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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: SEPTEMBER 30, 1995 Commission File Number: 1-8147
MEDIQ INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 51-0219413
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
ONE MEDIQ PLAZA, PENNSAUKEN, NEW JERSEY 08110
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (609) 665-9300
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON STOCK, PAR VALUE $1.00 AMERICAN STOCK EXCHANGE
SERIES A PREFERRED STOCK, PAR VALUE $.50 AMERICAN STOCK EXCHANGE
7.25% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006 AMERICAN STOCK EXCHANGE
7.50% EXCHANGEABLE SUBORDINATED DEBENTURES DUE 2003 AMERICAN STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days. YES _X_ NO ___
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of December 22, 1995 (reference is made to
the final paragraph of Part I herein for a statement of the assumptions upon
which this calculation is based):
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<S> <C>
Common Stock $46,000,000
Series A Preferred Stock $5,300,000
</TABLE>
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 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 number of shares outstanding of each of the registrant's classes of stock as
of December 22, 1995:
<TABLE>
<CAPTION>
CLASS
- -----
<S> <C>
Common Stock 17,852,193 Shares
Series A Preferred Stock 6,374,928 Shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on March 5, 1996 (which is expected to be
filed with the Commission not later than 120 days after the end of the
registrant's last fiscal year) are incorporated by reference into Part III of
this report.
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<PAGE>
PART I
ITEM I. BUSINESS
GENERAL
MEDIQ Incorporated ('MEDIQ' or the 'Company'), through its wholly-owned
subsidiary, MEDIQ/PRN Life Support Services, Inc. ('MEDIQ/PRN'), operates the
largest movable critical care and life support medical equipment rental business
in the United States. MEDIQ/PRN rents a wide variety of movable equipment for
use by acute care hospitals, alternative care facilities, nursing homes, and
home health care companies.
On January 20, 1995, the Company announced the formation of a Special
Committee of the Board of Directors for the purpose of exploring alternative
ways of maximizing shareholder value, including a possible sale of the stock or
assets of the Company or certain of its subsidiaries. After exploring a number
of alternatives, the Board of Directors on October 23, 1995 accepted the
recommendation of the Special Committee to reject two outstanding offers to
acquire the Company and terminate any further efforts to sell the Company at the
present time. The Board determined to continue the previously announced strategy
of divesting substantially all operating assets other than MEDIQ/PRN and using
the proceeds thereof to reduce indebtedness. Accordingly, MEDIQ/PRN constitutes
the Company's principal business, accounting for 97% of consolidated revenues
from continuing operations in 1995.
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
MEDIQ/PRN provides essential cost-effective services to its customers. In
order to maximize operating efficiency, health care providers often choose to
rent movable medical equipment rather than incur the capital costs required to
finance equipment purchases and the on-going expenses required for maintenance
and repair. In addition, renting patient-ready equipment provides a vital
adjunct that permits a health care provider to meet periods of increased patient
census without the need for investing capital in stand-by equipment. MEDIQ/PRN
meets these needs by renting a wide variety of equipment to health care
providers across the continuum of care. As of September 30, 1995, MEDIQ/PRN had
available for rent over 650 different types of medical equipment, including
adult and infant ventilators, adult, infant, neonatal and fetal monitors,
infusion and suction pumps, incubators, infant warmers, pulse oximeters,
sequential compression devices and other movable critical care equipment for use
in respiratory care, intensive care, labor and delivery, pediatric, neonatal
intensive care and other departments of acute care general hospitals and for use
in alternate care facilities, nursing homes, and by home health care providers.
The 1994 acquisition of the movable medical equipment of KCI Therapeutic
Services, Inc., a subsidiary of Kinetic Concepts, Inc. ('KCI'), substantially
increased MEDIQ/PRN's rental equipment inventory and solidified its position as
the leader in the critical care life support equipment rental business.
MEDIQ/PRN also sells various disposable products which are used in conjunction
with MEDIQ/PRN's rental products.
MEDIQ/PRN's customers rent equipment, which is delivered in most cases
within two hours of a request, 24 hours a day, 365 days a year through 74 branch
offices in major cities nationwide and 11 independent distributors. MEDIQ/PRN
offers its customers a wide selection of rental programs, including (i) daily,
weekly or monthly rentals with fixed rate terms, (ii) longer-term rentals with
discounts which increase with the length of the rental term, and (iii) 'usage'
rentals on a per use, per hour or per day basis. MEDIQ/PRN also offers its 'One
Source' service which analyzes a customer's total rental activity from many
sources for the previous year, and offers the same equipment to the customer on
a long-term basis at a single fixed monthly cost that may result in substantial
savings to the customer.
