under this Agreement. Without limiting the generality of the foregoing, Manufacturer shall permit Customer or its designees: (i) to inspect the Facility; and (ii) to review the compliance of Manufacturer with applicable regulations and good manufacturing practices and procedures. 10.3. Manufacturer shall permit Customer or its designees to meet and confer with the General Manager (or equivalent) of the Facility and such other executives of Manufacturer or key managerial personnel employed at the Facility as Customer may reasonably request. Manufacturer shall also cause such personnel to provide Customer and its designees such regular and special reports and other information as may be reasonably requested by Customer to protect the interests of Customer under this Agreement. 11. SUBMISSIONS TO REGULATORY AGENCIES. 11.1. Customer shall prepare and submit all documents required by the FDA, UL and any other applicable regulatory agencies for approval to market the Products, except as set forth herein. Manufacturer shall cooperate fully with Customer and such regulatory agencies in the effort to obtain approval to market the Products, including without limitation providing a right of reference to any plant files of Manufacturer as may be required or providing such information and other cooperation as may be necessary for approval. The parties recognize that approval may be delayed or postponed by a regulatory agency through no fault of the parties, and it is agreed that any such delay or postponement shall not constitute a default under this Agreement. Subject to the confidentiality provisions set forth herein, Customer shall allow Manufacturer access to such parts of the documents submitted by it to regulatory authorities as may be necessary for Manufacturer to satisfy its obligations under this Agreement. 11.2. Customer shall advise Manufacturer from time to time of the status of regulatory review of the submitted documents and any consequential revision of any expected approval date. Customer shall notify Manufacturer of any submission to any regulatory agency of any supplement, amendment or revision to submitted documents which has an 8 impact on manufacturing, packaging or testing procedures used by Manufacturer, or on Customer's estimates of the quantity of Products that Manufacturer will be required to manufacture, package and test hereunder. 11.3. Manufacturer shall prepare and submit all documents required by the FDA, UL and any other applicable regulatory agencies for approval of any Facility utilized for manufacturing, packaging and testing the Products, including without limitation any master file and any "Standard Operating Procedures" required to comply with applicable good manufacturing practices (GMP). Manufacturer shall not make any amendment to such file or other documents without notification to, and prior approval by, Customer. Manufacturer and Customer shall jointly perform all process and equipment validation required by the FDA, UL and other applicable regulatory agencies for approval. Customer hereby represents that, as of April 3, 1995 and prior to the transfer of title to the Wright City Facility to Manufacturer, the Wright City Facility was in compliance with such requirements. 11.4. Each party shall maintain all appropriate regulatory documents and records relating to its responsibilities with respect to the Products. Each party shall promptly forward to the other party all notices of adverse findings with respect to Products that it receives, and shall cooperate fully with the other party in investigating each such incident. 12. EVENTS OF CUSTOMER DEFAULT. 12.1. Each of the following shall constitute an "Event of Customer Default": (i) the failure by Customer to make any payment due to Manufacturer hereunder within ten (10) business days after Manufacturer has given written notice to Customer, in accordance with the terms of this Agreement for giving notice, that such payment is ninety (90)or more days past due; (ii) the commencement by Customer of a voluntary proceeding under the federal bankruptcy laws or any similar state bankruptcy or insolvency law; or the consent by Customer to the institution of such proceedings against it or to the appointment of or the taking possession by a receiver, liquidator, assignee, trustee, custodian or sequestrator (or similar official) of Customer or of all or substantially all of its properties; or the making by Customer of a general assignment for the benefit of creditors; (iii) the entry of a decree or order for relief by a court having jurisdiction in respect of Customer: adjudging Customer a bankrupt or insolvent; or approving as properly filed a petition seeking a reorganization, arrangement, adjustment or composition of or in respect of Customer in any involuntary proceeding or case under the federal bankruptcy laws or any similar state bankruptcy or insolvency law; or appointing a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of Customer or of all or substantially all of its properties; or ordering the winding-up or liquidation of its affairs; and the continuation of such decree or order unstayed and in effect for a period of thirty (30) days; or 9 (iv) the dissolution or liquidation of Customer, other than in connection with a merger, consolidation or reorganization under the terms of which the surviving corporation remains liable for all obligations of Customer to Manufacturer hereunder. 12.2. Upon the occurrence of an Event of Customer Default, Manufacturer shall have the right by written notice to Customer, in accordance with the terms hereof for giving notice, to (i) terminate this Agreement, (ii) retain possession of the Tooling for purposes of manufacturing and selling any products to any person and (iii) pursue any and all other legal and equitable remedies available to Manufacturer as a result thereof 13. EVENTS OF MANUFACTURER DEFAULT. 13.1. Each of the following shall constitute an "Event of Manufacturer Default": (i) following the cancellations by Customer in any calendar year of more than three (3) orders, in whole or in part, pursuant to Section 2.4, the failure by Manufacturer to deliver the required quantities of Products timely, or any delivery of any significant quantity of nonconforming Products, which failure is not remedied within five (5) business days (twenty (20) business days in the case of non-conforming Products) after Customer has given written notice to Manufacturer, in accordance with the terms of this Agreement for giving notice, of such failure; (ii) the commencement by Manufacturer of a voluntary proceeding under the federal bankruptcy laws or any similar state bankruptcy or insolvency law; or the consent by Manufacturer to the institution of such proceedings against it or to the appointment of or the taking possession by a receiver, liquidator, assignee, trustee, custodian or sequestrator (or similar official) of Manufacturer or of all or substantially all of its properties; or the making by Manufacturer of a general assignment for the benefit of creditors; (iii) the entry of a decree or order for relief by a court having jurisdiction in respect of Manufacturer: adjudging Manufacturer a bankrupt or insolvent; or approving as properly filed a petition seeking a reorganization, arrangement, adjustment or composition of or in respect of Manufacturer in any involuntary proceeding or case under the federal bankruptcy laws or any similar state bankruptcy or insolvency law; or appointing a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of Manufacturer, or of all or substantially all of its properties; or ordering the winding-up or liquidation of its affairs; and the continuation of such decree or order unstayed and in effect for a period of thirty (30) days; or (iv) the dissolution or liquidation of Manufacturer, other than in connection with a merger, consolidation or reorganization under the terms of which the surviving corporation remains liable for all obligations of Manufacturer to Customer hereunder. 10 13.2. Upon the occurrence of an Event of Manufacturer Default, Customer shall have the right by written notice to Manufacturer, in accordance with the terms hereof for the giving of notice, to (i) terminate this Agreement, (ii) repossess the Tooling, (iii) obtain liquidated damages equal to the product of (A) $40.00 and (B) the difference between 44,000 beds and the number of beds supplied by Manufacturer between October 15, 1996 and the date of the occurrence of such Event of Manufacturer Default and (iv) pursue any and all other legal and equitable remedies available to Customer as a result thereof. Manufacturer hereby acknowledges that Customer and its Affiliates will suffer irreparable and continuing harm upon the occurrence of an Event of Manufacturer Default and that legal remedies would be inadequate in the event of such occurrence. Accordingly, Manufacturer agrees that, upon the occurrence of an Event of Manufacturer Default, Customer and its Affiliates shall, in addition to any other rights and remedies available under law and in equity, have the right and remedy to obtain an injunction and to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction. Manufacturer and Customer hereby confer non-exclusive jurisdiction to enforce the provisions of this Agreement upon the federal courts located in the City of St. Louis or the state courts in St. Louis County, Missouri, and each consents to service of process by means of delivery in the same manner required for notices under this Agreement as provided in Section 21 of this Agreement. 14. PATENT INFRINGEMENT. 14.1. Customer agrees, at its own expense, to defend any action or suit brought against Manufacturer alleging that any Product or any part thereof manufactured in accordance with the Specifications infringes any enforceable patent issued to any other person or any valid trade secret, proprietary information or other intellectual property right of any other person. Customer will pay all costs and damages, including any judgment awarded against Manufacturer in any such suit, provided, however, that Customer is promptly notified in writing of such action or suit and is given full authority and full and proper information and assistance available to Manufacturer for the defense of said action or suit. Customer shall not be responsible for any compromise or settlement of such suit or action made by Manufacturer without Customer's consent. 14.2. If the use or sale of any Product becomes (or in the opinion of Customer is likely to become) the subject of an infringement claim, Customer may, at its option and expense, secure a right to use or sell the Product or (ii) make modifications to the Specifications that would render the use or sale of the Product non-infringing. 14.3. The foregoing indemnification shall not apply if the infringement arises from Products not manufactured by Manufacturer pursuant to this Agreement in accordance with the Specifications. 11 15. FORCE MAJEURE. Neither party shall be liable for any loss, damage or penalty as a result of any delay in or failure to manufacture, deliver or otherwise perform hereunder due to any cause demonstrably beyond that party's reasonable control, including without limitation: embargo; governmental act, order, ruling, regulation or request; fire; explosion; accident; theft; vandalism; riot; shortages; strike or other work stoppage; lightning, flood, windstorm or other act of God; delay in transportation; equipment or tooling failure; or inability to obtain necessary fuel, materials, supplies or power. The party suspending performance in whole or in part as a result of any such delay or failure shall give prompt written notice thereof to the other party, stating therein the nature thereof, the specific reasons therefor, and the expected duration thereof and any alternatives thereto which such party believes may reasonably be pursued, and shall resume performance as soon as reasonably possible. Following any occurrence that causes any party to suspend performance in whole or in part, such party shall promptly initiate such reasonable measures as will, if reasonably possible, remove or relieve such suspension so as to enable it to resume performance of its obligations as soon as reasonably possible. During the continuance of such delay or failure which prevents the delivery or ordering of Products hereunder for a period of twenty (20) or more business days, the quantities of beds for which liquidated damages would otherwise be payable under Section 1.3 of this Agreement shall be reduced by the quantity of beds affected by such delay or failure (i.e. if Manufacturer fails to supply beds in quantities ordered by Customer up to 22,000 beds during the twelve month period ending October 15, 1997 solely as a result of such delay or failure, no liquidated damages would be payable). 16. NONDISCLOSURE OF INFORMATION. 16.1. Each party hereby agrees that all information relating to this Agreement disclosed to it by the other party, which information is in fact confidential or proprietary when disclosed to the other party or is then claimed and marked by the disclosing party to be confidential or proprietary, will be held and safeguarded by the receiving party as confidential information of the disclosing party, and the receiving party shall exert reasonable efforts in a manner consistent with the efforts which the receiving party uses to protect its own information to prevent any publication or other disclosure of such confidential information received from the disclosing party without the express authorization of the disclosing party. Customer's Specifications and designs are trade secrets of Customer and shall be treated as confidential and proprietary under this clause. Manufacturer agrees that only employees at the Wright City Facility with a need to know for purposes of performance of this Agreement may have access to Customer's Specifications and designs and other confidential and proprietary data. The restrictions of this Section 16 shall not apply to information which becomes generally available to the public through no fault of the receiving party. 16.2. Neither Invacare nor any Affiliate of Invacare (other than Manufacturer in accordance with and pursuant to the terms of this Agreement) shall manufacture or sell any home healthcare bed products, parts or accessories utilizing any of Customer's Specifications and designs. To Customer's knowledge as of the date hereof, none of the 12 home healthcare bed products, parts and accessories currently manufactured by Invacare utilize Customer's Specifications or designs. 17. HEADINGS. The section headings herein are for convenience only and shall not be deemed to affect in any way the language of the provisions to which they refer. 18. FAILURE TO ENFORCE. The failure of either party to enforce any of the terms of this Agreement shall not be construed as a waiver of rights hereunder preventing the subsequent enforcement of such provisions or the recovery of damages for breach thereof. 19. SEVERABILITY. In the event that any one or more provisions contained in this Agreement or any application thereof shall be held to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions of this Agreement and any other application thereof shall not in any way be affected or impaired thereby; provided, however, that to the extent permitted by applicable law, any invalid, illegal or unenforceable provision may be considered for the purpose of determining the intent of the parties in connection with the other provisions of this Agreement. 20. ENTIRE AGREEMENT. 20.1. This Agreement constitutes the entire Agreement between Manufacturer and Invacare, on the one hand, and Customer, on the other hand, superseding any prior agreement between the parties. No modification of this Agreement shall be binding unless in writing and signed by authorized representatives of both parties. 20.2. This Agreement is intended to cover all sales of Products by Manufacturer to Customer hereunder. Except as agreed to herein and unless otherwise expressly agreed to in writing, no written or printed terms or conditions in any purchase order, order confirmation, invoice or other document forwarded by either party to the other shall have the effect of varying any of the tentis hereof, and the provisions of this Agreement shall be controlling. 21. NOTICES. All notices, communications and demands under this Agreement shall be in English and shall be made in writing by hand delivery, telefax, courier, registered or certified mail, return receipt requested, or by any other means of delivery which enables the sending party to verify receipt thereof. Such notice shall conclusively be presumed to be given or made: (1) at the time it is personally given or made in the case of personal delivery or transmission by telefax (with receipt confirmed); (ii) on the next business day after being 13 sent by reputable overnight courier; or (iii) five (5) business days after mailing with sufficient postage or cost prepaid in the case of mail. All notices sent by means other than those made by hand delivery or registered or certified mail, return receipt requested, shall be promptly confirmed by registered or certified 'I, return receipt requested. Any notices shall be addressed as follows: If to Manufacturer and Invacare: Healthtech Products, Inc. South Outer Road Wright City, Missouri 63390-0544 Attn: General Manager Fax: 314/530-5461 If to Customer: Everest & Jennings, Inc. Earth City Expressway Earth City, MO 63045 Attn: President and Chief Executive Officer Fax: 314/512-7225 or to such other person or address as either party may, by like notice, specify to the other. 22. CHOICE OF LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Missouri, without regard to its principles of conflicts of laws. 23. RESOLUTION BY NEGOTIATION; ARBITRATION. 23.1. Except in the event of any litigation or proceeding commenced by any third party against either Manufacturer or Customer in which the other party is an indispensable party or potential third party defendant, and except for any action seeking enforcement of this Agreement pursuant to Section 13.2 of this Agreement, any dispute or controversy between the parties involving the interpretation, construction or application of any terms, covenants or conditions of this Agreement, or transactions under it, or any claim arising out of or relating to this Agreement, or transactions under it, shall, on the request of one party served on the other, be submitted for resolution by senior executives designated by each party, who shall attempt to resolve such dispute or controversy in good faith and, in the event such resolution is not achieved within fifteen (I 5) business days of such request, shall be submitted to binding arbitration in accordance with provisions of this Section 23. 23.2. Any such dispute, controversy or claim shall be resolved by binding arbitration conducted in St. Louis, Missouri (except as otherwise may be agreed by the parties in their discretion) in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, except as herein specifically otherwise stated 14 or amplified, and judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction over the party against whom the award is sought to be entered. 23.3. Notwithstanding anything to the contrary which may now or hereafter be contained in the Commercial Arbitration Rules of the American Arbitration Association, the procedures set out in this Section 23.3 shall apply. (i) A notice of arbitration shall set out a clear and plain statement of the matter that the party sending the notice (the "Instituting Party") believes to be a breach or is in dispute. The demand (the "Demand") shall reference principal provisions of this Agreement that the Instituting Party views as controlling or out of the interpretation of which the dispute arises, and shall attach, if practicable, or, if not practicable, shall make available, copies of all pertinent documents and other things then in its possession which the Instituting Party views as having direct bearing on the relief sought under the Demand. The receiving party (the "Other Party") shall, within twenty (20) days of receipt of the Demand, provide to the Instituting Party and to the arbitrators a response (the "Answer"), referencing provisions of this Agreement that the Other Party views as controlling, and shall attach, if practicable, or, if not practicable, shall make available, copies of all pertinent documents and other things (other than those attached to the Demand) then in its possession which it views as having direct bearing to support the contentions of the Answer. Each party shall appoint one person to hear and determine the dispute within ten (10) days after the Other Party's receipt of the Demand. If a party fails to so designate its arbitrator within said ten (10) days, then the arbitrator designated by the party designating an arbitrator shall act as the sole arbitrator and shall be deemed to be the single, mutually-approved arbitrator to resolve the controversy. If two persons are chosen, they shall, within twenty (20) days, select an additional, impartial arbitrator. If they fall to do so within said twenty (20) days, either party may petition any court of competent jurisdiction to appoint the third arbitrator. The majority decision of the arbitrator panel (or the decision of the single arbitrator) shall be final. (ii) If two persons are chosen, each party shall pay the arbitrator it designates and the parties shall share the cost of the third arbitrator; the parties shall share the costs of a sole arbitrator. In the event that the parties are unable to agree upon a rate of compensation for the third (or sole) arbitrator, such arbitrator shall be compensated for his or her services at a rate to be determined by the American Arbitration Association. (iii) Discovery shall be liberally allowed by the arbitrators as contemplated by the U.S. Federal Rules of Civil Procedure, subject, however, to such limitations as the arbitrators determine to be appropriate under the circumstances, it being the parties mutual desire to have a prompt and efficient arbitration. (iv) The arbitrators shall endeavor to promptly schedule and hold hearings (on consecutive days if practicable), and shall have authority to award relief under legal or equitable principles, including interim or preliminary relief. Nothing in this Section 23.3 shall impair the right of a party to seek interim or preliminary relief in a court of competent Jurisdiction before the arbitration panel is constituted and convened. 15 (v) Other than attorneys' fees and expenses (which shall be home by the party incurring the same), the costs of the arbitration shall be home by the losing party or shall be allocated between the parties in such proportions as the arbitrators decide. (vi) The arbitrators shall, upon the request of either party, promptly (and in all events within thirty (30) days of the conclusion of the hearing) issue a proposed written opinion of their findings of fact and conclusions of law which shall become final and binding in accordance with the terms thereof unless either or both parties seek reconsideration in accordance with Subsection 23.3(vii). In making their decision, the arbitrators shall be bound by the terms of this Agreement. (vii) Either party shall have the right, within twenty (20) days of receipt of the arbitrators' proposed opinion, to file with the arbitrators a motion to reconsider (accompanied by a reasoned memorandum), and the other party shall have twenty (20) days to respond to that memorandum. After receipt of such memorandum and response, if any, the arbitrators thereupon shall reconsider the issues raised by said motion and, promptly, either confirm or change their majority decision which shall then be final and conclusive upon both parties. The costs of such a motion for reconsideration and written opinion of the arbitrators shall be home by the moving party, or shared equally by both parties if both parties request such reconsideration. 24. BINDING AGREEMENT. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Agreement shall be assignable by either party only with the written consent of the other party, which shall not be unreasonably withheld, except that Customer may assign this Agreement without Manufacturer's consent (1) to E&J or any of its Affiliates and (ii) to a purchaser of Customer's home healthcare bed Product line who agrees in writing to assume Customer's obligations to Manufacturer hereunder (provided, however, that Customer shall not be released from any such obligations arising after assignment to any such purchaser unless the assignee has a Standard & Poor's credit rating of BB for long-term debt or B for commercial paper, or the equivalent thereto). Any assignee of Customer or Manufacturer must agree by written instrument to be bound by and to perform and discharge the obligations hereunder of Customer or Manufacturer, as the case may be. Upon any such assignment, the assigning party shall be released from all accrued and unaccrued obligations thereafter arising hereunder of Customer or Manufacturer, as the case may be, but shall remain liable for all accrued and unaccrued obligations hereunder of Customer or Manufacturer, as the case may be, arising prior to such assignment. THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. 16 IN WITNESS WHEREOF, an authorized representative of each party has signed this Agreement below. "MANUFACTURER": HEALTHTECH PRODUCTS, INC. By:________________________________ Name:______________________________ Title:_____________________________ INVACARE CORPORATION By:________________________________ Name:______________________________ Title:_____________________________ "CUSTOMER": EVEREST & JENNINGS, INC. By:________________________________ Name:______________________________ Title:_____________________________ 17 EX-10.(B) 5 SUPPLY AGREEMENT EXHIBIT 10(b) Supply Agreement, by and between Everest & Jennings, Inc. and P.T. Dharma Polimetal. SUPPLY AGREEMENT THIS AGREEMENT is made and entered into as of the date last below written by and between EVEREST & JENNINGS, INC., a corporation organized and existing under the laws of the State of California, U.S.A., with its principal offices at 1100 Corporate Square Drive, St. Louis, MO 63132 (hereinafter "E&J") and P.T. DHARMA POLIMETAL, a company organized and existing under the laws of Indonesia, with offices at JL. RAYA SERANG KM., 24 Balaraja Tangerang, Indonesia (hereinafter "P.T. Dharma") RECITALS WHEREAS, E&J is a manufacturer and seller of wheel chairs in the United States, Canada, Mexico, and Europe; WHEREAS, P.T. Dharma manufactures and sells for export wheel chairs and wheel chair components; WHEREAS, E&j is willing to provide design specifications to P.T. Dharma to be used in the manufacture of wheel chairs and wheel chair components; WHEREAS, the Parties agree that P.T. Dharma shall manufacture the wheel chairs and wheel chair components at high quality in accordance with the designs exclusively for E&J and its designees, as hereinafter provided. NOW, THEREFORE, in consideration of the premises and of the mutual covenants of the parties hereinafter expressed, it is hereby agreed as follows: 1. MANUFACTURE AND SUPPLY: EXCLUSIVE SUPPLY CONTRACT. 1.1 P.T. Dharma shall, subject to the terms and conditions of this Agreement, manufacture and sell exclusively to E&J or its designees certain wheel chairs and wheel chair components described in Appendix "A" hereto (the "Product") conforming in all-material respects to the specifications referenced in Appendix "A" hereto (the "Specifications"). 1.2 E&J agrees to order sufficient quantities of the Products, at the unit prices set out in Appendix "B" hereto, which prices shall be competitive with prevailing market prices, period of the Term of this Agreement beginning on I during the January 1995 and ending on 31 December 1995 to total a minimum aggregate gross purchase amount of U.S. $5,000,000. The minimum aggregate gross purchase amount will increase to U.S. $5,500,000 for the period of the Term of this Agreement beginning on 1 January 1996 and ending on 31 December 1996. The minimum aggregate gross purchase amount will increase to U.S. $6,050,000 for the period of the Term of this Agreement beginning on 1 January 1997 and ending on 31 December 1997. Should E&J fail to order sufficient quantities in any of the one year periods, as set out above, during the Term of this Agreement to meet the minimum aggregate gross purchase amount set forth herein for that year, E&J agrees to pay to P.T. Dharma for that year an amount equal to ten (10) percent of the difference between the aggregate gross dollar purchase amount of the Products ordered in that contract year, regardless of when shipped and the minimum aggregate gross purchase amount set forth herein for that contract year as liquidated damages. In the event that a failure by E&J to order sufficient quantities to meet the minimum aggregate gross purchase amount in any of the one year periods is due to an occurrence demonstrably beyond their control in accordance with Article 10, Force Majeure, the minimum aggregate gross purchase amount set forth herein for that contract year and each successive contract year that performance is suspended in whole in part due to such occurrence shall be reduced by an amount proportionate to the amount of time performance is suspended during that contract year and any liquidated damages due P.T. Dharma shall be calculated using the aggregate gross purchase amount so reduced. 1.3 Products ordered under this Agreement between the effective date of this Agreement and 31 December 1994 shall not be counted toward meeting the minimum aggregate gross purchase amount for any period specified herein. Products ordered and cancelled pursuant to Section 2.3 of this Agreement shall count toward meeting the minimum aggregate gross purchase amount for the period in which they were ordered. 1.4 The Parties hereby agree that new products and unit prices will be added to Appendix A and Appendix B, respectively, by mutual agreement from time to time. E&J shall supply P.T. Dharma with specifications for the new products. P.T. Dharma shall propose unit prices for the manufacture of the new products, which E&J may accept or reject. After a new product is added to Appendix A and a unit price therefor is added to Appendix B, orders therefor shall be used to satisfy the minimum aggregate gross purchase amount for the year in which they are ordered. 1.5 For purposes of this Agreement, P.T. Dharma's Affiliates means any company in which P.T. Dharma controls a majority of the indicia of ownership or control, or is under the common control of a third party controlling such indicia of ownership or control of another company and P.T. Dharma, as well as their respective agents, employees, successors and assigns (hereinafter referred to collectively an "Affiliates"). 1.6 Neither P.T. Dharma nor its Affiliates, shall manufacture or sell the Products, finished wheel chairs, or any other products comparable, competitive with, equivalent to, intended to be used with or that are a part of Products, to any person or entity other than E&J for sale in North America, Central America or South America. P.T. Dharma may manufacture and sell comparable products to resellers and distributors for sale in locations other than those specified above with prior written notice to E&J provided such manufacture and sale does not involve the use of E&J owned Special Tooling, as described herein, or the use of E&J proprietary trade secrets. P.T. Dharma agrees to use their best efforts to prevent the sale or distribution of any like or comparable products manufactured or sold by P.T Dharma or its Affiliates, other than those sold under this agreement, in North America, Central America, or South America. E&J agrees that once P.T. Dharma is fully tooled and in production it will not purchase the Products from any other supplier provided P.T. Dharma is not in breach of this Agreement and is able to meet E&J's requirements in price, quantity, 2 and quality. This provision notwithstanding, E&J and its affiliates shall have the right to produce the Products themselves throughout the term of this Agreement. 1.7 P.T. Dharma represents that it has filed all required documentation, and obtained all authorizations, approvals and consents required by any and all applicable laws, regulations, directives and/or requirements of any jurisdiction in which the Products are to be manufactured, to produce the Products, sell the Products to E&J, and export them to E&J from the jurisdiction of their manufacture, pursuant to the terms of this Agreement. P.T. Dharma further covenants that it will at all times during the Term of this Agreement continue to obtain and maintain in full force and effect any and all such filings, authorizations, approvals and consents required by, and will comply with, any and all such applicable laws, regulations, directives and/or requirements in connection with the manufacture and sale of the Products. 1.8 Upon the effective date of this agreement, E&J will deliver to P.T. Dharma firm orders for the first two (2) months of the Term of this Agreement and an estimate of its purchase requirements for the following three (3) months of the Term of this Agreement. At the end of each month, E&j will place firm orders for the next two months of the Term of this Agreement and provide an estimate for the next three months of the Term of this Agreement. In no event will firm orders for any one month differ from the estimate for that month by more than twenty (20) percent. 1.9 P.T. Dharma may not unreasonably decline any purchase order under this Agreement and it will be deemed accepted unless declined within 15 days of receipt. A copy of E&J's form of Purchase Order is attached as Appendix "C" hereto, which E&J may revise from time to time upon notice to P.T. Dharma. 2. DELIVERY, CLAIMS, DELAYS, RETURNS. 2.1 All Products sold by P.T. Dharma shall be packaged in seaworthy packing and delivered FOB (Incoterms 1990) Jakarta, Indonesia. P.T. Dharma shall undertake, at its risk and expense, to deliver or cause to be delivered the Products to the vessels named by E&J. at the named ports of shipment in the manner customary at the port, at the date or within the period stipulated, and notify E&J. without delay, that the goods have been delivered to said vessels. 2.2 Delivery of any order of the Products shall be according to the agreed upon schedule for the period in question. P.T. Dharma will make all reasonable efforts to accommodate schedule changes when requested by E&J. Partial shipments are allowed under this agreement. 2.3 The Parties hereby acknowledge that time is of the essence with respect to the delivery dates specified in individual orders. E&J reserves the right to cancel, without liability, part or all of any order not shipped within thirty (30) days from the period specified in the order. In the case of a cancellation pursuant to this Section 2.3. E&J shall be. entitled to receive tan (10) percent of the value of the cancelled order or part thereof as liquidated damages. Such amount shall be setoff against any and all amounts then owed to P.T. Dharma 3 under this Agreement, with the prior written approval of P.T. Dharma, which approval shall not be unreasonably withheld. 2.4 All Products shall conform to the Specifications and quality assurance procedures and guidelines, including First Article Inspection Qualifications, set forth in Appendix A. E&J will inspect the Products prior to shipment and will arrange to have inspectors present at a time and location as the Parties may agree to. P.T. Dharma shall pay U.S. $5,000 per month toward the cost of pre-shipment inspections. Arrangements for such payment shall be agreed to between the Parties. E&J shall promptly notify in writing the on-site representative of P.T. Dharma of any claims for shortage, nonconformance, defect or damage that is observed in such inspection. E&J shall not, by such inspection, relinquish any rights of inspection or rejection normally afforded a seller under the law governing this Agreement consistent with the delivery terms herein. Any disputes that arise-regarding the nature or existence of any shortage, nonconformance, defect or damage shall be settled through the use of a third party inspection service that is mutually agreeable to the Parties. 2.5 P.T. Dharma will pursue ISO 9000 Certification following the effective date of this Agreement and use its best efforts to obtain certification by a recognized certification organization by the first anniversary of the effective date of this Agreement. Once certification is obtained, P.T. Dharma shall maintain certification throughout the Term of this Agreement. Should P.T. Dharma fail to obtain such certification by the date specified herein or lose such certification once achieved during the Term of this Agreement, E&J shall have the right to terminate this Agreement in accordance with Section 5.2. 3. PRICES AM PAYMENT. 3.1 The unit prices to be paid for the Products ordered during the first twelve (12) month period of the Term of this Agreement are and shall be set forth in Appendix "B", attached hereto and made apart hereof. Prices include and P.T. Dharma shall bear and pay for all export charges including: but not limited to, export packing and packaging charges, warehousing, demurrage, lighterage, inland insurance, consular fees, and export license fees. 3.2 Upon three (3) months written notice, P.T. Dharma may propose a change in the unit price of any Products listed in Appendix "B". Such proposal must be justified by an increase in the cost of manufacturing the Products to P.T. Dharma. The parties will enter into good faith negotiations to reach an agreement on revised pricing within ninety (90) days after receipt of such proposal by E&J. In no event will the price of any Product increase more than five (5) percent in any one (1) year of the Term of this Agreement over the price at the end of the prior year. 3.3 P.T. Dharma shall use its best efforts to contain and reduce its cost of production and to meet E&J's specified cost goals during the Term of this Agreement. P.T. Dharma shall consider and implement, if feasible, any production improvement or cost saving suggestion by E&J. Any reductions in the cost of production realized through suggestions made in part or in whole by E&J shall be passed on to E&J through an immediate reduction in the unit prices specified in Appendix B for the products affected. 4 3.4 Payment for each order issued in the first year of the Term of this Agreement shall be by bank wire transfer in U.S. currency to accounts in such banks as P.T. Dharma shall direct from time to time. Payments made by bank wire transfer shall be made within thirty (30) calendar days from the receipt of P.T. Dharma's invoice or date of delivery to the vessel whichever is later. Late payments shall be subject to a late payment penalty on amounts past due calculated at an annual rate of sixteen (16) percent. E&J shall receive a prompt payment discount calculated at an annual rate of nine (9) percent for payments made within fifteen (15) days of the receipt of the invoice or date of delivery to the vessel whichever is later. After the first year of the Term of this Agreement, payment shall be by documentary letter of credit issued in P.T. Dharma's favor, the terms and conditions of which shall be as mutually agreed upon by the parties, by a bank of E&J's choosing. Once a suitable letter of credit is established by the parties, the late payment penalty provision of this Section 3.4 shall no longer apply. Each invoice issued under this Agreement shall identify, at a minimum, any later date of delivery to the vessel, E&J's applicable purchase order number, a full description of the Products included, and the purchase price. 4. TAXES AND OTHER CHARGES. Any and all use taxes, sales taxes, excise duties, customs inspection or testing fees, or any other taxes, fees or charges of any nature whatsoever imposed by any governmental authority in the country of manufacture on or with respect to the manufacture and delivery of the Products or measured by the transactions between the parties shall be paid by P.T. Dharma in addition to the prices quoted and invoiced. 5. TERM AND TERMINATION. 5.1 This Agreement shall become effective upon execution by both Parties and its initial Term shall expire on December 31, 1997, provided, however, that on January 1, 1997 and each January 1 thereafter, the Term shall be automatically extended one (1) additional year unless prior to December 31 of any year E&J shall give written notice to P.T. Dharma that it has elected not to have the Term extended for any further period. The minimum aggregate gross purchase amount of Products for any year of the Term commencing after December 31, 1997 shall be U.S. $6,050,000 unless otherwise agreed to by E&J and P.T. Dharma. P.T. Dharma shall have the right to terminate or refuse any extension or renewal of this Agreement if E&J has failed to order fifty (50) percent of the aggregate gross purchase amount specified herein for the twelve (12) month period immediately preceding the giving of such notice. 5.2 Either party may terminate this Agreement for any material breach of this Agreement by the other party by giving he other party 90 days' written notice if such breach shall, at the expiration of, said [90] day period, remain uncured to the satisfaction of the notifying party. Without limiting the foregoing, any breach by P.T. Dharma of Section 1.5, 1.6, or 2.4 hereof shall be deemed a material breach of this Agreement. 5.3 Either party may terminate this Agreement, effective immediately upon the giving of notice to the other, if the other party files a petition in bankruptcy or is adjudicated as bankrupt or takes advantage of the insolvency laws of any state, territory, or country, or is 5 voluntary or involuntarily dissolved, or has receiver, trustee, or other court officer appointed for its property. 5.4 All payment obligations of E&J for Products theretofore ordered, delivered, and accepted, and all obligations of P.T. Dharma and rights of E&J in Sections 6, 7, 8, 9, 12, 17, 18 and 19 shall survive termination or expiration of this Agreement. 6. WARRANTIES. P.T. Dharma represents and warrants that each Product delivered to E&J shall be free from defects in materials and workmanship and shall conform to each Specification and will be suitable for its intended use. Any claim for breach of such warranty shall be accepted only if the breach occurred within 12] months of the date the Product was first delivered to a customer of E&J (or (24] months after the Product was delivered to E&J, whichever expires first). During said warranty period, P.T. Dharma shall replace, at no charge to E&J or its Customer, any Products (or parts of Products) that are found to be defective by E&J or its customer. E&J shall, at P.T. Dharma's risk and expense, return such defective Products or parts or dispose of them as P.T. Dharma requests. Any disputes that arise regarding the nature or existence of a defect shall be settled through the use of a third party inspection service that is mutually agreeable to the Parties. In no event shall P.T. Dharma's liability under this warranty provision exceed the replacement cost of the defective Products. 7. RELATIONSHIP OF THE PARTIES. This Agreement shall not be construed to make either party (or its Affiliates, principals, officers, employees or agents) an Affiliate, agent, partner, or joint venturer with the other party. Neither party shall have any right or authority whatsoever to incur any liability, obligation (express or implied), or to otherwise act in any manner in the name or on behalf of the other, or to make any promise, warranty or representation binding on the other. 8. SPECIAL TOOLING. 8.1 E&J has previously provided to P.T. Dharma, free of charge, certain Special Tooling necessary to fabricate the Products as specified in Appendix "A". Both parties to this Agreement acknowledge that the Special Tooling provided to P.T. Dharma prior to and during the Term of this Agreement shall remain the property of E&J. E&J may from time to time, as the parties may agree, provide additional or replacement tooling to P.T. Dharma free of charge. All tooling provided to P.T. Dharma prior to or during the Term of this Agreement shall be returned to or for the account of E&J (within 90 days) upon the termination or expiration of this Agreement. P.T. Dharma shall# at its own risk and expense, keep all tooling provided by E&J in good working order and conduct such maintenance as may be necessary to keep said tooling in good working order. 8.2 P.T. Dharma agrees to procure and maintain in full force and effect throughout the Term of this Agreement a policy of general insurance in favor of E&J (as loss payee and additional insured) covering the value of the Special Tooling against loss or damage and any 6 claims, liabilities or expenses asserted by any person arising out of the use of such Special Tooling. 8.3 P.T. Dharma agrees that the Special Tooling provided by E&J will be used solely for the production of the Products sold to E&J and that neither P.T. Dharma nor any of its Affiliates will use the Special Tooling to produce products of any kind for any other party. 9. PATENT INFRINGEMENT. 9.1 E&J agrees, at its own expense, to defend any action or suit brought against P.T. Dharma alleging that the Product or any part thereof manufactured according to the Specifications and obtained hereunder infringes enforceable letters patent issued to other persons or valid trade secrets, proprietary information, trademark, copyright, patent or other intellectual property rights of other persons. E&J will pay all costs and damages, including any judgment of a court of last resort finally awarded against P.T. Dharma in such suit; provided, however, that E&J is promptly notified in writing of such action or suit and is given full authority and full and proper information and assistance for defense of said action or suit. E&J shall not be responsible for any compromise or settlement of such suit or action made without its consent. 9.2 If the use of such Products pursuant to this Agreement becomes (or in the opinion of E&J is likely to become) the subject of an infringement claim, E&J may, at its option, (i) secure a right to use pursuant to this Agreement or (ii) make modifications to the Specifications that would render the use hereunder non-infringing. 9.3 The foregoing indemnification shall not apply if the infringement arises from Products not manufactured per the Specifications or ordered under this Agreement. 10. FORCE MAJEURE Neither party shall be liable for any loss, damage or penalty as a result of any delay in delivery or failure to manufacture, deliver or otherwise perform hereunder due to any cause demonstrably beyond that party's reasonable control, including without limitation: embargo; governmental act, order, ruling, regulation or request; fire; explosion; accident; theft; vandalism; riot; shortages; act of arson; strike; other labor difficulties; lighting; flood; windstorm or other acts of god; causes attributable to common carriers; delay in transportation# or inability to obtain necessary labor, fuel, materials, supplies or power. The party suspending performance in whole or in part as a result of any such delay or failure shall give prompt written notice thereof to the other party, stating therein the nature thereof, the specific reasons therefor, and the expected duration thereof and any alternatives thereto which such party believes may reasonably be pursued, and shall resume performance as soon as reasonably possible. Following any occurrence that causes any party to suspend performance in whole or in part, such party shall promptly initiate such reasonable measures as will, if reasonably possible, remove or relieve such suspension so as to enable it to resume performance of its obligations as soon an reasonably possible. 7 11. TECHNICAL ASSISTANCE. Unless otherwise agreed in writing, any technical assistance and information provided by E&J to P.T. Dharma will be provided without charge at E&J's sole discretion and P.T. Dharma assumes sole responsibility for results obtained in reliance therein. E&J makes no warranty of any kind or nature with respect to any technical assistance or information provided by it. 12. NONDISCLOSURE OF INFORMATION. Each party hereby agrees that all information relating to this Agreement disclosed to it by the other party, which information is in fact confidential or proprietary when disclosed to the other party or is then claimed and marked by the disclosing party to be confidential or proprietary, will be hold and safeguarded by the receiving party as confidential information of the disclosing party, and the receiving party exert all reasonable efforts to prevent any publication or other disclosure of all confidential information received from the other party without the express written consent of the disclosing party. The Specifications attached hereto as Appendix A are trade secrets of E&J and shall be treated as confidential and proprietary under this clause. 13. HEADING. The section headings herein are for convenience only and shall not be deemed to affect in any way the language of the provisions to which they refer. 14. FAILURE TO ENFORCE. Failure of either Party to enforce any of the terms of this Agreement shall not be construed as a waiver of rights thereunder preventing the subsequent enforcement of such provisions or the recovery of damages for breach thereof. 15. SEVERABILITY. If any portion of this Agreement is held to violate, or to be invalid or unenforceable under, the laws of any government or subdivision thereof, this Agreement may, at the option of E&J be terminated immediately upon written notice, or the portion declared to be in violation of or invalid or unenforceable under any such law shall be treated as being of no force or effect, and this Agreement shall be construed as though such portion had not been inserted herein, and the remainder of this Agreement shall remain in full force and effect. 16. EMPIRE AGREEMENT. 16.1 This Agreement constitutes the entire Agreement between E&J and P.T. Dharma superseding any prior agreement between the parties or their predecessors or Affiliates. No modification of this Agreement shall be binding unless in writing and signed by authorized representatives of both parties. 8 16.2 This Agreement is intended to cover all transactions related hereto. Except as agreed to herein and unless otherwise expressly agreed to in writing, no written or printed terms and conditions in any purchase order, order confirmation, or other document forwarded by either party shall have any effect, and the provisions of this Agreement shall be controlling. 17. NOTICES. All notices, communications, demands, and payments under this Agreement shall be in English and shall be made in writing by hand delivery, telefax, telex, courier, cable, registered airmail or by any other means of delivery which enables the sending party to verify receipt thereof. Such notice shall conclusively be presumed to be given or made: (i) at the time it is personally given or made in the case of personal delivery or transmission by telefax (with receipt confirmed); (ii) at the time of receipt of the addressees answerback an the sender's machine in the case of transmission by telex; or (iii) ten (10) days after mailing sufficient postage or cost prepaid in the case of registered airmail, delivery by courier or cable. All notices sent by means other than those made by hand delivery or registered airmail shall be promptly confirmed by registered airmail. Any notices shall be addressed as follows: If to E&J: Everest and Jennings, Inc. 1100 Corporate Square Drive St. Louis, MO 63132 USA Attn: Tim Evans, VP Finance Fax: 314/995-7225 Telex: If to P.T. Dharma: P.T. Dharma Polimetal JL. RAYA SERANG KM. 24 Balaraja Tangerang Indonesia Attn: Joppy K. Negara Fax: 62-21-756-0628 Telex: or to such other person or address as either party may, by like notice, specify to the other. 18. CHOICE OF LAW. 18.1 Except as set forth below, this Agreement, all transactions executed hereunder and the relationship of the parties shall be construed, governed and enforced in accordance with the United Nations convention on Contracts for the International Sale of Goods. 18.2 Notwithstanding the provisions of section 18.1 above, matters pertaining to the bankruptcy or insolvency of P.T. Dharma, or the rights of creditors against P.T. Dharma or in and to P.T. Dharma's estate, shall be determined pursuant to the laws of P.T. Dharma's domicile or principal place of business. 9 19. RESOLUTION BY NEGOTIATION: ARBITRATION. 19.1 Except in the event of any litigation or proceeding commenced by any third party against either E&J or P.T. Dharma in which the other party is an indispensable party or potential third party defendant, and except for enforcement of any interim or preliminary remedy (to the extent such remedy is sought before an arbitration panel is duly appointed and convened), any dispute or controversy between the parties involving the interpretation, construction or application of any terms, covenants or conditions of this Agreement, or transactions under it, or any claim arising out of or relating to this Agreement, or transactions under it, shall, on the request of one party served on the other, be submitted for resolution by senior executives designated by each party, who shall attempt to resolve such dispute or controversy in good faith and, in the event such resolution is not achieved within fifteen (15) U.S. working days of such request, shall be submitted to arbitration in accordance with provisions of this Section 19. 19.2 Any such dispute, controversy or claim will be settled by arbitration conducted in the English language in Hong Kong (except as otherwise may be agreed by the parties in their discretion) in accordance with the International Commercial Arbitration Rules of the American Arbitration Association then in effect, except as herein specifically otherwise stated or amplified, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction over the party against whom the award is sought to be entered. 19.3 Notwithstanding anything to the contrary which may now or hereafter be contained in the International Commercial Arbitration Rules of the American Arbitration Association, the procedures set out in this Section 19.3 shall apply. (a) A notice of arbitration shall set out a clear and plain statement of the matter that the party sending the notice (the "Instituting Party") believes to be a breach or is in dispute. The demand (the "Demand") shall reference principal provisions of this Agreement that the Instituting Party views as controlling or out of the interpretation of which the dispute arises, and shall attach copies of all pertinent documents and other things then in its possession which the Instituting Party views as having direct bearing on the relief sought under the Demand. The receiving party (the "Other Party") shall, within 20 days of receipt of the Demand, provide to the Instituting Party and to the arbitrators a response (the "Answer"), referencing provisions of this Agreement that the Other Party views as controlling, and shall attach copies of all pertinent documents and other things (other than those attached to the Demand) then in its possession which it views as having direct bearing to support the contentions of the Answer. Each party shall appoint one person, conversant in English, to hear and determine the dispute within ten days after the Other Party's receipt of the Demand. If a party fails to so designate its arbitrator within said ten days, then the arbitrator designated by the party designating an arbitrator shall act as the sole arbitrator and shall be deemed to be the single, mutually-approved arbitrator to resolve the controversy. The person(s) so chosen shall, within 20 days, select an additional, impartial arbitrator conversant in English. If they fail to do so within said 20 days, either party may petition any court of competent jurisdiction in any jurisdiction to which both parties may, in their discretion, agree to appoint the third arbitrator. The majority decision of e arbitrator) the arbitrator panel (or the decision of the single shall, be final. 10 (b) Each party shall pay the arbitrator it designated and shall share the cost of the third (or, if applicable, the sole) arbitrator. In the event that the parties are unable to agree upon a rate of compensation for the third (or sole) arbitrator, the arbitrator shall be compensated for his or her services at a rate to be determined by the American Arbitration Association. (c) Discovery shall be liberally allowed by the arbitrators as contemplated by the U.S. Federal Rules of civil Procedure, subject, however, to such limitations as the arbitrators determine to be appropriate under the circumstances, it being the parties mutual desire to have a prompt and efficient arbitration. (d) The arbitrators shall endeavor to promptly schedule the hearings, and to hold the hearings (on consecutive days if practicable), and shall have authority to award relief under legal or equitable principles, including interim or preliminary relief. Nothing in this section 19.3(d) shall impair the right of a party to seek interim or preliminary relief in a court of competent jurisdiction in any jurisdiction to which both parties may, in their discretion, agree before the arbitration panel is constituted and convened. (e) Other than attorneys' fees and expenses (which shall be borne by the party incurring the same), the costs of the arbitration shall be borne by the losing party or shall be allocated between the parties in such proportions as the arbitrators decide. (f) The arbitrators shall, upon the request of either party, promptly (and in all events within 30 days of the conclusion of the hearing) issue a proposed written opinion of their findings of fact and conclusions of law which shall become final and binding in accordance with the terms thereof unless either or both parties seek reconsideration in accordance with section 19.3(g). In making their decision, the arbitrators shall be bound by the terms of this Agreement. (g) Either party shall have the right, within 20 days of receipt of the arbitrators' proposed opinion to file with the arbitrators a motion to reconsider (accompanied by a reasoned memorandum), and the other party shall have 20 days to respond to that memorandum. After receipt of such-memorandum and response, if any, the arbitrators thereupon shall reconsider the issues raised by said motion and, promptly, either confirm or change their majority decision which shall then be final and conclusive upon both parties. The costs of such a motion for reconsideration and written opinion of the arbitrators shall be borne by the moving party, or shared equally by both parties if both parties request such reconsideration. 20. BINDING AGREEMENT. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto, their successors and assigns. This Agreement shall be assignable by either party only with the written consent of the other, which consent shall not be unreasonably withheld, except that either party may assign this Agreement without consent to the purchaser of all its stock or assets, or a substantial part of all the assets of its business to which this Agreement relates. 11 IN WITNESS WHEREOF, an authorized representative of each party has signed this Agreement below. EVEREST AND JENNINGS, INC. By:________________________________ (Signature) Name:______________________________ Title:_____________________________ Date:______________________________ P.T. DHARMA POLIMETAL By:________________________________ (Signature) Name:______________________________ Title:_____________________________ Date:______________________________ 12 PART NUMBER DESCRIPTION REVISION LEVEL 90761001 VTA200 90761002 VTN200 90761003 VTA260 90761004 VTN260 90761005 TRA260 90761006 TRN260 90761007 TRA200 90761008 TRN200 WILL ADVISE VTA2000 90062335 Slide A 90247547 Sfrm Rt Rec H 90247548 Sfrm Lf Rec H 90249391 Sfrm Rt PD D 90249392 Sfrm Lf PD D 90249393 Sfrm Rt PD C 90249394 Sfrm LF PO C 90250115 Sfrm Rt EZ A 90250116 Sfrm Lf EZ A 90257AO7 Arm Rt B 90257AO8 Arm Lf B 90420379 Extension D 9046OG25 Hngr Assy Rt D 9046OG26 Hngr Assy Lf D 90385409 Footplate B 9006AOO2 Slide A 9006AOO3 Slide A 90188CO3 Sfrm 200 Rt A 90188CO4 Sfrm 300 Lf A 90232301 Arm Rt C 90232302 Arm Lt C 90250MO3 Sfrm Det Rt A 90250MO4 Sfrm Det Lf A 90862MO2 Arm D 90865NO1 Frt Sdfrm P2 Rt B 90865NO2 Frt Sdfrm P2 Lf B 90385510 Footplate C 13 Parent 90761001 CHAIR SUB, VTA2OOXX Component Revision Description Quantity Required 90188CO3 A SF-P8A200-77X 1 90188CO4 A SF-P8A200-77X 1 90273100 L RAIL INBTM 30 202 2 90543901 R XB-8AU-2X- 1816-SD II 1 90543902 R XB-8AU-2X- 1816-SD II 1 90280080 A SCREW P 30 821 4 90532560 A NUT ST 10 32 90 900 4 90440880 A NUT ST TN 74 906 1 90331686 B BOLT HH.31-24X3.25L 1 90525300 E GUIDE SEAT 90 336 4 90188BOt A AS-200-16-VISTA 2 90073220 C RIVET POP5/32 DIA 4 Parent 90761002 CHAIR SUB, VTN20OXX Component Revision Description Quantity Required 90188CO3 A SF-P8A200-77X 1 90188CO4 A SF-P8A200-77X 1 90273100 L RAIL FNBTM 30 202 2 90280080 A SCREW PRHM 30 821 4 90532560 A NUT ST 10 32 90 900 4 90440880 A NUT ST TN 74 906 1 90531686 B BOLT HH.31-24X3.25L 1 90525300 E GUIDE SEAT 90 336 4 90188BOI A AS-200-16-VISTA 2 90073220 C RIVET POP5/32 DIA 4 90541251 M XB-8NU-2X- 1616-SD 12 1 90541252 M XB-8NU-2X- 1616-SD 12 1 14 Parent 90761004 CHAIR SUB, VTN26OXX Component Revision Description Quantity Required 90250MO3 A SF-P8A250-77X 1 90250MO4 A SF-P8A250-77X 1 90273100 L PALL INBTM 30 202 2 90232890 D AX-OCK-ADJ 2 90280080 A SCR-EW PRHM 30 821 4 90532-160 A NUT ST 10 32 90 900 4 90440880 A NUT ST TN 74 906 1 90531686 B BOLT HH.31-24X3.25L 1 90800213 G BUSHING FRONT POST 2 90062330 E SLIDE ASM FRONT EZLIT 2 90541251 M XB-8NU-2X- 1616-SD 12 1 90541252 M XB-8NU-2X- 1616-SD I) 1 9025OB09 C A260-VIA-FOS-H RT 1 9025OB19 C A.260-VIA-FOS-H LF 1 Parent 90761005 CHAIR SUB, TRA26OXX Component Revision Description Quantity Required 90250MO3 A SF-P8A250-77X 1 90250MO4 A SF-P8A250-77X 1 90273100 L RAIL INBTM 30 202 2 90543901 R XB-8AU-2X-1816-SDII 1 90543902 R XB-8AU-2X- 1816-SD II 1 90232890 D AX-ARMLOCK-ADJ 2 90280080 A SCREW P 30 821 4 90532560 A NUT ST 10 3 2 90 900 4 90440880 A NUT ST TN 74 906 1 90531686 B BOLT HH.31-24X3.25L 1 90800213 G BUSIENG FRONT POST 2 9006AOO2 A SLIDE ASM-FRNT POST.1 2 90516321 D RAIL INTOP 90-204FL 2 90508724 L BUTTON PLG .87X12GA 2 90257AO7 B ARM 263SW-VISTA 1 90257A08 B ARM 263 8W-UBTA 1 15 Parent 90761006 CHAIR SUB, TRN260XX Component Revision Description Quantity Required 90250MO3 A SF-P8A250-77X 1 90250MO4 A SF-P8A250-77X 1 90273100 L RAIL INBTM 30 202 2 90232890 D AX-ARMLOCK-ADJ 2 90280080 A SCREW PRHM 30 821 4 90532560 A NUT ST 10 32 90 900 4 90440880 A NUT ST TN 74 906 1 90531686 B BOLT HH.31X24X3.25L 1 90800213 G BUSHING FRONT POST 2 90541251 M XB-8NU-2X-1616-SD 12 1 90541252 M XB-8NU-2X-1616-SD 12 1 9006AOO2 A SLIDE ASM-FRNT POST.1 2 90516321 D RAIL INTOP 90-204FL 2 90508724 L BUTTON PLG.87Xl2GA 2 90257AO7 B ARM 263SW-VISTA 1 Parent 90761006 CHAIR SUB, TRN26OXX Component Revision Description Quantity Required 90257AO8 B ARM 263SWIVISTA 1 Parent 90761007 CHAIR SUB, TRA200XX Component Revision Description Quantity Required 90188CO3 A SF-P8A200-77X 1 90188CO4 A SF-P8A200-77X 1 90273100 L RAIL INBTM 30 202 2 9054390t R XB-8AU-2X-1816-SDII 1 90543902 R XB-8AU-2X-1816-SDII 1 90280080 A SCREW PRHM 30 821 4 90532560 A NUT ST 10 32 90 900 4 90440880 A NUT ST TN 74 906 1 90531686 B BOLT HH.31-24X3.25L 1 90525300 E GUIDE SEAT 90 336 4 90516410 E RAIL INNER TOP U20 2 16 Parent 90761003 CHAIR SUB, VTA26OXX Component Revision Description Quantity Required 90250MO3 A SF-P8A250-77X 1 90250MO4 A SF-PSA250-77X 1 90273100 L RAIL INBTM 30 202 2 90543901 R XB-8AU-2X-1816-SDII 1 90543902 R XB-8AU-2X-1816-SDII 1 90232890 D AX-ARMLOCK-ADJ 2 90280080 A SCREW PRHM 30 821 4 90532560 A NTJT ST 10 32 90 900 4 90440880 A NUT ST TN 74 906 1 90531686 B BOLT HHJ.31-24X3.25L 1 90800213 G BUSHING FRONT POST 2 90062330 E SLIDE ASM FJRONT EZLIT 2 9025OB09 C A260-VIA-FOS-H RT 1 9025OB19 C A260-VIA-FOS-H LF 1 Parent 90761008 CHAIR SUB, TRN20OXX Component Revision Description Quantity Required 90188CO3 A SF-PSA200-77X 1 90188CO4 A SF-P8A200-77X 1 90273100 L RAIL INBTM 30 202 2 90280080 A SCREW PRHM 30 821 4 90532560 A NUT ST 10 32 90 900 4 90440880 A NUT ST TN 74 906 1 9053t686 B BOLT HH.31-24X3.25L 1 90525300 E GUIDE SEAT 90 336 4 90541251 M XB-8NU-2X-1616-SD12 1 90541252 M XB-8NU-2X-1616-SDI2 1 90516410 E RAIL INNER TOP U20 2 17 Parent P/N VA20000 Component Revision Description Quantity Required 90189801 H SF 20000 RT 1 90189802 H SF 1 90273100 L RAIL INBTM 2 90543901 R XB-8AU-2X SD11 1 90543902 R XB-8AU-2X SD11 1 90525300 E SEAT GUIDEE FWD 2 00001002 A PLUG 2 90531686 B BOLT 1 90440880 A NUT 1 90280080 A INNER BOLT 4 90232560 A INNER NUT 4 90416755 F BOLT 2 90532720 A NUT 2 90188801 A SIDEPANEL 2 90073220 C RIVET 8 18 APPENDIX A continued General Specifications WELDMENTS: Must exhibit smooth and uniform distribution with 100% coverage at junctions. Must be free of voids, pin holes and discontinuities. When fatigued to breakage, weldments must remain intact and not sever from the base metal. A metal perimeter around the welded area must be evident after fatigue breakage. CHROME PLATING AND ADHERENCE: Refer to specification P3001 "Electrodeposited Chrome Finishes" Refer to ASTM B 571-91 para. 3, 10 or 13. CHROME APPEARANCE: Finish appearance shall be bright, reflective and uniform, free from blisters, stains, pits, nodules, cracks, roughness discontinuities and discoloration when viewed at a minimum distance of one foot under soft white florescent light of 100 ft-c. Coverage of part must be 100% as noted in P3001 and uniform so that heavier areas of the assemblies and parts do not exhibit goldish tones that results from thin chrome layering. PURCHASE ORDER REQUIREMENTS: All materials and processed used in the fabrication of E & J parts shall not be changed or altered without the prior written consent of Everest & Jennings management. All shipping containers shall be clearly marked with: a. part number b. quantity c. lot number, if applicable d. part name e. container number APPENDIX "A" 19 Standard Test Methods for ADHESION OF METALLIC COATINGS(1) This standard is issued under the fixed designation B571; the number immediately following the designation indicates that year of original adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. A superscript epislon ( ) indicates an editorial change since the last revision or reapproval. 1. Scope 1.1 This document describes methods for evaluating the adhesion of metallic coatings on various substrates. The methods are qualitative and require only simple tools or instruments and moderate skill. 2. Significance and Use 2.1 Ten methods are useful for production control and for acceptance testing of products. 2.2 Interpreting the results of qualitative methods for determining the adhesion of metallic coatings is often a controversial subject. If more than one test is used, failure to pass any one test is considered unsatisfactory. In many instances, the end use of the coated article or its method of fabrication will suggest the technique that best represents functional requirements. For example, an article that is to be subsequently formed would suggest a draw or a bend test; an article that is to be soldered or otherwise exposed to heat would suggest a heat quench test. If a part requires baking or heat treating after plating, adhesion tests should be carried out after such posttreatment as well. 2.3 Several of the tests are limited to specific types of coatings, thickness ranges, ductilities, or compositions of the substrate. These limitations are noted generally in the test descriptions and are summarized in Table 2 for certain metallic coatings. 2.4 "Perfect" adhesion exists if the bonding between the coating and the substrate is greater than the cohesive strength of either. Such adhesion is usually obtained if good electroplating practices are followed. 2.5 For many purposes, the adhesion test has the objective of detecting any adhesion less than "perfect." For such a test, one uses any means available to attempt to separate the coating from the substrate. This may be prying, hammering, bending, beating, heating, sawing, grinding, pulling, scribing, chiseling, or a combination of such treatments. If the coating peels, flakes, or lifts from the substrate, the adhesion is less than perfect. - ---------- (1) These methods are under the jurisdiction of ASTM Committee B-8 on Metallic and Inorganic Coatings. Current edition approved March 30, 1979. Published May 1979. APPENDIX "A" 20 2.6 If evaluation of adhesion is required, it may be desirable to use one or more of the following tests. These tests have varying degrees of severity; and one might serve to distinguish between satisfactory and unsatisfactory adhesion in a specific application. The choice for each situation must be determined. 2.7 When guideline is for used for acceptance inspection, the method or methods to used must be specified. Because the results of tests in cases of marginal adhesion are subject to interpretation, agreement shall be reached on what is acceptable. 2.8 If the size and shape of the item to be tested precludes use of the designated test method, equivalent test panels may be appropriate. If permitted, test panels shall be of the same material and have the same surface furnish as the item to be tested and shall be processed through the same prelating, electroplating, and postplating cycle with the parts they represent. 3. Bend Tests 3.1 Bend the part with the coated surface away, over a mandrel until its two legs are parallel. The mandrel diameter should be four times the thickness of the sample. Examine the deformed area visually under low magnification, for example, 4x, for peeling or flaking of the coating from the substrate, which is evidence of poor adhesion. If the coating fractures or blisters, a sharp blade may be used to attempt to lift off the coating. With hard or brittle coatings, cracking usually occurs in the bend area. Such cracks may or may not propagate into the substrate. In either case, cracks are not indicative of poor adhesion unless the coating can be peeled back with a sharp instrument. 3.2 Bend the part repeatedly, back and forth, through an angle of 180 deg until failure of the basis metal occurs. Examine the region at low magnification, for example 10X, for separation or peeling of the coating. Prying with a sharp blade will indicate unsatisfactory adhesion by lift-off of the coating. 4. Burnishing Test 4.1 Rub a coated area of about 5 cm2 with a smooth-ended tool for approximately 15 s. A suitable tool is a steel rod 6 mm in diameter with a smooth hemispherical end. The pressure shall be sufficient to burnish the coating at each stroke but not so great as to dig into it. Blisters, lifting, or peeling should not develop. Generally, thick deposits cannot be evaluated satisfactorily. 5. Chisel-Knife Test 5.1 Use a sharp cold chisel to penetrate the coating on the article being evaluated. Alternatively the chisel may be placed in back of an overhang area of the coating or at a coating-substrate interface exposed by sectioning the article with a saw. A knife may be substituted for the chisel with or without hammering or light tapping. If it is possible to APPENDIX "A" 21 remove the deposit, the adhesion is not satisfactory. Soft or thin coatings cannot be evaluated for adhesion by mod. 6. Draw Test 6.1 Form a suitable sample about 60 mm in diameter into a flanged cap approximately 38 mm in diameter, to a depth up to 18 mm, through the use of a set of adjustable dies in an ordinary punch press.(2) Penetration of the male die may be continued until the cap fractures. The adhesion of the coating may be observed directly or evaluated further by techniques described in Section 5 for detachment from the substrate. If there is peeling or flaking of the coating or if it can be detached, the adhesion is not satisfactory. 6.2 Results from this technique must be interpreted cautiously, because the ductilities of both the coating and substrate are involved. 7. File Test 7.1 Saw off a piece of the coated specimen and inspect it for detachment at the deposit/substrate interface. Apply coarse mill file across the sawed edge from the substrate toward the coating so is to raise it, using an approach angle of approximately 45 deg to the coating surface. Lifting or peeling is evidence of unsatisfactory adhesion. 7.2 This technique is not suitable for thin or soft coatings. 8. Grind-Saw Test 8.1 Hold the coated article against a rough emery wheel so that the wheel cuts from substrate toward the deposit in a jerky or bumpy fashion. A hack saw may be substituted for the wheel making sure to saw in the direction that tends to separate the coating from the substrate. Lifting or peeling is evidence of unsatisfactory adhesion. 8.2 This technique is especially effective on hard or brittle coatings but is not suitable for thin or soft coatings. 9. Heat-Quench Test 9.1 Heat the coated article in an oven for a sufficient time for it to reach the temperature shown in Table 1. Maintain the temperature of the oven within 10'C of the nominal. Coatings and substrates that are sensitive to oxidation should be heated in an inert or reducing atmosphere or a suitable liquid. Then quench the part in water or other suitable liquid at room temperature. - ---------- (2) Romanoff, F. P. Transactions. Electrochem. Soc. TESOA, Vol. 65, 1934, p. 385; Proceedings. Amer. Electroplaters Soc. AEPPB, Vol. 22, 1934, p. 155; Monthly Review, Amer. Electroplaters Soc., MRAEA. Vol. 22, April 1935, p. 8. APPENDIX "A" 22 9.2 Flaking or peeling of the deposit is evidence of unsatisfactory adhesion. Blisters may erupt during the beat and quench test when plating solution is entrapped in substrate surface pits or pores which are bridged by the deposit. If the deposited coating cannot be peeled or lifted from the substrate in an area adjacent to the blister(s), the appearance of blisters should not be interpreted as evidence of inferior adhesion. 9.3 Diffusion and subsequent alloying of metals may improve the bond strength of electrodeposits. In some cases, a brittle layer may be created by the material involved causing peeling due to fracture rather than poor adhesion. This would not give a correct indication of as-plated bond strength. 9.4 This test is nondestructive if the procedure does not create unwanted effects on parts. 10. Impact Test 10.1 Use a hammer or impact device coupled with a suitable backing block to support the article to be tested to deform the sample. Reproducible results am more easily obtained by the use of a suitably modified impact tester where the force is reproducible and the impact head contour is in the form of a 5-mm diameter ball, shock loaded by a failing weight or swinging pendulum weight. The severity of the test may be altered by changing the load and diameter of the ball. Exfoliation or blisters in and around indentations are evidence of inadequate adhesion. 10.2 This test is sometimes difficult to interpret. Soft and ductile coatings are generally not suited for evaluation. 11. Peel Test 11.1 Bond a strip of steel or brass about 1.5 mm thick and 20 mm wide by solder or suitable adhesive to a properly flat area of the coated surface of the article. Adhesive-backed tape may be considered as a possible alternative. Heat curing of the adhesive may be employed keeping in mind considerations noted in 3.7. The angle of pull shall be 90 deg to the surface. For reproducible results, the rate of pull, the thickness and width of the strip, and deposit thickness must be standardized. Failure in the coating/substrate is evidence of inadequate adhesion. 11.2 The tensile and shear strengths of adhesives and solders limit the range of adhesion strengths that can be evaluated. A quantitative analysis of the factors involved has been published.(3) - ---------- (3) Saubestre, E.B., Durney, E.B. Hajdu, J., and Bastenbeck, E. Plating, PLATA, Vol. 52, October 1965, pp. 982-1000. APPENDIX "A" 23 12. Push Test 12.1 Drill a blind hole 0.75 cm in diameter from the underside until the point of the drill tip comes within approximately 1.5 mm of the deposit/substrate interface on the opposite side. Supporting the material on a ring about 2.5 cm in diameter, apply steady pressure over the blind hole using a hardened steel punch 0.6 cm, in diameter until a button sample is pushed out. Exfoliation or peeling of the coating in the button or crater areas is evidence of inadequate adhesion. 12.2 Soft, very ductile, and thin deposits are generally not suited for this technique. 13. Scribe-Grid Test 13.1 Scribe two or more parallel lines or rectangular grid pattern on the article using a hardened steel tool ground to a sharp (30-deg) point with a distance between the scribed lines of approximately ten times the nominal coating thickness, with a minimum distance of 0.4 mm. In scribing the lines, use sufficient pressure to cut through the coating to the substrate in a single stroke. If any portion of coating between the lines breaks away from the substrate, the adhesion is inadequate. 13.2 Generally, thick deposits are not suitable for evaluation unless a chisel or other sharp instrument is used to pry the exposed coating/substrate interface, in which case this technique becomes a variant of Section 5. 14. Test-Coating Systems 14.1 Recommended adhesion tests for a variety of coating are given in Table 2.(4) - ---------- (4) Chessin, H., and Poor, J.G., Plating, PLATA, Vol. 46, 1954, p. 1037. APPENDIX "A" 24 TABLE 1 Temperature Test Guide - --------------------------------------------------------------- Coating Material ----------------------------------------------- Chromium, Nickel, Nickel Lead. + Tin. Tin./ Zinc, Gold and Substrate Chromium, Tempera- Lead, Tempera- Silver, Cooper, ture, Tempera- ture, Tempera- Tempera- (degrees) C ture, (degrees) C ture, ture, (degrees) C (degrees) C - -------------------------------------------------------------------------------- Steel 250 150 150 150 250 Zinc alloys 150 150 150 150 150 Copper and cooper 250 150 150 150 250 alloys Aluminum and 220 150 150 150 220 aluminum alloys - --------------------------------------------------------------------------------
TABLE 2 Adhesion Tests Appropriate for Various Coastings - --------------------------------------------------------------------------------------------------- Coating Material --------------------------------------------------------------------------------------- Nickel Cad- Chro- Cooper Lead and Nickel and Silver Tin and Zinc Gold Adhesion Test mium mium Lead/Tin Chro- Tin/Lead Alloy mium TAlloy - ---------------------------------------------------------------------------------------------------- Bend o o o o Burnish o o o o o o o o Chisel o o o o Draw o o o o o o o o o o File o o o Grind and saw o o o Heat/quench o o o o o o o o Impact o o o o o Peel o o o o o o o o Push o o o Scribe o o o o o o o - ----------------------------------------------------------------------------------------------------
