-----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, JGlVttM57XZGnALi32j8S/29kwUzncWGsSZSCryf+fgHdCbNRmpdfs+iI/ywDVX5 /yPhxqILBEXx2sfmmhMZmA== 0000950144-96-001133.txt : 19960325 0000950144-96-001133.hdr.sgml : 19960325 ACCESSION NUMBER: 0000950144-96-001133 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960322 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FUQUA ENTERPRISES INC CENTRAL INDEX KEY: 0000088190 STANDARD INDUSTRIAL CLASSIFICATION: LEATHER & LEATHER PRODUCTS [3100] IRS NUMBER: 131988043 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-10583 FILM NUMBER: 96537682 BUSINESS ADDRESS: STREET 1: ONE ATLANTIC CENTER STE 5000 STREET 2: 1201 W PEACHTREE ST NW CITY: ATLANTA STATE: GA ZIP: 30309 BUSINESS PHONE: 4048152000 MAIL ADDRESS: STREET 1: ONE ATLANTIC CENTER STREET 2: 1201 W PEACHTREE ST NW STE 5000 CITY: ATLANTA STATE: GA ZIP: 30309 FORMER COMPANY: FORMER CONFORMED NAME: VISTA RESOURCES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SEAGRAVE CORP /DE/ DATE OF NAME CHANGE: 19801108 10-K405 1 FUQUA ENTERPRISES FORM 10-K 1 FORM 10-K SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (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, 1995 --------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION FROM TO --------------- ------------------- Commission File Number 1-5091 ------ - -------------------------------------------------------------------------------- FUQUA ENTERPRISES, INC. ----------------------- (Exact name of registrant, as specified in its charter) DELAWARE 13-1988043 ------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE ATLANTIC CENTER, SUITE 5000 1201 W. PEACHTREE STREET, N.W., ATLANTA, GEORGIA 30309 ------------------------------------------------------ (Address of principal executive offices) Registrant's telephone number, including area code: 404-815-2000 ------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ---------------------------------- ---------------------------------- Common Stock, $2.50 par value New York Stock Exchange, Inc. SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 2 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months 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 is not contained herein, and will not be contained, to the best of the 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 ] The aggregate market value of the voting stock of the registrant (based upon the closing price on March 15, 1996 on the NYSE) held by non-affiliates was $57,362,832. The number of shares of Common Stock outstanding as of March 15, 1996 was 4,478,347. - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrant's definitive Proxy Statement to be filed in connection with the Annual Meeting of Stockholders to be held on June 1, 1996 (the "Proxy Statement") are incorporated by reference into Part III of this Report. ii 3 FUQUA ENTERPRISES, INC. INDEX TO REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995
Page No. ---- PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Medical Products Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Leather Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 4 Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . . . 5 Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . 6 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . 8 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 9 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 9 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 9 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K . . . . . . . . . . . . . 10 OTHER SECTIONS Section F Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . F-1/13 Section S Financial Statement Schedule - Item 14(a) . . . . . . . . . . . . . . . . . . . . . . . . S-1
iii 4 PART I ITEM 1. BUSINESS Fuqua Enterprises, Inc. ("Fuqua"), formerly Vista Resources, Inc., was founded in 1881 and was incorporated in 1900 under the laws of West Virginia. In 1965, it was reincorporated under Delaware law. Fuqua's principal executive offices are located at One Atlantic Center, Suite 5000, 1201 W. Peachtree Street, N.W., Atlanta, Georgia 30309. During 1995, Fuqua changed its name from Vista Resources, Inc. to Fuqua, changed the executive management, acquired Basic American Medical Products, Inc. ("Basic"), and sold its insurance subsidiary, American Southern Insurance Company ("American Southern"). Additionally, in January 1996, Fuqua made the decision to discontinue the operations of Kroy Tanning Company, Incorporated ("Kroy"), which had historically been unprofitable. As a result of these changes, Fuqua through its subsidiaries, is a manufacturer and distributor of medical equipment and furnishings for the acute, long-term and home health care markets and also produces a broad line of leathers that are sold to manufacturers of shoes, handbags, personal leather goods and furniture in both the United States and foreign markets. FOR FINANCIAL INFORMATION REGARDING INDUSTRY SEGMENTS AND FOREIGN AND DOMESTIC SALES, SEE NOTE 9 TO FUQUA'S CONSOLIDATED FINANCIAL STATEMENTS. On March 13, 1996, Fuqua entered into an agreement to acquire the medical products operations of Lumex, Inc. (the "Lumex Division") for approximately $40.7 million. The Lumex Division, whose 1995 net sales are expected to be approximately $63.0 million, develops and markets a wide range of health care products including specialty seating, bathroom safety, mobility products, health care beds and therapeutic support systems. The acquisition transaction is expected to close in April 1996. The Lumex Division is headquartered in Bay Shore, Long Island, New York and markets the majority of its products to the home health care market and the remainder to institutional markets, including acute care and extended care facilities and dialysis clinics. MEDICAL PRODUCTS OPERATIONS Fuqua acquired Basic in November 1995. Basic, through its divisions, Simmons Healthcare, Omni Manufacturing and SSC Medical (the "Medical Products Operations"), is a manufacturer and distributor of medical equipment and furnishings for the acute, long-term and home health care markets. Prior to the acquisition by Fuqua, Basic was a privately-held company whose principal shareholder had acquired Basic through a leveraged buyout from Basic's parent company in 1993. Basic manufactures electric and manual beds and patient-room furniture, equipment and furnishings at its facilities located in the United States and sells these products directly to owners of acute and long-term care facilities. Additionally, Basic imports, assembles and, through independent distributors and home medical equipment providers, sells wheelchairs, ambulatory and health safety aids for the health care and consumer markets. Basic's sales are principally to customers within the United States and management believes that Basic is the leading supplier of long-term care facility beds. Also, Basic competes in the acute care and home health care markets but believes its market share is relatively small. Basic encounters significant competition from a number of manufacturers in each of its product lines and it competes on the basis of product features and performance, on its ability to provide a full range of products and design services for owners of long-term care facilities, and its ability to deliver products and services at competitive prices. Management does not believe Basic's business is seasonal. Basic's manufacturing processes include fabrication, assembly and quality assurance. It purchases raw materials, principally aluminum, steel and wood from a number of different vendors. Additionally, it purchases electric motors and electronic controls from independent third parties. Basic believes that it is not dependent on any one vendor for its supply of raw materials. The impact of unfavorable raw material price fluctuations on Basic is reduced by its ability to pass along increases to its customers and the relatively short time required to design, produce and deliver the order to a long-term care facility. Basic conducts research and development at its manufacturing facilities. Amounts expended historically have not been significant; however Basic expects that these expenditures will be more significant in 1996 and thereafter. 1 5 Basic currently holds patents associated with certain products but does not consider patents a meaningful competitive advantage or essential to its operations. Government regulations which affect the health care industry affect Basic. Medicare and Medicaid provide reimbursement for the cost of medical equipment, beds and furnishings acquired by owner/operators of acute care and long-term care facilities and by home health care providers. Accordingly, changes to or delays in Medicare and Medicaid reimbursement can affect the timing of payment received by Basic from its customers and can exert downward pressure on prices which Basic charges its customers for its products. Management believes that recent changes and improvements in health care cost containment and the current growth in managed care favor Basic as a low cost producer and as a significant provider to the growing long-term care and home health care markets. The United States Food and Drug Administration (the "FDA") regulates the manufacture and sale of medical devices. Under the various acts which apply, all medical products are classified as Class I, Class II or Class III devices. In general Class I devices must comply with certain general controls and with certain labeling and record keeping requirements. Class II devices have to comply with general controls and certain performance standards. Class III devices must receive pre-market approval from the FDA. Basic's products are classified as Class I and Class II devices. Management believes that it is presently in material compliance with all applicable regulations promulgated by the FDA. Prior to acquisition by Fuqua, Basic funded its working capital needs through cash flow from operations and by its lines of credit. Fuqua intends to finance Basic's working capital needs through Fuqua's $60 million Revolving Credit Facility (the "New Facility"), which management believes will be more than adequate to cover Basic's working capital needs. LEATHER OPERATIONS Fuqua's leather business is conducted through Irving Tanning Company and its subsidiaries (the "Leather Operations"). Tanned leathers are manufactured in a wide variety of textures, colors and styles. Products are manufactured to customers' orders which avoids the necessity of maintaining a large inventory of finished goods. The Leather Operations sell directly to manufacturers, using agents and their own sales force. Until 1990, cowhides were purchased in the raw condition, and all tanning and other processes necessary to produce the finished leather were performed at one of the tanneries. In 1990, the Leather Operations began buying hides that had already undergone the initial chrome tanning process from one principal supplier, although alternate sources are available. Costs of hides can vary markedly from year to year and within a year due to supply and demand. The Leather Operations implemented a modernization and expansion program, expending over $13,850,000 during the five years through December 31, 1994 for new buildings, new equipment and rearrangement of production facilities. The program, which was completed in 1994, has produced greater efficiencies, better yields, higher and more consistent quality, reduced manufacturing cycle times and lower inventories than would otherwise have been achieved. Patents, trademarks, licenses and franchises are not considered important to the business. The business is not regarded as highly seasonal, although sales are generally lower in the first and fourth quarters. Research and development expenditures amounted to approximately $802,000 in 1995, $800,000 in 1994 and $718,000 in 1993. The tanning industry, like many others in the United States, faces ever-changing government standards and both state and Federal licensing procedures. The changing licensing requirements necessitate updating that is technically complex, and meeting the changing requirements could be costly and time-consuming. The Town of Hartland, Maine charges the Leather Operations for approximately 95% of the costs to operate the water treatment facility and landfill. These expenditures include amounts required to maintain state and federal water quality and environmental standards. Expenditures for environmental control purposes with respect to Fuqua's continuing Leather Operations are not expected to be material in 1996. Fuqua's management believes that its continuing Leather Operations are operating in substantial compliance with all relevant environmental regulations. 2 6 In 1995, sales to one customer amounted to $23,662,000 and sales to another $15,938,000. In 1994, sales to one customer amounted to $20,007,000 and to another $17,426,000. In 1993, sales to one customer amounted to $18,397,000 and to another $14,180,000. Fuqua's management does not believe that the continuation of its leather operations is dependent upon a single customer or a few customers. The Leather Operations have no foreign operations, but about 27% of the Leather Operations' 1995 sales were to customers in foreign countries, compared to 30% in 1994 and 17% in 1993. In March 1996, Fuqua entered into an agreement to acquire a 70% interest in a joint venture which will own a 50% interest in a tannery in China. It is anticipated that the total investment will be approximately $1,500,000 and will allow the Leather Operations to produce leathers in China and to market the products throughout China and Southeast Asia. The backlog of the Leather Operations' unshipped orders has historically increased each year, however, the backlog has not proven to be an accurate predictor of subsequent sales due to the negative impact of competitive pressures and the rapid changes in retail demand which affect the Leather Operations' customers. Fuqua's Leather Operations compete on the basis of quality, price, service and product performance with many domestic and international producers of natural leather and, to a lesser extent, synthetic materials used instead of leather. Foreign competition is intense for the Leather Operations as well as for other domestic tanneries, in part because foreign tanneries are allowed to buy United States raw hides, but foreign countries normally do not permit their raw hides to be exported. Lower labor costs and less stringent environmental regulations overseas are factors in heightened competition. The Leather Operations benefit from a dependable water supply, a loyal and stable labor force and geographical proximity to many customers. The Leather Operations have historically funded working capital needs through borrowings of up to $18 million from lines of credit with outside banks. Beginning in November 1995, these lines of credit were replaced with the New Facility which management believes is more than adequate to cover the working capital needs of the Leather Operations. DISCONTINUED OPERATIONS Fuqua sold its insurance subsidiary, American Southern, in December 1995 and, as a result, Fuqua no longer has any continuing insurance operations. American Southern was a multi-line property and casualty company primarily engaged in the sale of automobile insurance. Additionally, in January 1996, Fuqua made the decision to discontinue the operations of Kroy, its tanning operation located in East Wilton, Maine. Separate and distinct from Fuqua's continuing operations, Kroy produced sheep skin and deer skin leathers which were sold principally to garment manufacturers. The results of operations and the estimated loss on disposal of Kroy and American Southern have been reflected in the 1995 financial statements as discontinued operations. In connection with Fuqua's decision to discontinue the operations of Kroy, $4,800,000, before the benefit of income taxes, was accrued by management to write down assets to their net estimated realizable values and to pay for obligations, including environmental costs, which may arise in connection with the wind down of operations and the closing of Kroy's facility in East Wilton, Maine. SEE NOTE 3 TO FUQUA'S CONSOLIDATED FINANCIAL STATEMENTS FOR FURTHER DESCRIPTION OF DISCONTINUED OPERATIONS. EMPLOYEES As of December 31, 1995, Fuqua and its subsidiaries employed 710 people. 3 7 ITEM 2. PROPERTIES The principal manufacturing and distribution facilities of the Leather Operations, Medical Products Operations and Fuqua's corporate office, substantially all of which are fully utilized (except as otherwise indicated) and suitable for the purpose intended, are as follows:
================================================================================================================== Lease LOCATION SQUARE FEET Expiration Character of Use Date ================================================================================================================== Atlanta, Georgia 11,783 4-30-2000 Corporate Office Atlanta, Georgia 50,000 Owned Medical Products Operations' Showroom Ellsworth, Maine(1) 76,000 Owned Leather Operations' Tannery & Fabrication East Wilton, Maine(2) 54,100 Owned Leather Operations' Tannery & Fabrication Fond du Lac, Wisconsin 133,000 Owned Medical Products Operations' Manufacturing Hartland, Maine 444,000 Owned Leather Operations' Tannery & Fabrication Lawrenceville, Georgia 50,000 Owned Medical Products Operations' Manufacturing Toccoa, Georgia 42,000 Month-to-month Medical Products Operations' Manufacturing Tupelo, Mississippi 45,000 Month-to-month Medical Products Operations' Manufacturing ==================================================================================================================
(1) Operations at this plant have been suspended for a number of years. (2) The decision has been made to discontinue operations at this facility during 1996. ITEM 3. LEGAL PROCEEDINGS There were no material legal proceedings pending, other than ordinary routine litigation incidental to the business, to which Fuqua or any of its subsidiaries is a party or to which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the three months ended December 31, 1995. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Fuqua as of the date hereof elected to serve until the next annual meeting of the Board of Directors of Fuqua are as follows:
============================================================================================================= POSITION HELD NAME AGE OFFICE SINCE ============================================================================================================= J. B. Fuqua 77 Chairman of the Board April 1989 J. Rex Fuqua 46 Vice Chairman of the Board August 1995 Lawrence P. Klamon 59 President and Chief Executive Officer August 1995 John J. Huntz, Jr. 45 Executive Vice President and Chief August 1995 Operating Officer Brady W. Mullinax, Jr. 42 Vice President-Finance, Treasurer and March 1994 Chief Financial Officer =============================================================================================================
J. Rex Fuqua, Vice Chairman of the Board, is the son of J. B. Fuqua, the Chairman of the Board. From July 1989 to March 1991, Mr. J. B. Fuqua served as Senior Chairman of Fuqua Industries, Inc.; prior to that he was the founder, Chairman of the Board and Chief Executive Officer of Fuqua Industries, Inc. from September 1965 to July 1989. Since 1985, Mr. J. Rex Fuqua has served as President and Chief Executive Officer of Realan Capital Corporation, a privately-held investment corporation located in Atlanta, Georgia. From 1991 to July 1995, Mr. Klamon served as Senior Counsel of Alston & Bird, a prominent Atlanta law firm; prior to that, from 1968 to 1991, he was associated with Fuqua Industries, Inc., a diversified holding company, rising from General Counsel to President and Chief Executive Officer and a member of the Board of Directors. From February 1994 to July 1995, Mr. Huntz served as Senior Vice President of Fuqua; from September 1989 to January 1994, Mr. Huntz served as the Managing Partner of Noble Ventures International, Inc., a venture investment and advisory firm, located in Atlanta, Georgia; prior to that, from October 1984 to September 1989, he served as Director of Capital Resources of Arthur Young & Company, an accounting firm. From January 1994 to March 1994, Mr. Mullinax served as a financial consultant to Fuqua; and prior to that, from July 1987 to June 1993, he was a partner with Price Waterhouse, an accounting firm. 4 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a) Principal Market Fuqua's Common Stock is traded on the New York Stock Exchange (symbol FQE). (b) Stock Price and Dividend Information The following table summarizes the high and low market price for 1995 and 1994 as reported in The Wall Street Journal. The closing price of the Common Stock on March 15, 1996 was $24.00.
============================================================================ MARKET PRICE OF COMMON STOCK QUARTER 1995 1994 ENDED HIGH LOW HIGH LOW ============================================================================ March 31 $24.50 $20.00 $25.375 $ 20.50 June 30 23.375 18.75 23.25 20.125 September 30 24.75 20.125 23.75 19.50 December 31 24.125 18.25 22.25 19.875 ============================================================================
Fuqua has not paid cash dividends since 1988, and the Board of Directors does not anticipate that cash dividends will be paid in the foreseeable future. Additionally, in November 1995, Fuqua entered into the New Facility which restricts the amount of dividends which can be paid. SEE NOTE 7 TO FUQUA'S CONSOLIDATED FINANCIAL STATEMENTS. (c) Approximate Number of Holders of Common Stock: As of March 15, 1996, there were 842 stockholders of record of Fuqua's Common Stock. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------------- Year ended December 31, (Dollars in thousands, except share data) 1995(1) 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------- CONTINUING OPERATIONS(2) Net sales $ 117,128 $ 118,011 $ 105,785 $ 76,226 $ 57,893 Income from continuing operations 5,250 5,822(3) 3,775 1,030 1,375 Per share: Income from continuing operations $ 1.32 $ 1.51(3) $ .98 $ .27 $ .37 - ---------------------------------------------------------------------------------------------------------------------------- YEAR-END DATA Total assets $ 136,762 $ 158,101 $ 140,299 $ 127,227 $ 112,282 Long-term liabilities 22,041 14,445 11,639 10,808 10,018 Stockholders' equity 81,888 64,322 57,378 48,665 42,406 Stockholders' equity per share $ 18.43 $ 17.10 $ 15.31 $ 13.10 $ 11.42 Common shares outstanding 4,442,174 3,762,424 3,748,374 3,713,870 3,712,170 - ----------------------------------------------------------------------------------------------------------------------------
Note: 1. Includes Basic for two month period ended December 31, 1995. 2. See footnotes to Consolidated Financial Statements for information on discontinued operations. 3. Includes $544 ($.14 per share) for favorable adjustment of income tax contingencies. 5 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS ACQUISITIONS: In November 1995, Fuqua acquired 100% of the common stock of Basic American Medical Products, Inc. ("Basic"). Basic, through its divisions, Simmons Healthcare, Omni Manufacturing and SSC Medical, is a manufacturer and distributor of medical equipment and furnishings for the acute, long-term and home health care markets. Basic's results of operations have been included in the consolidated results of Fuqua for the last two months of 1995 and consisted of net sales of $5,198,000, total costs and expenses before interest and taxes of $4,797,000 and operating income of $401,000. On March 13, 1996, Fuqua entered into an agreement to acquire the medical products operations of Lumex, Inc. (the "Lumex Division") for approximately $40.7 million. The Lumex Division, whose 1995 net sales are expected to be approximately $63.0 million, develops and markets a wide range of health care products including specialty seating, bathroom safety, mobility products, health care beds and therapeutic support systems. The acquisition transaction is expected to close in April 1996. The Lumex Division is headquartered in Bay Shore, Long Island, New York and markets the majority of its products to the home health care market and the remainder to institutional markets, including acute care and extended care facilities and dialysis clinics. Management believes that Basic and the Lumex Division will provide a base for Fuqua's further expansion in the medical products markets. LEATHER OPERATIONS: Net sales of the Leather Operations were 5.1% lower in 1995 than in 1994, 1994 amounts were 11.6% above 1993 amounts. The increase from 1993 to 1994 reflected the addition of new products, improved customer service, the expansion of sales to certain significant customers, higher demand for the Leather Operations' exports, and higher selling prices. The decrease in net sales from 1994 to 1995 reflected volume declines which could not be offset by price increases. During much of 1995, the demand for leather was adversely affected by weak retail sales of shoes and other leather products. Sales to customers in foreign countries were $30,662,000 in 1995, compared to $34,516,000 in 1994 and $15,510,000 in 1993 and represented 27.4% of total Leather Operations' sales in 1995. The increases in foreign sales from 1993 to 1994 reflect principally the growth in foreign markets and the success of the Leather Companies' increased marketing efforts. The decrease in foreign sales from 1994 to 1995 reflect the decline in retail demand in 1995. The backlog of the Leather Operations' unshipped orders has historically increased each year; however, the backlog has not proven to be an accurate predictor of subsequent sales due to the negative impact of competitive pressures and the rapid change in retail demand which affect the Leather Operations' customers. The gross profit margin percentage was 15.5% in 1995 compared to 14.9% in 1994 and 14.5% in 1993. The increase in 1995 reflects the favorable impact of falling hide prices during the last half of 1995. The increase in selling and administrative expenses of the Leather Operations from $5,989,000 in 1993 to $6,580,000 in 1994 and $6,926,000 in 1995 was almost entirely related to a continued expansion of the sales effort and higher levels of selling costs on export sales in 1994 and to a lesser extent in 1995. Operating profit as a percentage of sales was 9.3% in 1995 and 1994 and was 8.8% in 1993. CORPORATE OFFICE OPERATIONS: Investment income in 1995 was $828,000 as compared to $541,000 in 1994 and $552,000 in 1993. The increase resulted from higher amounts invested in 1995 as compared to 1994 and 1993. Capital gains, net of losses, included in investment income were $42,000 in 1995, $0 in 1994 and $268,000 in 1993. General and administrative expenses for corporate office activities in 1995 were $492,000 higher than 1994 and 1994 amounts were $843,000 lower than 1993 amounts, reflecting accruals in 1993 for expenses associated with the decision in December 1993, to close the New York corporate office and move the operations to Atlanta and expenditures in 1995 associated with unsuccessful transactions. 6 10 FINANCING EXPENSES: Interest expense in 1995 was $169,000 higher than 1994 and 1994 amounts were approximately $110,000 higher than in 1993. These increases principally reflect higher levels of borrowings to support expansion of the Leather Operations. In November 1995, Fuqua entered into the New Facility for $60,000,000 which was provided by three banks. The interest expense under the Facility is based on matrix pricing which ranges from LIBOR plus 40 to LIBOR plus 70 basis points. The New Facility replaced, at more favorable rates, borrowings of approximately $16,000,000 and provides additional capital to support further corporate development activities. INCOME TAXES FROM CONTINUING OPERATIONS: The provision for income taxes in 1995, 1994 and 1993 includes both Federal and state income taxes. The combined Federal and state effective tax rate in 1995 was 33.9% as compared to 31.4% in 1994 and 38.0% in 1993. The effective tax rate in 1994 was favorably impacted by an adjustment ($544,000 or $.14 per share) for amounts that were no longer considered necessary for loss contingencies for income taxes. Fuqua's effective tax rates are consistently below the statutory rates due primarily to significant sources of investment income that are exempt or substantially excluded from income taxes and due to favorable tax planning benefits related to foreign sales. DIVIDENDS: Fuqua paid no dividends in 1995, 1994 or 1993. At this time, Fuqua intends to retain all earnings for investments in its current business and for corporate development opportunities. Additionally, Fuqua's New Facility restricts the amount of dividends which can be paid. DISCONTINUED OPERATIONS: During December 1995, Fuqua sold its insurance subsidiary, American Southern Insurance Company ("American Southern") for $34,000,000 to Atlantic American Corporation ("Atlantic American"), an Atlanta, Georgia based publicly-held insurance company. The proceeds from the sale included cash of $22,648,000 and a note receivable from the purchaser of $11,352,000. The note bears interest at prime, half of which is payable quarterly and half of which is payable, together with principal, in October 1996. The term and amount of the note receivable is the same as the note payable which arose in connection with Fuqua's acquisition of American Southern in 1991. Management expects that the note payable will be repaid from the proceeds of the note receivable or, to the extent necessary, repaid with borrowings under the New Facility. The note payable and related acquisition agreements provide for indemnification and certain offset rights which, to the extent claims remain outstanding in October 1996, could result in a delay of payment of the full amount of the notes payable. The note receivable from Atlantic American Corporation has similar offset and indemnification rights. The sale transaction resulted in the earnings of American Southern being reclassified as discontinued operations and in a loss on disposal from the sale of $900,000 (net of tax). The loss on disposal arose principally from the increased cost basis which Fuqua had in the stock as a result of American Southern's having earned more than it paid in dividends since it was acquired by Fuqua in 1991. In January 1996, Fuqua made the decision to discontinue the operations of Kroy Tanning Company, Incorporated, ("Kroy"), which historically had been unprofitable. In accordance with generally accepted accounting principles (Emerging Issues Task Force 95-18), Kroy has been treated as a discontinued operation in the December 31, 1995 consolidated financial statements. In connection with Fuqua's decision to discontinue the operations of Kroy, $4,800,000, before the benefit of income taxes, was accrued at December 31, 1995 to write down assets to their net realizable values and to pay for obligations, including environmental costs, in connection with the wind down of operations and the closing of Kroy's facility in East Wilton, Maine. SEE NOTE 3 TO FUQUA'S CONSOLIDATED FINANCIAL STATEMENTS FOR FURTHER DESCRIPTION OF THE RESULTS OF DISCONTINUED OPERATIONS. OTHER: In 1993, Fuqua adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative effect at January 1, 1993, of this accounting change was a benefit of $418,000. Effective January 1, 1994, Fuqua adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). In accordance with SFAS 115, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect on net income as of January 1, 1994 of adopting SFAS 115 for investments which previously were classified as held to maturity which were then classified as trading securities was immaterial. The balance of stockholders' equity as of January 1, 1994 was increased by $1,238,000, net of income taxes, to reflect the net unrealized gains on investments previously classified as held to maturity which are now classified as available for sale. 7 11 RECENT PRONOUNCEMENTS: In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"), which requires impairment losses to be recorded on long-lived assets used in operations 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 121 also addresses the accounting for long-lived assets that are expected to be disposed. Fuqua will adopt SFAS 121 in the first quarter of 1996 and, based on current circumstances, does not believe the impact of such adoption will be material. In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation", which encourages companies to recognize expense for stock-based awards based on their fair market value on the date of grant. If adopted, Fuqua does not believe that the effect of adoption will be material. FINANCIAL CONDITION, LIQUIDITY AND CORPORATE DEVELOPMENT Fuqua, as a result of the sale of American Southern and having entered into the New Facility, had at December 31, 1995, $41,550,000 in cash and investments and over $40,000,000 in unused borrowing capacity. In the event circumstances warrant, such as with a very large acquisition, Fuqua may look to additional outside sources for funds. Prior to 1995, Fuqua funded its cash needs with borrowings by the Leather Operations on lines of credit and by utilizing cash resources of the corporate office. LEATHER OPERATIONS: Reflecting the decrease in sales activity, accounts receivable decreased 8.5% to $13,043,000 at December 31, 1995, as compared to $14,248,000 in 1994. Year-to-year increases in inventories were .8%, rising to $16,428,000 in 1995 from $16,298,000 in 1994. In a similar relationship to the increase in sales, accounts payable and accrued expenses decreased in 1995 by 24.6% to $6,058,000 from $8,038,000 in 1994. The Leather Operations funded their working capital needs in 1994 with short-term notes payable to banks and during 1995 with Fuqua's New Facility. In 1992, Fuqua's Leather Operations completed the first phase of a plant modernization program that began in 1990. Capital improvements in the first phase totaled $6,700,000 with $1,600,000 incurred in 1992, $2,200,000 in 1991 and $2,900,000 in 1990. The second phase of the program began in 1993 and was completed in 1994 and included a new building, automated tanning drums, and additional drying capacity. Capital expenditures for 1995 were $1,508,000 and for 1994 were $2,350,000. The tanning industry, like many others in the United States, faces ever-changing government standards and both state and Federal licensing procedures. The changing licensing requirements may necessitate updating equipment and processes that are technically complex, and meeting the changing requirements could be costly and time consuming. The Town of Hartland, Maine charges the Leather Operations for approximately 95% of the costs to operate the water treatment facility and landfill. These expenditures include amounts required to maintain state and federal water quality and environmental standards. Expenditures for environmental control purposes with respect to Fuqua's continuing Leather Operations are not expected to be material in 1996. Fuqua's management believes that its continuing Leather Operations are operating in substantial compliance with all relevant environmental regulations. OTHER: Fuqua's financial statements are prepared on the basis of historical cost. While it is difficult to measure the impact of inflation, management believes that the effects of inflation on Fuqua have not been significant. To the extent that inflationary pressures have an adverse effect through higher raw material and asset replacement costs, Fuqua attempts to minimize these effects through cost reductions and productivity improvements as well as price increases. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the consolidated financial statements of Fuqua and its subsidiaries, consisting of the Consolidated Balance Sheets as of December 31, 1995 and 1994 and the related Consolidated Statements of Income, Consolidated Statements of Cash Flows, and Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 1995, together with the Notes to Consolidated Financial Statements. SEE SECTION F, OF THIS REPORT, WHICH INFORMATION IS INCORPORATED INTO THIS ITEM 8 BY REFERENCE. Reference is also made to information set forth in the section entitled "Summary of Quarterly Data". SEE SECTION F, PAGE F-13 OF THIS REPORT, WHICH INFORMATION IS INCORPORATED INTO THIS ITEM 8 BY REFERENCE. 8 12 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Identification of Directors The information regarding directors of Fuqua is set forth under the section "Election of Directors" in Fuqua's definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the "Proxy Statement"), which section is incorporated herein by reference. (b) Identification of Executive Officers The information regarding executive officers of the Registrant is included in Part I of this report under the caption "Executive Officers of the Registrant", which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Reference is made to the information set forth under the caption "Executive Compensation and Other Information" and "Election of Directors - Fees for Directors" in the Proxy Statement, which information is incorporated herein by reference; provided that in no event shall the information set forth under the caption "Executive Compensation and Other Information - Report on Executive Compensation" be incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Reference is made to the information set forth under the caption "Ownership of Common Stock" in the Proxy Statement, which information is incorporated herein by reference. Fuqua does not know of any contractual arrangements which may at a subsequent date result in a change in control of Fuqua. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Reference is made to the information set forth under the caption "Executive Compensation and Other Information - Transactions with Management" in the Proxy Statement which information is incorporated herein by reference. 9 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements The response to this portion of Item 14 is submitted as a separate section of this report, such section being incorporated herein by reference. (See Section F) (a)(2) Schedules The response to this portion of Item 14 is submitted as a separate section of this report, such section being incorporated herein by reference. (See Section S) (a)(3) Listing of Exhibits
EXHIBITS INCORPORATED HEREIN BY REFERENCE -------------------------------------------------------------- DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT - -------------- ------------------------------------- -------------------------------- --------------------------- 2(a) Stock Purchase Agreement among Fuqua, Interim Report on Form 8-K dated Exhibit 2(i) Concorde Finance & Investment, Inc. October 11, 1991 InterRedec, Inc, InterRedec Southern Company, Inc. and American Southern dated September 17,1991 2(b) Agreement and Plan of Merger By and Quarterly Report on Form 10-Q Exhibit 2(a) Among Basic American Medical Products, for the three months ended Inc., BA Acquisition Corporation and September 30, 1995 Fuqua and with respect to Articles 7, 12 and 13 thereof, Gene J. Minotto dated as of October 6, 1995 2(c) Stock Purchase Agreement between Quarterly Report on Form 10-Q Exhibit 2(b) Atlantic American Corporation and for the three months ended Fuqua dated as of October 16, 1995 September 30, 1995 2(d) Asset Sale Agreement By and Between Lumex, Inc., MUL Acquisition Corp. I, MUL Acquisition Corp. II, and Fuqua dated March 13, 1996 (Fuqua agrees to furnish a copy of any omitted schedule to the Commission upon request) 3(a) Restated Certificate of Incorporation Interim Report on Form 8-K dated Exhibit 3(i) and Amendments thereto of Fuqua September 7, 1995 3(b) Bylaws of Fuqua, as amended Quarterly Report on Form 10-Q Exhibit 3(b) for the three months ended September 30, 1995 4(a) Revolving Credit Agreement between Quarterly Report on Form 10-Q Exhibit 10(b) SunTrust Bank, Atlanta, Wachovia Bank for the three months ended of Georgia and Fleet Bank of Maine and September 30, 1995 Fuqua dated November 6, 1995 4(b) Term Loan Agreement by and among SunTrust Bank, Atlanta, Fuqua and Basic dated January 18, 1996 (Fuqua agrees to furnish a copy of any omitted schedules to the Commission upon request)
10 14
EXHIBITS INCORPORATED HEREIN BY REFERENCE -------------------------------------------------------------- DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT - -------------- ----------------------------------- ------------------------------- ------------------------- 4(c) Agreement between Town of Hartland, Quarterly Report on Form 10-Q Exhibit 4(d) Maine and Irving Tanning Company for the three months ended dated September 26, 1994 related to September 30, 1994 General Obligations Bonds 10(a) Management Agreement between Annual Report on Form 10-K Exhibit 10(b) Fuqua and Fuqua National Corporation for the year ended December 31, dated April 10, 1989 1989 10(b) Assignment to Fuqua Capital Corpo- Annual Report on Form 10-K Exhibit 10(b)(1) ration of the Management Agreement for the year ended December 31, between Fuqua and Fuqua National 1990 Corporation 10(c) First Amendment to Management Agree- Quarterly Report on Form 10-Q Exhibit 10(b)(2) ment between Fuqua Capital Corpo- for the three months ended ration and Fuqua dated September 14, September 30, 1994 1994 10(d)* 1989 Stock Option Plan of Fuqua Annual Report on Form 10-K Exhibit 10(c) for the year ended December 31, 1989 10(e)* 1992 Stock Option Plan of Fuqua Registration Statement on Form Exhibit 28 S-8 (Registration No. 33-54164) 10(f)* 1995 Stock Option Plan for Outside Directors of Fuqua(1) 10(g)* 1995 Long-Term Incentive Plan of Fuqua(1) 10(h) Severance Agreement between Fuqua and Quarterly Report on Form 10-Q Exhibit 10(i) Samuel W. Norwood III dated August 1, for the three months ended 1995 June 30, 1995 10(i) Lease Agreement between Fuqua (Lessee) Annual Report on Form 10-K Exhibit 10(f) and Sumitomo Life Realty (N.Y.) Inc. for the year ended December 31, (Lessor) dated January 17, 1990 1990 10(j) First Amendment to the Lease Agreement Annual Report on Form 10-K Exhibit 10(g) between Fuqua (Lessee) and Sumitomo for the year ended December 31, Life Realty (N.Y.) Inc. (Lessor) 1990 dated September 6, 1990 10(k) Second Amendment to Lease Agreement Annual Report on Form 10-K Exhibit 10(p) between Fuqua (Lessee) and Sumitomo for the year ended December 31, Life Realty (N.Y.) Inc. (Lessor) 1991 dated February 21, 1992 10(l) Third Amendment to Lease Agreement Quarterly Report on Form 10-Q Exhibit 10(i)(1) between Fuqua (Lessee) and Sumitomo for the three months ended Life Realty (N.Y.) Inc. (Lessor) September 30, 1994 dated October 28, 1994
11 15
EXHIBITS INCORPORATED HEREIN BY REFERENCE -------------------------------------------------------------- DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT - -------------- --------------------------------------- ----------------------------------- ----------------------- 10(m) Sublease Agreement between Fuqua Annual Report on Form 10-K Exhibit 10(l) and Fuqua Capital Corporation, for the year ended December 31, dated October 31, 1994 1994 10(n) Lease Agreement between Empire State Annual Report on Form 10-K Exhibit 10(q) Building Company (Lessor) and Fuqua for the year ended December 31, (Lessee) dated March 1, 1993 along 1993 with Lease Modification Agreement and Space Deletion Agreement dated February 18, 1994 10(o) Registration Rights Agreement between Quarterly Report on Form 10-Q Exhibit 10(a) Fuqua and Gene J. Minotto dated for the three months ended November 8, 1995 September 30, 1995 10(p) Non-negotiable Promissory Note, Interim Report on Form 8-K dated Exhibit 10(i) dated October 11, 1991, between Fuqua October 11, 1991 and InterRedec Southern Company, Inc. 10(q) Promissory Note between Atlantic American Interim Report on Form 8-K dated Exhibit 10(a) Corporation and Fuqua dated December 31, December 31, 1995 1995 10(r) Letter of Credit Agreement between First Union National Bank of Georgia ("First Union") and Fuqua dated December 8, 1995 (Fuqua agrees to furnish a copy of any omitted schedule to the Commission upon request) 10(s) Unconditional Guarantee of Performance of Fuqua in favor of Super Sagless, Inc. dated November 15, 1995 11 Statement of Computation of Earnings per share 21 Subsidiaries of Fuqua 23 Consent of Ernst & Young LLP 24 Powers-of-Attorney 27 Financial Data Schedule (for SEC use only) 27.1 Article 5
______________________________________________________ 12 16 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - CONTINUED (b) Reports on Form 8-K During the three months ended December 31, 1995, Fuqua filed three reports on Form 8-K and one report on Form 8-K/A. (i) The Form 8-K report dated October 6, 1995 reported the execution of an agreement to acquire Basic and to the agreement for a $60,000,000 revolving credit facility led by SunTrust Bank, Atlanta to provide funds for working capital and acquisitions. (ii) The Form 8-K report dated November 8, 1995 reported the acquisition of Basic. (iii) The Form 8-K/A report dated November 8, 1995 included the audited financial statements of Basic and pro forma financial information. (iv) The Form 8-K report dated December 31, 1995 reported the sale of American Southern to Atlantic American Corporation as of December 31, 1995. (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules The response to this portion of Item 14 is submitted as a separate section of this report. ________________________________________________________ * Management contract or compensatory plan required to be filed pursuant to Item 14(c) of this report. 1. Subject to stockholder approval at the Annual Meeting of Stockholders on June 1, 1996. 13 17 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. FUQUA ENTERPRISES, INC. By: s/s Brady W. Mullinax, Jr. ----------------------------------------------------- Vice President-Finance, Treasurer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Dated: March 22, 1996 Pursuant to the requirements of the Securities Exchange 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 ---------------------------------- ------------------------------------------- ------------------------- J. B. FUQUA* Chairman of the Board J. REX FUQUA* Vice Chairman of the Board W. CLAY HAMNER* Director FRANK W. HULSE IV* Director RICHARD C. LAROCHELLE* Director GENE J. MINOTTO* Director March 22, 1996 CLARK L. REED* Director D. RAYMOND RIDDLE* Director President and Chief Executive Officer /s/ L. P. Klamon (Principal Executive Officer) and ----------------------------- Director LAWRENCE P. KLAMON Vice President-Finance, Treasurer, and /s/ Brady W. Mullinax, Jr. Chief Financial Officer (Principal ----------------------------- Financial Officer and Principal Accounting BRADY W. MULLINAX, JR. Officer) FUQUA ENTERPRISES, INC. * By: s/s Mildred H. Hutcheson -------------------------- Mildred H. Hutcheson Attorney-in-fact
14 18 FUQUA ENTERPRISES, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1995 ITEM 8 REPORT OF INDEPENDENT AUDITORS FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19 FORM 10-K FUQUA ENTERPRISES, INC. AND SUBSIDIARIES YEAR ENDED DECEMBER 31, 1995 ITEM 8 LIST OF FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No. ---- Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . F-2 Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7 Summary of Quarterly Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
******* The financial statement schedule under Item 14(a) may be found under Section S of this report. (i) 20 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Fuqua Enterprises, Inc. We have audited the accompanying consolidated balance sheets of Fuqua Enterprises, Inc. (formerly Vista Resources, Inc.) as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule referred to 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 Fuqua Enterprises, Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and cash flows for each of the three years in the period ended December 31, 1995, 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. As discussed in Note 1 to the consolidated financial statements, in 1994, the Company changed its method of accounting for certain investments in debt and equity securities to comply with Statement of Financial Accounting Standards No. 115 and, in 1993, the Company changed its method of accounting for income taxes to comply with Statement of Financial Accounting Standards No. 109. s/s Ernst & Young LLP ERNST & YOUNG LLP Atlanta, Georgia February 21, 1996, except for the last paragraph of Note 2, as to which the date is March 13, 1996 F-1 21 CONSOLIDATED BALANCE SHEETS Fuqua Enterprises, Inc. and Subsidiaries
====================================================================================================================== December 31, (Dollars in thousands) 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 29,000 $ 4,231 Investments available for sale 12,550 9,884 Receivables Trade accounts, less allowance of $200 (1994,$350) 19,102 14,248 Note receivable from sale of subsidiary 11,352 - Inventories 21,695 16,298 Prepaid expenses and other assets 910 305 Deferred income taxes 3,614 757 --------------------------------- Total Current Assets 98,223 45,723 --------------------------------- Property, plant and equipment 32,303 25,641 Less accumulated depreciation (10,841) (11,065) --------------------------------- Net Property, Plant and Equipment 21,462 14,576 --------------------------------- Intangible assets, less accumulated amortization of $25 5,013 - Deferred income taxes 1,066 - Other assets 95 213 --------------------------------- Total Assets of Continuing Operations 125,859 60,512 Total Assets of Discontinued Operations 10,903 97,589 --------------------------------- Total Assets $136,762 $ 158,101 =================================
See accompanying Notes to Consolidated Financial Statements. F-2 22 CONSOLIDATED BALANCE SHEETS - continued Fuqua Enterprises, Inc. and Subsidiaries
====================================================================================================================== December 31, (Dollars in thousands, except share data) 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable $ 2,064 $ 11,750 Accounts payable and accrued expenses 18,800 8,038 Accrued income taxes - 1,112 Long-term liabilities due within one year 11,668 1,026 ---------------------------------- Total Current Liabilities 32,532 21,926 Long-term liabilities 22,041 14,445 ---------------------------------- Total Liabilities of Continuing Operations 54,573 36,371 Total Liabilities of Discontinued Operations 301 57,408 ---------------------------------- Total Liabilities 54,874 93,779 ---------------------------------- Stockholders' equity Preference stock, $1 par value: authorized 8,000,000 shares; none issued - - Common stock, $2.50 par value: authorized 20,000,000 shares; issued 1995, 4,443,169 shares; (1994, 3,831,670 shares) 11,108 9,579 Additional paid-in capital 24,074 14,374 Retained earnings 46,698 44,188 Unrealized gains (losses) on investments 28 (2,469) ---------------------------------- 81,908 65,672 Treasury stock, at cost: 1995, 995 shares; (1994, 69,246 shares) (20) (1,350) ---------------------------------- Total Stockholders' Equity 81,888 64,322 ---------------------------------- Total Liabilities and Stockholders' Equity $ 136,762 $ 158,101 ==================================
F-3 23 CONSOLIDATED STATEMENTS OF INCOME Fuqua Enterprises, Inc. and Subsidiaries
======================================================================================================================= Year ended December 31, (Dollars in thousands, except per share data) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------- REVENUES: Net sales $117,128 $118,011 $ 105,785 Investment income 828 541 552 ----------------------------------------------------------- Total revenues 117,956 118,552 106,337 ----------------------------------------------------------- COSTS AND EXPENSES: Cost of sales 98,356 100,446 90,479 Selling, general and administrative expenses 10,757 8,897 9,149 Interest expense 894 725 615 ----------------------------------------------------------- Total costs and expenses 110,007 110,068 100,243 ----------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 7,949 8,484 6,094 INCOME TAXES 2,699 2,662 2,319 ----------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 5,250 5,822 3,775 ----------------------------------------------------------- DISCONTINUED OPERATIONS: Income from discontinued operations (Net of income taxes (benefits) of ($103), $1,215 and $1,444, respectively) 1,160 3,751 4,268 Loss on disposal of discontinued operations including earnings net of taxes during the phase out period (Net of income tax benefits of $2,753) (3,900) - - ----------------------------------------------------------- (2,740) 3,751 4,268 ----------------------------------------------------------- Income before cumulative effect of accounting change 2,510 9,573 8,043 Cumulative effect of accounting change - - 418 ----------------------------------------------------------- NET INCOME $ 2,510 $ 9,573 $ 8,461 ----------------------------------------------------------- PER SHARE: Income from Continuing Operations $ 1.32 $ 1.51 $ .98 Income before Cumulative Effect of Accounting Change $ .63 $ 2.48 $ 2.09 Cumulative Effect of Accounting Change - - $ .11 Net Income $ .63 $ 2.48 $ 2.20
See accompanying Notes to Consolidated Financial Statements. F-4 24 CONSOLIDATED STATEMENTS OF CASH FLOWS Fuqua Enterprises, Inc. and Subsidiaries
======================================================================================================================= Year ended December 31, (Dollars in thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $ 5,250 $ 5,822 $ 3,775 Adjustments: Depreciation and amortization 1,931 1,603 1,326 Deferred income taxes 464 (88) (1,095) Gain on sales of available for sale investments - - (268) Cumulative effect of accounting change - - 418 Changes in Assets and Liabilities: Receivables 886 (716) (3,283) Inventories (130) (1,889) (2,285) Other assets (225) 39 141 Income taxes (1,112) (724) 311 Payables, accrued expenses, and other liabilities (1,624) (3,628) 2,198 ---------------------------------------------------------- Net cash provided by continuing operations 5,440 419 1,238 ---------------------------------------------------------- Income from discontinued operations 1,160 3,751 4,268 Loss on disposal of discontinued operations (3,900) - - Net items providing cash from discontinued operations (194) 583 1,450 ---------------------------------------------------------- Net cash provided by (used in) discontinued operations (2,934) 4,334 5,718 ---------------------------------------------------------- Net cash provided by all operations 2,506 4,753 6,956 ---------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from the sale of discontinued operations 22,648 - - Purchase of business, net of cash acquired (2,263) - - Sales of available for sale investments 3,306 100 3,480 Purchases of available for sale investments (5,272) (6,630) (2,504) Sales of property, plant and equipment - 31 27 Purchases of property, plant and equipment (1,509) (4,024) (4,922) Total insurance - (4,525) (2,668) ---------------------------------------------------------- Net cash provided by (used in) investing activities 16,910 (15,048) (6,587) ---------------------------------------------------------- FINANCING ACTIVITIES: Net increase (decrease) in notes payable (11,750) 5,750 1,000 Payment of long-term liabilities (3,521) (1,273) (1,315) Additional long-term liabilities 19,615 3,079 2,194 Exercise of stock options 1,009 248 119 Acquired shares for treasury - (190) (60) ---------------------------------------------------------- Net cash provided by financing activities 5,353 7,614 1,938 ---------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 24,769 (2,681) 2,307 Increase (Decrease) in Cash and Cash Equivalents from discontinued operations - 2,445 (211) Cash and cash equivalents at beginning of year 4,231 4,467 2,371 ---------------------------------------------------------- Cash and cash equivalents at end of the year $ 29,000 $ 4,231 $ 4,467 ====================================================================================================================== CASH PAID DURING THE YEAR FOR: Interest $ 2,116 $ 1,185 $ 982 Income taxes 4,515 5,266 3,687 NON-CASH INVESTING AND FINANCING ACTIVITIES: Contingent payment related to meeting certain earn out objectives (American Southern) - 1,000 - Issuance of stock in connection with acquisition 11,550 - - Assumption of note receivable from sale of American Southern 11,352 - - - ----------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. F-5 25 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Fuqua Enterprises, Inc. and Subsidiaries
====================================================================================================================== UNREALIZED ADDITIONAL GAINS COMMON PAID-IN RETAINED (LOSSES) ON TREASURY (Dollars in thousands) STOCK CAPITAL EARNINGS INVESTMENTS STOCK TOTAL - ---------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1992 $ 9,290 $ 13,229 $ 26,154 $ 25 $ (33) $ 48,665 Net income - - 8,461 - - 8,461 Exercise of stock options 220 846 - - (947) 119 Acquired shares for treasury - - - - (60) (60) Unrealized gains on investments - - - 193 - 193 - ---------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1993 9,510 14,075 34,615 218 (1,040) 57,378 Net income - - 9,573 - - 9,573 Exercise of stock options 69 299 - - (120) 248 Acquired shares for treasury - - - - (190) (190) Adjustment to beginning balance for change in accounting method, net of tax - - - 1,238 - 1,238 Unrealized losses on investments - - - (3,925) - (3,925) - ---------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1994 9,579 14,374 44,188 (2,469) (1,350) 64,322 Net income - - 2,510 - - 2,510 Exercise of stock options 205 871 - - (67) 1,009 Issuance of stock in connection with acquisition 1,324 8,829 - - 1,397 11,550 Unrealized gains on investments - - - 2,497 - 2,497 - ---------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 $ 11,108 $ 24,074 $ 46,698 $ 28 $ (20) $ 81,888 ======================================================================================================================
See accompanying Notes to Consolidated Financial Statements. F-6 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries 1. SIGNIFICANT ACCOUNTING POLICIES BUSINESS: Fuqua Enterprises, Inc. ("Fuqua"), formerly Vista Resources, Inc., changed its name to Fuqua during 1995. Fuqua also sold its insurance subsidiary, American Southern Insurance Company ("American Southern") during 1995 and in January 1996, made the decision to discontinue the operations of Kroy Tanning Company, Incorporated ("Kroy"), which historically had been unprofitable. Additionally, Fuqua acquired Basic American Medical Products, Inc. ("Basic" and "Medical Products Operations") in November 1995. As a result of these changes Fuqua, through its subsidiaries, is a manufacturer and distributor of medical equipment and furnishings for the acute, long-term and home health care markets and also produces a broad line of leathers that are sold to manufacturers of shoes, handbags, personal leather goods and furniture in both the United States and foreign markets. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Fuqua and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. ACCOUNTING CHANGES: Effective January 1, 1994, Fuqua adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). In accordance with SFAS 115, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect on net income as of January 1, 1994 of adopting SFAS 115 for investments which previously were classified as held to maturity and which were then classified as trading securities was immaterial. The balance of stockholders' equity as of January 1, 1994 was increased by $1,238,000, net of income taxes, to reflect the net unrealized gains on investments previously classified as held to maturity which are now classified as available for sale. Certain reclassifications have been made to the 1994 financial statements to conform with the 1995 presentation. Effective January 1, 1993, Fuqua adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"). This statement requires an asset and liability approach for financial accounting and reporting of income taxes. Under this approach, deferred income taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur. As permitted by SFAS 109, Fuqua elected not to restate the financial statements of prior years. The effect of the change on net income was not material; the cumulative effect of the change increased net income for the year ended December 31, 1993 by $418,000 or $.11 per share. RECENT PRONOUNCEMENTS: In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"), which requires impairment losses to be recorded on long-lived assets used in operations 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 121 also addresses the accounting for long-lived assets that are expected to be disposed. Fuqua will adopt SFAS 121 in the first quarter of 1996 and, based on current circumstances, does not believe the impact of such adoption will be material. In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation", which encourages companies to recognize expense for stock-based awards based on their fair market value on the date of grant. If adopted, Fuqua does not believe that the effect of adoption will be material. INCOME PER SHARE: Income per share is based upon 3,962,876 shares in 1995 (1994-3,860,324 and 1993-3,855,648 shares), representing the weighted-average number of shares outstanding during the year, plus common stock equivalents. Common stock equivalents include option shares granted under Fuqua's stock option plans. FINANCIAL INSTRUMENTS: Financial instruments which potentially subject Fuqua to concentrations of credit risk are primarily cash equivalents and short-term investments in investment grade, short-term debt instruments and preferred stocks. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers in Fuqua's customer base and their dispersion across different geographic areas. As described in Note 3, Fuqua received a note in connection with the sale of American Southern which management believes will be paid in accordance with its terms. Fuqua maintains an allowance for doubtful accounts based upon the expected collectibility of its receivables. Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts F-7 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries presented in the footnotes to these financial statements do not represent the underlying value of Fuqua or of its subsidiaries. ADVERTISING COSTS: Fuqua, through its subsidiaries, expenses advertising costs when incurred. The amounts of such costs were insignificant in 1995, 1994 and 1993. CASH AND CASH EQUIVALENTS: For purposes of the consolidated balance sheets and statements of cash flows, Fuqua considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents (1995 - - $29,000,000; 1994 - $4,231,000; 1993 - $4,467,000). The cash proceeds of $22,648,000 from the sale of American Southern on December 31, 1995 were invested in cash equivalents collateralized by U.S. Treasury obligations. The carrying amounts reported in the balance sheets for cash and cash equivalents approximate their fair values. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined as follows: raw materials and supplies-first-in, first-out; work in process and finished goods-average. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Depreciation is provided principally by the straight-line method over estimated useful lives which range from 3-30 years. REVENUE RECOGNITION: Sales are recorded when goods are shipped and billed to their customers. RESEARCH AND DEVELOPMENT: The subsidiaries expensed research and development costs of $802,000, $800,000, and $718,000 in 1995, 1994 and 1993, respectively. SHORT-TERM BORROWINGS: The weighted average interest rate on short-term borrowings was 7.4%, 6.8% and 6.0% during 1995, 1994 and 1993, respectively. USE OF ESTIMATES: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. 2. ACQUISITIONS On November 8, 1995, Fuqua acquired Basic. Basic, whose divisions include Simmons Healthcare, Omni Manufacturing and SSC Medical, is a manufacturer and distributor of medical equipment and furnishings for the acute, long-term and home health care markets. The purchase price consisted of $2,500,000 in cash and 600,000 shares of Fuqua's common stock. The transaction was accounted for using the purchase method; accordingly, the assets and liabilities of Basic have been recorded at their estimated fair values at the date of acquisition. The excess of purchase price over the net assets acquired of $5,038,000 has been assigned to goodwill and will be amortized on a straight-line basis over 30 years. The results of operations of Basic have been included in the consolidated financial statements for the two-month period since the date of acquisition. The following unaudited pro forma summary presents consolidated results from continuing operations as if the acquisition had occurred on January 1, 1994. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made as of that date or of results which may occur in the future.