MEDIQ/PRN also provides a Comprehensive Asset Management Program
(CAMP(Trademark)), which enables a customer to contract with MEDIQ/PRN to supply
any element of its medical equipment management needs, including equipment
inventory, personnel, maintenance, documentation
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and tracking. MEDIQ/PRN also has programs where it acquires all or part of the
customer's equipment and rents the equipment back to the customer, eliminating
the customer's burdens of ownership, underutilization and seasonal usage.
MEDIQ/PRN's customers can also benefit from the use of CAMP(Trademark) through
the reduction of biomedical and other hospital staff, lower equipment
maintenance expenses and the elimination or reduction of capital expenditures
for equipment. MEDIQ/PRN recently introduced its CAMP(Trademark) Plus logistics
program that provides similar management services for multi-site health care
networks to manage, service and transport movable patient care equipment.
MEDIQ/PRN also participates in two joint ventures through a subsidiary and
a limited liability company. MEDIQ PRN/SLT rents surgical laser equipment to
health care providers. MEDIQ PRN/HNE, L.L.C. rents to health care providers
mattress systems designed to treat, prevent or manage pressure ulcers.
No single customer accounted for more than 10% of MEDIQ/PRN's rental
revenues during fiscal 1995.
The Company's other operating subsidiaries include MEDIQ Management
Services, Inc., a provider of health care management and consulting services and
MEDIQ Diagnostic Centers, Inc., a provider of management and other
administrative support services to diagnostic imaging centers.
The Company was incorporated in 1977. Its principal offices are located at
One MEDIQ Plaza, Pennsauken, New Jersey.
SEASONALITY
MEDIQ/PRN's business is seasonal, with demand historically peaking in the
winter months or the Company's second fiscal quarter.
QUALITY ASSURANCE
Quality control/quality assurance and risk management procedures are
conducted for all of MEDIQ/PRN's medical equipment by trained biomedical
technicians to ensure compliance with safety, testing and performance standards
at all branch offices. All equipment is serviced and tested prior to delivery to
a customer in accordance with MEDIQ/PRN's Pre-Delivery Inspection Program, which
is primarily derived from the Emergency Care Research Institute's ('ECRI's')
programs. Most types of medical equipment rented by MEDIQ/PRN require routine
servicing at scheduled intervals based upon hours of usage, including complete
testing and inspection of all components that may need to be replaced or
refurbished. Routine servicing is conducted by MEDIQ/PRN's trained personnel at
all of its branch locations. Major repairs are performed at MEDIQ/PRN's
Pennsauken, New Jersey or Santa Fe Springs, California maintenance facilities by
its biomedical equipment technicians.
SUPPLIERS
MEDIQ/PRN acquires substantially all of its new medical equipment for
rental from approximately 100 suppliers. MEDIQ/PRN is not dependent upon any
single supplier for its rental equipment or disposable products and believes
that alternative purchasing sources of medical equipment are available to
MEDIQ/PRN should they be needed.
COMPETITION
The medical equipment rental industry is competitive, and MEDIQ/PRN
encounters competition in all regions in which it operates. MEDIQ/PRN's
competitors include (i) medical equipment rental and leasing businesses and
medical equipment distributors which rent medical equipment to health care
providers; (ii) medical equipment manufacturers which sell medical equipment
directly to health care providers; and (iii) general leasing and financing
companies and financial institutions, such as banks, which finance the
acquisition of medical equipment by health care providers. MEDIQ/PRN believes
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that key factors influencing the decision regarding the selection of a medical
equipment rental vendor include availability and quality of medical equipment,
service and price.
EQUITY INVESTMENTS
PCI Services, Inc. ('PCI') (NASDAQ:PCIS) is a leading provider of
integrated pharmaceutical packaging services, including blister packaging,
bottle filling, pouch filling, strip packaging, capsule filling, the design and
production of folding cartons and thermoformed components, and the printing of
inserts. At December 22, 1995, the Company owned 2,875,000 shares of PCI common
stock, or approximately 47% of the outstanding shares. PCI's stock traded during
fiscal 1995 in the range of $5.50 to $10.125 per share and on December 22, 1995
the closing per share price was $9.875.