The American Society for Testing and Materials takes no position respecting the validity of any patent rights asserted in connection with any item mentioned in this standard. User of this standard are expressly advised that determination of the validity of any such patent rights, and the risk of infringement of such rights, are entirely their own responsibility. This standard is subject to revision at any time by the responsible technical committee and must be reviewed every five years and if not revised, either reapproved or withdrawn. Your comments are invited either for revision of this standard or for additional standards and should be addressed to ASTM Headquarters. Your comments will receive careful consideration at a meeting of the responsible technical committee, which you may attend. If you feel that your comments have not received a fair hearing you should make your views know to the ASTM Committee on Standards, 1916 Race St., Philadelphia, PA 19103. APPENDIX "A" 25 ELECTRODEPOSITED CHROME FINISHES 1.0 PURPOSE This specification defines the metal finish requirements, terminology and test techniques for additive inorganic (electrodeposited) nickel and chrome finishes. 2.0 SCOPE This specification covers decorative chrome finishes over nickel underplating on carbon steels, ASTM B456 type Fe/Ni 13 Crr. The attached figures 1,2,3,4, illustrate common areas for surface buffing. 3.0 DEFINITIONS Terminology used is consistent with 8-374, B-456, and B-571. 4.0 RELATED DOCUMENTS 4.1 ASTM B-374 - Standard Definitions of Terms Relating to Electroplating. 4.2 ASTM B-380 - Standard Method of Corrosion Testing of Decorative Chromium Electroplating by the Corrodkote Procedure. 4.3 ASTM B-287 - Standard Method of Corrosion Testing . . . by the Acetic Salt Spray Method. 4.4 ASTM B-242 - Standard Practice for Preparation of High Carbon Steel for Electroplating. 4.5 ASTM B-456 - Standard Specification for Electrodeposited Coatings of Copper Plus Nickel Chromium and Nickel Plus Chromium. 4.6 ASTM B-571 - Standard Test Methods for Adhesion of Metallic Coatings. 4.7 Procedure Q - 1019 Nonconformances and Material Review Board. 4.8 Procedure Q - 1023 Attributes Sampling. 5.0 REQUIREMENTS 5.1 Base Metal Mechanical Prefinish - Shall be per the applicable Everest and Jennings polishing specification as designated on the product drawing/manufacturing order. APPENDIX "A" 26 5.1.1 Polish requirements defined by figures 1 through 4 shall be specified as (P3001-01) in the material finish block of the drawing. 5.1.2 Polish requirements not covered by figures 1 through 4 shall be Specified as (P3001-02) the unprocessed raw material "as received" from the vendor. 5.2 Underplating 5.3 NICKEL UNDERPLATE: 1. Semi-bright layer should be 60 percent of total Nickel thickness. 2. Bright Nickel should be 40 percent of total Nickel thickness. Total Nickels and chrome thickness should average 0.6 MIL. 5.3.1 Decorative Chrome 5.3.1.1 Decorative chrome plating shall comply with requirements of ASTM B-456 suffix 1, para 4.5. The designation for the chromium deposit applied at Everest and Jennings is "mp" for microporous chromium containing a minimum of 100 pores/mm2. 5.3.1.2 Decorative chrome plating shall have a minimum average thickness of 10 millionths of an incn (1.0(10-5) inches). When tested in accordance with requirements of ASTM B-456. Which specifies the use of the Kocair Electronic Thickness tester. 5.3.1.3 Decorative chrome plating shall be sufficiently adherent to product surfaces to meet requirements of ASTM B- 471, para 9 with a baking temperature of 250o C or to withstand a bend around a mandrel with the radius specified. 5.3.1.4 Decorative chrome plating shall meet corrosion requirements of ASTM B-456 Service Condition SC- per para's 3.2 and 6.1, Table 4 and appendix X1 when tested in accordance with requirements of ASTM B-287 or B-380. 5.3.1.5 Finish appearance shall be bright and uniform, free of stains, pits, roughness, cracks, discontinuities or discoloration on all exterior surfaces accessible to a 1/2" APPENDIX "A" 27 diameter ball when viewed at a maximum distance of 1' under soft white fluorescent lights (or equivalent) providing 100 candlepower as measured at the part surface. 5.3.1.6 Finish shall be free of blisters as viewed under conditions described in para 5.3.1.5, above. 5.4 Stress Relief Annealing 5.4.1 Steels containing 0.35% of carbon, or higher and case hardened low carbon steels shall be stress relief annealed. 5.4.1.1 Sample units shall show no evidence of cracking under 7x magnification when, after finishing, they are subjected to the impact of a two pound hammer free falling from a height of one foot on a part surface bridging a span of 3", minimum. 5.4.2 After stress relief and surface preparation (as required) the product surface shall be clean and dry, free of oil, grease, flux, buffing compounds, smut, scale and surface oxidation when viewed without magnification from a distance of 1', maximum, under lighting (or equivalent) providing 100 candlepower minimum measured at the product surface. 5.5 Refinishing 5.5.1 Arms, Handrims, 200-Arm Sideframes and Custom Products. 5.5.1.1 Prior to refinishing and/or mechanical rework of product, all residue of metallic electrodeposits shall be chemically stripped from basis metal surfaces. 5.5.1.2 Product shall be washed, pickled and repolished, as necessary, to render chemical stripping agents inert and to remove any residual stripping materials from the product. 5.5.1.3 After stripping but prior to replating, product shall be visually inspected using 7X magnification under soft white fluorescent lighting (or equivalent) providing 100 footcandles minimum illumination, measured at the product surface, for evidence of deterioration of brazed joints. APPENDIX "A" 28 5.5.1.4 After stripping but prior to replating, product shall be marked in an inconspicuous area by a stamped indent. 5.5.1.5 Refinished product shall meet all requirements of paras 5.1 through 5.4 of this specification. 5.5.2 Other Plated Product 5.5.2.1 Prior to refinishing and/or mechanical rework of product, all residue of decorative chrome electrodeposits shall be chemically stripped from basis metal surfaces. 5.5.2.2 Product shall be washed, pickled and repolished, as necessary, to render chemical stripping agents inert and to remove any residual stripping materials from the product. 5.5.2.3 After stripping, but prior to replating, product shall be visually inspected, using 7X magnification under soft white fluorescent lighting (or equivalent) providing 100 footcandles minimum illumination, measured at product surface, for evidence of deterioration of the brazed joints. 5.5.2.4 After stripping but prior to replating, product shall be marked in an inconspicuous area with a stamped indent. 5.5.2.5 Refinished product shall meet all requirements of paras 5.1 through 5.4 of this specification. 5.5.2.6 Minor indents resulting from polishing through nickel underplate ("cut through") will be acceptable. 5.5.2.6.1 "Cut through" shall not exceed 1/4" diameter. 5.5.2.6.2 No more than at "cut through" shall be permitted in a given 3" diameter. 5.5.2.6.3 Plating at "cut through" shall be clean, bright, adherent and corrosion resistant. 5.5.3 Plating thickness of refinished product shall at no point exceed 300% of specified average minimum thickness requirement of O.5mils for Nickel Plating. APPENDIX "A" 29 5.5.4 Refinished product noncompliance after the third refinishing cycle shall not be refinished further. Product shall be referred to the Material Review Board for further disposition per Quality Department Procedure Q-1019. APPENDIX "A" 30 - ------------------------------------------------------------------- PART NUMBER DESCRIPTION CURRENT PRICE - ------------------------------------------------------------------- 90761001 VTA200 35.08 - ------------------------------------------------------------------- 90761002 VTA200 35.18 - ------------------------------------------------------------------- 90761003 VTA260 43.25 - ------------------------------------------------------------------- 90761004 VTA260 43.35 - ------------------------------------------------------------------- 90761005 TRA260 40.27 - ------------------------------------------------------------------- 90761006 TRA260 40.37 - ------------------------------------------------------------------- 90761007 TRA200 33.36 - ------------------------------------------------------------------- 90761008 TRA200 33.46 - ------------------------------------------------------------------- WILL ADVISE VTA2000 35.70 - ------------------------------------------------------------------- 90062335 Slide 1.28 - ------------------------------------------------------------------- 90247547 Sfrm Rt Rec 10.50 - ------------------------------------------------------------------- 90247548 Sfrm Lf Rec 10.50 - ------------------------------------------------------------------- 90249391 Sfrm Rt PD 11.00 - ------------------------------------------------------------------- 90249392 Sfrm Lf PD 11.00 - ------------------------------------------------------------------- 90249393 Sfrm Rt PD 12.50 - ------------------------------------------------------------------- 90249394 Sfrm Lf PD 12.50 - ------------------------------------------------------------------- 90250115 Sfrm Rt EZ 10.20 - ------------------------------------------------------------------- 90250116 Sfrm Lf EZ 10.20 - ------------------------------------------------------------------- 90257A07 Arm Rt 3.10 - ------------------------------------------------------------------- 90257A08 Arm Lf 3.10 - ------------------------------------------------------------------- 90420379 Extension 1.30 - ------------------------------------------------------------------- 90460G25 Hngr Assy Rt 2.90 - ------------------------------------------------------------------- 90460G26 Hngr Assy Lf 2.90 - ------------------------------------------------------------------- 90385409 Footplate 1.78 - ------------------------------------------------------------------- 9006A002 Slide 1.20 - ------------------------------------------------------------------- 9006A003 Slide 1.24 - ------------------------------------------------------------------- 90188C03 Sfrm 200 Rt 10.25 - ------------------------------------------------------------------- 90188C04 Sfrm 300 Lf 10.25 - ------------------------------------------------------------------- 90232301 Arm Rt 3.25 - ------------------------------------------------------------------- 90232302 Arm Lf 3.25 - ------------------------------------------------------------------- 90250M03 Sfrm Det Rt 9.95 - ------------------------------------------------------------------- 90250M04 Sfrm Det Lf 9.95 - ------------------------------------------------------------------- 90862M02 Arm 3.79 - ------------------------------------------------------------------- 90865N01 Frt Sdfrm P2 Rt 4.50 - ------------------------------------------------------------------- 90865N02 Frt Sdfrm P2 Lf 4.50 - ------------------------------------------------------------------- 90385510 Footplate 1.78 - ------------------------------------------------------------------- APPENDIX "B" 31 APPENDIX "C" 32 ADDENDUM SUPPLY AGREEMENT This document is to amend Section 3.4 of the Supply Agreement between Everest & Jennings, Inc. and P.T. Dharma Polimetal as follows: Payment for each order issued in the first year of the Term of this Agreement shall be by bank wire transfer in U.S. currency to accounts in such banks as P.T. Dharma shall direct from time to time. Payment made by bank wire transfer shall be made within thirty (30) calendar days from receipt of P.T. Dharma's invoice or date of delivery to the vessel, whichever is later. Late payments shall be subject to a late payment penalty on amounts past due calculated at an annual rate of sixteen (16) percent. E&J shall receive a prompt payment discount calculated at an annual rate of nine (9) percent for payments made within Fifteen days of the receipt of the invoice of the date of delivery o the vessel, whichever is later. After the First year of the Term of the Agreement, payment shall be guaranteed in part by a stand-by Letter of Credit issued in P.T. Dharma's favor, the terms and conditions of which shall be mutually agreed upon by the parties, by a bank if E&J',s choosing. Once a suitable letter of credit is established by the parties, the late payment penalty provision of this Section 3.4 shall no longer apply. Each invoice issued under this agreement shall identify, at a minimum, any later date of delivery to vessel, E&J's applicable purchase order number, a full description of the Products included, and the purchase price. Everest & Jennings, Inc. P.T. Dharma Polimetal __________________________________ By:_______________________________ (Signature) (Signature) Name:_____________________________ Name:_____________________________ Title:____________________________ Title:____________________________ Date:_____________________________ Date:_____________________________ APPENDIX "C" 33 Parent 90761008 CHAIR SUB, TRN200XX Component Revision Description Quantity Required 90188C03 A SP-P8A200-77X 1 90188C04 A SP-P8A200-77X 1 90237100 L RAIL INBTM 30 202 2 90280080 A SCREW PRHM 30 821 4 90532560 A NUT ST 10 32 90 900 4 90440880 A NUT ST TN 74 906 1 90531686 B BOLT HH.31-24X3.25L 1 90525300 E GUIDE SEAT 90 336 4 90541251 M XB-8NU-2X-1616-SD12 1 90541252 M XB-8NU-2X-1616-SD12 1 90516410 E RAIL INNER TOP U20 2 Parent P/N VA20000 Component Revision Description Quantity Required 90189801 H SF 20000 RT 1 90189802 H SF 1 90273100 L RAIL INBTM 2 90543901 R XB-8AU-2X SD11 1 90543902 R XB-8AU-2X SD11 1 90525300 E SEAT GUIDE FWD 2 00001D02 A PLUG 2 90531686 B BOLT 1 90440880 A NUT 1 90280080 A INNER BOLT 4 90232560 A INNER NUT 4 90416755 F BOLT 2 90532720 A NUT 2 90188801 A SIDEPANEL 2 90073220 C RIVET 8 APPENDIX "C" 34 EX-10.(E) 6 EMPLOYMENT AGREEMENT EXHIBIT 10(e) Amendment to the Selinger Agreement dated as of May 3, 1996. AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN GRAHAM-FIELD HEALTH PRODUCTS, INC. AND IRWIN SELINGER AMENDMENT, dated as of May 3, 1996 (the "Amendment") , to the Employment Agreement dated as of July 8, 1981, as amended on June 19, 1991, by and between Graham-Field Health Products, Inc., a Delaware corporation (the "Corporation") , and Irwin Selinger ("Selinger"). W I T N E S S E T H: WHEREAS, the Corporation and Selinger are parties to an Employment Agreement dated as of July 8, 1981, as amended on June 19, 1991 (the "Employment Agreement"); WHEREAS, the Corporation and Selinger have agreed to amend and modify certain terms and provisions of the Employment Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto hereby agree to amend and modify the Employment Agreement as follows: 1. The term of the Employment Agreement, which is due to expire on July 8, 1996, shall be extended for an additional five (5) year period ending July 8, 2001 (the "New Term"). 2. Effective as of January 1, 1997 (the "Effective Date") the Corporation shall pay Selinger an annual salary during the 1997 calendar year (the "Base Year") of $300, 000 (the "New Base Salary"). The annual salary during each year of the New Term following the Base Year shall be such amount as the Corporation and Selinger shall agree upon and shall not be less than the New Base Salary increased in each subsequent year of the 2 New Term by an amount which is determined by multiplying the New Base Salary by the percentage increase, if any, of the Consumer Price Index for all Urban Workers (New York - Northeastern New Jersey) (1967=100), issued by the Bureau of Labor Statistics of the United States Department of Labor (the "Index") for such subsequent year over the Index for the Base Year. The New Base Salary shall be payable in equal, or as nearly equal as may be practicable, installments not less frequently than semimonthly. The Employment Agreement, as amended, shall not be deemed abrogated or terminated if the Corporation, in its discretion shall determine to increase the compensation of Selinger for any period of time, or if Selinger shall accept such increase, but nothing shall be deemed to obligate the Corporation to make such increase. 3. In all other respects, all of the terms and provisions of the Employment Agreement shall remain in full force and effect during the New Term. 3 IN WITNESS WHEREOF, parties hereto have executed this Amendment this 3rd day of May 1996. GRAHAM-FIELD HEALTH PRODUCTS, INC. By: s/ Richard S. Kolodny ---------------------- Richard S. Kolodny Vice President, General Counsel s/Irwin Selinger ---------------- Irwin Selinger 4 EX-10.(J) 7 LEASE AGREEMENT EXHIBIT 10(j) Lease Agreement dated as of March 19, 1992, by and between NET 2, L.P. and Everest & Jennings, Inc. LEASE THIS LEASE, made and entered into this 19th day of March, 1992, by and between NET 2, L.P., a Delaware limited partnership (hereinafter called "Landlord"), and EVEREST & JENNINGS, INC., a California corporation, (hereinafter called "Tenant"). WITNESSETH, THAT: Landlord, for and in consideration of the rents, covenants, and agreements hereinafter mentioned and agree to e paid, kept, and performed by Tenant, its successors and assigns, has leased and by these presents does lease to Tenant the property situated in the County of St. Louis, State of Missouri, described in Exhibit A, attached hereto and incorporated herein by reference, together with the buildings and improvements constructed thereon, which property is known and numbered as 3601 Rider Trail South, Earth City, Missouri 63045, and consists of an approximately 147,000 square foot single level industrial building situated on approximately 9.8 acres of lan t e "Demised Premises"). I PURPOSE To HAVE AND TO HOLD the Demised Premises, to be used and occupied for light manufacturing and assembling of a health care product, and other related uses and functions, which uses may involve punching, welding, powder coating, and any and all other lawful uses. Tenant will comply in all material respects with all applicable laws, ordinances, governmental regulations and lawful requirements of the local Board of Health, police and fire departments, and governmental authorities pertaining to the manner in which it uses the Demised Premises. II TERM The term of this Lease shall commence on the forty sixth (46th) day following the Environmental Marking Date (as defined on Article XXIX hereof) and shall end ten (10) years and three (3) months from such date. In the event that the existing tenant does not vacate the Demised Premises prior to April 15, 1992, Tenant shall have the right at any time after such date and prior to the date Tenant has been notified that said tenant actually vacates, to terminate this Lease by delivering written notice of termination to Landlord which notice must be delivered to Landlord after April 15, 1992 and prior to the date on which Tenant has been notified of the vacation of the Demised Premises by the existing tenant, time being of the essence. III RENTAL Tenant shall pay to Landlord a yearly fixed rental as follows, payable in advance in equal monthly installments, on the first day of each month during said term, said rental to be -2- payable at the office of Landlord at 355 Lexington Avenue, New York, New York 10017, or at such other place as Landlord may from time to time, in writing, designate: (a) During the first three (3) months of the term, or until such later time as the Landlord shall have fulfilled its obligations to Tenant under Article IV hereof (other than Landlord's obligation to reimburse Tenant for finish work performed and paid for by Tenant), there shall be no rent or other sums payable under this Lease. Notwithstanding the foregoing, however, the date on which rent and other sums first accrue and Tenant is obligated to begin the payment of rent and other sums shall be postponed by that number of days which Landlord has failed to meet the time deadlines for the completion of those items identified as Landlord's responsibilities under Article IV below. Such date is herein referred to as the "Rent Accrual Date." (b) During the month in which the Rent Accrual Date occurs and through and including the next sixty (60) months of the term, a yearly fixed rental equal to Two Hundred Seventy-nine Thousand Three Hundred Dollars ($279,300.00) payable, as aforesaid, in equal monthly installments of Twenty-three Thousand Two Hundred Seventy-five Dollars ($23,275.00) each. (c) During the sixty-first (61st) month following the Rent Accrual Date and through and including the balance of the initial term of the Lease, a yearly fixed rental equal to Three Hundred Twenty-three Thousand Four Hundred Dollars -3- ($323,400.00) payable, as aforesaid, in equal monthly installments of Twenty-six Thousand Nine Hundred Fifty Dollars ($26,950.00) each. In the event this Lease commences on any date other than the first of the month, rental for the first and last months of the term hereof shall be prorated. IV TENANT-FINISH During the first three (3) months (or as specified below) of the term of this Lease, Landlord shall, at Landlord's cost and expense, complete the following, free of all liens for labor and materials and in compliance with all governmental and building code requirements: (a) Removal of the corrugator and starch system, both inside and outside the improvements. (b) Removal of catwalk. (c) Remove boiler in boiler room. (The parties to this Lease hereby acknowledge that the boiler is encumbered and/or owned by MDPC Equipment Leasing Corporation and such boiler therefore does not constitute real or personal property under this Lease. In the course of removing the boiler, it will be necessary for Landlord to remove a cinder block wall. Landlord shall coordinate the reconstruction of this cinder block wall in a manner so as to reasonably accommodate the installation of Tenant's equipment within the cinder block structure. Provided that Landlord has removed the boiler, the time necessary for Landlord to -4- coordinate the reconstruction of such structure with Tenant shall not extend the period during which no rent or other sums are payable under the Lease described in Article III(A) hereof if Landlord shall have fulfilled its remaining obligations to Tenant under this Article IV.) (d) Installation of lighting (Halogen or Mercury Vapor) in low bay manufacturing area of 100 foot candle with a minimum clearance of sixteen (16) feet below each fixture. (e) Installation of overhead gas heaters (OHGH) in high bay area and along eastern wall. (f) Removal of all existing equipment from the Demised Premises other than the equipment specified in items (a) and (c) above within the first fourteen (14) days of the term of this Lease. (g) Repair and leveling of concrete floor where needed within the first fourteen (14) days of the term of this Lease. (h) Repair roof in southwest corner of building. (i) Repair damaged exterior wall panels. (j) Removal of underground storage tanks during the first three (3) months of the term of this Lease, and remediation of the site in accordance with applicable law within a reasonable period of time following the removal of the tanks, provided such remediation is commenced within the first three (3) months of the term of this Lease and proceeds with due diligence. -5- (k) Reconstruction and/or repair of those scheduled items identified on a punch list to be prepared and agreed to by Landlord and Tenant during Tenant's inspection of the Demised Premises (such punch list, if any, to be attached to this Lease as Exhibit B. Landlord shall be responsible to repair and restore any portion of the Demised Premises damaged in performing the finish work described in clauses (a) through (k) above. During the first fifteen (15) months of the term of this Lease, Tenant shall, at Tenant's cost and expense, complete the following, to the extent Tenant deems appropriate, free of all liens for labor and materials and in compliance with all governmental and building code requirements and subject to the provisions of Article VIII hereof: (a) Removal of existing plant restroom facilities and reinstallation of restroom facilities to handle a plant personnel capacity of three hundred fifty (350) employees. (b) Expansion or restriping of the parking areas to handle plant personnel of three hundred fifty (350) employees. (c) Construction of seven thousand to ten thousand square feet of permanent offices with restrooms for plant office personnel. (d) Installation of other plant amenities to handle a work force of three hundred fifty (350) employees, i.e., cafeteria, breakroom, vending area, entrances & exits, etc. -6- (e) Permanent removal of rail spur and rail spur well from inside of the improvements and reconstruction and leveling of the area. Upon completion of the foregoing work by Tenant at Tenant's sole cost and expense, free of all liens for labor and materials and in compliance with all governmental and building code requirements, and upon Landlord being furnished by Tenant with evidence reasonably satisfactory to Landlord of the amount and cost of said work and of payment in full of said costs by Tenant, Landlord shall reimburse Tenant for the amount of said costs not in excess of One Hundred Thousand Dollars ($100,000.00). V SUBLETTING AND ASSIGNING The Tenant may not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, assign this Lease or sublease all or part of the Demised Premises. Upon an assignment of this Lease or subletting to which Landlord shall consent: (a) Tenant shall remain primarily liable on this Lease for the term thereof, and shall in no wise be released from the payment of rent or any terms or conditions hereof. (b) Tenant shall furnish Landlord with a copy of any sublease or assignment which it may make immediately after the execution of such instrument. Anything to the contrary notwithstanding, Tenant shall have the right to assign this Lease to or enter into a sublease -7- with, one or more parent, subsidiary or affiliated corporations or with any other person or entity related to or affiliated with Tenant without any prior approval of Landlord; provided, however, that Tenant shall promptly furnish to Landlord a copy of any such assignment or sublease; and provided further, that no such assignment or sublease shall operate to relieve Tenant of any of its obligations hereunder. VI ADDITIONAL PAYMENTS As additional rent under this Lease, Tenant shall pay for all gas, electricity, water, and heat used in and upon the Demised Premises and all sewer charges made with respect to the Demised Premises. VII INDEMNIFICATION OF LANDLORD Tenant agrees that Tenant will protect, defend, indemnify and save Landlord harmless against or from any penalty, damage, or charge imposed for any violation of any laws or ordinances by Tenant, its agents, employees, or anyone acting at the direction or authorization of Tenant. Tenant further agrees that Tenant will protect, defend, indemnify, and save Landlord harmless from and against any and all loss, damage, claims, suits, demands, and causes of action of any nature whatsoever, (with the exception of (a) those involving conditions or events existing prior to the date of this Lease or (b) those involving the acts or omissions of Landlord, its agents, employees -8- invitees, independent contractors or any other person or entity acting at the direction or authorization of Landlord), judgments and any reasonable out of pocket expense incidental to the defense thereof, including interest costs imposed by the court or statute, attorney fees and actual and punitive damages for personal injury, loss of life, or damage to property sustained or alleged to have been sustained in or on the Demised Premises or upon the immediately adjoining sidewalks, streets, or alleyways arising from acts or actionable omissions of Tenant, its agents, employees, invitees, independent contractors, or any other person or entity acting at the direction or authorization of Tenant. VIII REPAIRS AND ALTERATIONS Landlord shall, at Landlord's cost and expense, maintain the structural components of the building located on the Demised Premises. Structural components shall include, by illustration and not limitation, footings, foundations, columns, beams and bar joists. Landlord shall make sure that the HVAC, electrical and plumbing components are delivered to Tenant in operable condition. Tenant agrees that it will, at its sole cost and expense maintain the improvements (except the structural components of the building), including the parking areas on the Demised Premises and sidewalks located on or abutting the Demised Premises, in the same condition as on the commencement of this Lease, ordinary wear and tear excepted. Tenant shall promptly make or cause to be made all necessary repairs, replacements and alterations, interior and exterior, including those to the roof, -9- and all necessary decorating or redecorating, repairing or replacing (as necessary) all plumbing, electrical, heating, ventilating and air conditioning fixtures and equipment and all other fixtures, appliances and equipment of every kind and description when necessary to so maintain the improvements pursuant to the preceding sentence and to take such other action as is necessary in order to comply with applicable laws and ordinances and the requirements of insurance carriers. Tenant shall keep the parking area and all sidewalks located on or immediately abutting the Demised Premises free from ice and snow. Anything herein to the contrary notwithstanding, Tenant shall have no responsibility to make Major Modifications (i.e. expenditures during the term of this Lease in excess of Fifty Thousand Dollars ($50,000.00)) to the Demised Premised if such Major Modifications are required by new legislation or governmental regulations becoming effective after the date of this Lease. In the event that any Major Modifications to the Demised Premises are required by new legislation or governmental regulations becoming effective after the date of this Lease, and in the further event that Landlord declines to make such Major Modifications to the Demised Premises at Landlord's sole cost and expense, Tenant may, at Tenant's sole option, terminate this Lease by written notice to Landlord within the thirty (30) day period occurring after Landlord declines to agree to make said Major Modifications at Landlord's sole cost and expense. Such termination shall be effective six (6) months after the delivery of such notice of termination to Landlord. After the expiration -10- of such six (6) month period, if Tenant retains possession of the Demised Premises, Tenant shall become a tenant from month to month at the Holdover Rate, as such term is defined in Article XXX of this Lease unless the parties otherwise agree in writing. Tenant may, at any time or times during the term hereof, and at its own cost and expense, make any alterations, replacements, changes and/or additions to improvements upon the Demised Premises provided: (a) That the same shall be performed in a first-class workmanlike manner and shall not weaken or impair the structural strength or lessen the value or usefulness of the existing improvements on the Demised Premises. (b) That before the commencement of any such work, plans and specifications of the work shall be filed with and approved by Landlord and by all municipal or other governmental departments or authorities having jurisdiction thereof, and all work shall be done subject and in accordance with the requirements of law and local regulations applicable thereto. Copies of such plans and specifications shall be delivered to the Landlord for written approval prior to the commencement of such construction, and if such plans and specifications are materially changed during the course of construction, copies of such changes shall be furnished to the Landlord for written approval so that at the completion of the work the Landlord shall have a full set of the plans and specifications showing such alterations. Landlord's -11- approval of such plans and specifications shall not be unreasonably withheld or delayed. (c) That Tenant shall pay the increased premiums, if any, charged by the insurance companies carrying insurance policies on said improvements to cover the additional risk during the course of such work. (d) Any building, addition or improvement that hereafter may be affixed, erected, or installed by Tenant upon the premises, or any part thereof, shall upon expiration hereof become the sole and absolute property of Landlord, except trade and removable fixtures, equipment, and furnishings installed by Tenant or any sublessees or assignees that may be removed so long as any damage to the Demised Premises is repaired upon any such removal. Tenant, however, shall not be required to pay any additional rental for use of any such additions or improvements. Tenant shall defend, indemnify and save and hold harmless Landlord from all mechanics' and materialmen's liens arising from any work performed or authorized by Tenant. The foregoing indemnification shall apply to all work in or on the Demised Premises performed or authorized by Tenant, including the tenant finish to be performed by Tenant and described in Article IV hereof, but shall not apply to any work for which Landlord is responsible under the provisions of this Lease. In the event any such mechanics' or materialmen's lien is filed and not released within thirty (30) days from the date of filing, Tenant may contest such lien, but shall, in the event it does contest such -12- lien, deposit with the Landlord or the first mortgagee of the Demised Premises, as Escrow Agent, security reasonably satisfactory to Landlord. IX CARE OF PREMISES Tenant shall take good care of the Demised Premises, not commit waste thereon, and shall surrender the Demised Premises at the termination of this Lease, or any extended term hereof, in as good condition as received, ordinary wear and tear and damage by casualty excepted. Tenant shall keep the Demised Premises in good order and repair and free from any nuisance or filth, and shall keep all boxes, paper, trash, and rubbish in sanitary containers at all times, and shall not use or permit the use of the same or any part thereof for any purpose forbidden by law or ordinance now in force or hereafter enacted, in respect to the use and occupancy of the Demised Premises. Landlord, or its legal representatives, may at all reasonable business hours, and upon reasonable advance notice to Tenant, enter upon the.Demised Premises for the purpose of examining the condition thereof and shall notify Tenant if there are repairs which are reasonably necessary for the protection and maintenance of the Demised Premises. If Tenant shall fail to commence any repairs which are reasonably necessary for the protection or maintenance of the Demised Premises within ninety (90) days after becoming aware of the need for such repairs (unless emergency conditions require immediate commencement after notice), Landlord may make such -13- repairs, and any reasonable expenditures for such work shall be considered additional rent and shall be payable by Tenant. In the event that Landlord is not otherwise aware of repairs which are reasonably necessary to the maintenance of the structural components of the building, Tenant shall notify Landlord of the structural component in need of repair. If Landlord shall fail to commence such reasonably necessary repairs within ninety (90) days after such notice (unless emergency conditions require immediate commencement after notice), Tenant shall notify any mortgagees of record of the Demised Premises of the structural component in need of repair. If such mortgagee(s) (if any) shall fail to commence such reasonably necessary repairs within thirty (30) days after such notice (unless emergency conditions require immediate commencement after notice), or if there is no such mortgagee, Tenant may make such repairs, in compliance with all governmental and building code requirements, and any reasonable expenditures for such work may be applied by Tenant as an offset against rents or other sums owed by Tenant to Landlord. X DESTRUCTION OF IMPROVEMENTS Should the Demised Premises be destroyed by fire, the elements, or otherwise in whole or in part, Tenant shall repair and restore said damage with all reasonable speed and promptness, and insurance proceeds shall be applied toward said repair and restoration. The Tenant's obligation to repair and restore said damage shall not exceed the aggregate amount of insurance -14- proceeds distributed to Tenant and resulting from said damage. Tenant shall have the right to cancel this Lease in the event that proceeds of insurance actually distributed to Tenant for rebuilding are insufficient to restore the Demised Premises to a condition which is substantially the same as that prior to the casualty, unless said insufficiency is the result of Tenant's failure to maintain insurance required hereunder or the failure of Tenant to comply with the terms of said insurance. In the event that the repairs or restoration cannot be completed within one year or delay is caused in such repair or restoration because of fire, flood, strikes, unavailability of equipment, or other acts beyond the control of Tenant or its contractors or subcontractors, then the time to make such repairs or restorations shall be extended, provided, however, that with such extension the total time for such repairs or restorations shall not exceed two years. Rental payments hereunder shall not abate during the period when the Demised Premises are untenantable, except to the extent Landlord shall receive payments under the rent insurance provided for herein. XI DEFAULTS BY TENANT In the event of the failure on the part of the Tenant to pay any installments of rent as above set out, or to pay real estate taxes as herein requested, as and when same become due and payable, or to provide liability insurance or fire and extended coverage insurance, as herein required, or failure of Tenant promptly, faithfully and materially to keep and perform each and -15- every covenant, agreement, and stipulation herein contained on the part of the Tenant to be kept and performed, this Lease or Tenant's right to possession, shall be terminated, at the option of the Landlord. Any termination of Tenant's right to possession as herein provided, shall not relieve Tenant from its obligations to make the monthly payments of rent.herein reserved, at the times and in the manner provided. In such event, Landlord may relet the Demised Premises, as agent for and in the name of Tenant, at any rental and any term or terms readily obtainable, applying the proceeds thereof, first, to the payment of such reasonable expenses as Landlord may incur in reletting, including alterations, commissions and fees payable to third parties, additions, etc., second, to the payment of said rent as the same may from time to time become due, and third, towards the fulfillment of the other covenants and agreements of the Tenant herein contained, and the remainder, if any, shall be held by Landlord and applied to the payment of future rent or future sums payable under the Lease as the same may become due and payable hereunder. Should Landlord recover or take possession of the Demised Premises and be unable to relet the same so as to realize a sum equal to the rent hereby reserved, Tenant shall pay to Landlord any and all loss or differences for the residue of the term, the same to be calculated and paid monthly as such sum shall become due and payable under the Lease. Or in the event of any termination of this Lease, Landlord shall be entitled to recover the then present value of the difference between the -16- rental agreed to be paid herein and the then fair rental value of the premises, together with other damages provided for by law, said present value to be determined by reference to the rate of interest publicly announced by The Boatmen's National Bank of St. Louis from time to time as its Corporate Base Rate. Landlord is hereby given the right to show the Demised Premises to persons who may wish to lease or buy during the last six months of the term or extended term hereof unless a renewal option has been duly exercised by Tenant. Nothing mentioned in this paragraph shall be construed to waive Landlord's right to cancel this Lease in the event of any breach on the part of Tenant, all of which rights of cancellation are herein specifically reserved by Landlord. The parties to this Lease agree that the Landlord shall have an affirmative duty to mitigate any damages claimed.pursuant to the provisions of this Lease, which duty shall be fulfilled in the manner provided by the laws of the State of Missouri. Prior to the termination, Landlord shall give to Tenant a notice in writing thirty (30) days, or such longer period as provided in this Lease, prior thereto in the manner provided by Article XIII hereof, during which time Tenant may cure such default by satisfying the stated grounds of termination. In the event, however, that the notice given by the Landlord is because of a failure of Tenant to pay rent, real estate taxes, insurance premiums, or other additional rent under this Lease, then in such event the notice in writing to be given to Tenant by Landlord shall be ten (10) days instead of thirty (30) days. -17- In the event said default or defaults (except for defaults which can be cured by the payment of money or except for bankruptcy or insolvency of Tenant) are of such a nature that said default or defaults cannot be cured within thirty (30) days, Tenant shall have a reasonable time to cure such default or defaults, provided that Tenant commences within thirty (30) days to cure said default or defaults and continues with due and reasonable diligence to completion whatever may be necessary to cure said default or defaults. XII WAIVER No waiver of any breach, by acceptance of rent or otherwise, shall waive any subsequent cause of breach or breach of any condition of this Lease, nor shall any consent by Landlord to any assignment or subletting of the Demised Premises, or any part thereof, be held to waive or release any assignee or sublessee from any of the conditions or covenants herein contained, but every such assignee and sublessee shall be expressly subject thereto. XIII NOTICE Any notice required to be given by Landlord to Tenant for any breach of covenant of this Lease, or otherwise, shall be served upon Tenant, by United States certified or registered mail postage prepaid or by Federal Express or similar messenger service addressed to Tenant at 1100 Corporate Square Drive, St. -18- Louis, Missouri 63132, or at such other address as Tenant may furnish to Landlord in writing from time to time. All notices required to be given by Tenant to Landlord shall be mailed by United States registered or certified mail postage prepaid or by Federal Express or similar messenger service addressed to Landlord at 355 Lexington Avenue, New York, New York 10017, or at such other address as Landlord may furnish to Tenant in writing from time to time. XIV DEFINITIONS Whenever the words "Landlord" and "Tenant" are used herein, they shall be construed to include their successors, assigns, or legal representatives; the words "Landlord" -and "Tenant" shall include singular and plural, individual or corporation, subject always to the restrictions herein contained as to subletting or assignment of this Lease. XV CONDEMNATION (a) In the event the whole of the Demised Premises shall be condemned for public use, this Lease shall terminate on the date title vests in the condemnor. (b) In the event that a portion of the Demised Premises shall be condemned for public use, and (i) no part of the buildings on the Demised Premises shall be included in the portion condemned, and (ii) an amount less than or equal to 5% of the parking areas on the Demised Premises shall be included in -19- the portion condemned, then in such case this Lease shall remain in full force and effect. (c) In the event that a portion of the Demised Premises shall be condemned for public use, and (i) any part of the buildings on the Demised Premises shall be included in the portion condemned, or (ii) more than 5% of the parking area on the Demised Premises shall be included in the portion condemned; then in any such event the Tenant shall have the option of either terminating this Lease by giving the Landlord thirty (30) days written notice of such termination within fifteen (15) days after title to the part of the Demised Premises condemned vests in the condemnor, or (ii) exercising an option to purchase the Demised Premises by giving Landlord thirty (30) days written notice of such election within (15) days after title to the part of the Demised Premises condemned vests in the condemnor. Tenant's option to purchase the Demised Premises in the event that a portion of the Demised Premises shall be condemned for public use shall be exercisable for a cash purchase price of: (i) during the first three years of the term of the Lease, Three Million Seven Hundred Thousand Dollars ($3,700,000.00) less (u) any claims Tenant has against Landlord pursuant to the terms of this Lease and (v) amounts awarded pursuant to the condemnation of the Demised Premises or portion thereof; or (ii) during the remaining term or extended term of the Lease, the sum of (w) Three Million Seven Hundred Thousand Dollars plus (x) Three Million Seven Hundred Thousand Dollars ($3,700,000.00) multiplied by 90% of the percentage increase, if any, in the Cost of Living in the United -20- States as reflected in the Consumer Price Index occurring after the third anniversary of the commencement of the term of this Lease and prior to the date of the taking minus (y) any claims Tenant has against Landlord pursuant to the terms of this Lease and (z) amounts awarded to Landlord pursuant to the condemnation of the Demised Premises or portion thereof. The Consumer Price Index shall be measured as described in Article XVIII(B) hereof. The notice delivered to Landlord by Tenant with regard to the exercise of such option must contain a stipulated closing date no earlier than thirty (30 days from said notice nor later than ninety (90) days from said notice, time being of the essence. other than as expressly modified in this Article XV, the terms and conditions of the exercise of such option to purchase shall be in accordance with the provisions of Article XXI hereof. (d) If a portion of the Demised Premises shall be condemned for public use, and this Lease shall not terminate, the Landlord shall, at Landlord's cost and expense, restore the remaining portion of the parking lot and building as nearly as possible to the condition in which the parking lot and building were prior to such condemnation. (e) In the event all or part of the Demised Premises shall be condemned for public use, Tenant shall first be entitled to receive the unamortized portion of its leasehold improvements, which leasehold improvements shall be amortized on a straight line basis over twenty (20) years, and Landlord shall next be entitled to receive the sum of (a) Three Million Seven Hundred Thousand Dollars plus (b) Three Million Seven Hundred Thousand -21- Dollars ($3,700,000.00) multiplied by 90% of the percentage of increase, if any, in the Cost of Living in the United States as reflected in the Consumer Price Index occurring after the third anniversary of the commencement of the term of this Lease and the date of the taking. The Consumer Price Index shall be measured as described in Article XVIII(B) hereof. After Tenant has received the unamortized value of its leasehold improvements and Landlord has received in full its aforesaid sums, Tenant shall receive the value, if any, of its leasehold estate. If a portion of the Demised Premises shall be so taken and Tenant shall not exercise its option to terminate this Lease or if such taking shall not give rise to such an option to terminate, as aforesaid, then this Lease shall terminate on the taking date only as to that portion of the Demised Premises so taken, and shall remain in force and effect with respect to that portion of the Demised Premises not so taken and the rent and other charges payable by Tenant to Landlord hereunder shall be abated and reduced in proportion to the value of the Demised Premises before and after the condemnation. Tenant shall also be permitted to make a separate claim for its trade fixtures, inventory, moving expenses, and business interruption, if such a claim is permitted by law. XVI INSURANCE Tenant at its cost during the term hereof shall keep the aforesaid building insured against loss by fire and all standard extended coverage, including, without limitation, -22- earthquake in companies reasonably acceptable to Landlord in an amount reasonably acceptable to the parties hereto, but in no event less than the purchase price under the Tenant's option to purchase the Demised Premises described in Article XV hereof, with rent loss insurance coverage for one year's fixed rental and additional rental, said policies to be in the name of Landlord and with a loss payable clause in favor of any first fee mortgagee, with loss thereunder payable to Landlord, Tenant and the first fee mortgagee as their respective interests may appear. The original policy of insurance shall be delivered to Landlord or the first fee mortgagee. Tenant shall provide liability insurance coverage protection with Landlord and Tenant named therein as insured parties with limits of at least $2,000,000.00 combined single limit for bodily injury and property damage and $5,000,000.00 per occurrence for personal injury. All of the insurance to be furnished and provided in this paragraph shall contain riders or endorsements if available providing that such policies may not be canceled or terminated without first giving thirty (30) days notice to Landlord and its first mortgagee if the first mortgagee is covered by such insurance. XVII TAXES After the Rental Accrual Date, Tenant shall pay all real property taxes and assessments (general and special), and subdivision trustee fees levied during the term hereof by the -23- state, county, and municipality upon the leased land, building, and other improvements constituting the Demised Premises, and Tenant shall pay all such taxes, assessments and subdivision trustee fees before same become delinquent and to the proper authorities. Tenant shall have the right to contest the amount of any such taxes, assessments or subdivision trustee fees (and Landlord shall use all reasonable efforts to cooperate with Tenant in such contest, provided, however, that such cooperation will be at no cost to Landlord) upon (i) Tenant's deposit of such amounts in an escrow account for the benefit of the Landlord, (ii) Tenant's payment of such amounts to the proper authorities under protest, or (iii) furnishing a bank letter of credit or other form of security reasonably satisfactory to Landlord. If this Lease shall begin on a date other than January 1 or terminate on a day other than the last day of a calendar year, the amount of real property taxes, assessments and subdivision trustee fees to be paid by and Tenant and applicable to the calendar year in which such commencement or termination shall occur shall be prorated on the basis which the number of days from the commencement of such calendar year to and including such termination date bears to three hundred sixty five (365). XVIII OPTIONS OF TENANT TO RENEW LEASE Provided that this Lease is in full force and effect and the Tenant is not in default under this Lease, the Tenant shall have four (4) successive options to extend this Lease. Each such renewal option shall be for a renewal term of five (5) -24- years, and shall be subject to all terms and conditions of this Lease and at the rental as hereinafter specified. In order to exercise each such renewal option, the Tenant must give the Landlord written notice of the Tenant's election to extend the term of this Lease, said notice to be given at least six (6) months prior to the expiration of the existing term or existing renewal term, as the case may be. In the event that for any reason this Lease is terminated during the original term or any renewal term, all remaining renewal options shall thereby lapse. The annual yearly rental (i.e., all rental payable hereunder other than additional rental payable pursuant to the provisions of this Lease) for the renewal periods shall be the sum of (a) and (b) below: (a) The annual yearly rental then payable hereunder for the existing term or existing renewal term, as the case may be, and (b) The amount determined in (a) above multiplied by ninety percent (90%) of the percentage of increase, if any, in the Cost of Living in the United States as reflected in the Consumer Price Index of the United States Department of Labor's Bureau of Labor Statistics for Urban Consumers (U.S. City Average Base 1982-1984 = 100) (i) in the case of the first renewal option, from the first month of the sixth year of the Lease to the last month of the tenth year of the Lease, and (ii) in the case of the second, third and fourth renewal options, from the first month of the renewal term then expiring to the last month of the term then expiring. -25- If said Consumer Price Index shall no longer be published, then another index generally recognized as authoritative shall be substituted by agreement, and if the parties shall not agree, such substituted index shall be selected by the Chief Judge of the United States District Court for the Eastern District of Missouri upon,application of either party. In any event, the base used by any new index or any new base year employed in the Consumer Price Index shall be reconciled to the base year employed in the Consumer Price Index (1982-1984). In no event shall the annual yearly rental for any renewal period be less than the annual yearly rental payable under this Lease for the last year of the initial term of this Lease, nor, for the purposes of the calculation described in (b) above, shall such increase, if any, in said Consumer Price Index be more than twenty percent (20%). Also, there shall be additional rent payable by reason of the provisions of this Lease. XIX ENVIRONMENTAL PROVISIONS Compliance with Laws. Subject to the provisions of Article VIII hereof, Tenant represents and warrants that during the term of this Lease, it will comply with all federal, state, and local environmental, safety and health laws, statutes, ordinances, regulations, rules, guidances, and orders (the "Environmental Laws") and will maintain all necessary permits, approvals, and licenses and has made all necessary registrations -26- and notifications in connection with the operation of the leased property. Notwithstanding anything to the contrary herein, Tenant shall have no obligation to correct, or to insure the compliance with said Environmental Laws of, conditions existing on the Demised Premises as of the date of this Lease which have become violations of said Environmental Laws during the term of this Lease without any action or culpable omission by Tenant, its agents, employees, contractors, invitees or any other person or entity acting at the direction or authorization of Tenant. Restriction on Certain Uses. Tenant shall not cause or permit the Demised Premises to be used for any business or activity involving the generation, storage, use, treatment, transportation, disposal or distribution of any pollutant, contaminant, hazardous substance or material, hazardous chemical, toxic substance, hazardous waste, infectious or medical waste (including but not limited to those types of medical wastes identified in 42 U.S.C. 6992a(a)(1) through (11)), solid waste, radioactive material, hazardous chemical, toxic chemical, extremely hazardous substance, petroleum, including crude oil or any fraction thereof, or asbestos-containing material (the "Hazardous Materials") without the prior written consent of the Landlord. Landlord hereby consents to Tenant's use of the Demised Premises for the purposes and processes currently conducted by Tenant in accordance with applicable Environmental Law at Tenant's facility presently located in Camarillo, California, which purposes and processes are more fully set forth on Exhibit C to this Lease. -27- Notification. Tenant shall give Landlord immediate notice of any release of Hazardous Materials on, under or from the Demised Premises which is in violation of, or is required to be reported under any Environmental Law, and shall give Landlord written notice within a reasonable time, but no later than ten (10) days after Tenant learns or first has reason to believe that any report, notice, action, claim, or complaint has been made or threatened by any person, entity, or agency concerning the presence, use, release, or disposal of any Hazardous Materials on, under or from the Demised Premises. Inspection of Demised Premises. Landlord may from time to time, upon reasonable prior notice to Tenant, conduct or engage an independent contractor to conduct an "Environmental Audit" of the Demised Premises. The Environmental Audit may include: (a) a physical inspection of the Demised Premises; (b) sampling and analysis of soil, groundwater, surface waters, or any Hazardous Materials; and (c) a review of Tenant's compliance with all Environmental Laws including all documents related thereto. All costs and expenses incurred by Landlord in connection with the Environmental Audit shall be paid by Landlord, except where such Environmental Audit reveals that the Demised Premises or any surrounding property has become contaminated due to operations or activities attributable to Tenant, then all of the costs and expense of such audit shall be paid by Tenant. Landlord shall provide Tenant with the opportunity to verify the presence of any contamination discovered by Landlord's Environmental Audit prior to the time -28- (i) Tenant is required to reimburse Landlord as provided above and (ii) that any disclosure of such contamination is made to third parties (other than such disclosures as may be required by law). Remediation. Upon identification of environmental contamination or the unpermitted release of Hazardous Materials on, under or from the Demised Premises which was caused by the Tenant, its agents, employees, contractors, subcontractors, or invitees, and not attributable to an event or condition existing prior to the commencement of this Lease, Tenant will undertake, at its own expense, any and all repair or remediation necessary to comply with all Environmental Laws and to satisfy all appropriate governmental agencies. Should Tenant fail to implement such repair or remediation, then Landlord shall have the right, but not the obligation, to undertake such repair or remediation, and to recover all associated costs and expenses properly attributable to Tenant, and not to other potentially responsible parties, from Tenant. Return of Property in uncontaminated State. Upon the expiration or earlier termination of the Lease, Tenant shall (with respect to matters (i) which are attributable to acts or omissions of Tenant, its agents, employees, invitees, independent contractors, or any other person or entity acting at the direction or authorization of Tenant, and (ii) which occurred after the commencement of the term of this Lease, and (iii) which are not attributable to events or conditions existing or occurring prior to the execution of this Lease): (a) cause all -29- Hazardous Materials owned, stored, or existing on the Demised Premises to be removed and disposed of in accordance with all applicable Environmental Laws; and b) remove any underground storage tanks or other containers installed or used by Tenant to store any Hazardous Materials on the Demised Premises, and repair any damage to the Demised Premises caused by such a removal. Indemnification. Tenant agrees to indemnify, defend, and hold harmless Landlord and its agents, from and against any claims, demands, penalties, fines, liabilities, settlements, losses, damages, interest, penalties, costs, response costs or expenses (including, but not limited to, fees for attorneys, consultants, and other experts) of whatever kind or nature (the "Losses"), arising out of or in any way related to a breach of any or all of the foregoing covenants. This indemnification shall not apply where the Losses are caused by the negligence or acts or omissions of Landlord, its agents, employees, contractors, or invitees or where the Losses are attributable to events or conditions existing prior to the commencement of the term of this Lease. This provision shall be in addition to any other obligations and liabilities Tenant may have to Landlord at law or equity and shall survive the termination of this Lease. The foregoing indemnification shall apply regardless of the basis of liability or legal principle involved including, but not limited to claims based upon strict liability. Anything to the contrary herein notwithstanding, Tenant shall have no liability under this Lease for Losses arising from the condition of the -30- Demised Premises as of or prior to the date of the commencement of the Lease. Preexisting Conditions. To the best knowledge and belief of Landlord and in reliance on a Phase I environmental assessment of the Demised Premises as presently being updated, a copy of which will be provided to Tenant promptly upon receipt, Landlord is not and has not ever been in violation of any Environmental Laws affecting the Demised Premises. Landlord agrees to indemnify, defend and hold harmless Tenant and its agents, employees, invitees, and independent contractors from and against any Losses incurred by Tenant relative to the condition of the Demised Premises which are caused by events or conditions existing prior to the date of this Lease. This provision shall be in addition to any other obligations and liabilities Landlord may have to Tenant at law or equity and shall survive the termination of this Lease. The foregoing indemnification shall apply regardless of the basis of liability or legal principle involved including, but not limited to claims based upon strict liability. XX INSOLVENCY Tenant agrees that if at any time a petition under the federal Bankruptcy Code, as may be amended from time to time (hereinafter referred to as the "Bankruptcy Code"), or any state bankruptcy or insolvency laws, be filed by or on behalf of Tenant or against Tenant and remain undismissed for a period of sixty (60) days after service thereof, such event shall constitute a -31- default under this Lease and Landlord shall be entitled to immediately exercise such rights and remedies it may elect under this Lease (without regard to the cure periods provided thereunder) or applicable law. Tenant further agrees, that in the event Tenant's trustee or Tenant, as debtor-in-possession, rejects or otherwise terminates this Lease pursuant to the Bankruptcy Code, Landlord shall be entitled to possession of the Demised Premises immediately without further obligation to Tenant or Tenant's trustee, and this Lease shall terminate, but Landlord's right to be compensated for damages (including, without limitation, liquidated damages pursuant to the terms of this Lease) in any such proceeding shall survive. In addition to the occurrence of the filing of a petition under the Bankruptcy Code or state bankruptcy or insolvency laws by or on behalf of Tenant or against Tenant, the occurrence of any of the following shall constitute a default under this Lease and Landlord shall be entitled to exercise such rights and remedies it may elect under this Lease (after expiration of applicable cure periods, if any, provided thereunder) or other applicable law: (a) a general assignment for the benefit of creditors; (b) the appointment under applicable state law of a trustee or receiver to take possession of substantially all of Tenant's assets or of Tenant's interest in this Lease; (c) the attachment, or other judicial seizure of substantially all of Tenant's assets or of Tenant's interest in this Lease; or (d) insolvency of the Tenant. Anything to the contrary herein notwithstanding, Tenant shall not be deemed to be -32- in default under the foregoing provision with respect to any actions against or involving Tenant of an involuntary nature until the expiration of sixty (60) days after the commencement of such action and Tenant's failure to cause the same to be dismissed within such period. As used in this Article IX, the term "Tenant" shall include the Tenant named herein, as well as any assignee or subtenant, and any surety or other guarantor of this Lease. Tenant hereby acknowledges and agrees that if Tenant obtains an order from a Court authorizing the assumption of this Lease pursuant to Section 365 of the Bankruptcy Code, such assumption shall be of the Lease in its entirety and Tenant's rights to assign the Lease shall be governed solely by this Lease. Accordingly, Tenant hereby irrevocably waives any right to assign the Lease, subsequent to assumption of the Lease, pursuant to Section 365(f) of the Bankruptcy Code as it presently exists (as may be amended from time to time) or any similar provision under federal or state law. XXI TENANT'S OPTION TO PURCHASE Tenant shall have the right, at Tenant's option, to elect to purchase the Demised Premises, during the thirty (30) day period following the third anniversary date of this Lease, for a cash purchase price of Three Million Seven Hundred Thousand Dollars ($3,700,000.00) less (i) any claims Tenant has against Landlord pursuant to the terms of this Lease and (ii) any awards received by Landlord resulting from the condemnation of part of -33- the Demised Premises. In order to exercise said option, Tenant must give to Landlord written notice of said exercise within said thirty (30) day period and said notice must contain a stipulated closing date no earlier than thirty (30) days from said notice nor later than ninety (90) days from said notice, time being of the essence. Payment of the purchase price shall be by Bank Cashier's Check drawn on a St. Louis, Missouri area bank or by Federal Reserve wire transfer. Adjustments for rent, additional rent, and taxes shall be made in accordance with closing practices of the Real Estate Board of Metropolitan St. Louis. Title shall be conveyed by Special Warranty Deed free and clear of all mortgage encumbrances, and subject only to (i) the exceptions listed on Exhibit D hereto, (ii) normal utility easements not interfering with the reasonable use or value of the Demised Premises, and (iii) other exceptions to which Tenant contributed or consented affecting the title to the Demised Premises. This Lease shall be automatically terminated upon closing of said sale. In the event Tenant fails to exercise said option, said option shall lapse and terminate and be of no further force and effect. In the event that Tenant exercises said option and fails to close, this Lease shall remain in full force and effect, and Tenant shall be liable for specific performance and damages for breach of its obligation to purchase. -34- XXII TENANT'S RIGHT OF FIRST REFUSAL During the term of this Lease, in the event that Landlord should from time to time receive any bona fide offer to purchase the Demised Premises which Landlord desires to accept, Landlord shall advise Tenant in writing (within ten (10) days of Landlord's intent to accept such offer) of the price, terms and conditions embodied in said offer. Within thirty (30) days from date of said notice, Tenant shall have the right to elect to purchase the Demised Premises at the same price and upon the same terms and conditions as those embodied in said offer, and Tenant may exercise said right by giving to Landlord a written notice of exercise within said thirty (30) day period. Said acceptance must be accompanied by a Bank Cashier's Check drawn on a St. Louis, Missouri area bank for any earnest money deposit applicable to said offer. Upon any such acceptance, Tenant shall be bound to complete said purchase upon the terms and conditions of said offer except those specifically applicable only to the identity of the original offeror. In the event Tenant does not exercise Tenant's aforesaid right of first refusal, Landlord shall be free to accept the offer and complete the sale at the price and upon the terms and conditions set forth in Landlord's aforesaid notice to Tenant, and Tenant's right of first refusal shall be terminated and extinguished, and shall not apply to any subsequent sales of the Demised Premises. In the event that Tenant does not exercise Tenant's right of first refusal with respect to any offer, and, -35- for any reason, the sale at the same price and on the same terms and conditions is not consummated, Tenant shall have the same right of first refusal with respect to subsequent offers to Landlord. This right of first refusal shall not prohibit any financing secured by mortgage or deed of trust nor shall it apply to any judicial or nonjudicial sale conducted under any mortgages or deeds of trust, but said right of first refusal shall survive any judicial or nonjudicial sale conducted under any mortgages or deeds of trust to which this Lease is prior and therefore said right of first refusal shall be applicable to transactions following such judicial or nonjudicial foreclosure of any such mortgage or deed of trust to which this Lease is prior. Conveyance upon exercise of said right of first refusal shall be by Special Warranty Deed, subject only to items of record to which a deed would be subject pursuant to the terms of Article XXI of this Lease. This Lease shall terminate upon closing of any sale to Tenant pursuant to said first right of refusal. In the event Tenant exercises said right of first refusal and Tenant fails to close, Tenant shall be subject to specific performance and damages for breach of its purchase obligation, and this Lease shall remain in full force and effect. In the event Tenant exercises said right of first refusal and Landlord fails to close, Landlord shall be subject to specific performance and damages for breach of its sale obligation. -36- XXIII NET LEASE Except for Landlord's obligations to maintain the structural components of the building on the Demised Premises and to make sure that the HVAC, electrical and plumbing components are delivered to Tenant in operable condition, all as provided in Article VIII hereof and except for the initial work to be done by Landlord pursuant to Article IV hereof, this is a net Lease and except as set forth in this Lease, Tenant, during the term of this Lease, is to do all things and make all payments connected with or arising out of any occupation of the Demised Premises and its appurtenances, and, except as herein stated, under no condition is Landlord to be required to do or perform any act or acts or be subject to any liabilities with respect to the Demised Premises or any part thereof or its appurtenances. Landlord shall have the right to (but shall not be obligated to) pay any taxes on the Demised Premises or any utility or other charges against the Demised Premises and any other debts incurred by Tenant with respect to the Demised Premises or the use or occupation of the Demised Premises which Tenant shall fail to pay when due, and to obtain appropriate insurance coverage if Tenant shall fail to provide Landlord with evidence that such insurance is in effect as required by this lease, and to make repairs, if Tenant shall fail to do so as required by this Lease, and the amount of any payment by Landlord with respect to items which are the responsibility of Tenant under this Lease shall be due -37- immediately by Tenant to Landlord as additional rental payments under this Lease. XXIV NOTICES TO MORTGAGEES Tenant agrees to give any Mortgagees and/or Deed of Trust Holders, by United States Registered Mail postage prepaid, a copy of any notice of default served upon the Landlord, provided that prior to such notice Tenant has been notified, in writing (by way of Notice of Assignment of Rents and Leases, or otherwise) of the address of such Mortgagees and/or Deed of Trust Holders. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, or if no such period is provided, then within thirty (30) days, then the Mortgagees and/or Deed of Trust Holders shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty (30) days, any Mortgagee and/or Deed of Trust Holder has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being so diligently pursued. In no event shall more than sixty (60) days be permitted for said cure. -38- XXV BROKERAGE The parties acknowledge and represent and warrant to each other that the only brokers involved in this transaction are Nooney Krombach acting on behalf of the Landlord and Midland Group acting on behalf of Tenant. Landlord hereby agrees to pay the leasing commission of Nooney Krombach (and the sales commission, if the Demised Premises are sold to Tenant pursuant to the options to purchase or right of first refusal contained herein) in accordance with the Listing Contract dated January 13, 1992, and Nooney Krombach shall share said commissions) with Midland Group in accordance with the practices of the Real Estate Board of Metropolitan St. Louis. Each party hereto hereby agrees to indemnify and hold harmless the other for all claims for real estate commissions and finders' fees (other than those of Nooney Krombach and Midland Group) arising from this transaction and the conduct of the indemnifying party. XXVI INDEMNIFICATION OF TENANT Landlord agrees that Landlord will protect, defend, indemnify and save Tenant harmless against any and all loss or damage of any nature whatsoever, including attorneys fees, arising in connection with the financing statements or mechanics liens listed on Exhibit E to this Lease. In the event that Tenant shall be subject to any loss or damage of any nature whatsoever, including attorneys fees, arising in connection with such financing statements or mechanics liens, Tenant shall notify -39- Landlord of the amount of such loss or damage, including attorneys fees. If Landlord shall fail to pay such amounts to Tenant within ninety (90) days after such notice, Tenant shall notify any mortgagees of record of the Demised Premises of the amount of such loss or damage, including attorneys fees. If such mortgagee(s), if any, shall fail to pay such amounts to Tenant within thirty (30) days after such notice, Tenant may apply such amounts as an offset against rents or other sums owed by Tenant to Landlord under this Lease. Landlord agrees that Landlord will protect, defend, indemnify and save Tenant, its agents, employees, invitees and independent contractors harmless against any and all loss, damage, claims, suits, demands, and causes of action of any nature whatsoever, judgments and any expense incidental to the defense thereof, including attorney fees, arising in connection with the action or suit of Landlord's partners or any other person or entity and relative to the actions or omissions of Landlord or involving Landlord, other than litigation by Landlord or to which Landlord is a party relating to a breach or breaches of any provisions of this Lease by Tenant and other than claims for personal injury or property damage by third parties occurring in or about the Demised Premises after the date hereof. XXVII QUIET ENJOYMENT Provided that and for so long as Tenant pays all rent and additional payments as and when due hereunder, materially complies with and observes all of the terms, conditions and -40- provisions of this Lease, and fulfills all of Tenant's obligations of performance hereunder, Landlord covenants that Tenant shall have peaceable and quiet enjoyment of the Demised Premised during the term of this Lease. Landlord agrees to notify Tenant within thirty (30) days of assignment if Landlord assigns its interest under this Lease. XXVIII RECORDATION OF MEMORANDUM OF LEASE Tenant shall have the right to record in the real property records of St. Louis County, Missouri, a memorandum of lease regarding this Lease and the related options to purchase, which memorandum shall be prepared by Tenant at Tenant's sole cost and expense and shall be in form and substance reasonably satisfactory to Landlord. XXIX INSPECTION OF PROPERTY AND FINANCIAL INFORMATION The effectiveness of this Lease is expressly conditioned upon the following, time being of the essence with respect to the performance and/or satisfaction of such conditions: (a) Within fifteen (15) days of the last to occur of (i) the delivery of the updated Phase I environmental assessment regarding the Demised Premises described in Article XIX hereof and (ii) the delivery to Tenant of possession of the Demised Premises, (which date is referred to herein as the "Environmental Marking Date"), Tenant or -41- Tenant's agent shall perform a physical inspection of the Demised Premises, including a review of a Phase I environmental assessment provided to Tenant by Landlord, the results of which shall be reasonably satisfactory to the Tenant. (b) Within forty five (45) days of the Environmental Marking Date, Tenant or Tenant's agent shall complete a Phase II environmental assessment of the Demised Premises, the results of which shall be reasonably satisfactory to Tenant. The costs of such Phase II environmental assessment shall be the sole responsibility of Tenant unless the results of such Phase II environmental assessment cause Tenant to terminate the transactions contemplated in this Lease, in which case the reasonable costs of such Phase II environmental assessment, which costs shall not exceed Twenty Five Thousand Dollars ($25,000.00) in the aggregate, shall be paid by Landlord. (c) Within fifteen (15) days of the date of this Lease, review by the Landlord of the Tenant's balance sheet and income statement for the most recent two (2) fiscal years, prepared in accordance with generally accepted accounting principles, and such other financial information as Landlord shall reasonably request in writing, the results of which review shall be reasonably satisfactory to Landlord. (d) Within fifteen (15) days of the date of this Lease, review by the Tenant of the Landlord's balance sheet -42- and income statement for the Landlord's most recent two (2) fiscal years,, prepared in accordance with generally accepted accounting principles, and such other financial information as Tenant shall reasonably request in writing, the results of which review shall be reasonably satisfactory to Tenant. Failure by either party hereto to satisfy any or all of the conditions described above within the time allocated by the terms of this Lease shall be deemed a waiver of such conditions. XXX HOLDING OVER If, without objection by Landlord, and absent contrary agreement between the parties, Tenant holds possession of the Demised Premises after expiration of the term of this Lease, Tenant shall become a tenant from month to month upon the terms specified herein but at a monthly rental equivalent to one hundred fifty percent (150%) of the then prevailing monthly rental paid by Tenant at the expiration of the term of this Lease,, payable in advance on or before the first day of each month. Each party shall give the other notice at least one month prior to the date of termination of such monthly tenancy of its intention to terminate such tenancy. -43- IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered to each other this Lease as of the day and year first above written. NET 2 L.P. (a Delaware Limited Partnership) By: LEPERCQ NET 2 L.P. (a Delaware Limited Partnership) general partner By: LEPERCQ NET 2, Inc. (a Delaware corporation) general partner By: _________________________ Title: Landlord EVEREST & JENNINGS, INC., a California corporation By: _____________________________ Title Tenant -44- EXHIBIT A Lot 2450 of Earth City Plat 21, a Subdivision in St. Louis County, Missouri, according to the plat thereof recorded in Plat Book 221 pages 19 and 20, being more particularly described as follows: Beginning at a point in the North line of Rider Trail (formerly Riverglen Drive), 44 feet wide, said point being the Southwest corner of said Lot 2450; thence North 24 degrees 30 minutes 37 seconds East 891.24 feet along the West line of said Lot 2450 to the Northwest corner thereof; thence South 58 degrees 32 minutes 30 seconds East, 503.91 feet along the Northeast line of said Lot 2450 to the Northeast corner thereof; thence South 24 degrees 31 minutes 28 seconds West 830.37 feet along the East line of said Lot 2450 to a point in said North line of Rider Trail (formerly Riverglen Drive); thence North 65 degrees 28 minutes 50 seconds West 500.00 feet along said North line of Rider Trail (formerly Riverglen Drive) to the point of beginning. EXHIBIT C Tenant plans to utilize the Demised Premises for the manufacturing, assembling and maintenance of durable hospital equipment. Tenant's operation shall include the cutting, stamping, polishing, bending, welding and assembly of steel. Any chrome and paint work relative to the steel equipment shall not be done on the Demised Premises. Tenant's operation shall also include the utilization of materials incidental to the processes described above. EXHIBIT D 1. Building lines and easements established by the recorded plat, and covenants and restrictions, including a provision for Subdivision Assessments, contained in the instrument recorded in Book 6597 page 1631 and Book 6994 pages 59 and 86 and amended by instrument recorded in Book 7170 page 1579 and page 1582. 2. Flood Control of Indenture, according to instrument recorded in Book 6597 page 1685 and amended by instrument recorded in Book 7143 page 35. 3. Development Plan of Earth City, according to plat recorded in Plat Book 140 page 32 and as amended by Plats recorded in Plat Book 141 page 90, Plat Book 145 page 16 and Plat Book 221 page 63, together with Ordinance of St. Louis County, Missouri according to instrument recorded in Book 6543 page 1567. 4. Rights of the Railroad Company servicing the railroad siding located on insured premises in and to the ties, rails and other properties constituting said railroad siding or in and to the use thereof. 5. Easement Grant executed by and between Earle M. Jorgensen Company and Bennett Packing Company, together with agreements, covenants, restrictions, maintenance and repair agreements by instrument recorded in Book 7531 page 95. EXHIBIT E 1. Financing Statement executed by Bennett Packaging Company to MDPC Equipment Leasing Corporation recorded in Book 7684 page 1779. 2. Financing Statement executed by Consolidated Packaging Corporation to MNC Credit Corp recorded in Book 8750 page 1622. (affects leasehold) 3. Financing Statement executed by Consolidated Packaging Corporation to MNC Credit Corp. recorded in Book 9000 page 495. 4. Mechanics Lien No. 30762 filed October 9, 1990 by Granite Sheet Metal Works, Inc. in the amount or $14,129.91. 5. Mechanics Lien No. 30900 filed October 26, 1990 by Clayco Construction Company, Inc. in the amount of $75,803.00. Suit to enforce the above lien is pending in Cause No. 619132 of the St. Louis County Circuit Court, styled Clayco Construction Co., Inc. VS. Consolidated Packaging Corp., et al. 6. Mechanics Lien No. 31242 filed December 6, 1990 by The Henderson Group, Incorporated in the amount of $32,295.61. EX-10.(Q) 8 LEASE AGREEMENT LEASE AGREEMENT THIS LEASE, made this 10th day of April, 1996, by and between Stone Mountain Industrial Park, Inc., a Georgia Corporation, hereinafter referred to as "Lessor"; and Graham-Field Health Products, Inc., a Delaware Corporation, hereinafter referred to as "Lessee"; WITNESSETH: 1. The Lessor, for and in consideration of the rents, covenants, agreements, and stipulations hereinafter mentioned, reserved, and contained, to be paid, kept and performed by the Lessee, has leased and rented, hereby agrees to lease and take upon the terms and conditions which hereinafter appear, the following described property (hereinafter called "Premises"): A 28,255 square foot portion of Building No. 31 (a 15b, 206 square foot building) known as 8291 Forshee Drive, Westside Industrial Park, Jacksonville, Florida, said building being a part of Section 27, Township 1 South, Range 25 east, Duval County Florida, consisting of a portion of Pickett Land Company's Farms Subdivision as recorded in Plat Book 5, page 93 of the current Public Records of Duval County, Florida, and being more particularly described on Exhibit "A" Legal Description and Exhibit "B" Building 31 Site Plan attached hereto by this reference and incorporated herein. This Lease is subject to all encumbrances, easements, covenants and restrictions of record and to the Declaration of Covenants, Restrictions, and Easements for West side Industrial Park. Lessor represents that none of such encumbrances, easements, covenants and restrictions shall interfere with the use of the Premises for warehouse purposes. 2. To have and to hold for a term of 38 months, said term to begin on the 1st day of July, 1996 and to end at midnight on the 31st day of August, 1999. 3. Lessee shall pay to Lessor monthly "Base Rent" of $*See "Schedule of Rents" Paragraph 34 of the Addendum to Lease herewith attached and incorporated herein due on the first day of each month, in advance, without offset or demand, commencing on July 1, 1996. Upon execution of this Lease, Lessee has paid to Lessor $ N/A, representing the first month's rent due hereunder. In the event Lessee fails to pay the rent or any other payment called for under this Lease within ten (10) days of the time period specified, Lessee shall pay a late charge equal to five percent (5%) of the unpaid amount, which late charge shall be paid with the required payment. Utility Bills 4. Lessee shall place utility bills of all types in its name and shall pay same, along with all assessments pertaining to the Premises, including, but not limited to, water and sewer, natural gas, electricity, fire protection and sanitary pick up bills for the Premises, or used by Lessee in connection therewith. If Lessee does not pay same, Lessor may pay the same and such payment shall be added to and treated as additional rental of the Premises. If this Lease is for a multi-tenant building, water and sewer charges shall be accounted for as provided in Paragraph 33 herein below. Mortgagee's Rights 5. Lessee's rights shall be subject to any bona fide mortgage or deed to secure debt which is now, or may hereafter be, placed upon the Premises by Lessor, and Lessee agrees to execute and deliver such documentation as may be required by any such mortgagee to effect any subordination within ten (10) days of receipt of a request for such execution; provided, however, that any such subordination by Lessee shall be conditioned upon execution and delivery of non-disturbance agreement reasonably acceptable to Lessee, Lessor hereby warrants and represents that no mortgage currently encumbers the Premises. Maintenance and 6. Lessee shall not allow the Premises to fall out of Repairs by Lessee repair or deteriorate, and at Lessee's own expense, "except as provided in Paragraph 37 below," Lessee shall keep and maintain all interior portions of the Premises, in good order and repair, except portions of Premises to be repaired by Lessor under terms of Paragraph 7 below. Lessee also agrees to keep all systems exclusively serving or located within the Premises pertaining to water, fire protection, drainage, sewer, electrical, heating, ventilation, air conditioning and lighting in good order and repair, and agrees to return same to Lessor at the expiration of this Lease or renewal hereof in good operating condition, "ordinary wear and tear excepted". The Lessee covenants and agrees that during the term of this Lease and for such further time as the Lessee, or any person claiming under it, shall hold the Premises or any part thereof, it shall not cause the estate of the Lessor in said Premises to become subject to any lien, charge or encumbrance whatsoever, it being agreed that the Lessee shall have no authority, express or implied, to create any lien, charge or encumbrance upon the estate of the Lessor in the Premises." Repairs by Lessor 7. Lessor agrees to keep in good repair the "structure and all structural elements of the Building", the roof and the exterior walls, all building systems not exclusively serving or located within the Premises exclusive of painting, exclusive of all glass and exclusive of all exterior doors. Lessor gives to Lessee exclusive control of Premises and shall be under no obligation to inspect said Premises. Lessee shall promptly notify Lessor of any damage covered under this paragraph, and Lessor shall be under no duty to repair unless it receives notice of such damage. Modifications and 8. No modifications or alterations to the building Alterations to the on the Premises or openings cut through the roof are Premises allowed without prior written consent of Lessor, which consent shall not be unreasonably withheld. In the event any such modifications or alterations are performed, same shall be completed in accordance with all applicable codes and regulations. Return of Premises 9. Lessee agrees to return the Premises to Lessor, at the expiration or prior termination of this Lease, broom clean and in as good condition and repair as when first received, natural wear and tear, damage by storm, fire, lightning, earthquake or other casualty alone excepted. Lessee agrees to remove its personal property from the Premises at the expiration or prior termination of this Lease. Destruction of or 10. If Premises are totally destroyed by storm, fire, Damage to Premises lightning, earthquake or other casualty, this Lease shall terminate as of the date of such destruction, and rental shall be accounted for as between Lessor and Lessee as of that date. If Premises are damaged, but not wholly destroyed by any of such casualties, rental shall abate in such proportion as use of Premises has been destroyed, and Lessor shall restore Premises to substantially the same conditions as before damage as speedily as practicable, whereupon full rental shall recommence; provided further, however, that if the damage shall be so extensive that the same cannot be reasonably repaired and restored within six (6) months from date of the casualty, then either Lessor or Lessee may cancel this Lease by giving written notice to the other party within thirty (30) days from the date of such casualty. In the event of such cancellation, rental shall be apportioned and paid up to the date of such casualty. Indemnity 11. Lessee agrees to indemnify and save harmless the Lessor against all claims for injuries to persons or damages to property by reason of the use or occupancy of the Premises, the improvements on the Premises or the failure or cessation of services to the Premises, and all expenses incurred by Lessor because of such injuries or occupancy, including attorneys' fees and court costs. Governmental 12. Lessee agrees, as its own expense, to promptly Orders comply with all requirements of any legally constituted public authority made necessary by reason of Lessee's manner of use or occupancy of Premises or operation of its business. Lessor agrees to promptly comply with any such requirements if not made necessary by reason of Lessee's manner of occupancy or operation of the Premises. Notwithstanding any provisions or limitations in this paragraph to the contrary, Lessee shall be responsible for any and all costs and expenses arising from any violations of environmental laws or regulations caused by Lessee's activities or occupancy of the Premises. Condemnation 13. If the whole of the Premises, or such portion thereof as will make Premises unusable for the purpose herein leased, shall be condemned by any legally constituted authority for any public use or purpose, or sold under threat of condemnation, then, in any of said events the term hereby granted shall cease from the time when possession or ownership thereof is taken by public authorities and rental shall be accounted for as between Lessor and Lessee as of that date. Such termination, however, shall be without prejudice to the rights of either Lessor or Lessee to recover compensation and damage caused by condemnation from the condemnor. It is further understood and agreed that neither the Lessee, nor Lessor, shall have any rights in any award made to the other by any condemnation. Assignment 14. Lessee may not assign this Lease, or any interest thereunder, or sublet the Premises in whole or in part without the prior express written consent of Lessor (which consent shall not be unreasonably withheld) and without giving prior written notice to Lessor of intent to assign or sublease. Subtenants or assignees shall become liable directly to Lessor for all obligations of Lessee hereunder, without relieving Lessee's liability. Lessee agrees not to assign or sublease Premises to any one who will create a nuisance or trespass, nor use the Premises for any illegal purpose; nor in violation of any valid regulations of any governmental body; nor in any manner to vitiate the insurance. Lessee further agrees that if such subtenant or assignee is required to pay a rental amount greater than the rental amount required to be paid by Lessee hereunder, then Lessor shall be entitled to receive and shall be paid such increased amount. Upon any such sublease or assignment, Lessee shall provide Lessor with copies of any and all documents pertaining to such sublease or assignment. Hazardous 15. Lessee will not use or suffer the use (by Lessee Substances or other person or entity), of the premises as a landfill or as a dump for garbage or refuse, or as a site for storage, treatment, or disposal of hazardous wastes, hazardous substances, or toxic substances (defined as "hazardous waste" or hazardous substance" under Section 1004 of the Federal Conservation and Recovery Act, 42 U.S.C. ss.6801 et seq., or Section 101 of the Comprehensive Environmental Responses, Compensation, and Liability Act, 42 U.S.C. ss.9601 et seq. or under any other applicable laws); Lessee shall not permit hazardous or toxic waste, contaminants, asbestos, oil, radioactive or other material, the removal of which is required or the maintenance or storage of which is prohibited, regulated, or penalized by any local, state, or federal agency, authority, or governmental unit, to be brought onto the Premises or if so brought or found located thereon, shall cause the same to be immediately removed, unless same complies with all applicable laws, and Lessee's obligation to so remove shall survive the termination of this Lease; Lessee will not use or suffer the use of the Premises in any manner other than in full compliance with all applicable federal, state and local environmental laws and regulations; Lessee warrants and represents that it has not received any notice from a governmental agency for violation of any environmental laws and regulations and, if such notice is received, Lessee immediately shall notify Lessor orally and in writing; Lessee shall indemnify, defend, and hold Lessor harmless from and against any and all costs, damages, and expenses (including, without limitation, environmental compliance or response costs, costs for all remedial action and/or damage to third parties, attorneys' fees and court costs at both trial and appellate levels, 2 (Fla-MT) and damages for business interruption and any lost profits) resulting, directly or indirectly, from any environmental contamination of the Premises or any misstatement or misrepresentation of facts concerning the matters recited in this paragraph. Removal of Fixtures 16. Lessee may (if not in default hereunder) prior to the expiration of this Lease, or any extension hereof, remove all fixtures which Lessee has placed in Premises, provided Lessee repairs all damages to Premises caused by such removal. Provided, however, Lessee shall not remove, under any circumstances, the following: heating, ventilating, air conditioning, plumbing, electrical and lighting systems and fixtures or dock levelers. In the event this Lease is terminated for any reason, any property remaining in or upon the Premises may be deemed to become property of the Lessor and Lessor may dispose of same as it deems proper with no liability to Lessor and no obligation to Lessee. Default; Remedies 17. It is mutually agreed that in the event: (A) the rent herein reserved is not paid at the time and place when and where due and Lessee fails to pay said rent within ten (10) days after written demand from Lessor; (B) the Premises shall be deserted or vacated; (C) the Lessee shall fail to comply with any term, provision, condition, or covenant of this Lease, other than the payment of rent, and shall not cure such failure within twenty (20) days after notice to the Lessee of such failure to comply (or, if such default is of a nature which cannot be cured within said twenty (20) days, then in the event Lessee shall fail to commence to cure such default and thereafter diligently prosecute such cure to completion); (D) Lessee causes any lien to be placed against the Premises and does not cure same within twenty (20) days after notice from Lessor to Lessee demanding cure, in any of such events, Lessor shall have the option at once, or during continuance of such default or condition to do any of the following, in addition to, and not in limitation of any other remedy permitted by law or by this Lease: (1) Terminate this Lease, in which event Lessee shall immediately surrender the Premises to Lessor. Lessee agrees to indemnify Lessor for all loss, damage and expense which Lessor may suffer by reason of such termination, whether through inability to relet the Premises, through decrease in rent, through incurring court costs, actual attorneys' fees or other costs in enforcing this provision or otherwise; (2) Lessor, as Lessee's agent, without terminating this Lease, may terminate Lessee's right of possession, and, at Lessor's option, enter upon and rent Premises at the best price obtainable by reasonable effort, without advertisement and by private negotiations and for any term Lessor deems proper. Lessee shall be liable to Lessor for the deficiency, if any, between Lessee's rent hereunder and the price obtained by Lessor on reletting and for any damage, actual attorneys' fees or expenses incurred by Lessor in enforcing its rights under this provision. (3) Lessor also retains the right to apply for and obtain a dispossessory action against Lessee and to hold Lessee liable for all costs incident to seeking such dispossessory action, including actual attorneys' fees and court costs. Pursuit of any of the foregoing remedies shall not preclude pursuit of any other remedies herein provided or any other remedies provided by law. Lessor shall have the duty to mitigate any possible damages which may be incurred pursuant to any such default by Lessee except in the event Lessee deserts or vacates the Premises without prior notification to Lessor. Any notice in this provision may be given by Lessor or its attorney. Entry for Carding, 18. Lessor may card Premises "For Lease" or "For Etc. Sale" ninety (90) day before the termination of this Lease. Lessor may enter the Premises at reasonable hours during the term of this Lease to exhibit same to prospective purchasers or tenants and to make repairs required of Lessor under the terms hereof, or to make repairs to Lessor's adjoining property, if any. Effects of 19. No termination of this Lease prior to the normal Termination of ending thereof, by lapse of time or otherwise, shall Lease affect Lessor's right to collect rent for the period prior to termination thereof. No Estate in Land 20. This contract shall create the relationship of landlord and tenant between Lessor and Lessee; no estate shall pass out of Lessor; Lessee has only a possessory interest, not subject to levy and sale, and not assignable by Lessee except as provided in Paragraph 14 above. Holding Over 21. If Lessee remains in possession of Premises after expiration of the term hereof, with Lessor's acquiescence and without any express agreement of parties, Lessee shall be month-to-month tenant upon all the same terms and conditions as contained in this Lease, except that the rental shall become one and one-half times the amount in effect at the end of said term of this Lease; and there shall be no renewal of this Lease by operation of law. Such month-to-month tenancy shall only require thirty (30) days notice by either party to the other to terminate such tenancy and Lessee's right of possession. Rights Cumulative 22. All rights, powers and privileges conferred hereunder upon parties hereto shall be cumulative but not restrictive to those given by law. Notices 23. Any notice given pursuant to this Lease shall be in writing and sent by certified mail, return receipt requested, or by reputable overnight courier to: (a) Lessor in care of Stone Mountain Industrial Park, Inc., 5830 E. Ponce DeLeon Avenue, Stone Mountain, Georgia 30083, or such other address as Lessor may hereafter designate in writing to Lessee. (b) Lessee in care of Attn: Ralph Liguori, Executive Vice President Operations, Graham-Field, 400 Rabro Dr. E., Hauppauge, New York 11788, or such other address as Lessee may hereafter designate in writing to Lessor. Any notice sent in the manner set forth above shall be deemed sufficiently given for all purposes hereunder on the day said notice is deposited in the mail or with the courier. Waiver of Rights 24. No failure of Lessor to exercise any power given Lessor hereunder, or to insist upon strict compliance by Lessee with its obligations hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Lessor's right to demand exact compliance with the terms hereof. Time of Essence 25. Time is of the essence in this Lease. Definitions 26. "Lessor" as used in this Lease shall include Lessor, its heirs, representatives, assigns, and successors in title to the Premises. "Lessee" shall include Lessee, its heirs and representatives, successors, and if this Lease shall be validly assigned or sublet, shall include also Lessee's assignees or sub-lessees, as to Premises covered by such assignment or sublease. "Lessor" and "Lessee" include male and female, singular and plural, corporation, partnership or individual, as may fit the particular parties. 