ProForma Year Ended December 31, (Unaudited) (Dollars in thousands, except per share date) 1995 1994 - ----------------------------------------------------------------------------- Net sales $ 140,589 $141,263 Income from continuing operations 5,440 6,406 Per share: Income from continuing operations $ 1.22 $ 1.44
SUBSEQUENT EVENT - ACQUISITION OF LUMEX: On March 12, 1996, Fuqua entered into an agreement to acquire the medical products operations of Lumex, Inc. (the "Lumex Division") for approximately $40.7 million. The Lumex Division, whose 1995 net sales are expected to be approximately $63.0 million, develops and markets a wide range of health care products including specialty seating, bathroom safety, mobility products, health care beds and therapeutic support systems. The acquisition transaction is expected to close in April 1996. The Lumex Division is headquartered in Bay Shore, Long Island, New York and markets the majority of its products to the home health care market and the remainder to institutional markets, including acute care and extended care facilities and dialysis clinics. 3. DISCONTINUED OPERATIONS In December 1995, Fuqua sold its insurance subsidiary, American Southern, for $34,000,000 to Atlantic American Corporation, an Atlanta, Georgia based publicly-held insurance company. The proceeds from the sale included cash of $22,648,000 and a note receivable from the purchaser of $11,352,000. The note receivable bears interest at prime, half of which is payable quarterly and half of which is payable, together with the principal, in October 1996. The note receivable has indemnification and certain offset rights which are similar to the provisions of the note payable issued to the seller when Fuqua acquired American Southern in 1991. The sale transaction resulted in a pretax loss on disposal of $3,553,000, less earnings (net of taxes) during the phase out period of the fourth quarter of 1995 of $1,303,000 and less estimated tax benefits of $1,350,000. F-8 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries In January, 1996, Fuqua made the decision to discontinue the operations of Kroy, which historically had been unprofitable. In accordance with generally accepted accounting principles (Emerging Issues Task Force 95-18), Kroy has been treated as a discontinued operation in the December 31, 1995 consolidated financial statements. The pretax loss on disposal of Kroy is $4,800,000, less estimated tax benefits of $1,800,000. This accrual provides for reserves necessary to write down assets (consisting principally of receivables, inventory and property, plant and equipment) to their net realizable values and to pay for obligations, including environmental costs, required in connection with the wind down of operations. In the event an alternative method of disposal does not develop earlier, management expects to close the East Wilton facility by the fourth quarter of 1996. Discontinued operations include management's best estimates of the amounts expected to be realized from Kroy's assets and future obligations. The amounts Fuqua will ultimately realize or be obligated for could differ materially in the near term from the amounts assumed in arriving at the loss on disposal of Kroy. The results of operations of American Southern and its subsidiaries through September 30, 1995 and for Kroy through December 31, 1995 have been classified as income from discontinued operations as follows:
Year ended December 31, 1995 1994 1993 (Dollars in thousands) - ---------------------------------------------------------------- Revenues $45,932 $49,406 $50,534 Costs and expenses 44,875 44,440 44,822 ------- ------- ------- Income before income taxes 1,057 4,966 5,712 Income tax provision (benefit) (103) 1,215 1,444 ------- ------- ------- Income from discontinued operations $ 1,160 $ 3,751 $ 4,268 ======= ======= =======
4. INVENTORIES Inventories consist of the following:
December 31, 1995 1994 (Dollars in thousands) - ---------------------------------------------------------------- Finished goods $ 6,598 $ 3,916 Work in process 6,738 6,400 Raw materials and supplies 8,359 5,982 ------- ------- $21,695 $16,298 ======= =======
5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
December 31, 1995 1994 (Dollars in thousands) - ---------------------------------------------------------------- Land and land improvements $ 257 $ 121 Buildings and improvements 12,803 7,202 Machinery and office equipment 18,399 17,137 Automobiles and trucks 844 1,181 ------- ------- $32,303 $25,641 ======= =======
F-9 29 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following:
December 31, 1995 1994 (Dollars in thousands) - ---------------------------------------------------------------- Accounts payable $ 5,390 $ 4,377 Accrued compensation 1,536 1,365 Accrued insurance 996 659 Accrued profit-sharing plan 381 290 Accrual for discontinued operations 6,147 - Other accrued expenses 4,350 1,347 ------- ------- $18,800 $ 8,038 ======= =======
7. LONG-TERM LIABILITIES Long-term liabilities consist of the following:
December 31, 1995 1994 (Dollars in thousands) - ---------------------------------------------------------------- Revolving Credit Facility, interest at LIBOR + .5%, due in 1998 $18,500 $ - Industrial revenue obligations, secured by improvements, 4.5% to 6.9%, due to 2004 1,335 1,539 Note payable and accrued interest,due October 11, 1996 - 10,904 Notes payable to bank, secured by equipment, LIBOR + 1 1/2%, due to 1999 - 1,890 Step down revolver payable in monthly installments, interest at 8.75% through April 1997 when balance is due 745 - Master draw note with interest payable at 7.5% through April 1997 when balance is due 937 - Term note, payable in monthly installments, interest at 8.75% through May 2000 120 - Note payable in monthly installments, interest at 8% through June 2007, callable at the option of the lender within a 90 day period beginning July 1998, July 2001 or July 2002 360 - Equipment financing obligations, 10.35%, due to 1996 - 48 Liability for future payments under employment contracts 44 64 ------- -------- $22,041 $ 14,445 ======= ========
The note payable due October 11, 1996, which was issued to the seller in connection with the acquisition of American Southern, bears interest at the prime rate. Fifty percent of the interest is payable quarterly and the remaining fifty percent is due October 11, 1996. In 1995, the balance of the note was reclassified to long-term debt due within one year. The note is secured by a letter of credit of equal amount provided by four banks. The note payable and related acquisition agreements provide for indemnification and certain offset rights which, to the extent claims remain outstanding in October 1996, could result in delay of payment of the full amount of the note payable. On November 6, 1995, Fuqua entered into a Revolving Credit Facility provided by three banks (the "New Facility"). The New Facility is for up to $60,000,000 for a three-year period to be used for working capital and to provide funds F-10 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries for corporate development activities. The interest expense under the New Facility is based on matrix pricing which ranges from LIBOR plus 40 to LIBOR plus 70 basis points, plus a charge on the unused commitment of 12.5 to 18.75 basis points. The New Facility replaced, at more favorable rates, borrowings of approximately $16,000,000 (including short- term borrowings of approximately $14,000,000) which, as a result, have been classified as long-term debt in 1995. The New Facility includes normal and customary restrictive covenants regarding funded debt to capital, funded debt to cash flow, interest coverage, and dividend payments. Management believes that at December 31, 1995, Fuqua is in compliance with the covenants of the New Facility and with the covenants of other Fuqua debt agreements. The aggregate maturity requirements for the next five years in respect to the current and non-current portions of long-term debt at December 31, 1995 were as follows (dollars in thousands): 1996-$11,668; 1997-$1,964; 1998-$18,735; 1999-$247; 2000-$215; and thereafter $880. The carrying amounts of long-term liabilities approximate their fair values. 8. CAPITAL STOCK PREFERENCE STOCK: There are 8,000,000 authorized shares of Preference Stock, none of which was outstanding or designated as to a particular series at December 31, 1995. COMMON STOCK: There are 20,000,000 authorized shares of Common Stock, $2.50 par value. At December 31, 1995, there were 4,442,174 shares outstanding, at December 31, 1994 there were 3,762,424, and at December 31, 1993, there were 3,748,374 shares outstanding. In 1995, there were 82,000 shares issued upon exercise of stock options and 2,250 shares were acquired for the treasury; in 1994, there were 27,675 shares issued upon exercise of stock options and 13,625 shares were acquired for the treasury; in 1993, 88,095 shares were issued upon exercise of stock options and 53,591 shares were acquired for the treasury. At December 31, 1995, there were 748,500 shares of common stock reserved in connection with Fuqua's stock option plans. In connection with Fuqua's acquisition of Basic in November 1995, Fuqua issued 600,000 shares of its common stock (including 70,501 shares of treasury stock) to the majority shareholder of Basic. The shares issued are not registered under the Securities Act of 1933 and accordingly are restricted as to resale. Under the terms of the acquisition, there are demand and "piggyback" registration rights with respect to these shares. STOCK OPTIONS: On June 29, 1989, the Board of Directors approved a nonqualified stock option plan for key employees (the "1989 Plan"), reserving 300,000 shares of Common Stock for issuance under the 1989 Plan. The options are granted at prices and under terms determined by the Stock Option Committee of the Board of Directors. All options expire five years from the date of grant. On January 21, 1992, the Board of Directors approved a stock option plan (the "1992 Plan"), reserving 300,000 shares of Common Stock for issuance under the 1992 Plan. The 1992 Plan, which was approved by the stockholders on May 16, 1992, provides for the granting of options to officers, directors, key employees, consultants, advisors and others providing goods and services to Fuqua. The options are granted at prices and under terms determined by the Stock Option Committee of the Board of Directors. All options expire five to ten years from the date of grant. In November 1995, the Board of Directors approved the 1995 Long-Term Incentive Plan (the "Incentive Plan"), reserving 300,000 shares of Common Stock for issuance under the Incentive Plan. The Incentive Plan which is subject to approval by the stockholders of Fuqua at the next annual meeting, provides for the granting of awards to officers and key employees of Fuqua. The awards are granted at prices and under terms determined by the Stock Option Committee of the Board of Directors. All awards expire from five to ten years from the date of grant. Also in November 1995, the Board of Directors approved the 1995 Stock Option Plan for Outside Directors (the "Director's Plan"), reserving 50,000 shares of Common Stock for issuance under the Director's Plan. The Director's Plan is subject to the approval of the stockholders at the next annual meeting. The options are automatically granted to directors annually. Further information relating to options follows:
Shares Year ended December 31, 1995 1994 1993 - ------------------------------------------------------------- Options outstanding at beginning of year 217,500 227,175 287,270 Options granted 254,000 20,000 32,000 Options exercised (82,000) (27,675) (88,095) Options cancelled (5,000) (2,000) (4,000) ------- ------- --------- Options outstanding at end of year 384,500 217,500 227,175 ======= ======= ======= Options exercisable at end of year (option price $8.50 to $21.00 per share) 228,500 160,750 148,500 Shares available for grant 364,000 263,000 281,000
All options were granted at the fair market value on date of grant. F-11 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries 9. SALES AND SEGMENT INFORMATION Fuqua has no foreign operations; sales of the Leather Operations to customers outside the United States were classified geographically as follows:
Year ended December 31, 1995 1994 1993 (Dollars in thousands) - ----------------------------------------------------------- North America $ 3,075 $ 7,584 $ 3,831 Europe 2,687 3,467 665 Asia 20,967 23,230 10,651 Other 3,933 235 363 ------- ------- ------- $30,662 $34,516 $15,510 ======= ======= =======
In 1995, sales of leather to one customer amounted to $23,662,000 and to another $15,938,000. In 1994, sales of leather to one customer amounted to $20,007,000 and to another $17,426,000. In 1993, sales of leather to one customer amounted to $18,397,000 and to another, $14,180,000. Fuqua's continuing operations are carried on through its subsidiaries which operate in two distinct business segments, Leather Operations and Medical Products Operations. The Medical Products Operations became part of Fuqua through the acquisition of Basic in November 1995. Operating results and other financial data are presented as follows for each business segment which at December 31, 1995 remained as continuing operations of Fuqua:
Year ended December 31, 1995 1994 1993 (Dollars in thousands) - -------------------------------------------------------------- Net sales: Leather Operations $111,930 $118,011 $105,785 Medical Products Operations 5,198 - - -------- -------- -------- Consolidated $117,128 $118,011 $105,785 -------- -------- -------- Operating profit (loss): Leather Operations $ 10,423 $ 10,985 $ 9,317 Medical Products Operations 401 - - Corporate (1,981) (1,776) (2,608) -------- -------- -------- Consolidated $ 8,843 $ 9,209 $ 6,709 -------- -------- -------- Identifiable assets: Leather Operations $ 81,486 $ 44,724 $ 41,163 Medical Products Operations 26,719 - - Corporate 17,654 15,788 8,584 -------- -------- -------- Consolidated $125,859 $ 60,512 $ 49,747 -------- -------- -------- Capital expenditures: Leather Operations $ 1,509 $ 4,024 $ 4,922 Medical Products Operations 619 - - Corporate - - - -------- -------- -------- Consolidated $ 2,128 $ 4,024 $ 4,922 -------- -------- -------- Depreciation and Amortization: Leathers Operations $ 1,582 $ 1,387 $ 1,099 Medical Products Operations 113 - - Corporate 236 216 227 -------- -------- -------- Consolidated $ 1,931 $ 1,603 $ 1,326 -------- -------- --------
There were no intersegment sales during 1995, 1994 or 1993. Operating profit (loss) by segment represents net sales less operating expenses. No allocation has been made for general corporate expenses, interest income from corporate investments or any foreign or domestic taxes. Identifiable assets are tangible and intangible assets used exclusively in the operations of each business segment. Corporate assets represent cash, investments and leasehold, furniture and fixtures associated with Fuqua's corporate office. 10. GENERAL AND ADMINISTRATIVE EXPENSES In September 1994, Fuqua amended the Management Agreement ("Agreement") with Fuqua Capital Corporation ("Capital"), a corporation wholly-owned by J. B. Fuqua, Chairman of the Board, and J. Rex Fuqua, Vice Chairman of the Board. Under the Agreement, Capital will provide investment services and perform certain managerial and administrative duties. The term of the Agreement is through June 1, 2000 and provides for a management fee of $360,000 for each year of the noncancellable term. In October 1994, Fuqua amended its lease for corporate office space to extend the term for five years. Concurrently, Fuqua entered into a new sublease with a similar five year term with Capital for the portion of space which Capital uses. The sublease provides that if Fuqua moves out of the space it shares with Capital, or there is a change in control of Fuqua, Capital has the option of taking over the area now occupied by Fuqua at terms favorable to Capital. 11. RETIREMENT PLANS Fuqua adopted a qualified defined contribution plan, effective January 1, 1993, covering all of the employees of the parent company and the leather subsidiaries and incorporating the profit-sharing plans of the leather subsidiaries. This plan contains a profit-sharing component allowed by Internal Revenue Code Section 401(a), with tax-deferred contributions to each employee based on his or her compensation and with the total contribution determined annually by the Board of Directors. The plan also permits employees to make tax-deferred contributions up to the maximum limits allowed by Internal Revenue Code Section 401(k), with Fuqua matching a portion of the employee's contribution under a formula approved annually by the Board of Directors. Total expense in 1995 was $309,000; in 1994, $372,000 and in 1993, $326,000. Basic has two defined contribution employee benefit plans for the employees at its manufacturing facility in Fond du Lac, Wisconsin. One plan allows employees to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code. The other plan is a money purchase plan which provides for employer contributions equal to 4% of eligible employee salaries. Employees become eligible to participate in the money purchase plan after 12 months of service. Employees at Basic's Georgia facilities participate in a profit sharing plan. This plan provides for discretionary annual contributions by Basic. In September 1995, Basic adopted an employee benefit plan for its employees at the Georgia facilities. This plan allows eligible employees to F-12 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fuqua Enterprises, Inc. and Subsidiaries make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code. 12. INCOME TAXES Effective January 1, 1993, Fuqua changed its method of accounting for income taxes from the deferred method to the liability method required by SFAS 109. As permitted under the new rules, prior years' financial statements have not been restated. 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 Fuqua's deferred income tax liabilities and assets are as follows:
December 31, 1995 1994 (Dollars in thousands) - --------------------------------------------------------- Deferred income tax liabilities: Tax over book depreciation $1,851 $ 625 ------ ------ Deferred income tax liabilities $1,851 $ 625 ====== ====== Deferred income tax assets: Accrued liabilities $3,243 $ 849 Allowance for doubtful accounts 80 140 Accrual for discontinued operations 3,189 0 Unrealized investment losses 19 299 Other 0 94 ------ ------ Deferred income tax assets 6,531 1,382 ------ ------ Net deferred income tax assets $4,680 $ 757 ====== ======
Significant components of the provisions (benefits) for income taxes for continuing and discontinued operations are as follows:
Year ended December 31, 1995 1994 1993 (Dollars in thousands) - -------------------------------------------------------- Continuing Operations: Current: Federal $ 2,016 $2,205 $2,200 State 457 583 509 ------- ------ ------ $ 2,473 $2,788 $2,709 ======= ====== ====== Deferred: Federal $ 184 $ (100) $ (317) State 42 (26) (73) ------- ------ ------ $ 226 $ (126) $ (390) ======= ====== ====== Discontinued Operations: $(2,856) $1,215 $1,444 ======= ====== ======
Effective September 30, 1994, Fuqua made a favorable adjustment for amounts that were no longer considered necessary for contingencies for income taxes resulting in a reduction in income tax expense of $544,000 ($0.14 per share). The provisions for income taxes for continuing operations differ from the amounts computed by applying the U.S. Federal income statutory tax rates as follows: F-13 33
Year ended December 31, 1995 1994 1993 (Dollars in thousands) - --------------------------------------------------------- Statutory rate 35.0% 35.0% 34.0% State income taxes, net of federal tax benefit 4.0 4.2 4.0 Business tax credits - (.2) - Dividend credits (1.1) (1.0) (1.0) Tax-exempt interest (1.5) (.2) - Write-off of intangibles .2 - - Foreign sales corporation benefit (1.7) - - Adjustment of estimated liabilities for prior years - (6.4) - Other (1.0) - 1.0 ----- ---- ---- 33.9% 31.4% 38.0% ===== ==== ====
The provisions (benefits) for income taxes for discontinued operations differ from those amounts computed by applying the U.S. Federal income statutory tax rates due principally to tax-free interest at American Southern. 13. INVESTMENTS All investments at December 31, 1995 and 1994 are classified as available for sale and are summarized as follows:
December 31, 1995 Cost or Gross Gross Estimated (Dollars in Amortized Unrealized Unrealized Fair thousands) Cost Gains Losses Value - ---------------------------------------------------------------- Available for sale - ------------------ Corporate Debt Securities $ 2,524 $ 7 $ (80) $ 2,451 Debt Securities issued by the U.S. Treasury 6,010 34 - 6,044 Preferred Stocks 3,964 119 (28) 4,055 ------- ------ ------ ------- $12,498 $ 160 $ (108) $12,550 ======= ====== ====== =======
December 31, 1994 Cost or Gross Gross Estimated (Dollars in Amortized Unrealized Unrealized Fair thousands) Cost Gains Losses Value - ---------------------------------------------------------------- Available for Sale - ------------------ Corporate Debt Securities $ 271 $ - $ (18) $ 253 Debt Securities issued by the U.S. Treasury 5,988 - (108) 5,880 Preferred Stocks 4,381 18 (648) 3,751 ------- ------ ------ ------ $10,640 $ 18 $ (774) $9,884 ======= ====== ====== ======
The proceeds from sales of available for sale securities were $3,306,000 during 1995. In 1995, gross realized gains were $53,000 and gross realized losses were $11,000 on available for sale investments. The proceeds from sales of available for sale securities were $100,000 for 1994. There were no gross realized gains or losses on sales of available for sale securities in 1994. Cost is determined by specific identification for purposes of calculating realized gains and losses. There were no transfers of securities to or from the available for sale or trading categories during 1995 and 1994. There have been no sales of securities classified as held to maturity during 1995 and 1994. F-14 34 SUMMARY OF QUARTERLY DATA (Unaudited)
====================================================================================================================== March June September December For the (Dollars in thousands, except per share amounts) 31 30 30 31(3) Year - ---------------------------------------------------------------------------------------------------------------------- 1995 Net sales $ 24,050 $ 33,692 $ 27,923 $ 31,463 $ 117,128 Income before interest and taxes 1,293 2,496 2,227 2,827 8,843 Income from continuing operations 662 1,349 1,321 1,918 5,250 Income from continuing operations per share 0.17 0.35 0.34 0.45 1.32 Net income (loss) per share 0.37 0.47 0.17 (0.33) 0.63 1994 Net sales $ 27,233 $ 31,643 $ 30,319 $ 28,816 $ 118,011 Income before interest and taxes 1,437 1,989 2,835 2,948 9,209 Income from continuing operations(1) 788 1,180 2,200 1,654 5,822 Income from continuing operations per share(1) 0.21 0.31 0.57 0.43 1.51 Net income per share(1) 0.47 0.55 0.74 0.72 2.48
Notes: 1. Includes $544 ($.14 per share) favorable adjustment in the third quarter of 1994 for amounts that were no longer considered necessary for contingencies for income taxes. 2. No cash dividends were paid in either year. In 1995 and 1994, per share amounts are calculated on a discrete quarterly basis and for the year are based on the weighted-average shares for the four quarters of the year. 3. Includes Basic for the two-month period ended December 31, 1995. - -------------------------------------------------------------------------------- F-15 35 FUQUA ENTERPRISES, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1995 ITEM 14(a) FINANCIAL STATEMENT SCHEDULE SECTION S 36 FORM 10-K FUQUA ENTERPRISES, INC. AND SUBSIDIARIES YEAR ENDED DECEMBER 31, 1995 ITEM 14(A) LIST OF FINANCIAL STATEMENT SCHEDULES Page No. ---- Schedule II -- Valuation and Qualifying Accounts . . . . . S-1 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted. (i) 37 Item 14(a) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FUQUA ENTERPRISES, INC. AND SUBSIDIARIES
============================================================================================================= Col. A Col. B Col. C Col. D Col. E ============================================================================================================= Additions --------------------------- (1) (2) Balance at Charged to Charged to Balance at Beginning Costs and Other Close Description of Period Expenses Accounts Deductions of Period ============================================================================================================= Year ended December 31, 1995: Allowance for doubtful accounts $350,000 - - $150,000(a) $200,000 ======== ========= ======== ======== ======== Year ended December 31, 1994: Allowance for doubtful accounts $335,000 $ 74,483 - $ 59,483(a) $350,000 ======== ========= ======== ======== ======== Year ended December 31, 1993: Allowance for doubtful accounts $155,000 $ 191,024 - $ 11,024(a) $335,000 ======== ========= ======== ======== ======== =============================================================================================================
(a) Write-off of uncollectible accounts, net of recoveries. S-1 EX-2.(D) 2 ASSET SALE AGREEMENT 1 EXHIBIT 2(d) ASSET SALE AGREEMENT BY AND BETWEEN LUMEX, INC., MUL ACQUISITION CORP. I, MUL ACQUISITION CORP. II AND FUQUA ENTERPRISES, INC. Dated as of March 13, 1996 2 Table of Contents
Page ARTICLE I. ASSETS TO BE ACQUIRED . . . . . . . . . . . 2 1.1. Acquisition and Transfer of Assets . . . . . . . . . . . 2 1.2. Excluded Assets . . . . . . . . . . . . . . . . . . . . . 4 1.3. Assumed Liabilities . . . . . . . . . . . . . . . . . . . 5 1.4. Excluded Liabilities . . . . . . . . . . . . . . . . . . 6 ARTICLE II. PURCHASE PRICE . . . . . . . . . . . . . 8 2.1. Purchase Price and Payment . . . . . . . . . . . . . . . 8 2.2. Post-Closing Purchase Price Adjustment . . . . . . . . . 8 2.3. Allocation of Purchase Price . . . . . . . . . . . . . . 10 ARTICLE III. THE CLOSING . . . . . . . . . . . . . . 11 3.1. Closing Date . . . . . . . . . . . . . . . . . . . . . . 11 3.2. Proceedings at Closing . . . . . . . . . . . . . . . . . 11 3.3. Deliveries by the Seller to the Purchasers . . . . . . . 11 3.4. Deliveries by the Purchasers to the Seller . . . . . . . 12 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER . . . . . . . . . . . 13 4.1. Organization and Good Standing . . . . . . . . . . . . . 13 4.2. Authorization of Agreement . . . . . . . . . . . . . . . 13 4.3. Title to Assets other than Real Property . . . . . . . . 14 4.4. Title to Real Property . . . . . . . . . . . . . . . . . 15 4.5. Consents . . . . . . . . . . . . . . . . . . . . . . . . 16 4.6. Financial Statements . . . . . . . . . . . . . . . . . . 16 4.7. Absence of Certain Developments . . . . . . . . . . . . . 16 4.8. Contracts . . . . . . . . . . . . . . . . . . . . . . . . 18 4.9. Intangible Assets . . . . . . . . . . . . . . . . . . . . 19 4.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.11. Employees and Employee Benefits . . . . . . . . . . . . . 21
(i) 3
Page 4.12. Litigation . . . . . . . . . . . . . . . . . . . . . . . 24 4.13. Compliance with Law . . . . . . . . . . . . . . . . . . . 24 4.14. Assets Necessary to Conduct Business . . . . . . . . . . 24 4.15. Environmental Matters . . . . . . . . . . . . . . . . . . 25 4.16. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.17. Products Liability of the Business . . . . . . . . . . . 27 4.18. Safe Medical Devices Act . . . . . . . . . . . . . . . . 27 4.19. Absence of Questionable Payments . . . . . . . . . . . . 28 4.20. Disclosure . . . . . . . . . . . . . . . . . . . . . . . 28 4.21. Compliance with the Immigration Reform and Control Act . 28 4.22. Corporate Expenses . . . . . . . . . . . . . . . . . . . 29 ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS AND PARENT . . . . . . . . . . . . 29 5.1. Organization and Good Standing . . . . . . . . . . . . . 29 5.2. Authorization of Agreement . . . . . . . . . . . . . . . 29 5.3. Consents . . . . . . . . . . . . . . . . . . . . . . . . 30 5.4. Availability of Funds . . . . . . . . . . . . . . . . . . 30 5.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . 31 5.6. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE VI. COVENANTS OF THE SELLER . . . . . . . . . . . 31 6.1. Cooperation . . . . . . . . . . . . . . . . . . . . . . . 31 6.2. Access to Documents; Opportunity to Ask Questions . . . . 31 6.3. Conduct of Business . . . . . . . . . . . . . . . . . . . 32 6.4. Consents and Conditions; Assignment of Assets . . . . . . 34 6.5. HSR Act Filings . . . . . . . . . . . . . . . . . . . . . 34 6.6. Additional Reports . . . . . . . . . . . . . . . . . . . 34 6.7. Air Bed Contract . . . . . . . . . . . . . . . . . . . . 34 6.8. Other Transactions . . . . . . . . . . . . . . . . . . . 34 ARTICLE VII. COVENANTS OF THE PURCHASERS . . . . . . . . . . 35 7.1. Cooperation . . . . . . . . . . . . . . . . . . . . . . . 35 7.2. Confidentiality 35 7.3. Consents and Conditions . . . . . . . . . . . . . . . . . 35
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Page 7.4. HSR Act Filings; Compliance with Antitrust and Competition Laws . . . . . . . . . . . . . . . . . . . . 35 7.5. Permits, Bonds and Guarantees . . . . . . . . . . . . . . 36 ARTICLE VIII. COVENANTS RELATING TO EMPLOYMENT AND EMPLOYEE MATTERS . . . . . . . . . . . . . 36 8.1. Offer of Employment . . . . . . . . . . . . . . . . . . . 36 8.2. Collective Bargaining and Other Agreements . . . . . . . 37 8.3. Employee Benefit Plans . . . . . . . . . . . . . . . . . 37 8.4. Termination Obligations . . . . . . . . . . . . . . . . . 37 8.5. Indemnification . . . . . . . . . . . . . . . . . . . . . 37 8.6 COBRA Coverage . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE IX. CONDITIONS PRECEDENT TO THE PURCHASERS' OBLIGATIONS . . . . . . . . 38 9.1. Representations, Warranties and Covenants . . . . . . . . 39 9.2. HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . 39 9.3. No Prohibition . . . . . . . . . . . . . . . . . . . . . 39 9.4. Opinion of the Seller's Counsel . . . . . . . . . . . . . 39 9.5. Delivery of Documents . . . . . . . . . . . . . . . . . . 39 9.6. Consents; Permits . . . . . . . . . . . . . . . . . . . . 40 ARTICLE X. CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS . . . . . . . . . 40 10.1. Representations, Warranties and Covenants . . . . . . . . 40 10.2. HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . 41 10.3. No Prohibition . . . . . . . . . . . . . . . . . . . . . 41 10.4. Opinion of the Purchasers' Counsel . . . . . . . . . . . 41 10.5. Delivery of Documents . . . . . . . . . . . . . . . . . . 41 10.6. Consents; Permits . . . . . . . . . . . . . . . . . . . . 41 ARTICLE XI. ADDITIONAL POST-CLOSING COVENANTS . . . . . . . . 41 11.1. Further Assurances . . . . . . . . . . . . . . . . . . . 41 11.2. Public Announcements . . . . . . . . . . . . . . . . . . 43
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Page 11.3. Joint Post-Closing Covenant of the Seller and the Purchasers . . . . . . . . . . . . . . . . . . . . . . . 43 11.4. Books and Records; Personnel . . . . . . . . . . . . . . 43 11.5. Solicitation of Employees . . . . . . . . . . . . . . . . 44 11.6. Corporate Name . . . . . . . . . . . . . . . . . . . . . 44 11.7. Maintenance of Insurance . . . . . . . . . . . . . . . . 45 ARTICLE XII. GOVERNMENT CONTRACTS . . . . . . . . . . . . 45 12.1. Government Contracts . . . . . . . . . . . . . . . . . . 45 12.2. Performance Under Nonassigned Contracts . . . . . . . . . 45 12.3. Assignment After Closing . . . . . . . . . . . . . . . . 46 ARTICLE XIII. INDEMNIFICATION AND RELATED MATTERS . . . . . . . . 46 13.1. Indemnification by the Seller . . . . . . . . . . . . . . 46 13.2. Indemnification by the Purchasers . . . . . . . . . . . . 47 13.3. Determination of Damages and Related Matters . . . . . . 48 13.4. Limitation on Indemnification Liabilities . . . . . . . . 48 13.5. Survival of Representations, Warranties and Covenants . . 49 13.6. Notice of Indemnification . . . . . . . . . . . . . . . . 49 13.7. Defense of Third Party Claims . . . . . . . . . . . . . . 49 13.8. Exclusive Remedy . . . . . . . . . . . . . . . . . . . . 50 ARTICLE XIV. TERMINATION . . . . . . . . . . . . . . 51 14.1. Termination . . . . . . . . . . . . . . . . . . . . . . . 51 14.2. Liabilities After Termination . . . . . . . . . . . . . . 51 ARTICLE XV. MISCELLANEOUS . . . . . . . . . . . . . 52 15.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . 52 15.2. Knowledge 59 15.3. Prorations . . . . . . . . . . . . . . . . . . . . . . . 59 15.4. Waiver of Compliance with Bulk Transfer Laws . . . . . . 60 15.5. Entire Agreement . . . . . . . . . . . . . . . . . . . . 60
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Page 15.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . 60 15.7. Transfer Taxes . . . . . . . . . . . . . . . . . . . . . 60 15.8. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 61 15.9. Table of Contents and Headings . . . . . . . . . . . . . 61 15.10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 61 15.11. Severability . . . . . . . . . . . . . . . . . . . . . . 62 15.12. Binding Effect; No Assignment . . . . . . . . . . . . . . 62 15.13. Amendments . . . . . . . . . . . . . . . . . . . . . . . 63 15.14. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . 63 15.15. Counterparts . . . . . . . . . . . . . . . . . . . . . . 63