NutraMax Products, Inc. ('NutraMax') (NASDAQ:NMPC) is a leading private
label health and personal care products company, marketing products in the
feminine needs, cough/cold, baby care, ophthalmics, personal care and oral care
categories. At December 22, 1995, the Company owned 4,037,258 shares of NutraMax
common stock, or approximately 47% of the outstanding shares. NutraMax's stock
traded during fiscal 1995 in the range of $5.75 to $10.375 per share and on
December 22, 1995 the closing per share price was $9.25. The Company's ownership
interest in NutraMax may decrease in the future if certain of the Company's
outstanding subordinated debentures ($34.5 million aggregate principal
outstanding as of December 22, 1995), which, by their terms, are exchangeable
into shares of NutraMax common stock owned by the Company, are exchanged by the
holders thereof for such shares. Assuming the Company does not exercise its
rights upon such an exchange to redeem the debentures in cash, the effect of the
exchange of all of such debentures would be to decrease the Company's ownership
of NutraMax to approximately 21%.
The Company has announced its support of the efforts of the Board of
Directors of NutraMax to explore opportunities to maximize value for the
NutraMax shareholders. The Company has also announced its intention to realize
the value of its investment in PCI.
DISCONTINUED OPERATIONS
In the second quarter of fiscal 1995, the Company adopted a plan to sell
the following four non-core businesses within twelve months: Medifac, Inc.
('Medifac'), a provider of health care facility planning, architectural and
development services; Health Examinetics, Inc. ('Health Examinetics'), a
provider of mobile health testing services; MEDIQ Mobile X-Ray Services, Inc.
('Mobile X-Ray'), a provider of portable X-ray and EKG services; and MEDIQ
Imaging Services, Inc. ('MEDIQ Imaging'), a provider of diagnostic imaging
services in mobile and fixed sites. In the fourth quarter of fiscal 1995, the
Company revised the plan to include the operations of HealthQuest, Inc.
('HealthQuest'), a provider of case management and utilization review services,
which is presently anticipated to be sold in fiscal 1996. As a result of these
determinations, operating results and net assets of these five businesses have
been reported as discontinued operations for fiscal 1995. Discontinued
operations also include the Company's equity investment in InnoServ
Technologies, Inc. (formerly MMI Medical, Inc.), which is anticipated to be
distributed to the Company's shareholders during fiscal 1996. See footnote C to
the Company's consolidated financial statements for certain financial
information about discontinued operations.
In June 1995, the Company sold Medifac and related assets to the management
of Medifac for approximately $11 million in cash and notes, and the assumption
of $26.9 million of non-recourse debt.
In August 1995, the Company sold the assets of MEDIQ Imaging to NMC
Diagnostic Services, Inc., a division of W.R. Grace and Co. for approximately
$17 million in cash and the assumption of $9.7 million of debt.
InnoServ Technologies, Inc. ('InnoServ') (NASDAQ:ISER) (formerly MMI
Medical, Inc.), through its various subsidiaries, provides hospitals, clinics
and private physicians' offices with maintenance services for diagnostic imaging
equipment, shared mobile computed tomography and
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cardiac catheterization services and other radiological parts and supplies. The
Company owns 2,030,000 shares of InnoServ common stock, or approximately 40% of
the outstanding shares. InnoServ's stock traded during fiscal 1995 in the range
of $3.00 to $4.125 per share and on December 22, 1995 the closing per share
price was $4.125. The present business operations of InnoServ include the
business of the Company's former subsidiary, MEDIQ Equipment and Maintenance
Services, Inc., which was merged with InnoServ in 1994. Pursuant to an agreement
of merger and plan of reorganization, as amended, among MMI Medical, Inc., MMI
Acquisition Subsidiary, Inc., MEDIQ, and MEDIQ Equipment and Maintenance
Services, Inc. dated as of May 18, 1994, MEDIQ has agreed to distribute the
shares of stock of InnoServ owned by MEDIQ to its stockholders as soon as
practicable following registration of the shares by InnoServ, which the Company
has been advised is expected to be accomplished in fiscal 1996.
The Company presently anticipates that the disposal of Mobile X-Ray, Health
Examinetics and HealthQuest will be completed in the second quarter of fiscal
1996.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates primarily in one business segment, exclusive of
discontinued operations. The Company, through MEDIQ/PRN, rents medical equipment
on a short-term basis nationwide. This segment represents more than 90% of the
consolidated revenues, operating profits and assets exclusive of corporate
assets, which include net assets of discontinued operations of $27.1 million and
equity investments of $43.1 million.
GOVERNMENT REGULATION
The Company's businesses are subject to Federal, state and local
regulations relating to the operation of such businesses. The Company is unable
to predict whether, or to what extent, new legislation or regulations affecting
its businesses will be enacted and, if enacted, what impact they will have on
the Company. The following is a summary of some of the significant regulations
currently affecting the operations of MEDIQ/PRN and the Company's other
operations.