3 Exterior Signs 27. Lessee is given permission to erect its customary sign used to identify itself on the front entrance glass of the Premises provided any such sign by Lessee shall be subject to and in conformity with all applicable laws, zoning ordinances and building restrictions or covenants of record and must be approved by Lessor, based on the scaled drawing provided by Lessee, before installation. In the event a sign is erected by Lessee without Lessor's consent, Lessor shall have the right to remove said sign and charge the cost of such removal to Lease as additional rent hereunder. Except upon prior written consent from Lessor, in no event shall Lessee utilize any portable or vehicular signs at the Premises. On or before termination of this Lease Lessee shall remove any sign this erected, and shall repair any damage or disfurement, and close any holes, cause by such removal. Ad Valorem Taxes 28. Lessee herein is leasing 28,255 square feet of a 156,206 square foot building. Lessor will pay all ad valorem taxes levied against the full 156,206 square foot building each year of the Lease term or any renewal hereof. Commencing in the year 1997 and during each remaining year of the Lease term herein granted, or any renewal hereof, Lessee, as additional rent, shall reimburse Lessor for all sums paid by Lessor for the above ad valorem taxes, pro rata, based on the square footage occupied by the Lessee, in the 156,206 square foot building in excess of $12,714.75 (which amount represents a good faith estimate of the fully assessed tax bill on the Premises based on current tax bills on similar buildings). Upon being notified by Lessor of said pro rata amount of ad valorem taxes, Lessee will remit same to Lessor within thirty (30) days in the same manner as rent. Use of Premises and 29. (A) Premises shall be used for storage and Insurance distribution of medical products and related office purposes. Premises shall not be used for any illegal purposes, nor in any manner to create any nuisance or trespass, nor in any manner to vitiate the insurance, based on the above purposes for which the Premises are leased. (B) Lessee herein is leasing 28,255 square feet of a 156,206 square foot building. Lessor will carry, at Lessor's expense, "All Risk" Insurance Coverage on the full 156,206 square foot building in an amount not less than $3,000,000 or the full insurable value, whichever is greater. The term "full insurable value" shall mean the actual replacement cost, excluding foundation and excavation costs, as determined by Lessor. Commencing in the year 1997 and during each remaining year of the Lease term herein granted, or any renewal hereof, Lessee, as additional rent, shall reimburse Lessor for all sums paid by Lessor the above coverage, pro rata, based on the square footage occupied by the Lessee in the 156,206 square foot building in excess of the annual premium for said coverage for the year 1996, unless such increases shall result of the occupancy or use by any other tenant in the building, in which case Lessee shall have no obligation to pay any portion of such increase. However, if such increases are the result of the occupancy or use of Lessee or of the occupancy or use by any sub-tenant or assignee of Lessee, Lessee shall be responsible for the increase on the entire building. Upon being notified by Lessor of said increased sums, Lessee will remit to Lessor said amount within thirty (30) days. (C) Lessee will carry, at Lessee's own expense, insurance coverage on all equipment, inventory, fixtures, furniture, appliances and other personal property on the Premises. (D) Lessee shall procure, maintain and keep in full force and effect at all times during the term of this Lease and any renewal hereof, comprehensive public liability insurance indemnifying Lessor and Lessee against all claims and demands for injury to, or death of, persons, or damage to property which may be claimed to have occurred upon the Premises in an amount not less than $2,000,000.00, per occurrence of coverage for injury (including death) to one or more persons attributable to a single occurrence and for property damage. To the full extent permitted by law, Lessor and Lessee each waives all right of recovery against the other for, and agrees to release the other from liability for, loss or damage to the extent such loss or damage is covered by valid and collectible insurance in effect at the time of such loss or damage; provided however, that the foregoing release by each party is conditioned upon the other party's carrying insurance with the above described waiver of subrogation, and if such coverage is not obtained or maintained by either party, then the other party's foregoing release shall be deemed to be rescinded until such waiver is either obtained or reinstated. All insurance provided for in this Lease shall be effected under enforceable policies issued by insurers of recognized responsibility licensed to do business in the state where the Premises are located. At least 15 days prior to the expiration date of any policy procured by Lessee, the original renewal policy for such insurance shall be delivered by the Lessee to the Lessor. Within fifteen (15) days after the premium on any such policy shall become due and payable, the Lessor shall be furnished with satisfactory evidence of its payment. The original policy or policies shall be delivered to Lessor at the commencement of this Lease. If the Lessee provides any insurance required by this Lease in the form of a blanket policy, the Lessee shall furnish satisfactory proof that such blanket policy complies in all respects with the provisions of this Lease, and that the coverage thereunder is at lest equal to the coverage which would be provided under a separate policy covering only the Premises. If the Lessor so requires, the policies of insurance provided for shall be payable to the holder of any mortgage, as the interest of such holder may appear, pursuant to a standard mortgage clause. All such policies shall, to the extent obtainable provide that any loss shall be payable to the Lessor or to the holder of any mortgage notwithstanding any act or negligence of the Lessee which might otherwise result in forfeiture of such insurance. All such policies shall, to the extent obtainable, contain an agreement by the insurers that such policies shall not be cancelled without a least thirty (30) days prior written notice to the Lessor and to the holder of any mortgage to whom loss hereunder may be payable. Additional Charges 30. In addition to rent, Lessee shall pay monthly in advance concurrent with rental payments, all applicable State and Local Sales Tax on all sums due under this Lease. Radon Gas 31. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. Grounds and Common Area Maintenance 32. Notwithstanding the provisions of Paragraph 6 herein above, Lessor shall provide all material, equipment and labor for exterior landscape and grounds maintenance for the Premises including mowing, mulching, weeding, fertilizing, insecticiding, pruning, routine replacement of trees and shrubbery, and other landscaping, drainage, and irrigation system maintenance. Lessor will also provide landscaping and maintenance for right-of-way areas, and the common irrigation and storm water management systems which serve the Premises and Westside Industrial Park ("common area maintenance"). Commencing in the year 1997 and during each remaining year of the Lease term herein granted, or any renewal hereof. Lessee, as additional rent, shall reimburse Lessor for all sums paid by Lessor for the above grounds and common area maintenance, pro rata based on the square footage occupied by the Lessee, in the 156,206 square foot building in excess of the total amount of grounds and common area maintenance payable for the year 1996. Upon being notified by Lessor of said pro rata amount of grounds and common area maintenance, Lessee will remit same to Lessor within thirty (30) days in the same manner as rent. 4 (Fla-MTN) 33. The building of which the Premises are a part is served by one water meter. Lessor shall be billed by the utility for all water consumed in building along with related sewer charges, and Lessor shall promptly pay said bills. Lessor shall, however, invoice Lessee monthly for Lessee's share of such water and sewer charges based on Lessee's portion of the leased space in building, and Lessee shall promptly pay said bills. If Lessee's consumption of water is increased by "non-domestic" manufacturing, processing, or other uses, exclusive of "domestic" uses such as office, restroom, drinking fountain, or is increased by "domestic" uses arising from occupancy by more than one person per 2000 sq. ft. of leased floor area, Lessee's share of water billed shall take such extra uses into account. Conversely, if water use by any other occupant of the building is increased by such "non-domestic" use or "domestic" uses arising from occupancy exceeding one person per 2000 sq. ft. of leased floor area, such other occupant's billing shall take such extra use into account. All other utilities will be separately metered. Attached hereto and incorporated herein by reference are the following: Addendum to Lease Exhibit A - Legal Description Exhibit B - Site Plan Exhibit C - Building Specifications THIS LEASE contains the entire agreement of the parties hereto, and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein, shall be of any force or effect. If any term, covenant or condition of this Lease or the application thereof to any person, entity or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to persons, entities or circumstances other than those which or to which used may be held invalid or unenforceable, shall not be affected thereby, and each term, covenant or condition of this Lease shall be valid and enforceable to the fullest extent permitted by law. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, the day and year first above written. Signed, sealed and delivered Stone Mountain Industrial Park, Inc. in the presence of: A Georgia Corporation /s/ Linda G Lawson By: /s/ [ILLEGIBLE] - ---------------------------------- ------------------------------------ Witness Title: Vice President LESSOR (Corp. Seal) Signed, sealed and delivered Graham-Field Health Products, Inc. in the presence of: A Delaware Corporation /s/ [ILLEGIBLE] By: /s/ Irwin Selinger - ---------------------------------- ------------------------------------ Witness Vice President, General Title: Chairman of the Board Counsel Lessee 5 (Fla-MT) ADDENDUM TO LEASE DATED APRIL 10, 1996 BETWEEN STONE MOUNTAIN INDUSTRIAL PARK, INC. AND GRAHAM-FIELD HEALTH PRODUCTS, INC. 34. SCHEDULE OF RENTS: Lessee shall pay to Lessor promptly on the first day of each month during the term of this Lease, in advance and without demand or offset: $9,348.81 per month July 1, 1996 through August 31, 1999. 35. Provided that Lessee is not in default hereunder beyond applicable cure periods and that Lessee has not sublet the entire Premises or assigned this Lease or its rights hereunder, Lessee shall have the option to expand into a larger available facility owned by Stone Mountain Industrial Park, Inc. at any time during this Lease Term, and this Lease shall terminate upon the commencement date of the lease for such larger facility. 36. Provided that Lessee is not in default hereunder beyond applicable cure periods and that Lessee has not sublet the entire Premises or assigned this Lease or its rights hereunder, Lessee shall not be responsible for any increases in ad valorem taxes above a total of $0.65 per square foot (so that Lessee's total responsibility will not exceed $0.20 per square foot); or increases in insurance expense above a total of $0.07 per square foot (so that Lessee's total responsibility will not exceed $0.02 per square foot); or increases in CAM charges above a total of $0.14 per square foot (so that Lessees total responsibility will not exceed $0.04 per square foot), during the original term of this Lease, provided such increases are not due to Lessee's manner of use of the Premises or improvements to the Premises. 37. Lessor warrants to Lessee that at the time of delivery of the Premises to Lessee, the Premises shall be in compliance with all laws, ordinances and codes generally applicable to the building of which the Premises are a part, but excluding any such laws, ordinances and codes which may be applicable to Lessee's manner of use of occupancy of the Premises. The certificate of occupancy for the Premises shall permit use of the Premises for warehouse purposes. 38. Provided that Lessee is not in default hereunder beyond applicable cure periods and provided that Lessee has not sublet the entire Premises or assigned this Lease or its rights hereunder, during the first twelve (12) months of the term, Lessee shall have a "right of first offer" for all or a portion of the expansion space adjacent to the Premises, consisting of approximately 20,000 square feet, as more particularly shown on Exhibit B (the "Additional Space"), on the terms and conditions of this paragraph. If Lessor desires to offer all or any portion of the Additional Space for lease, Lessor will deliver to Lessee a written notice specifying the terms of the offer. Lessee will then have five (5) business days from the delivery of such notice to accept the offer in writing to lease the identical space as contained in the offer in accordance with terms of the offer. Lessor and Lessee shall promptly enter into an amendment to this Lease on all the same terms as this Lease, incorporating the rental terms contained in Lessor's notice with respect to the Additional Space, and adjusting other matters dependent upon the size of the new premises, such as Lessee's share of the common area expenses, ad valorem taxes and insurance premium payments. If Lessee fails to accept or rejects the offer within the 5-day period, Lessor will be entitled to lease the space on the same terms stated in the notice to Lessee; provided, however, that if Lessor proposes to lease the Additional Space on more favorable terms to a third-party, Lessor will again re-offer the Additional Space to Lessee on such terms and Lessee shall respond to such offer in the time period provided above. If Lessor does lease the space, the right granted Lessee under this paragraph will automatically terminate. However, if Lessor does not lease the space, the space will not subsequently be leased without Lessors compliance with this paragraph. Time is of the essence of this Lease. 39. Lessor warrants to Lessee that all materials and equipment incorporated into the Premises will be new, and that the Premises will be of good quality, free from faults and defects, and constructed substantially in accordance with the Building Specifications attached hereto as Exhibit C and hereby incorporated herein. Lessor hereby warrants all workmanship and equipment installed by Lessor for a period of one (1) year from the commencement of the term. To the extent the buildout of the Premises are not totally completed at the time of delivery of the Premises to Lessee or at commencement of the term, Lessor shall promptly complete such buildout and repair or correct any "punchlist" items. 40. Lessor warrants to Lessee that, to the best of its knowledge, no hazardous or toxic waste, contaminants, asbestos, oil, radioactive or other material is located in, on or under the Premises, and the Premises, the building in which the Premises is located, and the property on which the building is constructed are in compliance with all applicable federal, state, and local environmental laws, ordinances, rules and regulations. 41. Provided that Lessee is not in default hereunder beyond applicable cure periods and that Lessee has not sublet the entire Premises or assigned this Lease or its rights hereunder, Lessee shall have the one time option to renew this Lease for an additional two (2) year Lease Term under the same terms and conditions as herein set forth except that the monthly rental rate shall be $9,652. Lessee shall provide Lessor with not less than 180 days advance written notice of its intent to renew the Lease. 42. Should Lessee not renew this Lease as provided for in Paragraph 40 above then Lessee shall pay to Lessor a one time payment of $27,000 for the cost of improvements made by Lessor. Said payment shall be made not less than 180 days prior to the expiration of this Lease. LEGAL DESCRIPTION BLDG. 31 WESTSIDE INDUSTRIAL PARK A part of Section 27, Township 1 South, Range 25 East, Duval County Florida, together with a portion of Pickett Land Company's Farms Subdivision as recorded in Plat Book 5, page 93 of the current Public Records of Duval County, Florida, together with a portion of Unit 1, Westside Industrial Park Subdivision as recorded in Plat Book 46, page 84A-E of the current Public Records of Duval County, Florida, and being more particularly described as follows: Begin at the point of intersection of the northern right of way of Forshee Drive (80 ft. r/w) and the eastern right of way of Bulls Bay Hwy. (var. r/w); running thence along the eastern right of way of Bulls Bay Hwy. (var. r/w) N0 (degrees) 00'00" E a distance of 56.40 feet to a point; running thence along said right of way N 08 (degrees) 05'34" W a distance of 437.96 feet to a point; running thence and leaving said right of way S 90 (degrees) 00'00" E a distance of 970.35 feet to a point; running thence S 0 (degrees) 00'00" E a distance of 473.62 feet to a point lying on the northern right of way of Forshee Drive (80 ft/ r/w); running thence along said right of way and a curve to the right (said curve having a chord bearing of S 84 (degrees) 42'02" W, a chord distance of 177.33 feet, and a radius of 960.00 feet) an arc distance of 286.0l feet to a point; running thence along said right of way N 90 (degrees) 00'00" W a distance of 732.12 feet to a point and the TRUE POINT OF BEGINNING. Said tract or parcel contains 10.5 acres and is more fully shown on that Site Plan of Building 31 for Pattillo Construction Co., prepared by Jason R. Houston, dated 12/01/94, last revised 12/27/94. EXHIBIT "B" [Site Plan] Graham-Field March 22, 1996 WESTSIDE INDUSTRIAL PARK BUILDING SPECIFICATIONS - BUILDING NO. 31 GRAHAM-FIELD GENERAL FACILITY DESCRIPTION (a) Location: Building No. 31, 8291 Forshee Drive, Westside Industrial Park, Jacksonville, Florida. (b) Size & Overall Dimensions: Approximately 28,255 sq. ft. including 1000 +/- sq. ft. of office area with 24' minimum ceiling clearance and 50' x 40' interior column spacing. (c) Office: Approximately 1,000 +/- sq. ft. of centrally heated and air conditioned office area at the front of the premises. Offices will be built according to a Floor Plan to be prepared by Pattillo and mutually approved by Graham-Field and Pattillo. (See Office Area Design & Finishes section for additional detail) (d) General Conditions: Cost of design, supervision, permits, fees, meters, temporary utilities, and other expenses related to construction are included. All work shall be being performed in a professional manner by Pattillo Construction Corporation in accordance with the applicable laws and regulations in effect in Duval County and the State of Florida. Special water, sewer, environmental or other permits related to Lessee's particular processes, operations, or emissions are not included. SITE WORK (a) Landscape, Drainage, & Irrigation: All surface water drains away from the building. A landscape architect has designed landscaping for the premises, which is being installed in accordance with overall standards for Westside Industrial Park. (b) Automobile Parking: Twenty (20) parking spaces paved with asphalt along with required curb and gutter will be provided. (c) Truck Areas & Access Drives: The 120' deep truck court area and all drives are paved with 6" of concrete rated at 3,000. (d) Curb & Gutter: Poured with 3,000 PSI concrete 18" x 6". (e) Signs & Striping: Parking areas will receive single line painted striping and handicap signs. CONCRETE (a) Foundations: All footings have been designed for 3,000 PSF soil bearing pressure and will poured with 3,000 PSI concrete. (b) Slab on Grade: (1) Five (5") inch thick 3,000 PSI concrete reinforced with synthetic fibers. The surface will be steel trowel finished and floors will be chemically cured and hardened with "Lapidolith". Subgrade will be chemically treated for termite protection. Caulking of floor joints is excluded. (2) Column isolation joint will be non-keyed, diamond or round formed with asphalt impregnated felt. Graham-Field Westside Industrial Park - Building No. 31 March 22, 1996 Page Four (d) Floors: (1) Offices: Carpeting with a $12.50/sq. yd. allowance or 12" x 12" x 1/8" vinyl composition tile as required. (2) Restrooms: 4" x 4" ceramic tile. (3) Production: Sealed concrete floor. (e) Ceilings: Spaces scheduled to receive acoustical tile ceiling system shall have exposed grid system, 24 inches by 48 inches, non-directional fissured mineral board, 5/8 inch thickness, square edges, exposed steel "T" runners, white painted finish. Ceiling shall be insulated with 3-1/2" inch fiberglass batts. (f) Warehouse Finishes: (1) The personnel doors and frames will be painted - two coats. (2) Warehouse walls and structural steel columns and beams will be painted white. (g) Millwork: Breakroom area shall be provided with base and/or wall cabinets per office design. (h) Exclusion: No provision has been made for raised computer floor. SPECIALTIES (a) Toilet Partitions: Plastic laminate (wood particle board core) with standard polish non-corrosive metal hardware. (b) Toilet Room Accessories: (1) Brushed stainless steel toilet room accessories manufactured by Bobrick or equal shall be provided as follows: (2) Combination semi-recessed paper towel dispenser and waste receptacle: one each toilet room. (3) Framed mirrors: one each lavatory except where unframed mirrors are provided, sloped, handicapped type where required by Southern Building Code. (4) Handicapped grab bars: one pair each toilet. (5) Soap dispenser: one (1) each toilet room. (c) Fire Extinguishers: (1) Fire extinguishers shall be provided as required by Southern Building Code in both the warehouse and office. (2) All fire extinguishers in finished office areas are to be located in semi-recessed enameled steel cabinets with signage. Graham-Field Westside Industrial Park - Building No. 31 March 22, 1996 Page Five EQUIPMENT Dock Levelers: Two (2) 6' X 8' mechanical dock levelers with 16" lips and rated for 20,000 pounds will be installed. PLUMBING (a) Service Lines: A 2" water line with standard 2" meter connection and 6" Schedule 40 PVC sewer line serve the building. All systems and fixtures will be designed in accordance with applicable Florida codes. Domestic water piping above grade will be copper. Restrooms will be provided as described under Office Area Design and Finishes and will be designed for handicapped accessibility as required by code. Surcharges or tap on fees based on water or sewage effluent quality or quantity are excluded. (b) Restrooms: Flush valve wall hung urinals and flush valve floor mounted toilets will be provided. (c) Water Coolers: One (1) wall mounted electric stainless steel, top barrier free electric water cooler is included in the office area. (d) Sinks: (1) Bathroom lavatories to be provided per plan. (2) Breakroom - single compartment, stainless steel sink shall be provided in breakroom vending area. (e) Water Closets: Standard floor mounted, low consumption, flush valve, open front, elongated bowl, 17" rim height, white, vitreous china (handicap per code). (f) Urinals: Wall mounted, low consumption, flush valve, white, vitreous china. (g) Water Heater: Electric, 25 gallon (typical) hot water will be provided to restrooms and sinks. (h) Hose Bib: Bronze or brass, integral mounting flange. FIRE PROTECTION (a) Sprinkler A complete wet ESFR sprinkler system in accordance System: with N.F.P.A. standards for a system. System shall include yard mains, hose hydrants, interior hose stations, sprinkler heads, and chrome pendant heads will be used in the finished office area. Office area to have 0.10 gpm per sq. ft. over most remote 3,000 sq. ft. to Code. (b) Fire Hydrants: Fire hydrants - will be provided per building code. (c) Exclusion: In-rack sprinkler, foam, etc. have not been provided for. HVAC/MECHANICAL (a) Natural Gas: Natural gas supply will be provided to the building with 2" - 2 psi entrance piping by the gas utility company. Graham-Field Westside Industrial Park - Building No. 31 March 22, 1996 Page Six (b) Office Area Heat and Cooling: (1) A complete independent HVAC system shall be provided for the office areas. (2) The HVAC system shall be packaged units and mounted on the roof or split systems with the condensers ground mounted. The units shall be York, Trane, Carrier or equal. (3) Air distribution will be by ceiling diffusers and controls with be electric thermostats. (4) An exhaust fan will be provided for each restroom. (c) Warehouse Area Heat: Suspended gas fired unit heaters will be provided. Design will maintain 70 degrees fahrenheit at outside temperature of 29 degrees fahrenheit. ELECTRICAL (a) Main Service: 400 amp, 277/480 volt, three phase 4 wire main service with dry type transformers serving 120/208 volt loads. Secondary distribution to panels for lights, office outlets, office HVAC and other building circuitry equipment is included. Circuitry for and connection of Purchaser supplied equipment is not included except as provided below. (b) Emergency Lighting: Facility exits will be clearly marked and the warehouse and office will have emergency light fixtures, all according to State and local codes. Approximately 10% of all fixtures will be quartz restrike. (c) Warehouse Lighting: All warehouse lighting to be metal halide fixtures suspended between the bar joists. Lighting levels will be to 30' candles. (d) Forklift Disconnect: Two (2) 480 volt, 30 amp disconnects for forklifts. (e) Exterior Lighting: Building mounted exterior flood lights will be installed at the corners of the building and above truck loading doors. Soffit lighting will highlight the front entrance. Lighting to provide 1/2 - 1 f.c. and to be high pressure sodium. (f) Offices: (1) Lighting will be 2' x 4' lay in four tube 277 volt fixtures T8 lamps with electronic ballast. Lighting to be controlled by motion detector. (2) Telephone wire ways include empty outlet boxes and conduit to above finished ceiling. Telephone and data systems wiring and equipment are excluded. (3) 110 Volt convenience outlets per standard. (g) Excluded: Tenant supplied security and monitoring system. Graham-Field Westside Industrial Park - Building No. 31 March 22, 1996 Page Three (c) Aluminium Entrance Doors and Fixed Glass Frames: (1) Entrance door frames shall be narrow style, extruded aluminum, with electrostatically applied enamel finish in color selected by Architect/Engineer. (2) Fixed glass storefront framing system shall be extruded aluminum sections with electrostatically applied enamel finish in color selected by Architect/Engineer. Members shall be installed with concealed fasteners. (d) Glass and Glazing: (1) All exterior glass shall be reflective, 1/4 inch minimum thickness, double glazed, solar bronze, insulated. Installation shall be in accordance with the recommendations of the manufacturers of the glass and glazing materials. (2) Interior sidelight glass shall be 1/4 inch clear glazing. (e) Finish hardware: (1) Locks and latch sets shall be heavy duty cylindrical case, brushed aluminum finish as manufactured by Ruswin or equal. Lever handle sets shall be installed as required by code. (2) Door closures shall be surface mounted. (3) Push, kick, and mop plates shall be stainless or brushed aluminum. (4) Hinges shall be heavy duty, ball bearing at doors with closures, oil bearing elsewhere. On exterior hardware provide non-removable hinge pins. (5) Office area to be keyed separate from warehouse. FINISIIES (a) General: 1,000+/- sq. ft. of office area will be provided per office plan and will include 2 private offices, a reception area, a breakroom, and 2 single stall bathrooms. (b) Furring: The 8" concrete block office/warehouse demising wall will be furred and finished with 5/8" gypsum board. (c) Drywall: Interior office walls and the temporary expansion wall shall be constructed as follows: (1) Sheetrock shall be 5/8 inch thickness, tapered edges, fire rated, where required. Corner beads to be metal and edge molding J type. Finished height 9' - 0" and shall be screw applied and finished with a ready mixed, all purpose joint compound. Fixture walls of toilet rooms shall receive moisture resistant gypsum board. (2) Standard metal studs shall be 3-5/8", 26 gauge electro-galvanized steel, cold rolled C shaped, screw type, gauge as recommended by the manufacturer for partition framing. Studs to be 24" on center. (3) Restrooms to have 4" x 4" quarry tile floor to 9' - 0" ceiling height. Graham-Field Westside Industrial Park - Building No. 31 March 22, 1996 Page Two (3) Expansion joints at slab perimeter with asphalt impregnated fiberboard, 5/8" thick. (4) Control joints saw cut, 114 of slab depth, 1/8" wide, bisect bays. (5) Construction joints will have smooth dowels every 18" on center. (c) Dock Canopies: Seven (7) poured in place concrete canopies, one over each dock door opening. (d) Exterior Stairways: Concrete stairways lead from warehouse area to truck court. (e) Excluded: Striping, caulking, granular fill. MASONRY (a) Exterior Walls: Exterior walls will be four inch brick backed with eight inch (8") concrete masonry unit. (b) Interior Walls: Interior warehouse/office and demising walls will be constructed with concrete masonry unit (12" x 8" x 16"). Control joints will be filled with one layer 5/8" thick asphalt impregnated felt. STRUCTURAL SYSTEM/METALS (a) Structural Steel: Structural steel beams, columns and joists (column spacing 40' x 40') including perimeter beams at the eave line and wind columns as required. The structural steel frame will be designed dead load of 25 lbs. per square foot and a live load of 20 lbs. per square foot. (b) Steel Joists: Designed for dead load of 25 lbs. per square foot and live load of 20 lbs. per square foot and Seismic Zone 1. Bridging will be 1" x 1" x 7/67". MOISTURE PROTECTION (a) The roof deck is galvanized steel deck (0.5" deep) covered with a flood coat of lightweight insulating aggregate concrete with 1" polystyrene board embedded in the flood coat along with two inches of additional insulating concrete above the polystyrene board. The insulating concrete will be covered with a 4 ply, smooth surface, fiberglass built-up roof membrane topped with light tan pea gravel. The roof system is designed to provide an "U" Factor of approximately 10 as calculated in accordance with the Energy Efficiency Code. Gutters and downspouts are shop cooled galvanized steel, 24 gauge. DOORS AND WINDOWS (a) Overhead Dock Height Truck Doors: Seven (7) each 10' (w) x 10' (h) doors are to be provided at each truck door. Each truck door is a 24 gauge steel, high lift truck door with 13 gauge angle mounted track. (b) Wood Doors: Flush, solid core, 36" x 84", 1-3/4" thickness, birch veneer face, stain grade doors shall be provided for all interior office spaces. EX-10.(R) 9 COMMERCIAL LEASE AGREEMENT Commercial Lease Agreement - OMO - 1996 COMMERCIAL LEASE AGREEMENT THIS Lease AGREEMENT is entered into by: 1. LANDLORD: OWEN BROS. ENTERPRISES. ("Landlord"). 2. TENANT: BOBECK MEDICAL DISTRIBUTION ("Tenant"). 3. LEASED PREMISES: In consideration of the rents, terms and covenants of this Lease Agreement (the "Lease"), Landlord hereby leases to Tenant certain premises (the "Leased Premises") containing approximately 10,151 square feet within the building or project known as Falcon Centre, and located at 1707 Falcon Drive, Suite #104 on a certain tract of land in DeSoto, Dallas County, Texas. Such land (which is described in the attached Exhibit A), together with the building(s), landscaping, parking and driveway areas, sidewalks, and other improvements thereon shall be referred to in this Lease as the "Project". In the case of a multi-building Project, the work "Building" shall refer to the particular building in which the leased Premises are located and the tract of land upon which such building is located. In the case of a single building Project the term "Building" as used herein shall be synonymous with the term "Project". If the Leased Premises encompass an entire building, then the term "Leased Premises" shall by synonymous with "Building". A fuller description of the Leased Premises, including a floor plan thereof, is contained in Exhibit B to be attached. 4. TERM: (a) The term of this Lease shall be sixty (60) months commencing on August 1, 1996 (the "Commencement Date") and terminating on the last day of July, 2001, (the "Termination Date"). The Commencement date may be subject to change, however, pursuant to Subparagraphs (b) and (c) below. (b) Tenant acknowledges that it has inspected and accepts the Leased Premises in their present condition as suitable for Tenant's purposes. If this Lease is executed before the Leased Premises become vacant or otherwise available for occupancy, or if any present tenant or occupant of the Leased Premises holds over and Landlord cannot acquire possession of the Leased Premises prior to the Commencement Date stated above, Tenant agrees to accept possession of the Leased Premises at such time as Landlord is able to tender the same, which date shall then be the Commencement Date of the Lease term. (c) Tenant acknowledges that no representations or promises regarding repairs, alterations, remodeling, or improvements to the Leased Premises have been made by Landlord, its agents, employees, or other representatives, unless such are expressly set forth in this Lease, and that Tenant is solely responsible for applying for and obtaining a certificate of occupancy for the Leased Premises. Tenant agrees that if its occupancy of the Leased Premises is delayed under the circumstances described in Subparagraph (b) or (c) above, this Lease shall nonetheless continue in full force and effect. However, any rental amounts applicable to such period of delay shall be abated and such abatement shall constitute full settlement of all claims by Tenant against Landlord by reason of any such delay in possession of the Leased Premises. Tenant's taking possession of the Leased Premises shall conclusively establish that the improvements, if any, to be made by Landlord under the terms of this Lease, have been completed in accordance with the plans and specifications therefor and that the Leased Premises are in good and satisfactory condition as of the date of Tenant's possession, unless Tenant notifies Landlord in writing specifying any defects within ten (10) days after taking possession. Landlord shall use reasonable diligence to repair promptly such items but Tenant shall have no claim for damages or rebate or abatement of rent by reason thereof. After the Commencement Date and upon completion of any necessary repairs as provided above. Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of the Leased Premises and acknowledgment of the date of the Commencement Date. 5. BASE RENT AND SECURITY DEPOSIT: (a) Tenant agrees to pay to Landlord as rent the sum of $184,680 (One Hundred Eighty Four Thousand, Six Hundred Eighty and no/100 Dollars) subject to adjustment for early or delayed occupancy under the terms hereof. Such rent shall be payable in monthly amounts per the payment schedule below: Months Base Rent ------ --------- 1 thru 36 $2.960.00 Per Month 37 thru 48 $3,170.00 Per Month 49 thru 60 $3,340.00 Per Month each, in advance, without demand deduction or offset (sometimes referred to in this Lease as the "Base Rent" or "Base Rental"). Such rental amounts shall be due and payable to Landlord in lawful money of the United States Of America at the address shown below. An amount equal to one monthly Base Rental payment shall be due and payable on the date Tenant executes this Lease and such amount shall be applied to the rent due for the first complete calendar month occurring after the Commencement Date, provided that if the Commencement Date should be a date other than the first day of a calendar month the rent for such partial month shall be prorated. All succeeding installments of rent shall be due and payable on or before the first day of each succeeding calendar month during the Lease term. The amount of the Base Rent shall be adjusted as provided in Paragraph 6 below. (b) On the date Tenant executes this Lease there shall be due and payable by Tenant a security deposit in an amount equal to $3,170.00 (Three Thousand One Hundred Seventy and no/100 Dollars). Such deposit shall be held by Landlord (without any obligation to pay interest thereon or segregate such monies from Landlord's general funds) as security for the performance of Tenant's obligations under this Lease. Tenant agrees to increase such security deposit from time to time so that it is at all times equal to one monthly Base Rental installment, as adjusted pursuant to Paragraph 6(a) below. Tenant shall deposit cash with Landlord in an amount 1 sufficient so to increase the security deposit within five (5) days after written demand by Landlord. It is expressly understood that the security deposit is not an advance payment of rental or a measure of Landlord's damages in the event of Tenant's default under this Lease. Upon the occurrence of any event of default by Tenant or breach by Tenant of its covenants under this lease, Landlord may, from time to time, without prejudice to any other remedy provided herein or provided by law, use, apply, or retain all or part of the security deposit for the payment of any rent or other sum in default, or for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default, or for payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant default or breach, or to compensate Landlord for any damage, injury, expense or liability caused to Landlord by such default or breach. If any portion of the security deposit is so used or applied, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the security deposit to the amount required by this Paragraph. Tenant's failure to do so shall be a default under this Lease. The balance of the security deposit shall be returned by Landlord to Tenant at such time after termination of this Lease that all of Tenant's obligations have been fulfilled. (c) Other remedies for nonpayment of Rent notwithstanding, if the monthly Base Rental payment is not received by Landlord on or before the tenth (10 th) day of the month for which such rent is due, or if any other payment due Landlord by Tenant hereunder (such sums being deemed to be additional Rent) is not received by Landlord on or before the tenth (10 th) day of the month next following the month in which Tenant was invoiced, a service charge of five percent (5%) of such past due amount shall be additionally due and payable by Tenant. Such service charge shall be cumulative of any other remedies Landlord may have for nonpayment of Rent and other sums payable under this Lease. (d) If three (3) consecutive monthly Rental payments or any five (5) monthly Rental payments during the Lease term (or any renewal or extension thereof) are not received by Landlord on or before the tenth (10 th) day of the month for which Rent was due, the Base Rent hereunder shall automatically become due and payable by Tenant in advance in quarterly installments equal to three (3) months' Base Rent each. The first of such quarterly Base Rent payments shall be due and payable on the first day of the next succeeding calendar month and on the first day of every third (3 rd) calendar month thereafter. This remedy shall be cumulative of any other remedies of Landlord under this Lease for nonpayment of Rent. 6. ADDITIONAL RENT: (a) Taxes, Insurance and Common Area Maintenance (1) In the event the "Tax, Insurance and Common Area Maintenance Expenses" (as defined below) of the Building shall in any calendar year during the term of this Lease exceed the sum of Base Year 1996 per square foot, then with respect to such excess (the "Tax, Insurance and Common Area Maintenance Differential"), Tenant agrees to pay as additional rental Tenant's pro rata share of the Tax, Insurance and Common Area Maintenance Differential within ten (10) days following receipt of an invoice from Landlord stating the amount due. The pro rata share to be paid by Tenant is fifteen percent (15%) subject, however, to adjustment for any expansion of the Leased Premises. In the case of a multi-building Project, if such Tax, Insurance and Common Area Maintenance Expenses are not separately assessed to the building but are assessed against the Project as a whole, Landlord shall determine the portion of such Tax, Insurance and Common Area Maintenance Expenses allocable to the Building in which the Leased Premises are located. (2) At or prior to the commencement of this Lease and at any time during the Lease term, Landlord may deliver to Tenant a written estimate of any additional rent applicable to the Leased Premiss (based on the pro rata share stated above) which may be anticipated for excess Tax, Insurance and Common Area Maintenance Expenses during the calendar year in which this Lease commences or for any succeeding calendar year, as the case may be. Based upon such written estimate, the monthly Base Rental shall be increased by one-twelfth (1/12) of the estimated additional rent. (3) Statements showing the actual Tax and Insurance Expenses (as well as the actual Common Area Maintenance Expenses, as defined in Paragraph 6 (b) below) and Tenant's proportionate share thereof (hereinafter referred to as the "Statement of Actual Adjustment") shall be delivered by Landlord to Tenant after any calendar year in which additional rental was paid or due by Tenant. Within ten (10) days after the delivery by Landlord to Tenant of such statement of Actual Adjustment, Tenant shall pay Landlord the amount of any additional rental shown on such statement as being due and unpaid. If such Statement of Actual Adjustment shows that Tenant has paid more than the amount of additional rental actually due from Tenant for the preceding calendar year and if Tenant is not then in default under this Lease, Landlord shall credit the amount of such excess to the next base Rental installment due from Tenant. (4) "Tax and Insurance Expenses" shall mean: (i) all ad valorem, rental, sales, use and other taxes (other than Landlord's income taxes), special assessments, and other governmental charges, and all assessments due to deed restrictions and/or owner's associations which accrue against the Building during the term of this Lease; and (ii) all insurance premiums paid by Landlord with respect to the Building including, without limitation, public liability, casualty, rental, and property damage insurance. (b) Common Area Maintenance (1) "Common Area Maintenance Expenses" shall mean all expenses (other than the Tax and Insurance Expenses described above) incurred by Landlord for the maintenance, repair, and operation of the Building, (excluding only structural soundness of the roof, foundation and exterior walls) including, but not limited to, management fees, utility expenses (if not separately metered), maintenance and repair costs, sewer, landscaping trash and security costs (if furnished by Landlord), wages and fringe benefits payable to employees of Landlord whose duties are connected with the operation and maintenance of the Building, amounts paid to contractors of subcontractors for work or services performed in connection with the operation and maintenance of the Building, all services, supplies, repairs, replacements or other expenses for maintaining, repairing, and operating the 2 Building, including without limitation common areas and parking areas and roof, exterior wall and foundation work that is not related to structural soundness. (2) The term "Common Area Maintenance Expenses" does not include the cost of any capital improvement to the Building other than the reasonably amortized cost of capital improvements which result in the reduction of Insurance Expenses or Common Area Maintenance Expenses. Further, the term "Common Area Maintenance Expenses" shall not include repair, restoration or other work occasioned by fire, windstorm or other casualty with respect to which Landlord actually receives insurance proceeds, income and franchise taxes of Landlord, expenses incurred in leasing to or procuring of tenants, leasing commissions, advertising expenses, expenses for the renovating of space for new tenants, interest or principal payments on any mortgage or other indebtedness of Landlord, compensation paid to any employee of Landlord above the grade of building superintendent, or depreciation allowance or expense. (c) If the Commencement Date of this Lease is a day other than the first day of a month, or if the Terminating Date is a day other than the last day of a month, the amount shown as due by Tenant on the statement of Actual Adjustment shall reflect a proration based on the ratio that the number of days this Lease was in effect during such month bears to the actual number of days in said month. (d) The failure of Landlord to exercise its rights hereunder to estimate expenses and require payment of same as additional rental shall not constitute a waiver of such rights which rights may be exercised from time to time at Landlord's discretion. (e) If the nature of Tenant's business or use of the Leased Premises is such that additional costs are incurred by Landlord for cleaning, sanitation, trash collection or disposal services, Tenant agrees to pay as additional rental to Landlord the amount of such additional costs upon demand. 7. TENANT REPAIRS AND MAINTENANCE: (a) Tenant shall maintain all parts of the Leased Premises and their appurtenances (except those for which Landlord is expressly responsible under this Lease) in good, clean and sanitary condition at its own expense. Tenant shall promptly make all necessary repairs and replacements to the Leased Premises, including but not limited to, electric light lamps or tubes, windows, glass and plate glass, interior and exterior doors, any special office entry, interior walls and finish work, floors and floor coverings, downspouts, gutters, heating and air conditioning systems, dock boars, truck doors, dock bumpers, plumbing work and fixtures other than common building sewage lines. Tenant shall be obligated to repair wind damage to glass caused by events other than hurricanes or tornadoes. Otherwise, however, Tenant shall not be obligated to repair any damage caused by fire, hurricane, tornado or other casualty covered by the insurance maintained by Landlord. (b) Tenant shall not damage or disturb the integrity, structural soundness, or support of any wall, roof, or foundation of the Leased Premises. Any damage to these walls caused by Tenant or its employees, agents or invitees shall be promptly repaired by Tenant at its sole cost and expense. (c) Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor for servicing all heating and air conditioning systems and equipment within the Leased Premises. The maintenance contractor and the contract must be approved by Landlord. The service contract must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective (and a copy delivered to Landlord) within thirty (30) days of the date Tenant takes possession of the Leased Premises. If Tenant fails to enter into such service contract as required, Landlord shall have the right to do so on Tenant's behalf and Tenant agrees to pay Landlord the cost and expense of same upon demand. (d) Tenant shall pay all charges for pest control and extermination with in the leased Premises. (e) At the termination of this Lease, Tenant shall deliver the Leased Premises "broom clean" to Landlord in the same good order and condition as existed at the Commencement Date of this Lease, ordinary wear, natural deterioration beyond the control of Tenant, damage by fire, tornado or other casualty excepted. (f) Not in limitation on the foregoing, it is expressly understood that Tenant shall repair and pay for all damage caused by the negligence of Tenant, Tenant's employees, agents or invitees, or caused by Tenant's default hereunder. All requests for repairs or maintenance that are the responsibility of Landlord under this Lease must be made in writing to Landlord at the address set forth below. 8. LANDLORD'S REPAIRS: Landlord shall be responsible, at its expense, only for the structural soundness of the roof, foundation and exterior walls of the Building. Any repair to the roof, foundation or exterior walls occasioned by the act or omission of Tenant, or its agents, employees, guests or invitees shallobe bility ofnsibility of Tenant. The term "walls" as used in this Paragraph 8 shall not include windows, glass or plate glass, interior doors, special store fronts, office entries or exterior doors. Landlord's liability with respect to any defects, repairs or maintenance for which Landlord is responsible at its expense under this Lease shall be limited to the cost of such repairs or maintenance or the curing of such defect. As expenses included in Common Area Maintenance Expenses, Landlord will be responsible for landscaping and maintenance of common areas and parking areas, exterior painting, and common sewage line plumbing. Tenant shall immediately give Landlord written notice of defects or need for repairs, after which Landlord shall have a reasonable opportunity to repair same or cure such defect. Landlord shall not be required to perform any covenant or obligation of this Lease, or be liable in damages to Tenant, so long as the performance or non-performance of the covenant or obligation is delayed, caused by, or prevented by an act of God or force majeure. An "act of God" or "force majeure" is defined for purposes of this Lease as strikes, lockouts, sit-downs, material or labor restrictions by any governmental authority, riots, floods, washouts, explosions, earthquakes, fire, storms, acts of the public enemy, wars, insurrections and other similar 3 cause not reasonably within the control of Landlord, and which by the exercise of due diligence Landlord is unable, wholly or in part, to prevent or overcome. 9. UTILITY SERVICE: Tenant shall pay the cost of all utility services, including, but not limited to, initial connection charges and all charges for gas, water, and electricity used on the Leased Premises. If the Leased Premises are separately metered, Tenant shall pay such costs directly to the appropriate utility company. Otherwise, Tenant shall pay such costs pursuant to Paragraph 6(b) above. Tenant shall pay all costs caused by Tenant introducing excessive pollutants into the sanitary sewer system, including permits, fees and charges levied by any governmental subdivision for any pollutants or solids other than ordinary human waste. If Tenant can be clearly identified as being responsible for obstructions or stoppage of the common sanitary sewage line, the Tenant shall pay the entire cost thereof, upon demand, as additional rent. Tenant shall be responsible for the installation and maintenance of any dilution tanks, holding tanks, settling tanks, sewer sampling devices, sand traps, grease traps or similar devices which may be required by the appropriate governmental subdivision for Tenant's use of the sanitary sewer system. Tenant shall also pay all surcharges (i.e. charges in excess of normal charges) levied due to Tenant's abnormal use of sanitary sewer or waste removal services so that no such surcharges shall affect Landlord or other tenants in the Project under Paragraph 6(b) above. 10. SIGNS: No sign, door plaques, advertisement, or notice shall be displayed, painted or affixed by Tenant on any part of the Project or Building, parking facilities, or Leased Premises without prior written consent of Landlord. The color, size, character, style, material, and placement shall be approved by landlord, and subject to any applicable governmental laws, ordinances, regulations, project specifications, and other requirements. Sign on doors and entrances to the Leased Premises, if approved by Landlord, shall be placed thereon by a contractor approved by Landlord and paid for by Tenant. Tenant shall remove all such signs at the termination of this lease. Such installations and removals shall be made in such manner as to avoid injury or defacement of the Project and other improvements, and Tenant, at its sole expense, shall repair any injury or defacement, including, without limitation, any discoloration caused by such installation and/or removal. 11. USAGE: Tenant warrants and represents to Landlord that the Leased Premises shall be sued and occupied only for the purpose of office, sale, warehouse and distribution of medical equipment and supplies. Any change in the stated usage purposes or in the scope or extent of such usage as previously described to Landlord by Tenant shall be subject to the prior written approval of Landlord. Tenant shall occupy the Leased Premises, conduct its business and control its agents, employees, invitees and visitors in a lawful and reputable way and as not to create any nuisance or otherwise interfere with, annoy or disturb any other tenant in its normal business operations or Landlord in its management of the project. Tenant shall not commit, or allow to be committed, any waste on the Leased Premises. 12. INSURANCE: (a) Tenant shall not permit the Leased Premises to be used in any way which would, in the opinion of Landlord, be hazardous or which would in any way increase the cost of or render void the fire insurance on improvements or contents in the Project belonging to Landlord or other tenants. If any time during the term of this Lease the State Board of Insurance or other insurance authority disallows any of Landlord's sprinkler credits or imposes an additional penalty or surcharge in landlord's insurance premiums because of Tenant's original or subsequent placement or use of storage racks or bins, method of storage, or nature of Tenant's inventory or any other act of Tenant, Tenant agrees to pay as additional rental the increase in Landlord's insurance premiums. If an increase in the fire and extended coverage premiums paid by landlord for the Building in which Tenant occupies space is caused by Tenant's use or occupancy of the Leased Premises; or if Tenant vacates the Leased Premises and caused an increase, then Tenant shall pay as additional rental the amount of such increase to Landlord. (b) Tenant shall procure and maintain throughout the term of this Lease a policy or policies of insurance, at its sole cost and expense, insuring both Landlord and Tenant against all claims, demands or actions arising out of or in connection with: (1) the Lease Premises; (ii) the condition of the Leased Premises; (iii) Tenant's operations in and maintenance and use of the Leased Premises; and (iv) Tenant's liability assumed under this Lease. The limits of such policy or policies shall be not less than one million dollars ($1,000,000) combined single limit coverage per occurrence for injury to persons (including death) and/or property damage or destruction, including loss of use. All such policies shall be procured by Tenant from responsible insurance companies satisfactory to Landlord. Certified copies of such policies, together with receipts for payment of premiums, shall be delivered to Landlord prior to the commencement Date of this Lease. Not less than fifteen (15) days prior to the expiration date of any such policies, certified copies of renewal policies and evidence of the payment of renewal premiums shall be delivered to Landlord. All such original renewal policies shall provide for at least thirty (30) days written notice to landlord before such policy may be canceled or changed to reduce insurance coverage provided thereby. Upon request of Landlord, Tenant further agrees to complete and return to Landlord an insurance questionnaire (such form to be provided by Landlord) regarding Tenant's insurance coverage and intended use of the Leased Premises. Tenant warrants and represents that all information contained in such questionnaire shall be true and correct as of the date thereof and shall be updated by Tenant from time to time upon Landlord's request. 13. RELOCATION: Upon request by Landlord during the term of this Lease, Tenant agrees to relocate to other space in the Building and/or Project designated by Landlord, provided such other space is as large or larger than the Leased Premises and has at least the same number of windows. Landlord shall pay all out-of-pocket expenses of any such relocation, including the expenses of moving and reconstructing all Tenant furnished and Landlord furnished improvements. In the event of such relocation, this Lease shall continue in full force and effect without any change in its terms other than substitution of the new description of the Leased Premises for the original description set forth in Paragraph 3 of this Lease. 14. COMPLIANCE WITH LAWS, RULES AND REGULATIONS: Tenant shall comply with all applicable laws, ordinances, orders, rules and regulations of state, federal municipal, or other agencies or bodies relating to the use, condition and occupancy of, and business conducted on, the Leased Premises including without limitation, the Resource Conservation and Recovery Act, the comprehensive Environmental Response Act, and the 4 rules of the Project which may hereafter be adopted by Landlord. Landlord shall have the right at all times to change the rules and regulations of the Project or to amend them in any reasonable manner as may be deemed advisable for the safety, care, cleanliness, and good order of the Project and Leased Premises. All rules and regulations of the Project and any changes or amendments thereto will be sent by Landlord to Tenant in writing and shall thereafter be carried out and observed by Tenant. 15. ASSIGNMENT AND SUBLETTING: The Tenant agrees not to assign, transfer, or mortgage this Lease or any right or interest therein, or sublet the Leased Premises or any part thereof, without the prior written consent of Landlord. No Assignment or subletting made with the consent of Landlord shall relieve Tenant of its obligations hereunder, and Tenant shall continue to be liable as a principal (and not as a guarantor or surety) to the same extent as though no assignment or sublease had been made. Consent by landlord to an assignment or sublease shall not be construed to be consent to any additional assignment or subletting. Each such successive act shall require similar consent of Landlord. Landlord shall be reimbursed by Tenant for any costs or expenses incurred as a result of Tenant's request for consent to any such assignment or subletting. In the event Tenant subleases the Leased Premises, or any portion thereof, or assigns this Lease with the consent of the Landlord at an annual Base Rental exceeding that stated herein, such excess shall be paid by Tenant to Landlord as additional rental hereunder within ten (10) days after receipt by Tenant. Upon the occurrence of an "event of default" as defined below, if all or any part of the Leased Premises are then assigned or sublet, Landlord may, in addition to any other remedies provided by this Lease or provided by law, collect directly from the assignee or subtenant all rents due to Tenant. Landlord shall have a security interest in all properties on the Leased Premises to secure payment of such sums. Any collection directly by Landlord from the assignee or subtenant shall not be construed, however, to constitute a novation or release of Tenant from the further performance of its obligations under this Lease. Notwithstanding the foregoing, it is expressly agreed that if this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. ss. 101 et esp. (The "Bankruptcy Code"), any and all monies or other considerations payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenants or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other considerations constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and be promptly paid or delivered to Landlord. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall upon demand execute and deliver to Landlord an instrument confirming such assumption. 16. ALTERATIONS AND IMPROVEMENTS: (a) Tenant shall not make or perform, or permit the making or performance of, any initial or subsequent tenant finish work or any alterations, installations, decorations, improvements, additions or other physical changes in or about the Leased Premises (referred to collectively as "Alterations") without Landlord's prior consent. Landlord agrees not to withhold its consent unreasonably to any nonstructural Alterations proposed to be made by Tenant to adapt the Leased Premises for Tenant's business purposes. Notwithstanding the foregoing provisions or Landlord's consent to any Alterations, all Alterations shall be made and performed in conformity with and subject to the following provisions: All Alterations shall be made and performed at Tenant's sole cost and expense and at such time and in such manner as Landlord may from time to time reasonably designate. Alterations shall be made only by contractors or mechanics approved by Landlord, such approval not to be unreasonably withheld. No Alteration shall affect any part of the Building other than the Leased Premises or adversely affect any service required to be furnished by Landlord to Tenant or to any other tenant or occupant of the Building or reduce the value of the Building. No alteration shall affect the outside appearance of the Building. Tenant shall submit to Landlord detailed plans and specifications (including layout, architectural, mechanical and structural drawings) from each proposed Alterations and shall not commence any such Alteration without first obtaining Landlord's written approval of such plans and specifications. Prior to the commencement of each proposed Alteration, Tenant shall furnish to Landlord duplicate original policies of worker's compensation insurance covering all persons to be employed in connection with such Alterations, including those to be employed by all contractors and subcontractors and comprehensive Public liability insurance (including property damage coverage) in which Landlord, its agents, and any lessor under any ground or underlying lease, and any mortgagee of the Building shall be named as parties insured, which policies shall be issued by companies, and shall be in form and amounts, satisfactory to Landlord and shall be maintained by Tenant until the completion of such Alteration. If Landlord shall require to assure payment of all costs of such alterations, prior to commencement or any approved Alteration, Tenant shall cause to be issued and delivered to Landlord an irrevocable documentary letter of credit or payment bond in the full amount of the cost of the said approved Alterations issued by a substantial banking institution reasonably acceptable to Landlord payable in whole or in part, from time to time to the order of Landlord upon written demand accompanied by Landlord's certification that Tenant has defaulted with respect to the obligation secured thereby. The term of the letter of credit shall be from date of issuance through ninety (90) days after completion of construction of the approved Alterations. Tenant shall cause its contractor to provide Landlord with a certificate of completion of the Alterations and a bills paid affidavit and full lien waiver, and upon receipt of same, and no fewer than thirty-one (31) days following completion if Tenant is not in default hereunder, Landlord shall return the letter of credit to Tenant unused and endorsed for cancellation. Tenant shall, if requested by Landlord at the time of Landlord's consent to the Alterations, agree to restore the Leased Premises at the termination of this Lease to their condition prior to making such alterations. All permits, approvals and certificates required by all governmental authorities shall be timely obtained by Tenant and submitted to Landlord. Notwithstanding Landlord's approval of plans and specifications for any Alterations, all Alterations shall be made and performed in full compliance with applicable laws, orders and regulations of Federal, State, County, and Municipal authorities and with all directions pursuant to law, of all public officers, and with all applicable rules, orders, regulations and requirements of the Dallas Board of Fire Underwriters or any similar body. All alterations shall be made and performed in accordance with the Building rules. All materials and equipment to be incorporated in the Leased Premises as a result of all Alterations shall be new and first quality. No such materials or equipment shall be subject to any lien, encumbrance, chattel mortgage or title retention or security agreement. If such Alterations are being performed by Tenant in connection with Tenant's initial occupancy of the Leased Premises, Tenant agrees to make proper application for, and obtain, a certificate of occupancy from the city in 5 which the Leased Premises are located. Tenant shall furnish such certificate to Landlord promptly after issuance of same. (b) Tenant shall not at any time prior to or during the term of this Lease, directly or indirectly employed or permit the employment of, any contractor, mechanic, or laborer in the Leased Premises, whether in connection with any Alteration or otherwise, if such employment will interfere or cause any conflict with other contractors, mechanics, or laborers engaged in the construction, maintenance or operation of the Building by Landlord, Tenant, or other. In the event of any such interference or conflict. Tenant, upon demand of Landlord, shall cause all contractors, mechanics, or laborers causing such interference or conflict and leave the Building immediately. (c) All appurtenances, fixtures, improvements, and other property attached to or installed in the Leased Premises, whether by Landlord or Tenant or others, and whether at Landlord's expense or Tenant's expense or the joint expense of Landlord and Tenant, shall be and remain the property of Landlord, except that any such fixtures, improvements, additions, and other property which have been installed at the sole expense of Tenant and which are removable without material damage to he Leased Premises shall be and remain the property of Tenant. At Landlord's option, Tenant shall remove any property belonging to Tenant at the end of the term hereof, and tenant shall repair or, at Landlord's option, shall pay to Landlord the cost of repairing any damage arising from such removal. Any replacements of any property of Landlord, whether made at tenant's expense or otherwise, shall be and remain the property of Landlord. 17. CONDEMNATION: (a) If, during the term (or any extension or renewal) of this Lease, all or a substantial part of the Leased Premises are taken for any public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the then current use of the Leased Premises, this Lease shall terminate and the Rent shall be abated during the unexpired portion of this Lease effective on the date physical possession is taken by the condemning authority. (b) If a portion of the Leased Premises is taken as described above and this Lease is not terminated as provided is subparagraph (a) above, the Rent payable under this Lease during the unexpired portion of the term shall be adjusted to such an extent as may be fair and reasonable under the circumstances. (c) In the event of such taking or private purchase in lieu thereof, Landlord and tenant shall each be entitled to receive any sums separately awarded to each party by the condemning authority. In the event separate awards to Landlord and Tenant are not made, Landlord shall be entitled to receive any and all sums by the condemning authority. 18. FIRE AND CASUALTY: (a) If the Building should be damaged or destroyed by fire, tornado, or other casualty, Tenant shall give immediate written notice thereof to landlord. (b) If the Building should be totally destroyed by fire, tornado, or other casualty, or if it should be so damaged thereby that rebuilding or repairs cannot in Landlord's estimation be completed within one hundred eighty (180) days after the date on which Landlord is notified by Tenant of such damage, this Lease shall terminate and the Rent shall be abated during the unexpired portion of this Lease, effective upon the date of occurrence of such damage. (c) If the Building should be damaged by any peril covered by the insurance maintained by Landlord, but only to such extent that rebuilding or repairs can in Landlord's estimation be completed within one hundred eighty (180) days after the date on which Landlord is notified by Tenant of such damage, this Lease shall not terminate and Landlord shall, to the extent of insurance proceeds received, then proceed with reasonable diligence to rebuild and repair, or replace any part of the partitions, fixtures, additions, and other improvements which may have been placed in, on, or about the Lease Premises by Tenant. If the Leased Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are tenantable shall be reduced to such extent as may be fair and reasonable under all of the circumstances. If Landlord should fail to complete such repairs and rebuilding within one hundred eighty (180) days after the date on which Landlord is notified by Tenant of such damage, Tenant may terminate this Lease by delivering written notice of termination to Landlord. Such termination shall be Tenant's exclusive remedy and all rights and obligations of the parties under this Lease shall then cease. Notwithstanding the foregoing provisions of this subparagraph (c), Tenant agrees that if the Leased Premises, the Building and/or Project are damaged by fire or other casualty caused by the fault or negligence of Tenant or Tenant's agents, employees or invitees, Tenant shall have not option to terminate this Lease, even if the damage cannot be repaired within one hundred eighty (180 days), and the Rent shall not be abated or reduced before or during the repair period. (d) Notwithstanding anything herein to the contrary, if the holder of any indebtedness secured by a mortgage or deed of trust covering the Building and/or Project requires that the insurance proceeds by applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made. All rights and obligations under this Lease shall then cease. 19. CASUALTY INSURANCE: Landlord shall at all times during the term of this Lease maintain a policy or policies of insurance with the premiums paid in advance, issued by and bind upon some solvent insurance company, insuring the Building against loss or damage by fire, explosion, or other hazards and contingencies. Landlord shall not be obligated, however, to insure any personal property (including, but not limited to any furniture machinery goods or supplies) of Tenant or which Tenant may have in the Leased Premises or any fixtures installed by or paid for by Tenant upon or within the Leased Premises or any improvements which Tenant may construct or install on the Leased Premises or any signs identifying Tenant's business on the exterior of the Building. 6 20. WAIVER OF SUBROGATION: To the extent that Landlord or Tenant receives casualty insurance proceeds, such recipient hereby waives and releases any and all rights, claims, demands and causes of action such recipient may have against the other on account of any loss or damage occasioned to such recipient or its businesses real and personal properties, the Leased Premises, the Building, the Project, or its contents arising from any risk or peril covered by any insurance policy carried by either party. Inasmuch as the above mutual waivers will preclude the assignment of any such claim by way of subrogation (or otherwise) to any insurance company (or any other person), each party hereto hereby agrees immediately to give to its respective insurance companies written notice of the terms of such mutual waivers and to have their respective insurance policies property endorsed, if necessary, to prevent the invalidation of such insurance coverages by reason of such waivers. This provision shall be cumulative of Paragraph 21 below. 21. HOLD HARMLESS: Landlord shall not be liable to Tenant, Tenant's employees, agents, invitees, licensees or visitors, or to any other person, for any injury to person or damage to property on or about the Leased Premises or the Project caused by the negligence or misconduct of Tenant, its agents, employees, invitees, or of any other persons entering upon the Leased Premises or the Project under express or implied invitation by Tenant. Tenant agrees to indemnify and hold Landlord harmless from any and all loss, attorney's fees, expenses, or claims arising out of any such damage or injury. 22. QUIET ENJOYMENT: Landlord warrants that it has full right to execute and to perform this Lease and to grant the estate demised and that Tenant, upon payment of the required Rent and performing the covenants and agreements contained in this Lease, shall peaceably and quietly have, hold, and enjoy the Leased Premises during the full term of this Lease, including any extensions or renewals thereof. 23. LANDLORD'S RIGHT OF ENTRY: Landlord shall have the right, at all reasonable hours, to enter the Leased Premises for the following reasons: inspection, cleaning or making repairs, making such alterations or additions as Landlord may deem necessary or desirable; installation of utility lines servicing the Leased Premises or any other space in the building; determining Tenant's use of the Leased Premises, or for determining if any act of default under this Lease has occurred. Landlord shall give twenty-four (24) hours written notice to Tenant prior to such entry, except in cases of emergency when Landlord may enter the Leased Premises at any time and without prior notice. During the period that is six (6) months prior to the end of the Lease term, Landlord and Landlord's agents and representatives shall have the right t enter the Leased Premises at any reasonable time during business hours, without notice, for the purpose of showing the Leased Premises and shall have the right to erect on the Leased Premises a suitable sign indicating the Leased Premises are available for lease. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Leased Premises and shall arrange to meet with Landlord for a joint inspection of the leased Premises prior to vacating. In the event of Tenant's failure to give such notice or arrange such joint inspection, Landlord's inspection at or after Tenant's vacating the Leased Premises shall be conclusively deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. 24. ASSIGNMENT OF LANDLORD'S INTEREST IN LEASE: Landlord shall have the right to transfer and assign, in whole or in part, its rights and obligations with respect to the Project and premises that are the subject of this Lease, including Tenant's security deposit. In such event, Landlord shall be released from any further obligation under this Lease and Tenant agrees to look solely to Landlord's successor for the performance of such obligations. 25. LANDLORD'S LIEN: In addition to any statutory lien for Rent in Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a continuing security interest for all Rentals and other sums of money becoming due under this Lease from Tenant, upon all goods, wares, equipment, fixtures, furniture inventory, accounts, contract rights, and other personal property of Tenant situated on or arising from the leased Premises. Such property shall not be removed without the consent of Landlord, which consent may be withheld by landlord without cause so long as any of Tenant's duties or obligations hereunder have not ben fully performed. In the event of a default under this Lease, Landlord shall have, in addition to any other remedies provided in this Lease or by law, all rights and remedies under the Texas Uniform Commercial Code, including without limitation the right to sell the property described in the Paragraph at public service or private sale upon five (5) days notice to Tenant. Tenant hereby agrees to execute such financing statements and other instruments necessary or desirable in Landlord's discretion to perfect the security interest hereby created. The express contractual lien herein granted, is in addition and supplementary to any statutory lien for Rent. 26. DEFAULT BY TENANT: The following shall be events of default by Tenant under this Lease: (a) Tenant shall fail to pay when due any installment of Rent or other payment required pursuant to this Lease. (b) Tenant shall abandon or vacate any substantial portion of the Leased Premises, whether or not Tenant is in default of the Rental payments due under this Lease; (c) Tenant shall fail to comply with any term, provision or covenant of this Lease, other than the defaults listed in this paragraph 16, and the failure is not cured within ten (10) days after written notice thereof to Tenant; (d) Tenant shall file a petition or be adjudged a debtor or bankrupt or insolvent under the National Bankruptcy Code, as amended, or any similar law or statute of the United States or any state; or a receiver or trustee shall be appointed for all or substantially all of the assets of Tenant; or Tenant shall make a transfer in fraud of creditors or shall make an assignment for the benefit of creditors; (e) Tenant shall do or permit to be done any act which results in a lien being filed against the Leased Premises. 7 27. REMEDIES FOR TENANT'S DEFAULT: Upon the occurrence of any event of default set forth in this Lease, Landlord shall have the option to pursue anyone or more of the following remedies without any prior notice or demand; (a) Landlord may terminate this Lease, in which event Tenant shall immediately surrender the Leased Premises to landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have, enter upon and take possession of the Leased Premises, and expel or remove Tenant and any other person who may be occupying all or any part of the Leased Premises. Landlord shall not be liable for prosecution or any claim for damages as a result of such actions. Tenant agrees to pay on demand the amount of all losses, costs, expenses, deficiencies, and damages, including, without limitation, reconfiguration expenses, rental concessions and other inducements to new tenants, advertising expenses and broker's commissions, which Landlord may incur or suffer by reason of Tenant's default or the terminating o the Lease under this subparagraph, whether through inability to relet the Leased Premiss on satisfactory terms or otherwise. Tenant acknowledges that its obligation to pay Base Rent and all additional Rent hereunder is not only compensation for use of the Leased Premises but also compensation for sums already expended and/or being expended by Landlord with respect to its obligations hereunder and with respect to the Leased Premises, and Tenant acknowledges that Tenant's default in timely payment of all sums due hereunder shall constitute significant financial loss to Landlord. Tenant further acknowledges that any failure to pay any sum due hereunder shall evidence Tenant's inability to meet its debts as they become due. In such event, in addition to Landlord's other remedies hereunder, Landlord shall be entitled to accelerate all Base Rental remaining unpaid hereunder, the entirety of which all, at the option of Landlord be immediately due and payable. (b) Landlord may enter upon and take possession of the Leased Premises and expel or remove Tenant and any other person who may be occupying all or any part of the Leased Premises (without being liable for prosecution or any claim for damages therefor) and relet the Leased Premises on behalf of Tenant and receive directly the rent of the reletting. Tenant agrees to pay Landlord on demand any deficiency that may arise by reason of any reletting of the Leased Premises and to reimburse Landlord on demand for any losses, costs and expenses, including without limitation, reconfiguration expenses, rental concessions and other inducements t new tenants, advertising costs or broker's commissions, which Landlord may incur or suffer as a result of Tenant' default or in reletting the Leased Premises. Tenant further agrees to reimburse Landlord for any expenditures made by it for remodeling or repair necessary in order to relet the Leased Premises. In the event Landlord is successful in reletting the Leased Premises at a rental in excess of that agreed to be paid by Tenant pursuant to this Lease, Landlord and Tenant agree that Tenant shall not be entitled, under any circumstances, to such excess rental, and Tenant does hereby specifically waive any claim to such excess rental. (c) Landlord may enter upon the Leased Premises (without being liable for prosecution or any claim for damages therefor) and do whatever Tenant is obligated to do under the terms of this Lease. Tenant agrees to reimburse Landlord on demand for any losses, costs and expenses which Landlord may incur in effecting compliance with Tenant's obligations under this Lease. Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from effecting compliance with Tenant's obligations under this subparagraph, whether caused by the negligence of Landlord or otherwise. (d) Landlord may pursue any remedy provided at law or in equity. (e) Landlord shall have no duty to relet the Premises, and the failure of Landlord to do so shall not release or affect Tenant's liability for Rentals and other charges due hereunder or for damages. (f) No re-entry or reletting of the Premises or any filing or service of an unlawful detainer action or similar action shall be construed as an election by Landlord to terminate Tenant's right to possession under this Lease unless a written notice of such intention is given by Landlord to Tenant. Notwithstanding any such reletting without terminating. Landlord may at any time thereafter elect to terminate this Lease and Tenant's right to possession hereunder. 28. TERMINATION OF OPTIONS: In there exist any options or special rights which landlord may have granted Tenant under this Lease including, but not limited to, options or rights regarding extensions of the Lease term, expansion of the Leased Premises, or acquisition of any other interest in the Leased Premises or the Building, then all such options and rights are independent of the leasehold estate hereby granted to Tenant by Landlord. Landlord and Tenant agree and acknowledge that the negotiated consideration for any such options or special rights is Tenant's entry into this Lease and that no portion of any sums due and payable by Tenant to Landlord hereunder is attributable thereto. In addition to, and not in lieu of, the above remedies of Landlord for Tenant's default, any and all such options or special rights shall be automatically terminated upon the occurrence of the following events: (a) Tenant shall have failed to pay when due any installment of Rent or other sums payable under this Lease for any three (3) consecutive months during the Lease term or any renewal or extension thereof, or for any five (5) months during the Lease term or any renewal or extension thereof, whether or not said defaults are cured by Tenant; or (b) Tenant shall have received two (2) or more notices of default under paragraph 26(C) above with respect to any other covenant of this Lease, whether or not such default(s) is/are cured; or (c) Tenant shall have committed or suffered to exist any other event of default described under Paragraph 26 above, whether or not such default is cured by Tenant. 29. WAIVER OF DEFAULT OR REMEDY: Failure of Landlord to declare a default immediately upon its occurrence, or delay in taking any action in connection with an event of default, shall not be waiver of the default. Landlord shall have the right to declare the default at any time and take such action as is lawful or 8 authorized under this Lease. Pursuit of any one or more of the remedies set forth in Paragraph [ILLEGIBLE] shall not preclude pursuit of any one or more of the other remedies provided therein or elsewhere in this Lease provided by law, nor shall pursuit of any remedy by a forfeiture or waiver of any Rent or damages accruing to Landlord by reason of the violation of any of the terms of this Lease. Failure by Landlord to enforce one or more of its remedies upon an event of default shall not be construed as a waiver of the default or of any other violation or breach of any of the terms contained in this Lease. 