(v) 7 Exhibits and Schedules Schedule 1.1(d) --Real Property Schedule 1.1(e) --Intellectual Property Schedule 1.1(f) --Permits Schedule 1.1(g) --Contracts Schedule 1.2(d) --Excluded Contracts Schedule 1.2(k) --Other Excluded Assets Schedule 1.3(b) --Warranty Obligations Schedule 2.3(a) --Exceptions to GAAP Schedule 4.4(c) --Title to Real Property Schedule 4.5 --Consents Schedule 4.6 --Financial Statements Schedule 4.7 -- Absence of Certain Business Developments Schedule 4.8(a) --Breaches or Termination of Material Contracts Schedule 4.8(b) --Distributors Schedule 4.9 --Intangible Property Schedule 4.11(a) --Employee Plans Schedule 4.11(f) -- Retiree Welfare Benefits Schedule 4.11(h) --Employee Matters Schedule 4.11(i) --Collective Bargaining Matters Schedule 4.11(j) --Notice of Termination Schedule 4.12 --Litigation Schedule 4.13 --Compliance with Law Schedule 4.14 --Assets Necessary to Conduct Business Schedule 4.15 --Environmental Matters Schedule 4.15(h) --Underground Tanks Schedule 4.17 --Products Liability Schedule 4.18 --Safe Medical Devices Act Schedule 4.22 -- Corporate Expenses Schedule 8.2 --Collective Bargaining and Other Agreements Schedule 9.6 --Consents; Permits Schedule 10.6 --Consents; Permits Schedule 15.1(a) -- Location Schedule 15.1(b) -- Permitted Exceptions Schedule 15.2 -- Knowledge Exhibit A --Allocation of Purchase Price Exhibit B -- Covenant Not to Compete (vi) 8 ASSET SALE AGREEMENT ASSET SALE AGREEMENT (the "Agreement"), dated as of March 13, 1996, by and between Lumex, Inc., a New York corporation (the "Seller"), MUL Acquisition Corp. I, a Delaware corporation ("Purchaser I") and MUL Acquisition Corp. II, a Delaware corporation ("Purchaser II") (Purchaser I and Purchaser II are collectively referred to herein as the "Purchasers") and Fuqua Enterprises, Inc., a Delaware corporation ("Parent"). W I T N E S S E T H : WHEREAS, the Seller, through its Lumex division (the "Division") and an affiliated leasing company, is and has been engaged in the business of designing, manufacturing, marketing, selling, leasing and distributing a wide variety of health care products (the "Business"); and WHEREAS, Purchaser I is a wholly owned subsidiary of Parent and Purchaser II is a wholly owned subsidiary of Purchaser I; and WHEREAS, the Purchasers desire to purchase, and the Seller desires to sell, all of the assets and properties of the Division employed principally in the Business and, as part of such purchase and sale, the Seller desires to assign, and Purchaser I desires to assume, certain of the obligations and liabilities of the Business, subject, in each case, to the exceptions, terms and conditions set forth herein; and WHEREAS, capitalized terms used herein are defined in Section 15.1 hereof; NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements hereinafter set forth, and upon the terms and subject to the conditions hereinafter set forth, the Purchasers and the Seller hereby agree as follows: 9 ARTICLE I. ASSETS TO BE ACQUIRED 1.1. Acquisition and Transfer of Assets. For the consideration hereinafter provided and upon the terms and subject to the conditions hereinafter set forth, at the Closing the Seller shall sell, assign, transfer, convey and deliver to the Purchasers, and the Purchasers shall purchase, acquire and accept from the Seller, all of the Seller's right, title and interest in and to the Business, including, without limitation, in and to all of the assets, properties, rights, contracts and claims, employed principally in the Business (except as otherwise specifically set forth in Section 1.2 hereof), wherever located, whether tangible or intangible, as the same shall exist as of the Closing (such rights, title and interest in and to all such assets, properties, rights, contracts and claims, being collectively referred to herein as the "Assets"), except that Purchaser II shall only acquire the Intangible Assets (as hereinafter defined) and Purchaser I shall acquire all of the other Assets. The Assets shall include, without limitation, all of the Seller's rights, title and interest in and to the assets, properties, rights, contracts and claims described in the following paragraphs (a) through (j) but in each case, only to the extent principally used in, held for principal use in or principally related to the Business: (a) Tangible Personal Property. All furnishings, furniture, fixtures, office supplies, displays, vehicles, spare parts, tools, dies, machinery and equipment and other tangible personal property owned by the Seller or located on or in any of the Real Property and any and all assignable warranties of third parties with respect thereto; (b) Inventories and Supplies. All items of inventory, including, without limitation, raw materials, work-in- process, finished goods, supplies and samples owned or held by the Seller or located on or in any of the Real Property and any and all assignable warranties of third parties with respect thereto ("Inventory"); (c) Accounts Receivable. All accounts and lease receivables and all notes receivable (whether short-term or long-term) from third parties and all 2 10 deposits with third parties, together with any unpaid interest accrued thereon from the respective obligors and any security or collateral therefor, including recoverable deposits (collectively, the "Accounts Receivable"); (d) Real Property. All of the Seller's right, title and interest in the Owned Real Property and the Leased Real Property, each set forth on Schedule 1.1(d) hereto (collectively, the "Real Property"), including all buildings located thereon, any of the fixtures attached thereto and any Permits relating thereto and any assignable warranties of third parties with respect thereto; (e) Intellectual Property and Other Intangible Property Rights. (i) All patents, copyrights, tradenames, trademarks, service marks and names (registered and unregistered), and registrations thereof and applications therefor including, without limitation, those listed on Schedule 1.1(e) hereto, (ii) trade secrets, know-how, and manufacturing, engineering and other technical information, and (iii) all computer programs, software and databases, in each case, owned by the Seller or licensed (to the extent assignable) to the Seller by third parties; provided, that the Seller retains the right to use "Lumex" in its corporate name until the time such name is changed in accordance with Section 11.6 hereof (collectively, the "Intangible Assets"); (f) Permits. All Permits listed on Schedule 1.1(f) hereto held by the Seller (to the extent permitted by applicable Law to be transferred); (g) Contracts. All rights and interests of the Seller in, to and under the Contracts listed on Schedule 1.1(g) hereto; (h) Books and Records. Except as set forth in Section 1.2(f) hereof, all books, records, mailing, vendor or customer lists and all files, documents, ledgers, correspondence and other data relating to the Seller's operation of the Business; (i) Therapeutic Support Systems Leases. All leases and revenue sharing agreements and interest 3 11 currently due and to become due thereon with respect to the Therapeutic Support Systems product lines; and (j) Goodwill. All goodwill relating to the foregoing Assets and the Business. 1.2. Excluded Assets. Notwithstanding anything to the contrary contained in Section 1.1 hereof, the Seller and the Purchasers expressly understand and agree that the Seller is not hereunder selling, assigning, transferring, conveying or delivering to the Purchasers the following assets, properties, rights, contracts and claims (collectively, the "Excluded Assets"): (a) cash, bank accounts, certificates of deposits, treasury bills, treasury notes and marketable securities; (b) any policy of insurance; (c) except as set forth in Section 1.1(e) hereto, and to the extent not related to the Assets or used in the Business, any of the Seller's right, title or interest in or to any name, mark, trade name or trademark, either alone or in combination, and any and all goodwill represented thereby and pertaining thereto; (d) all Contracts set forth on Schedule 1.2(d) hereto and all Contracts that relate solely to the Excluded Assets or the Excluded Liabilities; (e) all prepaid charges, sums and fees pertaining to any of the Excluded Assets or the Excluded Liabilities; (f) any books, records or other data relating to the Seller's ownership or operation of the Business (i) not regularly located on the premises of the Business in the ordinary course of the operation thereof, or (ii) required by applicable Law to be retained by the Seller; (g) any of the Seller's right, title and interest under any Contracts, agreements, licenses, Permits, exemptions, franchises, variances, waivers, consents, approvals or other authorizations or 4 12 arrangements that are not transferrable without consent (unless such consent has been obtained); (h) any claims for refunds or rebates of any previously paid taxes, levies or duties, including, without limitation, customs duties; (i) all deferred income tax assets; (j) any assets, properties, rights, contracts or claims relating to, arising out of or in connection with the Seller's involvement with the operation of the Seller's Cybex division; and (k) the other assets listed on Schedule 1.2(k) hereto. 1.3. Assumed Liabilities. Subject to Section 1.4 hereof, as of the Closing, Purchaser I shall assume responsibility for the performance and satisfaction of the following, and only the following, liabilities of the Seller relating to the Business (collectively, the "Assumed Liabilities" and individually, an "Assumed Liability"): (a) trade accounts payable (excluding those accounts that have been paid by the Seller pursuant to issued checks that remain outstanding) as of the Closing Date; (b) warranty obligations and normal customer returns, adjustments or repairs relating to products or services sold, performed or provided by the Seller in the Business, including, without limitation, the warranty matters that are described in Schedule 1.3(b) hereto; (c) all product liability obligations to the extent not Covered by the Seller's Insurance Policies with respect to products or services sold, performed or provided prior to Closing; (d) all accrued but unpaid wages, commissions, and vacation, holiday and sick pay obligations (and any payroll taxes thereon) with respect to Employees; (e) accrued liabilities that are in any of the categories to be included on the Closing Balance 5 13 Sheet under the heading "Accounts Payable & Accrued Liabilities" (other than the liabilities described in clauses (b) through (d) of this Section 1.3); (f) all lease obligations for Real Property arising on or after the Closing Date (except as accrued on the Initial Balance Sheet) (as both landlord and tenant) and the obligations associated with any warranties or permits with respect to the Assets that are not Excluded Assets; (g) all of the Purchasers' liabilities with respect to Employees and Transferred Employees as described under Article VIII hereof; (h) any and all current or future Environmental Costs and Liabilities arising out of, related to or in any way attributable to the current, historic or future presence of Hazardous Substance contamination at, on, under or in the facility at the Location, whether known or unknown as of the Closing Date, including without limitation any cleanup, response, removal or remedial action obligations; and (i) all debts, claims, liabilities, obligations, damages and expenses (collectively, the "Liabilities") of every kind and nature, whether known, unknown, contingent, absolute, determined, indeterminable or otherwise on the Closing Date, to the extent relating to or arising from the operation of the Business in the ordinary course. 1.4. Excluded Liabilities. The Purchasers shall not assume or become liable for any debts, obligations, commitments, or liabilities of the Seller, whether known or unknown, absolute, contingent, or otherwise, whether accrued or unaccrued and whether or not related to the Assets, except for the Assumed Liabilities (the obligations and liabilities of the Seller not assumed by the Purchasers are hereinafter referred to as the "Excluded Liabilities") including without limitation, the following: (a) Any losses, costs, expenses, damages, claims, demands and judgments of every kind and nature (including the defense thereof and reasonable attorneys' and other professional fees) related to, arising out of, or in connection with the Seller's 6 14 involvement with the operation of the Seller's Cybex division; (b) Any losses, costs, expenses, damages claims, demands and judgments of every kind and nature (including the defense thereof and reasonable attorneys' and other professional fees) related to, arising out of, or in connection with the Seller's failure to comply with the Bulk Transfer Act or any similar statute as enacted in any jurisdiction, domestic or foreign in which any of the Assets are located; (c) Any liabilities or obligations of the Seller relating to the Excluded Assets; (d) Any and all Taxes payable, whether currently payable or a deferred payable obligation, by the Seller with respect to the ownership of the Assets or the operation of the Business on or prior to the Closing Date; (e) Any and all current and future Environmental Costs and Liabilities arising out of, related to or in any way attributable to the ownership or operation of facilities, premises or properties formerly, but no longer as of the Closing Date, owned or operated by the Seller or any affiliated company; (f) Any of the Seller's obligations, liabilities, costs or expenses described in Section 15.8 hereof and the matters referred to in paragraphs I and III of Schedule 4.12; (g) All events occurring prior to the Closing Date that are Covered by the Seller's Insurance Policies (including, without limitation, workers compensation obligations with respect to occurrences prior to the Closing Date and product liability obligations with respect to products or services sold, performed or provided prior to the Closing Date); (h) Any indebtedness of the Seller for borrowed money under a bank credit agreement or industrial revenue bonds; (i) Any liabilities or obligations of the Seller with respect to (i) each of the agreements 7 15 listed in Section 4.7(a)(viii) of Schedule 4.7, and (ii) the change of control agreements between the Seller and each of John R. Cowin, dated as of January 20, 1992, and Gene Ryan, dated as of June 1, 1992; (j) Any and all liabilities and costs related to or resulting from the compliance review of the Seller to be conducted by the Office of Federal Contract Compliance Programs, notification of which was received by the Seller in a letter dated May 1, 1995; (k) Any and all Liabilities with respect to the Seller's obligations under Article VIII hereof; and (l) Any and all liabilities, costs and expenses associated with the removal, remediation, clean up or other corrective action related to the asbestos in the tar on the roof of the facility at the Location. ARTICLE II. PURCHASE PRICE 2.1. Purchase Price and Payment. The aggregate purchase price to be paid by the Purchasers to the Seller for the Assets and the Assumed Liabilities shall be $40,750,000 (the "Purchase Price"), subject to adjustment as provided in Section 2.2 hereof. The portion of the Purchase Price allocable to the Intangible Assets pursuant to Section 2.3 hereof shall be paid by Purchaser II. The balance of the Purchase Price shall be paid by Purchaser I. Payment of the Purchase Price shall be in U.S. dollars, and shall be made no later than 11:30 a.m. (New York City time) on the Closing Date by wire transfer of immediately available funds to the account or accounts designated by the Seller. 2.2. Post-Closing Purchase Price Adjustment. (a) As soon as practicable (but in no event later than 60 days) following the Closing Date, the Seller shall prepare and deliver to the Purchasers a statement of net assets to be sold for the Business as of the Closing Date (the "Closing Balance Sheet"), which shall include a computation of the Preliminary Net Assets Adjustment (as defined below). The Closing Balance Sheet shall be prepared by the Seller in accordance with GAAP except as set forth in Schedule 8 16 2.3(a) and on a basis consistent with the Initial Balance Sheet. (b) The "Preliminary Net Assets Adjustment" shall equal the amount of Net Assets reflected on the Initial Balance Sheet minus the amount of Net Assets reflected on the Closing Balance Sheet. As used herein, "Net Assets" shall mean the total assets (excluding (i) any assets that are Excluded Assets and (ii) with respect to the Closing Balance Sheet only, the Excess Lancaster Inventory) of the Business less the notes and accounts payable and accrued liabilities (excluding any accrued liabilities that are Excluded Liabilities), as reflected on the Initial Balance Sheet or the Closing Balance Sheet, as the case may be. (c) Following the Closing Date, the Purchasers shall afford the Seller and its representatives access to all books and records relating to the Business and make available the assistance of any employees of the Purchasers related to the Business, in each case as is necessary to enable the Seller to prepare the Closing Balance Sheet and to calculate the Preliminary Net Assets Adjustment. (d) The Purchasers and its representatives shall have a period of 20 days to review the Closing Balance Sheet and the calculation of the Preliminary Net Assets Adjustment following delivery of the Closing Balance Sheet by the Seller. During such period, the Seller shall afford the Purchasers and its representatives access to any of its books, records and work papers necessary to enable the Purchasers and its representatives to review the Closing Balance Sheet and the calculation of the Preliminary Net Assets Adjustment. The Purchasers may dispute any amounts reflected in the Preliminary Net Assets Adjustment by giving notice in writing to the Seller specifying each of the disputed items and setting forth in reasonable detail the basis for such dispute; provided, however, that the Purchasers may only dispute the calculation of the Preliminary Net Assets Adjustment to the extent that the aggregate of all items in dispute would reduce the Preliminary Net Assets Adjustment by more than $75,000 (in which case the dispute shall be for all amounts). Failure by the Purchasers to dispute the amounts reflected in the Preliminary Net Assets Adjustment within 20 days of delivery of the Closing Balance Sheet by the 9 17 Seller shall be deemed an acquiescence therein by the Purchasers. If within 30 days after delivery by the Purchasers to the Seller of any notice of dispute, the Purchasers and the Seller are unable to resolve all of such disputed items, then any remaining items in dispute shall be submitted to Coopers & Lybrand, or if Coopers & Lybrand is not available, then an independent nationally recognized accounting firm other than Ernst & Young LLP (the "Arbitrator"). The Arbitrator shall determine the remaining disputed items and report to the Seller and the Purchasers upon such items. The Arbitrator's decision shall be final, conclusive and binding on all parties. The fees and disbursements of the Arbitrator shall be borne equally by the Purchasers and the Seller. The Preliminary Net Assets Adjustment if undisputed or deemed undisputed or as determined in accordance with the procedure outlined above shall be the "Final Net Assets Adjustment." (e) If the amount of the Final Net Assets Adjustment is positive then the Purchase Price shall be decreased by an amount equal to the Final Net Assets Adjustment and the Seller shall promptly pay to the appropriate Purchasers an amount equal to the Final Net Assets Adjustment in cash. (f) If the amount of the Final Net Assets Adjustment is negative then the Purchase Price shall be increased by such amount and the appropriate Purchasers shall promptly pay to the Seller an amount equal to the Final Net Assets Adjustment in cash. 2.3. Allocation of Purchase Price. The Purchasers and the Seller hereby agree that the Purchase Price shall be allocated among the Assets in accordance with Section 1060 of the Code in the manner set forth on Exhibit A hereto. Subject to the requirements of any applicable Tax law, all Tax Returns and reports filed by the Purchasers and the Seller shall be prepared consistently with such allocation. In the event of any purchase price adjustment hereunder, the Purchasers and the Seller agree to adjust such allocation to reflect such purchase price adjustment and to file consistently any tax returns and reports required as a result of such purchase price adjustment. 10 18 ARTICLE III. THE CLOSING 3.1. Closing Date. The Closing shall take place at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York at 10:00 A.M., on the fifth business day after the conditions set forth in Articles IX and X hereof have been satisfied or waived, or at such other place and at such other time and date as may be mutually agreed upon by the Purchasers and the Seller; provided that the Closing shall not take place prior to April 1, 1996 without the consent of the Purchasers. The date of the Closing is referred to in this Agreement as the "Closing Date." 3.2. Proceedings at Closing. All proceedings to be taken and all documents to be executed and delivered by the Seller in connection with the consummation of the transactions contemplated hereby shall be reasonably satisfactory in form and substance to the Purchasers and its counsel. All proceedings to be taken and all documents to be executed and delivered by the Purchasers in connection with the consummation of the transactions contemplated hereby shall be reasonably satisfactory in form and substance to the Seller and its counsel. All proceedings to be taken and all documents to be executed and delivered by all parties at the Closing shall be deemed to have been taken, executed and delivered simultaneously, and no proceedings shall be deemed taken nor any documents executed or delivered until all have been taken, executed and delivered. 3.3. Deliveries by the Seller to the Purchasers. At the Closing, the Seller shall deliver, or shall cause to be delivered, to the Purchasers the following: (a) executed assignments, patent assignments, trademark assignments, bills of sale and/or certificates of title and any other documents, dated the Closing Date, transferring to the Purchasers all of the Assets; (b) an executed assignment and assumption agreement, in form reasonably acceptable to the Seller and the Purchasers (the "Assignment and Assumption Agreement"); 11 19 (c) an executed Covenant Not to Compete, substantially in the form of Exhibit B hereto (the "Covenant Not to Compete"); (d) the certificate referred to in Section 9.1(c) hereof signed by a duly authorized officer of the Seller; (e) the opinion of counsel for the Seller referred to in Section 9.4 hereof; (f) a certificate, in a form reasonably satisfactory to the Purchasers, of the Seller stating under penalties of perjury the Seller's United States taxpayer identification number and that the Seller is not a foreign person within the meaning of Section 1445(b)(2) of the Code; (g) a receipt for the Purchase Price; (h) copies of the consents and waivers described in Section 9.6 hereof; (i) copies of good standing certificates from the appropriate governmental authorities in the Commonwealth of Pennsylvania and the States of New York, Tennessee and California; (j) a bargain and sale deed (the "Deed") for each Owned Real Property (or the statutory equivalent thereof in the jurisdiction in which the Owned Real Property is located); (k) an Assignment and Assumption of Leases (the "Lease Assignment") for the Leased Real Property in form reasonably satisfactory to the Seller and Purchasers; and (l) an Assignment and Assumption of Warranties and Permits (the "W&P Assignment") in form reasonably satisfactory to the Seller and the Purchasers. 3.4. Deliveries by the Purchasers to the Seller. At the Closing, the Purchasers shall deliver to the Seller the following: 12 20 (a) immediately available funds in the amount of the Purchase Price by wire transfer as provided in Section 2.1 hereof; (b) the certificate referred to in Section 10.1(c) hereof signed by a duly authorized officer of the Purchasers; (c) the opinion of counsel for the Purchasers referred to in Section 10.4 hereof; (d) the Assignment and Assumption Agreement duly executed by an authorized officer of the Purchasers; (e) executed Lease Assignments and W&P Assignments; and (f) any and all transfer affidavits or certificates required by applicable law in order to effectuate the recording of the Deeds and the assignment of the Leased Real Property. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER The Seller hereby represents and warrants to the Purchasers and Parent as follows: 4.1. Organization and Good Standing. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has all requisite corporate power and authority to carry on its business as it is now being conducted, and to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The Seller is duly qualified and is in good standing as a foreign corporation in each of the jurisdictions where it owns or leases property in connection with the Business, or employs employees with respect to the Business except where the failure to be so qualified would not have a Material Adverse Effect. 4.2. Authorization of Agreement. The Seller has full corporate power and authority to execute and deliver this Agreement and each other agreement, document, instru- 13 21 ment or certificate contemplated by this Agreement or to be executed by the Seller in connection with the consummation of the transactions contemplated by this Agreement (all such other agreements, documents, instruments and certificates required to be executed by the Seller being hereinafter referred to, collectively, as the "Seller Documents"), and to perform fully its obligations hereunder and thereunder. The execution, delivery and performance by the Seller of this Agreement and each of the Seller Documents has been duly authorized by all necessary corporate action on the part of the Seller. This Agreement has been, and each of the Seller Documents will be at or prior to the Closing, duly executed and delivered by the Seller, and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and the Seller Documents when so executed and delivered will constitute, legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). None of the execution and delivery by the Seller of this Agreement and the Seller Documents, or the consummation of the transactions contemplated hereby or thereby, or compliance by the Seller with any of the provisions hereof or thereof will (i) conflict with, or result in the breach of, any provision of the certificate of incorporation or by-laws of the Seller, (ii) conflict with, violate, result in the breach or termination of, or constitute a default under any Contract or Order relating to the Business to which the Seller is a party or by which it or any of the Assets is bound or subject, (iii) constitute a violation of any Law applicable to the Seller, or (iv) result in the creation of any Lien (other than any Lien in favor of the Purchasers) upon any of the Assets, except, in each case, for violations, conflicts, breaches or defaults which in the aggregate would not materially hinder or impair the transactions contemplated hereby or have a Material Adverse Effect. 4.3. Title to Assets other than Real Property. (a) The Seller has good and valid title to or, in the case of leased properties, a valid leasehold interest in, all the Assets other than the Real Property, including all of such Assets reflected on the 14 22 Initial Balance Sheet (except Inventory disposed of in the ordinary course of business after December 31, 1995), free and clear of all Liens other than Permitted Exceptions. The Seller owns, has valid leasehold interests in or valid contractual rights to use, all of the Assets, tangible and intangible, used by, or necessary for the conduct of the Business. (b) The machinery, tools, equipment and other tangible physical assets included in the Assets are in good working order, normal wear and tear excepted, are being used or are useful in the Business at its present level of activity and are in an operating condition sufficient to conduct the Business as now being conducted. 4.4. Title to Real Property. (a) The Seller owns title in fee simple to the Owned Real Property free and clear of all Liens other than Permitted Exceptions and, to the Seller's knowledge, such title to the Owned Real Property is good and marketable, other than with respect to the facility at the Location as it relates to the Known Environmental Condition. The Owned Real Property and the Leased Real Property identified on Schedule 1.1(d) constitute all real property or real property interests principally used by the Seller in the conduct of the Business. (b) The Seller has received no notice of any default from the landlord or lessor of any of the Leased Real Property. The Seller has a valid leasehold interest in all of the Leased Real Property subject to the terms and conditions of the applicable leases relating thereto, free and clear of all Liens other than Permitted Exceptions. (c) Except as set forth on Schedule 4.4(c) hereto, to the Seller's knowledge, with respect to any of the buildings, structures, improvements and fixtures used in the Business, owned or leased by the Seller, except for normal wear and tear, there are no material defects with respect thereto which would impair the day-to-day use of any such buildings, structures, improvements or fixtures as currently used. 15 23 (d) The Seller has in full force and effect all Permits necessary to use or occupy the Real Property. 4.5. Consents. No consent, waiver, approval, or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of the Seller in connection with the execution and delivery by the Seller of this Agreement or the Seller Documents, or the compliance by the Seller with any of the provisions hereof or thereof, except (i) as set forth on Schedule 4.5 hereto, (ii) for compliance with the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations promulgated thereunder (the "HSR Act"), (iii) consents, waivers, approvals, Orders or Permits, if any, which the Purchasers are required to obtain and (iv) consents, waivers, approvals, Orders or Permits whose failure to obtain would not in the aggregate have a Material Adverse Effect. 4.6. Financial Statements. The Initial Balance Sheet and the statement of sales and direct operating expenses of the Business for the fiscal year ended December 31, 1995, copies of which are attached hereto as Schedule 4.6 (collectively, the "Financial Statements"), have been prepared in accordance with GAAP except as set forth in the notes thereto and present fairly the financial position and results of operations of the Business at the date and for the period indicated. Accounts Receivable created since December 31, 1995 have been accrued on the books of the Business in the ordinary course of business consistent with past practice and in accordance with GAAP. Since December 31, 1995, the Inventory has been accrued on the books of the Business in the ordinary course of business consistent with past practice and in accordance with GAAP. 4.7. Absence of Certain Developments. (a) Except as set forth on Schedule 4.7 hereto or as contemplated by this Agreement, since January 1, 1995, the Seller has conducted the Business only in the ordinary course and has not with respect to the Business: (i) mortgaged, pledged or subjected to lien, restriction or any other Lien any of the property, businesses or assets, tangible or intangible, of the Business, except for Permitted Exceptions; 16 24 (ii) with the exception of the business related to Therapeutic Support Systems, sold, transferred, leased or loaned to others or otherwise disposed of any of its assets (or committed to do any of the foregoing), including the payment of any loans owed to any affiliate, except for inventory sold to customers in the ordinary course of business and consistent with prior practice, or canceled, waived, released or otherwise compromised any debt or claim, or any right of significant value, except in the ordinary course of the Business and consistent with prior practice; (iii) suffered any damage or destruction (whether or not covered by insurance) which has had or is reasonably likely to have a Material Adverse Effect; (iv) made or committed to make any capital expenditures or capital additions or betterments with respect to the Assets or the Business in excess of an aggregate of $1,000,000; (v) encountered any labor union organizing activity with respect to non-union workers, had any actual or, to the Seller's knowledge, threatened employee strikes, or, to the Seller's knowledge, any material work stoppages, slow-downs or lock-outs related to any labor union organizing activity or any actual or, to the Seller's knowledge, threatened employee strikes; (vi) instituted any litigation, action or proceeding before any court, governmental body or arbitration tribunal relating to it or its property, except for litigation, actions or proceedings instituted in the ordinary course of the Business and consistent with prior practice; (vii) acquired, or agreed to acquire, by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof; or (viii) increased, or agreed or promised to increase, the compensation of any officer, employee or agent of the Seller in the Business, directly or 17 25 indirectly, including by means of any bonus, pension plan, profit sharing, deferred compensation, savings, insurance, retirement, or any other employee benefit plan, except in the ordinary course of the Business and consistent with prior practice. (b) Except as set forth on Schedule 4.7 hereto or as contemplated by this Agreement, since January 1, 1996, the Seller has conducted the Business only in the ordinary course and has not with respect to the Business: (i) incurred any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except liabilities or obligations incurred in the ordinary course of business and consistent with prior practice; (ii) acquired, or agreed to acquire, any assets which are material, individually or in the aggregate to the Business; or (iii) increased promotional or advertising expenditures except in the ordinary course of the Business and consistent with prior practice or otherwise changed its policies or practices with respect thereto in any material respects. 4.8. Contracts. (a) Except as set forth on Schedule 4.8(a) hereto, each of the Contracts included in the Assets is in full force and effect, and, to the knowledge of the Seller, there exists no breach of, violation of or default under any of such Contracts by the Seller or any other party to any of such Contracts or any event which, with notice or lapse of time, or both, will create a breach or violation thereof or default thereunder by the Seller or any other party to any of such Contracts, except for any breaches, violations or defaults which in the aggregate would not have a Material Adverse Effect. Except as set forth in Schedule 4.8(a) hereto, there exists no actual or, to the knowledge of the Seller, threatened termination, cancellation or limitation of, or any amendment, modification or change to, any Contract that was not made in the ordinary course of the Business and that has had or is reasonably likely to have, individually 18 26 or in the aggregate with similar arrangements, a Material Adverse Effect. (b) Schedule 4.8(b) hereto contains a true and correct list of all persons that are currently directly authorized to distribute, sell or resell products of the Business anywhere in the world. As to each distributor so listed, Schedule 4.8(b) indicates the territory in which such distributor is directly authorized by the Seller to distribute such products within such territory or any part thereof. 4.9. Intangible Assets. (a) Attached Schedule 4.9 hereto sets forth a complete and correct list of all patent, copyright and trademark registrations and applications for any of them included in the Intangible Assets, together with a complete list of all written agreements containing licenses granted by or to the Seller with respect to any of the Intangible Assets. All such Intangible Assets reflected on Schedule 4.9 as owned by the Seller are owned by the Seller free and clear of all liens and security interests, except as set forth on Schedule 4.9. All such Intangible Assets reflected on Schedule 4.9 used (but not owned) by the Seller under license, lease or otherwise are used by the Seller pursuant to terms of binding agreements. Except as set forth on Schedule 4.9, the transactions contemplated by this Agreement will not cause a breach or default under any license or similar agreement relating to the Intangible Assets. The Seller, with respect to the Business, is not currently in receipt of any notice of violation of the rights of others in any trademark, trade name, service mark, copyright, patent, trade secret, know-how or other intangible asset. To the Seller's knowledge, the Seller has not disclosed any trade secrets, know-how, inventions, or other confidential technical information material to the operation of the Business to any other party within the last two years except in the ordinary course of business or in accordance with any license, lease or similar agreement containing confidentiality and non-disclosure provisions requiring such other parties to keep the disclosed information confidential. To the knowledge of the Seller, no party to whom the Seller has disclosed such information has breached such obligation of confidentiality. 19 27 (b) Schedule 4.9 hereto contains a complete and accurate list of the material computer software and databases that are owned by the Seller and used in the Business (the "Owned Software"). Except as set forth on Schedule 4.9, the Seller has exclusive rights and title to the Owned Software (including any intellectual property rights therein), free and clear of all Liens. (c) Schedule 4.9 hereto contains a complete and accurate list of all material computer software, databases and other intellectual property that is used by the Seller under license in the operation of the Business (other than commercially available over-the- counter "shrinkwrap" software) (the "Licensed Software"). Schedule 4.9 also sets forth a list of all license agreements pursuant to which the Seller has obtained the right to use the Licensed Software. Except as described on Schedule 4.9, the Seller has the right and license to use, sublicense, modify and copy the Licensed Software in accordance with the terms of its licenses. The Seller is in full compliance with all material provisions of any license, lease or other similar agreement pursuant to which the Seller has rights to use any material Licensed Software. (d) The Owned Software and the Licensed Software constitute all material software used principally in relation to the Business (the "Company Software"). Schedule 4.9 hereto sets forth a list of all contract programmers, independent contractors, nonemployee agents and persons or other entities (other than employees of the Seller) who have performed material computer programming services for the Seller in connection with any of the Company Software. To the knowledge of the Seller, no other person or entity is infringing any intellectual property rights of the Seller with respect to the Company Software. (e) The Seller has ownership of, or adequate licenses or other valid rights to use, all of the Intangible Assets not described in subsections (a) through (e) of this Section 4.9. The Seller's use of such Intangible Assets does not conflict with, infringe upon, violate or interfere with any intellectual property rights of any other Person except for any conflicts, infringements, violations or interferences which in the aggregate would not have a Material Adverse Effect. 