30. ATTORNEY'S FEES: In the event any litigation arises hereunder, it is specifically stipulated that this Lease shall be interpreted and construed according to the laws of the State in which the Leased Premises are located. Further, the prevailing party in any such litigation between the parties shall be entitled to recover, as a part of its judgment, reasonable attorney's fees. 31. HOLDING OVER: Tenant will, at the termination of this Lease by lapse of time or otherwise, surrender immediate possession to Landlord. If Landlord agrees in writing that Tenant may hold over after the expiration or terminating of this Lease and if the parties do not otherwise agree, the hold over tenancy shall be subject to terminating by Landlord at any time upon not less than five (5) days advance written notice, or by Tenant at any time upon not less than thirty (30) days advance written notice. Further, all of the terms and provisions of this Lease shall be applicable during the hold over period, except that Tenant shall pay Landlord form time to time upon demand, as Base Rent for the period of any hold over, an amount equal to one and one-half times (1-1/2) the Base Rent in effect on the terminating date, computed on a daily basis for each day of the hold over period, plus all additional rental and other sums due hereunder. If Tenant shall fail immediately to surrender possession of the Leased Premises to Landlord upon terminating of the Lease, by lapse of time or otherwise, and Landlord has not agreed to such continued possession as above provided, then, until Landlord can dispossess Tenant under the terms hereof or otherwise, Tenant shall pay Landlord from time to time upon demand, as Base rent for the period of any such holdover, an amount equal to twice the Base Rent in effect on the termination date, computed on a daily basis for each day of the hold over period, plus all additional rental and other sums due hereunder. No holding over by Tenant, whether with or without consent of Landlord shall operate to extend this Lease except as otherwise expressly agreed by the parties. The preceding provisions of this Paragraph shall not be construed as Landlord's consent for Tenant to hold over. 32. RIGHTS OF MORTGAGE: Tenant accepts this Lease subject and subordinate to any recorded mortgage, deed of trust or other lien presently existing or hereafter to exist with respect to the Leased Premises. Landlord is hereby irrevocably vested with full power and authority to subordinate Tenant's interest under this Lease to any mortgage, deed of trust or other lien hereafter placed on the Leased Premises, and Tenant agrees upon demand to execute such additional instruments subordinating this Lease as Landlord or the holder of any such mortgage, deed of trust, or lien may require. If the interests of Landlord under this Lease shall be transferred by reason of foreclosure or other proceedings for enforcement of any mortgage on the Leased Premises. Tenant shall be bound to the transferee (sometimes called the "Purchaser") under the terms and conditions of this Lease for the balance of the remaining lease term, including any extensions or renewals, with the same force and effect as if the Purchaser were Landlord under this Lease. Tenant further agrees to attorn to the Purchaser, including the mortgagee under any such mortgage if it be the Purchaser, as its Landlord. Such attornment shall be effective without the execution of any further instruments upon the Purchaser succeeding to the interest of Landlord under this Lease. The respective rights and obligations of Tenant and the Purchaser upon the attornment, to the extent of the then remaining balance of the term of this Lease, and any extensions and renewals, shall be and are the same as those set forth in this Lease. Each such holder of any mortgage, deed of trust, or lien, and each such Purchaser, shall be a third-party beneficiary of the provisions of this Paragraph. 33. ESTOPPEL CERTIFICATES: Tenant agrees to furnish with ten (10) days, from time to time, upon request of Landlord or Landlord's mortgagee, a statement certifying that Tenant is in possession of the Leased Premises; the Leased Premises are acceptable, the Lease is in full force and effect; the Lease is unmodified; Tenant claims no present charge, lien, or claim of offset against Rant' the Rent is paid for the current month, but is not paid and will not b paid for more than one month in advance; there is no existing default by reason of some act or omission by Landlord; and such other matters as may be reasonably required by Landlord or Landlord's mortgagee. 34. SUCCESSORS: This Lease shall be binding upon and inure to the benefit of Landlord and Tenant and their respective heirs, personal representatives, successors and assigns. It is hereby covenanted and agreed that should Landlord's interest in the Leases Premises cease to exist for any reason during the term of the Lease, then notwithstanding the happening of such event this Lease shall nevertheless remain unimpaired and in full force and effect and Tenant hereunder agrees to attorn to the then owner of the Leased Premises. 35. REAL ESTATE COMMISSION: Tenant represents and warrants that it has dealt with no broker, agent, or other person in connection with this transaction and that no other broker, agent, or other person brought about this transaction other than 4-Way Development, Inc. and Security Commercial Management, Inc. and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent, or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction. The provisions of this paragraph shall survive the terminating of this Lease. 36. EXPANSION: If during the term of this Lease, Tenant occupies, under a new written Lease with Landlord, space of a size substantially larger than the present Leased Premises within any development owned by Landlord, this Lease shall be terminated upon execution of the Lease for such substitute space. Notwithstanding the above-stated, Tenant shall remain obligated to pay for any Rents or other sums due Landlord as a result of Tenant's tenancy hereunder, and such obligation shall survive the termination of this Lease pursuant to this Paragraph 36. 37. MECHANIC'S LIENS: Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord 9 with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Each such claim shall affect and each such lien shall attach to, if at all, only the leasehold interest granted to Tenant by this Lease. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Leased Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Leased Premises or the improvements thereon. Tenant further agrees to save and hold Landlord harmless from any and all loss, cost, or expense based on or arising out of asserted claims or liens against the terms of this Lease. Under no circumstances shall Tenant be or hold itself out to be the agent or representative of Landlord with respect o any alteration of the Leased premises whether or to consented to or approved by Landlord hereunder. 38. MISCELLANEOUS: (a) Words of any gender used in this Lease shall be held and construed to include any other gender; and words in the singular number shall be held to include the plural, unless the context otherwise requires. (b) Each party agrees to furnish to the other, promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization and power of such party to enter into this Lease. (c) The captions inserted in this Lese are for convenience only and in no way define, limit, or otherwise describe the scope or intent of this Lease or any provision hereof, or in any way affect the interpretation of this Lease. (d) If any clause or provision of this Lease is illegal, invalid, or unenforceable under present or future laws effective during the term of this Lease, then an d in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby; and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid, or unenforceable there be added as a part of this lease a clause as similar in terms to such illegal, invalid, or unenforceable clause or provision as may be possible and be legal, valid, and enforceable. (e) Because the Leased Premises are on the open market and are presently being shown, this Lease shall be treated as an offer to the Lease only. Unless and until this Lease is accepted by Landlord and Tenant in writing and a fully executed copy delivered to both parties, this offer is subject to withdrawal or non-acceptance by Landlord and the Leased Premises may be leased to another party or used for another purpose by Landlord without notice. (f) All references in this Lease to "the date hereof" or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this Lease. (g) If the Commencement Date shall be determined under Paragraphs 4(b) or (c) of this Lease, Landlord and Tenant shall enter into an agreement in recordable form setting forth the commencement Date and termination Date of the Lease term. (h) In the event that Tenant shall fail to perform any duty or obligation hereunder, whether maintenance, repair or replacement of the Lease Premises, maintenance of insurance, or otherwise, then Landlord may, but shall in no event be obligated to, without notice of any kind, take such actions as Landlord deems necessary or appropriate to remedy such Tenant failure, and any sums expended by Landlord and fair and just compensation for the time and effort of Landlord shall be deemed additional Rental hereunder due and payable by Tenant on demand. (i) If Tenant shall fail to pay, when the same is due and payable, any Rent, any additional Rent, or any other sum due hereunder, such unpaid amount shall bear interest from the due date thereof to the date of payment at the highest non-usurious s rate permitted by applicable law. (j) Landlord does not in any way or for any purpose become a partner of Tenant in the conduct of its business or otherwise, nor a member of a joint venture with Tenant. (k) Tenant shall not record this Lease without the prior written consent of Landlord. However, upon the request of either party thereto, the other party shall join in the execution of a memorandum or so-called "short form" of this Lease for the purposes or recordation. (l) Time is of the essence in the performance of all the covenants, conditions, and agreements contained in this Lease. (m) Any duty, obligation, or debt and any right or remedy arising hereunder and not otherwise consummated and/or extinguished by the express terms hereof at or as of the time of termination of this Lease, whether at the end of the term hereof or otherwise, shall survive such termination as continuing duties, obligations, and debts of the obligated party to the other or continuing rights and remedies of the benefitted party against the other. (n) This Agreement may be executed in one or more counterparts, each of which counterparts shall for all purposes be deemed to be an original; but all such counterparts together shall constitute but one instrument. (o) Attached hereto, marked Exhibit "A" through Exhibit "D", are certain exhibits to this Lease all of which are hereby incorporated herein by reference. 40. NOTICE: (a) All Rent and other payments required to be made by Tenant shall be payable to Landlord at the address set forth below or any other address Landlord may specify from time to time by written notice delivered to Tenant. 10 (b) All payments, if any, required to be made by landlord to Tenant shall be payable to Tenant at the address set forth below or at other address within the United States as Tenant may specify from time to time by written notice. (c) Any notice or document required or permitted to be delivered by this Lease shall be deemed to be delivered (whether or not actually received) when deposited in the United States Mail, postage prepaid, certified mail, or return receipt requested, addressed to the parties at the respective addresses set out below or such other address as hereinafter specified by notice given in accordance with this paragraph. LANDLORD: TENANT: OWEN BROS. ENTERPRISES BOBECK MEDICAL DISTRIBUTION 4275 N. Baldwin Avenue 1227 Ranch Valley El Monte, CA 91731 DeSoto, TX 75115 COPY TO: SECURITY COMMERCIAL MANAGEMENT, INC. 101 W. Randol Mill Rd. Suite 120 Arlington, Texas 76011 LANDLORD: TENANT: OWEN BROS. ENTERPRISES BOBECK MEDICAL DISTRIBUTION By: /s/ John A. Owen By: /s/ [ILLEGIBLE] ----------------------- ----------------------- Its: Partner Its: Owner --------------------- --------------------- Date: 6-25-96 Date: 6-19-96 --------------------- --------------------- 11 EXHIBIT "A" LEGAL DESCRIPTION FALCON CENTRE A SPACE CONTAINING APPROXIMATELY 10,151 SQUARE FEET OUT OF AN APPROXIMATELY 68,098 SQUARE FOOT BUILDING. SITUATED ON TRACT 2, BLOCK 6 OF EAGLE INDUSTRIAL PARK, DALLAS COUNTY, TEXAS. MORE COMMONLY KNOWN AS 1707 FALCON DRIVE, SUITE #104, DESOTO, TEXAS, 75115. EXHIBIT "B" SPACE PLAN [MAP] EXHIBIT "C" Tenant agrees to accept space "as is" with the exception that the Landlord and at Landlord's cost, will make the following changes: Carpet shall be shampooed, office suite will be painted, overhead doors will be repaired to the best of contractor's ability, and the suite shall be demised from adjacent suite #101-#103. FALCON CENTRE 1707 Falcon Drive DeSoto, Texas [MAP] All dimensions are approximate. Suite 101 - -------------------------------- Office Sq. Ft. 5,153 Warehouse Sq. Ft. 28,681 Total Sq. Ft. 33,834 24+/- Clear Height Fully Sprinkled (7) Dock Ht. Doors Trash Compactor Area Suite 104 - -------------------------------- Office Sq. Ft. 1,264 Warehouse Sq. Ft. 8,887 Total Sq. Ft. 10,151 19+/- Clear Height Fully Sprinkled (1) Dock Ht. Doors (1) Drive-In Door [LOGO] SECURITY COMMERCIAL MANAGEMENT Real Estate Services 101 West Randol Road, Suite 120 Arlington, Texas 76011 Metro 817-226-000[ILLEGIBLE] Fax 817-860-4180 RULES AND REGULATIONS The following Rules and Regulations are prescribed by Landlord in order to provide and maintain, to the best of Landlord's ability, orderly, clean and desirable Leased Premises, the building and parking facilities for the tenants therein and to regulate conduct in and use of Leased Premises, the building and parking facilities in such a manner as to minimize interference by others in the proper use of Leased Premises by Tenant. In the following Rules and Regulations, all references to Tenant include not only the Tenant, but, also, Tenant's agents, servants, employees, invitees, licensees, visitors, assignees, and/or sublessees: 1. Tenant shall not block or obstruct any of the entries, passages, doors, hallways, or stairways of building or parking area, or place, empty, or throw any rubbish, litter, trash, or material of any nature into such areas, or permit such areas to be used at any time except for ingress or egress of Tenants. 2. Landlord will not be responsible for lost or stolen personal property, equipment, money, or any article taken from the Leased Premises, building, or parking facilities regardless of how or when loss occurs. 3. The plumbing facilities shall not be used for any other purpose than that for which they are constructed, and no foreign substance of any kind shall be placed therein, and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant. 4. Tenant shall permit Landlord, during the six (6) months prior to the termination of this lease to show Leased Premises during business or non-business hours to prospective lessees and to advertise Leased Premises for rent. 5. Any additional keys required by Tenant during the term of this lease shall be requested from Landlord and shall be paid for by Tenant upon delivery of keys to premises. In the event new locks are requested by Tenant, then all costs associated with such request (including hardware, installation and keys) shall be paid by Tenant. 6. The common parking facilities are available for use by any and all Tenants. Landlord reserves the right to assign or allocate parking in the event of conflicts, abuse or improper use of these common parking facilities. It is generally understood that any Tenant should utilize only those parking spaces immediately adjacent to that Tenant's specific Leased Premises. Proper use of the common parking facilities is deemed to be that use which is occasioned by the normal in and out traffic required by the Tenant, in the normal course of the Tenant's business operations. Vehicles that are abandoned, disabled, have expired registration stickers, obstructing any means in ingress or egress to any Leased Premises, or in any way a general nuisance or hazard are subject to removal, without notice by Landlord's designated wrecker and towing service. All costs associated with such removal shall be at the Tenant's/Vehicle Owner's expense. 7. Tenant shall not use the building, Leased Premises, or parking facilities for housing, lodging, or sleeping purposes without express consent of Landlord in writing. 8. No birds or animals shall be brought into or kept in or about the Premises or any other part of the Building. 9. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside of the Building without the written consent of Landlord. Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to, and at the expense of Tenant. Tenant shall not place anything, or allow anything to be placed, near the glass of any window, door,, partition, or wall which may appear unsightly from outside the Leased Premises; Tenant shall not, without prior written consent of Landlord, cause or otherwise sunscreen any window. 10. Tenant shall not use or keep in the Leased Premises or in the Building, any kerosene, gasoline or inflammable or combustible fluid or material, or use any method of heating or air conditioning other than that supplied by Landlord. 11. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in the Leased Premises, or permit or suffer the Leased Premises to be occupied or used in a manner offensive or objectionable to the Landlord or other occupant of the Building by reason of notice, odors, and/or vibrations, or interfere in any way with other tenants or those having business therein, nor shall any animals or birds brought in or kept in or about the Leased Premises or the Building. 12. The following acts shall not be allowed or suffered to be done or conditions to exist upon the Leased Premises or any part thereof: a. Any violation of any federal, state, or municipal statute or ordinance or any regulation, order, or directive, of a governmental agency, as such statutes, ordinances, regulation, orders, or directives now exist or may hereafter provide, concerning the use and safety of the Leased Premises. b. Any violation of any certificate of occupancy covering of affecting the use of the Leased Premises or any part hereof. c. Any public or private nuisance. d. The display or distribution of drug paraphernalia,, or sexual paraphernalia,, except as the same may be legally dispensed by a physician or surgeon, dentist or pharmacist, duly licensed to practice such profession. e. The sale or dispensing of alcoholic beverages, except as the same may be incidental to the permitted use of the Leased Premises, as provided in the Lease Agreement. f. The sale or dispensing of alcoholic beverages on all other portions of the real property conveyed hereunder, except as the same shall be only incidental to any business, including restaurants, hotels or delicatessens which may be hereafter located on said other portions of the real property hereby conveyed. g. The showing, displaying, viewing, renting or selling of movie films which would be classified rated as "X-rated" under present standards or criteria for such classification and rating; and provided, that insofar as movie films, whether present or future are shown, displayed, viewed, rented, or sold upon the said real property, preference shall be given to those films which meet the standards and criteria presently existing for classification and rating as "G rated" or "PG rated". h. Gambling. i. The establishment or maintenance of a bawdy house, bar, nightclub or tavern. j. Any other act or condition which shall be lewd, obscene or licentious. EX-10.(S) 10 ASSIGNMENT, ASSUMPTION AND CONSENT AGREEMENT EXHIBIT 10(s) Assignment, Assumption and Consent Agreement dated as of January 27, 1997 by and among Bobeck Medical Distribution, Owen Bros. Enterprises and the Company. ASSIG14MENT AND ASSUMPTION AGREEMENT ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of January 27, 1997, by and among Graham-Field Express (Dallas), Inc., a Delaware corporation ("Buyer"), and Bob Crabtree, an individual doing business as a sole proprietor under the name "Bobeck Medical Distributors" ("Seller"). W I T N E S S E T H: WHEREAS, pursuant to a certain Asset Purchase Agreement, dated as of January __, 1997 (the "Purchase Agreement") by and between Buyer and Seller, Buyer has acquired the business of the Seller; WHEREAS, in partial consideration for the transactions contemplated by the Purchase Agreement, Buyer has agreed to assume, pay, perform, and discharge certain liabilities and obligations of Seller under and pursuant to the Purchase Agreement; and NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. 2. Assignment and Transfer. Seller hereby grants, transfers, sells, conveys, assigns and delivers to Buyer all of its right, title and interest in and to all of the Assets, TO HAVE AND TO HOLD the same unto its successors and assigns forever. The assets include each of the assets, properties, rights and claims described in Section 1.01 of the Purchase Agreement. Seller warrants that it has conveyed title to the Assets as set forth in the Purchase Agreement. It is expressly understood that this instrument is intended solely to restate, and not in any manner to amend, modify, enlarge or limit any warranties or agreements contained in, the Purchase Agreement. 3. Power of Attorney. Seller hereby irrevocably constitutes and appoints Buyer, its successors and assigns, its true and lawful attorney, with full power of substitution, in its name or otherwise, and on behalf of Seller, or for its own use, to claim, demand, collect and receive at any time and from time to time any and all assets, properties, claims, accounts and other rights, tangible or intangible, hereby sold, transferred, conveyed, assigned or delivered, or intended so to be sold, transferred, conveyed, assigned or delivered and to prosecute any claim relating to any thereof, whether at law or in equity and, upon discharge thereof, to complete, execute and deliver any and all necessary instruments of satisfaction and release. 2 4. Assumptigm. Buyer hereby assumes and undertakes to pay, perform and otherwise discharge, as the same become due in accordance with their respective terms, the Assumed Liabilities as set f orth in Schedule 1. 02 (a) of the Purchase Agreement, and Buyer hereby indemnities and holds Seller harmless from payment, performance or other liability related to the Assumed Liabilities as set forth in Section 1.02(a) of the Purchase Agreement. 5. Effect of Instrument. Except for the Assumed Liabilities expressly assumed by Buyer under the terms of Section 4 above, Buyer is not assuming nor shall in any way be liable, directly or indirectly, for any other obligation or liability of, or any litigation or claim against, Seller of any nature whatsoever. Buyer and Seller acknowledge that this instrument is intended solely to restate, and not in any manner to modify, amend, enlarge, or limit the liabilities and obligations being assumed by Buyer under the terms of the Purchase Agreement. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed on its behalf by a duly authorized officer all as of the date first written: GRAHAM-FIELD EXPRESS (DALLAS), INC. By:_______________________ Name:__________________ Title:_________________ 3 EX-10.(T) 11 LEASE AGREEMENT LEASE AGREEMENT 1. PARTIES: - ---THIS AGREEMENT entered on this 19 day of September, 1996, by and between J & M, S.E., a special partnership duly organized and existing under the Laws of the Commonwealth of Puerto Rico (hereinafter referred to as "LESSOR"), represented in this act by its ADMINISTRATIVE PARTNER, Mr. Juan Leizan, of legal age, married, and resident of Puerto Rico, and Graham-Field Express (Puerto Rico), Inc., hereinafter referred to as "LESSEE"), a corporation duly organized and existing under the Laws of Delaware and authorized to do business in the Commonwealth of Puerto Rico, represented in this act by its VICE-PRESIDENT OF FINANCE, Mr. Gary Jacobs of legal age, married, and resident of New York---------------------------------------------------------------------------- 2. PREMISES: - ---LESSOR represents and warrants that it is the sole owner in fee simple ("pleno dominio") of a real property having 2 1 ,600 square feet approximately of a building located on Puerto Rico Highway # 1, Rio Canas Ward, Caguas, Puerto Rico. The "Premises" have an area of 10,800 square feet in the first level (approximately 3,600 square feet for office, and approximately 7,200 square feet for store, laboratory and production area); and an area of 10,800 square feet approximately in the second level, for office and store. The Premises Leased hereunder include not less than twenty (20) exclusive parking spaces in front and adjacent to the Premises.--------------------------------------------------- - ---The 10,800 square feet area in the first level consists of reception, office, store, restroom, laboratory and production area. The second level has store area, rest-room and office.----------------------------------------------------- - ---Exhibit 1 is a correct drawing of the Premises and Exhibit 2 is a correct drawing of the floor plan for both levels of the Premises.---------------------- 3. PURPOSE OF LEASE: - ---The Premises demised under this lease agreement are to be used by LESSEE for LESEE's Corporate offices and facilities, store, sale and distribution of medical equipment. Any change in the proposed use of the Premises will require the prior written consent of LESSOR, which consent shall not be unreasonably withheld, denied or delayed.---------------------------------------------------- - ---LESSEE shall not use the Premises for any illegal, immoral, or ultra-hazardous activity, whether within of outside the scope of the business of LESSEE.------------------------------------------------------------------------- 4. OCCUPANCY OF THE PREMISES, COMMENCEMENT OF LEASE TERM AND EXTENSION OPTION: - ---The LESSEE may use and occupy the Premises as of the date hereof. The commencement of the lease term shall be October 8, 1996 (the "Lease Commencements Date") and shall extend for a period of three (3) years from such date (the "Term").-------------------------------------------------------------- - ---LESSEE shall have the two options to extend the Term of this Lease for (i) a first option term of three (3) years and (ii) a second option term of four (4) years (both the "Extended Terms") upon giving LESSOR written notice of its intention to extend the Lease not later than six (6) months prior to the expiration of the Term or the first -1- Extended Term. In the event LESSEE exercises it option to extend the Lease, all covenants, terms and conditions of the Lease shall remain unaltered and in full force and effect, except as otherwise provided under Section 7 hereof.---------- - ---The LESSEE must pay the rent provided under Section 7 hereof from October 8, 1996 and thereon during the Term and Extended Term of this Lease Agreement, subject to the terms and conditions contained herein.--------------------------- 5. ASSIGNMENT AND SUBLETTING: - ---LESSEE may assign this Lease in whole or in part, or sublet the Premises, or any part thereof, or any right or privilege appurtenant thereto, to its parent company, affiliates, subsidiaries, or to any entity surviving from a merger, consolidation or other similar activity, or by operation of law, provided however, that LESSEE may not assign this Lease or sublet the Premises to any other third party without LESSOR's prior written consent, which consent shall not be unreasonably withheld or delayed. Any unauthorized assignment or subletting of the Premises shall be null and void and shall operate as a termination of this Lease.------------------------------------------------------ - ---LESSEE shall not allow any person other than LESSEE, its employees, agents, clients or invitees to occupy or use the Premises or any part thereof.---------- 6. (INTENTIONALLY OMITTED) 7. RENT: - ---LESSEE shall pay to LESSOR without notice, demand, or abatement, deduction or set off, in lawful money of the United States of America, at the office of the LESSOR, or at such other place in Puerto Rico as LESSOR may designate, fixed monthly rent of NINE THOUSAND FIVE HUNDRED DOLLARS ($9,500.00) per month, payable monthly in advance within the first (1st) five (5) days of each month, during the Term and the first Extended Term of the Lease, commencing on October 8, 1996. The rent for the month of October 1996 shall be $ 7,125.-------------- - ---The monthly rent payment by LESSEE to LESSOR during the second Extended Term of the Lease shall be ELEVEN THOUSAND DOLLARS ($11,000) per month, payable as provided in the above stated paragraph.----------------------------------------- The rent payment of $9,500 during the Term and first Extended Term, and $11,000 during the second Extended Term, is all the rent payable to LESSOR under this Lease Agreement, and such rent payment includes any and all taxes and fees related to the Premises. No additional fees or rent shall be paid by LESSEE under this Lease Agreement.----------------------------------------------------- 8. ALTERATIONS AND ADDITIONS: - ---LESSEE shall not, without LESSOR's prior written consent, which consent shall not be unreasonably denied or delayed, make any structural alterations, improvements, additional or utility installations in, on or about the Premises. The terms "utility installations" shall include bus ducting, power panels, fluorescent fixtures, conducts and wiring. As a condition to giving such consent, LESSEE shall provide to LESSOR copies of the drawings or plans of the proposed structural alterations, improvements, additions or utility installations to be done; also, LESSOR may require that LESSEE agree to remove any such alterations, improvements, additions or utility installations at the expiration of the Term or Extended Terms and to restore the Premises to their prior conditions and furthermore, may require or prescribe any other reasonable condition or requirement which shall be set forth in the notice granting the consent.------------------------------------------------------------------------ -2- - ---All alterations, improvements, additions and utility installations, which may be made to or on Premises, to the extent that such alterations, improvements, additions or utility installations are not removable by LESSEE, without damaging the Premises, shall become the property of LESSOR and remain upon and be surrendered with the Premises at the expiration of the Term. Notwithstanding the provisions of this Paragraph, LESSEE's machinery and equipment, other than that which is affixed to the Leased premises so that it cannot be removed without material damage to the Premises, shall remain the property of LESSEE and may be removed by LESSEE subject to the provisions of this paragraph.------------------ - ---Notwithstanding the "as is" nature of the Lease, LESSOR shall remain liable and responsible for the maintenance and repair of the structure, systems, walls and roof of the Premises and remedy and repair such defects as arise of become known during the Term and Extended Term of this Lease.-------------------------- - ---LESSOR represents and warrants that the Premises are in good order and condition and ready for their intended use by LESSEE. LESSOR also represents and warrants that the Premises and all accessory parts thereof are in working conditions and subject to receive from the appropriate utility company all necessary utilities, such as water, telephone and electricity. LESSOR also represents that the air-conditioning unit unit currently installed at the Premises is in good order and condition; shall be LESSEE's responsibility to maintain and repair, from time to time, said air-conditioning unit, including the replacement of the machinery parts of such air-conditioning unit, if necessary.---------------------------------------------------------------------- - ---LESSEE shall remain liable and responsible for the maintenance and repair of the interior walls, ceilings, floors, lights, power, doors, windows, bus ducting, power panels, fluorescent fixtures, conducts and wiring, machinery and equipment, and remedy and repair such defects as arise or become known during the Term of this Lease.--------------------------------------------------------- - ---LESSEE may install a sign with the name of LESSEE's business name, other references and logo, in compliance with applicable laws and regulations.-------- - ---Notwithstanding the above stated LESSEE's responsibilities, LESSOR shall remain liable and responsible for the structural soundness of all walls, ceiling and floor of the Premises. Also LESSOR shall paint the exterior walls of the Premises every two years, in coordination with LESSEE to avoid undue interruptions on LESSEE's business operations.---------------------------------- 9. SECURITY AND SAFETY: - ---The security and guard service to the Premises will be provided exclusively by LESSEE, at its cost. The LESSOR is not obligated to give guard service. The LESSEE may install an alarm system and close circuit TV cameras in or out the Premises, at LESSEE expense.---------------------------------------------------- 10. UTILITIES: - ---LESSEE shall be responsible to request, obtain and pay for all utilities needed for its operation in the Premises, such as water, telephone and electricity. The Premises are equipped to receive installation by utilities companies of such utility services. LESSOR shall have no obligation, nor be liable, as to the utilities needed by LESSEE, nor in the event of any interruption in the supply of any of them. If equipment or machinery installed or used by LESSEE shall require utilities facilities not available at the Premises, the same shall be installed at LESSEE's cost, expense and risk in accordance with plans and specifications to be approved in writing by LESSOR.--- -3- 11. CONDITION OF PREMISES: - ---LESSEE represents and warrants that it has examined and inspected the Prcmises and hereby accepts the same in their existing condition, subject to the previsions of Section 8 hereof, to all applicable zoning, municipal, and commonwealth laws, ordinances and regulations, governing and regulating the use of the Premises, and accepts this Lease subject thereto and to all matters disclosed thereby. LESSEE acknowledges that neither LESSOR nor LESSOR'S agents have made any representation or warranty as to the suitability of the Leased premises for the conduct of LESSEE's business.---------------------------------- - ---The foregoing notwithstanding, LESSOR represents and warrants that the Premises have a validly issued Use Permit and are in a condition to obtain the issuance of a valid Use Permit. LESSEE must obtain a Use Permit validly issued by A.R.P.E. (ADMINISTRACION DE REGLAMENTOS Y PERMISOS).------------------------- 12. LESSEE'S OBLIGATIONS: - ---LESSEE shall, during the Term of this LEASE, keep the Premises in good order, clean condition, free and clear of any and all debris, garbage, or similar material, subject to normal wear and tear. LESSEE shall repair the Premises and every non-structural part thereof. Except as otherwise stated in Section 8 of this Lease, LESSOR shall incur in no expense nor have any obligations of any kind whatsoever in connection with said maintenance of the Premises.------------ 13. SURRENDER: - ---On the last day of the Term hereof, or any sooner termination, LESSEE shall surrender the Leased premises to LESSOR in the same conditions as when received, broom clean, ordinary wear and tear excepted. LESSEE shall repair any damage to the leased Premises occasioned by the removal of LESSEE's trade fixtures, furnishings and equipment, which repair shall include the patching and filling of holes and repair of structural damage.--------------------------------------- 14. INSURANCE AND INDEMNITY: 14:1 INSURANCE - ---LESSEE shall, during the entire term of this Lease, keep full force and effect the following insurance policies with insurers approved by LESSOR and authorized to do business in the Commonwealth of Puerto Rico:------------------- - ---(a) General Public Liability Insurance Policy for an amount of not less than $300,000.00 per person and for an amount of not less than $1,000,000.00 per accident, in order to protect, defend and hold harmless the LESSOR from and against any and all claims or liabilities for death or injury to persons, including employees, officers and agents of LESSEE.----------------------------- - ---(b) Property damage insurance against damages to the Premises. LESSOR must be included as an additional insured under said insurance policy.------------------ - ---The Policies shall contain a clause that insurer will not cancel or change the insurance policy without first giving the LESSOR thirty (30) days prior written notice. Copies of the policies or certificates of Insurance shall be delivered to LESSOR at the time this Agreement is signed by the herein appearing parties. LESSOR may request LESSEE to increase LESSEE's insurance coverage based on experience, Insurance Companies requirements and or Industry standards.------ 14.2 INDEMNITY: - ---The parties hereto shall indemnify and hold each other harmless from and against any an all claims and demands arising from the other's use of the property or the Premises, -4- or from the conduct of their businesses, or from any activity, work or things to be done, permitted or suffered in or about the Premises or the property, and shall further indemnify and hold each other harmless from and against any and all claims arising from any breach or default in the performance of any obligations to be performed under the terms of this Lease, or arising from any negligence of the other party, or any of its agents, employees, officers and invitees and from any and all costs, expenses fees and other liabilities incurred in the defense of any such claim or of any action or proceeding brought against the indemnitee by reason of any such claim or demand. The indemnitor shall, upon notice from the indemnitee, defend against any such claim at its expense and engage counsel reasonably acceptable to the indemnitee. LESSEE hereby assumes all risks of damage to property or injury to persons, in, upon or about the Premises and waives any claim against the LESSOR, except with respect to such damage, injury or claim arising from LESSOR's negligent acts or those of its officers, agents, contractors, employees and invitees.---------------------- 14.3 ENVIRONMENTAL INDEMNITY FOR PRIOR USES: - ---LESSOR shall indemnify, defend, and hold harmless LESSEE and its officers, directors, constituent owners, agents, employees, and representatives from all fines, suits, proceedings, claims and actions of every kind, and all losses, cost and expenses associated therewith, including any and all sums paid for settlement of claims, attorney's fees, consultant's fees and personal injuries arising from any violation to federal, local or Commonwealth of Puerto Rico environmental law or regulation or environmentally related claim, that may have accrued or occurred on or before the execution of this Lease Agreement.--------- 15. RELEASE OF LESSOR FROM LIABILITY: - ---LESSEE hereby agrees that LESSOR, except for act or omission of LESSOR or its agents, contractors or employees, shall not be liable for injury to LESSEE's business or any loss of income therefrom or for damages to the goods, wares, merchandise or other property of LESSEE, LESSEE's employees, invites, customers, or any other person in or about the Premises, nor shall LESSOR be liable for injury to the person of LESSEE, LESSEE's employer, agents or customers, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from breakage, leaking, obstructions of sprinklers, wires, appliances, air conditioning or fixture or from any other cause whether said damage or injury results from conditions arising upon the Premises or from other portions of the building of which the Premises are a part not occupied or controlled by LESSOR.----------------------------------------------------------- 16. SECURITY AND DEPOSIT. - ---LESSEE has deposited with LESSOR as security for the performance by LESSEE of the terms of this Lease a LEASE BOND for the sum of TWENTY EIGHT THOUSAND FIVE HUNDRED DOLLARS ($28,500), which has been issued by an Insurance Company, approved by LESSOR, with offices in Puerto Rico. LESSOR may use or apply that LEASE BOND for the payment of any rent or other sums as to which LESSOR may be entitled by reason of LESSEE's default in respect of any of the terms of this Lease.-------------------------------------------------------------------------- - ---Under no circumstances shall the amount of the LEASE BOND limit the amount to which LESSOR may be entitled under this Lease by way of damages or otherwise, nor is such amount intended to be or represent a liquidated damage amount, but is merely an amount which may be applied on account towards any amount due LESSOR and unpaid under this Lease.--------------------------------------------- -5- - ---LESSEE access and use to Premises is contingent upon the delivery to LESSOR, from time to time, of this valid LEASE BOND. Non compliance with this obligation, will terminate this Lease.------------------------------------------ 17. BANKRUPTCY: - ---In the event LESSEE shall become insolvent, or admit in writing its inability to pay its debts as they mature, or make an assignment for the benefit of creditors, or shall apply for or consent to the appointment of any receiver, trustee, or similar officer for all or a substantial portion of its assets, or LESSEE shall apply for or institute any bankruptcy, arrangement for the benefit of creditors, dissolution, liquidation, or similar proceeding, and such proceeding remains undischarged for a period of thirty (30) days, LESSOR may, at its sole option, terminate this lease.------------------------------------------ 18. RECORDATION: - ---The parties agree that this Lease may be recorded at the request of LESSEE. The parties hereto agree to execute and deliver such private or public documents, instruments and deeds as may be reasonably required to achieve recordation of the Lease. LESSEE shall select the notary and pay corresponding notarial fees and cost of such recordation.------------------------------------- 19. SUBORDINATION: - ---LESSOR represents and warrants to LESSEE that the real property where the Premises are located is free and clear of all liens and encumbrances. LESSOR further represents and warrants to LESSEE that there are no unpaid taxes, assessments or levies against such real property.------------------------------- - ---LESSOR acknowledges and agrees that this Lease is and shall remain for the Term of Extended Term of this Lease, a senior preferred interest in and to the real property.------------------------------------------------------------------ 20. NOTICES: - ---All notices to be given under this Lease may be delivered personally or by certified mail, postage prepaid to the following addresses:--------------------- - ---To LESSOR: Mr. Juan Leizan, J & M, S.E., P.O. Box 177, Caguas, Puerto Rico, 00726.-------------------------------------------------------------------------- - ---To LESSEE: Richard S. Kolodny, Esq., Vice President & General Counsel, Graham-Field Express (Puerto Rico), Inc., Executive Offices, 400 Rabro Drive East, Hauppauge, N.Y. 11788.---------------------------------------------------- 21. GOVERNING LAW: - ---This Lease shall be governed; interpreted and construed pursuant to the laws of the Commonwealth of Puerto Rico.--------------------------------------------- 22. MUTUAL REPRESENTATIONS: 22.01 Partnership, corporation standing, etc: - ---It is: (i) in the case of LESSOR, a special partnership, duly organized, validly existing, and in good standing under the laws of the Commonwealth of Puerto Rico; (ii) in the case of the LESSEE, a corporation duly organized and validly existing under the laws of Delaware and authorized to do business in Puerto Rico; and (iii) they are and will be, as to each Party, at all times fully qualified and capable of performing every obligation and responsibility to be performed and completed by it in accordance with the terms of this Lease Agreement.---------------------------------------------------------------------- 22.02 NO VIOLATION OF LAW; LITIGATION: - ---The Parties are not in violation of any applicable law, which violations would adversely affect their performance of any obligations under this Agreement. There are -6- no legal or arbitration proceedings or any proceeding by or before any governmental agency, whether federal, local or Commonwealth, now pending or (to its best knowledge) threatened against them which, if adversely determined, could have a material adverse effect upon their ability to perform their obligations under this Lease Agreement.----------------------------------------- 22.03 NO CONFLICT OR BREACH: - ---None of the execution, delivery, and performance by each Party of this Lease Agreement, the compliance with the terms and provisions hereof, and the carrying out of the transactions contemplated hereby, conflicts or will conflict with or will result in a breach or violation of any of the terms, conditions or provisions of any law, or the charter documents, as amended, or other organizational documents, as amended, of such Party or any order, writ, injunction, judgment, or decree of any court or other governmental agency entered against such Party or by which it or any of its properties are bound, or any loan agreement, indenture, mortgage, note, resolution, bond, or contract or other agreement or instrument to which such Party is a party or by which it or any of its properties are bound, or constitutes or will constitute a default thereunder or will result in the imposition of any lien upon any of its properties.--------------------------------------------------------------------- 22.04 AUTHORITY, ETC: - ---The Parties have all necessary power and authority to execute, deliver, and perform this Lease Agreement and its obligations hereunder; the execution, delivery and performance of this Lease Agreement has been duly authorized by all necessary actions on its part by its governing body; it has duly and validly executed and delivered this Lease Agreement; and this Lease Agreement constitutes a legal, valid, and binding obligation of such Party enforceable against such Party in accordance with the terms hereof.------------------------- 23. MISCELLANEOUS PROVISIONS: 23.01 QUIET ENJOYMENT: - ---LESSOR covenants and agrees that LESSEE shall and may peaceably and quietly have, hold, occupy, use, and enjoy the Premises during the Term and the Extended Terms, subject to the provisions of this Lease Agreement. The LESSOR agrees to warrant and forever defend LESSEE's right to occupy, use, and enjoy the Premises against the claims of any and all Persons whomsoever lawfully claiming the same or any part thereof, and subject in all respects to the provisions of this Lease Agreement.---------------------------------------------------------------------- 23.02 EXCULPATION OF PARTNERS AND SHAREHOLDERS OF PARTNERS: - ---Notwithstanding any other provision in this Lease Agreement to the contrary, the obligations of the Parties hereunder are recourse only to the assets of each Party, and neither the partners of LESSOR nor any shareholder, officer, director, employee, agent or any affiliate of LESSEE thereof shall have any personal liability for any breach of the performance or observance of any of the covenants, representations, warranties or obligations of either Party contained in this Lease Agreement.-------------------------------------------------------- 23.03 NO ASSOCIATION, JOINT VENTURE, ETC: - ---This Lease Agreement shall not be interpreted or construed to create an association, joint venture or partnership between the Parties or any other similar legal relationship. Neither Party shall have any right, power or authority to enter into any agreement or undertaking for, or act on behalf of, or to act as or be, an agent or representative of, or to otherwise bind, the other Party without that Party's written consent.------------------------------- -7- 23.04 COUNTERPARTS: - ---This Lease Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.---------------------------------------------------- 23.05 CONSENTS, APPROVALS, AND ACKNOWLEDGMENTS: - ---Whenever in this Lease Agreement consents, approvals, or acknowledgments are called for from a Party it shall be understood that the same will not be unreasonably denied or delayed; provided, that such consent shall be deemed to be granted by a Party if the Party fails to respond to any written request for such consent within thirty (30) days or receipt thereof and; provided, further, that any denial by such Party of its consent shall set forth in reasonable detail the basis for such denial.----------------------------------------------- 23.06 AMENDMENTS: - ---This Lease Agreement can be amended during its Term and Extended Terms by mutual written consent of the Parties. No waiver, alteration, or modification of this Lease Agreement or any agreements entered into in connection with the Lease Agreement shall be valid unless in writing duly executed by both Parties.------- 23.07 CAPTIONS: - ---The captions contained in this Lease Agreement are for convenience and reference only and in no way define, describe, extend, or limit the scope or intent of this Lease Agreement or the intent of any provision contained herein.- 23.08 SEVERABILITY: - ---The invalidity of one or more phrases, sentences, clauses, Sections, or Articles contained in this Lease Agreement shall not affect the validity of the remaining portions of the Lease Agreement so long as the material purposes of this Lease Agreement can be determined and effectuated.------------------------- 23.09 NO WAIVER: - ---Any failure of either Party to enforce any of the provisions of this Lease Agreement or to require compliance with any of its terms at any time during the pendency of this Lease Agreement shall in no way affect the validity of this Lease Agreement, or any part hereof, and shall not be deemed a waiver of the right of such Party thereafter to enforce any and each of such provisions.------ 23.10 FURTHER ASSURANCES: - ---Each Party agrees to execute and deliver all further instruments and documents and to take all further action not inconsistent with the provisions of this Lease Agreement that may be reasonably necessary to effectuate the purposes and intent of this Lease Agreement.--------------------------------------------- 23.11. THIRD PARTIES: - ---Except as otherwise expressly provided in this Lease Agreement, nothing in this Lease Agreement shall be construed to create any duty to, standard of care with respect to, or any liability to any person who is not a party to this Lease Agreement.---------------------------------------------------------------------- [Illegible] /s/ Gary M. Jacobs VP Finance - ------------------------------------- ------------------------------------ LESSOR LESSEE -8- Affidavit # 059 - ---On the 19th day of September 1996, before me personally appeared Mr. Juan Leizan, to me known to me to be a partner of the firm of "J & M, S.E.", executed the foregoing instrument, and he thereupon acknowledged to me that he executed the same as and for the act and deed of the said partnership, "J & M, S.E.". [SEAL] [Illegible] ------------------------------------ NOTARY PUBLIC Affidavit # - ---On the 19th day of September 1996, before me personally appeared Mr. Gary Jacobs, to me known and known to me to be the Vice-President of Finance of "Graham-Field Express (Puerto Rico), Inc.", executed the foregoing instrument, and he thereupon acknowledged to me that he executed the same as and for the act and deed of the said "Graham-Field Express (Puerto Rico), Inc.". THERESA C. DUFFY Notary Public, Slate of New York No 5017870 Suffolk county commission Expires September 13, 97 /s/ Theresa C. Duffy ------------------------------------ NOTARY PUBLIC #57171.01 -9- EX-10.(U) 12 LEASE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-MODIFIED NET 1. Basic Provisions ("Basic Provisions"). 1.1 Parties: This Lease ("Lease"), dated for reference purposes only, December 27, 1996, is made by and between ADAYA ASSET WASHINGTON, L.P., a California limited partnership ("Lessor"). and GRAHAM-FIELD, INC., a New York corporation ("Lessee") (collectively the "Parties," or individually a "Party"). 1.2(a) Premises: That certain portion of the Building, including all improvements therein or to be provided by Lessor under the terms of this Lease, containing approximately 52,810 square feet of floor area, as outlined on Exhibit A attached hereto ("Premises"). The "Building" is that certain building containing the Premises and located at 11954 East Washington Boulevard, Santa Fe Springs, California 90606. In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the Building or to any other buildings in the Industrial Center. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Industrial Center." (Also see Paragraph 2.) 1.2(b) Parking: One hundred three (103) unreserved vehicle parking spaces ("Unreserved Parking Spaces"); and two (2) reserved vehicle parking spaces for Lessee's exclusive use ("Reserved Parking Spaces"). (Also see Paragraph 2.6.) 1.3 Term: Five (5) years ("Original Term") commencing on the date specified as the "Commencement Date" in Exhibit B, and ending on the last day of the calendar month in which the fifth (5th) anniversary of the Commencement Date occurs ("Expiration Date"). (Also see Paragraph 3 and Exhibit B and Paragraph 57 of the Addendum) 1.4 Early Possession: See Exhibit B. 1.5 Base Rent: $19,012.00 per month ("Base Rent"), payable on the first (1st) day of each month commencing on the Commencement Date. (Also see Paragraph 4.) |X| If this box is checked, this Lease provides for the Base Rent to be adjusted per Addendum Paragraph 49, attached hereto. 1.6(a) Base Rent Paid Upon Execution: $19,012.00 as Base Rent for the first (1st) month of the Original Term. 1.6(b) Lessee's Share of Common Area Operating Expenses: 37.45% ("Lessee's Share") as determined by prorata square footage of the Premises as compared to the total square footage of the Building. 1.7 Security Deposit: $19,012.00 ("Security Deposit"). (Also see Paragraph 5.) 1.8 Permitted Use: Warehousing, distribution and assembly of medical equipment and offices and other related uses incidental thereto ("Permitted Use"). (Also see Paragraph 6.) 1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph 8.) 1.10(a) Real Estate Brokers. The following real estate broker(s) (collectively, the "Brokers") and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes): |X| Investment Development Services, Inc., and CB Commercial represent Lessor exclusively ("Lessor's Broker"); |X| Grubb & Ellis Company represents Lessee exclusively ("Lessee's Broker"). (Also see Paragraph 15.) 1.10(b) Payment to Brokers. Lessor shall pay to said Brokers a fee as set forth in a separate written agreement between Lessor and said Brokers for brokerage services rendered by said Brokers in connection with this transaction. -1- 1.11 Addenda and Exhibits. Attached hereto is an Addendum or Addenda consisting of Paragraphs 49 through 57, and Exhibits A and B, all of which constitute a part of this Lease. 2. Premises, Parking and Common Areas. 2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental and/or Common Area Operating Expenses, is an approximation which Lessor and Lessee agree is reasonable and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, electrical systems, fire sprinkler system. lighting, air conditioning and heating systems and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in operating condition on the Commencement Date. If a non-compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within ninety (90) days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. Lessor shall assign to Lessee (with reservation of rights in favor of Lessor) any manufacturer and contractor warranties (which shall be minimum 1-year warranties from the date of completion) which Lessor may have against defects in or to any such systems and loading docks. 2.3 Compliance with Laws. Lessor makes no warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined in Paragraph 2.4); however, Lessor represents to Lessee that Lessor has not received any written notice from any governmental agency that the Permitted Use is prohibited for the Premises. 2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been advised by the Broker(s) to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, seismic and earthquake requirements, and compliance with the Americans with Disabilities Act and applicable zoning, municipal, county, state and federal laws, ordinances and regulations and any covenants or restrictions of record (collectively, "Applicable Laws") and the present and future suitability of the Premises for Lessee's intended use; (b) that Lessee has made such investigation as it deems necessary with reference to such matters, is satisfied with reference thereto, and except as expressly provided in Exhibit B attached hereto, assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. (See Exhibit B.) 2.5 Intentionally Deleted. 2.6 Vehicle Parking. Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking, except that Lessee's Reserved Parking Spaces shall be located at or near the main entrance of the Premises. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and loaded or unloaded as directed by Lessor in the Rules and Regulations (as defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.) (a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. (b) If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, upon reasonable notice to Lessee, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. Lessor will not enforce this provision in a manner which discriminates against Lessee in relation to other tenants of the Project. (c) Lessor shall at the Commencement Date of this Lease, provide the parking facilities required by Applicable Law. 2.7 Common Areas - Definition. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Industrial Center and interior utility raceways within the Premises that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other Leases of the Industrial Center and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. -2- 2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Industrial Center. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable, non-discriminatory Rules and Regulations with respect thereto in accordance with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the Industrial Center. Lessor shall enforce the Rules and Regulations in a non-discriminatory manner. 2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land outside the boundaries of the Industrial Center to be a part of the Common Areas (but Common Area Operating Expenses shall not be increased as a result of any such designation); (d) To add additional buildings and improvements to the Common Areas (and Lessee's Share shall thereupon be decreased to take into account the rentable area of any such additional buildings or improvements); (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Industrial Center, or any portion thereof; and (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Industrial Center as Lessor may, in the exercise of sound business judgment, deem to be appropriate. In exercising its rights under this Paragraph 2.10, Lessor shall not unreasonably interfere with Lessee's access to the Premises or to the number of parking spaces provided to Lessee in Paragraph 1.2(b). 3. Term. 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 4. Rent. 4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as the same may be adjusted from time to time, to Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one full month shall be prorated based upon the actual number of days of the month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the term hereof in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.6(b) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "Common Area Operating Expenses" are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Industrial Center, including, but not limited to, the following: -3- (i) The operation, repair and maintenance, in neat, clean, good order and condition, of the following: (aa) The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators and roof. (bb) Exterior signs and any tenant directories. (cc) Fire detection and sprinkler systems, including, without limitation, the ESFR. (dd) Those portions of the Building which Lessor is required to repair pursuant to Paragraph 7.2 below. (ii) The cost of water, gas, electricity and telephone to service the Common Areas. (iii) Trash disposal, property management and security services and the costs of any environmental inspections. (iv) Real Property Taxes (as defined in Paragraph 10.2) to be paid by Lessor for the Building and the Common Areas under Paragraph 10 hereof. (v) The costs of the premiums for the insurance policies maintained by Lessor under Paragraph 8 hereof. (vi) Any deductible portion of an insured loss concerning the Building or the Common Areas (subject, however, to the exclusions regarding capital expenditures in Paragraph 50(b) of the Addendum). (vii) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense. (See Paragraph 50 of Addendum.) (b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Building or to any other building in the Industrial Center or to the operation, repair and maintenance thereof shall be allocated entirely to the Building or to such other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof shall be equitably allocated by Lessor to all buildings in the Industrial Center. (c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Industrial Center already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them. (d) Lessee's Share of Common Area Operating Expenses shall be payable by Lessee within twenty (20) days after a reasonably detailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be reasonably estimated by Lessor from time to time of Lessee's Share of annual Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12-month period of the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated on said statement, Lessor shall credit the amount of such over-payment against Lessee's Share of Common Area Operating Expenses next becoming due, except that if such overpayment pertains to the last year of the Lease Term, Lessor shall pay to Lessee the amount of such overpayment within ten (10) days after Lessor's delivery of said statement. If Lessee's payments under this Paragraph 4.2(d) during said preceding year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. (See Paragraph 50 of Addendum.) 5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder and such failure continues after expiration of any applicable notice and cure period, or if Lessee otherwise commits a Breach under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefore deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease (including Paragraph 49 of the Addendum), Lessee shall, -4- upon written request from Lessor, deposit additional monies with Lessor as an addition to the Security Deposit so that the total amount of the Security Deposit shall at all times bear the same proportion to the then current Base Rent as the initial Security Deposit bears to the initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any monies to be paid by Lessee under this Lease. 6. Use. 6.1 Permitted Use. (a) Lessee shall use and occupy the Premises only for the Permitted Use set forth in Paragraph 1.8, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to the Premises or neighboring premises or properties. (b) Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee, Lessee's assignees or subtenants, and by prospective assignees and subtenants of Lessee, its assignees and subtenants, for a modification of said Permitted Use, so long as the same will not impair the structural integrity of the improvements on the Premises or in the Building or the mechanical or electrical systems therein, does not conflict with uses by other lessees, is not significantly more burdensome to the Premises or the Building and the improvements thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within five (5) business days after such request give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use. 6.2 Hazardous Substances. (See Paragraph 1 of Exhibit B.) (a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment, or the Premises; (ii) regulated or monitored by any governmental authority; or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products or by-products thereof. Lessee shall not engage in any activity in or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Requirements (as defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and (iii) the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Laws require that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but upon notice to Lessor and in compliance with all Applicable Requirements, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of the Permitted Use, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to any Reportable Use of Hazardous Substance by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefor, including but not limited to the installation (and, at Lessor's option, removal on or before Lease expiration or earlier termination) or reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give Lessor written notice thereof, together with a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action, or proceeding given to, or received from, any governmental authority or private party concerning the presence, spill. release, discharge of, or exposure to, such Hazardous Substance including but not limited to all such documents as may be involved in any Reportable Use involving the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including, without limitation, through the plumbing or sanitary sewer system). (c) Indemnification by Lessee. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss of permits and attorneys' and -5- consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or permitted by Lessee, and the cost of investigation (including consultants' and attorneys' fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement. (d) Indemnification by Lessor. Lessor shall indemnify, protect, defend and hold Lessee, its agents and employees harmless from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss of permits and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises or Industrial Center by Lessor or Lessor's agents, employees or contractors in violation of applicable laws at the time of such introduction. Lessee's obligations under this Paragraph 6.2(d) shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or permitted by Lessor, and the cost of investigation (including consultants' and attorneys' fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessor from its obligations under this Paragraph 6.2(d), unless specifically so agreed by Lessor in writing at the time of such agreement. 6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "Applicable Requirements," which term is used in this Lease to mean all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau relating in any manner to the Premises (including but not limited to matters pertaining to (a) industrial hygiene, (b) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, (c) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill, or release of any Hazardous Substance, and (d) the systems and equipment, including the HVAC Systems, as defined below, within or specifically serving the Premises), now in effect or which may hereafter come into effect; provided, however, Lessee shall not be required under this Paragraph 6.3 to: (i) remedy any currently existing violations pertaining to the condition of the Building or existing improvements in the Premises which are specifically made Lessor's responsibility in Paragraph 1 of Exhibit B; (ii) remedy any violation of Applicable Requirements to the extent specifically caused by the acts of Lessor or Lessor's employees or agents; (iii) make any alterations to the structural components of the Building to comply with such Applicable Requirements, except to the extent such alterations are triggered by or are required as a result of (A) any Alterations or Utility Installations made to the Premises by or for Lessee (other than Lessor's Work), or (B) Lessee's specific manner of use of the Premises; or (iv) make any capital improvement to the warehouse portion of the Premises which has a useful life, in accordance with sound real estate accounting principles, that extends beyond the then current Term of this Lease (the "Excluded Capital Improvements"), except to the extent such Excluded Capital Improvements are triggered by or are required as a result of (A) any Alterations or Utility Installations made to the Premises by or for Lessee (other than Lessor's Work) or (B) Lessee's specific manner of use of the Premises; provided further, however, that Lessee shall pay for the amortized cost of such Excluded Capital Improvements based upon the ratio of the number of years remaining in the Term of the Lease (including any exercised Option to extend) as of the date of installation of such Excluded Capital Improvements to the number of years of the useful life of such Excluded Capital Improvements. Lessor shall be responsible for the balance of such costs of the Excluded Capital Improvements. To Lessor's actual, present knowledge, there are no covenants, easements or restrictions currently recorded against the Industrial Center which pertain to the Premises, except those specifically identified in that certain Preliminary Report dated November 25, 1996, as supplemented, Order No.775890-46, issued by Old Republic Title Company, a copy of which has been received by Lessee. The foregoing representation does not relate to zoning laws or other Applicable Laws. Lessee shall, within fifteen (15) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including but not limited to permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Requirements specified by Lessor; provided, however, such 15-day period shall be extended to such longer period of time as is reasonably practicable under the circumstances if Lessee is unable, despite due diligence efforts, to obtain such materials within such 15-day period, so long as Lessee commences to obtain such materials within such 15-day period and thereafter diligently proceeds to obtain same. In addition, Lessee shall promptly upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Requirements. 6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, upon reasonable advance notice to Lessee, and in the presence of a representative of Lessee, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to employ experts and/or consultants in connection therewith to advise Lessor with respect to Lessee's activities, including but not limited to Lessee's installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Premises. In exercising its entry rights under this Section 6.4, Lessor shall not (except as may be necessary in an emergency) unreasonably interfere with Lessee's access to the Premises or Lessee's ordinary business operations in the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless -6- a violation of Applicable Requirements or a contamination, caused or materially contributed to by Lessee, is found to exist, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing violation or contamination. In such case, Lessee shall, within twenty (20) days after receipt of invoice, reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations. 7.1 Lessee's Obligations. (a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair (whether or not such portion of the Premises requiring repair, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment, systems and facilities specifically serving the Premises, such as fire/life safety, plumbing, electrical and lighting facilities and equipment, heating, ventilation and air conditioning equipment, including the HVAC equipment on the roof of the Building specifically serving the Premises and all connections and conduits thereto (collectively, the "HVAC Systems"), boilers, fired or unfired pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors windows, doors, plate glass, and skylights, but excluding those items of Lessor's Property which are the responsibility of Lessor pursuant to, and as defined in, Paragraph 7.2 below. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof, and the equipment, systems and facilities specifically serving the Premises, in good order, condition and state of repair, subject to normal wear and tear. (b) Lessee shall, at Lessee's sole cost and expense, procure and maintain a contract, with copies to Lessor, in customary form and substance for and with a contractor reasonably approved in advance by Lessor and specializing and experienced in the inspection, maintenance and service of the HVAC Systems for the Premises. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain the contract for the HVAC Systems, and if Lessor so elects, Lessee shall reimburse Lessor within twenty (20) days after demand, for the cost thereof, but only to the extent such costs are reasonably price competitive. (c) If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, in accordance with Paragraph 13.2 below. 7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 4.2 (Common Area Operating Expenses). 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the following items (collectively, the "Lessor's Property"): the foundations, exterior walls and structural condition of interior bearing walls of the Building and Premises, the structural (non-surface) portion of the floor slabs of the Premises, all of the systems and equipment which commonly serve the Premises and the premises of other tenants within the Building to the extent not located within the Premises (such as the ESFR pump located outside the Building), the roof of the Building (excluding, however, the HVAC Systems located thereon which are Lessee's responsibility to maintain pursuant to Paragraph 7.1 above), the Common Areas, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility and fire/and life safety systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Building, Industrial Center or Common Areas in good order, condition and repair. 7.3 Utility Installations, Trade Fixtures, Alterations. (a) Definitions; Consent Required. The term "Utility Installations" is used in this Lease to refer to all air lines, power panels, electrical distribution, security, fire protection systems. communications systems, lighting fixtures, HVAC Systems and, plumbing in the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment which can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification or addition to the Premises, other than Lessor's Work, Utility Installations or Trade Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as all existing improvements and Utility Installations in the Premises (other than the Lessor's Property, as defined in Paragraph 7.2) and all Alterations and/or Utility Installations in or to the Premises subsequently made by or for Lessee (including any Lessor's Work in the Premises after completion thereof). Lessee shall not make nor cause to be made any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent, which consent shall not be unreasonably withheld or delayed, although Lessor may withhold its consent, in its sole and absolute discretion, with respect to any Alterations or Utility Installations -7- which may adversely affect the Building's or Premises' systems and equipment or structural components, or which can be seen (except when the loading doors are opened) from outside the Premises. Lessee may, however, make non-structural Utility Installations or Alterations to the interior of the Premises (excluding the roof) without Lessor's consent but upon notice to Lessor, so long as they are not visible from the outside of the Premises (except when the loading doors are opened), do not involve puncturing, relocating or removing the roof or any existing walls, or changing or interfering with the fire sprinkler or fire detection systems and the cost thereof does not exceed $50,000.00. (b) Consent. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities; (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon; and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and be in compliance with all Applicable Requirements. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. Lessor may (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $25,000.00 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation; provided, however, that no such bond will be required to be posted by the original Lessee executing this Lease. (c) Lien Protection. Lessee shall pay when due all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on, or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense, indemnify, defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require in connection with any sale or refinancing of all or any portion of the Building or Industrial Center, Lessee shall cause the lien to be released of record, by payment, statutory bond or other legal means, within thirty (30) days after notice thereof from Lessor. In the event that such lien is not released and removed within such thirty (30) day period, Lessor, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys' fees and costs, incurred by Lessor in connection with such lien shall be deemed additional rent under this Lease and shall be due and payable by Lessee within thirty (30) days alter Lessee's receipt of invoice therefor. 7.4 Ownership, Removal, Surrender, and Restoration. All Utility Installations and Alterations made to the Premises by Lessee shall be considered a part of the Premises, but Lessee may remove such items installed by Lessee at the end of the Lease term or prior thereto provided that Lessee repairs any damage to the Premises as a result of such removal. In addition, Lessor may require that any Alterations or Utility Installations hereafter made to the Premises (other than Alterations and Utility Installations made in connection with Tenant's initial occupancy of the Premises) shall be removed by Lessee by the expiration or earlier termination of this Lease, notwithstanding that their installation may have been consented to by Lessor, provided that Lessor notifies Lessee of such removal requirement at the time Lessor consents to Lessee's installation thereof. Any Alterations for which Lessor's consent is not required may, at Lessee's option, remain in the Premises at the expiration or earlier termination of this Lease. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee by the expiration or earlier termination of this Lease, subject to Lessee's obligation to repair any damage to the Premises resulting from such removal. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, clean and free of debris, with all of Lessee's Trade Fixtures (and any Alterations and Utility Installations which Lessor has properly and timely notified be removed by Lessee) removed and all damage resulting from such removal repaired as described above in this Paragraph 7.4, and in operating order, condition and state of repair, ordinary wear and tear (and damage by fire or other casualty which is not Lessee's obligation to repair) excepted. Ordinary wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee substantially performing all of its obligations under this Lease. 8. Insurance; Indemnity. 8.1 Payment of Premiums. The cost of premiums for the insurance policies maintained by Lessor under this Paragraph 8 shall be a Common Area Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Commencement Date or Expiration Date. 8.2 Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force during the period commencing upon the earlier of the Commencement Date or Lessee's entry into the Premises to perform Lessee's -8- fixturization work pursuant to Paragraph 4 of Exhibit B ("Early Possession Date") and continuing throughout the term of this Lease, a Commercial General Liability policy of insurance protecting Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in writing (as additional insureds) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises" endorsement. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contribution with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried by Lessor. Lessor shall also maintain liability insurance described in Paragraph 8.2(a) above, in addition to and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 Property Insurance-Building, Improvements and Rental Value. (a) Building and Improvements. Lessor shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to any Lender(s), insuring against loss or damage to the Premises; however, Lessor shall not be required to insure the Lessee-Owned Alterations and Utility Installations, Trade Fixtures and Lessee's personal property, which shall be insured by Lessee pursuant to Paragraph 8.4. Such insurance shall be for full replacement cost, as the same shall exist from time to time, or the amount required by any Lender(s), but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. If the coverage is available and commercially appropriate, Lessor's policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender or elected by Lessor), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Building required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered loss, but not including plate glass insurance. Said policy or policies shall also contain an agreed valuation provision in lieu of any co-insurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. (b) Rental Value. Lessor shall also obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and any Lender(s), insuring the loss of the full rental and other charges payable by all lessees of the Building to Lessor for one year (including all Real Property Taxes, insurance costs, all Common Area Operating Expenses and any scheduled rental increases). Said insurance may provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any co-insurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, Real Property Taxes, insurance premium costs and other expenses, if any, otherwise payable, for the next 12-month period. Common Area Operating Expenses shall include any deductible amount in the event of such loss. (c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Industrial Center if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. 8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance shall be full replacement cost coverage with a deductible not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property and the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request from Lessor, Lessee shall provide Lessor with written evidence that such insurance is in force. (See Paragraph 52 of Addendum.) 8.5 Insurance Policies. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven (7) days after the earlier of the Early Possession Date or the Commencement Date, certified copies of, or certificates evidencing the existence and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject to modification except after thirty (30) days' prior written notice to -9- Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable be Lessee to Lessor upon demand. 8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss or damage to their property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. Lessor and Lessee agree to have their respective insurance companies issuing property damage insurance waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 8.7 Indemnity. Lessee shall indemnity, defend, protect, and hold harmless Lessor and Lessor's partners, and their respective officers, directors, agents and employees (collectively, the "Lessor Parties") from and against any and all loss, cost, damage, expense, liability and claims, including, without limitation, court costs and reasonable attorneys' fees (collectively "Claims") incurred in connection with or arising from any cause in, on or about the Premises, or any Default by Lessee under this Lease, or any acts, omissions or negligence of Lessee or of any person claiming by, through or under Lessee, its partners, and their respective partners, officers, directors, agents and employees, (collectively, the "Lessee Parties"), in, on or about the Industrial Center, except to the extent any such Claims are covered (or required to be covered) by insurance maintained (or required to be maintained) by Lessor as part of the Common Area Operating Expenses; provided, however, that the terms of the foregoing indemnity shall not apply to the negligence or misconduct of Lessor or the Lessor Parties or any default by Lessor of its obligations under this Lease, and Lessor shall indemnify, defend, protect and hold harmless Lessee and the Lessee Parties from and against any Claims to the extent resulting from any such negligence or misconduct of Lessor or the Lessor Parties and/or any such breach by Lessor, except to the extent such Claims are covered (or required to be covered) by insurance maintained (or required to be maintained) by Lessee under this Lease. Should the indemnified party be named as a defendant in any suit brought against the indemnifying party in connection with or arising out of an event covered by the foregoing indemnity of the indemnifying party, the indemnifying party shall pay to the indemnified party its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as appraisers', accountants' and attorneys' fees. Further, each party's agreement to indemnify the other party pursuant to this Paragraph 8.7 is not intended and shall not relieve any insurance carrier of its obligations under policies required to be carried by Lessee or Lessor pursuant to the provisions of this Lease, to the extent such policies cover the matters subject to the indemnifying party's indemnification obligations; nor shall they supersede any inconsistent agreement of the parties set forth in any other provision of this Lease. The provisions of this Paragraph 8.7 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination. Notwithstanding anything to the contrary contained in this Lease, nothing in this Lease shall impose any obligations on Lessee or Lessor to be responsible or liable for, and each hereby releases the other from, all liability for consequential damages other than those consequential damages incurred by Lessor in connection with a holdover of the Premises by Lessee after the expiration or earlier termination of this Lease. 8.8 Exemption of Lessor from Liability. Subject to Lessor's indemnity of Lessee in Paragraph 8.7 above, Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other lessee of Lessor nor from the failure by Lessor to enforce the provisions of any other lease in the Industrial Center. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. Damage or Destruction. 9.1 Repair of Damage to Premises by Lessor. Lessee shall promptly notify Lessor of any damage to the Premises or Building of which Lessee is aware resulting from fire or any other casualty. If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Lessor shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Lessor's reasonable control, and subject to all other terms of this Paragraph 9, restore Lessor's Property and such Common Areas to substantially the same condition as existed prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Industrial Center or any other modifications to the Common Areas deemed desirable by Lessor, provided that access to the Premises and the number of Lessee's parking spaces shall not be materially impaired. Notwithstanding any other provision of this Lease, upon the occurrence of any damage to the Premises, Lessee shall assign to Lessor (or to any party designated by Lessor) all insurance proceeds payable (and/or paid to Lessee) under physical damage and property damage insurance policies maintained by Lessee with respect to damage to the Lessee-Owned Alterations and Utility Installations of the Premises, and Lessor shall repair any injury or damage to the Lessee-Owned Alterations and Utility Installations of the Premises; provided that if the cost to repair the -10- Lessee-Owned Alterations and Utility Installations exceeds the amount of insurance proceeds actually received by Lessor from Lessee's insurance carrier, as assigned by Lessee, plus the amount of insurance proceeds received by Lessor from Lessor's insurance carrier to the extent allocable to the Lessee-Owned Alterations and Utility Installations, Lessee shall provide to Lessor the remaining costs to repair the Lessee-Owned Alterations and Utility Installations on a progress-payment basis during Lessor's repair of the damage. Notwithstanding the foregoing, Lessee shall be solely responsible, at Lessee's sole cost and expense, for repairing and restoring Lessee's Trade Fixtures and personal property in the Premises. In connection with such repairs and replacements of the Lessee-Owned Alterations and Utility Installations, Lessee shall, prior to the commencement of construction, submit to Lessor, for Lessor's review and approval, all plans, specifications and working drawings relating thereto, and Lessor shall select the contractors to perform such improvement work. Lessor shall not be liable for any inconvenience or annoyance to Lessee or its visitors, or injury to Lessee's business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Lessee's occupancy, and if such damage is not the result of the reckless acts or willful misconduct of Lessee or Lessee's employees, contractors, licensees or invitees, Lessor shall allow Lessee a proportionate abatement of Base Rent and Lessee's Share of Common Area Operating Expenses, during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Lessee as a result thereof; provided, further, if the Premises is damaged such that the remaining portion thereof is not sufficient to allow Lessee to conduct its business operations from such remaining portion and Lessee does not conduct its business operations therefrom, and if such damage is not the result of the reckless acts or willful misconduct of Lessee or any of Lessee's employees, contractors, licensees or invitees, Lessor shall allow Lessee a total abatement of Base Rent and Lessee's Share of Common Area Operating Expenses during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Lessee as a result of the subject damage. 9.2 Lessor's Option to Repair. Notwithstanding the terms of Paragraph 9.1 of this Lease, Lessor may elect not to rebuild and/or restore the Premises and/or Building and instead terminate this Lease by notifying Lessee in writing of such termination within sixty (60) days after the date of damage, such notice to include a termination date giving Lessee ninety (90) days to vacate the Premises, but Lessor may so elect only if the Premises, or the Common Areas providing access to or parking for the Premises, or any substantial portion of the Building which is other than the Premises shall be damaged by fire or other casualty and one or more of the following conditions is present: (i) repairs cannot substantially be completed within one hundred eighty (180) days of the date of damage (when such repairs are made without the payment of overtime or other premiums), as determined by an independent contractor selected by Lessor (the "Damage Consultant") pursuant to a notice delivered by Lessor to Lessee within forty five (45) days alter the damage ("Lessor's Damage Notice"); or (ii) the damage or condition arising as a result of such damage is not fully covered, except for deductible amounts, by Lessor's insurance policies required to be maintained pursuant to Paragraph 8.3(a) of this Lease, plus the sum of any insurance proceeds or costs pertaining to the Lessee-Owned Alterations and Utility Installations assigned to Lessor as provided above (and such lack of coverage is not due to Lessor's failure to maintain any insurance required to be maintained by Lessor pursuant to Paragraph 8.3 of this Lease); provided, however, that (A) if Lessor does not elect to terminate this Lease pursuant to Lessor's termination right as provided above, (B) the damage constitutes a "Lessee Damage Event" (as defined below), and (C) repair of such damage cannot, in the reasonable judgment of the Damage Consultant, be substantially completed within one hundred eighty (180) days after the date of the damage, then Lessee may elect, no earlier than sixty (60) days alter the date of the damage and not later than thirty (30) days after the date of Lessee's receipt of Lessor's Damage Notice, to terminate this Lease by written notice to Lessor effective as of the date specified in the notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after the date such notice is given by Lessee. Furthermore, if neither Lessor nor Lessee have terminated this Lease, the damage constitutes a Lessee Damage Event, and repairs of such damage are not substantially completed within the later of (1) such 180-day period, or (2) thirty (30) days alter the date estimated by Lessor in Lessor's Damage Notice for substantial completion of such repairs (as such time period in items (1) and (2) above shall be extended by Lessee-caused delays and any other delays beyond Lessor's reasonable control described in Paragraph 51 of the Addendum), Lessee shall have the right to terminate this Lease within ten (10) business days after the end of such period and thereafter during the first five (5) business days of each calendar month following the end of such period until such time as the repairs are substantially complete, by notice to Lessor (the "Damage Termination Notice"), effective as of a date set forth in the Damage Termination Notice (the "Damage Termination Date"), which Damage Termination Date shall not be less than ten (10) business days following the end of such period or each such month, as applicable. Notwithstanding the foregoing, if Lessee delivers a Damage Termination Notice to Lessor, then Lessor shall have the right to suspend the occurrence of the Damage Termination Date for a period ending thirty (30) days after the Damage Termination Date set forth in the Damage Termination Notice by delivering to Lessee, within five (5) business days of Lessor's receipt of the Damage Termination Notice, a certificate of Lessor's contractor responsible for the repair of the damage certifying that it is such contractor's good faith judgment that the repairs shall be substantially completed within thirty (30) days after the Damage Termination Date. If the repairs shall be substantially completed prior to the expiration of such thirty (30) day period, then the Damage Termination Notice shall be of no force or effect, but if the repairs shall not be substantially completed within such thirty (30) day period, then this Lease shall terminate upon the expiration of such thirty (30) day period. At any time, from time to time, after the date occurring sixty (60) days after the date of the damage, Lessee may request that Lessor inform Lessee of Lessor's reasonable opinion of the date of completion of the repairs and Lessor shall respond to such request within five (5) business days. As used herein, a "Lessee Damage Event" shall mean damage to all or any part of the Premises or any Common Areas providing access to or parking for the Premises by fire or other casualty, which damage is not the result of the reckless acts or willful misconduct of Lessee or any of Lessee's employees, agents. contractors, licensees or invitees, and which damage substantially interferes with Lessee's use of or access to the Premises and would entitle Lessee -11- to an abatement of Base Rent and Lessee's Share of Common Area Operating Expenses pursuant to Paragraph 9.1 above. 9.3 Waiver of Statutory Provisions. The provisions of this Lease, including this Paragraph 9, constitute an express agreement between Lessor and Lessee with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or any other portion of the Industrial Center, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or any other portion of the Industrial Center. 9.4 Damage Near End of Term. In the event that the Premises or the Building is destroyed or damaged to any substantial extent during the last twelve (12) months of the Term of this Lease and, in the reasonable judgment of the Damage Consultant as set forth herein Lessor's Damage Notice delivered to Lessee within thirty (30) days after the date of the damage or destruction, the repair of such damage or destruction to the Premises or Building cannot be substantially completed within sixty (60) days after the date Lessor becomes aware of such damage or destruction, then notwithstanding anything contained in this Paragraph 9, Lessor shall have the option, and to the extent such damage or destruction is to the Premises or any Common Areas providing access to or parking for the Premises, Lessee shall have the option, to terminate this Lease by giving written notice to the other party of the exercise of such option within forty five (45) days after such damage or destruction. 10. Real Property Taxes. 10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise provided in Paragraph 10.3, any such amounts shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2. 10.2 Real Property Tax Definition. As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Industrial Center by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage, or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Industrial Center or any portion thereof, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in Applicable Law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Industrial Center or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common. Notwithstanding the foregoing, Real Property Taxes shall not include state, local and federal personal or corporate income taxes measured by the net income of Lessor, estate and inheritance taxes, or documentary transfer taxes. Following Lessee's reasonable request, Lessor, in its reasonable discretion, shall at no cost to Lessor, attempt to reduce the amount of Real Property Taxes assessed against the Industrial Center and/or Building. 10.3 Additional Improvements. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Industrial Center by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's request. 10.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Alterations and Utility Installations placed upon this Premises by Lessee, and all, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or stored within the Industrial Center. When possible, Lessee and Lessor shall cooperate with each other to cause such items to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement and other appropriate documentation reasonably evidencing (a) that such taxes are applicable to Lessee's property and/or the Alterations and Utility Installations placed by Lessee, and (b) the amounts thereof. -12- 11. Utilities. Lessee shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity, telephone, security, gas and cleaning of the Premises, together with any taxes thereon. Electricity (and if hooked up, gas) shall be separately metered. If any such utilities or services are not separately metered to the Premises or separately billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be determined by Lessor of all such charges jointly metered or billed with other premises in the Building, in the manner and within the time periods set forth in Paragraph 4.2(d). 12. Assignment and Subletting. 12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent, which consent shall not be unreasonably withheld as provided in, and shall be subject to the terms of, Paragraph 36. An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1, or a non-curable Breach without the necessity of any notice and grace period. 12.2 Terms and Conditions Applicable to Assignment and Subletting. (See Paragraph 53 of Addendum.) (a) Regardless of Lessor's consent, any assignment or subletting shall not (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, nor (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent for performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the assignee or sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable under this Lease or the sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or the sublease. (d) In the event of any Default or Breach of Lessee's obligation under this Lease, Lessor may proceed directly against Lessee or anyone else responsible for the performance of the Lessee's obligations under this Lease, including any sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing. 12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Prernises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and subject to the provisions of Paragraph 53(a) of the Addendum, apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, and subject to the provisions of Paragraph 53(a) of the Addendum, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of the foregoing provision or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's -13- obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against such sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior defaults or breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee under a sublease approved by Lessor shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. Default; Breach; Remedies. 13.1 Default; Breach. A "Default" by Lessee is defined as a failure by Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" by Lessee is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs l3.2 and/or 13.3: (a) Intentionally Deleted. (b) The failure by Lessee to make any payment of Base Rent, Lessee's Share of Common Area Operating Expenses, or any other monetary payment required to be made by Lessee hereunder as and when due, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure to make such payment or fulfill any such obligation continues for a period of five (5) business days following written notice thereof by or on behalf of Lessor to Lessee. (c) The failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with Applicable Requirements per Paragraph 6.3. (ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37. (v) the subordination or non-subordination of this Lease per Paragraph 30, or (vi) any documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default with respect to items (i), (ii) and (vi) hereinabove is such that more than ten (10) days are reasonably required for its cure, then it shall not be deemed a Breach of this Lease by Lessee if Lessee commences such cure within said ten (10) day period and thereafter diligently prosecutes such cure to completion. (d) A Default by Lessee as to the term, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that are to be observed, complied with or performed by Lessee, other than those described in Subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided. however. that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure. then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided. however, in the event that any provision of this -14- Subparagraph 13.1(e) is contrary to any applicable law, such provision shall be of no force or effect, and shall not affect the validity of the remaining provisions. 13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, which failure continues beyond any applicable notice and cure period set forth in this Lease, Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor within twenty (20) days after invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor at its own option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District in which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph 13.2. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace period under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two (2) such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. Lessor and Lessee agree that the limitations on assignment and subletting this Lease are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under this Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions" shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor, as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of such acceptance. -15- 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or deed of trust covering the Premises. Accordingly, if any installment of rent or other sum due from Lessee shall not be received by Lessor or Lessor's designee within fifteen (15) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to three percent (3%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by any Lender(s) whose name and address shall have been furnished to Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. (See Paragraph 54 of Addendum.) 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation", this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than twenty-five percent (25%) of the floor area of the Premises, or more than twenty-five percent (25%) of the portion of the Common Areas designated for Lessee's parking, is taken by condemnation, either Lessor or Lessee may, at its option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If this Lease is not terminated in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent and Lessee's Share of Common Area Operating Expenses shall be reduced in the same proportion as the rentable floor area of the Premises taken (plus the area of the Premises which Lessee is not able to use, and does not use, as a result of any taking of the Common Area which provides access to the Premises and/or any taking of Lessee's parking spaces) bears to the total rentable floor area of the Premises. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution of value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation, separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall repair any damage to the Premises other than Lessee's Trade Fixtures or personal property caused by such condemnation authority. 15. Brokers. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder other than as named in Paragraph 1.10(a) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and that no broker or other person, firm or entity other than said named Brokers is entitled to any commission or finder's fee in connection with said transaction. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, and/or attorneys' fees reasonably incurred with respect thereto. 16. Tenancy and Financial Statements. 16.1 Tenancy Statement. Each Party (as "Responding Party") shall within ten (10) days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in a form similar to the then most current "Tenancy Statement" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 Financial Statement. If Lessor desires to finance, refinance, or sell the Premises or the Building, or any part thereof, Lessee shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. Such statements shall be prepared internally by Lessee and certified to be correct by an appropriate officer of Lessee, and shall not be audited statements; provided however, upon request, Lessee shall cause such audited statements to be prepared by an independent certified public accountant so long as Lessor pays for the costs of such audited statements. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes -16- herein set forth. Lessor shall not, however, request any such financial statements more often than once per calendar year. 17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises. In the vent of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15.3, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. (See Paragraph 55 of Addendum.) 18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within fifteen (15) days following the date on which it was due, shall bear interest from the date due at the prime rate charged by the largest state chartered bank in the state in which the Premises are located plus four percent (4%) per annum, but not exceeding the maximum rate allowed by law, in addition to the potential late charge provided for in Paragraph 13.4. 20. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. Each Broker shall be an intended third party beneficiary of the provisions of this Paragraph 22. 23. Notices. 23.1 Notice Requirements. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission during normal business hours, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail, the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone or facsimile confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday or a Sunday or a legal holiday, it shall be deemed received on the next business day. 24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee (and no waiver by Lessee of any breach by Lessor of any term, covenant or condition hereof by Lessor), shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee (or breach by Lessor, as the case may be), of the same or any other term, covenant or condition hereof. A party's consent to, or approval of, any such act shall not be deemed to render unnecessary the obtaining of such party's consent to, or approval of, any subsequent or similar act by the other party, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of any provision hereof. Any payment given by either party to the other may be accepted by the payee on account of moneys or damages due the payee, notwithstanding any qualifying statements or conditions made by the payor in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by the payee at or before the time of deposit of such payment. -17- 25. Intentionally Deleted. 26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. In the event that Lessee holds over in violation of this Paragraph 26 then the Base Rent payable from and after the time of the expiration or earlier termination of this Lease shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding such expiration or earlier termination. Nothing contained herein shall be construed as a consent by Lessor to any holding over by lessee. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. Subordination; Attornment; Non-Disturbance. 30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event or Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 Attornment. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the vent of such foreclosure, such new owner shall not: (i) be liable for any act or omission or any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one month's rent. 30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receipt of assurance in the form of a commercially reasonable subordination, non-disturbance and attornment agreement (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 30.5 Lessor's Representation. Lessor hereby represents to Lessee that there are no current mortgages or deeds of trust encumbering Lessor's interest in the Building or Industrial Center as of the date of execution of this Lease. 31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys' fees, costs and expenses incurred in preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. Broker(s) shall be intended third party beneficiaries of this Paragraph 31. -18- 32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the Building, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or Building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred eighty (180) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement or rent of liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. Lessee shall not place any sign upon the exterior of the Premises or the Building, except that Lessee may, with Lessor's prior written consent, install (but not on the roof) one (1) exterior sign on the Building as reasonably required to advertise Lessee's own business so long as such sign is in a location designated by Lessor and comply with Applicable Requirements and the signage criteria established for the Industrial Center by Lessor. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof of the Building, and the right to install advertising signs on the Building, including the roof which do not unreasonably interfere with the conduct of Lessee's business; Lessor shall be entitled to all revenues from such advertising signs. (See Paragraph 56 of Addendum.) 35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. Consents. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to reasonable architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment a subletting (provided, however, Lessor's attorneys' fees for any such consent to an assignment or subletting shall not exceed $1,500.00) or the presence or use of a Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. Lessor may. as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the impositions by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. Intentionally Deleted. 38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and the performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. Options 39.1 Definition. As used in this Lease, the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (1) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. -19- Initials: ______ ______ [1993 FORM] 39.2 Intentionally Deleted. 39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, during the time Lessee is in Breach of this Lease. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of separate Defaults under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. Rules and Regulations. Lessee agrees that it will abide by, and keep and observe all reasonable rules and regulations ("Rules and Regulations") which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Industrial Center and their invitees. 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. Reservations. Lessor reserves the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights of way, utility raceways, and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights of way, utility raceways, dedications, maps and restrictions do not reasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor shall not be deemed an offer to lease. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 47. Amendments. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The Parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by Lessor's Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. Multiple Parties. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. -20- LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures. Executed at LA CALIF on 12-31-96 by LESSOR: ADAYA ASSET WASHINGTON, L.P., a California limited partnership By: /s/ M M Siam -------------------------------------- Name Printed: M M SIAM Title: Vice President By: ______________________________________ Name Printed: ____________________________ Title: ___________________________________ Address: c/o Investment Development Services 888 West Sixth Street, 9th Floor Los Angeles, California 90017 Telephone: (213) 362-9300 Facsimile: (213) 627-9937 Executed at Haupauge, New York on 12/27/96 by LESSEE: GRAHAM-FIELD, INC. a New York corporation By: /s/ Richard Kolodny -------------------------------------- Name Printed: Richard Kolodny Title: Vice President, General Counsel By: /s/ Gary M. Jacobs -------------------------------------- Name Printed: GARY M. JACOBS Title: V P Finance Address: 400 Rabro Drive Hauppauge, New York 11788 Telephone: (516) 582-5900 Facsimile: (516) 582-5608 NOTICE: These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 South Figueroa Street, Suite M-l, Los Angeles, California 90071 (213) 687-8777. -21- EXHIBIT A SITE PLAN OF PREMISES WASHINGTON DISTRIBUTION CENTER 11954 E. WASHINGTON BOULEVARD o SANTA FE SPRINGS [Site Plan] EXHIBIT B CONDITION OF PREMISES/LESSOR'S WORK 1. Condition of Premises and Building. Except as expressly provided in Paragraph 2.2 of the Lease and except for "Lessor's Work" set forth in Paragraph 2 below in this Exhibit B, Lessee hereby acknowledges and agrees that (a) Lessee shall accept the Premises and Building in their "AS-IS" condition as of the Commencement Date, and (b) Lessor shall not be obligated to construct or pay for any improvements, additions or refurbishment in, to or of the Premises; provided, however, that notwithstanding the foregoing, to the extent that as of the date Lessor substantially completes Lessor's Work, the Building or the existing improvements in the Premises do not then comply with Applicable Laws in their form existing as of such date and/or the Building or Industrial Center contain Hazardous Substances which are in violation of Applicable Laws as of such date, then Lessor shall be solely responsible, at its cost (which shall not be included in Common Area Operating Expenses), to remedy any such non-compliance or violation to the extent and as when required by Applicable Laws following receipt by Lessor of written notice of such non-compliance or violation from the applicable governmental authority. In the event that Lessor consents to Lessee's construction and completion of any improvements in the Premises (including, but not limited to, any alterations, improvements, additions, or Utility Installations, as set forth in Paragraph 7.3 of the Lease), such construction shall be subject to the terms of Paragraph 7.3 of the Lease and all other relevant provisions of the Lease and Lessee hereby agrees to indemnify and defend Lessor and hold Lessor harmless from and against any and all claims, costs, expenses or liability, arising from Lessee's design, construction and operation of any improvements in, on or about the Premises (including, without limitation, Lessee's failure to obtain any necessary permits, approvals or certificates from the applicable governmental authorities and/or actual attorneys' costs and fees, and court costs). 2. Lessor's Work. Lessor shall, at Lessor's sole expense, cause a contractor selected by Lessor ("Contractor") to perform the following additions and improvements in the Premises ("Lessor's Work") prior to Lessor's delivery of the Premises to Lessee, using Building standard materials unless otherwise specified in the Working Drawings (as defined below): (a) Provide an ESFR fire sprinkler to the Premises. (b) Provide four (4) additional loading doors with load levelers. (c) Provide one (1) grade level ramp, with one (1) door pursuant to specifications determined by Lessor. (d) Provide approximately 2,400 sq. ft. of office as follows: (i) Reception/Bull pen area - 18' x 24' (ii) Three (3) private offices - - Two (2) 12' x 12' - One (1) 14' x 12' (iii) Conference Room - 13' x 14' (iv) Kitchen/Breakroom - 16' x 16' - Warehouse: Men's restroom with two (2) urinals and two (2) commodes - Office: Single commodes men's and women's restrooms may be back to back A detailed plan for the Lessor's Work described in Paragraph 2(d) has been approved by Lessee and Lessor and is attached hereto as Schedule 1. A preliminary plan showing the Lessor's Work described in Paragraphs 2 (b) and (c) has been approved by Lessee and Lessor and is attached hereto as Schedule 2. Such plans, and any more detailed plans, specifications and dimensions that are required for the Lessor's Work to be prepared by architects and engineers selected by Lessor, shall be referred to herein collectively as the "Working Drawings". Lessor shall submit any such additional Working Drawings to Lessee for Lessee's approval, which approval shall not be unreasonably withheld. Lessee shall notify Lessor of its approval or reasonable disapproval (with reasons specified) within one (1) business day after Lessee's receipt of the Working Drawings; provided, however, Lessee shall not be permitted to propose revisions which would expand the scope of Lessor's Work described in Subparagraphs 2(a) through 2(d) above or would be inconsistent with the the applicable plans attached hereto as Schedule 1 and Schedule 2. Failure of Lessee to notify Lessor of its approval or reasonable disapproval within such one (1) business day period shall be deemed Lessee's approval of the Working Drawings. After the Working Drawings are initially approved, Lessee shall not make any changes thereto. Lessor shall cause the Contractor to perform the Lessor's Work in a good and workman-like manner and in compliance with all applicable laws in effect at the time of construction, including, without limitation, the Americans with Disabilities Act. 3. Commencement Date. The "Commencement Date" of this Lease shall be the earlier of (a) the date Lessee commences business operations in the Premises, or (b) the date Lessor delivers possession of the Premises to Lessee with Lessor's Work substantially completed. For purposes hereof Lessor's Work shall be EXHIBIT B deemed "substantially completed" when the Contractor completes the Lessor's Work pursuant to the Working Drawings, minor punch-list and decorative items excepted, and Lessor receives a temporary certificate of occupancy (or its equivalent) issued by the City of Santa Fe Springs permitting occupancy of the Premises. The parties estimate that Lessor's Work will be substantially completed and the Commencement Date will occur on or about February 15, 1997; provided, however, if for any reason Lessor cannot deliver possession of the Premises to Lessee with Lessor's Work substantially completed by such date, then Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or provide Lessee with a right to terminate this Lease (subject, however, to Lessee's termination right in Paragraph 5 below), but in such case, Lessee's sole remedy (subject to Paragraph 5 below) shall be the extension of the Commencement Date until the earlier of the two dates set forth in Paragraphs 3(a) and (b) above. Notwithstanding the foregoing provisions of this Paragraph 3 to the contrary, to the extent Lessor is delayed in delivering possession of the Premises to Lessee with Lessor's Work substantially completed as a result of any delays caused by the acts, changes or omissions of Lessee or Lessee's agents, architects, engineers, contractors or employees or any improvements, fixtures, furniture or equipment constructed or installed by Lessee (collectively "Tenant Delays"), then the Commencement Date shall be accelerated to the date the Commencement Date would have occurred but for such Tenant Delays; provided, however, that no Tenant Delay shall be deemed to occur unless and until Lessor has provided notice to Lessee (the "Delay Notice") specifying the action or inaction by Lessee which Lessor contends constitutes the Tenant Delay. If such action or inaction is not cured by Lessee within one (1) business day of receipt of such Delay Notice (the "Grace Period"), then a Tenant Delay, as set forth in such Delay Notice, shall be deemed to have occurred commencing as of the expiration of the Grace Period; provided that Lessee shall only be permitted an aggregate of three (3) days of Grace Period and, thereafter, a Tenant Delay shall commence upon delivery of the Delay Notice to Lessee. 4. Lessee's Entry into the Premises Prior to Commencement Date. Provided that Lessee and its agents do not interfere with the Lessor's Work and any other work to be performed in the Building by Lessor or Lessor's contractors, Lessor shall allow Lessee access to the Premises prior to substantial completion of Lessor's Work for the purpose of the Lessee installing equipment, furniture and fixtures (including any Utility Installations) in the Premises. Prior to Lessee's entry into the Premises as permitted by the terms of this Paragraph 4, Lessee shall (a) provide to Lessor certificates or other evidence that Lessee has obtained insurance required pursuant to this Lease, and (b) submit a schedule to Lessor and Contractor, for their reasonable approval, which schedule shall detail the timing and purpose of Lessee's entry. Lessee shall hold Lessor harmless from and indemnify, protect and defend Lessor against any loss or damage to the Building or Premises and against any injury to any persons caused by Lessee's actions pursuant to this Paragraph 4. Lessee's entering the Premises for the purposes of installing Lessee's equipment, furniture and fixtures pursuant to this Paragraph 4 shall not, in and of itself, constitute Lessee's commencement of business operations in the Premises for purposes of determining the Commencement Date in accordance with the provisions of Paragraph 3(a) above, although Lessee shall be bound by all the terms, covenants and conditions of this Lease during Lessee's entry, although Lessee shall not be obligated to pay Base Rent or Common Area Operating Expenses until the Commencement Date occurs as set forth in Paragraph 3 above. 5. Outside Date; Lessee's Termination Right. In the event that the Commencement Date has not occurred by the "Outside Date", which shall be March 31, 1997, as such date shall be extended by the number of days that the Commencement Date is delayed due to (a) Tenant Delays, or (b) for up to an additional thirty (30) days due to any other delays beyond Lessor's reasonable control (as described in Paragraph 51 of the Addendum), then Lessee shall, at its sole and exclusive remedy therefor, have the right to terminate this Lease by delivering a written notice thereof to Lessor (the "Termination Notice") electing to terminate this Lease effective upon Lessor's receipt of the Termination Notice (the "Effective Date"); provided, however, that Lessor shall have the right to extend the Outside Date for an additional thirty (30) days alter the first thirty (30) day period described in clause (b) hereinabove due to any delays described in Paragraph 51 of the Addendum which are other than Tenant Delays, subject to Lessor's agreement to reimburse Lessee for any holdover rental paid by Lessee to Lessee's existing Lessor for Lessee's current existing premises in excess of the current rental rate payable by Lessee for such space during such 30-day extension period (but in no event shall Lessor' reimbursement obligation exceed one (1) month's excess holdover rental for such existing premises). The Termination Notice must be delivered by Lessee to Lessor, if at all, not earlier than the Outside Date and not later than thirty (30) days after the Outside Date. Within twenty (20) days after termination of this Lease pursuant to this Paragraph 5, Lessor shall return to Lessee (i) any advance Rent paid by Lessee to Lessor hereunder, and (ii) the Security Deposit, or balance thereof, pursuant to Paragraph 1.7 of the Lease. EXHIBIT B -2- SCHEDULE 1 TO EXHIBIT B [Office Plans] SCHEDULE 2 TO EXHIBIT B [Site Plan] ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE THIS ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE ("Addendum") is made and entered into by and between ADAYA ASSET WASHINGTON, L.P., a California limited partnership ("Lessor"), and GRAHAM-FIELD, INC., a New York corporation ("Lessee"), as of the date set forth on the first page of that certain Standard Industrial/Commercial Multi-Tenant Lease (the "Lease") between Lessor and Lessee to which this Addendum is attached and incorporated. The terms, covenants and conditions set forth herein are intended to and shall have the same force and effect as if set forth at length in the body of the Lease. To the extent that the provisions of this Addendum are inconsistent with any provisions of the Lease, the provisions of this Addendum shall supersede and control. 49. Base Rent. The Base Rent payable by Lessee for the Premises during the last thirty (30) months of the Original Term shall be increased to $20,913.00 per month: 50. Common Area Operating Expenses. (a) Cap on Common Area Operating Expenses. Notwithstanding the provisions of Paragraph 4.2 of the Lease to the contrary, in no event shall Lessee's Share of Common Area Operating Expenses during the first three (3) years of the Original Term exceed $31,686.00 per year (i.e., $0.05 per square foot of floor area of the Premises per year). During the fourth (4th) year of the Original Term, Lessee's Share of Common Area Operating Expenses shall not exceed an amount equal to Lessee's Share of Common Area Operating Expenses payable during the third year of the Original Term, as such amount shall be increased by the percentage increase, if any, between the "Index" (as defined below), published for the month which is four (4) months prior to the Commencement Date (the "Base Index"), as compared to the Index published for the month which is four (4) months prior to the first day of the fourth (4th) year of the Original Term (the "First Comparison Index"). During the fifth (5th) year of the Original Term, Lessee's Share of Common Area Operating Expenses shall not exceed an amount equal to Lessee's Share of Common Area Operating Expenses payable during the fourth (4th) year of the Original Term, as such amount shall be increased by the percentage increase, if any, between the First Comparison Index, as compared to the Index published for the month which is four (4) months prior to the first day of the fifth (5th) year of the Original Term. As used herein, the "Index" shall mean Department of Labor, Bureau of Labor Statistics Consumer Price Index For All Urban Consumers, Los Angeles-Anaheim-Riverside, CA, All Items (1982-1984 = 100). Notwithstanding anything to the contrary contained herein, if the Index for any applicable comparison month shall be less than the Base Index, Lessee's Share of Common Area Operating Expenses shall not be reduced as a result of such decrease. Should the Bureau of Labor Statistics discontinue the publication of the above Index, or publish the same less frequently, or alter the same in some other manner, then Lessor shall adopt a substitute procedure which reasonably reflects and monitors consumer prices and/or shall substitute any official index published by the Bureau of Labor Statistics or by such successor or similar governmental agency as then may be in existence and shall be most nearly equivalent thereto. There shall be no cap on the amount of Common Area Operating Expenses payable by Lessee during the Option period if Lessee exercises its Option to extend the Original Term pursuant to Paragraph 58. (b) Exclusions from Common Area Operating Expenses. Notwithstanding the provisions of Paragraph 4.2 of the Lease. Common Area Operating Expenses shall not include the following: (i) the cost of providing any service or utilities directly to and paid directly by any tenant; (ii) costs, including permit, license and inspection costs, incurred with respect to the installation of other tenants' or occupants' improvements or alterations made for tenants or other occupants in the Building or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants in the Building; (iii) costs incurred by Lessor for alterations (including structural additions), additions and improvements which are considered capital improvements or replacements under sound real estate accounting practices, except that Common Area Operating Expenses may include the cost of any capital alterations, capital additions or capital improvements made to the Building or Industrial Center which (A) are intended as a labor-saving or energy-saving device or to reduce Common Area Operating Expenses, but only to the extent of the cost savings reasonably anticipated by Lessor as a result thereof, (B) are required under any governmental law or regulation which was not enacted or applicable to the Building or Industrial Center as of the Commencement Date, or (C) relate to the operation, repair, maintenance or replacement of any systems and equipment of the Building or Industrial Center; provided, however, that each such permitted capital expenditure shall be amortized (including interest on the unamortized cost with the interest rate fixed at the time such expenditure is placed in service) over its useful life as Lessor shall determine in accordance with sound real estate accounting practices. (iv) expenses in connection with services or other benefits which are not offered to Lessee or for which Lessee is charged for directly but which are provided to another tenant or occupant of the Building, without charge; ADDENDUM -1- (v) costs paid to Lessor or to subsidiaries or affiliates of Lessor for goods and/or services in the Building or Industrial Center to the extent the same exceeds the costs of such goods and/or services if provided by unaffiliated third parties on a competitive basis; (vi) costs of correcting defects in or inadequacy of the initial design or construction of the Building or the Industrial Center; and (vii) expenses resulting from the negligence and/or intentional misconduct of Lessor or Lessor's agents or employees, and/or the breach by Lessor of any of its obligations under this Lease or the lease of any other space in the Industrial Center. (c) Lessor's Records. In the event Lessee disputes any amount of Common Area Operating Expenses payable by Lessee pursuant to any statement of actual Common Area Operating Expenses delivered to Lessee pursuant to Paragraph 4.2(d) of this Lease, Lessee may reasonably review Lessor's records relating to such amount; provided, however, Lessee may not review Lessor's records more often than once in any calendar year. Such review shall be performed during Lessor's normal business hours and subject to reasonable scheduling with Lessor and/or Lessor's property manager. Lessee's right to review shall not permit Lessee to withhold payment of any amount in dispute. 51. Unavoidable Delays. If the performance of Lessor or Lessee of any act required to be performed by such party (other than the payment of Rent or other monetary obligations) is directly prevented or delayed by reason of strikes, lockouts, labor disputes, governmental delays, acts of God, fire, floods, epidemics, freight embargoes, unavailability of materials and supplies, development moratoriums imposed by any governmental authority, or other causes beyond such party's reasonable control, such party shall be excused from performing that act for the period equal to the period of the prevention or delay. 52. Lessee's Insurance. In addition to the insurance required in Paragraph 8.4 of the Lease, Lessee agrees to maintain in full force and effect at all times during the term of this Lease, as it may be extended, at its own expense, policies of insurance affording the following additional coverages: (a) Worker's compensation: statutory limits; (b) Employer's liability: as required by law; and (c) Business interruption insurance for a period of not less than twelve (12) months. Notwithstanding the foregoing, or the provisions of Paragraph 8.4 of the Lease, Lessee may elect to self-insure the business interruption insurance described in subclause (c) above and the property insurance described in Paragraph 8.4 of the Lease (although Lessee may only be permitted to self-insure the property damage insurance in Paragraph 8.4 with respect to the Lessee-Owned Alterations and Utility Installations only during the time that Lessee maintains a net worth equal to $10,000,000); if Lessee so self-insures, such self-insurance shall be deemed to include a full waiver of subrogation, and Lessee hereby waives any right it may have against Lessor with respect to any damage or loss which would otherwise would have been covered by the insurance described in this sentence. In the event that Lessee fails to obtain and maintain any insurance required under the Lease for any reason whatsoever, Lessee shall be conclusively deemed to have self-insured such insurance obligations with the full waiver of subrogation set forth in the Lease. 53. Assignment and Subletting. (a) Transfer Premiums. Fifty percent (50%) of any "Transfer Premiums" (as defined below) received by Lessee as a result of any assignment or subletting entered into pursuant to Paragraph 12 of the Lease shall be paid by Lessee to Lessor as additional rent under this Lease without affecting or reducing any other obligations of Lessee hereunder; provided, however, no such Transfer Premium shall be payable in connection with an assignment or sublease to a Permitted Affiliate pursuant to Paragraph 53(b) below. As used herein, "Transfer Premiums" shall mean all sums or other economic consideration received by Lessee as a result of an assignment or sublease which exceed, in the aggregate (i) the total sums which Lessee is obligated to pay Lessor under this Lease (prorated to reflect obligations allocable to any portion of the Premises subleased), plus (ii) reasonable real estate brokerage commissions, attorneys' fees and advertising expenses payable by Lessee in connection with such assignment or subletting, plus (iii) reasonable costs of tenant improvements or tenant improvement allowances required to be constructed or paid for by Lessee for any such assignee or subtenant, plus (iv) the unamortized costs of any Alterations paid for by Lessee out of Lessee's own funds which are required to be removed in connection with the assignment or sublease. Lessee understands, acknowledges and agrees that Lessor's right to receive 50% of the Transfer Premiums in connection with an approved assignment or subletting is a material inducement for Lessor's agreement to lease the Premises to Lessee upon the terms and conditions set forth herein. (b) Permitted Affiliates. Notwithstanding anything to the contrary contained in Paragraph 12 of this Lease, neither (i) an assignment of this Lease in connection with a transfer by Lessee of all or substantially all of the assets of Lessee or Lessee's parent corporation, (ii) an assignment of this Lease to a transferee which is the resulting entity of a merger or consolidation of Lessee or Lessee's parent corporation with another entity, nor (iii) an assignment or subletting of all or a portion of the Premises to Lessee's parent corporation, any corporation which is a wholly owned subsidiary of Lessee's parent corporation, and/or any corporation or other entity which is controlled by, controls, or is under common control with, Lessee's parent corporation, shall be deemed an assignment or sublease which requires Lessor's prior consent under Paragraph 12, provided that (A) Lessee notifies Lessor of any such assignment or sublease or other such transaction and promptly supplies Lessor with any documents or information reasonably requested by Lessor regarding such transaction, (B) such assignment, sublease or other transaction is not a subterfuge by Lessee to avoid its obligations under this ADDENDUM -2- Lease, and (C) such assignee, sublessee or other transferee, or the resulting entity of any merger, consolidation or sale of assets which becomes the lessee hereunder (referred to in this Lease as the "Permitted Affiliate") shall have a net worth computed in accordance with generally accepted accounting principles (the "Net Worth") at least equal to the Net Worth on the date of execution of this Lease of the original named Lessee. "Control," as used in this Paragraph 53(b), shall mean the ownership, directly or indirectly, of at least fifty-one percent (51%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of at least fifty-one percent (51%) of the voting interest in, any person or entity. 54. Mortgagee Protection. Lessee agrees to send by certified or registered mail to any mortgagee or deed of trust beneficiary of the Premises whose address has been furnished to Lessee, a copy of any notice of default served by Lessee on Lessor. If Lessor fails to cure such default within the time provided for in this Lease, such mortgagee or beneficiary shall have an additional thirty (30) days to cure such default; provided, however, that if such default cannot reasonably be cured within that thirty (30) day period, then such mortgagee or beneficiary shall have such additional time to cure the default as is reasonably necessary under the circumstances provided such mortgagee or beneficiary commences the cure of such default within said thirty (30) day period and diligently pursues the same to completion. 55. Limitation on Liability. In consideration of the benefits accruing hereunder, Lessee on behalf of itself and all successors and assigns of Lessee covenants and agrees that, notwithstanding anything in this Lease to the contrary and notwithstanding any applicable law to the contrary: (a) the liability of Lessor under this Lease (including any liability for any actual or alleged failure, breach or default by Lessor under this Lease and/or negligence by Lessor hereunder) and any recourse by Lessee against Lessor shall be limited solely to Lessor's interest in the Industrial Center (and not any other assets of Lessor); and (b) the obligations of Lessor under this Lease do not constitute personal obligations of the partners or subpartners of Lessor, or any of the directors, officers or shareholders of Lessor or Lessor's partners or subpartners, and Lessee shall not seek recourse against any such partners or subpartners, or any of the directors, officers or shareholders of Lessor or Lessor's partners or subpartners or any of their personal assets for satisfaction of any liability with respect to this Lease. 56. Signage. As set forth in Paragraph 34 of the Lease, Lessee will have the right at Lessee's option. to place one (1) sign on the exterior portion of the Building contiguous to the Premises, provided that such sign conforms and complies with all applicable governmental laws, rules and ordinances and the signage criteria of the Industrial Center, is consistent with existing exterior signage on the Building, and is approved by Lessor (which approval shall not be unreasonably withheld) and all applicable governmental authorities. The cost of such sign and the installation of such sign shall be paid for by Lessee. Upon expiration or termination of this Lease, Lessee shall cause such sign to be removed at Lessee's cost and Lessee shall repair and restore the facia of the Building to its condition prior to installation of Lessee's sign. In the event Lessee fails or refuses to remove such signage or perform such restoration work, Lessor may cause such sign to be removed and such restoration work to be performed and charge the cost of such work to Lessee as additional rent hereunder, payable within ten (10) days of written demand by Lessor. Lessee's signage rights under this Paragraph 56 are personal to the original Lessee executing this Lease and may not be transferred or assigned to, or utilized by, any other person or entity. IN WITNESS WHEREOF, Lessor and Lessee have executed this Addendum concurrently with the Lease of even date herewith. "LESSOR" ADAYA ASSET WASHINGTON, L.P., a California limited partnership By:_________________________________ Name:_______________________________ Title:______________________________ By: /s/ M M Siam -------------------------------- Name Printed: M M SIAM Title: VP "LESSEE" GRAHAM-FIELD, INC. a New York Corporation By: /s/ Richard Kolodny -------------------------------------- Name: Richard Kolodny Title: Vice President, General Counsel By: /s/ Gary M. Jacobs -------------------------------------- Name Printed: GARY M. JACOBS Title: V P Finance ADDENDUM -3- OPTION TO EXTEND ADDENDUM TO STANDARD LEASE Dated: December 27, 1996 By and Between (Lessor) ADAYA ASSET WASHINGTON. L.P., a California limited partnership (Lessee) GRAHAM-FIELD, INC., a New York corporation Property Address: 11954 E. Washington Blvd., Santa Fe Springs, California Paragraph 57 A. Option to Extend. Lessor hereby grants to Lessee the option to extend the term of this Lease for one (1) additional sixty (60) month period commencing when the prior term expires upon each and all of the following terms and conditions: (i) Lessee gives to Lessor, and Lessor actually receives on a date which is prior to the date that the option period would commence (if exercised) by at least nine (9) and not more than twelve (12) months, a written notice of the exercise of the option to extend this Lease for said additional term, time being of essence. If said notification of the exercise of said option is not so given and received, the option shall automatically expire; (ii) The provisions of paragraph 39, including the provision relating to default of Lessee set forth in Paragraph 39.4 of this Lease are conditions of this Option; (iii) All of the terms and conditions of this Lease except where specifically modified by this option shall apply; (iv) The monthly rent for each month of the option period shall be calculated as follows, using the method indicated below: I. Market Rental Value Adjustment(s) (MRV) (a) On the first (1st) day of the option period, the monthly rent payable under Paragraph 1.5 ("Base Rent") of the attached Lease shall be adjusted to the "Market Rental Value" (as defined below) of the Premises as follows: (1) Four (4) months prior to the Market Rental Value (MRV) Adjustment Date described above, Lessor and Lessee shall meet to establish an agreed upon new MRV for the specified term. If agreement cannot be reached, then: (i) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next 30 days. Any associated costs will be split equally between the parties, or (ii) Both Lessor and Lessee shall each immediately select and pay the appraiser or broker of their choice to establish a MRV within the next 30 days. If for any reason, either one of the appraisals is not completed within the next 30 days, as stipulated, then the appraisal that is completed at that time shall automatically become the new MRV. If both appraisals are completed and the two appraisers/brokers cannot agree on a reasonable average MRV then they shall immediately select a third mutually acceptable appraiser/broker to establish a third MRV within the next 30 days. The average of the two appraisals closest in value shall then become the new MRV. The costs of the third appraisal will be split equally between the parties. (2) In any event the new MRV shall not be less than the rent payable for the month immediately preceding the date for rent adjustment. (b) As used herein, the "Market Rental Value" or "MRV" for the Premises during the Option term shall mean the annual amount per rentable square foot being charged as of the first day of the Option term for unencumbered, non-sublease, non-equity space comparable to the Premises and located in comparable industrial buildings in the vicinity of the Building, giving appropriate consideration to all economic terms, such as annual rental rates per rentable square foot, abatement provisions reflecting free rent, if any, length of the lease term, size and location of premises being leased and other generally acceptable terms and conditions and concessions for the tenancy of the space in question except that (i) no concessions shall be provided for tenant improvements or allowances provided to such tenants since Lessor shall have no obligation to construct or pay for any improvements for or in the Premises for the Option term, and (ii) no consideration shall be given to the fact that any rental abatement is or is not given such tenants in connection with the construction of improvements in such comparable space. OPTION TO EXTEND EX-10.(V) 13 LEASE AGREEMENT [Net Lease with Stops for Taxes and Insurance] LEASE AGREEMENT THIS LEASE AGREEMENT is made this 24th day of February, 1997, between Security Capital Industrial Trust ("Landlord"), and the Tenant named below. Tenant: Graham-Field Health Products, Inc. Tenant's representative, 400 Rabro Drive East address, and phone no.: Hauppauge, New York 11788 516-582-5900 Premises: That portion of the Building, containing approximately 20,147 rentable square feet, as determined by Landlord, as shown on Exhibit Project: Airport Commons Distribution Center II Building: Airport Commons Distribution Center II, 7447 New Ridge Road, Suite #A, Hanover, Maryland 21076 Tenant's Proportionate Share of Project: 6.53% Tenant's Proportionate Share of Building: 27.98% Lease Term: Beginning on the Commencement Date and ending on the last day of the 61st full calendar month thereafter. Commencement Date: The later to occur of March 15, 1997; or the substantial completion of Tenant Improvements as defined in Addendum 2 Initial Monthly Base Rent: See Addendum #1 Initial Estimated Monthly 1. Utilities: $N/A Operating Expense Payments: (estimates only and subject 2. Common Area Charges: $419.73 to adjustment to actual costs and expenses according 3. Others: $0.00 to the provisions of this Lease) Initial Estimated Monthly Operating Expense Payments: $419.73 Initial Monthly Base Rent and Estimated Operating Expense Payments: $7,974.86 Base Year: 1997 Security Deposit: $0.00 Broker: Preston Partners/Grubb & Ellis Addenda: Addendum 1 (Base Rent), Addendum 2 (Construction), Addendum 3 (Cap of Controllable Operating Expenses), Addendum 4 (Right of First Offer), Addendum 5 (Renewal Option), Addendum 6 (Indemnification), Addendum 7 (Cancellation Option), Addendum 8 (Environmental Remediation) 1. Granting Clause. In consideration of the obligation of Tenant to pay rent as herein provided and in consideration of the other terms, covenants, and conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord, the Premises, to have and to hold for the Lease Term, subject to the terms, covenants and conditions of this Lease. 2. Acceptance of Premises. Tenant shall accept the Premises, subject to all applicable laws, ordinances, regulations, covenants and restrictions. Landlord represents and warrants that, as of the Commencement Date, the Premises will be in compliance with all applicable laws, ordinances, regulations, covenants and restrictions, there will be in effect a certificate of substantial completion for the Building and that the plumbing, electrical and HVAC Systems will be in good working order. Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant's business, and Tenant waives any implied warranty that the Premises are suitable for Tenant's intended purposes. Except as provided in Paragraph 10, in no event shall Landlord have any obligation for any defects in the Premises or any limitation on its use. 3. Use. The Premises shall be used only for the purpose of receiving, storing, shipping and selling (but limited to wholesale sales) products, materials and merchandise made and/or distributed by Tenant and for such other lawful purposes as may be incidental thereto; provided, however, with Landlord's prior written consent, Tenant may also use the Premises for light manufacturing and light assembly. Tenant shall not conduct or give notice of any auction, liquidation, or going out of business sale on the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit waste, overload the floor or structure of the Premises or subject the Premises to use that would damage the Premises. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise, or vibrations to emanate from the Premises, or take any other action that would constitute a nuisance or would disturb, unreasonably interfere with, or endanger Landlord or any tenants of the Project. Outside storage, including without limitation, storage of trucks and other vehicles, is prohibited without Landlord's prior written consent, except as otherwise set forth in this Lease. Tenant, at its sole expense, shall use and occupy the Premises in compliance with all laws, including, without limitation, the Americans With Disabilities Act, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises (collectively, "Legal Requirements"). The Premises shall not be used as a place of public accommodation under the Americans With Disabilities Act or similar state statutes or local ordinances or any regulations promulgated thereunder, all as may be amended from time to time. Tenant shall, at its expense, make any non-structural alterations or modifications, within or without the Premises, that are required by Legal Requirements related solely to Tenant's manner of use or occupation of the Premises. Landlord shall, at its expense, make any structural alterations or modifications, within or without the Premises, in addition to any non-structural exterior alterations or modification which are not related to Tenant's sole manner of use or occupation of the Premises, that are required by Legal Requirements. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant's or Landlord's insurance, increase the insurance risk, or cause the disallowance of any sprinkler credits. If any increase in the cost of any insurance on the Premises or the Project is caused by Tenant's manner of use or occupation of the Premises, then Tenant shall pay the amount of such increase to Landlord. Any occupation of the Premises by Tenant prior to the Commencement Date shall be subject to all obligations of Tenant under this Lease. 4. Base Rent. Tenant shall pay Base Rent in the amount set forth above. The first month's Base Rent, and the first monthly installment of estimated Operating Expenses (as hereafter defined) shall be due and payable on the date hereof, and Tenant promises to pay to Landlord in advance, without demand, deduction or set-off (except as otherwise set forth in the Lease), monthly installments of Base Rent on or before the first day of each calendar month succeeding the Commencement Date. Payments of Base Rent for any fractional calendar month shall be prorated. All payments required to be made by Tenant to Landlord hereunder shall be payable at such address as Landlord may specify from time to time by written notice delivered in accordance herewith. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any rent due hereunder except where expressly provided in this Lease. If Tenant is delinquent in any monthly installment of Base Rent beyond 10 days after the due date thereof, and after notice as provided below, Tenant shall pay to Landlord on demand a late charge equal to 5 percent of such delinquent sum. Tenant shall not be obligated to pay the late charge until Landlord has given Tenant 10 days written notice of the delinquent payment (which may be given at any time during the delinquency); provided, however, that such notice shall not be required more than twice in any 12-month period or four times over the term of the Lease. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as a penalty or as limiting Landlord's remedies in any manner. 5. Security Deposit. Intentionally deleted. 6. Operating Expense Payments. During each month of the Lease Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12 of the annual cost, as estimated by Landlord from time to time, of Tenant's Proportionate Share (hereinafter defined) of Operating Expenses for the Project. Payments thereof for any fractional calendar month shall be prorated. The term "Operating Expenses" means all costs and expenses incurred by Landlord with respect to the ownership, maintenance, and operation of the Project including, but not limited to costs of: utilities; maintenance, repair and replacement of all portions of the Project, including without limitation, paving and parking areas, roads, roofs, alleys, and driveways, mowing, landscaping, exterior painting, utility lines, heating, ventilation and air conditioning systems, lighting, electrical systems and mechanical and building systems; amounts paid to contractors and subcontractors for work or services performed in connection with any of the foregoing; charges or assessments of any association to which the Project is subject; fees payable to tax consultants and attorneys for consultation and contesting taxes; property management fees payable to a property manager, including any affiliate of Landlord, or if there is no property manager, an administration fee of 15 percent of Operating Expenses payable to Landlord; security services, if any; trash collection, sweeping and removal; and additions or alterations made by Landlord to the Project or the Building in order to comply with Legal Requirements -2- (other than those expressly required herein to be made by Tenant) or that are appropriate to the continued operation of the Project or the Building as a bulk warehouse facility in the market area, provided that the cost of such additions or alterations that are required to be capitalized for federal income tax purposes shall be amortized on a straight line basis over a period equal to the lesser of the useful life thereof for federal income tax purposes or 10 years. In addition, Operating Expenses shall include (i) the amount by which Taxes (hereinafter defined) for each calendar year during the Lease term exceeds Taxes for the Base Year, and (ii) the amount by which the cost of insurance maintained by Landlord for the Project for each calendar year during the Lease term exceeds the cost of such insurance for the Base Year. Operating Expenses do not include costs, expenses, depreciation or amortization for capital repairs and capital replacements required to be made by Landlord under Paragraph 10 of this Lease; costs for capital repairs and capital replacements which do not benefit Tenant; debt service under mortgages or ground rent under ground leases; costs of restoration to the extent of net insurance proceeds received by Landlord with respect thereto; leasing commissions; costs for which Landlord is reimbursed by individual tenants of the Project; any amount payable to any person or entity controlling, controlled by or under common control with Landlord to the extent such amount is in excess of amounts which would have been paid absent such relationship and in excess of current market rates; advertising and promotional expenses; to the extent that any employee of Landlord performs work or services other than for the Project, the reasonably allocable portion of his compensation with respect to work not performed in connection with the Project; professional fees incurred by Landlord in the preparation of leases or in disputes with tenants of the Project; or the costs of renovating space for tenants. If Tenant's total payments of Operating Expenses for any year are less than Tenant's Proportionate Share of actual Operating Expenses for such year, then Tenant shall pay the difference to Landlord within 30 days after demand, and if more, then Landlord shall retain such excess and credit it against Tenant's next payments. For purposes of calculating Tenant's Proportionate Share of Operating Expenses, a year shall mean a calendar year except the first year, which shall begin on the Commencement Date, and the last year, which shall end on the expiration of this Lease. With respect to Operating Expenses which Landlord allocates to the entire Project, Tenant's "Proportionate Share" shall be the percentage set forth on the first page of this Lease as Tenant's Proportionate Share of the Project as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Project; and, with respect to Operating Expenses which Landlord allocates only to the Building, Tenant's "Proportionate Share" shall be the percentage set forth on the first page of this Lease as Tenant's Proportionate Share of the Building as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Building. Landlord may equitably increase Tenant's Proportionate Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project or Building that includes the Premises or that varies with occupancy or use. The estimated Operating Expenses for the Premises set forth on the first page of this Lease are only estimates, and Landlord makes no guaranty or warranty that such estimates will be accurate. Landlord shall provide to Tenant within 120 days following the last day of the calendar year Landlord's year-end common area maintenance reconciliation report. At any time within 6 months after Landlord has issued a statement of Operating Expenses payable by Tenant, but in no event more than once in a calendar year, and after at least 2 days prior written notice to Landlord, Tenant will have the right to review and audit the books and records of Landlord relating to such Operating Expenses during normal business hours and at the office of Landlord as indicated on the Lease. The audit will be conducted at Tenant's expense by a certified public accountant licensed in the state in which the Premises are situated. If Tenant's audit reveals that the Operating Expenses charged to Tenant exceed or were less than Tenant's Proportionate Share of the actual Operating Expenses, and such variance is confirmed by Landlord's certified public accountant, then Landlord will reimburse Tenant for any overcharge, or Tenant will pay to Landlord any undercharge, as applicable, promptly after such final determination. In the event of a confirmed overcharge of Operating Expenses to Tenant in excess of 10% of Tenant's Proportionate Share of actual Operating Expenses in such year, Landlord also shall reimburse Tenant for the reasonable cost of Tenant's audit, but not in excess of an amount equal to 100% of the overcharge. 7. Utilities. Tenant shall pay for all water, gas, electricity, heat, light, power, telephone, sewer, sprinkler services, refuse and trash collection, and other utilities and services used on the Premises, all maintenance charges for utilities, and any storm sewer charges or other similar charges for utilities imposed by any governmental entity or utility provider, together with any taxes imposed on utility charges, penalties, surcharges or the like pertaining to Tenant's use of the Premises. Landlord agrees that, at Landlord's expense, all utilities will be separately metered, except for water, and charged directly to Tenant by the provider. Tenant shall pay its share of all charges for jointly metered utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of utilities shall result in the termination of this Lease or the abatement of rent. Tenant agrees to limit use of water and sewer for normal restroom use. Notwithstanding anything to the contrary contained in this Paragraph 7 of the Lease, if an interruption or cessation of utilities results from a cause within the Landlord's reasonable control and the Premises are not usable by Tenant for the conduct of Tenant's business as a result thereof, Base Rent and applicable Operating Expenses not actually incurred by Tenant shall be abated for the period which commences five (5) business days after the date Tenant gives to Landlord notice of such interruption until such utilities are restored. 8. Taxes. Landlord shall pay on or before the due date the same are due and payable all taxes, assessments and governmental charges (collectively referred to as "Taxes") that accrue against the Project during the Lease Term. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens thereof. All capital levies or other taxes assessed or imposed on Landlord upon the rents payable to Landlord -3- 9. Insurance. Landlord shall maintain all risk property insurance covering the full replacement cost of the Building and commercial liability insurance. Landlord shall maintain commercial liability insurance, and may obtain such other insurance and additional coverages as it may deem necessary, including, but not limited to, rent loss insurance. All such insurance shall be in forms and amounts customary for properties substantially similar to the Project, subject to customary deductibles. The Project or Building may be included in a blanket policy (in which case the cost of such insurance allocable to the Project or Building will be determined by Landlord based upon the insurer's cost calculations). Tenant, at its expense, shall maintain during the Lease Term: all risk property insurance covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant's expense; worker's compensation insurance with no less than the minimum limits required by law; employer's liability insurance with such limits as required by law; and commercial liability insurance, with a minimum limit of $1,000,000 per occurrence and a minimum umbrella limit of $1,000,000, for a total minimum combined general liability and umbrella limit of $2,000,000 for property damage, personal injuries, or deaths of persons occurring in or about the Premises. The commercial liability policies shall name Landlord as an additional insured, insure on an occurrence and not a claims-made basis, be issued by insurance companies which are reasonably acceptable to Landlord, not be cancelable unless 30 days prior written notice shall have been given to Landlord, contain a hostile fire endorsement and a contractual liability endorsement and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant's policies). Such policies or certificates thereof shall be delivered to Landlord by Tenant upon commencement of the Lease Term and upon each renewal of said insurance. The all risk property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, their officers, directors, employees, managers, agents, invitees and contractors, in connection with any loss or damage thereby insured against. Neither party nor its officers, directors, employees, managers, agents, invitees or contractors shall be liable to the other for loss or damage caused by any risk coverable by all risk property insurance, and each party waives any claims against the other party, and its officers, directors, employees, managers, agents, invitees and contractors for such loss or damage. The failure of a party to insure its property shall not void this waiver. Landlord and its agents, employees and contractors shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever, including without limitation, damage caused in whole or in part, directly or indirectly, by the negligence of Landlord or its agents, employees or contractors. 10. Landlord's Repairs. Landlord shall maintain, at its expense, the structural soundness of the roof, foundation, and exterior walls of the Building in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant excluded. The term "walls" as used in this Paragraph 10 shall not include windows, glass or plate glass, doors or overhead doors, special store fronts, dock bumpers, dock plates or levelers, or office entries. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Paragraph 10, after which Landlord shall have a reasonable opportunity to repair. 11. Tenant's Repairs. Landlord, at Tenant's expense as provided in Paragraph 6, shall maintain in good repair and condition the parking areas and other common areas of the Building, including, but not limited to driveways, alleys, landscape and grounds surrounding the Premises. Subject to Landlord's obligation in Paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at its expense, shall repair, replace and maintain in good condition all interior portions and dock areas of the Premises and all areas, improvements and systems exclusively serving the Premises including, without limitation, dock and loading areas, truck doors, plumbing, water, and sewer lines up to points of common connection, fire sprinklers and fire protection systems, entries, doors, ceilings and roof membrane, windows, interior walls, and the interior side of demising walls, and heating, ventilation and air conditioning systems. Such repair and replacements include capital expenditures and repairs whose benefit may extend beyond the Term. Heating, ventilation and air conditioning systems and other mechanical and building systems serving the Premises shall be maintained at Tenant's expense pursuant to maintenance service contracts entered into by Tenant or maintained by equivalent maintenance personnel under the employment of Tenant provided that Tenant provides Landlord, upon Landlord's request, documentation of such maintenance performed by such maintenance personnel, or, at Landlord's election, by Landlord. The scope of services and contractors under such maintenance contracts shall be reasonably approved by Landlord. If Tenant fails to perform any repair or replacement for which it is responsible, Landlord may perform such work and be reimbursed by Tenant within 10 days after demand therefor. Subject to Paragraphs 9 and 15, Tenant shall bear the full cost of any repair or replacement to any part of the Building or Project that results from damage caused by Tenant, its agents, contractors, or invitees and any repair that benefits only the Premises. 12. Tenant-Made Alterations and Trade Fixtures. Any alterations, additions, or improvements made by or on behalf of Tenant to the Premises ("Tenant-Made Alterations") which exceed $15,000 or which effect the roof, structure, utility systems or mechanical components of the Building shall be subject to Landlord's prior written consent. Tenant shall cause, at its expense, all Tenant-Made Alterations to comply with insurance requirements and with Legal Requirements and shall construct at its expense any alteration or modification required by Legal Requirements as a result of any Tenant-Made Alterations. All Tenant-Made Alterations shall be constructed in a good and workmanlike manner by contractors reasonably acceptable to Landlord and only good grades of materials shall be used. All plans and specifications for any Tenant-Made Alterations shall be submitted to Landlord for its approval. Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall reimburse Landlord for its costs up to $500.00 in reviewing plans and specifications and in monitoring construction, subject to Landlord giving prior written notice. Landlord's right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to see that such plans and specifications or construction comply with applicable laws, codes, rules and regulations. Tenant shall provide Landlord with the identities and mailing addresses of all persons performing work or supplying -4- 12. Tenant-Made Alterations and Trade Fixtures. Any alterations, additions, or improvements made by or on behalf of Tenant to the Premises ("Tenant-Made Alterations") which exceed $15,000 or which effect the roof, structure, utility systems or mechanical components of the Building shall be subject to Landlord's prior written consent. Tenant shall cause, at its expense, all Tenant-Made Alterations to comply with insurance requirements and with Legal Requirements and shall construct at its expense any alteration or modification required by Legal Requirements as a result of any Tenant-Made Alterations. All Tenant-Made Alterations shall be constructed in a good and workmanlike manner by contractors reasonably acceptable to Landlord and only good grades of materials shall be used. All plans and specifications for any Tenant-Made Alterations shall be submitted to Landlord for its approval. Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall reimburse Landlord for its costs up to $500.00 in reviewing plans and specifications and in monitoring construction, subject to Landlord giving prior written notice. Landlord's right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to see that such plans and specifications or construction comply with applicable laws, codes, rules and regulations. Tenant shall provide Landlord with the identities and mailing addresses of all persons performing work or supplying materials, prior to beginning such construction, and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all work free and clear of liens and shall provide certificates of insurance for worker's compensation and other coverage in amounts and from an insurance company reasonably satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Tenant-Made Alterations, Tenant shall deliver to Landlord sworn statements setting forth the names of all contractors and subcontractors who did work on the Tenant-Made Alterations and final lien waivers from all such contractors and subcontractors. Upon surrender of the Premises, all Tenant-Made Alterations and any leasehold improvements constructed by Landlord or Tenant shall remain on the Premises as Landlord's property, except to the extent Landlord's requires removal at Tenant's expense of any such items or Landlord and Tenant have otherwise agreed in writing in connection with Landlord's consent to any Tenant-Made Alterations. Tenant shall repair any damage caused by such removal. Tenant, at its own cost and expense and without Landlord's prior approval, may erect such shelves, bins, machinery and trade fixtures (collectively "Trade Fixtures") in the ordinary course of its business provided that such items do not alter the basic character of the Premises, do not overload or damage the Premises, and the construction, erection, and installation thereof complies with all Legal Requirements and with Landlord's requirements set forth above. Tenant shall remove its Trade Fixtures and shall repair any damage caused by such removal. 13. Signs. Tenant shall not make any changes to the exterior of the Premises, install any exterior lights, decorations, balloons, flags, pennants, banners, or painting, or erect or install any signs, windows or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord's prior written consent. Upon surrender or vacation of the Premises, Tenant shall have removed all signs and repair, paint, and/or replace the building facia surface to which its signs are attached. Tenant shall obtain all applicable governmental permits and approvals for sign and exterior treatments. All signs, decorations, advertising media, blinds, draperies and other window treatment or bars or other security installations visible from outside the Premises shall be subject to Landlord's approval and conform in all respects to Landlord's requirements as outlined in Exhibit B. 14. Parking. Tenant shall be entitled to park in common with other tenants of the Project in those areas designated for nonreserved parking. Landlord may allocate parking spaces among Tenant and other tenants in the Project if Landlord determines that such parking facilities are becoming crowded. Landlord shall not be responsible for enforcing Tenant's parking rights against any third parties. Landlord acknowledges and agrees that Tenant shall be permitted to park up to 15 cars, vans, straight bed trucks, tractor trailers, tractor cabs or combination thereof on the Premises with the straight trucks, tractor trailers and tractor cabs to be parked only in the front and side of the Building in alignment with and immediately adjacent to the Premises, so long as they do not interfere with other tenants, in which case the number shall be reduced to 14. In no event whatsoever shall Tenant's parking of vehicles, trucks, vans or automobiles encroach on the Project's Fire Lane. 15. Restoration. If at any time during the Lease Term the Premises are damaged by a fire or other casualty, Landlord shall notify Tenant within 60 days after such damage as to the amount of time Landlord reasonably estimates it will take to restore the Premises. If the restoration time is estimated to exceed 6 months, either Landlord or Tenant may elect to terminate this Lease upon notice to the other party given no later than 30 days after Landlord's notice. If neither party elects to terminate this Lease or if Landlord estimates that restoration will take 6 months or less, then, subject to receipt of sufficient insurance proceeds, Landlord shall promptly restore the Premises excluding the improvements installed by Tenant or by Landlord and paid by Tenant, subject to delays arising from the collection of insurance proceeds or from Force Majeure events. Tenant at Tenant's expense shall promptly perform, subject to delays arising from the collection of insurance proceeds, or from Force Majeure events, all repairs or restoration not required to be done by Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Notwithstanding the foregoing, either party may terminate this Lease if the Premises are damaged during the last year of the Lease Term and Landlord reasonably estimates that it will take more than one month to repair such damage. Tenant shall pay to Landlord with respect to any damage to the Premises the amount of the commercially reasonably deductible under Landlord's insurance policy (up to $10,000) within 10 days after presentment of Landlord's invoice. If the damage involves the premises of other tenants, Tenant shall pay the portion of the deductible that the cost of the restoration of the Premises bears to the total cost of restoration, as determined by Landlord. Base Rent and Operating Expenses shall be abated for the period of repair and restoration in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the -5- Premises. Such abatement shall be the sole remedy of Tenant, and except as provided herein, Tenant waives any right to terminate the Lease by reason of damage or casualty loss. 16. Condemnation. If any part of the Premises or the Project should be taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a "Taking" or "Taken"), and the Taking would prevent or materially interfere with Tenant's use of the Premises or in Landlord's judgment would materially interfere with or impair its ownership or operation of the Project, then upon written notice by either party this Lease shall terminate and Base Rent and Operating Expenses shall be apportioned as of said date. Notwithstanding the foregoing, either party may terminate this Lease if any part of the Premises are taken during the last year of the Lease Term. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, the Base Rent and Operating Expenses payable hereunder during the unexpired Lease Term shall be reduced to such extent as may be fair and reasonable under the circumstances. In the event of any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlord's award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant's Trade Fixtures, if a separate award for such items is made to Tenant. 