20 28 4.10. Taxes. (a) None of the Assets is tax-exempt use property within the meaning of Section 168(h) of the Code. None of the Assets is property that is or will be required to be treated as being owned by another person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986. (b) The Seller is not a foreign person within the meaning of Section 1445(b)(2) of the Code. (c) The Seller has not failed to file a Tax Return with respect to Taxes or to pay any Taxes shown on a Tax Return filed, the effect of which would result in the Purchasers, as the purchasers of the Assets, to become liable for such Taxes. 4.11. Employees and Employee Benefits. (a) Identification of plans. Schedule 4.11(a) hereto contains a true and complete list of all the following arrangements, agreements or plans which are presently in effect and which cover any Employees, directors, independent contractors or retired or terminated employees of the Seller employed or engaged by the Seller in the Business (collectively, the "Plan Employees"), or any spouses, dependents, beneficiaries of any Plan Employees ("Beneficiaries"): (i) Any employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA") maintained by the Seller or under which the Seller has any obligation; (ii) Any other pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, compensation, incentive, bonus, vacation, severance, disability, hospitalization, medical, life insurance, or other employee benefit plan, program or policy maintained by the Seller or under which the Seller has any obligation; and (iii) Any employment or severance contract providing for insurance coverage, severance, 21 29 termination or similar coverage and all written compensation policies and practices maintained by the Seller. The plans, programs, policies, or arrangements described in subparagraph (i), (ii) or (iii) are hereinafter collectively referred to as the "Employee Benefit Plans." (b) For each Employee Benefit Plan, the Seller has furnished true and complete copies of the following to the Purchasers: (i) the plan document or other operative agreement; (ii) all determination letters (or application for determination if such a letter has not been received), rulings, opinion letters, information letters, or advisory opinions issued by the Internal Revenue Service, the Department of Labor or the Pension Benefit Guaranty Corporation after December 31, 1989; (iii) Form 5500 annual reports (including schedules thereto) prepared for any Employee Benefit Plan with respect to the two most recent plan years; and (iv) the most recent summary plan descriptions (and any material modifications thereto) that have been prepared for any Employee Benefit Plans. (c) The Employee Benefit Plans and their related trusts intended to qualify under Sections 401(a) and 501(a) of the Code, respectively, are so qualified and administered in compliance therewith. (d) No oral or written representation or communication with respect to any aspect of the Employee Benefit Plans has been made to Employees prior to the date hereof which is not in accordance with the written or otherwise preexisting terms and provisions of such plans. (e) All contributions, premiums and payments required to be made under the terms of any Employee Benefit Plan (other than those relating to liabilities assumed by the Purchasers pursuant to Article VIII) have been made. (f) Except as disclosed in Schedule 4.11(f) hereto, the Seller has neither maintained in the past nor currently maintains an Employee Benefit Plan providing welfare benefits (as defined in Section 3(1) of ERISA) to Employees after retirement or other separation from service except to the extent required 22 30 under Part 6 of Title I of ERISA or Code Section 4980B. No tax under Code Sections 4980B or 5000 has been incurred with respect to any Employee Benefit Plan and no circumstance exists which could give rise to such taxes. (g) All Plan Employees are common law employees. (h) Employee matters. Schedule 4.11(h) hereto contains a correct and complete list of (i) all Plan Employees whose direct annual compensation exceeds $50,000 and (ii) a list of all other Plan Employees in each job classification employed by the Seller in the Business. Except as disclosed in Schedule 4.11(h), the employment of all Plan Employees is terminable at will by the Seller without any penalty or severance obligation of any kind on the part of the Seller. (i) Collective bargaining matters. Except as and to the extent set forth in Schedule 4.11(i) hereto within the last three years: (i) to the knowledge of the Seller, no attempt to organize any group or all of the Plan Employees has been made, proposed or threatened; (ii) the Seller is not a party to any union agreement or collective bargaining agreement with any labor organization or employee association applicable to any of the Plan Employees; (iii) the Seller has not been notified of any pending or threatened investigations by the U.S. Department of Labor, Wage and Hour Division, with respect to the Plan Employees; (iv) the Seller has not been notified of any pending or threatened labor strike, dispute, slowdown, stoppage or lockout; (v) to the Seller's knowledge, no union claims to represent any of the Plan Employees have been made; and (vi) there is no material grievance against the Seller with respect to the Business arising out of any collective bargaining agreement or other grievance procedure. (j) Notice concerning termination of employment. Except as set forth in Schedule 4.11(j) hereto, the Seller has not received any notice prior to the date of this Agreement hereof that any of the officers or other senior level personnel of the Seller in respect of the Business, will terminate or contemplates terminating his or her employment currently or at any time before or within 60 days after 23 31 the Closing Date or will otherwise not be available to the Purchasers, or not agree to employment by the Purchasers, on the same terms and conditions as his or her current employment by the Seller on the date hereof. (k) WARN and layoff issues. Within the twelve months prior to the Closing Date, the Seller has not with respect to the Business effectuated (i) a "plant closing," as defined in the Worker Adjustment and Retraining Notification Act (the "WARN Act"); or (ii) a "mass layoff" (as defined in the WARN Act); and the Seller has not engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local Law. 4.12. Litigation. Except as set forth on Schedule 4.12 hereto, there is no (i) outstanding Order against or involving the Assets, the Business or the Seller with respect to the Business, (ii) Legal Proceeding pending, or to the knowledge of the Seller, threatened against or involving the Assets, the Business or the Seller with respect to the Business, or (iii) to the Seller's knowledge, investigation or audit pending or threatened against or relating to the Assets, the Business or the Seller with respect to the Business (collectively, "Proceedings"), which are, individually or in the aggregate, reasonably likely to have a Material Adverse Effect or would restrict, prohibit, prevent or seek damages in connection with the consummation of the transactions contemplated hereby. 4.13. Compliance with Law. Except as set forth on Schedule 4.13 hereto, the Business is currently operating in compliance with all applicable Laws, Orders and recorded restrictive covenants other than non- compliances which in the aggregate would not have a Material Adverse Effect. Except as set forth on Schedule 4.13 hereto, the Seller has neither received, nor knows of the issuance of, any notice of any such violation or alleged violation. 4.14. Assets Necessary to Conduct Business. Except as set forth on Schedule 4.14 hereto, the Assets include all rights, properties, interests in properties and assets reasonably necessary to permit the Purchasers to carry on the Business substantially as presently conducted by the Seller (including, without limitation, the business related to Therapeutic Support Systems). No affiliate of the Seller holds any assets used in the Business. 24 32 4.15. Environmental Matters. To the Seller's knowledge and except as set forth on Schedule 4.15 hereto and except for the Known Environmental Condition: (a) There is no Environmental Litigation (or any Proceeding against any Person whose liability, or any portion thereof, under any Environmental Laws has or may have been retained or assumed contractually or by operation of law by the Seller with respect to the Business) pending or threatened against the Seller with respect to (i) the ownership, use, condition or operation of the Business, the Real Property or any other Asset, or (ii) any violation or alleged violation of or liability or alleged liability under any Environmental Law or any Order related to Environmental Laws with respect to the Business, which could reasonably be expected to result in the Business incurring material Environmental Costs and Liabilities. (b) With respect to the Business, the operations of the Seller are in material compliance with (i) Environmental Laws, or (ii) any Order related to Environmental Laws, with respect to the ownership, use, condition or operation of the Business, the Real Property or any other Asset, except for instances of non-compliance which could not reasonably be expected to result in the Business incurring material Environmental Costs and Liabilities. (c) There are no past or present actions, activities, circumstances, conditions, events or incidents that could reasonably be expected to form the basis for (i) any Environmental Litigation against the Seller with respect to the Business, the Real Property or any other Asset which could reasonably be expected to result in the Business incurring material Environmental Costs and Liabilities, or (ii) any Proceeding against any Person whose liability (or any portion thereof) under any Environmental Laws has or may have been retained or assumed contractually or by operation of law by the Seller with respect to the Business which could reasonably be expected to result in the Business incurring material Environmental Costs and Liabilities. (d) Neither the Seller nor any of its predecessors, current or former Subsidiaries or anyone 25 33 known to the Seller has used any assets or premises of the Businesses for the handling, treatment, storage (in excess of 90 days), or disposal of any Hazardous Substances, except in material compliance with Environmental Laws. (e) No release, discharge, spillage or disposal of any Hazardous Substances has occurred or is occurring at any of the Real Property (excluding the Location) which could reasonably be expected to have a Material Adverse Effect. (f) No soil or water in or under any of the Real Property (excluding the Location) is contaminated by any Hazardous Substance which could reasonably be expected to have a Material Adverse Effect. (g) All waste containing any Hazardous Substances generated, used, handled, stored, treated or disposed of (directly or indirectly) in the operation of the Business by the Seller, has been disposed of in compliance with all applicable reporting requirements under any Environmental Laws, except for instances of noncompliance which could not reasonably be expected to result in the Business incurring material Environmental Costs and Liabilities. (h) Schedule 4.15(h) lists all underground tanks presently located at any of the Real Property. (i) No building or other improvement included in the Assets contains any friable asbestos-containing materials, the presence of which could reasonably be expected to have a Material Adverse Effect. (j) No polychlorinated biphenyls (PCB's) are used or stored on or in any of the Real Property the presence of which could reasonably be expected to have a Material Adverse Effect. (k) The Seller has made available to the Purchasers all material environmental site assessments and other environmental studies relating to the investigation of the possibility of the presence or existence of contamination from Hazardous Substances 26 34 that are in the Seller's possession, custody or control with respect to Business, the Assets or any of the Real Property. 4.16. Brokers. Other than Smith Barney Inc. ("Smith Barney"), no person has acted directly or indirectly as a broker, finder or financial advisor for the Seller in connection with the negotiations relating to or the transactions contemplated by this Agreement and no Person other than Smith Barney is entitled to any fee, commission or like payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of the Seller. The Seller acknowledges that it is responsible for the payment of the fees of Smith Barney in connection with the transactions contemplated by this Agreement. 4.17. Products Liability of the Business. Except as set forth on Schedule 4.17, the Seller has received no written claim, and, to the knowledge of the Seller, no claim has been threatened or alleged, that any line or category of products of the Business manufactured, designed, sold or delivered by the Business contains any general defect in manufacture or design or that any product of the Business has failed in any manner that has resulted in any personal injury (including death) or property damage, in each case or in the aggregate, which would have a Material Adverse Effect. 4.18. Safe Medical Devices Act. No products manufactured, assembled, sold or distributed by the Business are "medical devices" for the purposes of the United States Safe Medical Devices Act (the "SMDA") or the Medical Device Amendments of 1976. Except as set forth on Schedule 4.18, since January 1, 1992, the Seller has received no written notice of any report filed under the SMDA or any similar state law from any purchaser or end user of any product of the Business. Except as set forth on Schedule 4.18, to the knowledge of the Seller, neither the United States Food and Drug Administration (the "FDA") nor any similar state agency (i) has commenced or is considering any investigation or inquiry concerning any product of the Business or (ii) is considering any rulemaking or other proceeding that would subject any product of the Business to the SMDA or any similar state law or to any requirement that the FDA or any state agency approve any product of the Business as a condition of its sale in the manner that such product is currently sold in the ordinary course of the Business. Except as set forth on Schedule 4.18, to the knowledge of 27 35 the Seller, the products of the Business currently sold by the Seller substantially conform to all applicable codes and standards imposed by any United States federal or state governmental agency and to accepted codes and standards relating to the manufacture, distribution and sale of medical products in the United States other than non-compliance which in the aggregate would not have a Material Adverse Effect. 4.19. Absence of Questionable Payments. Neither the Seller with respect to the Business nor any director, officer, agent, employee or other Person acting on behalf of the Seller with respect to the Business, has used, or authorized the use of, any corporate or other funds for unlawful contributions, payments, gifts, or entertainment, or made any unlawful expenditures relating to political activity to government offices or others or established or maintained any unlawful or unrecorded funds in violation of any applicable laws, rules or regulations relating to foreign trade practices. Neither the Seller with respect to the Business nor any current director, officer, agent, employee or other Person acting on behalf of the Seller with respect to the Business, has accepted or received any unlawful contributions, payments, gifts, or expenditures. 4.20. Disclosure. The Seller has made available or caused to be made available to the Purchasers complete and correct copies of all agreements, instruments and documents set forth in the Schedules hereto or underlying a disclosure set forth in the Schedules hereto. 4.21. Compliance with the Immigration Reform and Control Act. The Seller with respect to the Business is in compliance with and has not violated the terms and provisions of the Immigration Reform and Control Act of 1986, or any related laws promulgated thereunder (the "Immigration Laws") in any material respects. With respect to each employee (as defined in Section 274a.1(f) of Title 8, Code of Federal Regulations) of the Business for whom compliance with the Immigration Laws by an employer (as defined in Section 274a.1(g) of Title 8, Code of Federal Regulations) is required, the Seller shall supply upon the Purchasers' request prior to the Closing Date, to the Purchasers such employee's Form I-9 (Employment Eligibility Verification Form) and all other records, documents or other papers required to be retained with the Form I-9 by the employer pursuant to the Immigration Laws. To the Seller's knowledge, the Seller with respect to the Business has never been 28 36 the subject of any inspection or investigation relating to its compliance with or violation of the Immigration Laws, and it has not been fined or otherwise penalized by reason of any failure to comply with the Immigration Laws, and there is not any such proceeding pending or, to the knowledge of the Seller, threatened. 4.22. Corporate Expenses. The expenses under the heading "Lumex Division Related" in Schedule 4.22 represent all of the corporate expenses of the Seller that were incremental and necessary to operate the Business during the year ended December 31, 1995. Corporate expenses, such as officers' salaries, independent audit fees and expenses relating to maintaining a public company status are examples of the type of expenses that are corporate overhead and not necessary to operate the Business. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS AND PARENT Each of the Purchasers and Parent hereby represents and warrants to the Seller that: 5.1. Organization and Good Standing. Each of the Purchasers and Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as it is now being conducted, and to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. 5.2. Authorization of Agreement. Each of the Purchasers and Parent has full corporate power and authority to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by the Purchasers or Parent in connection with the consummation of the transactions contemplated by this Agreement (all such other agreements, documents, instruments and certificates required to be executed by the Purchasers or Parent being hereinafter referred to, collectively, as the "Purchasers' Documents") and to perform fully its obligations hereunder and thereunder. The execution, delivery and performance by the Purchasers or Parent of this Agreement and each Purchasers' Document has been duly authorized by all necessary action on the part of the Purchasers and/or Parent, as the case may 29 37 be. This Agreement has been, and each of the Purchasers' Documents will be at or prior to the Closing, duly executed and delivered by the Purchasers and/or Parent and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and the Purchasers' Documents when so executed and delivered will constitute, legal, valid and binding obligations of the Purchasers and/or Parent, as the case may be, enforceable against the Purchasers and/or Parent in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). None of the execution and delivery by the Purchasers or Parent of this Agreement and the Purchasers' Documents, or the consummation of the transactions contemplated hereby or thereby, or compliance by the Purchasers or Parent with any of the provisions hereof or thereof, will (i) conflict with, or result in the breach of, any provision of the certificate of incorporation or by-laws of the Purchasers or Parent, (ii) conflict with, violate, result in the breach or termination of, or constitute a default under any Contract or Order to which either of the Purchasers or Parent is a party or by which it or any of its properties or assets is bound or subject, or (iii) constitute a violation of any Law applicable to the Purchasers or Parent, except, in each case, for violations, conflicts, breaches or defaults which individually or in the aggregate would not materially hinder or impair the transactions contemplated hereby. 5.3. Consents. No consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of the Purchasers or Parent in connection with the execution and delivery of this Agreement or the Purchasers' Documents or the compliance by the Purchasers or Parent with any of the provisions hereof or thereof, except (i) for compliance with the HSR Act, (ii) consents, waivers, approvals, Orders or Permits, if any, which the Seller is required to obtain pursuant to Section 4.5 hereof and (iii) any novations required in connection with the Government Contracts. 5.4. Availability of Funds.The Purchasers have available sufficient funds to enable them to consummate the transactions contemplated by this Agreement. 30 38 5.5. Litigation. There is no Legal Proceeding pending or, to the knowledge of the Purchasers or Parent, threatened, that seeks to enjoin or obtain damages in respect of the consummation of the transactions contemplated by this Agreement or that questions the validity of this Agreement, the Purchasers' Documents or any action taken or to be taken by the Purchasers or Parent in connection with the consummation of the transactions contemplated hereby or thereby. 5.6. Brokers. No Person has acted directly or indirectly as a broker, finder or financial advisor for the Purchasers or Parent in connection with the negotiations relating to or the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof based in any way on agreements, arrangements or understandings made by or on behalf of the Purchasers or Parent. ARTICLE VI. COVENANTS OF THE SELLER From and after the date hereof and until the Closing, the Seller hereby covenants and agrees with the Purchasers that: 6.1. Cooperation. The Seller shall use its best efforts to cause the consummation of the transactions contemplated hereby in accordance with the terms and conditions hereof and shall take all commercially reasonable steps that are within its powers to cause to be satisfied those of the conditions precedent of the obligations of the Purchasers to consummate the transactions contemplated by this Agreement that are dependent on any act of the Seller. 6.2. Access to Documents; Opportunity to Ask Questions. The Seller shall provide the Purchasers with such information as the Purchasers from time to time reasonably may request with respect to the Business, and shall permit the Purchasers and any of the directors, officers, employees, counsel, representatives, accountants and auditors (collectively, the "Purchasers' Representatives") reasonable access, during normal business hours and upon reasonable prior notice, to the properties, corporate records and books of accounts of the Business, as the 31 39 Purchasers from time to time reasonably may request; provided, however, that the Seller shall not be obligated to provide the Purchasers with any information the provision of which may be prohibited by law or contractual obligation. No disclosure by the Seller whatsoever during any investigation by the Purchasers shall constitute an enlargement of or additional warranty or representation of the Seller beyond those expressly set forth in this Agreement. All information and access obtained by the Purchasers in connection with the transactions contemplated by this Agreement shall be subject to the terms and conditions of the letter agreement relating to confidentiality, dated as of November 7, 1995, between the Seller and the Parent (the "Confidentiality Agreement") which Confidentiality Agreement shall terminate on the Closing Date. 6.3. Conduct of Business. (a) Except as otherwise may be contemplated by this Agreement or as the Purchasers otherwise may consent to in writing (which consent shall not be unreasonably withheld), the Seller shall cause the Business to be operated in the ordinary course consistent with past practice and use reasonable efforts consistent with past practice to (i) preserve the present business operations, organization and goodwill of the Business, (ii) keep available the services of the present employees of the Business, (iii) preserve the present relationships with persons having business dealings with the Business, (iv) maintain all of the assets and properties of the Business in their current condition, normal wear and tear excepted, and (v) maintain insurance in such amounts and of such kinds as is comparable to that in effect on the date hereof (with insurers of substantially the same or better financial condition). (b) Except as otherwise may be contemplated by this Agreement, required by any of the documents listed in the Schedules hereto or as the Purchasers otherwise may consent to in writing (which consent shall not be unreasonably withheld), the Seller shall not do any of the following: (i) (A) increase the rate of compensation payable or to become payable to any of the employees or agents of the Business other than in the 32 40 ordinary course of business, (B) amend in any material respect any bonus, stock option, stock purchase, profit-sharing, deferred compensation, pension, retirement or other similar plan or arrangement to or in respect of any such employee or agent, other than in the ordinary course of business and as may be required to maintain compliance with ERISA and/or the Code or (C) enter into any new, or amend in any material respect any existing, employment, severance or consulting agreement, sales agency, or other Contract with respect to the performance of personal services for the Business, other than in the ordinary course of business and as may be required to maintain compliance with ERISA and/or the Code; provided, however, that the Seller may adopt a severance or salary continuation plan in lieu of the Seller's severance policy set forth in the Seller's Personnel Policies and Procedures last revised October 1994, provided that such plan does not (1) adversely affect the Seller's or the Purchasers' obligations under Article VIII hereof prior to such adoption or (2) provide benefits in excess of or expand eligibility for benefits provided under any severance policy, plan or arrangement existing on the date of this Agreement providing similar benefits. (ii) (A) incur or become subject to, or agree to incur or become subject to, any material obligation or liability (contingent or otherwise) relating to the Business, except (x) normal trade or business obligations (including Contracts) incurred in the ordinary course of business and consistent with past practice and (y) obligations under Contracts listed on any Schedule to this Agreement, (B) sell, assign, transfer, convey, lease or otherwise dispose of any of the Assets, other than inventory of the Business, in the ordinary course of business, (C) cancel or compromise any material debt or claim or waive or release any material right relating to the Business or the Assets, except for adjustments or settlements made in the ordinary course of business consistent with past practice, or (D) acquire any material assets relating to the Business other than in the ordinary course of business. 33 41 6.4. Consents and Conditions; Assignment of Assets. Subject to Article XII hereof, the Seller shall use its best efforts to obtain all approvals, consents or waivers from Persons necessary to assign to the Purchasers all of the Seller's interest in the Assets or any claim, right or benefit arising thereunder or resulting therefrom (each, an "Interest") as soon as practicable; provided, however, that in no event shall the Seller be obligated to pay any consideration therefor to any third party from whom such approval, consent or waiver is requested or release any right, benefit or claim in order to obtain such approval, consent or waiver. 6.5. HSR Act Filings. As promptly as practicable after the execution of this Agreement (to the extent a filing has not already been made), the Seller shall file any reports or notifications that may be required to be filed under the HSR Act and shall cooperate with the Purchasers in connection with such filings or responses to requests for additional information. 6.6. Additional Reports. From the date hereof through the Closing Date, the Seller will make available to the Purchasers true and correct copies of all the internal management and control reports (including aging of accounts receivables, listings of accounts payable, and inventory control reports) and financial statements related to the Business and furnished to management of the Seller. 6.7. Air Bed Contract. The Seller agrees to consult with the Purchasers with respect to negotiations of the amendment to the First Amended and Restated Asset Purchase Agreement, dated as of February 22, 1995, between Airbed Corporation and Lumex, Inc., and shall not execute an amendment to such contract without the prior written consent of the Purchasers, which consent shall not be unreasonably withheld or delayed. 6.8. Other Transactions. Provided that the Purchasers are not in default under this Agreement, the Seller will not, and will direct its officers, directors, financial advisors, accountants, agents, and counsel not to (i) solicit submissions of proposals or offers from any Person other than the Purchasers relating to the acquisition of all or any material part of the Assets (an "Acquisition Proposal"), (ii) participate in any discussions or negotiations or furnish any non-public information regarding the Business to any Person other than the Purchasers or the 34 42 Purchasers' Representatives for the purpose of selling the Assets other than in the ordinary course of business or encouraging or facilitating an Acquisition Proposal by any Person other than the Purchasers, or (iii) enter into any agreement or understanding, that would have the effect of preventing the consummation of the transactions contemplated by this Agreement. ARTICLE VII. COVENANTS OF THE PURCHASERS From and after the date hereof, and until the Closing Date, each of the Purchasers and Parent hereby covenants and agrees with the Seller that: 7.1. Cooperation. Each of the Purchasers and Parent shall use its best efforts to cause the consummation of the transactions contemplated hereby in accordance with the terms and conditions hereof and shall take all commercially reasonable steps that are within its powers to cause to be satisfied those of the conditions precedent to the obligations of the Seller to consummate the transactions contemplated by this Agreement that are dependent on any act of the Purchasers or Parent. 7.2. Confidentiality. The Purchasers and Parent shall comply with the terms of the Confidentiality Agreement. 7.3. Consents and Conditions. Subject to Article XII hereof, the Purchasers and Parent shall use their best efforts to obtain all approvals, consents or waivers from Persons necessary to assign to the Purchasers all of the Seller's interest in the Assets or any claim, right or benefit arising thereunder or resulting therefrom as soon as practicable; provided, however, that in no event shall the Purchasers or Parent be obligated to pay any consideration therefor to the third party from whom such approval, consent or waiver is requested or release any right, benefit or claim in order to obtain such approval, consent or waiver. 7.4. HSR Act Filings; Compliance with Antitrust and Competition Laws. As promptly as practicable after the execution of this Agreement (to the extent a filing has not already been made), the Purchasers and Parent shall file all reports and notifications that may be required to be filed 35 43 under the HSR Act and shall cooperate with the Seller in connection with such filings or responses to requests for additional information. The Purchasers and Parent shall use their best efforts to resolve such objections, if any, as the Antitrust Division of the Department of Justice, the Federal Trade Commission, state antitrust enforcement authorities or competition authorities of any other jurisdiction may assert under the antitrust or competition laws with respect to the transaction contemplated hereby; provided, however, that Purchasers shall not be required to commit to and/or effect the sale or other disposition of such of their assets owned already or acquired by them pursuant hereto. 7.5. Permits, Bonds and Guarantees. The Purchasers shall obtain as of the Closing all Permits required by any Governmental Body to be obtained prior to the Closing with respect to the operation of the Business or the ownership or operation of the Assets without any guaranty or liability of the Seller with respect thereto; provided, however, that, as provided in Section 1.1 hereof, the Seller shall assign, transfer or convey to the Purchasers at the Closing those Permits described in one or more Schedules hereto that are held by the Seller principally in connection with the Business and that can be assigned without having to obtain the consent of any Governmental Body with respect thereto or as to which any required consent has been obtained. ARTICLE VIII. COVENANTS RELATING TO EMPLOYMENT AND EMPLOYEE MATTERS 8.1. Offer of Employment. (a) The Purchasers may offer employment as of the Closing Date to some or all of the Employees and upon such terms and conditions as the Purchasers shall determine in their sole discretion (subject to the assumption of agreements under Section 8.2 hereof). The Purchasers shall be solely responsible for all compensation accruing or to be paid on or after the Closing Date with respect to Transferred Employees and for any compensation with respect to which there are accruals on the Closing Balance Sheet. 36 44 (b) The Seller shall provide to the Purchasers a statement of all accrued entitlements for Employees as of the Closing Date, including but not limited to vacation days, wages and other compensation consistent with the Benefit Arrangements. 8.2. Collective Bargaining and Other Agreements. Except as set forth in Section 1.4(i), the Purchasers agree to assume all of the rights and obligations of the Seller under all collective bargaining agreements, employment agreements or consulting agreements listed on Schedule 8.2 and which are applicable to the Employees and in effect on the business day immediately preceding the Closing Date. 8.3. Employee Benefit Plans. (a) The Purchasers shall be liable for all claims incurred on or after the Closing Date by any Transferred Employee under any "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA (a "Welfare Plan"). (b) The Seller shall be liable for all claims under any other Employee Benefits Plan that are not the liability of the Purchasers under Sections 8.2, 8.3(a) or 8.4. 8.4. Termination Obligations. Except as set forth in Section 1.4(i), the Purchasers shall be liable for all payments that may be required to be made on or after the Closing Date to any Employee who is not a Transferred Employee employed by the Purchasers on substantially the same terms and conditions of employment as with the Seller under any termination, severance or similar plan, policy or arrangement of the Seller as a result of the transactions contemplated herein or any other event involving such Employees occurring on or after the Closing Date. The Seller shall be liable for all payments required to be made to any Transferred Employee on or before the Closing Date under any termination, severance or similar plan, policy or arrangement of the Seller. 8.5. Indemnification. (a) Except as set forth in Section 1.4(i), the Purchasers shall indemnify the Seller from any liability, loss, damage or expense the Seller may incur (including reasonable attorneys' fees) with respect to 37 45 any claims of Employees or Transferred Employees (i) arising out of their employment with the Purchasers, (ii) under any Law relating to the termination of such Employee's or Transferred Employee's employment arising as a result of the actions of the Purchasers on or after the Closing Date and (iii) in connection with Liabilities assumed by the Purchasers under this Article VIII. (b) The Seller shall indemnify the Purchasers from any liability, loss, damage or expense the Purchasers may incur (including reasonable attorneys' fees) with respect to any claims made or incurred prior to the Closing Date under a Welfare Plan or based upon events, actions or omissions occurring prior to the Closing Date. (c) The Seller shall indemnify the Purchasers from any liability, loss, damage or expense the Purchasers may incur (including reasonable attorneys' fees) as a result of claims (or any liens imposed as a result of such claims) arising out of, resulting from or related to any Employee Benefit Plan which is not the Purchasers' obligation under Sections 8.2, 8.3(a) and 8.4, or any similar plan or arrangement maintained or contributed to by the Seller (or any entity or person aggregated with the Seller under Sections 414(b),(c),(m) or (o) of the Code), whether or not previously disclosed. 