17. Assignment and Subletting. Without Landlord's prior written consent, Tenant shall not assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises and any attempt to do any of the foregoing shall be void and of no effect. For purposes of this paragraph, a transfer of the ownership interests controlling Tenant shall be deemed an assignment of this Lease unless such ownership interests are publicly traded. Notwithstanding the above, Tenant may assign or sublet the Premises, or any part thereof, to any entity controlling Tenant, controlled by Tenant or under common control with Tenant (a "Tenant Affiliate"), without the prior written consent of Landlord. Tenant shall reimburse Landlord for all of Landlord's reasonable out-of-pocket expenses in connection with any assignment or sublease. Upon Landlord's receipt of Tenant's written notice of a desire to assign or sublet the Premises, or any part thereof (other than to a Tenant Affiliate), Landlord may, by giving written notice to Tenant within 30 days after receipt of Tenant's notice, terminate this Lease with respect to the space described in Tenant's notice, as of the date specified in Tenant's notice for the commencement of the proposed assignment or sublease. Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant's obligations under this Lease shall at all times remain fully responsible and liable for the payment of the rent and for compliance with all of Tenant's other obligations under this Lease (regardless of whether Landlord's approval has been obtained for any such assignments or sublettings). In the event that the rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto) exceeds the rental payable under this Lease, then Tenant shall be bound and obligated to pay Landlord as additional rent hereunder all such excess rental and other excess consideration within 10 days following receipt thereof by Tenant. If this Lease be assigned or if the Premises be subleased (whether in whole or in part) or in the event of the mortgage, pledge, or hypothecation of Tenant's leasehold interest or grant of any concession or license within the Premises or if the Premises be occupied in whole or in part by anyone other than Tenant, then upon a default by Tenant hereunder beyond any applicable notice and grace period as set forth in this Lease Landlord may collect rent from the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold interest was hypothecated, concessionee or licensee or other occupant and, except to the extent set forth in the preceding paragraph, apply the amount collected to the next rent payable hereunder; and all such rentals collected by Tenant shall be held in trust for Landlord and immediately forwarded to Landlord. No such transaction or collection of rent or application thereof by Landlord, however, shall be deemed a waiver of these provisions or a release of Tenant from the further performance by Tenant of its covenants, duties, or obligations hereunder. Notwithstanding anything to the contrary in this Paragraph 17, provided no default has occurred and is continuing under this Lease, upon 10 days prior written notice to Landlord, Tenant may, without Landlord's prior written consent, assign this Lease to an entity into which Tenant is merged or consolidated or to an entity to which substantially all of Tenant's assets are transferred, provided such merger, consolidation, or transfer of assets is for a good business purpose and not principally for the purpose of transferring Tenant's leasehold estate. 18. Indemnification. Except for the negligence of Landlord, its agents, employees or contractors, and to the extent permitted by law, Tenant agrees to indemnify, defend and hold harmless Landlord, and Landlord's agents, employees and contractors, from and against any and all losses, liabilities, damages, costs and expenses (including attorneys' fees) resulting from claims by third parties for injuries to any person and damage to or theft or misappropriation or loss of property occurring in or about the Project and arising from the use and occupancy of the Premises or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises or due to any other act or omission of Tenant, its subtenants, assignees, invitees, employees, contractors and agents. The furnishing of insurance required hereunder shall not be deemed to limit Tenant's obligations under this Paragraph 18. 19. Inspection and Access. Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time and upon reasonable prior notice (except for emergency situations) to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business -6- purpose. Landlord and Landlord's representatives may enter the Premises during business hours upon reasonable prior notice for the purpose of showing the Premises to prospective purchasers and, during the last year of the Lease Term, to prospective tenants. Landlord may not erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate common areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially interferes with Tenant's use or occupancy of the Premises. At Landlord's request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions. 20. Quiet Enjoyment. If Tenant shall perform all of the covenants and agreements herein required to be performed by Tenant, Tenant shall, subject to the terms of this Lease, at all times during the Lease Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord. 21. Surrender. Upon termination of the Lease Term or earlier termination of Tenant's right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Paragraphs 15 and 16 excepted. Any Trade Fixtures, Tenant-Made Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord's retention and disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Lease Term shall survive the termination of the Lease Term, including without limitation, indemnity obligations, payment obligations with respect to Operating Expenses and obligations concerning the condition and repair of the Premises, provided, however, that any claim therefor must be made within 12 months after the termination of this Lease, with the exception of environmental claims or issues. 22. Holding Over. If Tenant retains possession of the Premises after the termination of the Lease Term, unless otherwise agreed in writing, such possession shall be subject to immediate termination by Landlord at any time, and all of the other terms and provisions of this Lease (excluding any expansion or renewal option or other similar right or option) shall be applicable during such holdover period, except that Tenant shall pay Landlord from time to time, upon demand, as Base Rent for the holdover period, an amount equal to 150% of the Base Rent in effect on the termination date, computed on a monthly basis for each month or part thereof during such holding over. All other payments shall continue under the terms of this Lease. In addition, Tenant shall be liable for all damages incurred by Landlord as a result of such holding over, except to the extent such damages are a result of Force Majeure. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Paragraph 22 shall not be construed as consent for Tenant to retain possession of the Premises. 23. Events of Default. Each of the following events shall be an event of default ("Event of Default") by Tenant under this Lease: (i) Tenant shall fail to pay any installment of Base Rent or any other payment required herein when due, and such failure shall continue for a period of 10 days after notice from Landlord to Tenant that such payment was due; provided, however, that Landlord shall not be obligated to provide written notice of such failure more than 2 times in any consecutive 12-month period, and the failure of Tenant to pay any fourth or subsequent installment of Base Rent or any other payment required herein when due in any consecutive 12-month period shall constitute an Event of Default by Tenant under this Lease without the requirement of notice or opportunity to cure. (ii) Tenant shall (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a "proceeding for relief"); (C) become the subject of any proceeding for relief which is not dismissed within 60 days of its filing or entry; or (D) the or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity). (iii) Any insurance required to be maintained by Tenant pursuant to this Lease shall be cancelled or terminated or shall expire or shall be reduced or materially changed, except, in each case, as permitted in this Lease. (iv) Tenant shall not occupy or shall vacate the Premises or shall fail to continuously operate its business at the Premises for the permitted use set forth herein, whether or not Tenant is in monetary or other default under this Lease. Tenant's vacating of the Premises shall not constitute an Event of Default if, prior to vacating the Premises, Tenant has made arrangements reasonably acceptable to Landlord to (a) insure that Tenant's insurance for the Premises will not be voided or cancelled with respect to the Premises as a result of such vacancy, (b) insure that the Premises are secured and not subject to vandalism, and (c) insure that the Premises will be properly maintained after such vacation. Tenant shall inspect the Premises at least once each month and report monthly in writing to Landlord on the condition of the Premises. -7- (v) There shall occur any assignment, subleasing or other transfer of Tenant's interest in or with respect to this Lease except as otherwise permitted in this Lease. (vi) Tenant shall fail to discharge or post security against any lien placed upon the Premises in violation of this Lease within 30 days after notice to Tenant of any such lien or encumbrance is filed against the Premises. (vii) Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Paragraph 23, and except as otherwise expressly provided therein, such default shall continue for more than 30 days after Landlord shall have given Tenant written notice of such default, unless such default cannot be cured within 30 days provided Tenant commences and diligently pursues said cure and completes the cure within 90 days, except that with respect to any default under Paragraph 30, the time for completion of the cure shall be within the time set forth by the applicable regulatory agency.. 24. Landlord's Remedies. Upon each occurrence of an Event of Default and so long as such Event of Default shall be continuing, Landlord may at any time thereafter at its election: terminate this Lease or Tenant's right of possession, (but Tenant shall remain liable as hereinafter provided) and/or pursue any other remedies at law or in equity. Upon the termination of this Lease or termination of Tenant's right of possession, it shall be lawful for Landlord, without formal demand or notice of any kind, to re-enter the Premises by summary dispossession proceedings or any other action or proceeding authorized by law and to remove Tenant and all persons and property therefrom. If Landlord re-enters the Premises, Landlord shall have the right to remove and store all of the furniture, fixtures and equipment at the Premises. If Landlord terminates this Lease, Landlord may recover from Tenant the sum of: (i) all Base Rent and all other amounts accrued hereunder to the date of such termination; (ii) the cost of reletting the whole or any part of the Premises, including without limitation brokerage fees and/or leasing commissions incurred by Landlord, and costs of removing and storing Tenant's or any other occupant's property, repairing, altering, remodeling, or otherwise putting the Premises into condition acceptable to a new tenant or tenants, and all reasonable expenses incurred by Landlord in pursuing its remedies, including reasonable attorneys' fees and court costs; and (iii) the excess of the then present value of the Base Rent and other amounts payable by Tenant under this Lease as would otherwise have been required to be paid by Tenant to Landlord during the period following the termination of this Lease measured from the date of such termination to the expiration date stated in this Lease, over the present value of any net amounts which Tenant establishes Landlord can reasonably expect to recover by reletting the Premises for such period, taking into consideration the availability of acceptable tenants and other market conditions affecting leasing; provided, however, in no event shall Tenant be liable under the computation provided for in this subparagraph (iii) for an amount greater than the amount equal to the sum of the Base Rent and Operating Expenses payable for 12 months by Tenant under the terms of this Lease. Such present values shall be calculated at a discount rate equal to the 90-day U.S. Treasury bill rate at the date of such termination. If Landlord terminates Tenant's right of possession (but not this Lease), Landlord shall use commercially reasonable efforts to relet the Premises for the account of Tenant for such rent and upon such terms as shall be satisfactory to Landlord without thereby releasing Tenant from any liability hereunder and without demand or notice of any kind to Tenant; provided, however, (a) Landlord shall not be obligated to accept any tenant proposed by Tenant, (b) Landlord shall have the right to lease any other space controlled by Landlord first, and (c) any proposed tenant shall meet all of Landlord's leasing criteria. For the purpose of such reletting Landlord is authorized to make any repairs, changes, alterations, or additions in or to the Premises as Landlord deems reasonably necessary or desirable. If the Premises are not relet, then Tenant shall pay to Landlord as damages a sum equal to the amount of the rental reserved in this Lease for such period or periods, plus the cost of recovering possession of the Premises (including attorneys' fees and costs of suit), the unpaid Base Rent and other amounts accrued hereunder at the time of repossession, and the costs incurred in any attempt by Landlord to relet the Premises. If the Premises are relet and a sufficient sum shall not be realized from such reletting [after first deducting therefrom, for retention by Landlord, the unpaid Base Rent and other amounts accrued hereunder at the time of reletting, the cost of recovering possession (including attorneys' fees and costs of suit), all of the costs and expense of repairs, changes, alterations, and additions, the expense of such reletting (including without limitation brokerage fees and leasing commissions) and the cost of collection of the rent accruing therefrom] to satisfy the rent provided for in this Lease to be paid, then Tenant shall immediately satisfy and pay any such deficiency. Any such payments due Landlord shall be made upon demand therefor from time to time and Tenant agrees that Landlord may file suit to recover any sums falling due from time to time. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect in writing to terminate this Lease for such previous breach. Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, whether by agreement or by operation of law, it being understood that such surrender and/or termination can be effected only by the written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same. Tenant and Landlord further agree that forbearance or waiver by Landlord to enforce its rights pursuant to this Lease or at law or in equity, shall not be a waiver of Landlord's right to enforce one or more of its rights in connection with any subsequent default. A receipt -8- by Landlord of rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. To the greatest extent permitted by law, Tenant waives the service of notice of Landlord's intention to re-enter as provided for in any statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge. The terms "enter," "re-enter," "entry" or "re-entry," as used in this Lease, are not restricted to their technical legal meanings. Any reletting of the Premises shall be on such terms and conditions as Landlord in its sole discretion may determine (including without limitation a term different than the remaining Lease Term, rental concessions, alterations and repair of the Premises, lease of less than the entire Premises to any tenant and leasing any or all other portions of the Project before reletting the Premises). Landlord shall not be liable, nor shall Tenant's obligations hereunder be diminished because of, Landlord's failure to relet the Premises or collect rent due in respect of such reletting, provided Landlord uses commercially reasonable efforts to relet the Premises. 25. Tenant's Remedies/Limitation of Liability. Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary, provided that Landlord commences and diligently pursues the cure of such default). All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise provided in this Lease, Tenant may not terminate this Lease for breach of Landlord's obligations hereunder. All such obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter, provided that Landlord's transferee assumes all obligations of Landlord under this Lease, including those accruing prior to such transfer. The term "Landlord" in this Lease shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Lease Term upon each new owner for the duration of such owner's ownership. Any liability of Landlord under this Lease shall be limited solely to its interest in the Project, and in no event shall any personal liability be asserted against Landlord in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord. If Landlord is in default under the Lease as hereinabove described, Tenant also shall have the right to take such commercially reasonable actions as Tenant deems necessary to cure Landlord's default and, if Landlord fails to reimburse Tenant for the reasonable costs, fees and expenses incurred by Tenant in taking such curative actions within 30 days after demand therefor, accompanied by supporting evidence of the expenses incurred by Tenant, bring an action for damages against Landlord to recover such costs, fees and expenses, together with interest thereon at the rate provided for in Paragraph 37(1) of the Lease, and reasonable attorney's fees incurred by Tenant in bringing such action for damages. In no event, however, shall Tenant have a right to terminate the Lease. 26. Waiver of Jury Trial. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. 27. Subordination. Provided that Tenant receives a non-disturbance agreement, this Lease and Tenant's interest and rights hereunder are and shall be subject and subordinate at all times to the lien of any first mortgage, now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant. Tenant agrees, at the election of the holder of any such mortgage, to attorn to any such holder, provided that Tenant receives a non-disturbance agreement. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination and such instruments of attornment as shall be requested by any such holder, provided that Tenant receives a non-disturbance agreement. Notwithstanding the foregoing, any such holder may at any time subordinate its mortgage to this Lease, without Tenant's consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution, delivery or recording and in that event such holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such mortgage and had been assigned to such holder. The term "mortgage" whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the "holder" of a mortgage shall be deemed to include the beneficiary under a deed of trust. Tenant shall not be obligated to subordinate the Lease or its interest therein to any future mortgage, deed of trust or ground lease on the Project unless concurrently with such subordination the holder of such mortgage or deed of trust or the ground lessor under such ground lease agrees not to disturb Tenant's possession of the Premises under the terms of the Lease in the event such holder or ground lessor acquires title to the Premises through foreclosure, deed in lieu of foreclosure or otherwise. Tenant shall be solely responsible for any fees or expenses charged by the holder of such mortgage or deed of trust in connection with the granting of such non-disturbance agreement. 28. Mechanic's Liens. Tenant has no express or implied authority to create or place any lien or encumbrance of any kind upon, or in any manner to bind the interest of Landlord or Tenant in, the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who -9- may furnish materials or perform labor for any construction or repairs. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed at Tenant's request on the Premises and that it will save and hold Landlord harmless from all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the interest of Landlord in the Premises or under this Lease. Tenant shall give Landlord immediate written notice of the placing of any lien or encumbrance against the Premises as a result of work performed by Tenant, Tenant's employees or contractors, or Tenant's agent, and cause such lien or encumbrance to be discharged within 30 days of the notice of filing or recording thereof; provided, however, Tenant may contest such liens or encumbrances as long as such contest prevents foreclosure of the lien or encumbrance and Tenant causes such lien or encumbrance to be bonded or insured over in a manner satisfactory to Landlord within such 30 day period. 29. Estoppel Certificates. Landlord and Tenant agree, from tune to time, within 10 days after request of the other, to execute and deliver to the requesting party, or its designee, any estoppel certificate requested by the other, stating that this Lease is in full force and effect, the date to which rent has been paid, that the requesting party is not in default hereunder (or specifying in detail the nature of the requesting party's default), the termination date of this Lease and such other matters pertaining to this Lease as may be requested by the requesting party. The obligation to furnish each estoppel certificate in a timely fashion is a material inducement for the parties execution of this Lease. No cure or grace period provided in this Lease shall apply to obligations to timely deliver an estoppel certificate. 30. Environmental Requirements. Except for Hazardous Material contained in products used by Tenant in de minimis quantities for ordinary cleaning, office purposes, and distributing products in their original and unopened packaging, Tenant shall not permit or cause any party to bring any Hazardous Material upon the Premises or transport, store, use, generate, manufacture or release any Hazardous Material in or about the Premises without Landlord's prior written consent. Tenant, at its sole cost and expense, shall operate its business in the Premises in strict compliance with all Environmental Requirements, and shall remediate in a manner satisfactory to Landlord any Hazardous Materials released on or from the Project by Tenant, its agents, employees, contractors, subtenants or invitees. Tenant shall complete and certify to disclosure statements as requested by Landlord from time to time relating to Tenant's transportation, storage, use, generation, manufacture, or release of Hazardous Materials on the Premises. The term "Environmental Requirements" means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any governmental authority or agency regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. The term "Hazardous Materials" means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the "operator" of Tenant's "facility" and the "owner" of all Hazardous Materials brought on the Premises by Tenant, its agents, employees, contractors or invitees, and the wastes, by-products, or residues generated, resulting, or produced therefrom. Tenant shall indemnify, defend, and hold Landlord harmless from and against any and all losses (including, without limitation, diminution in value of the Premises or the Project and loss of rental income from the Project), claims, demands, actions, suits, damages (including, without limitation, punitive damages), expenses (including, without limitation, remediation, removal, repair, corrective action, or cleanup expenses), and costs (including, without limitation, actual attorneys' fees, consultant fees or expert fees and including, without limitation, removal or management of any asbestos brought into the Premises in breach of the requirements of this Paragraph 30, regardless of whether such removal or management is required by law) which are brought or recoverable against, or suffered or incurred by Landlord as a result of any release of Hazardous Materials for which Tenant is obligated to remediate as provided above or any other breach of the requirements under this Paragraph 30 by Tenant, its agents, employees, contractors, subtenants, assignees or invitees, regardless of whether Tenant had knowledge of such noncompliance. The obligations of Tenant under this Paragraph 30 shall survive any termination of this Lease. Landlord shall have access to, and a right to perform inspections and tests of, the Premises to determine Tenant's compliance with Environmental Requirements, its obligations under this Paragraph 30, or the environmental condition of the Premises. Access shall be granted to Landlord upon Landlord's prior notice to Tenant and at such times so as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant's operations. Such inspections and tests shall be conducted at Landlord's expense, unless such inspections or tests reveal that Tenant has not complied with any Environmental Requirement, in which case Tenant shall reimburse Landlord for the reasonable cost of such inspection and tests. Landlord's receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant. Tenant shall have no liability of any kind to Landlord as to Hazardous Materials on the Premises caused or permitted by: (i) Landlord, its agents, employees, contractors or invitees; or (ii) any other tenants in the Project or their agents, employees, contractors, subtenants, assignees or invitees; or (iii) any other person or entity located outside of the Premises or the Project. 31. Rules and Regulations. Tenant shall, at all times during the Lease Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering -10- use of the Premises and the Project. The current rules and regulations are attached hereto. In the event of any conflict between said rules and regulations and other provisions of this Lease, the other terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project, but shall enforce such rules and regulations uniformly throughout the Project. 32. Security Service. Tenant acknowledges and agrees that, while Landlord may patrol the Project, Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises, except caused by the negligence of Landlord, or its employees, agents or contractors. 33. Force Majeure. Except for monetary obligations, Landlord and Tenant shall not be held responsible for delays in the performance of its obligations hereunder when caused by strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, delay in issuance of permits, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of Landlord or Tenant ("Force Majeure"). 34. Entire Agreement. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof. No representations, inducements, promises or agreements, oral or written, have been made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations, or representations are superseded by this Lease. This Lease may not be amended except by an instrument in writing signed by both parties hereto. 35. Severability. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. 36. Brokers. Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than the broker, if any, set forth on the first page of this Lease, and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction. Landlord agrees to pay the brokers set forth on the first page of this Lease and agrees to indemnify and hold Tenant harmless from and against any monetary claims by the brokers set forth on the first page of this Lease, such indemnity to include attorney's fees. 37. Miscellaneous. (a) Any payments or charges due from Tenant to Landlord hereunder shall be considered rent for all purposes of this Lease. (b) If and when included within the term "Tenant," as used in this instrument, there is more than one person, firm or corporation, each shall be jointly and severally liable for the obligations of Tenant. (c) All notices required or permitted to be given under this Lease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or by a reputable national overnight courier service, postage prepaid, or by hand delivery addressed to the parties at their addresses below, and with a copy sent to Landlord at 14100 East 35th Place, Aurora, Colorado 80011 and to Tenant at 400 Rabro Drive East, Hauppauge, New York 11788, Attention: Legal Department. Either party may by notice given aforesaid change its address for all subsequent notices. Except where otherwise expressly provided to the contrary, notice shall be deemed given upon delivery. (d) Except as otherwise expressly provided in this Lease or as otherwise required by law, Landlord retains the absolute right to withhold any consent or approval. (e) Intentionally deleted. (f) Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease. (g) The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. (h) The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties. -11- (i) Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease. (j) Any amount not paid by Tenant within 10 days after notice from Landlord to Tenant that such payment was due (except that Landlord shall not be obligated to provide written notice of such failure more than 2 times in any consecutive 12-month period or four times over the term of the Lease) and in accordance with the terms of this Lease shall bear interest from such due date until paid in full at the lesser of the highest rate permitted by applicable law or 15 percent per year. It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken , reserved, or received with respect to this Lease, then it is Landlord's and Tenant's express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder. (k) Construction and interpretation of this Lease shall be governed by the laws of the state in which the Project is located, excluding any principles of conflicts of laws. (l) Time is of the essence as to the performance of Tenant's and Landlord's obligations under this Lease. (m) All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. In the event of any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control. 38. Landlord's Lien/Security Interest. Intentionally deleted. 39. Limitation of Liability of Trustees, Shareholders, and Officers of Security Capital Industrial Trust. Any obligation or liability whatsoever of Security Capital Industrial Trust, a Maryland real estate investment trust, which may arise at any time under this Lease or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction, or undertaking contemplated hereby shall not be personally binding upon, nor shall resort for the enforcement thereof be had to the property of, its trustees, directors, shareholders, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort, or otherwise. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written. TENANT: LANDLORD: Graham-Field Health Products, Inc. Security Capital Industrial Trust By: [Illegible] By: /s/ Walter C. Rahowich - ---------------------------------- ------------------------------------- Title: Vice President, General Title: Senior Vice President Counsel Address: Address: 400 Rabro Drive East 5200 Eisenhower Avenue 2nd Floor Hauppauge, New York 11788 Alexandria, Virginia 22304 -12- Rules and Regulations 1. The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or its agents, or used by them for any Purpose other than ingress and egress to and from the Premises. 2. Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project. 3. Except for seeing-eye dogs, no animals shall be allowed in the offices, halls, or corridors in the Project. 4. Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises. 5. If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant's expense. 6. Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project. 7. Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no "For Sale" or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord and as set forth in this Lease. 8. Tenant shall maintain the Premises free from rodents, insects and other pests. 9. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project. 10. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person. 11. Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises. 12. Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises. 13. All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose. 14. No auction, public or private, will be permitted on the Premises or the Project. 15. No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord. 16. The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises. 17. Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord's consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity. 18. Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage. 19. Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant's ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises. -13- EXHIBIT A AIRPORT COMMONS DISTRIBUTION CENTER 7445 NEW RIDGE ROAD o HANOVER, MARYLAND [Site Plan] EXHIBIT B SECURITY CAPITAL INDUSTRIAL TRUST ("LANDLORD") SIGN CRITERIA I. INTRODUCTION The intent of this sign criteria is to establish and maintain guidelines consistent with the signage policies of the Landlord and the City or County as appropriate. Further, the purpose is to assure a standard conformance for the design, size, fabrication techniques, and materials for signage for the project and for tenant identification. II. GENERAL REQUIREMENTS A. Each Tenant sign shall be designed, fabricated and installed in accordance with this sign criteria and consistent with the Sign Code of the City or County as amended from time to time by the governing authority. B. Landlord's written approval of Design Drawings, and Working Shop Drawings is required prior to the commencement of Tenant sign construction. C. Sign permits must be obtained from the City or County prior to installation of signage. D. Signs installed without written approval of the Landlord or the appropriate city permit may be subject to removal and proper reinstallation at Tenant's expense. Damage may be assessed to cover costs of repairs to sign band or removal of signage resulting from unapproved installations. E. Tenant and his sign contractor shall repair any damage caused during installation of signage. F. No labels shall be permitted on the exposed surface of signs, except those required by local ordinance. Those required must be installed in an inconspicuous location, as approved by Landlord. G. Flashing, strobing, moving or audible signs are not permitted. H. No window signs with the exception of suit numbers are permitted without the express approval of Landlord. I. No portable signs are to be displayed on site. J. No secondary exterior signs are to be placed on building wall elevations. K. No freestanding and/or pylon type exterior signs will be permitted without Landlord's prior approval. III. TENANT RESPONSIBILITIES Each Tenant shall, at its own expense, provide and maintain its own identification sign in accordance with specifications noted herein. IV. FASCIA-MOUNTED EXTERIOR SIGN A. A sign fascia area will be provided for each Tenant at the panels above the storefront lease line. Each Tenant sign and/or logo sign shall be mounted in this space in conformance with the attached sign exhibits. Refer to Exhibits "A-l", "B-l" and "C". B. Each Tenant will be allowed to have only one wall-mounted sign. Any variance to the quantity, size, mounting method will be allowed only upon Landlord's written approval. C. The sign panel shall be .080 aluminum pan type sign with an acrylic urethane finish. The specified size of the sign shall be: (1) 4' x 14' or length denoted in Exhibit "A-1" & "B-1". The Tenant I.D. sign cannot exceed 80% of the building wall panel space available. D. The sign panel shall have 90 degree corners and 1" flanges. The sign background color will be painted to match the accent color on the building, as provided by the Landlord. The background color of the sign will be visible on at least one-half of the sign or as approved by SCI. E. The program allows for the use of a corporate logo and letter styles at the discretion of the Tenant. Final approval of logo and letter style will be by the Landlord. The logo colors are optional, however care must be taken to select colors and images that will be comparable and legible on the specified background. The color of the lettering identifying the Tenant will be PMS 342 (green) or corporate colors as approved by the Landlord. F. Sign layouts and colors must have written approval by the Landlord prior to fabrication. The logo, when applicable, will not exceed more than 50% of the sign face. G. There are two approved methods for applying the copy to the sign background: (1) Acrylic Urethane (2) Vinyl (high performance - seven year grade) H. A margin equal to at least one-half of the height of the type should appear to the left, right, top and bottom of the Tenant name. Margin parameters will not apply to the logo area of the sign. Neutral space between a two line sign shall be a minimum of one-third the height of the letter type The sign panel will be mounted on the building face in conformance with Landlord standards; mounting clips (minimum 1/8" x 1" x 1" x 2" long aluminum angle wired head anchors - no Kwick bolts allowed), no exposed fasteners through the face of the sign panel. The correct design, construction and mounting of the sign is the responsibility of the Tenant and the sign contractor. Any signage that is constructed/installed improperly shall be removed and corrected and reinstalled by the Tenant/Contractor at their expense. I. All signs erected within the City or County and the extra territorial jurisdiction that describe the location of a business may require a sign permit. Sign permits may require payment for: (1) Site Inspection (2) Construction Permit (3) Application Fee These costs are the responsibility of the Tenant. Licensed sign contractors/companies are required to acquire these permits prior to installation of the sign. Failure to acquire permits will not release the Tenant from responsibility to acquire a permit for the sign. V. MONUMENT SIGN Monument sign will be provided by the Landlord. Tenant shall pay to provide Tenant sign letters to match Landlord standards. Refer to Exhibit "E". VI. MISCELLANEOUS SIGNAGE A. Front Door Signage: Business name, address and operating hours shall be white vinyl Helvetica Regular letter style. Landlord to approve all front door signage prior to installation. B. Dock Door Numbers: Provided by Landlord. Refer to Exhibit "D". C. Suite Number Signs: Provided by Landlord. Refer to Exhibit "F". D. Building Address: Provided by Landlord. Refer to Exhibit "A". VII. TENANT SIGN SUBMISSIONS A. Tenant sign contractors shall submit all Working Shop Drawings and samples to the Landlord or his appointed representative for approval. Allow a minimum of ten working days, or two weeks, for Landlord review and approval. B. All submissions to include two (2) blueline prints, (1) reproducible and (2) samples of colors and materials. An approved copy will be returned provided all sign criteria has been met. C. Shop Drawings must include: (1) Full and complete dimensions (2) Letter style, face (color, material and thickness), returns (color, material and thickness). VIII. APPROVALS No sign shall be installed without first securing the necessary permits from the appropriate governing jurisdiction. Artwork and sign location are to be approved in writing by the Landlord or their appointed representative prior to installation. Landlord reserves the right to reject any sign that does not comply with the intent and spirit of this sign criteria. BUILDING CORNER ENTRY ELEVATION ------------------------------- SCALE: 1/8" = 1' -0" SIGNAGE CRITERIA EXHIBIT A BUILDING MIDDLE ENTRY ELEVATION ------------------------------- SCALE: 1/8" = 1' -0" SIGNAGE CRITERIA EXHIBIT B ELEVATION 1/2" = 1' -0" SECTION DETAIL -------------- HALF SCALE SIGNAGE CRITERIA EXHIBIT C ADDENDUM 1 BASE RENT ADJUSTMENTS ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED FEBRUARY __, 1997, BETWEEN SECURITY CAPITAL INDUSTRIAL TRUST and GRAHAM-FIELD HEALTH PRODUCTS, INC. Base Rent shall equal the following amounts for the respective periods set forth below: Amount per Period Monthly Base Rent Square Foot ------ ----------------- ----------- 03/15/97 to 04/14/97 $0.00 $0.00 04/15/97 to 04/30/97 $3,777.57 $4.50 05/01/97 to 04/30/99 $7,555.13 $4.50 05/01/99 to 04/30/02 $7,974.85 $4.75 * Tenant shall not be obligated to pay Operating Expenses for the first 30 days following the Commencement Date. - 14 - ADDENDUM 2 CONSTRUCTION (TURNKEY) ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED FEBRUARY __, 1997, BETWEEN SECURITY CAPITAL INDUSTRIAL TRUST and GRAHAM-FIELD HEALTH PRODUCTS, INC. (a) Landlord agrees to furnish or perform at Landlord's sole cost and expense those items of construction and those improvements (the "Tenant Improvements") specified below: See Exhibit A-1 for detailed specifications. (b) If Tenant shall desire any changes, Tenant shall so advise Landlord in writing and Landlord shall determine whether such changes can be made in a reasonable and feasible manner. Any and all costs of reviewing any requested changes, and any and all costs of making any changes to the Tenant Improvements which Tenant may request and which Landlord may agree to shall be at Tenant's sole cost and expense and shall be paid to Landlord upon demand and before execution of the change order. (c) Landlord shall proceed with and complete the construction of the Tenant Improvements in accordance with Exhibit A-1 within 60 days following the lease execution date. In the event Landlord does not complete the Tenant Improvements in accordance with Exhibit A-1 within 60 days following the lease execution date, Tenant may terminate the Lease by providing Landlord written notice, unless caused by Force Majeure, or the completion of the Tenant improvements was delayed by Tenant as specified below. As soon as such improvements have been Substantially Completed, Landlord shall notify Tenant in writing of the date that the Tenant Improvements were Substantially Completed. Such date, unless as otherwise specified on the first page of the Lease as the Commencement Date in this Lease or otherwise agreed to in writing between Landlord and Tenant, shall be the "Commencement Date," unless the completion of such improvements was delayed due to any act or omission of, or delay caused by, Tenant including, without limitation, Tenant's failure to approve plans, complete submittals or obtain permits within the time periods agreed to by the parties or as reasonably required by Landlord, in which case the Commencement Date shall be the date such improvements would have been completed but for the delays caused by Tenant. The Tenant Improvements shall be deemed substantially completed ("Substantially Completed") when, in the opinion of the construction manager (whether an employee or agent of Landlord or a third party construction manager), the Premises are substantially completed except for punch list items which do not prevent in any material way the use of the Premises for the purposes for which they were intended, and a final inspection has been performed by the county inspector and allows Tenant to legally occupy the Premises for Tenant's intended use as defined in Paragraph 3 of the Lease. After the Commencement Date Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the Premises. (d) The failure of Tenant to take possession of or to occupy the Premises shall not serve to relieve Tenant of obligations arising on the Commencement Date or delay the payment of rent by Tenant. Subject to applicable ordinances and building codes governing Tenant's right to occupy or perform in the Premises, Tenant shall be allowed to install its tenant improvements, machinery, equipment, fixtures, or other property on the Premises during the final stages of completion of construction provided that Tenant does not thereby interfere with the completion of construction or cause any labor dispute as a result of such installations, and provided further that Tenant does hereby agree to indemnify, defend, and hold Landlord harmless from any loss or damage to such property, and all liability, loss, or damage arising from any injury to the Project or the property of Landlord, its contractors, subcontractors, or materialmen, and any death or personal injury to any person or persons arising out of such installations, whether or not any such loss, damage, liability, death, or personal injury was caused by Landlord's negligence. Any such occupancy or performance in the Premises shall be in accordance with the provisions governing Tenant-Made Alterations and Trade Fixtures in the Lease, and shall be subject to Tenant providing to Landlord satisfactory evidence of insurance for personal injury and property damage related to such installations and satisfactory payment arrangements with respect to installations permitted hereunder. Delay in putting Tenant in possession of the Premises shall not serve to extend the term of this Lease or to make Landlord liable for any damages arising therefrom. (e) Except for incomplete punch list items, Tenant upon the Commencement Date shall have and hold the Premises as the same shall then be without any liability or obligation on the part of Landlord for making any further alterations or improvements of any kind in or about the Premises. (f) Landlord may receive from contractors and suppliers warranties covering portions of Landlord's work. Landlord agrees to assign to Tenant any warranties received by Landlord which are assignable to Tenant. (g) An occupancy certificate, which shall be based upon Tenant's use as defined in Paragraph 3 of the Lease, shall be obtained within 90 days following final inspection certification by the county inspector. In the event such occupancy certificate is not obtained within 90 days following final inspection by the county inspector, Tenant may terminate the Lease by providing Landlord written notice. -15- ADDENDUM 3 CAP ON CONTROLLABLE OPERATING EXPENSES ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED FEBRUARY __, 1997, BETWEEN SECURITY CAPITAL INDUSTRIAL TRUST and GRAHAM-FIELD HEALTH PRODUCTS, INC. Tenant shall not be obligated to pay for Controllable Operating Expenses in any year to the extent they have increased by more than Eight percent (8%) per annum, compounded annually on a cumulative basis from the first calendar year during the Lease term. Taxes, insurance premiums, unanticipated repairs, extreme weather situations, and utility costs shall not be deemed Controllable Operating Expenses. Controllable Operating Expenses shall be determined on an aggregate basis and not on an individual basis, and the cap on Controllable Operating Expenses shall be determined on Operating Expenses as they have been adjusted for vacancy or usage pursuant to the terms of the Lease. ADDENDUM 4 RIGHT OF FIRST OFFER ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED FEBRUARY __, 1997 BETWEEN SECURITY CAPITAL INDUSTRIAL TRUST and GRAHAM-FIELD HEALTH PRODUCTS, INC. (a) "Offered Space" shall mean immediately adjacent, contiguous bays (b) Provided that as of the date of the giving of Landlord's Notice, (x) Tenant is the Tenant originally named herein, (y) Tenant actually occupies all of the Premises originally demised under this Lease and any premises added to the Premises, and (z) no Event of Default beyond any applicable notice and cure period is continuing as set forth in this Lease, if at any time during the Lease Term any lease for any portion of the Offered Space shall expire, then Landlord, before offering such Offered Space to anyone, other than the tenant then occupying such space (or its affiliates), shall offer to Tenant the right to include the Offered Space within the Premises on the same terms and conditions upon which Landlord intends to offer the Offered Space for lease. (c) Such offer shall be made by Landlord to Tenant in a written notice (hereinafter called the "First Offer Notice") which offer shall designate the space being offered and shall specify the terms which Landlord intends to offer with respect to any such Offered Space. Tenant may accept the offer set forth in the First Offer Notice by delivering to Landlord an unconditional acceptance (hereinafter called "Tenant's Notice") of such offer within 10 business days after delivery by Landlord of the First Offer Notice to Tenant. Time shall be of the essence with respect to the giving of Tenant's Notice. If Tenant does not accept (or fails to timely accept) an offer made by Landlord pursuant to the provisions of this Addendum with respect to the Offered Space designated in the First Offer Notice, Landlord shall be under no further obligation with respect to such space by reason of this Addendum. (d) Tenant must accept all Offered Space offered by Landlord at any one time if it desires to accept any of such Offered Space and may not exercise its right with respect to only part of such space. In addition, if Landlord desires to lease more than just the Offered Space to one tenant, Landlord may offer to Tenant pursuant to the terms hereof all such space which Landlord desires to lease, and Tenant must exercise its rights hereunder with respect to all such space and may not insist on receiving an offer for just the Offered Space. (e) If Tenant at any time declines any Offered Space offered by Landlord, Tenant shall be deemed to have irrevocably waived all further rights under this Addendum, and Landlord shall be free to lease the Offered Space to third parties including on terms which may be less favorable to Landlord than those offered to Tenant. -1- ADDENDUM 5 ONE RENEWAL OPTION AT MARKET ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED FEBRUARY __, 1997, BETWEEN SECURITY CAPITAL INDUSTRIAL TRUST and GRAHAM-FIELD HEALTH PRODUCTS, INC. (f) Provided that as of the time of the giving of the Extension Notice and the Commencement Date of the Extension Term, (x) Tenant is the Tenant originally named herein, (y) Tenant actually occupies all of the Premises initially demised under this Lease and any space added to the Premises, and (z) no Event of Default exists beyond any applicable grace period as set forth in the Lease; then Tenant shall have the right to extend the Lease Term for an additional term of 3 years (such additional term is hereinafter called the "Extension Term") commencing on the day following the expiration of the Lease Term (hereinafter referred to as the "Commencement Date of the Extension Term"). Tenant shall give Landlord notice (hereinafter called the "Extension Notice") of its election to extend the term of the Lease Term at least 6 months, but not more than 12 months, prior to the scheduled expiration date of the Lease Term. (g) The Base Rent payable by Tenant to Landlord during the Extension Term shall be as follows. 04/01/02 - 03/31/03 $8,478.53/month $5.05/s.f. 04/01/03 - 03/31/04 $8,478.53/month $5.05/s.f. 04/01/04 - 03/31/05 $8,987.26/month $5.30/s.f. (h) The Base Rent does not reduce the Tenant's obligation to pay or reimburse Landlord for Operating Expenses and other reimbursable items as set forth in the Lease, and Tenant shall reimburse and pay Landlord as set forth in the Lease with respect to such Operating Expenses and other items with respect to the Premises during the Extension Term without regard to any cap on such expenses set forth in the Lease. (i) Except for the Base Rent as determined above, Tenant's occupancy of the Premises during the Extension Term shall be on the same terms and conditions as are in effect immediately prior to the expiration of the initial Lease Term; provided, however, Tenant shall have no further right to any allowances, credits or abatements or any options to expand, contract, renew or extend the Lease. (j) If Tenant does not give the Extension Notice within the period set forth in paragraph (a) above, Tenant's right to extend the Lease Term shall automatically terminate. Time is of the essence as to the giving of the Extension Notice. (k) Landlord shall have no obligation to refurbish or otherwise improve the Premises for the Extension Term. The Premises shall be tendered on the Commencement Date of the Extension Term in as-is condition. (l) If the Lease is extended for the Extension Term, then Landlord shall prepare and Tenant shall execute an amendment to the Lease confirming the extension of the Lease Term and the other provisions applicable thereto (the "Amendment"). (m) If Tenant exercises its right to extend the term of the Lease for the Extension Term pursuant to this Addendum, the term "Lease Term" as used in the Lease, shall be construed to include, when practicable, the Extension Term except as provided in (d) above. -2- ADDENDUM 6 INDEMNIFICATION BY LANDLORD ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED FEBRUARY __, 1997, BETWEEN SECURITY CAPITAL INDUSTRIAL TRUST and GRAHAM-FIELD HEALTH PRODUCTS, INC. Except for the negligence of Tenant, its employees, contractors, assignees or subtenants or their respective employees, agents, or contractors, and to the extent permitted by law, Landlord agrees to indemnify, defend and hold harmless Tenant, its employees, contractors and agents from and against any and all losses, damages, claims, costs, expenses and liabilities, including, without limitation, attorneys' fees, arising on account of or by reason of claims by third parties for injuries or death to persons or damages to or theft, misappropriation or loss of property resulting from any activity, work or thing done, permitted or suffered by Landlord in or about the Project or due to any other act or omission of Landlord, its employees, contractors and agents. The furnishing of insurance required hereunder shall not be deemed to limit Landlord's obligations under this Addendum 6. If a claim under the foregoing indemnity or under the indemnity contained in Paragraph 18 of the Lease is made against the indemnitee which the indemnitee believes to be covered by an indemnitor's indemnification obligations hereunder or under Paragraph 18, the indemnitee shall promptly notify the indemnitor of the claim and, in such notice shall offer to the indemnitor the opportunity to assume the defense of the claim within 10 business days after receipt of the notice (with counsel reasonably acceptable to the indemnitee). If the indemnitor timely elects to assume the defense of the claim, the indemnitor shall have the right to settle the claim on any terms it considers reasonable and without the indemnitee's prior written consent, as long as the settlement shall not require the indemnitee to render any performance or pay any consideration, and the indemnitee shall not have the right to settle any such claim. If the indemnitor fails timely to elect to assume the defense of the claim or fails to defend the claim with diligence, then the indemnitee shall have the right to take over the defense of the claim and to settle the claim on any terms the indemnitee considers reasonable. Any such settlement shall be valid as against the indemnitor. If the indemnitor assumes the defense of a claim, the indemnitee may employ its own counsel but such employment shall be at the sole expense of the indemnitee. If any such claim arises out of the negligence of both Landlord and Tenant, responsibility for such claim shall be allocated between Landlord and Tenant based on their respective degrees of negligence. This indemnity and the indemnity under Paragraph 18 does not cover claims arising from the presence or release of Hazardous Materials. -3- ADDENDUM 7 CANCELLATION OPTION ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED FEBRUARY __, 1997, BETWEEN SECURITY CAPITAL INDUSTRIAL TRUST and GRAHAM-FIELD HEALTH PRODUCTS, INC Provided no Event of Default shall then exist and no condition shall then exist which with the passage of time or giving of notice, or both, would constitute an Event of Default, Tenant shall have the right at any time on or before 9 months prior to the end of the third year of the Lease Term, to send Landlord written notice (the "Termination Notice") that Tenant has elected to terminate this Lease effective on the last day at the end of the third year of the Lease Term. If Tenant elects to terminate this Lease pursuant to the immediately preceding sentence, the effectiveness of such termination shall be conditioned upon Tenant paying to Landlord the amount equal to 6 months' Base Rent contemporaneously with Tenant's delivery of the Termination Notice to Landlord. Such amount is consideration for Tenant's option to terminate and shall not be applied to rent or any other obligation of Tenant. Landlord and Tenant shall be relieved of all obligations accruing under this Lease after the effective date of such termination but not any obligations accruing under the Lease prior to the effective date of such termination. -4- ADDENDUM 8 LANDLORD'S ENVIRONMENTAL REMEDIATION ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED FEBRUARY __, 1997, BETWEEN SECURITY CAPITAL INDUSTRIAL TRUST and GRAHAM-FIELD HEALTH PRODUCTS, INC. If Hazardous Materials are hereafter discovered on the Premises or the Project, and the presence of such Hazardous Materials is not the result of Tenant's use of the Premises or any act or omission of Tenant or its agents, employees, contractors, subtenants or invitees, and the presence of such Hazardous Materials results in any contamination, damages, or injury to the Premises or the Project that materially and adversely affects Tenant's occupancy or use of the Premises, Landlord shall promptly take all actions at its sole expense as are necessary to remediate such Hazardous Materials and as may be required by the Environmental Requirements. Actual or threatened action or litigation by any governmental authority is not a condition prerequisite to landlord's obligations under this paragraph. Within 30 days after notification from Tenant supported by reasonable documentation setting forth such presence or release of Hazardous Materials, and after Landlord has been given a reasonable period of time after such 30-day period to conduct its own investigation to confirm such presence or release of Hazardous Materials, Landlord shall either terminate this Lease or commence to remediate such Hazardous Materials within 180 days after the completion of Landlord's investigation and thereafter diligently prosecute such remediation to completion. If Landlord fails to commence such remediation or if Landlord commences such remediation and fails to diligently prosecute same until completion, then Tenant as its sole remedy may terminate this Lease by written notice to Landlord after expiration of 30 days following a notice to Landlord that Tenant intends to terminate this Lease if Landlord does not promptly commence or diligently prosecute the remediation within such 30-day period. In addition, if, due solely to such environmental contamination, Tenant is unable, in the reasonable judgment of Landlord and Tenant, to materially and substantially operate its business at the Premises, rent and all other sums due from Tenant to Landlord shall abate commencing on the date that Tenant was unable to materially and substantially operate its business at the Premises. In addition, if Tenant is not able to materially and substantially operate its business at the Premises for a period of 180 days from the date of the environmental contamination, Tenant may, upon 30 days prior written notice to Landlord, terminate this Lease. Notwithstanding anything herein to the contrary, if Landlord obtains a letter from the appropriate governmental authority that no further remediation is required prior to the effective date of any such termination, such termination shall be null and void and this Lease shall remain in full force and effect. -5- EX-10.(W) 14 UNION CONTRACT EXHIBIT 10(w) Union Contract dated April 16, 1996, between Graham-Field and Local 966 of International Brotherhood of Teamsters with respect to the collective bargaining agreement at the Hauppauge, New York facility. THIS AGREEMENT made and entered into this 16th day of April, 1996, by and between GRAHAM-FIELD, INC., currently located at 400 Rabro Drive East, Hauppauge, New York 11788, its successors or assigns (hereinafter referred to as the "Employer") and LOCAL 966, affiliated with the INTERNATIONAL BROTHERHOOD OF TEAMSTERS, 321 West 44th Street, New York, New York, its successors or assigns (hereinafter referred to as the "Union") W I T N E S S E T H WHEREAS, the parties have carried on collective bargaining negotiations for the purpose of developing a general agreement on wages, hours of work and other conditions of employment. NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree with each other with respect to the employees of the Employer recognized as one being represented by the Union as follows: ARTICLE I - RECOGNITION Section 1 - The Employer hereby recognizes the Union as the exclusive representative of all employees, excluding guards, supervisors, clerical, (and part-time employees who work less than 20 hours per week), the number is not to exceed 15 part-time employees, 19 hours is the maximum to be worked by part-time employees in any one (1) week. ARTICLE II - NON-DISCRIMINATION Section 1 - The Employer and the Union agree not to discriminate against any individual with respect to hiring, compensation, or terms and conditions of employment because of such individuals race, color, religion, sex pregnancy, handicap, national origin, marital status, disability, or age (between the years of 18 and 70), nor will it limit, segregate or classify employees in any way to deprive any individual employee of employment opportunities because of race, color, religion sex, pregnancy, handicap, national origin, marital status, disability, or age (between the years of 18 and 70). Section 2 - The Employer and the Union agree that there will be no discrimination by the Employer or the Union against any employee because of his or her membership in the Union or because of any employee's lawful activity and/or support of the Union. ARTICLE III - UNION SECURITY Section 1 - The Employer agrees that all employees covered by this Agreement shall, as a condition of employment, be required to become and remain members of the Union on the thirty-first (31st) day following the actual beginning of work pursuant to such employment, the effective date of this Agreement or its execution date, whichever is later. All employees who are members of the Union at the time of execution of this Agreement or become members of the Union at any time subsequent thereto, shall remain members of the Union during the term oz this Agreement. The Union agrees that all such employees will be accepted into membership on the same terms and conditions generally acceptable to other members, and further, that the Employer will not be requested to discharge an employee for reasons other than such employee's failure to tender the periodic dues and initiation fees uniformly required as a condition of accumulation or retaining membership in the Union. Section 2 - The Employer shall furnish the Union with the name of any new employee together with the date of hiring of aid employee immediately upon submitting the Union's check-off form. ARTICLE IV - CHECK-OFF Section 1 - The Employer, upon receipt of a written authorization signed by the employee, which authorization shall not be irrevocable for a period of more than one (1) year, or beyond the termination date of this Agreement, whichever occurs sooner, shall deduct membership dues and initiation fees from said employee's wages on the first pay day of every month and remit same to the Union no later than the twelfth day of the month in which they are deducted. Section 2 - The Employer will notify the Union immediately upon receipt of any revocation of any authorization submitted to it pursuant to this Article. ARTICLE V - SENIORITY Section 1 - Seniority shall be based upon length of service, subject to the completion of an initial sixty (60) working day probationary period. Employees shall be entitled to seniority rights dating from the employee's date of hire. Section 2 - Seniority shall be broken by an employee's voluntary separation from the Employer or by discharge for just cause. Seniority shall accrue during layoffs of less than one (1) year or during authorized leaves of absence. Section 3 - The Employer shall submit a current and up- to-date seniority list to the Union every six (6) months during the term of this Agreement. Section 4 - In the event of a layoff, the least senior employee (based on total service seniority) shall be the first employee to be laid-off. In the event of a recall, the most senior employee (based on total service seniority) shall be the first employee to be recalled. Section 5 - In the case of a promotion, applicants applying for posted positions will be interviewed in the order of seniority, however, seniority shall not be the sole determinative factor in filling such position. The decision to fill such position shall also be based upon the required skills needed for the training of such position. In the event the Employer needs to transfer an employee or alter a work shift, and more than one employee with similar job classifications applies for such transfer, the most senior employee will be selected for such position. If no employee applies for the transfer, employees having the same job classification required to fill such transfer position or alternate work shift will be assigned the position based upon least seniority (based on total service seniority). ARTICLE VI - SHOP STEWARD Section 1 - The Employer recognizes the right of the Union to designate a Shop Steward who shall be recognized as the representative of the Union for all matters arising under this Agreement to the extent permitted herein. The Union shall advise the Employer as to the identity of the Steward and the Employer agrees that the Steward shall be free to conduct this duty as such, with the understanding that such duty will not unduly interfere with normal production or the conduct of the business and the Steward shall be expected to do his usual work. However, reasonable time spent in carrying out the grievance procedure agreed upon herein will be considered as being on the employer's time. Section 2 - Shop Stewards shall be accorded super seniority and shall be the last persons laid-off and the first ones rehired upon resumption of work. ARTICLE VII - HOURS AND OVERTIME Section 1 - The basic work week for all employees shall be five consecutive days of eight (8) consecutive hours per day (except for one half hour lunch period), Monday through Friday (the "Basic Work Week"). The Basic Work Week shall not serve as a guarantee that employees will be employed for at least five (5) days during any Basic Work Week or for at least eight (8) hours during Any day of such Basic Work Week. Section 2 - The regular working hours shall commence no earlier than 7:00 a.m. (Eastern Standard Time) for maintenance employees. All other departments shall have, at the sole discretion of the Employer, either an 8:30 a.m. (Eastern Standard Time) or 10:00 a.m. (Eastern Standard Time) start time and end shift time shall be no later than 10:00 p.m. (Eastern Standard Time) (unless employees are scheduled to work overtime). Two (2) picker positions only will start at 9:00 a.m. in the event the Employer shall have business requirements which would necessitate a change in the established work hours, the Employer shall provide not less than thirty (30) days' prior notice to the Union and the shop steward of such required change, meet with the Union to discuss the proposed change and post such notice on the bulletin board, as well as distribute to each affected employee a letter of notification of such change. Section 3 - Employees reporting for work at the direction of the Employer shall be paid for the hours the business is open or four (4) hours whichever is longer. Section 4 - Should any employee work more than eight (8) hours in any one (1) day, he shall be paid for such overtime at the rate of time and one-half (1-1/2), providing the employee works the Monday and Friday of the same work week that the overtime occurred. Employees who work on Saturday shall be paid time and one-half for the 6th day. Employees who work on Sunday shall be paid at double time for the 7th day. Employees who work on the 6th and 7th day shall be guaranteed a minimum of four (4) hours of work. Section 5 - Any employee shall have the right to refuse to work overtime, unless provided not less than twenty four (24) hours' prior notice of the request for overtime work. Overtime will first be offered to all bargaining unit employees in the applicable department. Employees with conflicting obligations will be excused from performing overtime work. If sufficient staffing is not arranged using this method, the Employer will then offer such overtime to bargaining unit employees in other departments, and only then to part time employees. In the event insufficient staffing occurs using such method, the Employer may assign overtime to employees in the reverse order of seniority. In the event the Employer is unable to meet the needs of its customers and overtime is available, the Employer will use reasonable efforts to arrange overtime before the beginning of the employee's shift when, in the judgment of management, the flow of work allows. Section 6 - Any employee shall not be required to take time off in lieu of overtime previously worked. Section 7 - Overtime shall be distributed on an equal basis among employees normally assigned to do the performance of the work in which the overtime is required. Section 8 - Overtime worked on a holiday shall be paid at the rate of time and one-half plus the holiday pay. Section 9 - Failure to resort for properly scheduled overtime will be treated in the same manner as any other attendance problem. Section 10 - PART-TIME HOURS - Part-time employees may be used only after the hour of 6:00 p.m. One (1) part-time employee (name attached as Schedule "A") will be grandfathered for the purposes of this section and will be allowed to continue working his current hours. ARTICLE VIII - HOLIDAYS Section 1 - The Employer agrees to pay the employees full salary for the following holidays as if they worked thereon: New Year's Day Labor Day Washington's Birthday Thanksgiving Day Independence Day Day after Thanksgiving Day Floating Holiday Christmas Day Good Friday Day before Christmas Day Health Day* One (1) Personal Day** HEALTH DAY* - In order to receive pay from the Employer, it shall be the employee's responsibility to notify the Employer at least two (2) weeks prior to each anniversary of his or her employment date and further to submit proof that he/she is scheduled to take an annual physical examination. It shall be the employer's responsibility, upon proper notice, to grant the employee's anniversary date of hire as a day off, or if the particular date is inconvenient, then another day may be agreed to, by both parties, and upon receipts of proof to pay for such day as if it were a regularly scheduled holiday in the week it occurs. PERSONAL DAY** - An employee may use this personal day anytime during the contract year (i.e., Martin Luther King's Birthday, or etc.). If not used during the year, the day shall be paid by check at the end of the year. Section 2 - The Employer shall have the option of substituting the dry after Christmas for the day before Christmas providing the employees are given a sixty (60) day advance notice. Section 3 - The compensation for holidays shall be based upon the employee's base daily earnings. Section 4 - No employee shall be required to work on a holiday, except as provided herein. In the event that an employee does work on a holiday he shall be paid at the rate of time and one-half plus the holiday pay. Overtime staffing for (i) Washington's Birthday, and (ii) the day after Thanksgiving Day will be first met by volunteers to work overtime, however, with respect to said holidays, in the event management is unable to obtain adequate staffing to meet the business requirements of the Employer, overtime will be mandatory and will be first assigned, to the employee with the least seniority accrued. Section 5 - In the event a holiday falls on Saturday or Sunday, then it shall be celebrated either on Friday or Monday, at the option of the Employer. Section 6 - Employees must report to work within one hour of their assigned starting time and remain at work until at least one hour prior to their assigned end of shift time on both the day before and the day after the holiday in order to receive pay from the Employer for the holiday. Section 7 - Employees must work the day before and the day after the ho today, in order to be paid for the holiday. ARTICLE IX - VACATIONS & BONUS Section 1 - Vacations shall be requested in writing on not less than thirty (30) days' prior notification, and vacations shall be taken, subject to management's approval, which shall not be unreasonably withheld. Section 2 - Should a holiday occur during the vacation period of any employee, said employee shall be entitled to one (1) additional day of vacation in lieu of payment for the said holiday. This additional day. may not be taken consecutively with the approved vacation unless authorized by management. Section 3 - All employees shall receive vacations with pay in accordance with the following schedule: LENGTH OF SERVICE VACATION One (1) year One (1) week Two (2) years Two (2) weeks Four (4) years Three (3) weeks Ten (10) years Four (4) weeks Section 4 - Length of service does not include unreasonable leaves of absence, disability, and any other unreasonable leaves. Vacation will be pro-rated for the time off. Section 5 - Length of service will be strongly considered by management with regard to approval of first choice of vacation requests. Section 6 - Employees eligible for three (3) or more weeks vacation shall have the option of requesting to take three weeks of vacation on a consecutive basis, subject to management's approval. It being expressly understood that authorization for three (3) consecutive weeks of vacation shall not be granted two consecutive years in a row, nor during the end of any calendar quarter of any year (i.e., last weeks in March, June, September or December). Section 7 - The Employer will institute a bonus plan. ARTICLE X - LEAVE OF ABSENCE Section 1 - A reasonable leave of absence shall be given to employees without pay for any of the following reasons. An employee will be considered for a leave of absence only after completing six (6) months of employment. (a) Personal illness - substantiated by a physicians note. (b) Military duty. (c) Maternity leave. (d) Mutual consent of the parties. Section 2 - A reasonable leave of absence shall not exceed four (4) months and is not to be repeated in two (2) consecutive years. ARTICLE XI - REST PERIODS Section 1 - All employees shall be entitled to two (2) ten minute rest periods with pay during each work shift, one during the first four (4) hours and one during the second four (4) hours. Section 2 - Employees scheduled to work two (2) hours overtime will receive a fifteen (15) minute rest period after their regular shift. Employees scheduled to work four (4) hours overtime will receive a thirty (30) minute non-paid lunch break after their regular shift and a ten (10) minute rest period during such overtime. ARTICLE XII - SICK LEAVE & DEATH-IN-FAMILY Section 1 - Sick days shall accrue to each employee who has completed three (3) months of continuous service as follows: January 1st of each year - 3 sick days Employees not having met the required three (3) months of continuous service by January 1st or July 1st of any such year shall not accrue the three (3) sick days, but will upon completion of three (3) months of service, accrue 1/2 sick day for each month of continuous service, until the earlier to occur of January 1st or July 1st, as the case may be. PAY FOR UNUSED SICK TIME Section 2 - Any sick time accrued at December 31st shall be paid as of the first pay week in January of the following year in which such sick time was accrued. Employees will not be paid for unused accrued sick time if the employee resigns or is terminated, voluntarily or involuntarily, for any reason from employment. Section 3 - In order to be eligible for sick leave, an employee must call his supervisor thirty (30) minutes before start of shift. A doctor's certificate will be required to substantiate time off in excess of three (3) days. Any employee failing to call their supervisor to report absence from work for three (3) consecutive working days shall be discharged. Section 4 - An employee with ten (10) years or more of service with the Employer shall receive one (1) additional paid sick leave day, however, if this day is not used, it shall be paid by check at the end of the year. Section 5 - Should an employee require hospitalization, his sick leave shall be extended one (1) day for each day of hospitalization up to a maximum of five (5) days in each calendar year. However, failure to utilize these five (5) days shall not be made up in cash at the end of each calendar year. Section 6 - An employee shall be given three (3) consecutive days off with pay in the event of death in his immediate family. The immediate family shall be deemed to include spouse, child, parent, brother or sister, father-in-law, or mother-in-law and grandparents. ARTICLE XIII - BULLETIN BOARDS Section 1 - The Employer shall furnish a bulletin board for Union news. ARTICLE XIV - PROBATIONARY PERIOD Section 1 - Seniority shall be based upon length of service or an employee subject to the completion of a sixty (60) day probationary period. During the probationary period, an employee may be terminated for any reason without recourse by the Union. Employees shall be entitled to seniority rights dating from the employee's date of hire. Section 2 - The probationary period may be extended for a similar period by mutual agreement of the parties. ARTICLE XV - DISCIPLINE AND DISCHARGE Section 1 - Suspensions and or terminations are subject to a hearing with the Union and any disputes that can not be mutually agreed to by both parties shall be subject to arbitration. The Employer shall have the right to discharge or discipline employees for just cause including, but not limited to, acts of gross misconduct or behavior such as physical violence, possession of illegal weapons, theft, insubordination, use of alcohol and/or drugs on Employer property. It is understood that this shall not be an all inclusive list for purposes of establishing discipline and/or discharge. Section 2 - In the event of discipline and/or discharge of an employee by the Employer, the employee, the shop steward and the Union shall be promptly notified. The discharge of an employee during his/her probationary period shall not be subject to any grievance or arbitration procedure. It being expressly understood that the Employer may terminate an employee during the probationary period for any reason whatsoever. Section 3 - Discipline, including verbal or written warnings shall not be used for the purpose of progressive discipline for a period greater than one year from the date of an incident. ARTICLE XVI - UNION VISITATION Section 1 - Non-employee representatives of the Union shall be permitted to visit the plant for a reasonable period of time for the purpose of meeting with the shop steward and employees. When the non-employee representative of the Union arrives at the company, the representative will notify the Director of Human Resources. In the absence of the Director of Human Resources, the representative will notify the plant manager. ARTICLE XVII - WORK BY SUPERVISORS Section 1 - Supervisors shall continue to perform bargaining unit work when business needs cannot be met because of staffing problems (i.e., coverage for employee absences and employees out on vacation within the department) Supervisors may also perform bargaining unit - work in order to train employees as well as satisfy exceptional business needs. ARTICLE XVIII - WELFARE BENEFITS Section 1 - Employee will be placed in Employer's Oxford Health Plan, as currently in effect (the "Health Plan"). Effective as of June 1, 1996, there will be no employee contribution required for participation in the basic coverage under the Health Plan. The Employer will pay for single dental coverage of employees electing to participate in the dental coverage of Health Plan. However, those employees electing family dental coverage will be required to contribute the incremental cost of family dental coverage over and above single dental coverage. Section 2 - Each employee choosing not to participate in the Health Plan will receive a cash payment of $200.00 per month. Each employee deciding not to participate in the Health Plan, must demonstrate and provide reasonable evidence of health coverage under an alternate health plan. ARTICLE XIX - SAFETY AND HEALTH Section 1 - The Employer shall keep all working areas in a safe and sanitary condition. Section 2 - Precautions to secure the health and safety of employees shall at all times be taken by the Employer including a supply of First-Aid cabinets at convenient locations containing bandages, medicines and related supplies as may be required in an emergency situation. Section 3 - It shall be the responsibility of the Employer to maintain all machinery and equipment in a safe and sanitary operating condition. Section 4 - The Employer shall not require its employees to operate or use machines or equipment at a time or in a manner which would endanger the health or well-being of its employees. Section 5 - One (1) member of the bargaining unit, to be selected by the union, shall become a member of the Employers Safety Committee. The Safety Committee has been established for the purpose of calling the Employer's attention to unsafe, unsanitary or otherwise unhealthy conditions which may exist. Section 6 - The Safety Committee shall be permitted to make such reasonable inspection of the Employer's premises as may be necessary, on Employer time. ARTICLE XX - ASSEMBLY DEPARTMENT INVENTORY PROCEDURE Section 1 - When scheduling inventory, the Employer will provide assembly department employees with at least thirty (30) days' prior notice, as well as post a written notice stating the scheduled dates for the proposed inventory. Employees wishing to take vacation time, floating holidays or sick leave rather than work during the scheduled inventory can make appropriate arrangements with their supervisor. Section 2 - The Employee will exercise reasonable efforts to prevent the layoff of assembly department employees. Said employees will be offered inventory related work by seniority with the understanding that such employees are capable of performing the assigned duties. In the event of a layoff, employees with the least accrued seniority will be laid-off first. ARTICLE XXI - 401K PLAN Section 1 - Each employee will be permitted to participate in the Employer's 401K Plan, as currently in effect on the date hereof. It being expressly understood that the Employer does not currently contribute to its 401K Plan. In the event the Employer contributes to its 401K Plan for its non-union employees, the Employer agrees that it will also contribute in the same manner or union employees. ARTICLE XXII - STRIKES AND LOCKOUTS Section 1 - There shall be no strikes or lockouts during the term f this Agreement (subject to the exception in Article XVIII). Section 2 - The employees shall have the right to refuse to cross any picket line established by a trade Union. ARTICLE XXIII - PRIOR BETTER BENEFITS Section 1 - This Agreement shall not be construed to deprive any employee presently employed by the Employer of any better ben at said employee might have had prior to the Signing of this Agreement. Section 2 - The Employer shall not enter into any individual agreements which would have the effect of diminishing any of the rights, privileges or benefits of the employees under this Agreement. ARTICLE XXIV - MODIFICATION Section 1 - Neither the Employer, any employee or group of employees shall have the right to waive or modify any provisions Of this Agreement without the written authorization of the Union. ARTICLE XXV - GRIEVANCE PROCEDURE Section 1 - All complaints, disputes or questions as to the interpretation, application or performance of this Agreement shall be adjusted by direct negotiations between the Union and the Employer, or their representatives. Should any dispute or difference arise, both parties shall endeavor to settle these in the simplest and most direct manner. The procedure shall be as follows (unless step or steps thereof are waived, combined or extended by mutual consent) : Step 1 - The grievance shall be submitted to the aggrieved employee's Shop Foreman by the employee's Shop Steward. If the Steward and the Shop Foreman fail to settle the grievance within three (3) days (exclusive of Saturday, Sunday or Holiday), it may be submitted to Step 2. Step 2 - The grievance shall then be referred to the President of the Union or his designated representative and the Employer or their authorized representative. If no settlement is reached within five (5) days (exclusive of Saturday, Sunday or Holiday), the grievance may be submitted to arbitration as set forth in Step 3. Step 3 - If the dispute or difference is not settled in the second step above, either party may request that the matter be referred to arbitration if this request is made within ten (10) days after the reply was given in the second step. (A) The Arbitration Board shall consist of one (1) member to be designated by the New York State Employment Relations Board. The parties shall jointly pay the cost of the Arbitrator's services. (B) The decision of the Arbitration Board shall be final and binding upon the parties. ARTICLE XXVI - SEPARABILITY Section 1 - In the event that any provisions, or compliance by the Employer or the Union with any provision, in this Agreement, shall constitute a violation of any law, then and in such event, such provision, to the extent only that is so in violation, shall be deemed ineffective and unenforceable and shall be deemed separable from the remaining provisions of this Agreement, which remaining provisions shall be binding on the parties and shall not be affected. ARTICLE XXVII - WORK CLOTHING ALLOWANCE Section 1 - Effective April 1, 1996, all employees shall receive a Twenty Dollars ($20.00) work clothing allowance per month upon the completion of a thirty (30) day probationary period. ARTICLE XXVIII - SUCCESSORS AND ASSIGNS Section 1 - This Agreement shall be binding upon the parties hereto, their successors, administrators, executors, and assigns. In the event the entire operation or any part thereof is sold, leased, transferred or taken over by sale, transfer, lease, assignment receivership or bankruptcy proceeding, (said purchaser, lessee, transferee, assignee, administrator, executor, receiver) hereinafter referred to as the successor, the employees of the Employer affected shall be employed by the successor and such operation or part thereof shall continue to be subject to the terms and conditions of the Agreement for the life thereof. ARTICLE XXIX - STOCK OPTIONS Section 1 - The Employer shall continue its present practice with regard to Stock Options. ARTICLE XXX - SALARY INCREASES - PROMOTIONAL OPPORTUNITIES Section 1 - Merit increases will reflect the individual's performance over an evaluation period. Primary consideration is given to proficiency, value to the organization, quality of performance and the employee's interpersonal skills, as evaluated by the immediate Supervisor. The intent of the merit system is to promote improved performance and to afford a means for rewarding that improvement. Section 2 - Promotional opportunity - The Company believes in promotion from within whenever possible. Employees who meet the qualifications for position openings will be given preference over outside applicants with the knowledge that the Company has the right of decision based on the needs of the Company. ARTICLE XXXI - DRUG TESTING Section 1 - Employees are prohibited from the use, sale, dispensing, distribution, possession, or manufacture of illegal drugs and narcotics or alcoholic beverages an Company property or work sites (including Company vehicles and any private vehicles parked on Company premises or work sites). In addition, employees are prohibited from the off-premises possession, use, or sale of illegal drugs when such activities adversely affect job performance, job safety, or the Company's reputation in the community. Section 2 - At the discretion of the Employer, employees may be required to submit to a drug test, to determine if the employee is using, under the influence of, or is otherwise impaired by (illegal) drugs or alcohol. In the interest of fairness to current employees, Employer agrees that no current employee will be requested to undergo any drug testing for a period of one month from the date of the agreement to these testing provisions. Section 3 - Failure to submit to such examination or any attempt to tamper with specimens or falsify or alter test results shall constitute just cause for discharge. The Employer may elect to have a supervisor accompany the employee to the testing site. All urine/blood specimens shall be subject to an initial screen using an EMIT-type analysis. All positive results from an initial screen shall be confirmed via gas chromatography-mass spectrometry techniques. No specimen shall be identified as "positive" except upon receipt of the results of the confirmation test. Section 4 - Any employee involved in the use, sale, dispensing, distribution, possession or manufacture of illegal drugs and narcotics or alcoholic beverages on Company property. or work sites will be dismissed immediately. Any employee testing positive for illegal drugs or alcohol shall be subject to disciplinary action, up to and including immediate dismissal. This employee shall be granted reemployment on a one-time basis, if the employee successfully completes a mutually agreed upon program and s certified by that program to report back to work duties. Should an employee test positive for illegal drugs or alcohol a second time, they will be dismissed and there will be no offer of assistance. ARTICLE XXXII - TEMPORARY JOB ASSIGNMENTS Section 1 - On occasion, should an employee be assigned temporarily (i.e. 1 day, 2 days) to a higher grade position, such employee will receive the higher rate of pay as classified for that labor grade for the day or days that such employee has performed the higher grade duties. In the event an employee works a minimum of four (4) hours in a higher grade position, and thereafter resumes the regular grade work, such employee shall receive the higher rate of pay for the full eight (8) hours of such day. Employees working less than four (4) hours in a higher grade will be paid in accordance with the rate of pay for such higher grade job for the number of hours worked in hourly segments in such higher grade. ARTICLE XXXIII - MANAGEMENT'S RIGHTS CLAUSE Section 1 - The Union recognizes that the Employer shall have the sole and exclusive jurisdiction of the management and operation of its business, the direction of its working force including the assignment of tasks and machines to employees, the right to maintain discipline and efficiency in its plant, the right to promulgate and enforce reasonable working rules, the right to hire, discipline and discharge employees subject to the provisions of this Agreement and the right to relocate its plant or any portion thereof, to transfer the bargaining unit to any other employer. It being expressly understood that the Employer may continue to contract out work it has done in the past, and may contract out additional work where the business needs cannot be met by the existing workforce. It is agreed that the rights enumerated above shall not be deemed to exclude other pre-existing rights of management not herein listed. ARTICLE XXXIV - RESPECT AND DIGNITY Section 1 - The Employer and the Union agree, apart from and in addition to the substantive provisions of the Agreement and the rights and privileges of the Employer, the Union and Employees thereunder, that the Employer, the Union, and all Employees shall treat and address each other with dignity and respect. ARTICLE XXXV - WAGES INCREASES AND MINIMUM WAGE RATES Section 1 - Wage Increases: Effective as of April 1, 1996, each employee will receive a .30(cent) per hour wage increase. Effective as of January 1, 1997, each employee will receive an additional .40(cent) per hour wage increase. Section 2 - Minimum Wage Rates - New Hires Established Hire Rates for Union Positions, with the understanding the increments outlined in this Agreement will not affect this hire rate. 1 - Picker, Packer, and Returns $6.25 2 - Picker, Packer and Returns w/hilo $6.75 Receiving/Inventory 3 - UPS Operator/Export Person $7.25 4 - General Assembly $5.75 5 - General Assembly/Material Handler $6.25 if use/classified hilo $6.75 6 - Survalent Assembly $6.00 7 - Repair Technicians $7.50 8 - Porter (Maintenance) $6.25 9 - QC $7.50 Should there be a need for and additional classification, management has the right to establish the classification. When a new job classification is established, the employer and the union will meet to negotiate a rate of pay for the new classification within the existing pay structure. Section 3 - Differentials Heavy equipment operators shall be paid Fifty Cents (5016)per hour more over the regular starting rate. If an employee in the Repair Department has a Technical Degree he/she shall be paid an additional Twenty-Five Cents (25(cent)) per hour more in wage differential effective 4-1-96. ARTICLE XXXV - TERM OF AGREEMENT The Agreement shall become effective as of April 16, 1996, and shall continue thereafter for a period of eighteen (18) months, until and including through October 15, 1997; provided, however, any changes, amendments or modifications to renew or otherwise extend this Agreement shall be effective as of October 15, 1997; and shall continue from year to year thereafter unless either party shall give the other notice of intention to terminate or modify this Agreement by written notice given not less than sixty (60) days prior to such expiration date. IN WITNESS WHEREOF, the parties hereto have set their hands this day and year first above written. LOCAL 966, affiliated with the INTERNATIONAL BROTHERHOOD OF TEAMSTERS BY:_______________________________ GRAHAM-FIELD, INC. BY:_______________________________ DATE SIGNED:______________________ COMMITTEE: ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ SCHEDULE "A" Part-time Employee - Grandfathered Pursuant to Article VII - Hours & Overtime, Section 10, the following employee is grandfathered for purposes of this section: Jamie Lopez EX-10.(X) 15 UNION CONTRACT EXHIBIT 10(x) Union contract dated September 10, 1996, between Graham-Field and Local 945 of International Brotherhood of Teamsters with respect to the collective bargaining agreement at the Temco, New Jersey facility. COLLECTIVE BARGAINING AGREEMENT GRAHAM-FIELD. INC., TEMCO and LOCAL 945 TEAMSTERS (July 28, 1996 - July 27, 1999) CONTRACT PROVISIONS ------------------- PAGE ---- ARTICLE - ------- I RECOGNITION.............................................. 1 II NON-DISCRIMINATION....................................... 1 III UNION SECURITY........................................... 2 IV DUES, CHECK-OFF.......................................... 2 V UNION REPRESENTATION..................................... 3 VI GRIEVANCE PROCEDURE -ARBITRATION......................... 4 VII HOURS OF WORK............................................ 5 VIII CALL-IN-PAY.............................................. 6 IX HOLIDAYS................................................. 6 X VACATIONS................................................ 7 XI HEALTH INSURANCE 401-K Plan........................ 9 XII DISCHARGE............................................... 10 XIII JOB CLASSIFICATION, PROMOTIONS AND TRANSFERS............ 10 XIV SENIORITY AND LAYOFF PROCEDURE.......................... 12 XV RATES OF PAY............................................ 13 XVI LEAVES-OF ABSENCE....................................... 14 XVII ABSENCE AND SICK LEAVE.................................. 14 XVIII GENERAL PROVISIONS...................................... 14 XIX NO STRIKE - NO LOCKOUT.................................. 15 XX MANAGEMENT RIGHTS CLAUSE................................ 15 XXI APPLICABLE LAWS......................................... 15 i ARTICLE PAGE - ------- ---- XXII REST PERIODS............................................ 16 XXIII EQUAL PAY FOR EQUAL WORK................................ 16 XXIV EX-SERVICE PERSONNEL.................................... 16 XXV PROTECTION OF RIGHTS.................................... 16 XXVI DRUG TESTING............................................ 16 XXVII PART-TIME EMPLOYEES..................................... 17 XXVIII DURATION OF AGREEMENT................................... 18 SIGN OFF ON CONTRACT.....................................19 ii THIS AGREEMENT, made and entered into this day of __________________, Nineteen Hundred and Ninety Six by and between GRAHAM- FIELD, INC., TEMCO, hereinafter called the "COMPANY" and LOCAL 945 TEAMSTERS, hereinafter called the "UNION". W I T N E S S E T H WHEREAS, the parties desire to facilitate orderly collective bargaining relations between them; to secure a prompt and equitable disposition of grievances; to establish fair wages, hours and working conditions; to insure industrial peace, enabling all employees to enjoy, insofar as possible, security and continuity of employment. NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained, the parties agree as follows: ARTICLE I RECOGNITION A. The Company recognizes the Union as the sole and exclusive bargaining representative for the purpose of collective bargaining in respect to settling grievances and negotiations, rates of pay, wages, hours of employment and other conditions of employment for all full-time and part-time production and maintenance employees, shipping and receiving employees and truck drivers, but excluding office clerical employees, professional employees, engineers, quality controllers and other management personnel, guards, watchmen and supervisors as defined in the National Labor Relations Act employed by the Company at its 125 South Street, Passaic, New Jersey facility. ARTICLE II NON-DISCRIMINATION A. The Union and Company agree that there shall be no discrimination in the hiring of new employees or in the promotion of employees because of sex, color, race, creed, national origin, religion, age, veteran's status, ancestry, marital status or any other status protected by New Jersey or Federal Law. Union:_______________________ Company:_____________________ - 1 - ARTICLE III UNION SECURITY A. All present employees who are members of the Local Union on the effective date of this Agreement or on the date of execution of this Agreement, whichever is the later, shall remain members of the Local Union in good standing as a condition of employment. All present employees who are not members of the Local Union and all employees who are hired hereafter shall become and remain members in good standing of the Local Union as a condition of employment on and after the thirtieth (30) working day following the beginning of their employment or on the thirtieth (30) working day following the effective date of this subsection or the date of this Agreement, whichever is the later. This provision shall be made and become effective as of such time as it may be made and become effective under the provisions of the National Labor Relations Act, but not retroactively. B. The failure of any person to become a member of the Union at the required time shall obligate the Employer, upon written notice from the Union to such effect and to the further effect that Union membership was available to such person on the same terms and conditions generally available to other members, to forthwith discharge such person. Further the failure of any person to maintain his Union membership in good standing as required herein shall, upon notice to the Employer by the Union to such effect, obligate the Employer to discharge such person. C. In the event of any change in the law during the term of this Agreement, the Employer agrees that the Union will be entitled to receive the maximum Union security which may be lawfully permissible. ARTICLE IV DUES, CHECK-OFF A. The Employer will accept a signed authorization from any employee covered by this Agreement directing the Employer to deduct from the wages of said employee the regular monthly membership dues and initiation fee of each new member. Written notice must be sent by the Union Secretary Treasurer to the Employer advising the Employer of the amount of the monthly Union dues and initiation fees. B. The said deductions shall be made on the first day of each and every month. All monies, so deducted, shall be remitted to the Union, together with a duplicate list of the employees whose dues and initiation fees have been deducted the tenth (loth) day and not later than the fifteenth (15th) day of the current month. Union:_______________________ Company:_____________________ - 2 - C. The aforesaid check-off authorization shall remain in effect until revoked by the employee, however, it shall be irrevocable for a period of one (1) year from date thereof, or until the termination date of this Agreement, whichever occurs sooner. Said written authorization shall automatically renew itself for successive annual irrevocable periods unless the employee notified the Employer by registered mail within ten (10) calendar days prior to the expiration of each one (1) year period. ARTICLE V UNION REPRESENTATION A. The Union shall be represented in the Company's plant by a Shop Steward and alternate Shop Steward who shall serve as Shop Steward in the absence from the plant of the Shop Steward. B. No employee, including the Shop Steward and the alternate shall stop their assigned work for any purpose related to investigation or settlement of grievances without first notifying the Foreman. Upon notifying the Foreman of a desire to talk to the Shop Steward, Business Agent or the Local, or the Foreman, as the case may be, an employee shall be permitted to leave their work and be afforded a reasonable amount of time for that purpose as long as, in the discretion of the Foreman, the employee can be spared from the employee's work at that time. In the event a relief is necessary, the employee shall remain at work and the Foreman shall obtain a relief for the employee as soon as possible. C. The Company agrees that the Shop Steward shall be afforded a reasonable amount of time, to investigate and settle grievances during regular working hours. All time spent in the investigation or processing of a grievance, other than time spent preparing for arbitration or in arbitration, shall be paid for by the Company provided it occurs during the Shop Steward's scheduled work time. D. Designated representatives of the Union, including the Business Agent, may enter the plant of the Company, after first reporting to a duly authorized Company representative, for the purpose of investigating working condition, handling grievances (but not soliciting grievances) or other Union business, pertaining to this contract, provided that production is not interfered with. E. The Company shall provide space for bulletin boards in reasonably accessible places for the exclusive use of the Union. All posting shall be with the utmost respect and dignity for the Company and the Union. Union:_______________________ Company:_____________________ - 3 - ARTICLE VI GRIEVANCE PROCEDURE -ARBITRATION A. Should a grievance, dispute or controversy arise between the Company and the Union, or any of the employees covered by this Agreement, as to the meaning and application of the provisions of this Agreement, an earnest effort shall be made to settle such differences immediately. To that end, all grievances, disputes or controversies shall be presented in writing and signed by the employee grieving within five (5) working days after they arise, or they shall be deemed to have been waived. B. In order to carry out the intent of the foregoing item "A", any differences that arise will be resolved in the order and manner as hereinafter set forth: 1. Any employee may present a complaint directly to the Foreman and have such complaint adjusted, provided such adjustment is not inconsistent with the terms of this Agreement, and provided further that the Shop Steward has been given the opportunity to be present at such adjustment of the complaint. If no satisfactory adjustment is reached, then 2. The Shop Steward and the aggrieved member shall meet with the supervisor, making every effort to negotiate a satisfactory agreement. If no satisfactory agreement is reached, then 3. The grievance committee and the Union Representative shall meet with the Employer and shall make every effort to negotiate a satisfactory settlement. 4. ARBITRATION: If the grievance, dispute or controversy is not settled in accordance with the foregoing procedures, either the Union or the Company may refer the matter to arbitration; for the Union, the right to institute -arbitration shall be solely vested in the Executive Board of the Union. The arbitrator shall be chosen and the arbitration shall be held in accordance with the rules and regulations of the New Jersey State Board of Mediation. The arbitrator shall be bound by this Agreement and he shall have no power to alter, amend, modify, add anything to, or take anything away from its provision. The arbitrator's decision shall be final and binding on both parties and the expenses of the arbitrator shall be borne equally by the parties. The arbitrator shall have no power to award retroactive pay to a date earlier than the date of the grievance. Union:_______________________ Company:_____________________ - 4 - 5. SOLE REMEDY: The grievance and arbitration procedure above set forth shall be the sole and exclusive means for the determination of all disputes, complaints, controversies, claims or grievances whatsoever, including a claim based upon an alleged breach of this Agreement. Neither party nor any individual employee shall institute any action or proceeding in a court of law or equity, State or Federal, or before an administrative tribunal, other than to compel arbitration, as provided in this Agreement, or with respect to the award of an arbitrator. This provision shall be a complete defense to, and also ground for a stay of any action or proceeding instituted contrary to this Agreement. ARTICLE VII HOURS OF WORK A. The basic work week for all employees shall be five (5) consecutive days of eight (8) hours each, MondAy through Friday inclusive, but this shall not serve as any guarantee that employees will be employed for at least five (5) days during such work week or at least eight (8) hours during such work day. B. All work performed in excess of eight (8) hours during a day or in excess of forty (40) hours during the work week or on Saturday shall be paid for at the rate of one and one-half times the employee's straight time hourly rate, provided however, that the employee shall have worked a full forty (40) hours during the week in which the claimed overtime is worked except if the employee has not worked the full forty (40) hours because work was not made available to him by the Company. All work on Saturday will be paid at the rate of time and one-half. C. All work performed on Sunday shall be paid for at the rate of two (2) times the employee's regular rate. D. Employees who are requested to work overtime shall work a reasonable amount of daily overtime and Saturday work unless the employee has a justifiable excuse acceptable to the Company for not performing such work. Overtime shall be requested according to seniority and ability and if all positions are not filled, they will be filled in reverse order of seniority. Union:_______________________ Company:_____________________ - 5 - Reasonable overtime shall be two (2) hours per day unless special circumstances occur requiring more. Prior notice required by the Company for overtime work shall be four (4) hours for daily overtime and forty eight (48) hours for continuous overtime (three (3)days or more) . Saturday overtime will be requested at the start of Friday's work. E. A shift differential of fifteen ($0.15) cents per hour shall be paid to employees on all shifts other than the daytime shift. ARTICLE VIII CALL-IN-PAY A. Any employee reporting for work on his regular shift without having been previously notified not to report shall receive a minimum of four (4) hours work during the course of the day, or, if no work is available, four (4) hours pay at his applicable rate of pay, except where work is not available because of an act of GOD or if the employee fails to provide the Company with a current address and telephone number, or other cause beyond the Company's control and the Company was unable to notify employees, accordingly'. This provision, however, shall not apply to overtime work performed directly after the conclusion of the employee's regular shift. ARTICLE IX HOLIDAYS A. The Company shall pay to eligible employees eight (8) hours of regular pay for the following holidays: New Year's Eve Day Labor Day New Year's Day Thanksgiving Day Washington's Birthday Day after Thanksgiving Good Friday Christmas Eve Memorial Day Christmas Day Independence Day Employee's Birthday Employees shall be entitled to use their birthday as a floating holiday. Such holiday shall be taken within the contract year or be lost. Union:_______________________ Company:_____________________ - 6 - B. In order to be eligible for such holiday pay, an employee must have worked his full scheduled work day before and his full scheduled work day after the holiday. Probationary employees shall not be eligible for pay for holidays occurring during their probationary period. If an employee scheduled to work the day before and the day after in order to receive holiday pay, but does not due to illness documented by his/her Primary Care Physician, as listed on the Company's Health Care Plan shall not lose holiday pay. C. In the event an employee is assigned to work on a holiday, payment shall be at one 1) times the straight time pay plus the straight time pay for the holiday. Total pay to be equivalent of two (2) times the straight time pay for all hours worked, with a maximum of eight (8) hours for the applicable holiday pay. D. If a holiday falls on a Saturday or Sunday, eligible employees shall be entitled to an additional day off on the preceding Friday or the following Monday or an extra day' s pay at the option of the Company. E. A holiday shall be considered as time worked for overtime purposes. F. An employee on leave of absence shall not be paid for a holiday which occurs while the employee is on such a leave. ARTICLE X VACATIONS A. The Company shall grant to all employees eligible for the same during each calendar year paid vacations at straight time rate as follows: LENGTH OF SERVICE VACATION PERIOD ----------------- --------------- 1 year 1 week (5 working days) 2, 3 and 4 years 1 week, 2 days (7 working days) 5 years 2 weeks (10 working days) 6 years 2 weeks, 1 day (11 working days) 7 years 2 weeks, 2 days (12 working days) 8 years 2 weeks, 3 days (13 working days) 9 years 2 weeks, 4 days (14 working days) 10 years or more 3 weeks, (15 working days) Union:_______________________ Company:_____________________ - 7 - B. Eligibility for paid vacations shall be determined by the full time employees date of hire. Only full time employees in the employ of the Company at such time shall be eligible for paid vacations. For purposes of computing vacations, the vacation year shall be considered to be from March 1st to February 28th. Vacation time shall be paid before leaving on vacation. Vacation requests must be in the Payroll Department in Hauppauge two (2) weeks prior to vacation. Payment shall be for full weeks only and will only be for time taken. C. Employees who have worked at least six (6) months during the vacation year and who otherwise would be eligible for vacation pay but who are laid off prior to the vacation period shall receive pro-rated vacations, the vacation year shall be computed from the previous June 1st and there shall be no vacation credit for periods of lay-off, leaves of absence or time not worked, Employees who resign from their employment or are discharged for cause shall not be entitled to such pro-ration in excess of thirty (30) days. D. Effective January 1, 1997 the Company in cooperation with the Union shall implement the following vacation plan for full time employees: 1. The vacation period for each year of this Agreement shall be from March 1 to the last day of February. 2. On or about January 2nd of each year, the Company shall distribute a vacation request form to each member of the full time bargaining unit. The employees shall be required to return the completed request to their foreman/floor lady not later than February 1st. if employees are not notified as to their request by March 1, the vacation time request shall be granted as submitted. 3. Vacation will be approved and scheduled by seniority and in accordance with the limitations illustrated in Exhibit C attached. Union:_______________________ Company:_____________________ - 8 - 4. The Company will post vacation schedules by March 15 once posted, changes throughout the year will be in accordance with Exhibit C but the rules of seniority will no longer apply. This vacation plan shall evaluated in December 1997. If either party determines that the plan has been unsuccessful, the parties will return to the conditions set forth in Section D of the recently expired contract (i.e. plant shut down, etc.) The terms and condition set forth in this Section do not preclude the Company's right to shut down at any other time (e.g. inventory shut down) provided thirty (30) days notice is given to the Union. E. Employees who voluntarily work with the consent of the Company during their vacation periods shall receive pay as aforesaid in addition to regular earned pay for such periods. However, at the Company's option, and if mutually agreed by the employee and the employer, an alternative day off may be given in lieu of vacation pay. If no such agreement is made the employee will be paid with the provision of the paragraph. This is exclusive of plant shut downs. F. In the event a paid holiday falls during an employee's vacation, he shall be given an additional day of vacation or pay in lieu thereof at the option of the Company. ARTICLE XI HEALTH INSURANCE 401-K Plan A. The Company shall provide hospitalization, medical-surgical and other related benefits at a level which shall be as comparable as reasonably possible to the benefits provided under the previous contract between the parties. The Company has the exclusive authority in selecting the providers) of said coverage. Employees shall share in the premium cost for Company-provided health insurance to the following extent: Employees selecting individual coverage - $ 5.00 per month Employees selecting family coverage - $10.00 per month Union:_______________________ Company:_____________________ - 9 - B. Any employee covered by the provisions of this Article and upon proof of duplicate coverage on a medical plan may elect to withdraw from companies Medical Plan and will receive an additional payment of $150./month for family coverage and $75./month for single coverage. This provision will be offered to employees covered under this Article on January 1, 1997. C. The Company will provide to each full-time employee covered by this Agreement the Company's 401-K Plan to any employee who selects to participate under the same provisions afforded company wide. ARTICLE XII DISCHARGE A. The Company shall have the right to discharge or discipline employees for just cause. In the event of a discharge, the employee, the Shop Steward and the Union shall be promptly notified. The discharge of an employee during his probationary period shall not be subject to the grievance and arbitration procedure since the Company shall have the right to terminate a probationary employee for any reason whatsoever. ARTICLE XIII JOB CLASSIFICATION, PROMOTIONS AND TRANSFERS A. Employees shall be classified in accordance with the following classifications: LABOR GRADE CLASSIFICATION I General production assembler, machine operator, porter, wood working, heat sealer operator II Inspector of finished goods III Warehouse and shipping IV Forklift operator V Sewing Machine operating, upholstery/cutter VI Brazer, welder, mechanic's helper, cushion maker VII Leadman Union:_______________________ Company:_____________________ - 10 - B. Employees who have been previously employed in this plant in more than one job classification for sixty (GO) days or more and are in addition, qualified to perform the work in such other job classification shall have a secondary classification in such other job or jobs in addition to their primary job classification. C. The Company retains the right to eliminate old or establish new job classifications during the terms of this Agreement, as the needs of the business may require. D. A vacancy in a job classification shall be posted by the Company on the plant bulletin board for a period of forty-eight (48) hours, during which time any interested employees in lower paid classifications only can file with the Company written bids for such vacancy and shall, after a sixty (60) working day trial period, be considered permanent in such higher paying job classification. Thirty (30) working days after receiving the promotion the employee's pay shall be increased to the starting rate for such job. Should the employee be found unsuitable for the higher job classification or should the employee during such period elect to return to his previous position, he shall be transferred back and assume the prevailing rate of pay at such time. Nothing in this provision shall be considered to require the Company to continue such employee in the higher job classification for a full sixty (GO) working day trial period if the Company finds him unsuitable at any time before the period has elapsed. In the event no qualified bidder is available, the Company may select an employee for promotion to the higher job classification or hire such employee from outside the plant and the above provisions shall apply to the employee promoted from inside. In an emergency, the Company may temporarily fill such job without regard to this provision. E. Employees promoted or transferred to an other position in the Company outside of the bargaining unit can, if they so elect or if they are found not suitable for such other positions by the Company, transfer back to their old position at the prevailing rate of pay with the seniority status held at the time of such promotion. Union:_______________________ Company:_____________________ - 11 - F. The Company shall have the right after giving the consideration to the seniority right of employees as set forth herein to effect transfer of employees from one job classification to another as the operational needs of the Company may require. If the transfer is for three (3) days or less to a lower paid classification, the employee shall continue to receive his old rate of pay. otherwise he shall be paid at such time the rate of pay of the job classification to which he has been transferred, but if the employee objects to any decrease in his pay as a result of such transfer, he may elect to invoke the layoff procedure set forth herein. ARTICLE XIV SENIORITY AND LAYOFF PROCEDURE A. During the first sixty (60) working days of employment, an employee shall be considered a probationary employee and shall not be entitled to any seniority rights. Upon the completion of this period, employees shall be entitled to seniority rights dating from the date of last continuous hiring. B. Seniority shall be based upon length of service and shall only be operative in the employee's department or such other departments as an employee may have been previously employed in for sixty (60) continuous working days or more in this plant, provided the employee is qualified to perform the work in such other department. C. When in the sole judgment of the Company, a lay-off becomes necessary it shall be made in reverse order of seniority among employees with five (5) years or more in the department or departments in which the lay-off is to take place, provided that the senior employees remaining are qualified to perform the remaining work. Employees who hold seniority in more than one department as set forth above shall, in the event of such lay-off have the right to displace less senior employees in such other departments, provided they are able to do such work. The Company shall have the right to make temporary lay-offs of three (3) days or less in duration without regard to the seniority provisions of this Agreement. In instances of lay-off affecting more than lo-. of the employees, three (3) days notice will be given. D. In the event an employee displaces another employee in a lower paying classification as a result of a layoff, in accordance with paragraph C, above, such employee shall at such time assume the rate of pay for such lower paying job and maintain it as long as the employee is working in that job classification. Union:_______________________ Company:_____________________ - 12 - E. The Shop Steward and alternate Shop Steward, regardless of their actual seniority date, shall be afforded the highest seniority in their department or departments. F. In the event additional employees shall be needed in any job classification or classifications in which a layoff has occurred, a laid-off employee shall be recalled in the order of seniority before any new employees are hired for such jobs. Seniority shall terminate after six (6) months of continuous non-employment or layoff. G. When the Company wishes to call back an employee after a layoff, it shall send a notice to that effect by registered mail or telegram to the last know address of the concerned employee. The Employee shall report to work within twenty-four (24) hours (or later if so directed by the Company) after receipt of such notice, and failure to do so shall forthwith result in the loss of all seniority and other rights under this Agreement. H. Employees recalled after a layoff shall be entitled to the same pay received at the time of layoff and shall be credited with seniority accrued during the layoff period. Longevity for pay or vacation purposes, however, shall not accumulate during a layoff. ARTICLE XV RATES OF PAY A. The Company shall grant wage increases to all employees employed on the following dates as indicated: Effective July 28, 1996 $0.15 per hour Effective July 28, 1997 $0.20 per hour Effective July 28, 1998 $0.25 per hour The minimum and maximum rates of pay shall be in accordance with the attached schedules marked Exhibit A and said schedules shall be a part of this Agreement. B. Progression from the minimum to the maximum rates of pay shall be by increases according to schedule until the maximum is reached. All employees shall receive progression increases starting from the date of hire on a quarterly basis, rather than a monthly basis. The progression shall be administered by the company in a manner that employees subject to the wage progression shall not lose pay as a result of the change in pay administration. Union:_______________________ Company:_____________________ - 13 - ARTICLE XVI LEAVES-OF ABSENCE A. A leave of absence of not more than six (6) months may be granted by the Company for justifiable or reasonable cause. B. Seniority shall accumulate during a leave of absence but longevity for pay or a vacation purposes under this Agreement shall not accumulate. ARTICLE XVII ABSENCE AND SICK LEAVE A. An employee shall not be absent from duty without prior permission in writing from the Company except for sickness, injury or other justifiable cause beyond the control of the employee. B. Employees prevented from reporting for duty by reason of sickness, injury or just cause beyond the employees control, shall make every effort to notify his supervisor at least thirty (30) minutes before the start of the shift of the employees inability to report for work giving the reason for such absence. Should the employee not be able to do so for good reason, the employee must notify the supervisor as soon as possible. Any employee failing to so notify the Company within three (3) working days shall be summarily discharged without recourse to the grievance and arbitration procedures. Longevity for pay or vacation purposes shall not accumulate during any such absence from duty. C. Employees shall be entitled to five (5) sick days per year. Employees must notify the Company as required by Paragraph B above in order to be considered an approved sick day absence. Sick days may not be accumulated from year to year. Employees will not be compensated for unused sick days. The fact that employees use authorized sick leave days as provided for in this article, shall not be used as a basis for discipline. ARTICLE XVIII GENERAL PROVISIONS A. The Company shall at six (6) month internals supply the Union with an up-to-date seniority list. B. The Company, to the extent that it is within its jurisdiction, will comply with all applicable state laws and regulations concerning the safety and health of its employees, and employees shall be afforded necessary relief time from their work stations. Union:_______________________ Company:_____________________ - 14 - C. Supervisory employees shall be permitted to perform work of hourly-rated employees when deemed necessary by the Company for emergency reasons only. D. Work rules and production standards have been promulgated as set forth on Exhibit B attached. Said work rules and production standards may be amended by the Company from time to time at the discretion of the Company. ARTICLE XIX NO STRIKE - NO LOCKOUT A. The company shall not cause or permit a lockout during the life of this Agreement and the Union and the employees covered hereunder, shall not engage in a strike, sit-down, walkout, slowdown, stoppage or any other work curtailment for any reason whatsoever during the life of this Agreement. Any employee violating this provision shall be subject to summary discharge. ARTICLE XX MANAGEMENT RIGHTS CLAUSE A. The Union recognized that the Company shall have the sole and exclusive jurisdiction of the management and operation of its business, the direction of its working force including the assignment of tasks and machines to employees, the right to maintain discipline and efficiency in its plant, the right to promulgate and enforce reasonable working rules, the right to hire, discipline and discharge employees subject to the provisions of this Agreement and the right to relocate its plant or any portion thereof or subcontract any operation. It is agreed that the rights enumerated above shall not be deemed to exclude other pre-existing rights of management not herein listed nor any right conferred by law upon the Union or any employee provided they do not conflict with other provisions of this Agreement. ARTICLE XXI APPLICABLE LAWS A. In the event that any provision of this contract is invalid or hereafter becomes invalid by reason of any Federal or State law, it is agreed that the parties will comply with any and all obligations imposed on them by such law. It is further. agreed that any provision of this contract which is invalid or may hereafter become invalid by reason of any Federal or State law shall not affect the validity of all the other provisions of this contract, and all such other provisions shall continue to remain in full force and effect and binding upon the parties until the termination hereof. Union:_______________________ Company:_____________________ - 15 - ARTICLE XXII REST PERIODS A. on each shift of the day there shall be a ten (10) minute rest period for each four (4) hours worked with out a deduction in pay. ARTICLE XXIII EQUAL PAY FOR EQUAL WORK A. In classifying employees and in setting wage rates for males and females, the principle of equal pay for equal work shall be followed with due regard for differences in wage based on job duties as permitted under the Labor Grade schedule. ARTICLE XXIV EX-SERVICE PERSONNEL A. Protection shall be granted ex-servicemen, in accordance with the G.I. Bill of Rights. ARTICLE XXV PROTECTION OF RIGHTS A. PICKET LINES: It shall not be a violation of this Agreement, and it shall not be cause for discharge or disciplinary action in the event an employee refuses to enter upon any property involved in a primary labor dispute, or refuses to go through or work behind any primary picket line, including the primary picket line of Unions party to this Agreement, and including primary picket lines at the Employer's places of business. ARTICLE XXVI DRUG TESTING Section 1: Employees are prohibited from the use, sale, dispensing, distribution, possession, or manufacturing of illegal drugs and narcotics or alcoholic beverages on company property or work sites. In addition, employees are prohibited from the off-premises possession, use, or sale of illegal drugs when such activities adversely affect job performance, job safety, or the company's reputation in the community. Union:_______________________ Company:_____________________ - 16 - Section 2: At the discretion of Employer, employees may be required to submit to a drug test, to determine if the employee is using, under the influence of, or is otherwise impaired by (illegal) drugs or alcohol. Employees are warned of the lingering effects of certain drugs in their system. Employees may be selected to submit to a drug test where either: the Employer has reasonable suspicion to believe that an individual employee or group of employees is in violation of this Article, or by being selected randomly if the employee is in a safety-sensitive position. Section 3: Failure to submit to any examination allowed under this section, or any attempt to tamper with specimens or falsify or alter test results shall constitute just cause for discharge. The Employer may elect to have a supervisor accompany the employee to the testing site. All urine specimens shall be subject to an initial screen using an EMIT-type analysis. All positive results from an initial screen shall be confirmed via gas chromatography-mass spectrometry techniques. No specimen shall be identified as "positive" except upon receipt of the results of the confirmation test. Section 4: While employees may be subject to disciplinary action up to and including immediate dismissal, for violations of the policy expressed in this Article, the Employer shall offer a reasonable accommodation as required by law, to employees who request such accommodation. ARTICLE XXVII PART-TIME EMPLOYEES Part-time employees shall become members of the Union on the 30th day of employment. Part-time employees are to be included in the bargaining unit as long as all of the full-time bargaining workers are employed. Part-time employees shall not be used to displace full-time employees at current levels as of July 27, 1996, ninety six (96), and cannot exceed 50% of the full-time work force at any time. Part-time employees dues and initiation fee will be set forth in the By-Laws of Local 945 and the Constitution of the International Brotherhood of Teamsters. Union:_______________________ Company:_____________________ - 17 - Part-time employees shall not be entitled to any of the provisions of the Agreement other than the Dues Check-Off. The Part-time employee will start at $5.05 per hour (or as affected by New Jersey State Minimum Wage) and shall receive a $0.25/hour increase after completion of the sixty (60) day probationary period. Part-time employees will not exceed twenty (20) hours per week and work Grade Level #1 jobs only. Part-time employees shall have a separate seniority list apart from full-time employees and will be the first to be laid off should there be a curtailment of the work force. Part-time employees may bid for full-time positions should they become available provided they have the skill and ability to perform the work. When one or more have equal ability seniority "of part-time workers" shall prevail. If a part-time employees becomes a full-time employee, he/she will start as the least senior on the full-time seniority list. ARTICLE XXVIII DURATION OF AGREEMENT A. This Agreement shall become effective as of July 28, 1996 and shall continue in full force and effect through July 27, 1999 and shall renew itself without change for additional periods of one year each unless either party notifies the other in writing at least sixty (60) days before the expiration of the Agreement of its desire to terminate or modify said Agreement on its expiration date. B. This Agreement contains the entire understanding between the parties and there are no oral representation made or intended which may vary or modify the terms of this Agreement. The parties hereto have had full opportunity to bargain collectively. Accordingly, neither party shall seek any change, modification or addition to the terms of this Agreement during the term hereof, nor shall any such desired change, modification or addition be subject to the grievance and arbitration procedure established in this Agreement Union:_______________________ Company:_____________________ - 18 - IN WITNESS WHEREOF, the parties hereto have set their respective hands and seals the day and year first above written. TEMCO HOME HEALTH CARE LOCAL 945 TEAMSTERS By:________________________ By:________________________ SHOP COMMITTEE: ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ Union:_______________________ Company:_____________________ 18 GRAHAM-FIELD, TEMCO HOME HEALTH CARE PRODUCTS, INC. MINIMUM RATES OF PAY FOR THE FIRST YEAR OF THE CURRENT CONTRACT COMMENCING JULY 28, 1996 Labor Grade Minimum Wage* Union Rate - ----------- ------------- ----------- ($0.25 upon joining union) I. General production assembler, machine operator, 5.05 5.30 porter, wood working, heat sealer operator, part time employees II. Inspector of finished goods 5.15 5.40 III.Warehouse and shipping 5.45 5.70 IV. Forklift operator 5.65 5.90 V. Sewing machine operator, upholstery/cutter 5.05 5.30 VI. Brazer, mechanic's helper welder, cushion maker 5.05 5.30 VII. Leadman 5.05 5.30 - ---------- * = or as may be affected by New Jersey State Minimum Wage EXHIBIT A GRAHAM-FIELD, TEMCO HOME HEALTH CARE PRODUCTS, INC. MAXIMUM RATES OF PAY OF FULL TIME EMPLOYEES EFFECTIVE JULY 28, 1996 THROUGH JULY 27, 1999 Labor Grade July 28, 1996 July 28, 1997 July 28, 1998 - ----------- ------------- ------------- ------------- I. General production assembler, machine operator, 8.63 8.83 9.08 porter, wood working, heat sealer operator II. Inspector of finished goods 8.73 8.93 9.18 III. Warehouse and shipping 8.88 9.08 9.33 IV. Forklift operator 9.03 9.23 9.48 V. Sewing machine operator, upholstery/cutter 9.28 9.48 9.73 VI. Brazer, mechanic's helper welder, cushion 9.52 9.72 9.97 maker VII. Leadman 8.88 9.08 9.33 EXHIBIT A PROCEDURE FOR WORK PERFORMANCE PROGRAM Employees will make standard if they perform at 85% or better of a predetermined work measurement standard established by the industrial engineer. The Minimum acceptable performance level will be 77%. The first time the employees perform below the acceptable level, they will be given the 1st written warning and the union steward will be notified. The employee, supervisor and union steward will be required to sign off on this warning. The supervisor, with the help of the industrial engineer, will retrain this worker. At the end of 15 days, if employees do not improve their performance, they will be required to observe an average worker performing the job at standard rate. The employee, supervisor and union steward will be required to sign off on this. Employees will be trained additionally or transferred to another department, where they will be trained for another job. If after 15 days the employee does not improve he or she will be given a third warning and trained some more. The employee, supervisor and union steward will be required to sign off on this again. At the end of 15 days if the employee does not improve performance, the employee will be terminated. If at any ,time when employees are being reviewed, they perform at standard, they will be required to maintain such performance for 2 weeks, at the end of which time the employee will be reinstated to normal status. EXHIBIT B ITEM STD MIN PCS/DAY PCS/HR # OF 85% 85% EMPL 1903/1 16.90 596 75 15 1905/1 14.25 554 70 15 1905/2 13.97 554 70 15 1906/2 14.51 554 70 1908/1 20.71 554 70 15 1908/2 20.31 554 70 15 1909/1 16.74 596 75 15 1909/2 16.34 596 75 15 1910/1 15.68 646 81 15 1910/2 15.28 646 81 15 1911/1 12.37 703 88 7 1911/4 11.77 703 88 7 1912/1 15.37 646 81 15 1912/2 14.97 646 81 15 191611 19.36 510 64 14 1916/2 18.96 510 64 14 1925/1 6.98 742 93 10 1925/4 6.38 742 93 10 1926/4 7.47 1930/1 7.43 742 93 9 1930/4 6.83 742 93 9 1936/1 33.25 1939/1 8.13 742 93 7 1939/2 7.73 742 93 7 1941/1 12.02 680 86 10 1941/2 11.62 680 86 10 1971/1 13.88 1971/2 13.88 1972/1 20.75 1972/2 13.99 1972/4 13.49 1973/1 13.22 1973/2 12.70 1973/4 12.70 1974/1 13.88 1974/2 13.88 1975/1 17.11 1979/2 17.11 1976/1 29.16 1977/1 29.16 1980/1 12.50 1981/1 20.00 1981/2 20.00 EXHIBIT B ITEM STD MIN PCS/DAY PCS/HR # OF 85% 85% EMPL 1982/1 20.00 1982/2 20.00 1984/1 19.52 1985/1 28.88 1986/1 46.60 1992/1 5.00 1,010 127 8 1992/2 4.80 1,010 127 8 1992/KA1 5.54 971 122 9 1992/KNl 3.63 816 103 8 1993/1 7.32 1,010 127 11 1993/2 7.12 1,010 127 11 1993/KA1 6.98 971 122 10 1993/KNl 5.06 816 103 9 1995/1 15.33 1997/1 15.33 2000/1 56.87 2001/1 56.87 2002/1 21.69 2003/1 40.70 2004/1 17.52 2005/1 .50 2009/6 0.73 2011/1 3.00 2011/6 0.75 2013/1 3.00 2013/6 0.75 2015/1 5.00 2015/6 1.25 2025/1 4.23 2026/1 4.23 2027/1 4.23 2028/1 4.23 2029/1 4.23 203OL/I 4.23 203OR/1 4.23 2032-A/1 3.00 2032-A/6 1.00 2032-B/1 3.00 2032-B/6 1.00 2032-C/1 3.00 2032-C/6 1.00 2033/1 3.00 2033/14 1.30 2035/1 3.00 EXHIBIT B ITEM STD MIN PCS/DAY PCS/HR # OF 85% 85% EMPL 2035/12 1.30 2044/1 17.52 2051-A/1 3.00 2051-3/1 3.00 2051-C/l 3.00 2095/1 8.07 703 88 8 2095/2 7.67 703 88 8 2100/1 8.75 703 88 8 2100/2 8.35 703 88 8 2110/1 9.72 703 88 9 2110/2 9.32 703 88 9 2115/1 11.69 703 88 11 2130/1 8.71 742 93 12 2130/2 8.49 742 93 12 2135/1 8.44 742 93 12 3003Kl 0.50 3375/1 6.62 4401/1 3.00 4605/1 72.27 4607/1 111.75 4665/1 85.75 4667/1 78.22 4675/1 60.48 4800-X/1 115.50 4810/1 57.96 4820/1 57.96 5000/1 272.32 5001/1 13.00 5006/1 20.15 5007/1 20.15 5008/1 20.15 5010/1 260.00 5040/1 279.02 5050/1 334.36 5791/2 8.49 5796/2 8.49 5800/1 5.00 5810 5.00 5820/X1 5.00 5820/Y1 5.00 5830/1 5.00 5925/6 2.71 5940/1 3.16 5940/6 2.66 EXHIBIT B ITEM STD MIN PCS/DAY PCS/HR # OF 85% 85% EMPL 5941/1 3.16 5941/6 2.66 5942/1 3.16 5942/6 2.66 5943/1 3.16 5943/6 2.66 5945/2 14.15 5991/I 9.40 5991/2 8.49 5996/1 9.10 5996/2 8.49 6004/1 6.80 1,166 146 9 6004/2 6.40 1,166 146 9 6005/1 13.50 6408/1 32.08 6470/1 24.48 6670/1 31.16 6672/1 43.41 6677/1 43.75 6770/1 31.16 6772/1 43.41 6777/1 43.75 6902/1 3 6902/6 0.50 6905/1 1.50 6907/1 2.00 6909/1 3.00 6909/6 1.00 6910/1 6.96 6910/2 6.56 6980/1 7.71 6980/2 7.31 6985/1 7.65 6985/2 7.25 6990/1 15.51 6995/1 14.23 7010/1 14.00 7012/1 14.54 7012/2 13.64 7013/1 12.25 7015/1 11.02 7110/1 3.00 7111/1 3.00 7712/1 13.09 EXHIBIT B ITEM STD MIN PCS/DAY PCS/HR # OF 85% 85% EMPL 7712/2 12.19 9000/3 5.52 9009/1 0.86 9018/1 3.00 9024/1 3.00 9025/1 1.27 9027/1 1.50 9032-A/1 1.42 9032-3/1 1.42 9032-C/1 1.42 9033/1 1.17 9051-A/1 0.98 9051-B/l 0.98 9051-C/1 0.98 9100/1 78.75 9200/1 45.50 9900/1 1.45 9900/6 1.45 9907/1 1.45 9925/1 7.92 9992KA1 5.54 9993KAI 6.98 RP1907/1 5.61 RP1923/1 2.18 RP1924/1 2.18 RP1932/1 2.76 RP1956/1 1.00 RP1957/1 2.97 RP1987/1 14.60 RP1988/6 1.00 RP1998/1 3.93 RP2078/6 0.64 RP2079/6 0.29 RP6413/1 5.17 RP6671 16.53 EXHIBIT C Vacation/Schedule ----------------- Limitations Five (5) employees per Week --------------------------------------- Weekly Department Limitation ---------- Shipping 1 Receiving 1 Injection Molding 1 Press Room 2 Welding 1 Sewing 1 Assembly Line 1 & 3 2 Assembly Line 2 2 lamp 1 Assembly Line 4 1 Assembly - Seating 5 1 Assembly - Seating 6 1 Woodshop 1 Whenever possible the Company will attempt to accommodate employee's request for vacations who may have exceeded the allotted vacation limitation in their respective department. EX-10.(Y) 16 UNION CONTRACT EXHIBIT 10(y) Union contract dated July 24, 1996, between Everest & Jennings Canadian Limited and the United Steelworkers, of America on behalf of its Local 5338. 1996-1998 COLLECTIVE AGREEMENT BETWEEN EVEREST & JENNINGS CANADIAN LIMITED and UNITED STEELWORKERS OF AMERICA LOCAL 5338 COLLECTIVE LABOUR AGREEMENT This Agreement made on 24TH of JULY 1996 between Everest and Jennings Canadian Limited hereinafter called "the Company" and the United Steelworkers' of America on behalf of its Local 5338 hereinafter called "the Union". Wherever the masculine gender appears in this Agreement, it shall also mean the feminine gender, and vise versa, unless the context requires otherwise. 3 INDEX Article Description Page Number Number 1 UNION RECOGNITION 5 2 MANAGEMENT RIGHTS 5,6 3 UNION SECURITY 6 4 UNION REPRESENTATION 6,7 5 PROBATIONARY EMPLOYEES 7 6 GRIEVANCE PROCEDURE 8,9 7 ARBITRATION 10 8 SENIORITY 10,11 9 LAYOFF AND RECALL 11,12 10 JOB POSTING 12,13 11 HOURS OF WORK 13,14 12 PAID HOLIDAYS 15,16 13 VACATION WITH PAY 16,17 14 LEAVE OF ABSENCE 17 15 CALL-IN PAY 18 16 PAYMENT FOR INJURED EMPLOYEES 18 17 BULLETIN BOARDS 18 18 BEREAVEMENT PAY 18 19 JURY AND WITNESS DUTY 18 20 HEALTH AND SAFETY 18,19 21 EMPLOYEE BENEFITS 19 22 SHIFT PREMIUMS 19 23 SUPPER ALLOWANCE 19 24 WAGES 19 25 DURATION OF AGREEMENT 20 SCHEDULE A JOB CLASSIFICATIONS 21,22 4 ARTICLE 1 UNION RECOGNITION 1:01 The Company recognizes the Union as the sole and exclusive bargaining representative for all hourly employees of the Company in the Township of Vaughan save and except office staff, clerical, engineering, and sales, staff, forepeople, supervisors and all those ranked above supervisors and those excluded by the Labour Relations Act of the Province of Ontario. 1:02 Employees not in the bargaining unit shall not perform work ordinarily performed by bargaining, unit employees, except in the event of testing, experimental work, training, and emergency situations including unexpected absenteeism equipment breakdown and/or resources not available. (An emergency situation would be a condition that could not reasonably have been anticipated to occur during the course of normal operations or that threatens serious consequences to the employer's operations.) 1:03 Should any of the present operations be moved to a location within fifty (50) miles, this Agreement shall be extended to cover such operations. 1:04 The Company agrees to introduce all new employees to the Plant Chairperson within two (2) days either individually or as a group during the work day. The Company will provide a list to the Plant Chairperson or his designate of all new hires weekly, with their classifications, shift, rate of pay, and date of hire. 1:05 The existing practice of subcontracting or outsourcing of such work as deemed necessary shall continue. However, the Company will not subcontract or outsource work for the sole purpose of eroding the bargaining unit. ARTICLE 2 MANAGEMENT RIGHTS 2:01 There shall be no strike, stoppage of work, picketing, boycott or willful interference with production, transportation or distribution, by the union nor its members, and no lockout by the Company during the term of this Agreement. 2:02 The Company retains and shall maintain and exercise all managerial authority and prerogatives. Without limiting the generality of the foregoing, such functions shall include, but not be limited to the right to: locate, alter, extend, curtail or cease operations; determine the number and classification of employees; hire, direct, retire, promote, demote, transfer, lay-off, suspend, discharge or discipline employees for just cause; assign work, determine job content and qualifications of employees; determine schedules, methods, processes and means of production and supply; make, alter and enforce reasonable rules and regulations. The foregoing is limited only by the express terms and provisions of this Agreement. 2:03 The Company Will not hire any part-time employees without prior notification to the Union. 5 2:04 The Company retains the right to hire temporary, part-time assistance for the physical inventory. Opportunity for overtime will first be offered to full time bargaining unit employees provided they have the skill and ability to perform said tasks. 2:05 Failure by the Company to exercise any of its management rights at any time shall not be considered to be an abandonment of such rights. ARTICLE 3 UNION SECURITY 3:01 The Company agrees that all employees shall become and remain members of the Union as a condition of employment, Membership, for this purpose, will be deemed to mean the payment of Union dues in accordance with article 3:02 unless the employee is on lay-off and therefore not in a position to pay union dues. 3:02 The Company shall deduct from the weekly pay of each employee an amount equivalent to the Union dues set out in the Union Constitution. The total sum so deducted will be forwarded to the Financial Secretary of the Local Union on or before the 15th day of the month following, payable to the United Steelworkers of America-International Treasurer. 3:03 The Union agrees to indemnify and save the Company harmless against all claims or other forms of liability that may arise out of, or by reason of, deductions made or payments made in accordance with this Article. 3:04 The Company agrees to record total union dues deductions paid by each employee on his/her T-4 Income Tax Receipt. ARTICLE 4 UNION REPRESENTATION 4:01 No person shall engage in any Union activity during working hours or on Company property except as specifically authorized by this Agreement. 4:02 The Union will continue to support the Company in its efforts to eliminate waste; to improve workmanship, to prevent accidents and promote goodwill amongst the Company and its employees. 4:03 The Company acknowledges the right of the Union to appoint or otherwise select Union Stewards for the purpose of representing employees in the handling of complaints and grievances. 4:04 The Company agrees to recognize one (1) Union Steward for each fifteen (15) employees, plus one steward on each shift other than regular day shift. The Company will recognize a Union Steward at any location that is covered by this Collective Agreement. 4:05 The Company shall be notified by the Union of the names of the Stewards and the areas they are representing and any changes made thereto. 6 4:06 The Company agrees to recognize and deal with a Union Grievance Committee of not more then two (2) employees plus the Local Chairperson, 4:07 A Grievance Committee person or Steward shall be required to receive permission from his\her supervisor before leaving their work station and\or department. Permission will not be unreasonably withheld for attendance at grievance meetings and permission may be given for other Union business provided it can be accommodated with operations and is for a brief period. 4:08 (a) The Company agrees to recognize and deal with a negotiating committee of not more than three employees plus the Plant Chairperson, who shall be regular employees of the Company, along with the representative of the International Union, (b) The Negotiating Committee is a separate entity from all other committees and will deal only with matters related to negotiations, including proposals for the modification and/or renewal of this Collective Agreement. ARTICLE 5 PROBATIONARY EMPLOYEES 5:01 An employee shall be classed as a probationary employee until he\she has completed ninety (90) calendar days. If an employee is absent from work, the employee's probationary period shall be extended by the period of such absence. Upon successful completion of the probationary period, the employee will receive seniority backdated to their original date of hire and will become eligible for benefits in Article 21. Until an employee has acquired seniority, the Company may terminate, discipline, layoff or failure to recall after layoff a probationary employee and such action shall not be subject to the Grievance or Arbitration Procedure. ARTICLE 6 GRIEVANCE PROCEDURE 6:01 (a) The Company acknowledges the right of the Union to appoint or otherwise select a grievance committee of up to two (2) employees and the Local Chairperson. Only members of the grievance committee and the employee or employees concerned may appear to process a grievance, except in the case of the dispute involving a question of the general application or the interpretation of the Agreement when only the grievance committee shall process the grievance. (b) The Company will not be required to consider any grievance which is not presented within (10) working days after the griever or the Union first became aware of the alleged violation of the Agreement. (c) If final settlement of the grievance is not reached at Step three, then the grievance may be referred in writing by either party to Arbitration as provided in Article 7- Arbitration within fifteen (15) days after the receipt of the response to the Step three procedure. 7 (d) When two or more employees wish to file a grievance rising from the same alleged violation. of this Agreement, such grievance may be handled as a group grievance and presented to the Company beginning at Step two of the grievance procedure. (e) The Union and the Company shall have the right to initiate a policy grievance at Step three of the grievance procedure, and all provisions of the grievance and arbitration procedures shall apply to such grievances. (f) The time allowances provided in this Article may be extended by mutual agreement between the parties in writing. If the time allowance or any extension therefore, is not observed by the party who it has alleged has violated the Agreement, the grievance will be considered as advanced to the next step of the grievance procedure including arbitration, (g) A claim by an employee that he\she has been discharged or suspended without just cause shall be a proper subject for a grievance, if a written statement of such grievance is lodged at Step three (3) of the grievance procedure within ten (10) working days after the employee receives notice that he\she has ceased to work for the Company or returns to work after a suspension as the case may be, (h) When an employee has been suspended or dismissed, the Union will be notified concurrently with any disciplinary action being taken. (i) Disciplinary notices which form part of the employee's record shall be withdrawn from the employee's file after eighteen (18) months from date of issue except in cases of innocent absenteeism. (j) The Company agrees that persons who are required to take part in grievance meetings shall not suffer loss of pay for time spent in such meetings. 6:02 (a) it is the mutual desire of the parties hereto that any alleged violation of this Agreement, including its application and interpretation, shall be settled as quickly and reasonably as possible, using the following procedure: (b) Step 1: The aggrieved employee shall, within ten (10) working days after the grievance first arises, discuss the problem with his\her supervisor, and failing a resolution, submit the grievance in writing with assistance from his/her Union Steward, should the employee so request, to the Chairperson of the Union Grievance Committee, and shall affix his\her signature. If the supervisor fails to respond within forty eight (48) hours the grievance will automatically move to Step 2 of the grievance procedure, 8 (c) Step 2: If the Grievance Committee of the Union considers the grievance to be justified, the griever(s) concerned, together with Grievance Committee (or part thereof) submit the grievance in writing to the Superintendent or Manager within three (3) working days of the response to Step 1. The Superintendent or Manager shall respond to the grievance within three (3) working days of receiving it. (d) Step 3: If necessary, the grievance will be submitted to the Manager of Manufacturing or the Sales\Marketing Manager within a further three (3) working days and a meeting shall be convened with the griever(s) and the Union Grievance Committee, the Field Staff Representative and the appropriate members of management in a further attempt to resolve the grievance. The Manager will respond within three (3) working days in writing to the Union. ARTICLE 7 ARBITRATION 7:01 Where a grievance has not been resolved at Step 3 of the grievance procedure, it may be referred to arbitration by either party within fifteen (15) days of the receipt of the response to Step three procedure. 7:02 The arbitration procedure incorporated in this agreement shall be based on the use of a single arbitrator, selected on a rotating basis from the following panel of the four (4) arbitrators. (1) R.D. Joyce (2) P. Barton (3) D. Stanley (4) B. Keller These arbitrators shall act singly, and in rotation with respect to each successive grievance that is referred to arbitration. Should any arbitrator be unable to hear a grievance within sixty (60) calendar days after the grievance has been referred to him or her, then that arbitrator will be passed over to the next in line, 7:03 Each of the parties will bear its own expenses with respect to any arbitration proceedings. The parties will bear an equal share of the expenses of the arbitrator. 7:04 The arbitrator shall not be authorized nor shall the arbitrator assume authority to alter, modify or amend any part of this Agreement, nor make any decision inconsistent with the provisions thereof, or deal with any matter not covered by this Agreement. 9 ARTICLE 8 SENIORITY 8:01 Seniority shall mean the length of continuous employment within the bargaining unit since the last date of hire. 8:02 Seniority shall be completely lost and an employee shall cease to be employed by the Company if an employee: (a) quits, retired, or; (b) is discharged and the discharge is upheld,or; (c) is laid off work for a period of time equal to or greater than the employees accumulated seniority since the last date of hire to a maximum of eighteen (18) months , and a maximum of twenty four (24) months with less than two (2) years seniority, two (2) or more years of seniority, or; (d) is recalled to work and fails to report within three (3) working days from receipt Of notice to return to work has been issued to their last known address, or; (0) is absent without authorization for a period of three (3) working days. 8:03 Seniority shall be maintained and accumulated during: (a) absence due to occupational accident to a maximum cumulative total of twenty- four (24) months, and extensions may be granted on a case by case basis. employees seniority, (b) Non-occupational accident or illness causing absence equal to the but not exceeding eighteen (I 9) months. 8:04 Persons on lay-off will be considered to have status only by reason of their right to recall and their rights under this Article and Article I 1 and 12. No other rights under Article 9 will flow to a laid off person under this Agreement unless otherwise specifically stated. 8:05 The Company will post the seniority list every six (6) months. 8:06 An employee with seniority rights who is promoted to a non bargaining unit position shall retain bargaining unit seniority which was accumulated at the time he/she was promoted to any non-bargaining unit position. However, all time spent working in such a non-bargaining unit position will not accumulate bargaining unit seniority. During tel initial six (6) months immediately following the date of such promotion, the promoted employee shall retain a one-time right of re-entry into the bargaining unit in tel event of demotion or should the employee change his/her mind and wish to return to an hourly bargaining unit job. The one-time right of return with prior seniority rights expires after six (6) months from tel date of the promotion. This policy will not be deviated from except where there is mutual agreement between the Union and the Company. 10 8:07 The Plant Chairperson and Chief Steward will be retained in employment without regard to seniority, provided there is work available in which they are qualified and willing to perform. ARTICLE 9 LAYOFF AND RECALL PREAMBLE: In recognition of the responsibility of management for the efficient operation of the plant, it is understood and agreed that management shall have the right to pass over any employee who does not have the skill and ability to perform tel work available. 9:01 In the case of a reduction in the workforce, the Company shall give consideration to the following factors: 1) Seniority 2) Skill and Ability 3) Efficiency of Operations Seniority will be the determining factor when, in the judgement of the Company, two (2) candidates are equally qualified. 9:02 Employees on layoff will be called back in inverse order, provided they can perform the available work efficiently. Recalled employees will be notified by registered mail or telegram sent to their last address available on Company's records. In the event an individual is unable to report to work as directed because of illness, and provides satisfactory medical evidence of such illness, the affected person will not lose his\her recall rights. 9:03 Whenever it becomes necessary to reduce the work force, the Company shall use its best efforts to provide the employee affected with two (2) working days notice in writing in advance of the date of layoff. Layoffs shall occur following a normal work week of forty (40) hours. ARTICLE 10 JOB POSTING PREAMBLE: In recognition of the responsibility of management for the efficient operation of the plant, it is understood and agreed that management shall have the right to pass over any employee who does not have the skill and ability to perform the work available. 10:01 (a) Permanent job vacancies in new or existing jobs shall be posted on the main bulletin board for a period of three (3) working days prior to filling the job vacancy. Employees desiring consideration must sign the job posting, once the Posting is removed a copy will be given to the Plant Chairperson. The Company shall use its best efforts to respond within three (3) work days after the posting has been removed. 11 (b) Awardees will be given appropriate training. 10:02 Job vacancies will be filled considering the following factors: 1) Seniority 2) Skill and Ability 3) Efficiency of Operations Seniority will be the determining factor when, in the judgement of the Company, two (2) candidates are equally qualified. 10:03 A successful applicant shall not be allowed to bid for a posted vacancy for a period of six (6) months after he/she has been accepted for a job vacancy except where there is mutual agreement between the Union and the Company. 10:04 A position in Group 1 or Group 2 in schedule A which is available and is filled by a person transferred from within the group, will not be a posted vacancy. 10:05 An employee who is temporarily transferred to meet the Company's convenience to another job for which the regular rate is less than that which the employee is receiving, shall retain hider former rate. If such transfer is to a job with a higher rate, the employee will receive the higher rate. Temporary transfers shall not exceed thirty (30) work days without mutual agreement between the Union and the Company. Temporary transfers due to leave of absence are not bound by the thirty (30) day restriction. The Plant Chairperson shall be informed of all temporary transfers, 10:06 An employee who is temporarily transferred from his\her regular job due to lack of work shall be paid the rate of pay for the job to which he\she is transferred provided the time spent on the job exceeds two (2) shifts. ARTICLE 11 HOURS OF WORK 11:01 The normal work week for all employees shall be forty (40) hours made up of five (5) days of eight (8) hours each, Monday through Friday. The weeks shall began at 12:01 A.M. Monday. Normal scheduled shifts will be: For the day shift: from 7:30 A.M. to 4:00 P.M. For the afternoon shift: from 4:00 P.M. to 12:00 A. M. Midnight. Other shifts may be established according to the requirements of the operation. In such cases the Company will discuss said changes with the Union prior to the implementation of such schedule. 11:02 Lunch periods shall be one-half (1/2) hour unpaid, 12 11:03 All authorized work performed by an employee prior to or beyond the normal eight (8) daily scheduled hours, shall be paid at the rate of time and one half (1 1\2) the employees basic hourly rate. 11:04 Any authorized work performed in excess of forty (40) hours per week, shall be paid at the rate of time and one-half hour(I 1\2) the employee's basic hourly rate, Any authorized work performed on a Saturday or Sunday will be paid at the rate of one and a half (1 1/2) times the employees regular rate of pay. 11:05 Nothing in this Article shall be construed to mean a guarantee of hours of work per day or days per week. 11:06 Employees shall be allow a five (5) minute wash up prior to the end of each shift. There will be no penalty for early punch out within the five (5) minute period. 11:07 There shall be no pyramiding of overtime rates. It is also agreed that overtime and other premiums shall not be paid more than once for any hour worked. 11:08 Employees shall be permitted a fifteen (I 5) minute rest period approximately midway through each half shift, Employees who work two (2) hours overtime or more will be allowed a fifteen (15) minute rest period at the beginning of each two (2) hour period worked. 11:09 Overtime work shall be on voluntary basis, and it is mutually agreed that overtime shall be distributed as equitably as possible among the employees who normally perform the work in the department. Should the Company not be able to get the required numbers of volunteers, they shall then schedule the most junior employee within the department who is able to perform the work. The Company and the Union agree that overtime is not the desire of both parties, therefore it is agreed that when there are bargaining unit members on layoff the Company will make every effort to keep overtime to a minimum, 11:10 Hours of overtime worked by each employee will be available to the Union monthly. 11:11 The Company will agree to give twenty-four (24) hours notice for overtime work where possible. 11:12 The Company agrees to give affected employees and the Union thirty (30) calendar days notice of any change in the starting and stopping times of employees work schedules, unless business requirements preclude the Company from so doing, ARTICLE 12 PAID HOLIDAYS 12:01 Employees shall receive eight (8) hours pay at the basic straight time rate of pay for each of the following holidays, subject to the provisions set out below: 13 NEW YEARS DAY LABOUR DAY GOOD FRIDAY THANKSGIVING DAY VICTORIA DAY CHRISTMAS DAY CANADA DAY BOXING DAY CIVIC DAY FLOATING HOLIDAY 12:02 In order to qualify for Statutory Holiday pay, an employee must have worked the last scheduled shift prior to, and the next scheduled shift after such holiday, except for reasons acceptable to the Company. 12:03 To qualify for statutory holiday pay, a new employee must have been on the company's payroll continuously for a period of ninety (90) calendar days prior to the holiday. 12:04 An employee who is scheduled to work on a Statutory Holiday and does not work, shall receive no pay unless the employee gives a reason for not working which is satisfactory to the Company. 12:05 Statutory holidays falling on a Saturday or Sunday, and July I st. holiday will be recognized on the nearest Monday unless otherwise agreed. Regarding the designated Floating Holiday, each December the Company will provide a list of potential Floating Holiday alternatives for the next year time frame which do not conflict with key production or shipping days of the Company. Such list will then be voted on by all employees. The alternative day receiving the most votes will become the designated Floating Holiday to be celebrated during the next year. 12:06 When any Statutory holiday are observed during an employee's scheduled vacation period, he\she shall receive holiday pay as per Article 12:01 above, and will receive an additional day off at a mutually convenient time. 12:07 An employee will not be able to receive holiday pay if the employee has not earned wages during the four (4) weeks immediately preceding the holiday. ARTICLE 13 VACATIONS WITH PAY 13:01 All earned vacations must be taken at a mutually agreeable time except during the annual shut down when employees not required during the shutdown will take this as vacation time. 13:02 Vacations must be taken during the calendar year in which they become due and cannot be postponed or carried over from year to year. 13:03 The vacation period commences from the I st of July to the 30th of June and is granted as follows. An hourly employee who has completed one (1) year of service as of June 30th of vacation year shall be entitled to two (2) week's vacation with pay; 5 years or more of 14 service as of June 30th of the vacation year shall be entitled to three (3) week's vacation with pay; 12 years or more of service as of June 30th of vacation year shall be entitled to four (4) week's vacation with pay; 25 years or more of service as of June 30th of the vacation year shall be entitled to five (5) week's vacation with pay. Vacation pay shall be four percent (4%) for those entitled to two (2) weeks vacation; six percent (6%) for those entitled to three (3) weeks vacation; eight percent (S%) for those entitled to four (4) weeks vacation; ten percent (10%) for those entitled to five (5) weeks vacation: of the employee's gross earning for the prior year. 13:04 Vacation scheduling will take place during the month of March. Opportunities for vacation times will be given in the following order. (1) Those required to take the vacation shut down period, (2) Employees who have remaining vacation, by seniority, and in accordance with Article 13-101 above. 13:05 Pay for earned vacation will be given to the employee at the time of the scheduled vacation. 13.06 An employee who is hospitalized because of sickness or accident while on scheduled vacation will be considered as being on sick leave during the period of such illness, Vacation time lost while in the hospital may be rescheduled at a future date to be mutually agreed upon, The Company has the right to ask for medical evidence of hospitalization, ARTICLE 14 LEAVE OF ABSENCE 14:01 An employee may apply in writing for leave of absence without pay if submitted at least (10) working days in advance of the date of the requested leave. Such leave of absence may be granted at the discretion of the Company and will be confirmed in writing, Such leaves will not be unreasonably withheld. Such leaves will not be longer than three (3) months and seniority will continue to accrue during this period. The Company may also grant an employee continuation of his/her benefits if the employee bears the total cost. 14:02 The Plant Chairperson of the Union will be notified of all leaves granted under this section. 14:03 The Company agrees to pay any employee who has been granted a leave for Union business which is not paid for by the Company and the Union shall reimburse the Company for such wage payment upon receipt of a monthly statement. Such leave of absence shall be authorized by the Union in advance of the leaves. 14:04 The Company shall follow the Employment Standards Act and any other relevant legislation with respect to Maternity and Parental Leaves. 15 14:05 The Company agrees to allow leave of absence without loss of pay or benefits of up to eight (8) hours to employees who wish to become a Canadian Citizen. Such time off work shall be paid after verification is received by the Company that such person did apply and receive his\her Canadian Citizenship, 14:06 The Company agrees to grant an employee leave of absence without pay for up to one year to work in an official capacity for the Union, provided such request is made by an authorized representative of the Union. 14:07 The authorized Negotiating Committee will be given leaves to attend negotiating sessions. Such leaves will not be unreasonably withheld. 14:08 Employees to a maximum of three (3), provided production is not. adversely affected, who have been elected or appointed by the Union to attend Union Conventions and Conferences or other Union Business may be granted a leave of absence Without pay by the Company. The Union shall notify the Company in writing as early as possible prior to the start of the leave, but. not less then fourteen (14) days, of the names of the members requiring the leave. ARTICLE 15 CALL-IN-PAY 15:01 An employee called for work outside of his\her regular working hours shall be paced: 1) Four (4) hours appropriate overtime rating. 2) The provisions above shall not apply when an employee is called to work immediately prior to the start or immediately following the end of his\her scheduled shift. In all such cases, the employee shall receive his\her appropriate overtime rate. ARTICLE 16 PAYMENT FOR INJURED EMPLOYEES 16:01 In the event that an employee is injured in the performance of his\her duties, he\she shall, to the extent that he\she is required to stop work and receive treatment, be paid for wages the remainder of his\her shift. If it is necessary, the Company will provide, or arrange for, suitable transportation for employee to the doctor or hospital and back to plant and\or to his\her home as necessary. ARTICLE 17 BULLETIN BOARDS 17:01 The Company agrees to provide Bulletin Boards in areas accessible to employees for the purpose of posting meeting notices and official Union information. All notices so posted will be authorized in advance by the Manufacturing Manager or his\her designate. ARTICLE 18 BEREAVEMENT PAY 18:01 The Company agrees that when an employee is absent from work due to death in the immediate family, he\she will be granted three (3) days leave with pay. In the event that travel is required beyond a distance of 500 kilometers, the Company will grant two (2) 16 extra days leave with pay, Immediate family is deemed to mean: spouse, son, daughter, mother, father, adoptive parents, sister, brother, brother or sister-in law, mother or father-in-law, grandparents, or grandchildren. ARTICLE 19 JURY AND WITNESS DUTY 19:01 An employee shall be granted leave of absence with pay at his\her regular hourly rate, for the normally scheduled number of hours the employee would have other-wise worked for the purpose of serving jury duty, or as a material witness subpoenaed by the Crown. Provided that the employee shall reimburse the Company to the full amount of jury pay or witness fees excluding the expense allowance received. ARTICLE 20 HEALTH AND SAFETY 20:01 The Company and the Union agree that they mutually desire to maintain high standards of health and safety in the plant in order to prevent injury and illness. The Company, the Union and the employees agree that the Occupational Health and Safety Act is binding on them and any allegation of breach will be processed in accordance with the Act. 20:02 The Company will recognize a Safety Committee composed of four (4) Company and four (4) Union appointees. This committee will meet monthly, and inspect the operations to determine any unsafe practices or conditions. 20:03 The Company will provide a safety footwear allowance of $60.00 effective I Jan 1997 and $65.00 effective I Jan 1998. The safety footwear must be purchased by the vendor chosen by the Company. Safety footwear will be worn by all employees while at work. 20:04 The Union Co-Chairperson of the Occupational Health and Safety Committee will accompany the Department of Labour Inspectors on his\her regular tours of the premises and shall receive copies of any reports sent to the Company pertaining to these inspections, ARTICLE 21 EMPLOYEE BENEFITS 21:01 Life insurance, AD&D, Dental Plan, and Supplementary Health Plan will be continued as they were before this Agreement. The Company will pay the premiums. The Sick Days Programme and the Pension Plan will also continue to operate as they were before this Agreement. ARTICLE 22 SHIFT PREMIUMS 22:01 Employees assigned to shifts beginning after 3:00 P.M. will be paid a shift premium of forty-five cents ($.45) per hour for each hour worked on that shift. 17 ARTICLE 23 SUPPER ALLOWANCE 23:01 Employees who work more two (2) hours overtime shall be entitled to six dollars ($6.00) supper allowance. ARTICLE 24 WAGES 24:01 Wages will be paid as per Schedule A with the exception of the thirty-one (31) red circled employees who are above the job rate as of the date of ratification. Effective July 24, 1996 $.20 cents Effective July 24, 1997 $.22 cents ARTICLE 25 DURATION OF AGREEMENT 25:01 This agreement shall become effective 24 July, 1996 and shall remain in effect until 24 July 1998 and shall thereafter continue for a period of one (1) year unless either party notices, in writing, to the other party within ninety (90) days prior to its expiration date that is desires revisions, modifications, or terminations of this agreement at its expiration date. FOR THE COMPANY FOR THE UNION ______________ ___________________ WIM VAN VOORST JAMES CAIRNS PRESIDENT, CEO UNION COMMITTEE PERSON _________________ ___________________ CHERIE L. ANTONIAZZI DOLTON FRAISER EXEC. DIR. HUMAN UNION COMMITTEE PERSON RESOURCES ______________ ___________________ DUANE WEBSTER DARSHAN SHAH LOGISTICS MANAGER UNION COMMITTEE PERSON ____________________ TONY DE PAULO USWA STAFF REPRESENTATIVE DATED 2ND DAY OF AUGUST, 1996, 18 SCHEDULE A Effective Effective July 24, 1996 July 24, 1997 ------------- ------------- Prob. Rate Job Rate Prob. Rate Job Rate Group 1 Custodian 9.20 10.20 9.42 10.42 Entry Level 9.20 10.20 9.42 10.42 Machine Operator 9.20 10.20 9.42 10.42 Material Handler 9.20 10.20 9.42 10.42 Sub Assembler 9.20 10.20 9.42 10.42 Group 2 Electrical Assembler 10.20 11.20 10.42 11.42 Final Assembler 10.20 11.20 10.42 11.42 Packer 10.20 11.20 10.42 11.42 Punch Press Operator 10.20 11.20 10.42 11.42 Upholstery Assembler 10.20 11.20 10.42 11.42 Wheel Assembler 10.20 11.20 10.42 11.42 Whse. Order Picker 10.20 11.20 10.42 11.42 Group 3 Assistant Shipper 10.95 11.95 11.17 12.17 Auto Brazer 10.95 11.95 11.17 12.17 Fork Lift Driver 10.95 11.95 11.17 12.17 Powder Painter 10.95 11.95 11.17 12.17 Power Assembler 10.95 11.95 11.17 12.17 Quality Control Inspector 10.95 11.95 11.17 12.17 Ram Bender/Set Up Operator 10.95 11.95 11.17 12.17 Receiver 10.95 11.95 11.17 12.17 Service Parts 10.95 11.95 11.17 12.17 Sewing Machine Operator 10.95 11.95 11.17 12.17 19 LETTER OF AGREEMENT August 2, 1996 BENEFIT PROGRAMS This "Letter of Agreement" confirms mutual understanding between the Company and the Union that upon consummation of the acquisition of all of the shares of the Company by Graham-Field Health Products, Inc., a review of the benefit programs will be undertaken. The Company agrees that the benefits offered to the employees will be, in the aggregate, equal to the value of the benefits currently provided. The Company will discuss any proposed changes to the benefits structure with the Union. Notwithstanding anything to the contrary contained in this agreement, the benefits and plans of insurance referred to above are qualified in their entirety by reference to the underlying policies and contracts of insurance or statutes or regulations. The terms of any contract, statute or regulation in respect thereof by any insurance agency or governmental agency shall be controlling in all matters pertaining to the existence of and extent of benefits and conditions. The undersigned agree with the terms of the above letter. FOR THE COMPANY FOR THE UNION WIM VAN VOORST JAMES CAIRNS PRESIDENT AND CEO UNION COMMITTEE PERSON CHERIE L. ANTONIAZZI DOLTON FRAISER EXEC. DIR. HUMAN UNION COMMITTEE PERSON RESOURCES DUANE WEBSTER DARSHAN SHAH LOGISTICS MANAGER UNION COMMITTEE PERSON TONY DE PAULO USWA STAFF REPRESENTATIVE 20 LETTER OF AGREEMENT August 2, 1996 UNION REPRESENTATION This "Letter of Agreement" confirms mutual understanding between the Company and the Union that the Company will provide the Union with access to a filing cabinet and a telephone for local calls at the Company's facility covered by the current Collective Agreement. The undersigned agree with the terms of the above letter. FOR THE COMPANY FOR THE UNION WIM VAN VOORST JAMES CAIRNS PRESIDENT AND CEO UNION COMMITTEE PERSON CHERIE L. ANTONIAZZI DOLTON FRAISER EXEC. DIR. HUMAN UNION COMMITTEE PERSON RESOURCES DUANE WEBSTER DARSHAN SHAH LOGISTICS MANAGER UNION COMMITTEE PERSON TONY DE PAULO USWA STAFF REPRESENTATIVE 21 EX-10.(Z) 17 UNION CONTRACT EXHIBIT 10(z) Union contract dated September 13, 1996, between Everest & Jennings Inc. and District No. 9, International Association of Machinists and Aerospace Workers. ================================================================================ INDEX 1996-1999 COLLECTIVE AGREEMENT BETWEEN EVEREST & JENNINGS AND THE MACHINIST AND AEROSPACE WORKERS IAMAW DISTRICT #9 ================================================================================ ARTICLE PAGE NUMBER DESCRIPTION NUMBER - ------ ----------- ------ Preamble.................................................... 