8.6 COBRA Coverage. The Purchasers shall be responsible for complying with the requirements of Code Section 4980B and Part 6 of Title I of ERISA for Transferred Employees and their beneficiaries having a "qualifying event" (as defined in Code Section 4980B) on or after the Closing Date, and the Seller shall be responsible for complying with such requirements for all other Employees. ARTICLE IX. CONDITIONS PRECEDENT TO THE PURCHASERS' OBLIGATIONS The obligation of the Purchasers to consummate the purchase of the Assets and the assumption of the Assumed Liabilities on the Closing Date is, at the option of the Purchasers, subject to the satisfaction of the following conditions: 38 46 9.1. Representations, Warranties and Covenants. (a) Each of the representations and warranties of the Seller contained herein shall be true and correct in all respects on and as of the Closing Date with the same force and effect as though the same had been made on and as of the Closing Date, it being understood that to the extent that such representations and warranties were made as of a specified date the same shall continue on the Closing Date to be true and correct in all respects as of the specified date (except, in each case, representations and warranties that are not qualified by materiality shall be true in all material respects). (b) The Seller shall have performed and complied in all respects with the covenants and provisions of this Agreement required to be performed or complied with by it at or prior to the Closing Date (except covenants that are not qualified by materiality shall have been performed or complied with in all material respects). (c) The Purchasers shall have received a certificate of the Seller, dated as of the Closing Date and signed by an officer of the Seller, certifying as to the fulfillment of the conditions set forth in this Section 9.1. 9.2. HSR Act. All applicable waiting periods in respect of the transactions contemplated by this Agreement under the HSR Act shall have expired. 9.3. No Prohibition. No Law or Order of any court or administrative agency shall be in effect which prohibits the Purchasers from consummating the transactions contemplated hereby. 9.4. Opinion of the Seller's Counsel. The Purchasers shall have received an opinion or opinions of counsel for the Seller, dated the Closing Date in a form reasonably acceptable to the Purchasers. 9.5. Delivery of Documents. The Seller shall have executed and delivered to the Purchasers at the Closing bills of sale, certificates of title, an assignment agreement, patent assignments, trademark assignments and any 39 47 other documents required to be delivered pursuant to Section 3.3 hereof. 9.6. Consents; Permits. The Seller shall have obtained all third party or governmental consents, waivers, approvals and authorizations listed on Schedule 9.6 hereto and the Seller shall have delivered copies thereof to the Purchasers. ARTICLE X. CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS The obligation of the Seller to consummate the sale, transfer and assignment to the Purchasers of the Assets and the assignment of the Assumed Liabilities on the Closing Date is, at the option of the Seller, subject to the satisfaction of the following conditions. 10.1. Representations, Warranties and Covenants. (a) Each of the representations and warranties of the Purchasers and Parent contained herein shall be true and correct in all respects as of the Closing Date with the same force and effect as though the same had been made on and as of the Closing Date, it being understood that to the extent that such representations and warranties were made as of a specified date the same shall continue on the Closing Date to be true and correct in all respects as of the specified date (except, in each case, representations and warranties that are not qualified by materiality shall be true in all material respects). (b) The Purchasers and Parent shall have performed and complied in all respects with the covenants and provisions in this Agreement required herein to be performed or complied with by it at or prior to the Closing Date (except covenants that are not qualified by materiality shall have been performed or complied with in all material respects). (c) The Seller shall have received a certificate of the Purchasers, dated as of the Closing Date and signed by an officer of the Purchasers, certifying 40 48 as to the fulfillment of the conditions set forth in this Section 10.1. 10.2. HSR Act. All applicable waiting periods in respect of the transactions contemplated by this Agreement under the HSR Act shall have expired. 10.3. No Prohibition. No Law or Order of any court or administrative agency shall be in effect which prohibits the Seller from consummating the transactions contemplated hereby. 10.4. Opinion of the Purchasers' Counsel. The Seller shall have received an opinion or opinions of counsel for the Purchasers, dated the Closing Date in a form reasonably acceptable to the Seller. 10.5. Delivery of Documents. The Purchasers shall have executed and delivered to the Seller, at the Closing an assumption agreement, and any other documents required to be delivered pursuant to Section 3.4 hereof. 10.6. Consents; Permits. The Seller shall have obtained all consents, waivers, approvals and authorizations listed on Schedule 10.6 hereto. ARTICLE XI. ADDITIONAL POST-CLOSING COVENANTS 11.1. Further Assurances. (a) From time to time after the Closing Date, each of the Seller and the Purchasers shall, at its sole cost and expense, at the reasonable request of the Purchasers, execute and deliver such other and further instruments of sale, assignment, assumption, transfer and conveyance and take such other and further action as the Purchasers may reasonably request in order to vest in the Purchasers and put the Purchasers in possession of the Assets and to transfer to the Purchasers any Contracts and rights of the Seller relating to the Assets and assure to the Purchasers the benefits thereof, and, at the reasonable request of the Seller, to give effect to the Purchasers' assumption of the Assumed Liabilities. 41 49 (b) If, on the Closing Date, (i) the Seller has not obtained any authorization, approval or consent (a "Consent") required to transfer, assign or novate (a "Transfer") any of the Seller's Interest in or to any of the Assets after having used its best efforts to obtain such Consent or an attempted Transfer of any of the Assets would be ineffective or the failure to have such Consent would adversely affect the Seller's ability to convey any such Asset, and (ii) the conditions precedent to the Closing set forth in Article X nevertheless have been satisfied, then such Assets shall constitute "Deferred Acquired Assets" and shall not be transferred to the Purchasers at the Closing. After the Closing, (a) the Seller will (I) continue to use commercially reasonable efforts to obtain the Consent and/or to remove any other impediments to the Transfer of each Deferred Acquired Asset and will Transfer each Deferred Acquired Asset to the Purchasers within five business days after the receipt of such Consent and/or removal of such impediment and (II) until the Transfer with respect to any Deferred Acquired Asset is accomplished, cooperate with the Purchasers in any lawful arrangement that is not unduly economically burdensome (including performance by the Seller as agent) to provide that the Purchasers shall receive the benefits of such Deferred Acquired Asset to the same extent as if it were transferred to the Purchasers at Closing, (III) until the Transfer with respect to any Deferred Acquired Asset is accomplished, enforce, at the request and for the account of the Purchasers, any of the Seller's rights thereto or interests therein against any other parties thereto (including the right to terminate any such Deferred Acquired Asset in accordance with its terms, provided that the Purchasers pay any cancellation or other fee due upon such termination) and (b) if and only to the extent that the Purchasers receive the benefits of a Deferred Acquired Asset, the Purchasers shall perform the obligations of the Seller arising with respect to such Deferred Acquired Asset to the extent that, by reason of consummation of the transactions contemplated by this Agreement, the Purchasers have control over the resources necessary to perform such obligations or reimburse the Seller for the reasonable cost of such performance. To the extent the Purchasers perform the obligations of the Seller with respect to any Deferred Acquired Asset, any account receivable created on account of such 42 50 performance shall be deemed when created to be an Asset conveyed hereunder. The Purchasers will act with reasonable diligence and use commercially reasonable efforts to assist, and cooperate with, the Seller in obtaining such Consents and removing any such impediments to the transfer of the Deferred Acquired Assets. 11.2. Public Announcements. Neither the Seller (nor any of its affiliates) nor the Purchasers (nor any of their affiliates) shall make any public statement, including, without limitation, any press release, with respect to this Agreement and the transactions contemplated hereby, without the prior written consent of the other party (which consent may not be unreasonably withheld or delayed), except as may be required by Law, and except that following the issuance of press releases by the parties hereto with respect to the transactions contemplated hereby the parties may continue routine communications (including discussions regarding the transactions contemplated hereby) with investors and analysts. 11.3. Joint Post-Closing Covenant of the Seller and the Purchasers. The Seller and the Purchasers jointly covenant and agree that, from and after the Closing Date, the Seller and the Purchasers will cooperate with each other in defending or prosecuting any action, suit, proceeding, investigation or audit of the other relating to (a) the preparation and audit of the Seller's and the Purchasers' tax returns for all periods up to and including the Closing Date, and (b) any audit of the Purchasers and/or the Seller with respect to the sales, transfer and similar taxes imposed by the laws of any state, relating to the transactions contemplated by this Agreement. In furtherance hereof, the Purchasers and the Seller further covenant and agree to respond to all reasonable inquiries related to such matters and to provide, to the extent possible, substantiation of transactions and to make available and furnish appropriate documents and personnel in connection therewith. 11.4. Books and Records; Personnel. For a period of seven years after the Closing Date (or such longer period as may be required by any Governmental Body or ongoing Legal Proceeding): (a) Neither the Seller nor the Purchasers shall dispose of or destroy any of the business records and files of the Business. If either the Seller or the 43 51 Purchasers wishes to dispose of or destroy such records and files after that time, it shall first give 30 days' prior written notice (the "Notice") to the other party who shall have the right, at its option and expense, upon prior written notice to the disposing party within such 30 day period, to take possession of the records and files within 60 days after the date of the Notice. (b) Each party to this Agreement shall allow the other party and its representatives access to all business records and files of the Business, during regular business hours and upon reasonable notice at such other party's principal place of business or at any location where such records are stored, and the parties shall have the right, each at its own expense, to make copies of any such records and files; provided, however, that any such access or copying shall be had or done in such a manner so as not to unreasonably interfere with the normal conduct of the other party's business or operations (including, without limitation, matters relating to the confidentiality of such records and files). (c) The Purchasers shall make available to the Seller, upon written request and at the Seller's expense (i) the Purchasers' personnel to assist the Seller in locating and obtaining records and files maintained by the Purchasers and (ii) any of the Purchasers' personnel previously in the Seller's employ whose assistance or participation is reasonably required by the Seller in anticipation of, or preparation for, existing or future litigation, arbitration, administrative proceeding, tax return preparation or other matters in which the Seller or any of its affiliates is involved and which is related to the Business. 11.5. Solicitation of Employees. For a period of one year after the date of this Agreement, the Seller shall not, and shall cause its affiliates not to, cause, induce or encourage any Transferred Employee to leave the employment of the Purchasers. 11.6. Corporate Name. The Seller consents to the Purchasers using the name "Lumex" and the Seller will not use the tradename "Lumex", but will only use the name "Lumex" for corporate purposes until such time as it shall change its name. The Seller shall propose at the next annual meeting of its shareholders that the shareholders 44 52 approve an amendment to the Seller's Certificate of Incorporation to change its name from "Lumex, Inc." and shall take all necessary steps within a reasonable time thereafter to effectuate such change. 11.7. Maintenance of Insurance. For a period of two years after the Closing Date, the Seller shall maintain substantially the same workers compensation insurance policy as exists on the date of this Agreement. ARTICLE XII. GOVERNMENT CONTRACTS 12.1. Government Contracts. The parties acknowledge that, in accordance with FAR (48 C.F.R.) Section 42.1204, the Seller and Purchaser I are required to enter into a novation agreement or agreements with the United States of America with respect to contracts numbers V79P-3768; and V797P-3253; between the Seller and the United States of America (Department of Veterans Affairs Marketing Center) and contract number GS-27F-3011D between the Seller and the United States of America (General Services Administration/FSS National Furniture Center) (collectively, the "Government Contracts"). The Seller and Purchaser I will cooperate fully and will use all reasonable efforts to obtain consents to the assignment, or the novation, of each of the Government Contracts, and the Seller hereby agrees expeditiously to take all steps necessary to file requests for, and to use all reasonable efforts to obtain, approvals of all required novations or assignments with respect to the Government Contracts. 12.2. Performance Under Nonassigned Contracts. With respect to any Government Contracts that cannot be assigned to Purchaser I or novated for the benefit of Purchaser I on the Closing Date, the performance obligations of the Seller thereunder shall, to the fullest by applicable law and each such Government Contract, be deemed to be subcontracted or delegated to Purchaser I until any such Government Contract has effectively been assigned or novated. Purchaser I, as a subcontractor or delegate, shall perform such Government Contracts and the Seller shall, as soon as practicable, pay over to Purchaser I in full any amounts received by the Seller as a result of performance by Purchaser I of such Government Contracts. Prior to the assignment or novation of such Government Contracts to the Purchasers, the Seller, as the contracting party, shall 45 53 timely take such action as is reasonably necessary to allow Purchaser I or any of its Subsidiaries to perform such Government Contracts, to receive amounts due such Government Contracts and to protect any rights that may exist or accrue under such Government Contracts until they are assigned or novated. 12.3. Assignment After Closing. If, after the Closing Date, the Seller and Purchaser I obtain the necessary consent for the assignment or novation of a Government Contract for which an assignment or novation is required, then such Government Contract shall be deemed to be assigned and transferred to Purchaser I promptly after the Seller and Purchaser I obtain such consent or novation. Effective upon the assignment of a Government Contract to Purchaser I, the Government Contract shall be deemed to be assumed by Purchaser I provided that the Seller shall reimburse Purchaser I for any monetary benefit received by the Seller (net of any actual out-of-pocket costs of the Seller in connection with such Government Contract) that would have accrued to Purchaser I had the Government Contract been assigned or novated as of the Closing Date. Any subcontract or other Government Contract which the Seller and Purchaser I have theretofore entered into or agreed upon in respect of such contract shall be terminated effective as of the date of such assignment. ARTICLE XIII. INDEMNIFICATION AND RELATED MATTERS 13.1. Indemnification by the Seller. Subject to the provisions of this Article XIII, the Seller agrees to indemnify and hold the Purchasers harmless from and against all Damages resulting from or arising out of: (a) the failure of any of the representations and warranties contained in Article IV of this Agreement or in the Schedules related thereto to have been true when made and as of the Closing Date, it being understood that to the extent that any of such representations and warranties were made as of a specified date the same shall apply only to the failure of such representations and warranties to be true as of such specified date; 46 54 (b) the failure of the Seller to comply with any of the covenants contained in this Agreement which are required to be performed by the Seller; and (c) the Excluded Liabilities. 13.2. Indemnification by the Purchasers. (a) Subject to the provisions of this Article XIII, the Purchasers agree to indemnify and hold the Seller harmless from and against all Damages resulting from or arising out of: (i) the failure of any of the representations and warranties contained in Article V of this Agreement to have been true when made and as of the Closing Date, it being understood that to the extent that any of such representations and warranties were made as of a specified date the same shall apply only to the failure of such representations and warranties to be true as of such specified date; (ii) the failure of the Purchasers to comply with any of the covenants contained in this Agreement which are required to be performed by the Purchasers; (iii) the Assumed Liabilities; and (iv) the operation of the Business or ownership of the Assets on or after the Closing Date. (b) The Purchasers shall indemnify, defend and hold the Seller harmless from and against all Damages and Environmental Costs and Liabilities arising out of or relating to known or unknown Hazardous Substance contamination at the facility at the Location, including, but not limited to: (i) any cleanup, corrective removal or remedial actions or property damage arising out of any condition existing prior to or after the Closing, whether or not disclosed to or known by the Purchasers or the Seller; (ii) third party claims (including, not but not limited to, claims by employees of the Seller) for personal injury relating or attributable to exposure to Hazardous Substances; (iii) fines or penalties on account of the presence or suspected presence of Hazardous Substances contamination prior to or after the Closing Date; 47 55 (iv) any liability or obligation to modify, restore, change or improve any of the Assets in order to effectuate compliance with any applicable regulation or order in effect as of the Closing Date relating to the presence or suspected presence of Hazardous Substances contamination. 13.3. Determination of Damages and Related Matters. In calculating any amount payable to the Purchasers pursuant to Section 13.1 or payable to the Seller pursuant to Section 13.2, the Seller or the Purchasers, as the case may be, shall receive credit for (i) any tax benefit allowable as a result of the facts giving rise to the claim for indemnification, and (ii) any insurance recoveries, and no amount shall be included for the Purchasers' or the Seller's, as the case may be, special, consequential or punitive damages, unless special, consequential or punitive damages have been asserted by any third party against the party seeking indemnification. The Seller and the Purchasers agree to treat any indemnity payment made pursuant to Section 13.1 or Section 13.2 as an adjustment to the Purchase Price for federal, state, local and foreign income tax purposes. 13.4. Limitation on Indemnification Liabilities. (a) Except as set forth in subsection (b) below, the indemnifications in favor of the Purchasers contained in Sections 13.1 (a) and 13.1(b) (a) shall not be effective until the aggregate dollar amount of all Damages indemnified against under such Section (not including any such Damages subject to Section 13.4(b) below) exceeds $640,000 (the "Threshold Amount"), and then only to the extent such aggregate amount exceeds the Threshold Amount and (b) shall terminate once the dollar amount of all Damages indemnified against under such Section aggregates the Purchase Price provided that the Threshold Amount shall not apply to Excluded Liabilities, the representation made in Section 4.16 hereof or the covenants contained in Section 11.5 hereof and the Covenant Not to Compete. (b) In the event of a breach of Section 4.22, the indemnifications in favor of the Purchasers contained in Section 13.1(a) (i) shall not be effective until the aggregate dollar amount of all Lumex Division Related Expenses exceeds $250,000, and then only to the 48 56 extent such aggregate amount exceeds such $250,000 and (ii) shall terminate once the dollar amount of all Damages indemnified under Sections 13.1(a) and (b) aggregates the Purchase Price. 13.5. Survival of Representations, Warranties and Covenants. The parties hereto agree that the representations and warranties made in this Agreement and the covenants and agreements contained herein and any indemnification with respect thereto shall survive for one year after the Closing Date; provided that (i) such limitation period shall not apply with respect to claims properly made with reasonable specificity prior to the expiration of such one year limitation period, (ii) any covenants and agreements contained herein which by their terms may cover a period in excess of one year after the Closing Date shall survive for such specified period and (iii) the indemnification obligations contained in Sections 13.1(c), 13.2(a)(iii), 13.2(a)(iv) and 13.2(b) shall survive indefinitely (the "Survival Period"). 13.6. Notice of Indemnification. In the event any legal proceeding shall be threatened or instituted or any claim or demand shall be asserted by any person in respect of which payment may be sought by one party hereto from the other party under the provisions of this Article XIII or for breach of any of the representations and warranties set forth herein, the party seeking indemnification (the "Indemnitee") shall promptly cause written notice of the assertion of any such claim of which it has knowledge which is covered by this indemnity to be forwarded to the other party (the "Indemnitor"), which notice must be received by the Indemnitor prior to the expiration of the applicable Survival Period. Any notice of a claim by reason of any of the representations, warranties or covenants contained in this Agreement shall state specifically the representation, warranty or covenant with respect to which the claim is made, the facts giving rise to an alleged basis for the claim, and the amount of the liability asserted against the Indemnitor by reason of the claim. The failure of the Indemnitee to notify the Indemnitor of a claim shall not relieve the Indemnitor of any liability that it may have with respect to such claim, except to the extent the Indemnitor is prejudiced or adversely affected by such failure. 13.7. Defense of Third Party Claims. Should any legal proceeding be instituted against the Indemnitee by 49 57 a third party for which the Indemnitee is entitled to indemnification under this Agreement (a "Third Party Claim"), the obligations and liabilities of the parties hereunder with respect to such Third Party Claim shall be subject to the following terms and conditions: (a) The Indemnitee shall give the Indemnitor written notice of any such claim promptly after receipt by the Indemnitee of notice thereof, and the Indemnitor may undertake the defense thereof by representatives of its own choosing reasonably acceptable to the Indemnitee. If the Indemnitee desires to participate in, but not control, any such defense, it may do so at its own cost and expense. If, however, the Indemnitor fails or refuses to undertake the defense of such claim within ten (10) days after written notice of such claim has been given to the Indemnitor by the Indemnitee, the Indemnitee shall have the right to undertake the defense, and, subject to Section 13.7(b) below, settlement of such claim with counsel of its own choosing. In the circumstances described in the preceding sentence, the Indemnitee shall, promptly upon its assumption of the defense of such claim, provide notice as specified in Section 13.6 which shall be deemed a claim for indemnification that is not a Third Party Claim for the purposes of the procedures set forth herein. (b) No settlement of a Third Party Claim involving the asserted liability of the Indemnitor under this Article XIII shall be made without the prior written consent by or on behalf of the Indemnitor, which consent shall not be unreasonably withheld or delayed. 13.8. Exclusive Remedy. Except as otherwise described in Section 14.2, the exclusive remedy available to a party hereto in respect of the matters covered by Section 13.1 or Section 13.2 hereof shall be to proceed in the manner and subject to the limitations contained in this Article XIII. 50 58 ARTICLE XIV. TERMINATION 14.1. Termination. This Agreement may be terminated: (a) by the written agreement of the Purchasers and the Seller; (b) by either the Purchasers or the Seller if there shall be in effect a non-appealable order of a court of competent jurisdiction permanently prohibiting the consummation of the transactions contemplated hereby; (c) by either the Purchasers or the Seller if the Closing shall not have occurred on or before May 31, 1996; and (d) by the Purchasers if any condemnation, destruction or loss due to fire or other casualty from the date hereof until the Closing Date is such that the Business is materially interrupted or curtailed or the Assets are materially affected; provided that if the Purchasers nonetheless elect to close, the Seller shall remit or assign the Seller's rights to all net condemnation proceeds or third party insurance proceeds to the Purchasers, and the Seller shall have no further liability or obligations with respect to such condemnation, destruction or loss. 14.2. Liabilities After Termination. Upon any termination of this Agreement pursuant to Section 14.1 above, no party hereto shall thereafter have any further liability or obligation hereunder other than the Purchasers' obligations pursuant to Section 7.2 hereof, but no such termination shall relieve either party hereto of any liability to the other party hereto for any breach of this Agreement prior to the date of such termination and each party hereto shall have all rights at law or in equity, against the other based upon such breach, including, without limitation, the right to seek specific performance. 51 59 ARTICLE XV. MISCELLANEOUS 15.1. Definitions. As used in this Agreement, the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Accounts Receivable" has the meaning set forth in Section 1.1(c) hereof. "Arbitrator" has the meaning set forth in Section 2.2(d) hereof. "Assets" has the meaning set forth in Section 1.1 hereof. "Assignment and Assumption Agreement" has the meaning set forth in Section 3.3(b) hereof. "Assumed Liabilities" has the meaning set forth in Section 1.3 hereof. "Beneficiaries" has the meaning set forth in Section 4.11(a) hereof. "Benefit Arrangement" means each employment or severance contract or arrangement providing for insurance coverage, severance, termination or similar coverage and all written compensation policies and practices maintained by the Seller covering any Employee or former Employee of the Business. "Business" has the meaning set forth in the recitals hereof. "Closing" means the consummation of the transactions contemplated by this Agreement. "Closing Balance Sheet" has the meaning set forth in Section 2.2(a) hereof. "Closing Date" has the meaning set forth in Section 3.1 hereof. 52 60 "Code" means the Internal Revenue Code of 1986, as amended. "Company Software" has the meaning set forth in Section 4.9(d) hereof. "Confidentiality Agreement" has the meaning set forth in Section 6.2 hereof. "Contract" means any contract, agreement, indenture, note, bond, loan, instrument, lease, conditional sale contract, mortgage, license, franchise, insurance policy, commitment or other arrangement or agreement. "Covered by the Seller's Insurance Policies" means pursuant to the provisions of the Seller's insurance policies, including deductibles, self-insured retentions and covered losses in excess of policy limits. "Damages" means any and all direct or indirect demands, claims, payments, obligations, recoveries, deficiencies, fines, penalties, interest, assessments, actions, causes of action, suits, losses, liabilities, costs, expenses (including without limitation, (i) interest, penalties and reasonable attorneys' fees and expenses, (ii) reasonable attorneys' fees and expenses necessary to enforce rights to indemnification hereunder, and (iii) consultant's fees and other costs of defense or investigation), and interest on any amount payable to a third party as a result of the foregoing. "Deed" has the meaning set forth in Section 3.3(j) hereof. "Division" has the meaning set forth in the recitals hereof. "Employee Benefit Plans" has the meaning set forth in Section 4.11(a) hereof. "Employees" means all persons employed in the Business on the day immediately prior to the Closing Date, including any persons on disability, sick leave, layoff or leave of absence from the Business. "Environmental Costs and Liabilities" shall mean any Damages or Losses (including without limitation, fees, disbursements, fees and expenses of legal counsel, experts, 53 61 engineers or consultants and the costs of investigation and feasibility studies, remedial or removal actions, cleanup activities or other corrective action measures necessary to bring the facilities into compliance with Laws) arising from, under or pursuant to Environmental Laws or order or contract with any Governmental Authority or Person, including without limitation, any obligation to investigate, remediate or otherwise address Hazardous Substance. "Environmental Laws" means any applicable code, law, order, ordinance, regulation, rule or statute of any Governmental Authority relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions, discharges, releases or threatened releases of any Hazardous Substance, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Substance; but excluding any Laws relating to occupational health and safety. "Environmental Litigation" means any Proceeding against the Seller with respect to the Business or the Assets (including, without limitation, written notice or other written communication by any Person alleging potential liability for investigatory costs, cleanup costs, private or governmental response or remedial costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based upon, or resulting from any circumstances or state of facts forming the basis of any liability or alleged liability under, or violation or alleged violation of, any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Excess Lancaster Inventory" means Inventory at the Lancaster, Pennsylvania facility the carrying value of which is in excess of $2,051,472. "Excluded Assets" has the meaning set forth in Section 1.2 hereof. 54 62 "Excluded Liabilities" has the meaning set forth in Section 1.4 hereof. "FDA" has the meaning set forth in Section 4.18 hereof. "Final Net Assets Adjustment" has the meaning set forth in Section 2.2(d) hereof. "Financial Statements" has the meaning set forth in Section 4.6 hereof. "GAAP" means generally accepted accounting principles in the United States. "Governmental Authority" means any federal, state, county, local, foreign or other governmental or public agency, instrumentality, commission, authority, grand jury, official, board or body having jurisdiction over the Real Property or the operations conducted thereon. "Governmental Body" means any government or governmental or regulatory body thereof, or political subdivision thereof, whether federal, state, local or foreign, or any agency or instrumentality thereof, or any court or arbitrator (public or private). "Government Contracts" has the meaning set forth in Section 12.1 hereof. "Hazardous Substance" means (i) any hazardous substance, hazardous material, hazardous waste, regulated substance or toxic substance (as those terms are defined by any applicable Environmental Laws) and (ii) any chemicals, pollutants, or contaminants regulated under or pursuant to Environmental Law or (iii) petroleum, petroleum products, or oil. "HSR Act" has the meaning set forth in Section 4.5 hereof. "Indemnitee" has the meaning set forth in Section 13.6 hereof. "Indemnitor" has the meaning set forth in Section 13.6 hereof. 55 63 "Initial Balance Sheet" means the audited statement of net assets to be sold of the Business at December 31, 1995 and attached hereto as part of Schedule 4.6. "Intangible Assets" has the meaning set forth in Section 1.1(e) hereof. "Interest" has the meaning set forth in Section 6.4 hereof. "Inventory" has the meaning set forth in Section 1.1(b) hereof. "Known Environmental Condition" means any environmental condition related to or otherwise attributable to the soil and ground water contamination at the Location, as disclosed by the Seller in the environmental materials made available to the Purchasers during the diligence process, including, without limitation, the Site Investigation Work Plan, Site Investigation Report and the Work Plan for Soil Remediation prepared for Suffolk County Department of Health Services by Fanning, Phillips and Molnar, as well as any Phase I or Phase II investigation undertaken by or on behalf of the Purchasers. "Law" means any federal, state, local or foreign law (including common law), statute, code, ordinance, rule, regulation or other requirement or guideline. "Lease Assignment" has the meaning set forth in Section 3.3(k) hereof. "Leased Real Property" means all the Real Property leased by the Seller and used exclusively in the Business and set forth on Schedule 1.1(d). "Legal Proceeding" means any judicial, administrative or arbitral action, suit, proceeding (public or private), claim or governmental proceeding. "Liabilities" has the meaning set forth in Section 1.3(i) hereof. "Licensed Software" has the meaning set forth in Section 4.9(c) hereof. 