1 Article I Purpose of Agreement........................................ 2 Article II Recognition................................................. 2 Article III Union Security.............................................. 3 Article IV Non-Discrimination.......................................... 7 Article V Non-Interruption of Work.................................... 7 Article VI Seniority................................................... 7 Article VII Hours of Work............................................... 11 Article VIII Overtime.................................................... 12 Article X Holidays.................................................... 14 Article XI Vacation.................................................... 15 Article XII Perfect Attendance Recognition.............................. 17 Article XIII Insurance and 401(K) Savings Program........................ 17 Article XIV Bereavement................................................. 19 Article XV Leave of Absence............................................ 19 Article XVI Jury Duty................................................... 21 Article XVII Grievance and Arbitration Procedure......................... 22 Article XVIII Disciplinary Action......................................... 23 Article XX Drug Testing................................................ 24 Article XXI Management Rights........................................... 25 Article XXII Alteration of Agreement..................................... 26 Article XXIII Separability................................................ 26 Article XXIV Notices..................................................... 26 Article XXV General..................................................... 27 Article XXVI Duration.................................................... 27 Letter of Agreement "Benefit Programs" 29 Letter of Agreement "Severance" 30 Amendment A 31,32,33 Amendment B 34,35 Amendment C 36,37 Amendment D 38 Schedule A 39,40 Preamble This Agreement made and entered into by and between Everest & Jennings Inc. and or its successors and assigns, hereinafter referred to as the "Company" and District No. 9, International Association Of Machinists and Aerospace Workers, hereinafter referred to as the "Union" is for the joint use and benefit of the contracting parties as defined and set forth herein. 1 Article I Purpose of Agreement It is the intention of the parties that this Agreement will establish sound and meaningful relations between the Employer and the Union on behalf of its employees, which will promote harmony and genuine cooperation to the end that the Employer and the employees may mutually benefit. Article II Recognition Section 1.0 The Employer hereby recognizes District No. 9, International Association of Machinists and Aerospace Workers, its designated agents and representatives and/or assigns pursuant to the Labor-Management Relations Act, as amended, as the sole and exclusive collective bargaining agent on behalf of all of the employees of the Company within the bargaining unit as herein defined with respect to wages, hours, and working conditions. The term "employee" as used in this Agreement shall mean and include the following: All production, maintenance, and distribution employees employed by the Employer at its 3601 Rider Trail South, Earth City, Missouri 63045 facility. EXCLUDING Customer Service, Engineering, Sales and Marketing, office clerical and professional employees, temporary employees, guards, and supervisors as defined in the Act. The employees represented by the Union and covered by this Agreement are sometimes hereinafter collectively referred to as the "employees" or individually as the "employee". This Agreement shall be applied in the same manner to all employees. Whenever reference is made to the male gender, the word "his" etc. refers to both genders and is used only for expediency. Section 2.0 Bargaining Unit Work Persons not in the bargaining unit shall not perform work ordinarily performed by bargaining unit employees except in the event of testing/experimental work, training, and emergency situations including unexpected absenteeism and equipment breakdown. Notice of the emergency situation will be given to the Chief Steward or his/her delegate. (An emergency situation would be a condition that could not reasonably have been anticipated to occur during the course of normal operations or that threatens serious consequences to the Employer's operations.) 2 Article III Union Security Section 1.0 It shall be a condition of continued employment that all employees of the Employer covered by this Agreement who are members of the Union on the effective (execution) date of the Agreement shall remain members and those who are not members on the effective (execution) date of this Agreement shall, not later than the sixty-first (61st) day (or such longer periods as the parties may specify) following the effective (execution) date of this Agreement, become and remain members in the Union. It shall also be a condition of continued employment that all employees covered by this Agreement and hired on or after its effective (execution) date shall, not later than the sixty-first (61st) day following the beginning of such employment, become and remain members in the Union. The Company will within three (3) working days after receipt of notice from the Union, via certified mail to the Director of Human Resources at the address of record, discharge any employee who is not in the Union as required by the preceding paragraph. The Union shall indemnify and save the Employer harmless against any and all claims, demands and suits, or other forms of liability that shall arise out of or by reason of action taken by the Employer for the purpose of complying with any of the provisions of this article. Section 2.0 Dues Check-off Upon receipt of signed authorization from the employee involved, the Employer shall deduct from the employee's pay the initiation and/or reinstatement fees and dues payable by him/her to the Union during the period provided for in said authorization. The amount will be certified by the Financial Secretary of the Local Lodge. Deductions shall be made on account of initiation and/or reinstatement fees and dues payable from the first pay of the employee after receipt of the authorization. Deductions shall be made on account of Union dues from the first pay check of the employee after receipt of the authorization and monthly thereafter from the first pay of the employee in each month. Deductions provided in the first paragraph of this article shall be remitted to the Financial Secretary of the Union no later than the tenth (10th) day of the month following the month in which the deduction was made and shall include all deductions made in the previous month. The Employer shall furnish the Financial Secretary of the Union, monthly, with a record of those for whom deductions have been made and the amounts of the deductions, and the names of those employees for whom deductions were not made and the reason they were not made. 3 The parties agree that check-off authorization shall be in the following form: Name of Employee___________________________________________ (Please Print) Dept. No. ____________ Clock No.________________________ Social Security No._________________ Date_____________________ I hereby authorize and direct ________________ to deduct from my pay beginning with the current month, initiation and reinstatement fees and my regular monthly Union dues, as certified to the Company by the Financial Secretary of the Union, on account of membership dues in Lodge No. of the International Association of Machinists and Aerospace Workers. I submit this authorization and assignment with the understanding that it will be effective and irrevocable for a period of one (1) year from this date, or up to the termination date (if any) of the current collective bargaining agreement between and Lodge No.____________ of the International Association of Machinists and Aerospace Workers, whichever occurs sooner. This authorization and assignment shall continue in full force and effect for yearly periods beyond the irrevocable period set forth above, and each subsequent yearly period shall be similarly irrevocable unless revoked by me within five (5) calendar days prior to the date of termination of any irrevocable period hereof Such revocation shall be effected by written notice, sent by Registered Mail, Return Receipt Requested, to the Employer and the Union within such five (5) work day period. Signature____________________________________ If, due to illness or being on vacation, an employee's dues are not checked off, such deduction will be made no later than the tenth (10th) day of the month following his return to work. Section 3.0 Union Committee The Company recognizes and will deal with all accredited members of the Shop Committee, Stewards, and all other Business Representatives in all matters relating to grievances, interpretations of the Agreement or in any other matters which affect, or may affect, the relationship between the Company and the Union. A written list of the Shop Committee members and Union Stewards shall be shed to the Company immediately after their designation, and the Union shall notify the Company promptly of any changes. 4 There shall be one (1) Shop Steward or Committee Person over the employees in the bargaining, unit. The number and location of Stewards may be adjusted by mutual agreement of the Company and Union. A Committeeman or Steward will be permitted to leave his work station to attend grievance meetings provided such Committeeman or Steward obtains permission from his Supervisor prior to leaving his workstation and obtains permission from the Supervisor of the area into which he is going. Such permission shall not be unreasonably withheld. All other grievance meetings, investigations, and Union business will be conducted during non-working hours, unless permission is granted by the Company; provided, however, if any such meeting is called by the Company during working hours, the Committeeman or Steward will be compensated for the time lost during working hours. Section 4.0 New Employees-Notification The Employer shall notify the Union in writing within seven (7) days from date of hiring new employees. The following information will be given: 1. Name and home address. 2. Social Security number. 3. Classification and rate of pay. 4. Date of hire. Copy of the above information will be transmitted to the Local Union. Section 5.0 Visitation A designated Business Representative of the Union may be permitted on the Company premises for the purpose of conducting his/her duties provided prior approval is obtained from the Director of Human Resources. It is further understood every effort will be made to minimize and/or avoid any interference or disruption with normal production activity. Such designated Business Representative shall comply with the security regulations as required of all other facility visitors. Article IV Non-Discrimination The provisions of this Agreement shall apply to all employees covered by this Agreement, without discrimination on account of race, color, national origin, sex, creed, marital status, veteran status, handicap status, or age contrary to the Age Discrimination Act of 1967, as amended. The Company will not interfere with, restrain, or coerce the employees covered by this Agreement because of membership in or activity on behalf of the Union. 5 Article V Non-Interruption of Work Section 1.0 During the term of this Agreement, there shall be no lockouts by the Company and the Union agrees that neither it nor any of the employees covered by this Agreement will call, cause, instigate, engage in, promote, foment, or ratify a strike, stoppage, slowdown, or any interference with normal production of any kind whatsoever. Section 2.0 It is agreed that violation of this Article by any employee shall be considered grounds for disciplinary action up to and including discharge of such employee for cause. Article VI Seniority Section 1.0 Probationary Period A new employee will be a probationary employee for a period of sixty (60) days after the employee's date of hire. The Company shall have the right, upon agreement of the Union to extend the probationary period for an additional thirty (30) days whenever deemed necessary. If an employee is absent from work due to a Worker's Compensation injury or on Worker's Compensation light or limited duty, the employee's probationary period shall be extended by the period of such absence or light duty assignment. During the probationary period, the Company may discharge a probationary employee, with or without cause, and such action shall not be the subject matter of any grievance thereunder. Upon successful completion of the probationary period, the employee's seniority shall date from the date of hire. Section 2.0 Definition of Seniority Seniority is deemed as an employee's length of service with the Company. The department that an employee is assigned to at the time of hire is the employee's "home department". An employee continues to accrue seniority in the employee's home department. An employee temporarily transferred to another department remains assigned to the employee's "current department." If an employee is permanently transferred (via job bid) to another department, then the employee will thereafter accrue seniority in the reassigned department. An employee retains all seniority accrued in each department that the employee has been permanently assigned to during the employee's continuous employment by the Company. 6 Section 3.0 An employee with seniority rights who is promoted to a non-bargaining unit position shall retain bargaining unit seniority which was accumulated at the time he/she was promoted to any non-bargaining unit position. However, all time spent working in such a non-bargaining unit position will not accumulate bargaining unit seniority. During the initial twelve (12) months immediately following the date of such promotion, the promoted employee shall retain the right of re-entry into the bargaining unit in the event of demotion, layoff resulting from lack of work or should the employee change his/her mind and wish to return to an hourly bargaining unit job. This right of return with prior seniority rights expires after twelve (12) months from the date of promotion. Section 4.0 Termination of Seniority The seniority and employment status of an employee shall terminate for any of the following reasons: (a) Voluntary quit by the employee. (b) Discharge for cause. (c) Three (3) consecutive work days of unreported absence without a bona fide reason, acceptable to the Company, for not reporting such absence. (d) Failure to report for work within three (3) working days after release by the attending doctor when an employee is on a compensable injury or illness leave of absence. (e) Failure to report for work when recalled from lay off within five (5) working days after the date of notice from the Company. (f) Failure to return to work at the end of any leave of absence. (g) If the employee has performed no work for the Company for a period of one year. Section 5.0 Layoff If there is a layoff in a department, an employee that is affected shall be transferred in inverse order of previous assignments to a department in which an employee has departmental seniority greater than another employee in that department. The employee being transferred must be able to demonstrate that the employee's skill and ability is relatively equal to the incumbent employee to be displaced by the employee being transferred. If the employee is unable to displace a less senior employee, m a previously held department the employee will use their plant seniority to displace the least senior employee in their home department. If the employee cannot displace the least senior employee in their home department; then the employee will be 7 placed into an entry level position that their plant seniority will allow them to hold. Section 6.0 Recall The recall of employees from layoff will be in reverse order of the layoff. An employee recalled to work shall be notified by certified mail, return receipt requested, addressed to the employee at the employee's last known address on the Company's records, or the employee may be recalled by telegram or telephone. Upon receipt of notice to return to work, an employee shall contact the Company within two (2) working days, indicating the employee's intent to return to work and shall report for work within five (5) working days after the date of notice from the Company. Recall Preference Election Form In connection with your layoff which was effective __________________, below indicate your choice for recall. Please check one. ________ I wish to be recalled to perform any entry level position when my seniority would allow me to return. ________ I wish to be recalled to perform in a previously permanently assigned position I've held when my seniority would allow me to return to such a position. ________ I wish to be recalled to perform my current position 2& when my seniority would allow me to return to it. My signature below acknowledges my understanding of the following recall conditions: 1. My recall will be subject to the choice I elected above along with my eligibility for recall at such time. 2. Regardless of my above election I understand I will be recalled to work before any new employees are hired into positions for which I am qualified to perform. 3. If I later wish to change my above choice, I must do so in writing in person at the Human Resources Department. Any change of my choice will not become effective until after five (5) working days following such change. Employee Signature:___________________ Date:___________________ Section 7.0 Job Bids Job bids will be posted for all new or vacant hourly positions. 8 *Bids will be posted on the employee bulletin board for three (3) working days. *Bids will be awarded by seniority under the following criteria: -The senior employee will be awarded the bid if he/she has the skills and ability to perform the job or has successfully completed a company training program. -If the employee has not been awarded another job bid in the last six (6) months. -Certification for forklifts must be completed prior to the bid coming down. *Once a job bid has been taken down and awarded, the awardee cannot withdraw from the bid (employee has three (3) days while the bid is on the board to investigate the open position), *Once transferred if an employee cannot perform the job, he/she will be returned to their previously held position if open or any open position for which they are qualified. Lead positions are chosen by criteria other than seniority. Seniority will be the determining factor if two (2) candidates are equally qualified in all job requirements. Example: Leads/Trainers Employee's entire employment record is considered: * Absenteeism * Team effort * Communication skills * Follows company policies * Skill (written and/or oral test may be given) Highly skilled operations are awarded based on skill and ability demonstrated via performance test. Seniority will be the determining factor if two (2) candidates are equally qualified in all job requirements. Job Bids. If a job classification within a department on any shift becomes open, the senior employee in the same classification will be given the opportunity to fill the shift opening, provided such a transfer does not adversely affect normal operations. Section 8.0 Training The Company encourages employees to enhance their skills through job relatedness training programs offered by Everest & Jennings. Time spent in training programs not offered during the employees normal work hours Will not be paid by the Company. At no time will overtime premium be paid for employee attendance in training initiated by the employee. 9 Section 9.0 Management reserves the right to temporarily transfer employees to any job deemed necessary. The Company will make every attempt to select employees based on seniority, provided they have the skill and ability to perform the work available. Temporary transfers shall not exceed thirty (30) work days without mutual agreement between the Union and the Company. Temporary transfers due to leave of absence are not bound by the thirty (30) day restriction. The Chief Steward or designate shall be informed of all temporary transfers. Article VII Hours of Work Section 1.0 Forty (40) hours per week, Monday through Friday, eight (8) consecutive hours per day exclusive of an unpaid lunch period, shall constitute a normal work week. It is understood, however, that the Company does not guarantee to provide forty (40) hours of work weekly or eight (8) hours of work daily to any employee. At the execution date of this Agreement, the shift starting times are as follows: 1st shift 6:00 A.M.; 2nd shift 3:00 P.M. The Company may change these starting times during the term of this Agreement and may vary such starting times for different individuals, groups or departments, but the Union will be advised in advance. Section 2.0 Break/Lunch Periods Two (2) rest periods will be given to the employees, one (1) in the first half of the shift consisting of fifteen (15) minutes, and one in the second half of the shift consisting of ten (10) minutes. A thirty (30) minute unpaid lunch period shall be provided as near as practical to the middle of the shift. Article VIII Overtime Section 1.0 All work performed in excess of eight (8) hours during a day or in excess of forty (40) hours during the work week shall be paid for at the rate of time and one half (1-1/2). All work performed on Sunday shall be paid for at the rate of double time, provided such employee worked a minimum of forty (40) hours in that work week and all scheduled hours on Saturday. Holiday and vacation time will be considered as a day worked for computation of overtime pay. 10 Section 2.0 There shall be no pyramiding of overtime rates. It is also agreed that overtime and other premiums shall not be paid more than once for any hour worked. Section 3.0 Overtime Notice The Company recognizes that it is in the best interest of the employees and the Company to have as much notice of overtime as possible. The parties also recognize, however, that because of customer demands, it is not always possible to give advance notice of overtime. Whenever possible the Company agrees to post a notice of Saturday or Sunday overtime by 11:00 A.M. on the preceding Thursday; provided that if conditions change the Company may cancel such overtime on Friday. Notice of week day overtime will be given at least one full shift in advance; provided, however, because of customer demands, employee absenteeism, or other such emergencies, overtime can be scheduled without such notice upon notification to the Chief Steward or other union official of the reason therefore. (Second shift employees working a full shift on Friday will not be required to report until eight (8) hours have elapsed since the end of the shift on Friday. It must be understood, however, such employees win work the full scheduled number of hours, as posted, on Saturday). Section 4.0 Overtime Assignment Preference for overtime work shall be given to employees (excluding probationary employees) regularly employed on such job or operation and where less than all the employees regularly employed on such job or operation are needed for overtime work. Preference for such work shall be in the first instance given to employees in order of seniority. In the event an insufficient number of employees choose to work the overtime, then the least senior employee shall be required to work. Nothing in this paragraph shall be construed to require the Company to pay twice for the same work done; if the parties agree that a qualified employee has been neglected as to the offer of overtime, his/her remedy shall be the offer of additional future overtime. Where practical overtime will be distributed equally on a rotational basis. It is agreed that in order to equally distribute overtime, the principle of availability for work must prevail. In view of the above, if an employee is offered overtime, he/she will be charged with overtime credit as though he/she had actually worked. Nothing in this Section shall affect the right of the Company to require the entire plant and/or an entire department or classification to work overtime, in which case the entire department or classification will be required to work. 11 Article IX Wages Section 1.0 Wages will be paid as per Schedule A with the exception of the eleven (11) red circled employees who are above the job rate as of the date of ratification. Effective September 13, 1996 $.15 Effective September 13, 1997 $.25 Effective September 13, 1998 $.25 Section 2.0 Reporting Pay If an employee reports for work at his/her regularly scheduled starting time without having been previously notified not to report, he/she shall be given four (4) hours work at the employees regular rate of pay. If no work is available the employee shall receive four (4) hours pay; provided, however, that all of the foregoing shall not be applicable in the case of labor disputes or contingencies such as an "act of God," fire, power failure, riots, civil disturbances, or other causes beyond the Company's reasonable control. An employee who does not elect to do the work assigned to him/her will not receive any pay under this section. Section 3.0 Night Shift Premium Employees assigned to the second shift will be paid a shift premium of twenty-five ($.25) per hour for each hour worked on that shift. The third shift pay differential shall be thirty-five ($.35) per hour. Article X Holidays Section 1.0 All employees who have completed their probationary period shall be eligible to receive the following holidays with pay irrespective of the day of the week on which the holiday falls: New Year's Day Day After Thanksgiving Good Friday Christmas Eve Day Memorial Day Christmas Day July 4th Floating Holiday Labor Day Employee's Birthday Thanksgiving Day Section 2.0 Should any of the holidays fall on Saturday or Sunday, the day celebrated as such shall be either Friday or Monday. Regarding the designated Floating Holiday, each December the 12 Company will provide a list of potential Floating Holiday alternatives for the next year time frame which do not conflict with key production or shipping days of the Company. Such fists will then be voted on by all Company employees. The alternative day receiving the most votes will become the designated Floating Holiday to be celebrated during the next year. Employees shall be entitled to use their birthday as a holiday. Such holiday shall be taken within the contract year or be lost. Section 3.0 The pay for each holiday shall be eight (8) times the individual employee's current hourly base rate. Section 4.0 An employee who is absent from work without reasonable cause on the workday before or the workday after a holiday shall not be entitled to holiday pay. For the purpose of determining eligibility for holiday pay, Saturday work shall not be considered "the workday before or the workday after" a holiday. Section 5.0 Employees on an authorized leave of absence for any reason shall be entitled to holiday pay unless such employees are absent from work as follows: a. The entire week immediately preceding the week in which such paid holiday occurs; and b. The entire week during which such paid holiday occurs; and c. The entire week immediately following the week in which such paid holiday occurs. Section 6.0 In the event an employee works on one (1) of the above mentioned legal holidays, then such employee shall be compensated at the rate of time and one-half (1-1/2) for those hours worked in addition to all holiday pay to which the employee is entitled. Article XI Vacation Section 1.0 Within any calendar year, an employee shall be eligible for vacation as follows: a. Employees who have completed one (1) year through four (4) years of continuous service shall receive two (2) weeks paid vacation. 13 b. Employees who have completed five (5) years through fourteen (14) years of employment shall receive three (3) weeks paid vacation. c. Employees who have completed fifteen (15) through twenty-four (24) years of employment shall receive four (4) weeks paid vacation. d. Employees who have completed twenty-five (25) or more years of employment shall receive five (5) weeks paid vacation. Section 2.0 Every effort shall be made by the Employer to provide the opportunity for employees to take vacations at times desired by them, giving due consideration to the operating needs of the Employer if requests for vacation periods are submitted at least s (60) days prior to the first day of the vacation period request. In the event of a conflict in dates requested, vacation periods shall be granted on the basis of seniority. Section 3.0 In the event that a paid holiday falls within a vacation period, employees entitled to holiday pay shall be entitled to either receive such holiday pay in addition to the vacation pay herein provided, or the employee may upon request add to the vacation the day or days covered by the holiday. Section 4.0 Vacation pay shall be paid on the payday immediately preceding the vacation period. Provided one week's notice is given. Vacation pay for forty (40) hours or more will be paid via a separate check. Section 5.0 Employees who are absent from work due to a leave of absence for any reason prior to the commencement of a vacation period shall receive pro rata vacation pay (but not length of vacation) as follows: Percentage of workdays absent Percentage of in last twelve (12) month period vacation or since last vacation period, pay to which whichever period of time is shorter the employee is entitled. - ----------------------------------------------- ------------------- 16% or less 100% 17%-25% 90% 26%-33% 80% 34%-42% 70% 43%-50% 60% 14 51%-60% 50% 61%-70% 40% 71%-75% 30% 76%-80% 20% 81%-90% 10% 91%-100% 0% Section 6.0 Employees who have completed one (1) year or more of continuous service with the Company will be granted pro rata vacation pay, if they resign with two (2) weeks prior notice. Employees discharged for cause will not receive pro rata vacation pay. Section 7.0 When unforeseen circumstances arise during the normal work week which cause an employee to miss work, such time away can be used as vacation time provided a minimum of 48 hours advance notice is given, (this may be modified if the Company believes that extenuating circumstances justify an exception), and such time off is limited to four (4) hour or eight (8) hour increments per instance. A maximum of five (5) vacation days can be utilized in this fashion per year. Such circumstances shall include medical, legal, or financial appointments which cannot be scheduled around normal working hours. Section 8.0 Vacation must be taken in the year earned. Unused vacation hours will not be carried over to the next anniversary year. Section 9.0 Employees who voluntarily work with the consent of the Company during their vacation periods shall receive pay as aforesaid in addition to regular earned pay for such periods. Vacation not used prior to the employee's anniversary date will be paid in a lump sum payment to the employee. Article XII Perfect Attendance Recognition Employees may earn a bonus of two (2) hours of base earnings for each quarter year (3 months) of perfect attendance. Missing time one quarter will not jeopardize earnings for any other quarter, but the bonus hours will be forfeited for that quarter. Quarters of the year are: 1) January, February, March; 2) April, 15 May, June; 3) July, August, September; 4) October, November, and December. To earn bonus hours, employees must work an entire quarter without any lost time. In checking attendance for this program, an absence is defined as any scheduled work day missed for reasons other than death in the family, jury duty, or approved leave of absence. A scheduled day includes properly notified mandatory overtime, and voluntary overtime (when an employee volunteers to work overtime the time becomes a scheduled work day). The Company may pay off at each employee's current hourly rate after each quarter if requested by the employee. The maximum accumulation of eight hours per year will be paid out at the end of the fourth quarter reconciliation. Employees who have worked an entire year (January I through December 3 1) without any absence under program rules will be awarded a fifty dollar ($50) U.S. Savings Bond at a designated time after the year has ended. Article XIII Insurance and 401(K) Savings Program Section 1.0 Group Insurance Eligibility: First of month following successful completion of probationary period. o Life Insurance/Accidental Death & Dismemberment insurance benefit: One (1) times base salary. o Medical Insurance: Point of Service Plan that includes indemnity plan benefits, and Preferred Provider Organization (PPO). Current Medical Plan includes vision coverage if Preferred Provider is utilized. o Dental Insurance: Indemnity coverage up to $1,500 coverage per person per year, or Dental Maintenance Organization benefits for using preferred providers. Employee Co-Pay Medical & Dental Base Annual Earnings Base Annual Earnings of $20,000 or less over $20,000 Medical Employee $1.28/week $2.57/week Employee + 1 $3.78/week $6.3 1 /week Employee + Family $7.54/week $11.96/week Dental Employee $.58/week Employee + 1 $1.83/week Employee + Family $2.67/week 16 o Short Term Disability Insurance: 60% regular weekly base salary to a maximum of $250 per week for up to 26 weeks beginning 8th day of disability. o Voluntary Supplemental Accidental Death & Dismemberment Program: Coverage available from $25,000 to $500,000 at Employee cost. Section 2.0 401 (k) Savings Plan Eligibility: The first quarter after reaching age 21 with one (1) year of service. Benefits: o Variety of investment options. o Voluntary employee pre-tax contributions from 1%-15% of annual salary. o Each employee will be permitted to participate in the Employer's 401(k) Plan, as currently in effect on the date hereof It being expressly understood that the Employer does not currently contribute to its 401(k) plan. In the event the Employer contributes to its 401(k) plan for its non-union employees, the Employer agrees that it will also contribute in the same manner for Union employees. Article XIV Bereavement If a regular, full-time employee on the active payroll is absent from work for the sole purpose of arranging for or attending the funeral of a member of his immediate family, as defined below, the Company shall pay him for eight (8) hours at his straight time hourly rate for each day of such absence up to a maximum of three (3) days, provided: (a) The employee notifies the Company of the purpose of his absence, (b) the days of the absence are the day before, the day of and the day after the funeral; (c) the day of absence is a day during which the employee was scheduled to work and would have actually worked but for the absence, and (d) the employee, upon request furnished proof satisfactory to the Company of the death, his relationship to the deceased, the date of the funeral and the employee's actual attendance at the funeral. For purpose of his Section, a member of the immediate family means the employee's spouse, children, parents/or legal guardian, brothers, sisters, grandparents, mother in-law or father in-law. Article XV Leave of Absence Section 1.0 Leave of absence may be granted to an employee, who has completed his/her probationary period for good cause subject to 17 reasonable extension; provided, the employee requests such extensions prior to the expiration of his leave of absence. Section 2.0 An employee desiring a leave of absence shall make application at least five (5) working days prior to the desired effective date. This requirement is waived in cases of actual emergencies. Section 3.0 Good cause for granting leaves of absence shall include personal illness or accident, death or serious illness in the immediate family, Union business, and other reasons acceptable to the Company. Written substantiation satisfactory to the Company must be submitted. The Company and the Union agree to abide by the Family Medical Leave Act A). Duration of the leave shall not exceed the Act. Section 4.0 Any employee who may require off to attend Union conventions, meetings, or other official Union functions shall be granted such leave without pay, but with continued accumulation of seniority; provided: a. The employee gives the Company two (2) weeks advance notification. b. There will only be two (2) employees per one hundred (100) employees in the bargaining unit allowed at any one time. c. There will only be one (1) employee from any one (1) department allowed at any one time. d. Such leave shall not last longer than two (2) weeks. Section 5.0 An employee certified by the Union to be a full time Union official shall, at the request of the Union, receive a leave of absence to engage in work pertaining to the business of the Union. Such an employee shall accumulate seniority throughout the period of leave of absence. However, only one (1) employee will be allowed such leave at any one (1) time which will be limited to six (6) months, and may be extended for an additional six (6) months upon mutual agreement between the Company and the Union. Section 6.0 Leaves of absence shall not be granted for the purpose of allowing an employee to take another position, to seek or try out new work, or to enter business for himself, and similar reasons. 18 Section 7.0 Leaves of absence will be granted only when the manning requirements of the Company permit, except in cases of actual emergencies. Section 8.0 If application for leave of absence is denied and the employee leaves, or if the employee fails to return to work at the expiration of a granted leave of absence, then such employee shall be considered to have voluntarily quit. Section 9.0 Upon return to work from a medical leave of absence, not in excess of six (6) months, the employee shall be reinstated to their regular assigned job if the employee returns to work with a written physician's statement within three (3) working days after their release. For approved personal leaves of up to thirty (30) days, the employee shall be reinstated to their regular assigned job. In the case the job has been abolished during an employee's leave of absence, such decisions shall apply to re-employment as would have applied had such employee been at work at the time the job was abolished. Section 10.0 The Chief Shop Steward shall be notified of all leaves of absence granted. Section 11.0 Military Service A. An employee, who is drafted, volunteers, or is recalled to active duty in the United States Military Service, upon completion of his first service period, having served no more than four years (five if required to serve a fifth year due to war or other emergency) shall if application is made within ninety (90) days after he is honorably discharged from active duty, be reinstated to his last held job classification with full seniority rights as if he had been actively employed by the Company during the period of his military service. Provided, the employee is still qualified to perform the duties of his last held job classification and provided, further, the Company's circumstances have not so changed to make it impossible or unreasonable to employ him. B. An employee reinstated, as provided in Section I above, shall receive an hourly rate of pay equal to his rate of pay at time of entering military service together with any adjustments having been made in the rate of pay of his job classification, during his absence. Time spent in the 19 military service shall not be considered as employment for the purpose of calculating any periodic increases which he would have received had he been actively employed by the Company. C. An employee required to serve Military Reserve or National Guard Duty will be granted an unpaid leave of absence without break in continuous service, provided military orders are presented in advance of such leave or upon return when reporting in advance was not possible. Employees on approved military leave may use vacation pay during this period. Article XVI Jury Duty An employee who has completed Its probationary period, who is summoned for jury service and who presents to the Company proper evidence as to jury service and the amount of compensation received for such service, shall be paid the difference between his compensation as a juror and an amount equal to eight (8) times his hourly base rate of pay for each day of jury service performed during the regular workweek on which the employee otherwise would have been scheduled to work but not to exceed (20) days in any one calendar year. (Mileage reimbursement received for jury service shall not be considered as jury compensation for the purpose of calculating differential pay.) The provisions of this Article are not applicable to an employee, who, without being summoned, volunteers for Duty. Employees who are released from Jury Duty during the first half of their regular shift, when reasonable, are to report to work to complete the remaining hours of work on that shift. Article XVII Grievance and Arbitration Procedure Section 1.0 The Company and the Union agree to meet and deal with each other through their duly accredited officers, committees and representatives on all matters relating to hours, wages, and other conditions of employment relating to the employees of the Company covered by this Agreement. Should any employee feel that he has been aggrieved, there shall be no suspension of work on account of such differences, but an earnest effort shall be made to settle such differences in the following manner: Step 1. The grievance shall be taken up with the employee's supervisor by the employee, or by the employee and his/her shop steward, within two (2) regular working days after the event causing the grievance. No action or matter shall be considered the subject of a grievance unless a complaint is made within two (2) regular working days of its occurrence. The supervisor shall give his answer to the grievance within two (2) regular working days after receipt of the grievance. 20 If the grievance is not resolved at this Step, it shall be referred to Step 2 within two (2) regular working days after receipt of the reply of the supervisor. Step 2. If settlement is not reached in Step 1, the Chief Shop Steward shall present to the foreman for his forwarding to the designated Company Representative, a written statement of the grievance by the aggrieved employee, giving all pertinent information relative to the grievance and indicating the relief requested. The designated Company Representative shall give his written reply to the grievance within three (3) regular working days. If the grievance is not resolved at this Step, it shall be referred to Step 3 within three (3) regular working days after receipt of the reply from the designated Company Representative. Step 3. If a settlement is not reached at Step 2, the grievance shall be referred to the designated Company Representative within three (3) regular working days who will arrange a meeting with the Business Representative of the Union on a mutually satisfactory date. At this meeting, the final decision of the Company will be given unless otherwise agreed upon. It is agreed that upon request the employee filing the grievance, and the Chief Shop Steward shall be allowed to be present at the meeting described in this Step. Step 4. In the event the grievance is not resolved in the preceding steps, the grievance may be appealed to arbitration, by the Union, by submitting a letter of intent to arbitrate within thirty (30) days of the Company's final decision sent to the Director of Human Resources at the address of record. At which time the parties will request from Federal Mediation and Conciliation Service a fist of seven (7) names, one of who will act as arbitrator. The arbitrator will be selected by the parties by first flipping a coin as to who will strike the first name and then will alternately strike until one is left who will be the arbitrator. The arbitrator shall have no authority to modify or subtract from or change any of the terms or conditions of this Agreement. The decision of the arbitrator shall be final and binding upon the employee, the Union and the Employer. The expense of the arbitrator and the conduct of the hearing, excluding any expenses incidental to the production of witnesses, shall be shared equally by the parties. Section 2.0 Failure of the Employer to answer in any of the steps above within the time limits will permit the Union to move the grievance to the next step. 21 Section 3.0 Should the Union fail to move the grievance to the next step within the time limits specified, the grievance is settled in that step based on the Employers answer, unless the Union notifies the Employer of its intent to proceed to the next step. Section 4.0 Employees may be disciplined for violation thereof under the terms of this Agreement, but only for just cause and in a fair and impartial manner. A grievance concerning the discharge or suspension of an employee may be filed by the Chief Shop Steward or his alternate, within five (5) regular working days and shall be initially referred to the Third Step. Section 5.0 The time limits set forth in this Article may be extended by mutual agreement. Article XVIII Disciplinary Action It is the policy of Everest & Jennings, Inc. to develop and encourage a just and equitable system of administering discipline. Plant rules and procedures will be distributed to all employees at the time of hire and be posted on the Company bulletin board. Violations of such rules, other than those identified as dischargeable offenses, will be addressed utilizing progressive discipline, however, rule infractions will be handled separately. Rule infractions, other than those rules identified as dischargeable disciplinary action will include a verbal warning, written warning, suspension and discharge for repeated offenses. However, the Company reserves the right to consider all factors involved including the type of conduct and whether it was injurious to security, personal safety, employee welfare or Company operations in dispensing disciplinary action. With the exception of discharge, disciplinary warnings shall become ineffective as soon as twelve (12) months have passed without the employee receiving any further warnings or disciplinary action. It is understood by the parties the Absentee Control Program is administered separately. Article XIX Safety Section 1.0 The Company shall make reasonable provisions for the safety and health of its employees at the plant and warehouse during the 22 hours of employment. There shall be a Joint Safety Committee which will meet monthly to: 1. Establish and maintain an accident prevention program; 2. Investigate accidents and recommend actions to help prevent recurrence; 3. Establish, review, and maintain safety rules and regulations as necessary; 4. Make safety tours for the purpose of accident prevention and to promote good housekeeping throughout the facility; 5. Assist Company to comply with all applicable municipal, state, and federal safety regulations. Article XX Drug Testing Section 1.0 Employees are prohibited from the use, sale, dispensing, distribution, possession, or manufacturing of illegal drugs and narcotics or alcoholic beverages on Company property or work sites. In addition, employees are prohibited from the off-premises possession, use, or sale of illegal drugs when such activities adversely affect job performance, job safety, or the Company's reputation in the community. Section 2.0 At the discretion of Employer, employees may be required to submit to a drug test, to determine if the employee is using, under the influence of, or is otherwise impaired by (illegal) drugs or alcohol. Employees are warned of the lingering effects of certain drugs in their system. Employees may be selected to submit to a drug test where either: the Employer has reasonable suspicion to believe that an individual employee or group of employees is in violation of this Article and/or violation of Company policy; or by being selected randomly if the employee is in a safety-sensitive position. Section 3.0 Failure to submit to any examination allowed under this section, or any attempt to tamper with specimens or falsify or alter test results shall constitute just cause for discharge. The Employer may elect to have a supervisor accompany the employee to the testing site. All urine specimens shall be subject to an initial screen using an EMIT-type analysis. All positive results from an initial screen shall be confirmed via gas chromatography-mass 23 spectrometry techniques. No specimen shall be identified as "positive" except upon receipt of the results of the confirmation test. Section 4.0 While employees may be subject to disciplinary action up to and including immediate dismissal, for violations of the policy expressed in this Article, the Employer shall offer a reasonable accommodation as required by law, to employees who request such accommodation. Article XXI Management Rights Section 1.0 Except as limited by a specific provision of this Agreement, the Employer retains the exclusive right to manage its business and direct the working force including, but not limited to, the rights hereinafter enumerated: to decide on the products to be manufactured, the methods of manufacture, the materials to be used, and the discontinuance of any product, material, or method of production; to introduce new equipment, machinery, or processes; and to change or eliminate existing equipment, machinery, or processes; to decide on the nature of materials, supplies, equipment, or machinery to be used, and the price to be paid; to select the working force in accordance with requirements determined by management; to establish reasonable rules governing employment and working conditions; and to determine the size of the work force. The existing practice of subcontracting or outsourcing of such work as deemed necessary shall win not subcontract work for the sole purpose of continue. However, the Company will not subcontract work for the sole purpose of eroding the bargaining unit. Section 2.0 The above rights of management are not all inclusive, but indicate the type of matters or rights witch belong to and are inherent to management. Any of the rights, powers, and authority the Company had prior to entering into collective bargaining are retained by the Company except as expressly and specifically abridged, deleted, granted, or modified by this Agreement. Section 3.0 Failure by the Company to exercise any of its management rights at any time shall not be considered to be an abandonment of such rights. Article XXII Alteration of Agreement 24 No agreement, alteration, understanding, variation, waiver, or modification of any of the terms, conditions, or covenants contained herein shall be made by employee or group of employees with the Company and in no case shall it be binding upon the parties hereto unless such agreement is made and executed in writing between the parties hereto. The waiver of any breach or condition of this Agreement by either party shall not constitute a precedent in the future enforcement of all the terms and conditions herein. Article XXIII Separability If any section or part thereof of this Agreement is in conflict with any applicable Federal or State law or regulation, such section shall be amended or deleted from this Agreement or shall be deemed to be in effect only to the extent permitted by such law or regulation. In the event that any provision of this Agreement is thus tendered inoperative, the remaining sections shall nevertheless remain in full force and effect. Article XXIV Notices Section 1.0 Any notices required under the terms of this Agreement shall be given in writing to the following addresses of record: a) To the Company - addressed to: Everest & Jennings Inc. 3601 Rider Trail South Earth City, MO 63045 b) To the Union - addressed to: International Association of Machinist and Aerospace Workers 12365 St. Charles Rock Road Bridgeton, MO 63044 Section 2.0 Either party desiring to change the identity of the person to be addressed as set forth in Section 1.0 may do so at any time by giving notice thereof to the other party in writing by certified mail. 25 Article XXV General Section 1.0 Temporary agency employees brought into the factory or warehouse will be hired or released after thirty days consistent with the Union security and seniority sections of the labor agreement. Section 2.0 The Company will provide a designated area of the lunch room's bulletin board to the Union for the purpose of posting notices relating to Union business. All notices so posted will be authorized in advance by Human Resources. Section 3.0 Plant Rules and Procedures; Safety Rules; Attendance Policy and the DRUG AND ALCOHOL FREE WORKPLACE ACT OF 1988 have been promulgated as set forth in Amendments A through D attached. Said work and safety rules may be amended by the Company from time to time at the discretion of the Company. The Union will be notified prior to implementation. Article XXVI Duration This Agreement shall remain in full force and effect from September 13, 1996, and shall expire at midnight September 13, 1999. If either party desires to cancel or amend this Agreement as of said expiration date, such party shall give written notice to the other party at least sixty (60) days prior to said date. In the absence of such notice, this Agreement shall become automatically renewed for an additional year, and from year to year thereafter, subject to sixty (60) days' written notice of termination prior to any anniversary of such expiration date. IN WITNESS WHEREOF, this Agreement has been executed by the Parties the 12th day of November, 1996. EVEREST & JENNINGS, INC. District No. 9, INTERNATIONAL ASSOCIATION OF MACHINISTS AND ________________________________ AEROSPACE WORKERS Cherie L. Antoniazzi Executive Director Human Resources ________________________________ Phil Gruber Union Business Representative ________________________________ Melenie Broyles 26 Manager, Human Resources ________________________________ Everday Wilkins Chief Steward ________________________________ Catarino Velazquez Union Negotiating Committee ________________________________ Scott Grohs Union Negotiating Committee 27 LETTER OF AGREEMENT November 12, 1996 BENEFIT PROGRAMS This "Letter of Agreement" confirms mutual understanding between the Company and the Union that upon consummation of the acquisition of all of the shares of the Company by Graham-Field Health Products, Inc., a review of the benefit programs will be undertaken. The Company agrees that the benefits offered to the employees will be, in the aggregate, equal to the value of the benefits currently provided. The Company will discuss any proposed changes to the benefits structure with the Union. Notwithstanding anything to the contrary contained in this Agreement, the benefits and plans of insurance referred to above are qualified in their entirety by reference to the underlying policies and contracts of insurance or statues or regulations. The terms of any contract, statute or regulation in respect thereof by any insurance agency or governmental agency shall be controlling in all matters pertaining to the existence of and extent of benefits and conditions. The undersigned agree with the terms of the above letter. FOR THE COMPANY FOR THE UNION ________________________________ ________________________________ Cherie L. Antoniazzi Phil Gruber Executive Director Human Union Business Representative Resources ________________________________ ________________________________ Everday Wilkins Melenie Broyles Chief Steward Manager, Human Resources ________________________________ Catarino Velazquez Union Negotiating Committee ________________________________ Scott Grohs Union Negotiating Committee 28 LETTER OF AGREEMENT November 12, 1996 SEVERANCE Everest & Jennings will make severance payments to employees with seniority, whose employment is terminated by the Company as a result of the closing of the operations covered by this Agreement as follows: $750 or $100 per year of service, whichever is greater to a maximum amount of $1,500. For purposes of calculating severance benefits, partial years of service, as of the date of termination of employment, will be rounded off to the next full year. Severance benefits will be paid to employees in full at the time of termination, as the result of the plant closing. It is understood by the parties that employees whose service with the Company is terminated as a result of the cessation of operations covered by this Agreement, waive any and all rights accruing under the current Labor Agreement, and that paid severance benefits are full and final settlement of any and all claims by employees and the Union. This agreement shall remain in effect through the term of the Collective Bargaining Agreement. FOR THE COMPANY FOR THE UNION ________________________________ ________________________________ Cherie L. Antoniazzi Phil Gruber Executive Director Human Union Business Representative Resources ________________________________ ________________________________ Everday Wilkins Melenie Broyles Chief Steward Manager, Human Resources ________________________________ Catarino Velazquez Union Negotiating Committee ________________________________ Scott Grohs Union Negotiating Committee 29 Amendment Everest & Jennings, Inc. Plant Rules and Procedures The following conduct is prohibited and will not be tolerated by the Company. Examples of disciplinary infractions which may lead to discharge as a result of the progressive disciplinary system are: 1. Disorderly, immoral, or questionable conduct on Company property. 2. Disregard of safety and health regulations. 3. Repeated negligence resulting in inferior or poor work, or wastage of materials. 4. Using threatening, abusive, or profane language to an employee or visitor on Company premises. 5. Performing work of a personal nature, visiting other departments, or deliberately loitering on the job, or idling in restrooms or elsewhere during working hours. 6. Engaging in or encouraging horseplay of any kind such as g, scuffling, throwing things, distracting, or startling others, creating confusion, or acting in a disorderly manner. 7. Failure to perform work in accordance with blueprints, operation sheets, actions, or established standard, both as to quality and quantity. 8. Failure to be in place and ready to start work at the beginning of the s after breaks, and lunch. 9. Failure to attain goals satisfactorily as established by management both verbally and in writing. 10. Failure to comply with all traffic, speed, and parking regulations while on Company premises, as well as other Company policies. 11. Creating or contributing to unsanitary or disorderly housekeeping conditions. 12. Leaving your work station without permission from your supervisor, or proper relief during absence. 13. Gambling or any illegal form of lottery on Company premises. 30 14. Unauthorized overtime. 15. Unauthorized use of Company equipment, time, materials, or facilities. These lists of prohibited conduct are illustrative only; other types of conduct injurious to security, personal s, employee welfare and the Company's operation also may be prohibited. The above stated policies supersede any previous written or verbal policies in accordance with the standards of conduct of Everest & Jennings, Inc. 31 Everest & Jennings, Inc. Plant Rules and Procedures It is the policy of Everest & Jennings, Inc. to develop and encourage a just and equitable system of administering discipline in the workforce. A disciplinary system is required to protect the majority of employees against the action of a few who do not conform to recognized standards of business conduct. Employees at Everest & Jennings, Inc. must cooperate in observing all rules established for their protection and guidance. Therefore, without prejudice, the following are considered cause for discharge in accordance with the Company's procedure for disciplinary action: 1. Possession of firearms or unauthorized weapons on Company premises. 2. Fighting, provoking a fight, unlawful harassment or attempted bodily injury. 3. Destruction or misuse of property; deliberate abuse of tools, machines, or materials; damaging or defacing Company or another employee's property. 4. Posting or removal of notices, signs, or written material of any form on bulletin boards or Company property at any time without specific written authorization from the Human Resources Department. 5. A general attitude of insolence or disrespect, or inability to work harmoniously and cooperatively with one's fellow workers. 6. Theft or borrowing an employee's or Company property without prior authorization. 7. Punching another's timesheet, falsifying any Company document, including time records, or giving false information in connection with your own work, the work of any other employee, or any job related or Company activity. 8. Making or publishing of false, vicious, or malicious statements concerning any employee, manager, the Company, its products or its reputation. 9. Reporting to work or on the Company premises while under the influence of intoxicants (liquor or drugs), or use or possession of the same on Company property. (Use of prescription drugs on Company premises is permitted with advanced approval of the Human Resources Department). 10. Selling, buying, or furnishing alcoholic beverages, drugs, or controlled substances to others on Company property. 32 11. Tardiness or excessive absences from work, including no report/no call absences as defined in the Absentee policy. 12. Insubordination - refusal to carry out instructions, work assignments, or orders given by management. 13. False reporting of an on-the-job accident, injury, or occupational illness. 14. Walking off the job. 15. Sleeping on duty. 33 Amendment B Everest & Jennings, Inc. Plant Rules and Procedures 1. Report all accidents to your supervisor immediately, no matter how minor. 2. No running or jumping in the plant at any time. 3. Throwing materials of any kind is prohibited. 4. Pallets must not be placed or stored on end. Pallets must be stored flat. The pallet stack cannot exceed five feet. Stacked, broken down boxes cannot exceed five feet unless shrink wrapped. 5. No horseplay is allowed at any time. 6. Work areas must be kept clean and orderly at all times. 7. Sliding down hand rails on stairs or ladders is prohibited. 8. Employees must walk on the outside of aisles, never in the center, and be alert for forklift traffic at all times. 9. Equipment and machinery (including forklifts) are to be operated by trained and authorized personnel only. 10. The trash compactor is operated by authorized personnel only. 11. Passengers are not allowed on forklifts or handjacks. 12. Use or being under the influence of, or possession, sale or consumption of any intoxicants, drugs, illegal substances or narcotics of any nature is prohibited and is cause for immediate discharge. 13. Tools and equipment are to be used for their designed purpose only. 14. Do not converse with forklift operators while forklift is in motion. 15. Proper equipment guards must be in place at all times while equipment is operating. If guards are removed, they must be replaced before equipment is restarted. If guards are misadjusted, they must be properly adjusted before the equipment is restarted. 16. Safe work procedures must be used at all times, short cutting safety devices is prohibited. 34 17. Proper safety protective equipment must be worn on all jobs requiring this equipment. When in doubt, ask your supervisor. 18. Air hoses are not allowed to be used to blow off clothing or exposed areas of the body. An air bubble in the blood stream can be fatal! 19. Safety cages or safety harness must be used when lifting employees off the floor with forklifts. 20. Shoes must be of sturdy leather or leather-like construction. Heavy leather-like athletic shoes will be permitted. No open-toed, open-back canvas type, nylon, or suede shoes are permitted. All shoes must have a heavy sole; moccasins are not permitted. The only exception are drivers and visitors who are not employees of Everest & Jennings who are walking in designated aisles to a designated job site or area. 21. The wearing of halter tops, half shirts, sleeveless shirts, shorts, or culottes are prohibited. 22. Smoking is restricted to designated areas only. Note: You must be 50 feet away from any site that has a warning "FLAMMABLE" posted. 23. Drawers on desks, file cabinets, etc. should be closed when not in use. Do not have more than one drawer open on a file cabinet at a time to prevent tipping. 24. All four legs of chairs should be on the ground while in use. NO TIPPING BACKWARDS. 25. Electrical outlets should be used only as intended and not overloaded. 26. Never use chairs or tables as ladders or platforms. 27. Wearing of radio headphones in the facility is prohibited. Portable battery operated radios may be used, if the volume is kept to a minimum. Abuse will result in the ban of all radios. 28. Machinery must be turned off when leaving your work area for an extended time period, breaks, lunch, and at the end of your shift. 29. No open food containers or beverages are allowed in the work areas. 35 Amendment C Everest & Jennings, Inc. Policy ================================================================================ SUBJECT: Absenteeism Page 1 of 2 ================================================================================ This policy supersedes any prior absenteeism policy. General: Your attendance at work is very important to the Company as well as to your fellow employees. Absenteeism and tardiness interrupt the flow of work which causes imbalances in the availability of work. Therefore, employees who miss work penalize those who do not. Your record of attendance is an important part of your personnel file and may affect your ability to secure a promotion or future employment. Excessive and habitual absenteeism or tardiness, regardless of cause, cannot be tolerated. Definition: An absence is defined as any scheduled work day missed for reasons other than death in the family, jury duty, or approved leave of absence. A scheduled day includes properly notified mandatory overtime, and voluntary overtime (when an employee volunteers to work overtime the time becomes a scheduled work day). An illness of two (2) or more days will be counted as one (1) absence, ONLY if the employee produces a doctor's excuse. A one (1) day's absence with a doctor's excuse counts as one absence. In no case may an employee return to work without a doctor's excuse after three (3) days or more of illness or injury. Section I: A tardy will be counted on your record as follows: a. If you clock in one minute after your scheduled starting time, but less than 61 minutes, you will be marked with one tardy on your attendance record. Three tardies will equal one absence. b. If you are tardy more than 60 minutes, but less than 240 minutes, this will count as a half-day absence. Two half-day absences will be counted as one absence. c. Tardiness of 240 minutes or more, will count as one whole day absent. 36 When an employee knows that he/she will be absent or late, the department supervisor must be contacted or a message must be left on the attendance phone (314) 770-5051, no later than one (1) hour after starting time, or it will be considered a no-report absence. Any notification of an absence later than one (1) hour after starting time, will be considered a no-report absence, unless extenuating circumstances justify an exception. Section II: Each employee's daily attendance record will be kept by the department supervisor and will be monitored by the Human Resources Department, so the policy is applied consistently. Disciplinary action will be administered in the following manner. Step 1 - Verbal Warning: If an employee is absent three (3) times (any combination of the aforementioned definitions) within a 6-month period, that employee will be given a verbal warning. This is recorded on a standard warning form and filed in his/her personnel file. Step 2 - Written Warning: If an employee is absent four (4) times within a 6-month period, (any combination of the definitions), the employee will receive a written warning. At this time a discussion between the employee and supervisor will be held to review the employee's attendance record. Step 3 - Suspensions: If an employee is absent five (5) times within a 6-month period, the employee win receive a three (3) day suspension without pay. Two (2) suspensions within one year will result in termination. At s time, a discussion between the employee, supervisor, and Director of Human Resources will be held to review the employee's attendance record and possible avenues of correction. Step 4 - Termination: If an employee is absent six (6) times within a 6-month period, or has had one suspension and eligible to receive a second suspension within a one year period, the employee will be subject to termination. Section III - No Report Absences: An employee who does not call in to report his/her absence will be given an immediate written warning (Step 2). Re-occurrences of not calling in (whether consecutive or not) will result in progressive disciplinary action (Step 3 and 4) as outlined in 37 Section II. Three no calls during length of employment will constitute discharge. "Any notification of an absence later than one (1) hour after starting time will be considered a no-call." Exceptions: The action described above may be modified if the Company believes that extenuating circumstances justify an exception. 38 Amendment DRUG AND ALCOHOL-FREE WORKPLACE ACT OF 1988 The Everest & Jennings Company is committed to providing a drug and alcohol-free workplace. Drug and alcohol abuse in the workplace is a threat to the safety and health of our employees, and it jeopardizes the efficiency of our operations and the quality of our products. For these reasons, coming to work under the influence of drugs or alcohol, or the unlawful manufacture, distribution, dispensation, possession or use of a controlled substance in the workplace is prohibited. Further, employees must notify the Human Resources Department of any criminal drug statute conviction for a violation occurring on Company premises not later than five (5) days after the conviction. Pursuant to the Drug-Free Workplace Act of 1988, compliance with this policy is specifically made a condition of employment at Everest & Jennings. An employee who violates this policy will be subject to disciplinary action, up to and including discharge. Employees who believe they may have a drug or alcohol abuse problem are urged to voluntarily and confidential come forward, so the company can assist them in finding appropriate counseling and rehabilitation services. An employee who voluntarily comes forward to seek such assistance before becoming involved in a work related instance of policy violation will not be discharged. 39 Schedule A
Effective Effective Effective September 13, 1996 September 13, 1997 September 13, 1998 Prob. Rate Job Rate Prob. Rate Job Rate Prob. Rate Job Rate Group 1 Prod. Fab. 1 7.18 7.48 7.43 7.73 7.68 7.98 Warehouse Worker B 7.18 7.48 7.43 7.73 7.68 7.98 Group 2 Warehouse Worker A 7.93 8.23 8.18 8.48 8.43 8.73 Prod. Fab. 3 7.93 8.23 8.18 8.48 8.43 8.73 Inline Inspector 7.93 8.23 8.18 8.48 8.43 8.73 Parts Picker 7.93 8.23 8.18 8.48 8.43 8.73 Polisher 7.93 8.23 8.18 8.48 8.43 8.73 Group 3 Custom Upholstery 8.33 8.63 8.58 8.88 8.83 9.13 Hand Brazer 8.33 8.63 8.58 8.88 8.83 9.13 Lathe Mill/CNC Operator 8.33 8.63 8.58 8.88 8.83 9.13 Parts Coordinator 8.33 8.63 8.58 8.88 8.83 9.13 Group 4 Custom Assembler 8.78 9.08 9.03 9.33 9.28 9.58 Tig Welder 8.78 9.08 9.03 9.33 9.28 9.58 Utility Warehouser 8.78 9.08 9.03 9.33 9.28 9.58 Group 5 Machine Set Up/Operator 9.23 9.53 9.48 9.78 9.73 10.03 Receiving Inspector 9.23 9.53 9.48 9.78 9.73 10.03
40 Group 6 Custom Brazer 9.73 10.03 9.98 10.28 10.23 10.53 Group Lead Assembly 9.73 10.03 9.98 10.28 10.23 10.53 Custom Fabricator 9.73 10.03 9.98 10.28 10.23 10.53 Custom/Fab./Welding 9.73 10.03 9.98 10.28 10.23 10.53 Inspector Group 7 CNC Programmer 10.33 10.63 10.58 10.88 10.83 11.13 Group Lead Brazing 10.33 10.63 10.58 10.88 10.83 11.13 Group Lead Custom 10.33 10.63 10.58 10.88 10.83 11.13 Group Lead Shipping 10.33 10.63 10.58 10.88 10.83 11.13 Group Lead Warehouse 10.33 10.63 10.58 10.88 10.83 11.13 Sr. Quality Auditor 10.33 10.63 10.58 10.88 10.83 11.13 Sr. Custom Brazer 10.33 10.63 10.58 10.88 10.83 11.13 Group 8 Truck Driver/CDL 10.88 11.18 11.13 11.43 11.38 11.68 Group 8 Maintenance Technical 13.35 13.65 13.60 13.90 13.85 14.15
41 EX-10.(VV) 18 PROMISSORY NOTE EXHIBIT 10 (vv) Promissory Note dated as of December 10, 1996, in the principal amount of $4 million made by the Company and payable to BIL Securities (Offshore) Limited. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF AND NO TRANSFER OF THIS NOTE TO A NON-AFFILIATE OF PAYEE MAY BE MADE ON THE BOOKS OF THE COMPANY (I) WITHOUT THE PRIOR WRITTEN CONSENT OF MAKER, (II) IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND THE RULES AND REGULATIONS THEREUNDER OR AN EXEMPTION THEREFROM AND (III) UNLESS ACCOMPANIED BY AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH TRANSFER MAY BE EFFECTED WITHOUT REGISTRATION UNDER SAID ACT OR THAT THIS NOTE HAS BEEN SO REGISTERED UNDER A REGISTRATION STATEMENT WHICH IS IN EFFECT AT THE DATE OF SUCH TRANSFER. THIS NOTE IS SUBJECT TO THE SUBORDINATION AGREEMENT, DATED DECEMBER 10, 1996, AMONG THE MAKER, THE PAYEE AND IBJ SCHRODER BANK & TRUST COMPANY, AS AGENT, UNDER WHICH THIS NOTE AND THE MAKER'S OBLIGATIONS HEREUNDER ARE SUBORDINATED IN THE MANNER SET FORTH THEREIN TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS TO THE HOLDERS OF SENIOR INDEBTEDNESS AS DEFINED THEREIN. $4,000,000 December 10, 1996 GRAHAM-FIELD HEALTH PRODUCTS, INC. 7.7% Note due April 1, 2001 FOR VALUE RECEIVED, GRAHAM-FIELD HEALTH PRODUCTS, INC., a Delaware corporation (together with its successors and permitted assigns, the "Maker"), hereby promises to pay to BIL SECURITIES (OFFSHORE) LIMITED, a company incorporated in New Zealand with its principal office at 22-24 Victoria Street, Wellington, New Zealand, or its registered assigns (the "Payee"), the principal sum of four million Dollars ($4,000,000), in the manner described below and to pay to the Payee interest on the unpaid principal amount of this Note (as modified and supplemented and in effect from time to time, the "Note") in the manner described below. The principal amount of this Note shall be payable on April 1, 2001 (the "Principal Payment Date"). Interest shall accrue on the unpaid principal amount of this Note at a rate per annum equal to seven and seven tenths percent (7.7%). Maker shall pay interest on principal which is overdue by 10 days at a rate equal to 2% per annum in excess of the then applicable interest rate on this Note to the extent lawful and shall pay interest (including post-petition interest in any proceeding under applicable bankruptcy law) on installments of interest overdue by ten days at the same rate to the extent lawful. Accrued interest shall be payable in arrears on each Quarterly Payment Date and on the Principal Payment Date. "Quarterly Payment Date" means the last Business Day of March, June, September and December in each year, commencing with the first such day after the date hereof and ending with the last such day prior to the Principal Payment Date. Interest on this Note shall be computed on the basis of a year of 365 or 366 days (as the case may be) and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. Capitalized terms used but not otherwise defined herein have the respective meanings given to such terms in the Revolving Credit and Security Agreement dated as of December 10, 1996 among the Maker, Graham-Field, Inc., Graham-Field Express, Inc., Graham-Field Temco, Inc., Graham Field Distribution Inc., Graham-Field Bandage, Inc., Graham-Field Express (Puerto Rico), Inc., Everest & Jennings, Inc., the financial institutions party thereto (collectively, the "Lenders") and IBJ Schroder Bank & Trust Company, as agent for the Lenders (in such capacity, "Agent"), as the same shall be amended, modified or supplemented and in effect from time to time (the "Revolving Credit and Security Agreement"). Maker has on the date of delivery hereof delivered to Payee a true and complete copy of the Revolving Credit and Security Agreement containing such incorporated defined terms and shall provide Payee with a true and complete copy of any amendment, modification or supplement thereto within five (5) Business Days after the same shall come into effect. If the Revolving Credit and Security Agreement is not in effect at any time, the incorporated defined terms not otherwise defined herein shall have the respective meanings given to such terms in the Revolving Credit and Security Agreement as last in effect. This is the Subordinated Note issued pursuant to Section 2.02(b)(v) of the Amended and Restated Agreement and Plan of Merger dated as of September 3, 1996 and amended as of October 1, 1996 by and among the Maker, Payee, E&J Acquisition Corp. and Everest & Jennings International Ltd. (the "Merger Agreement"). By its acceptance hereto, the Payee agrees to its terms. ARTICLE 1 PAYMENTS AND PREPAYMENTS Section 1.1 Payments Generally. All payments of principal and interest to be made by the Maker under this Note shall be made in Dollars, in immediately available funds, by wire transfer to the account specified below the Payee's name on the signature page hereof, or to such other account at a commercial bank located in the United States of America identified in a notice to the Maker not later than two Business Days prior to the date of such payment, not later than 11:00 a.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). If the due 2 date of any payment under this Note would otherwise fall on a day that is not a Business Day, such due date shall be extended to the next succeeding Business Day, and interest shall be payable on any principal so extended for the period of such extension. All amounts payable under this Note shall be paid free and clear of, and without reduction by reason of, any deduction, set-off or counterclaim. Section 1.2 Reduction of Principal. In the event punitive damages are awarded against Maker or any of its Subsidiaries which relate to any of the existing product liability claims of Everest and Jennings International Ltd. and/or its Subsidiaries as set forth on Exhibit I hereto involving a death prior to September 3, 1996 and Maker or any of its Subsidiaries are required to make any payment with respect to the award of punitive damages (a "Punitive Damage Payment"), after giving effect to any insurance coverage, if any, then the principal amount of this Note shall be reduced by such Punitive Damage Payment. Section 1.3 Prepayments. The Maker may at any time and from time to time, at its option, prepay this Note without penalty or premium (in an amount up to but not exceeding the unpaid principal amount hereof and any accrued interest hereon) in whole or in part. Any prepayment of this Note shall be applied first to the accrued and unpaid interest hereon and then to the unpaid principal hereof. ARTICLE 2 SUBORDINATION This Note is subject to the Subordination Agreement, dated December 10, 1996, among the Maker, the Payee and Agent, under which this Note and the Maker's obligations hereunder are subordinated in the manner set forth therein to the prior payment of certain obligations to the holders of Senior Indebtedness as defined therein. ARTICLE 3 COVENANTS The Maker shall, until payment in full of and termination of this Note: Section 3.1 Cash Flow Coverage Ratio. Cause to be maintained a Cash Flow Coverage Ratio for the Maker: 3 (a) of not less than .86 to 1.00 at the end of the fiscal quarter ending June 30, 1997 for the immediately preceding three months; (b) of not less than .90 to 1.00 at the end of the fiscal quarter ending September 30, 1997 for the immediately preceding six (6) month period: (c) of not less than .93 to 1.00 at the end of the fiscal quarter ending December 31, 1997 for the immediately preceding nine (9) month period; and (d) of not less than .93 to 1.00 at the end of the fiscal quarter ending March 31, 1998, and at the end of each fiscal quarter thereafter, with respect to the four (4) fiscal quarters then ended. Section 3.2 Leverage Ratio. Maintain a Leverage Ratio of not greater than 1.87 to 1.00 at the end of any fiscal quarter commencing with the fiscal quarter ending June 30, 1997. Section 3.3 Notices. Provide to the Payee copies of any notices of default, requests for waivers and waivers under the Revolving Credit and Security Agreement (within three (3) Business Days of receipt thereof by the Maker) and all compliance certificates and other information from time to time delivered thereunder by the Maker. ARTICLE 4 EVENTS OF DEFAULT Section 4.1 Events of Defaults. The occurrence of one or more of the following events shall constitute an "Event of Default" for the purposes of this Note: (a) the Maker fails to pay any amount owing under this Note when due (whether at stated maturity, by acceleration, upon mandatory prepayment or otherwise) and such default (other than a failure to pay principal when due) continues for a period of five (5) consecutive Business Days; (b) the Maker fails to (i) pay any amount owing under the Revolving Credit and Security Agreement when due (whether at stated maturity, by acceleration, upon mandatory prepayment or otherwise) or (ii) perform, observe or discharge any other material covenant, condition or obligation in the Revolving Credit and Security Agreement, if following such failure the Senior Lender has caused the Senior Indebtedness or any part thereof to become due and payable prior to the 4 date on which it would otherwise have become due and payable by its terms; (c) the Maker shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its assets or property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Federal Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Federal Bankruptcy Code, (vi) generally fail to pay its debts as they become due or (vii) take any corporate action for the purpose of effecting any of the foregoing; or (d) a proceeding or case shall be commenced, without the application or consent of the Maker, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Maker or of all or any substantial part of its property, or (iii) similar relief in respect of the Maker under any law relating to bankruptcy, insolvency, reorganization or winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of sixty (60) or more days; or an order for relief against the Maker shall be entered in an involuntary case under the Federal Bankruptcy Code; (e) the Maker shall fail to comply with any of its material agreements or covenants in, or provisions of, this Note or the Stockholder Agreement or the Registration Rights Agreement (as such terms are defined in the Merger Agreement) and such failure continues for the period of thirty (30) days after the Maker's receipt of written notice of such default; provided, however, such non- compliance shall not constitute an Event of Default if and so long as the Maker is attempting in good faith to cure such non-compliance within a reasonable period after such 30 day period. Section 4.2 Acceleration of Maturity; Rescission and Annulment. If any Event of Default specified in paragraphs (a), 5 (b) or (e) of Section 4.1 hereof occurs and is continuing, then and in every such case the Payee may declare the principal of this Note and accrued interest thereon to be due and payable immediately, by a notice in writing to the Maker, and upon any such declaration such principal shall become due and payable immediately without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Maker. If any Event of Default specified in paragraphs (c) or (d) of Section 4.1 hereof occurs, the principal of this Note and accrued interest thereon shall automatically become due and payable immediately without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Maker. Notwithstanding any of the foregoing, at any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained, the Payee may rescind and annul such declaration and its consequences if it so notifies the Maker of its desire to do so. No such rescission and annulment shall affect any subsequent default or impair any right consequent thereon. ARTICLE 5 WAIVER AND AMENDMENT Section 5.1 Amendment. No amendment of this Note shall be effective unless in writing and signed by the Payee and the Maker. Section 5.2 Waiver. No waiver of any provision of this Note shall be effective unless in writing and signed by the Payee. Section 5.3 Waiver of Past Defaults. The Payee may waive any past default hereunder and its consequences. Upon and to the extent of any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Note, but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. ARTICLE 6 MISCELLANEOUS Section 6.1 Notices. All notices and other communications in respect of this Note (including, without limitation, any modifications of, or requests, waivers or consents under, this Note) shall be given or made in writing (including, without limitation, by telecopy) to the Maker or the Payee, as the case may be, at the applicable "Address for 6 Notices" specified on the signature page hereof; or at such other address as shall be designated by any such party in a notice to the other party. Except as otherwise provided in this Note, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. Section 6.2 Governing Law. This Note shall be governed by, and construed in accordance with, the law of the State of New York without regard to the conflicts of laws provisions thereof. Section 6.3 No Adverse Interpretation of Other Agreements. No other indenture, loan or debt agreement of the Maker may be used to interpret this Note. Section 6.4 Assignment. The Payee may not sell, assign, pledge, hypothecate or otherwise transfer or dispose of this Note or any of its rights or obligations hereunder without the prior written consent of the Maker; provided, however the Payee may sell, assign, pledge, hypothecate or otherwise transfer or dispose of this Note to an Affiliate of the Payee without the prior written consent of the Maker. This Note and all agreements of the Maker in this Note are binding upon the Maker and its successors and assigns. Section 6.5 Severability. In case any provision in this Note shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 6.6 Headings, etc. The headings of the Articles and Sections of this Note have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. 7 IN WITNESS WHEREOF, the Maker has caused this Note to be executed by its duly authorized officer. GRAHAM-FIELD HEALTH PRODUCTS, INC. By:_____________________________ Name: Title: Address for Notices: Graham-Field Health Products, Inc. 400 Rabro Drive East Hauppauge, New York 11788 Facsimile No.: (516) 582-5608 Attention: Richard S. Kolodny ACCEPTED BY PAYEE: BIL SECURITIES (OFFSHORE) LIMITED By:_____________________________ Name: Title: Address for Notices: BIL SECURITIES (OFFSHORE) LIMITED c/o Brierley Investments Limited P.O. Box 5018 Level 6 Colonial Building 22-24 Victoria Street Wellington, New Zealand Facsimile No.: 011-64-4-473-1631 Attention: Company Secretary Wire Transfer Instructions: National Australia Bank New York Wall Street A/c Bank of New Zealand Head Office Favour: Brierley Investments Limited A/c No.: 422 500 EX-24 19 CONSENT OF INDEPENDENT AUDITORS Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Forms S-8, No. 33-37179, No. 33-38656, No. 33-48860, No. 033-60679, No. 333-16993, and Post-Effective Amendment No. 1 to Registration Statements on Form S-8 (No. 33-37179 and No. 33-38656)) pertaining to the Incentive Program, as amended, of Graham-Field Health Products, Inc. and the Registration Statement on Form S-3 (No. 3-57066) of our report dated March 10, 1997, with respect to the consolidated financial statements and schedule of Graham-Field Health Products, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1996. /s/ Ernst & Young LLP Melville, New York March 26, 1997 EX-27 20 ART. 5 FDS FOR 1996 FORM 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AS INCLUDED IN THE FORM 10K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 1,552 0 43,651 0 45,810 94,270 10,771 0 202,476 81,865 6,057 0 31,600 467 80,735 202,476 126,715 127,245 86,315 86,315 57,980 0 2,492 (9,542) 2,673 (12,215) 0 (736) 0 (12,951) (.89) (.89)
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