56 64 "Lien" means any lien, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, or other real estate declaration, covenant, condition, restriction or servitude, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever. "Location" means the property described on Schedule 15.1(a) hereto. "Material Adverse Effect" means any material adverse effect on, or any effect that results in a material adverse change in, the Assets as a whole or the business, financial condition, results of operations or liabilities of the Business, as a whole. "Net Assets" has the meaning set forth in Section 2.2(b) hereof. "Order" means any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award. "Owned Real Property" means all the Real Property owned in fee or otherwise by the Seller and used principally by the Business and set forth on Schedule 1.1(d). "Owned Software" has the meaning set forth in Section 4.9(b) hereof. "Parent" has the meaning set forth in the recitals hereof. "Permit" means any written approval, authorization, consent, franchise, license, permit or certificate by any Governmental Body. "Permitted Exceptions" means (i) statutory Liens for current taxes, assessments or other governmental charges not yet delinquent or the amount or validity of which is being contested in good faith by appropriate proceedings; (ii) mechanics', carriers', workers', repairers' and similar Liens arising or incurred in the ordinary course of business that are not in the aggregate material to the Business or the Assets; (iii) zoning, entitlement and other land use and environmental regulations by Governmental Bodies, provided that such regulations have not been violated; (iv) such other imperfections in title, charges, easements, restric- 57 65 tions and encumbrances which are immaterial to the conduct of the Business; (vi) such exceptions described on Schedule 15.1(b) hereto; and (vii) such state of facts as would be shown on an accurate survey of each parcel of Real Property, provided that such state of facts do not materially restrict, inhibit or limit the present use of any such Real Property. "Person" means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization or Governmental Body. "Plan Employees" has the meaning set forth in Section 4.11(a) hereof. "Preliminary Net Assets Adjustment" has the meaning set forth in Section 2.2(b) hereof. "Proceedings" has the meaning set forth in Section 4.12 hereof. "Purchase Price" has the meaning set forth in Section 2.1 hereof. "Purchasers" has the meaning set forth in the recitals hereof. "Purchasers' Documents" has the meaning set forth in Section 5.2 hereof. "Purchasers' Representatives" has the meaning set forth in Section 6.2 hereof. "Real Property" has the meaning set forth in Section 1.1(d) hereof. "Seller" has the meaning set forth in the recitals hereof. "Seller Documents" has the meaning set forth in Section 4.2 hereof. "SMDA" has the meaning set forth in Section 4.18 hereof. "Smith Barney" has the meaning set forth in Section 4.16 hereof. 58 66 "Survival Period" has the meaning set forth in Section 13.5 hereof. "Taxes" or "Tax" means all taxes, fees, charges, or other amounts, however denominated, including any interest or penalties thereon or with respect thereto, imposed by any federal, state, local or foreign government or agency or political subdivision of any such government, including, without limitation, income, payroll, withholding, unemployment insurance, social security, sales and use, excise, franchise, gross receipts, real and personal property transfer and other similar taxes and obligations. "Tax Return" means any return, declaration, report, claim for refund, information return, statement or other similar document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Threshold Amount" has the meaning set forth in Section 13.4 hereof. "Transferred Employees" means all Employees who receive and accept offers of employment from the Purchasers on or after the Closing Date. "WARN Act" has the meaning set forth in Section 4.11(k) hereof. "W&P Assignment" has the meaning set forth in Section 3.3(l) hereof. "Welfare Plan" has the meaning set forth in Section 8.3(a) hereof. 15.2. Knowledge. As used in this Agreement, the terms "to the Seller's knowledge" and "to the knowledge of the Seller," or words to that effect, shall refer to matters of which any person on Schedule 15.2 has actual knowledge. 15.3. Prorations. The Purchasers and the Seller hereby agree as follows with regard to prorations applicable to the consummation of the transactions contemplated hereby. The parties agree that all operational expenses incurred directly in the operation of the Business, including, without limitation, utility bills, the expense of supplies, the expense of fuel, and the like, shall be 59 67 prorated between the parties as of the Closing Date, and as of such date shall become the obligation and responsibility of the Purchasers. Prorations which are to be effected on the Closing Date shall be made on the Closing Date or, if such prorations cannot reasonably be made as of the Closing Date, as soon thereafter as possible and "as of" the Closing Date. In addition, all pre- paid expenses shall be prorated between the parties as of the Closing Date. The Purchasers, as of the Closing Date, shall pay such amounts as may be required to replace all deposits held with the suppliers of utilities to the Business, and to assist the Seller as may be reasonably required in obtaining a return of such deposits put in place by the Seller as of the Closing Date. All personal and real property taxes and special and general assessments relating to the Assets shall be prorated by the parties as of the Closing Date, and all such taxes applicable to periods of time prior to the Closing Date shall be the sole obligation, responsibility and expense of the Seller, and shall be paid by the Seller. All such assessments and taxes applicable to periods following the Closing Date shall be the sole obligation, responsibility and expense of the Purchasers. 15.4. Waiver of Compliance with Bulk Transfer Laws. The Purchasers hereby waive compliance by the Seller with the provisions of the bulk transfer laws of any jurisdiction in connection with the transactions contemplated by this Agreement. 15.5. Entire Agreement. This Agreement (with its Schedules and Exhibits) contains, and is intended as, a complete statement of all of the terms and the arrangements between the parties hereto with respect to the matters provided for herein, and supersedes any and all previous agreements and understandings between the parties hereto with respect to those matters. 15.6. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York. 15.7. Transfer Taxes. The Seller shall pay (a) all transfer and documentary taxes and fees imposed with respect to instruments of conveyance in the transaction contemplated hereby and (b) all sales, use, gains, excise and other transfer or similar taxes on the transfer of the Assets contemplated hereunder. The Purchasers and the 60 68 Seller shall cooperate with one another in promptly making any filings in connection with any such taxes. The Purchasers shall pay all costs of any title insurance coverage or endorsements that the Purchasers elects to obtain. The Purchasers or the Seller, as the case may be, shall execute and deliver to the other at the Closing any certificates or other documents as the other may reasonably request to perfect any exemption from any such transfer, documentary, sales, gains, excise or use tax. 15.8. Expenses. Each of the parties hereto shall bear its own expenses (including, without limitation, fees and disbursements of its counsel, accountants and other experts), incurred by it in connection with the preparation, negotiation, execution, delivery and performance of this Agreement, each of the other documents and instruments executed in connection with or contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby. 15.9. Table of Contents and Headings. The table of contents and section headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement. 15.10. Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally or four days after being mailed by registered mail, return receipt requested, to a party at the following address (or to such other address as such party may have specified by notice given to the other party pursuant to this provision): If to the Seller, to: Lumex, Inc. 81 Spence Street Bay Shore, New York 11706 Telephone: (516) 273-2200 Facsimile: (516) 273-1706 Attention: Robert McNally 61 69 with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Telephone: (212) 310-8000 Facsimile: (212) 310-8007 Attention: Jeffrey J. Weinberg, Esq. If to the Purchasers, to: Fuqua Enterprises, Inc. One Atlantic Center Suite 5000 1201 West Peachtree Street Atlanta, Georgia 30309 Telephone: (404) 815-2000 Facsimile: (404) 815-4529 Attention: Brady W. Mullinax, Jr. with a copy to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Telephone: (404) 881-7000 Facsimile: (404) 881-7777 Attention: Bryan E. Davis, Esq. 15.11. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validly or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect. 15.12. Binding Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity not party to this Agreement. This Agreement shall not be assignable by any of the parties hereto without the written consent of the other parties hereto. Notwithstanding the foregoing, each of the Purchasers may, without the consent of the other parties hereto, assign and delegate its obligations and rights hereunder with respect to all of the Assets and Business or any part thereof to (i) any 62 70 affiliated company of either of the Purchasers, (ii) any successor of all or substantially all of either of the Purchasers' or Parent's business by way of merger, consolidation, liquidation, purchase of assets of the Purchasers or Parent or other form of acquisition or other form of reorganization, and (iii) any lender of the Purchasers or Parent as collateral, but no such assignment shall relieve the Purchasers or Parent of their obligations hereunder. 15.13. Amendments. This Agreement may be amended, supplemented or modified, and any provision hereof may be waived, only pursuant to a written instrument making specific reference to this Agreement signed by each of the parties hereto. 15.14. Guarantee. In order to induce the Seller to enter into this Agreement, Parent hereby guarantees the performance by the Purchasers of all of their obligations under this Agreement, including any obligation to pay damages incurred by the Seller as a consequence of breach of this Agreement by either of the Purchasers. 15.15. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 63 71 IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the date and year first above written. LUMEX, INC. By: /s/ J. Raymond Elliott ------------------------------ Name: J. Raymond Elliott Title: President & CEO MUL ACQUISITION CORP. I By: /s/ L. P. Klamon ------------------------------ Name: L. P. Klamon Title: President MUL ACQUISITION CORP. II By: /s/ L. P. Klamon ------------------------------ Name: L. P. Klamon Title: President FUQUA ENTERPRISES, INC. By: /s/ L. P. Klamon ------------------------------ Name: L. P. Klamon Title: President & CEO 64 EX-4.(B) 3 TERM LOAN AGREEMENT 1 EXHIBIT 4(b) EXECUTION COUNTERPART TERM LOAN AGREEMENT Dated as of January 18, 1996 By and Among BASIC AMERICAN MEDICAL PRODUCTS, INC., as Borrower, FUQUA ENTERPRISES, INC., as Guarantor, AND SUNTRUST BANK, ATLANTA, as Lender 2 TERM LOAN AGREEMENT THIS TERM LOAN AGREEMENT, dated as of January 18, 1996 (the "Agreement"), by and among BASIC AMERICAN MEDICAL PRODUCTS, INC., a corporation organized and existing under the laws of the State of Georgia (the "Borrower"), SUNTRUST BANK, ATLANTA a banking corporation organized and existing under the laws of the State of Georgia (the "Lender") and, solely for the limited purposes of making the representations and warranties set forth in Article IV and agreeing to be bound by the covenants set forth in Article V below, FUQUA ENTERPRISES, INC., a corporation organized and existing under the laws of the State of Delaware (the "Guarantor"). W I T N E S S E T H: WHEREAS, subject to and upon the terms and conditions herein set forth, the Lender is willing to make available to the Borrower the credit facility provided for herein; NOW THEREFORE, for and in consideration of the sum of $10.00 in hand paid by the Lender to the Borrower and the Guarantor, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS SECTION 1.01 Definitions. In addition to the other terms defined herein and the terms incorporated herein by reference, the following terms used herein shall have the meanings herein specified (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adjusted LIBO Rate" shall mean, with respect to each Interest Period for a Eurodollar Borrowing, the rate obtained by dividing (A) LIBOR for such Interest Period by (B) a percentage equal to 1 minus the then stated maximum rate (stated as a decimal) of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves) applicable to Lender (or assignee thereof) which is a member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or against 3 any successor category of liabilities as defined in Regulation D). As of the date of this Agreement, such stated maximum rate is 0. "Agreement" shall mean this Term Loan Agreement, either as originally executed or as it may be from time to time supplemented, amended, renewed or extended. "Bankruptcy Code" shall mean The Bankruptcy Code of 1978, as amended and in effect from time to time (11 U.S.C. Section 101 et seq.). "Base Rate" shall mean (with any change in the Base Rate to be effective as of the date of change of either of the following rates) the higher of (i) the rate which the Lender publicly announces from time to time as its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%) per annum. The Lender's prime lending rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to customers; the Lender may make commercial loans or other loans at rates of interest at, above or below the Lender's prime lending rate. "Base Rate Borrowing" shall mean the Term Loan when it is bearing interest at the Base Rate. "Borrower" shall mean Basic American Medical Products, Inc., a Georgia corporation, a wholly-owned subsidiary of Fuqua Enterprises, Inc., a Delaware corporation, its successors and permitted assigns. "Business Day" shall mean any day excluding Saturday, Sunday and any other day on which banks are required or authorized to close in Atlanta, Georgia and, if the applicable Business Day relates to Eurodollar Borrowings, any day on which trading is not carried on by and between banks in deposits of the applicable currency in the applicable interbank Eurocurrency market. "Closing Date" shall mean January 18, 1996, or such later date on which the Term Loan is advanced hereunder. "Deed to Secure Debt" shall mean that certain Deed to Secure Debt, Security Agreement and Assignment of Rents and Leases, dated as of even date herewith, made by the Borrower in favor of the Lender to secure the Term Loan and all other obligations arising pursuant to the Loan Documents, either as originally executed or as hereafter amended or modified. -2- 4 "Environmental Indemnity Agreement" shall mean that certain Environmental Indemnity Agreement, dated as of even date herewith, made by the Borrower in favor of Lender, either as originally executed or as hereafter amended, modified or supplemented. "Eurodollar Borrowing" shall mean the Term Loan when it is bearing interest at the Adjusted LIBO Rate. "Event of Default" shall have the meaning set forth in Article VI. "Federal Funds Rate" shall mean for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of Atlanta, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Lender from three Federal funds brokers of recognized standing selected by the Lender. "Fuqua Credit Agreement" shall mean that certain Credit Agreement, dated as of November 6, 1995, among the Guarantor, SunTrust Bank, Atlanta, as Agent, and the lenders named therein or from time to time party thereto, either as originally executed or as hereafter amended, modified or supplemented. "Guarantor" shall mean Fuqua Enterprises, Inc., a Delaware corporation. "Guaranty" shall mean that certain Guaranty Agreement, dated as of even date herewith, made by the Guarantor in favor of the Lender substantially in the form of Exhibit "B" attached hereto, either as originally executed or as hereafter amended, modified or supplemented. "Interest Period" shall mean, with respect to any Eurodollar Borrowing, a period of one month; provided, that (i) the first day of an Interest Period must be a Business Day, and (ii) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day, unless such Business Day falls in the next calendar month, in which case the Interest Period shall end on the next preceding Business Day, and (iii) the last day of each Interest Period shall be the first day of the next succeeding Interest Period. -3- 5 "LIBOR" shall mean, for any Interest Period, with respect to any Eurodollar Borrowing, the offered rate for deposits in U.S. Dollars, for a period comparable to the Interest Period and in an amount comparable to the Term Loan appearing on the Reuters Screen LIBO Page as of 11:00 A.M. (London, England time) on the day that is two London Business Days prior to the first day of the Interest Period. If two or more of such rates appear on the Reuters Screen LIBO Page, the rate for that Interest Period shall be the arithmetic mean of such rates. If the foregoing rate is unavailable from the Reuters Screen for any reason, then such rate shall be determined by the Lender from Telerate Page 3750 or, if such rate is also unavailable on such service, then on any other interest rate reporting service of recognized standing designated in writing by the Lender to Borrower; in any such case rounded, if necessary, to the next higher 1/16 of 1.0%, if the rate is not such a multiple. "Loan Documents" shall mean and include, as the context requires, this Agreement, the Note, the Guaranty, the Deed to Secure Debt, the Environmental Indemnification Agreement and any and all other instruments, certificates, agreements, documents and writings contemplated hereby or executed in connection herewith. "Maturity Date" shall have the meaning set forth in Section 2.01. "Obligations" shall mean all amounts owing to the Lender pursuant to the terms of this Agreement or any other Loan Document, including, without limitation, the Term Loan (including all principal and interest payments due thereunder), all obligations pursuant to fees, expenses, indemnification and reimbursement payments, indebtedness, liabilities, and obligations of the Borrower or the Guarantor, direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising, together with all renewals, extensions, modifications or refinancings thereof. "Person" shall mean any individual, partnership, firm, corporation, association, joint venture, trust or other entity, or any government or political subdivision or agency, department or instrumentality thereof. "Property" shall mean the real property located in Gwinnett County, Georgia and DeKalb County, Georgia, as more particularly described on Exhibit A to the Deed to Secure Debt. "Reserve Percentage" shall mean, for any day, the stated maximum rate (expressed as a decimal) of all reserves required to be maintained with respect to liabilities or assets consisting of or including "Eurocurrency liabilities," as prescribed by -4- 6 Regulation D of the Board of Governors of the Federal Reserve System (or by any other governmental body having jurisdiction with respect thereto), including, without limitation, any basic, marginal, emergency, supplemental, special, transitional or other reserves, the rate so determined to be rounded upward to the nearest whole multiple of 1/100 of 1%. "Telerate" shall mean, when used in connection with any designated page and LIBOR, the display page so designated on the Dow Jones Telerate Service (or such other page as may replace that page on that service for the purpose of displaying rates comparable to LIBOR). "Term Note" or "Note" shall mean a promissory note of the Borrower payable to the order of the Lender, in substantially the form of Exhibit "A" hereto, in an original principal amount of $1,763,850, evidencing the Term Loan, either as originally executed or as it may be from time to time supplemented, modified, amended, renewed or extended. ARTICLE II AMOUNT AND TERMS OF TERM LOAN SECTION 2.01. Term Loan and Note. The Lender hereby agrees to lend, and Borrower hereby agrees to borrow on the Closing Date, upon the terms and conditions set forth in this Agreement, the sum of $1,763,850.00 (the "Term Loan" or "Loan") to be evidenced by the Term Note. The Term Note shall bear interest on the outstanding principal balance from the date of the Term Note to final payment at the rate set forth below and shall mature on January 18, 2001 (the "Maturity Date"), or sooner should the Lender declare the principal and accrued interest on such Term Note to be immediately due and payable as provided for hereinafter. Principal on the Term Note shall be payable in fifty-nine (59) monthly installments of $9,944.44, payable on the last day of each calendar month, commencing on February 29, 1996 and continuing through December 31, 2000, with a final payment in the amount of $1,177,128.04 on the Maturity Date, when the entire unpaid principal balance on the Term Note, together with all accrued and unpaid interest, shall be due and payable in full. SECTION 2.02. Interest on Term Note. (a) Except as otherwise provided herein, interest shall accrue on the unpaid principal amount of the Term Note at LIBOR for consecutive Interest Periods of 1 month, plus an additional fifty-five one-hundredths of one percent (0.55%) per annum. -5- 7 (b) If the Borrower shall fail to pay on the due date therefor, whether by acceleration or otherwise, any principal owing under the Note, then interest shall accrue on such unpaid principal, and to the extent permitted by law, unpaid interest, from the due date until and including the date on which such amount is paid in full at a rate of interest per annum equal to the sum of two percent (2%) per annum plus the higher of (i) the interest rate otherwise applicable to the Term Loan and (ii) the Base Rate (the "Default Rate"). SECTION 2.03. Calculation of Interest. Interest payable hereunder shall be calculated on the basis of the actual days elapsed in a 360 day year. SECTION 2.04. Use of Proceeds. The proceeds of the Term Loan will be used by the Borrower solely to repay in full all existing debt secured by the Property as described on Schedule 2.04 attached hereto (the "Refinanced Indebtedness"). SECTION 2.05. Interest Rate Not Ascertainable etc. In the event that the Lender shall have determined (which determination shall be made in good faith and, absent manifest error, shall be final, conclusive and binding upon all parties) that on any date for determining the Adjusted LIBO Rate for any Interest Period, by reason of any changes arising after the date of this Agreement affecting the London interbank market, or the Lender's position in such market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Adjusted LIBO Rate, then, and in any such event, the Lender shall forthwith give notice (by telephone confirmed in writing) to Borrower of such determination and a summary of the basis for such determination. Until the Lender notifies Borrower that the circumstances giving rise to the suspension described herein no longer exist (which notice Lender agrees to give to the Borrower upon Lender obtaining knowledge that such circumstances have ceased to exist), the obligations of the Lender to make or permit the Term Loan to remain outstanding past the last day of the then current Interest Period as a LIBOR Borrowing shall be suspended, and the Term Loan shall bear interest at the Base Rate. SECTION 2.06. Illegality. (a) In the event that Lender shall have determined (which determination shall be made in good faith and, absent manifest error, shall be final, conclusive and binding upon all parties) at any time that the making or continuance of any Eurodollar Borrowing has become unlawful by compliance by Lender in good faith with any applicable law, governmental rule, regulation, guideline or order (whether or not having the force of -6- 8 law and whether or not failure to comply therewith would be unlawful), then, in any such event, the Lender shall give prompt notice (by telephone confirmed in writing) to Borrower of such determination and a summary of the basis for such determination. (b) Upon the giving of the notice to Borrower referred to in subsection (a) above, Lender's obligation to make Eurodollar Borrowings shall be immediately suspended, and the Term Loan shall be converted to a Base Rate Borrowing. SECTION 2.07. Increased Costs. If, after the date hereof, by reason of (x) the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation, or (y) the compliance with any guideline or request from any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law): (i) Lender shall be subject to any tax, duty or other charge with respect to the Eurodollar Borrowings, or its obligation to make Eurodollar Borrowings, or the basis of taxation of payments to Lender of the principal of or interest on Eurodollar Borrowings or its obligation to make Eurodollar Borrowings shall have changed (except for changes in the tax on the overall net income of Lender, or franchise taxes applicable thereto, in each case, as imposed by the jurisdiction in which Lender's principal executive office is located); or (ii) any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or requirement similar against assets of, deposits with or for the account of, or credit extended by, Lender's applicable lending office shall be imposed or deemed applicable or any other condition affecting Eurodollar Borrowings or its obligation to make Eurodollar Borrowings shall be imposed on Lender or its applicable lending office or the London interbank market; and as a result thereof there shall be any increase in the cost to Lender of agreeing to make or making, funding or maintaining Eurodollar Borrowings (except to the extent already included in the determination of the applicable Adjusted LIBO Rate for Eurodollar Borrowings) or its obligation to make Eurodollar Borrowings or there shall be a reduction in the amount received or receivable by Lender or its applicable lending office, then -7- 9 Borrower shall from time to time, upon written notice from and demand by Lender on Borrower, pay to the Lender for the account of Lender within five Business Days after the date of such notice and demand, additional amounts sufficient to indemnify Lender against such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower by Lender in good faith and accompanied by a statement prepared by the such Lender describing in reasonable detail the basis for and calculation of such increased cost, shall constitute prima facie evidence of the matters contained therein. This Section 2.07 shall survive the termination of this Agreement and the repayment of the Term Loan provided that, in the event that the Lender fails to make written demand for indemnification or compensation pursuant to this Section 2.07 hereof within one year after the date that the Lender receives actual notice or obtains actual knowledge of the promulgation of a law, rule, order or interpretation or occurrence of another event giving rise to a claim pursuant to this Section, the Borrower shall not have any obligation to pay any amount with respect to claims accruing prior to the date which is one year preceding such written demand. SECTION 2.08. Capital Adequacy. Without limiting any other provision of this Agreement, in the event that the Lender shall have determined that any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy not currently in effect or fully applicable as of the Closing Date, or any change therein or in the interpretation or application thereof after the Closing Date, or compliance by the Lender with any request or directive regarding capital adequacy not currently in effect or fully applicable as of the Closing Date (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) from a central bank or governmental authority or body having jurisdiction, does or shall have the effect of reducing the rate of return on the Lender's capital as a consequence of its obligations hereunder to a level below that which the Lender could have achieved but for such law, treaty, rule, regulation, guideline or order, or such change or compliance (taking into consideration the Lender's policies with respect to capital adequacy) by an amount deemed by the Lender to be material, then within ten (10) Business Days after written notice and demand by the Lender), Borrower shall from time to time pay to the Lender additional amounts sufficient to compensate the Lender for such reduction (but, in the case of outstanding Base Rate Borrowings, without duplication of any amounts already recovered by the Lender by reason of an adjustment in the applicable Base Rate). Each certificate as to the amount payable under this Section 2.08 (which certificate shall set forth the basis for requesting such amounts in reasonable detail), submitted to Borrower by the Lender in good faith, shall constitute prima facie evidence of the -8- 10 matters contained therein. This Section 2.08 shall survive the termination of this Agreement and the repayment of the Term Loan provided that, in the event that the Lender fails to make written demand for indemnification or compensation pursuant to this Section 2.08 hereof within one year after the date that the Lender receives actual notice or obtains actual knowledge of the promulgation of a law, rule, order or interpretation or occurrence of another event giving rise to a claim pursuant to this Section, the Borrower shall not have any obligation to pay any amount with respect to claims accruing prior to the date which is one year preceding such written demand. SECTION 2.09. Prepayment. The Borrower may prepay the Term Loan at any time in whole or in part, together with all accrued and unpaid interest thereof; provided that, the Borrower shall give the Lender two days' notice of any prepayment and such prepayment shall be made on the last day of an Interest Period. Any partial prepayment of the Term Loan shall be in a minimum amount of $100,000.00 and in integral multiples thereof and shall be applied to installments of principal in inverse order of their maturity. SECTION 2.10. Making of Payments. All payments of principal of, or interest on, the Note and all other amounts due hereunder shall be made in immediately available funds to the Lender at its principal office in Atlanta, Georgia. ARTICLE III CONDITIONS TO TERM LOAN The obligation of the Lender to advance the Term Loan to the Borrower is subject to the satisfaction of the condition that the Lender shall have received the following, each dated as of the Closing Date, in form and substance satisfactory to the Lender: (a) The duly completed Note; (b) The duly completed counterpart of this Agreement; (c) The duly executed Guaranty; (d) The duly executed Environmental Indemnification Agreement; (e) The duly executed closing certificate of Borrower and Guarantor in substantially the form of Exhibit "C" attached hereto and appropriately completed; -9- 11 (f) the duly executed Deed to Secure Debt and accompanying UCC-l fixture filing and UCC-2 Notice Filing; (g) title commitments with respect to the Property subject to the Deed to Secure Debt in an amount and in a form reasonably satisfactory to the Lender; (h) as-built surveys of the Property subject to the Deed to Secure Debt certified to the Lender; (i) Phase I environmental reports with respect to the Property subject to the Deed to Secure Debt disclosing only such matters as may be reasonably acceptable to the Lender, and if necessary, additional Phase II environmental reports; (j) certificates of the Secretary or Assistant Secretary of the Borrower and the Guarantor, respectively, attaching and certifying copies of the resolutions of the boards of directors approving the transactions contemplated herein; (k) certificates of the Secretary or an Assistant Secretary of the Borrower and the Guarantor, respectively, certifying (i) the name, title and true signature of each officer of such entities executing the Loan Documents, and (ii) the bylaws of the Borrower and the Guarantor, respectively; (l) certified copies of the certificate or articles of incorporation of the Borrower and the Guarantor, respectively, certified by the Secretary of State or the Secretary or Assistant Secretary of the Borrower and the Guarantor, respectively, together with certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of incorporation or organization of the Borrower and the Guarantor, respectively; (m) agreement by the lenders of the Refinanced Indebtedness to accept payment in full of all obligations outstanding under the Refinanced Indebtedness and termination of all credit facilities relating thereto and to release all liens securing such obligations; (n) the favorable opinion of Alston & Bird, counsel to the Borrower and the Guarantor, substantially in the form of Exhibit "D" addressed to the Lender; (o) Payment of the amount of intangible recording tax due upon recordation of the Deed to Secure Debt; -10- 12 (p) Evidence satisfactory to the Lender that the Guarantor has acquired 100% of the outstanding stock of the Borrower; and In addition to the foregoing, the following conditions shall have been satisfied or shall exist, all to the satisfaction of the Lender, as of the time the Term Loan is made hereunder: (x) the Term Loan to be made on the Closing Date and the use of proceeds thereof shall not contravene, violate or conflict with, or involve the Lender in a violation of, any law, rule, injunction, or regulation, or determination of any court of law or other governmental authority; (y) all corporate proceedings and all other legal matters in connection with the authorization, legality, validity and enforceability of the Loan Documents shall be reasonably satisfactory in form and substance to the Lender; and (z) At the time of the making of the Term Loan, all representations and warranties of the Guarantor and the Borrower set forth herein shall be true and correct, and after giving effect to the Term Loan, there shall exist no Default or Event of Default hereunder. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Guarantor, on behalf of itself and its Subsidiaries and the Borrower, each hereby represent and warrant to the Lender as of the Closing Date that all representations and warranties set forth in Article V of the Fuqua Credit Agreement, which representations and warranties are, for the benefit of the Lender, incorporated by reference herein (including the definition of terms used therein which appear in the other provisions of the Fuqua Credit Agreement), irrespective of any termination, modification or amendment or consent or waiver to such representations and warranties or termination of the Fuqua Credit Agreement are true and correct as if made on such date; provided that (i) all references to "each Lender", the "Lenders", the "Required Lenders" or "Agent" shall be deemed to mean the Lender; (ii) all references to "this Agreement" and any "Note" shall be deemed to mean this Agreement and the Note rather than the Fuqua Credit Agreement and any note delivered pursuant thereto; (iii) the words "hereunder" and "hereby" and the like shall be deemed to -11- 13 refer to this Agreement rather than the Fuqua Credit Agreement; (iv) all references to Closing Date shall mean the Closing Date as defined herein; and (v) the definition of "Refinanced Indebtedness" and the schedule related thereto shall be deemed to have the meaning set forth herein. ARTICLE V COVENANTS SECTION 5.01. Incorporation By Reference of the Fuqua Credit Agreement. The Guarantor and the Borrower hereby covenant and agree that so long as any Obligations remain unpaid, each will comply with each of the covenants set forth in Articles VI and VII of the Fuqua Credit Agreement (which for the purposes hereof the Borrower shall be deemed to be a party thereto), which covenants are, for the benefit of the Lender, incorporated by reference herein (including the definitions of the terms used therein which appear in other provisions of the Fuqua Credit Agreement), irrespective of any termination, modification, amendment or consent or waiver relating to such covenants or termination of the Fuqua Credit Agreement; provided that, (i) any reference to any "Lender" or the "Agent" or the "Required Lenders" shall be deemed to mean the Lender, (ii) all references to "Borrower" shall be deemed to mean the Guarantor and the Borrower, as the case may be, and all references to the "Credit Parties" shall be deemed to refer to the Guarantor and the Borrower collectively, (iii) the terms "Default" and "Event of Default" shall be deemed to have the meanings given such terms herein, (iv) all reference to this "Agreement", any "Note", any "Loan", any "Borrowing" or the "Credit Documents" shall be deemed to mean this Agreement and the Note, the Term Loan and the Loan Documents as defined herein. SECTION 5.02. Effect of Amendment of Fuqua Credit Agreement. Notwithstanding the foregoing Section 5.01, any modification, amendment or consent or waiver relating to the covenants or other provisions incorporated herein from the Fuqua Credit Agreement entered into while the Lender is a party to the Fuqua Credit Agreement shall be automatically incorporated into or honored for purposes of this Agreement with the same force and effect. SECTION 5.03 Termination or Withdrawal of Lender from Fuqua Credit Agreement. In the event that indebtedness outstanding pursuant to the Fuqua Credit Agreement is paid in full or the Fuqua Credit Agreement is otherwise terminated or the Lender is no longer a party thereto, the Borrower, the Lender and Guarantor agree to negotiate in good faith replacement covenants for this Agreement. Until such time as appropriate amendments or -12- 14 modifications to this Agreement are executed by the parties, however, the provisions of Section 5.01 shall remain in full force and effect. SECTION 5.04 Covenants of Guarantor. Although the Guarantor is not a borrower under this Agreement, as an inducement for the Lender to extend the Term Loan to the Borrower, the Guarantor hereby covenants and agrees with the Lender to comply with the covenants described above on the terms and conditions described above. The Guarantor acknowledges that the Lender has materially relied on and will continue to materially rely on the representations and warranties of Guarantor incorporated by reference in Article IV of this Agreement and on the covenants of Guarantor set forth in Article V of this Agreement in extending the Commitment to the Borrower. ARTICLE VI EVENTS OF DEFAULT AND REMEDIES SECTION 6.01. Events of Default. Any one or more of the following shall constitute an Event of Default hereunder: (a) the Borrower shall default in the payment of any part of the principal of the Note when the same shall become due and payable or shall default in the payment of any installment of interest on the Note or any other amount payable hereunder; or (b) any representation or warranty made by the Borrower or the Guarantor in this Agreement, any other Loan Document, or in any report, certificate or other instrument furnished in connection with this Agreement or the Note or any other Loan Document shall prove to have been false in any material respect on the date made or deemed to have been made; or (c) the Borrower or the Guarantor shall default in the performance of any of the covenants contained in this Agreement or any other Loan Document beyond any period of grace provided herein or therein; or (d) the Borrower shall default in the performance of any other covenants herein (including covenants incorporated herein) and such default shall not have been remedied within 30 days after written notice thereof shall have been given to the Borrower by the Lender; or -13- 15 (e) the Borrower or the Guarantor shall commence a voluntary case concerning itself under the Bankruptcy Code or applicable foreign bankruptcy laws; or an involuntary case for bankruptcy is commenced against the Borrower or the Guarantor and the petition is not controverted within 20 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) or similar official under applicable foreign bankruptcy laws is appointed for, or takes charge of, all or any substantial part of the property of the Borrower or the Guarantor; or the Borrower or the Guarantor commences proceedings of its own bankruptcy or to be granted a suspension of payments or any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction, whether now or hereafter in effect, relating to the Borrower or the Guarantor or there is commenced against the Borrower or the Guarantor any such proceeding which remains undismissed for a period of 60 days; or the Borrower or the Guarantor is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or the Guarantor suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Borrower or the Guarantor makes a general assignment for the benefit of creditors; or the Borrower or the Guarantor shall fail to pay, or shall state in writing that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Borrower or the Guarantor shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts; or the Borrower or the Guarantor shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate action is taken by the Borrower or the Guarantor for the purpose of effecting any of the foregoing; or (f) Borrower or the Guarantor shall have concealed, removed, or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or shall have suffered or permitted, while insolvent, any creditor to obtain a Lien upon any of its property through legal proceedings or -14- 16 distraint which is not vacated within thirty days from the date thereof; or (g) there shall occur an "Event of Default" as such term is defined in the Fuqua Credit Agreement, including without limitation, the events of default set forth in Sections 8.05 through 8.12 of Article VIII of the Fuqua Credit Agreement, which paragraphs are for the benefit of the Lender, incorporated by reference herein (including the definitions of the terms used therein which appear in other provisions of the Fuqua Credit Agreement); irrespective of any termination, modification or amendment or consent or waiver relating to such events of default or the termination of the Fuqua Credit Agreement; and provided that (i) all references to the "Notes" shall be deemed to mean the Note rather than any note delivered pursuant to the Fuqua Credit Agreement, (ii) all references to the "Agent" or the "Lenders" shall be deemed to mean the Lender, and (iii) all references to the "Borrower" shall be deemed to refer to the Guarantor; or (h) the Guarantor shall cease to own and control 100% of the outstanding stock of the Borrower; or (i) the Lender shall cease, for any reason, to have a first priority lien on, and security title to, the Property pursuant to the Deed to Secure Debt; or (j) the Guaranty shall cease to be in full force and effect for any reason or the Guarantor shall cease to terminate, deny or disaffirm its liability thereunder. SECTION 6.02. Remedies on Default. Upon the occurrence and during the continuation of an Event of Default (other than an Event of Default described in Section 6.01(e) when the termination and acceleration described below shall be automatic), the Lender shall (i) terminate all obligations of the Lender to the Borrower, including, without limitation, all obligations to advance the Term Loan under this Agreement, (ii) declare the Note, including, without limitation, principal, accrued interest and costs of collection (including, without limitation, reasonable attorneys' fees if collected by or through an attorney at law or in bankruptcy, receivership or other judicial proceedings) immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are expressly waived. Upon the occurrence of an Event of Default and acceleration of the Note as provided in (a) or (b) above, the Lender may pursue any remedy available under this Agreement, under the Note, or under any other Loan Document, or available at law or in equity, all of which shall be cumulative. -15- 17 The order and manner in which the rights and remedies of the Lender under the Loan Documents and otherwise may be exercised shall be determined by the Lender. All payments with respect to this Agreement received by the Lender after the occurrence of an Event of Default and acceleration of the Note shall be applied first, to the costs and expenses actually incurred by the Lender, second, to the payment of accrued and unpaid fees of the Lender, third, to the payment of accrued and unpaid interest on the Note, to and including the date of such application, fourth, to the unpaid principal of the Note, and fifth, to the payment of all other amounts then owing to the Lender under the Loan Documents. No application of the payments will cure any Event of Default or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents or prevent the exercise, or continued exercise, of rights or remedies of the Lender hereunder or under applicable law. ARTICLE VII MISCELLANEOUS SECTION 7.01. No Waiver. No delay or failure on the part of the Lender or any holder of the Note in the exercise of any right, power or privilege granted under this Agreement, under any other Loan Document, or available at law or in equity, shall impair any such right, power or privilege or be construed as a waiver of any Event of Default or any acquiescence therein. No single or partial exercise of any such right, power or privilege shall preclude the further exercise of such right, power or privilege. No waiver shall be valid against the Lender unless made in writing and signed by the Lender, and then only to the extent expressly specified therein. SECTION 7.02. Notices. Unless otherwise provided herein, all notices, requests and other communications provided for hereunder shall be in writing and shall be given at the address set forth for each party on the signature pages hereto. SECTION 7.03. Governinq Law. This Agreement and all other Loan Documents shall be governed by and interpreted in accordance with the laws of the State of Georgia. SECTION 7.04. Successors and Assigns. This Agreement shall bind and inure to the benefit of the Borrower and the Lender, and their respective successors and assigns; provided, however, neither the Borrower nor the Lender shall have no right to assign its rights or obligations hereunder to any Person. Notwithstanding anything in this Agreement to the contrary, the Lender shall have the right, but shall not be obligated, to sell -16- 18 participations in the loans made pursuant hereto to affiliates of the Lender, other banks, financial institutions and investors with notice to, and the consent of the Borrower; provided that no notice to, nor consent of, the Borrower shall be required for sales of participations to Affiliates of the Lender; provided, however, that any participant shall have no rights hereunder. SECTION 7.05. Amendments; Consents. No amendment, modification, supplement, termination, or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any Subsidiary therefrom, may in any event be effective unless in writing signed by the Lender, and then only in the specific instance and for the specific purpose given. SECTION 7.06. Rights Cumulative. All rights, powers and privileges granted hereunder shall be cumulative to and shall not be exclusive of any other rights, powers and privileges granted by any other Loan Document or available at law or in equity. SECTION 7.07. Set-Off. Upon the occurrence and during the continuation of an Event of Default, Borrower authorizes Lender, without notice or demand, to apply any indebtedness due or to become due to Borrower from Lender in satisfaction of any of the indebtedness, liabilities or obligations of Borrower under this Agreement, under any other Loan Document or under any other note, instrument, agreement, document or writing of Borrower held by or executed in favor of Lender including, without limitation, the right to set-off against any deposits or other cash collateral of Borrower held by Lender. SECTION 7.08. Indemnity. Borrower agrees to protect, indemnify and save harmless Lender, and all directors, officers, employees and agents of Lender, from and against any and all (i) claims, demands and causes of action of any nature whatsoever brought by any Person not a party to this and arising from or related or incident to this Agreement or any other Loan Document, (ii) costs and expenses incident to the defense of such claims, demands and causes of action, including, without limitation, attorneys' fees, and (iii) liabilities, judgments, settlements, penalties and assessments arising from such claims, demands and causes of action. The indemnity contained in this section shall survive the termination of this Agreement. SECTION 7.09. Usury. It is the intent of the parties hereto not to violate any federal or state law, rule or regulation pertaining either to usury or to the contracting for or charging or collecting of interest, and Borrower and Lender agree that, should any provision of this Agreement or of the Note, or any act -17- 19 performed hereunder or thereunder, violate any such law, rule or regulation, then the excess of interest contracted for or charged or collected over the maximum lawful rate of interest shall be applied to the outstanding principal indebtedness due to Lender by Borrower under this Agreement. SECTION 7.10. Jurisdiction and Venue. Borrower agrees, without power of revocation, that any civil suit or action brought against it as a result of any of its obligations under this Agreement or under any other Loan Document may be brought against it either in the Superior Court of Fulton County, Georgia, or in the United States District Court for the Northern District of Georgia, Atlanta Division, and Borrower hereby irrevocably submits to the jurisdiction of such courts and irrevocably waives, to the fullest extent permitted by law, any objections that it may now or hereafter have to the laying of the venue of such civil suit or action and any claim that such civil suit or action has been brought in an inconvenient forum, and Borrower agrees that final judgment in any such civil suit or action shall be conclusive and binding upon it and shall be enforceable against it by suit upon such judgment in any court of competent jurisdiction. SECTION 7.11. Holidays. In any case where the date for any action required to be performed under this Agreement or under any other Loan Document shall be, in the city where the performance is to be made, not a Business Day, then such performance may be made on the next succeeding Business Day. SECTION 7.12. Entire Agreement. This Agreement and the other Loan Documents executed and delivered contemporaneously herewith, together with the exhibits and schedules attached hereto and thereto, constitute the entire understanding of the parties with respect to the subject matter hereof, and any other prior or contemporaneous agreements, whether written or oral, with respect thereto including, without limitation, any loan commitment from the Lender to the Borrower, are expressly superseded hereby. -18- 20 WITNESS the hand of the parties hereto through their duly authorized officers, under seal as of the date first above written. BORROWER: BASIC AMERICAN PRODUCTS, INC. By: JOHN J. HUNTZ, Jr. ---------------------- JOHN HUNTZ, Jr. (Vice President) Attest: Mildred Hutcheson ------------------ Mildred H. Hutcheson Secretary [Corporate Seal] Address: 2935 Bankers Industrial Drive Atlanta, Georgia 30360 Attention: Marc J. Minotto LENDER: SUNTRUST BANK, ATLANTA By: Willem-Jan O. Hattink ---------------------------- Title: Group Vice President By: Sheila A. Corcoran ---------------------------- Title: Banking Officer Address: P. O. Box 4418 Atlanta, Georgia 30302 Attention: Sheila Corcoran -19- 21 ACCEPTED AND AGREED FOR THE LIMITED PURPOSES SET FORTH ABOVE: FUQUA ENTERPRISES, INC. By: /s/ John J. Huntz, Jr. ------------------------------ John J. Huntz Jr. Executive Vice President and Chief Operating Officer Address: One Atlantic Center Suite 5000 1201 W. Peachtree Street Atlanta, Georgia 30309-3424 Attention: John J. Huntz, Jr. EX-10.(R) 4 LETTER AGREEMENT 1 First Union National Bank of Georgia 4570 Ashford Dunwoody Road Atlanta Georgia 30346 404 865-2561 Fax 404 865-2388 EXHIBIT 10 (r) LETTER AGREEMENT December 8, 1995 Fuqua Enterprises, Inc. One Atlantic Center 1201 West Peachtree Street, N.W. Suite 5000 Atlanta, GA 3009 Attention: Mr. Brady W. Mullinax, Jr. Vice President-Finance Treasurer and Chief Financial Officer Dear Brad: First Union National Bank of Georgia (the "Issuer") has agreed to issue the letter of credit described below for the account of Fuqua Enterprises, Inc., a Delaware corporation (the "Applicant"), pursuant to the terms and conditions of that certain Application and Agreement for Standby Letter of Credit dated as of even date herewith (the "Application"), as supplemented by the terms and conditions of this letter agreement (this "Letter Agreement"). By your execution below, you acknowledge that the Issuer is issuing the letter of credit described below in express reliance on the terms hereof which are in addition to, and not in lieu of the terms of the Application. The terms of the letter of credit are as follows: Facility: Irrevocable Standby Letter of Credit, issued in the form attached as Exhibit "A" (the "Letter of Credit"); Amount: $11,803,914.56 (Eleven million, eight hundred and three thousand, nine hundred and fourteen dollars and 56/100); Issuer: First Union National Bank of Georgia; Applicant: Fuqua Enterprises, lnc. Term: The letter of credit will expire at the counters of First Union National Bank of Georgia, Two First Union Center, T-7, 301 South Tryon Street, Charlotte, NC 28288 on January 1, 1997; Participation: A risk participation in the letter of credit may be made to SunTrust Bank, Atlanta, Wachovia Bank of Georgia, N.A., and Fleet Bank of Maine at the Applicant's request (prior to or simultaneous with issuance), in an aggregate amount not to exceed $6 million; 2 L/C Fee: The letter of credit fee shall be 0.5% per annum, payable in advance upon issuance, for the entire term of the letter of credit, calculated upon an actual/actual day count. In the event risk participations are made as contemplated above, the participating banks (and the Issuer, on its participating portion) shall receive 0.45% on the face amount of the participation, calculated as above, and the Issuer shall receive 0.05% on the amount of the letter of credit. Reimbursement Obligation: The reimbursement obligation of the Applicant shall be governed by the Application. Documentation: As a condition precedent to Issuer's obligation to issue the Letter of Credit, the Applicant shall deliver the following documents prior to such issuance, duly executed by the parties thereto: The Application (Section 7, Security Agreement to be deleted). Participation Agreement(s) in a form satisfactory to the Applicant, the Issuer and the participating banks (Form attached as Exhibit "B"). Opinion of Applicant's counsel that Applicant has the right, power, and authority to enter into this transaction and perform all obligations hereunder, that Applicant is duly authorized, and the documents executed by Applicant as a part of this transaction are valid, binding, and legally enforceable in accordance with their respective terms. This Letter Agreement executed by Applicant. Financial Covenants: As long as the Letter of Credit shall remain outstanding or the Applicant shall have any obligation to the Issuer under the Application or this Letter Agreement, the Applicant shall: Maintain a ratio of Consolidated Funded Debt to Total Capitalization equal to or less than 0.6:1.0, measured as of the last day of each fiscal quarter of the Applicant. Maintain an lnterest Coverage Ratio equal to or greater than 2.0:1.0, measured as of the last day of each fiscal quarter of Applicant for the immediately preceding four fiscal quarters ending on such date. -2- 3 Maintain a ratio of (i) Consolidated Funded Debt to (ii) Consolidated EBITDA equal to or less than 3.5:1.0, measured as of the last day of each fiscal quarter of the Applicant, and in the case of Consolidated EBITDA, calculated for the immediately preceding four fiscal quarters ending on such date. All capitalized terms used in these Financial Covenants shall have the meaning ascribed to such terms in that certain Credit Agreement, dated as of November 6, 1995 (the "SunTrust Agreement"), by and among Applicant, SunTrust Bank, Atlanta, as Agent, and the lenders party thereto (the "Lenders"). Financial Reporting: As long as the Letter of Credit shall remain outstanding or the Applicant shall have any obligation to the Issuer under the Application or this Letter Agreement, the Applicant shall: Furnish to the Issuer all documents, reports, filings, and certificates required under Section 6.07 (Financial Reporting) of the SunTrust Agreement, as and when furnished to the Lenders thereunder. Events of Default: In addition to the Events of Default set forth in the Application, the Applicant and the Issuer expressly agree that the following events shall also constitute "Events of Default" pursuant to the Application: (a) the occurrence of an "Event of Default" pursuant to the terms of the SunTrust Agreement; and (b) the failure of the Applicant to comply with the terms and conditions of this Letter Agreement. Remedies: Upon the occurrence and during the continuance of an Event of Default under the Application, as supplemented by this Letter Agreement, in addition to the rights and remedies afforded pursuant to the Application, at law or in any other document related hereto, the parties expressly agree that the Letter of Credit shall be deemed to have been drawn in full, and the Applicant shall immediately reimburse to the lssuer the full amount of such deemed drawing, together with any other amounts owing 4 hereunder or pursuant to the Applications in U.S. Dollars, which amount shall be held by the Issuer as cash collateral for Applicant's obligations pursuant to the Application and this Letter Agreement. Such collateral shall be held by Issuer for the pro-rata benefit of the Issuer and participating banks. In the event that the Letter of Credit expires or terminates without draw, such amount shall be immediately returned to the Applicant, together with the interest thereon. Miscellaneous: (a) This Letter Agreement shall be governed by the laws of the State of Georgia. (b) This Letter Agreement is incorporated into the Application and expressly made a part thereof. (c) All references to the SunTrust Agreement refer to such agreement as of the date hereof. The portions of the SunTrust Agreement referenced herein are expressly incorporated into this Agreement by such reference and shall survive the termination and repayment of the SunTrust Agreement. (d) This Letter Agreement may only be amended or modified by a writing signed by both parties, and in accordance with the terms of any Participation Agreement then in effect. (e) This Letter Agreement shall be binding upon the successors and assigns of the Applicant and inure to the benefit of the successors and assigns of the Issuer. 5 If these terms and conditions are acceptable to you, please indicate your acceptance by executing a copy of this Letter Agreement in the space below, and return a copy to me. Sincerely, FIRST UNION NATIONAL BANK OF GEORGIA By: /s/ James R. Pryor -------------------------------- James R. Pryor Senior Vice President First Union National Bank of Georgia ACCEPTED AND AGREED TO BY: FUQUA ENTERPRISES, INC. By: /s/ John J. Huntz, Jr. --------------------------------- Its: Executive Vice President & Chief Operating Officer --------------------------------- Date: 12-3-95 --------------------------------- Attest: /s/ Brady W. Mullinax, Jr. ------------------------------ Its: V.P. Finance, Treasurer, CFO ------------------------------ Date: 2-8-95 ------------------------------ - 5 - EX-10.(S) 5 UNCONDITIONAL GUARANTY 1 EXHIBIT 10 (s) UNCONDITIONAL GUARANTY OF PERFORMANCE WHEREAS, BASIC AMERICAN MEDICAL PRODUCTS, INC., a Georgia corporation (hereinafter called "Basic American"), has acquired from SUPER SAGLESS, INC, a Delaware corporation (hereinafter called "Super Sagless"), certain assets from Super Sagless and in connection therewith Basic American and Super Sagless executed an Agreement for Purchase and Sale of Certain Assets, a Sublease Agreement and a Master Purchase and Supply Agreement and Basic American executed in favor of Super Sagless a promissory note in the principal amount of $687,979.13 and a Security Agreement relating to such promissory note (herein collectively referred to as the "Agreements"); and WHEREAS, in connection with the above-referenced transactions, the undersigned has agreed to execute a guaranty in the form hereof; and WHEREAS, upon delivery to Super Sagless of this guaranty, Super Sagless has agreed to forthwith release Gene J. Minotto from his personal guaranty to Super Sagless; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the undersigned, FUQUA ENTERPRISES, INC., a Delaware corporation (hereinafter called the "Guarantor"), agrees as follows: 1. During the three-year period after the date hereof and only to the extent of $1,400,000 in the aggregate, Guarantor hereby unconditionally guarantees to Super Sagless that all covenants and agreements of Basic American contained in the Agreements will be duly and promptly observed and performed. The three-year limitation period of this unconditional guaranty shall be extended with respect to any specific matter for which Guarantor shall have received a written claim and demand for payment hereunder prior to the expiration of such three-year period, but only with respect to such specific matter and only until such claim shall be resolved. 2. The obligations of the Guarantor shall be performable upon demand of Super Sagless and shall be unconditional irrespective of the genuineness, validity, regularity or enforceability of the Agreements, or any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or a guarantor; and the Guarantor hereby waives notice of acceptance of this Unconditional Guaranty of Performance (hereinafter the "Unconditional Guaranty") and of the incurring by Basic American of any of the obligations hereinbefore mentioned, all demand whatsoever, and all rights to require Super Sagless, whether by notice under O.C.G.A Section 10-7-24 (Ga. Code Ann. Section 103-205) or otherwise, to (a) proceed against Basic American, or (b) pursue any other remedy it may now or hereafter have against Basic American. 2 3. The Guarantor hereby agrees that, at any time or from time to time, without notice to the Guarantor: (A) The time for Basic American's performance of or compliance with any covenant or agreement contained in the Agreements may be extended or such performance or compliance may be waived; and B) The Agreements may be modified or amended by Basic American and Super Sagless in any respects, all without affecting the liability of the Guarantor. 4. The Guarantor hereby acknowledges that the withdrawal from, or termination of, any ownership interest in Basic American by Guarantor shall not alter, affect or in any way limit the obligations of Guarantor hereunder. 5. The Guarantor expressly represents and acknowledges that the benefits to Basic American under the Agreements are and will be of direct economic interest, benefit and advantage to Guarantor. 6. If this Unconditional Guaranty shall be placed in the hands of an attorney for collection or should it be collected by legal proceedings or through any probate or bankruptcy court, the Guarantor agrees to pay to Super Sagless reasonable attorneys' and collection fees. 7. Until each and every one of the covenants and agreements of this Unconditional Guaranty are fully performed either by Basic American or by the Guarantor, the Guarantor's obligations hereunder shall not be released, in whole or in part, by any action or other matter which might, but for this provision of this instrument, be deemed a legal or equitable discharge of a surety or guarantor, or by reason of any waiver, extension, modification, forbearance or delay, or other act or omission of Super Sagless or its failure to proceed promptly or otherwise, or by reason of any action taken or omitted by Super Sagless whether or not such action or failure to act varies or increases the risk of, or affects the rights or remedies of, the Guarantor or by reason of any further dealings between Basic American and Super Sagless or any other guarantor, and the Guarantor hereby expressly waives and surrenders any defense to the liability of the Guarantor based upon any of the foregoing acts, omissions, things, agreements or waivers or any of them; it being the purpose and intent of the parties hereto that the covenants, agreements and all obligations under this Unconditional Guaranty are absolute, unconditional and irrevocable under any and all circumstances. 8. Super Sagless is relying and is entitled to rely upon each and all of the provisions of this Unconditional Guaranty; and accordingly, if any provision or provisions of this instrument should be held to be invalid or ineffective, then all other provisions shall continue in full force and effect. - 2 - 3 9. The Guarantor hereby agrees that in the event of the liquidation, bankruptcy or dissolution of Basic American this Unconditional Guaranty shall continue in full force and effect 10. The obligations of the Guarantor hereunder are independent of the obligations of Basic American, and a separate action or actions for payment, damages or performance may be brought and prosecuted against the Guarantor whether or not any action is brought against Basic American, and whether or not notice be given or demand be made upon Basic American. 11. This Unconditional Guaranty and all rights, obligations and liabilities arising hereunder shall be construed according to the laws of the State of Georgia. The Guarantor agrees that this Unconditional Guaranty is performable in Georgia and consents to the jurisdiction of the courts of such state. 12. This Unconditional Guaranty and all rights, obligations and liabilities arising hereunder shall inure to the benefit of and be binding upon all of the successors and assigns of Guarantor and Super Sagless. IN WITNESS WHEREOF, this Unconditional Guaranty have been duly executed and sealed by the undersigned as of the 15th day of November, 1995. Signed, sealed and deliv- FUQUA ENTEPRlSES, INC. ered in the presence of: /s/ John J. Huntz, Jr. By: /s/ L. P. Klamon - ------------------------ -------------------------- Unofficial Witness Its: President -------------------------- Pamela M. Pulisfer - ----------------------- Notary Public My Commission Expires: 7-21-1998 - ---------------------- EX-11 6 NUMBER OF SHARES 1 EXHIBIT 11 FUQUA ENTERPRISES, INC. NUMBER OF SHARES USED IN COMPUTING EARNINGS PER SHARE DECEMBER 31, 1995 PRIMARY EARNINGS PER SHARE: TREASURY STOCK METHOD:
NUMBER OF TRADING TOTAL TOTAL MONTH DAYS HIGH LOW - ------------------------------------------------------------------------------------------------------------------------------------ October 22 $ 520.875 $ 513.625 November 21 410.500 403.875 December 20 407.375 402.500 -- --------- --------- 63 $1,338.750 $1,320.000 $2,658.750 == ========= ========= =========
AVERAGE: $2,658.750 divided by 63 divided by 2 = $21.101 ===============================================================================
OPTIONS OPTION OUTSTANDING SHARES PRICE EXTENSION - ------------------------------------------------------------------------------------------------------------------------------------ 39,250 $ 8.500 $ 333,625 46,250 9.500 439,375 10,000 20.375 203,750 15,000 20.375 305,625 5,000 21.000 105,000 15,000 20.625 309,375 4,000 18.625 74,500 150,000 20.500 3,075,000 100,000 18.375 1,837,500 ------- --------- Total 384,500 $6,683,750 ======= ========= - ------------------------------------------------------------------------------------------------------------------------------------ Average Price (above) $ 21.101 ---------- Total Option Extension Divided by Average Price 316,748 Options Outstanding 385,500 ---------- Common Stock Equivalents 67,752 Average Shares Outstanding (see page 2) 4,191,767 ---------- Use for Primary Earnings Per Share 4th Quarter 4,259,519 Primary Shares 3rd Quarter 3,869,891 Primary Shares 2nd Quarter 3,857,212 Primary Shares 1st Quarter 3,864,957 --------- Subtotal 15,851,579 ---------- Primary Shares Full Year (Average of Quarters) 3,962,895 - ------------------------------------------------------------------------------------------------------------------------------------
-continued- 1 2 EXHIBIT 11 FULLY DILUTED EARNINGS PER SHARE: AVERAGE NUMBER OF SHARES OUTSTANDING:
- ------------------------------------------------------------------------------------------------------------------------------------ BEGINNING ENDING NUMBER SHARES DATE DATE OF DAYS OUTSTANDING EXTENSION - ------------------------------------------------------------------------------------------------------------------------------------ 10-1-95 10-3-95 3 3,834,169 11,502,507 10-4-95 10-13-95 10 3,836,169 38,361,690 10-14-95 10-31-95 18 3,838,488 69,092,784 11-1-95 11-7-95 7 3,839,674 26,877,718 11-8-95 11-30-95 23 4,439,674 102,112,502 12-1-95 12-8-95 8 4,440,674 35,525,392 12-9-95 12-31-95 23 4,442,174 102,170,002 -- ----------- 92 385,642,595 == =========== Average Number of Shares Outstanding: Fourth Quarter (Extension Divided by Number of Days) 4,191,767 Third Quarter 3,881,722 Second Quarter 3,854,971 First Quarter 3,863,170 ---------- Subtotal 15,791,630 ---------- Full Year (Average of Quarters) 3,947,908
- ----------------------------------------------------------------------------------------------------------------------------------- FOURTH FULL QUARTER YEAR - ----------------------------------------------------------------------------------------------------------------------------------- Closing Price - 12-31-95 $ 18.625 $ 18.625 ---------- --------- Total Option Extension (from page 1) Divided by Closing Price 358,859 358,859 Options Outstanding 384,500 384,500 ---------- ---------- Common Stock Equivalents 25,641 25,641 Average Shares Outstanding (from above) 4,191,767 3,947,908 ---------- ---------- Fully Diluted Shares 4,217,408 3,973,549 Less Primary Shares (from page 1) 4,259,520 3,962,895 ---------- ---------- Additional Shares (42,112) 10,654 ---------- ---------- Percentage (.99%) .27%
(Note: Anti-dilutive or less than 3.0%; no fully diluted presentation required.) - -------------------------------------------------------------------------------- 2 EX-21 7 SUBSIDIARIES OF FUQUA 1 EXHIBIT 21 FUQUA ENTERPRISES, INC. SUBSIDIARIES DECEMBER 31, 1995
Date of % of Name of Subsidiary Incorporated Incorporation Ownership -------------------------------- ------------------- ------------------- ---------------- Basic American Medical Products, Inc. Georgia 7-30-76 100% Hancock-Ellsworth Tanners, Inc.* Delaware 2-3-70 100% Irving Tanning Company Delaware 3-30-62 100% Vista Leather International Corp. Barbados 7-18-94 100% Kroy Tanning Company, Incorporated# Delaware 2-2-65 100% Collagen International Products Corporation* New York 6-30-70 100% Seagrave Leather Corporation Maine 10-1-79 100% Wilton Tanning Company Maine 6-29-59 100%
* Inactive # Discontinued EX-23 8 CONSENT OF ERNST & YOUNG 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-36157 and Form S-8 No. 33-54164) pertaining to the stock option plans of Fuqua Enterprises, Inc. of our report dated February 21, 1996, except for the last paragraph of Note 2, with respect to the consolidated financial statements and schedule of Fuqua Enterprises, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1995. /s/ Ernst & Young LLP ERNST & YOUNG LLP Atlanta, Georgia March 20, 1996 EX-24 9 POWER OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, officers and/or directors of FUQUA ENTERPRISES, INC., a Delaware corporation (hereinafter called the "Corporation"), does hereby constitute and appoint Lawrence P. Klamon and Mildred H. Hutcheson, and each of them, his true and lawful attorneys and agents, with full power to act without the others, for him and in his name, place and stead, in any and all capacities, to do any and all acts and things, and execute in his name any and all instruments, which said attorneys and agents may deem necessary or advisable in order to enable the Corporation to comply with the Securities Exchange Act of 1934, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under said Act of the Corporation's Form 10-K Annual Report for the year ending December 31, 1995, including specifically power and authority to sign his name to said Form 10-K to be filed with the Securities and Exchange Commission and any amendments thereto, and to attest the seal of the Corporation thereon and to file the same with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm that said attorneys and agents, and each of them, shall have, and may exercise, without the others, all the powers hereby confirmed. IN WITNESS WHEREOF, each of the undersigned has signed his name hereto on the 11th day of March, 1996. /s/ J. B. Fuqua /s/ J. Rex Fuqua ---------------------------------------------- ------------------------------------------- J. B. Fuqua, Chairman of the Board of J. Rex Fuqua, Vice Chairman of the Directors Board of Directors /s/ L. P. Klamon /s/ Brady W. Mullinax, Jr. ---------------------------------------------- ------------------------------------------- Lawrence P. Klamon, Director, President and Brady W. Mullinax, Jr., Vice Executive Officer (Principal President-Finance, and Executive Officer) Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
2 /s/ W. Clay Hamner /s/ Frank W. Hulse IV -------------------------------- ----------------------------- W. Clay Hamner, Director Frank W. Hulse IV, Director /s/ Richard C. Larochelle /s/ Gene J. Minotto -------------------------------- ----------------------------- Richard C. Larochelle, Director Gene J. Minotto, Director /s/ Clark L. Reed /s/ D. Raymond Riddle -------------------------------- ----------------------------- Clark L. Reed, Director D. Raymond, Riddle, Director
2 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1995 CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 DEC-31-1995 29,000 12,550 19,302 (200) 21,695 98,223 32,303 (10,841) 136,762 32,833 22,041 0 0 11,108 70,780 136,762 117,128 117,956 98,356 109,113 0 0 894 7,949 2,699 5,250 (2,740) 0 0 2,510 1.32 0
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