Compliance with FDA Regulations -- The FDA regulates companies which
manufacture, prepare, propagate, compound or process medical devices. Device
manufacturers must comply with registration and labeling regulations, submit
premarket notifications or obtain premarketing approvals, comply with medical
device reporting, tracking and post-market surveillance regulations and with
device good manufacturing practices ('GMPs'), and are subject to FDA inspection.
The GMP regulations specify the minimum standards for the manufacture, packing,
storage, and installation of medical devices, and impose certain record keeping
requirements. The FDA currently does not regulate MEDIQ/PRN or organizations
which provide similar services as MEDIQ/PRN as device manufacturers. However,
any company which services, repairs or reconditions medical devices could be
subject to regulatory action by the FDA if its activities cause the devices to
become adulterated or mislabeled. In addition, no assurance can be given that in
the future the FDA will not regulate as device manufacturers companies such as
MEDIQ/PRN, which acquire ownership of devices, recondition or rebuild such
devices and rent them to customers or which service, repair or recondition
devices owned by others. The Company is unable to predict the cost of compliance
if any such regulations were to be adopted. MEDIQ/PRN is required to comply with
certain other device tracking and reporting regulations administered by the FDA.
Reimbursement of Health Care Costs -- Substantially all of the revenues
generated by Mobile X-Ray are received from third party payors, including
governmental programs such as Medicare and Medicaid, which subjects these
businesses to rules and regulations governing participation in such programs.
The Federal Medicare/Medicaid Anti-Fraud and Abuse Amendments to the Social
Security Act (the 'Anti-Kickback Law') make it a criminal offense to offer, pay,
solicit or receive renumeration in order to induce business for which
reimbursement is provided under Medicare or Medicaid. In addition to criminal
penalties, including fines of up to $250,000 and ten years imprisonment,
violations of the Anti-Kickback Law can lead to civil monetary penalties and
exclusion
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from the Medicare and Medicaid programs. The scope of prohibited payments in the
Anti-Kickback Law is broad and includes a large number of economic arrangements
involving hospitals, physicians and other health care providers, including joint
ventures, space and equipment rentals, purchases of physician practices and
management and personal services contracts. The Department of Health and Human
Services published regulations which describe certain arrangements that will not
be deemed to constitute violations of the Anti-Kickback Law. The safe harbors
described in the regulations are narrow and do not cover a wide range of
economic relationships which many hospitals, physicians and other health care
providers consider to be legitimate business arrangements not prohibited by the
statute. Because the regulations describe safe harbors and do not purport to
describe comprehensively all lawful or unlawful economic arrangements or other
relationships between health care providers and referral sources, health care
businesses having these arrangements or relationships may or may not be required
to alter them in order to ensure compliance with the Anti-Kickback Law. The
Company believes that it is presently in substantial compliance with the
Anti-Kickback Law.
Effective January 1, 1995, a portion of the Medicare Law known as the
'Stark Bill' became effective. The Stark Bill prohibits, with certain limited
exceptions, the payment for business referred to an entity by physicians who
have a 'financial relationship' with an entity providing 'designated health
services.' 'Financial relationship' includes, among other relationships, an
ownership or investment interest in the entity, or a compensation arrangement.
Sanctions for prohibited referrals include the denial of Medicare payment for
the services, civil money penalties, and possible exclusion from the Medicare
program. The Company believes that none of its arrangements violate the Stark
Bill.
See also 'Legal Proceedings' herein for certain additional information.
EMPLOYEES
The Company and its wholly-owned subsidiaries have approximately 1,250
employees, of which approximately 500 are employees of discontinued operations.
The Company believes relations with employees are satisfactory.
ITEM 2. PROPERTIES
The Company's principal facility is located in Pennsauken, New Jersey,
where the Company's corporate headquarters and a portion of its operating
activities are located, including MEDIQ/PRN's corporate headquarters. The
Company and its wholly-owned subsidiaries also lease office and warehouse space
in approximately 100 locations throughout the United States for local and
regional operations. The properties owned and leased by the Company and its
wholly-owned subsidiaries are believed to be adequate for the Company's
operations.
ITEM 3. LEGAL PROCEEDINGS
On November 28, 1995, in the United States District Court for the Middle
District of Pennsylvania, ATS Medical Services, Inc. ('ATS'), a subsidiary of
the Company, and the president of ATS each pled guilty to one count of
misprision of a felony in violation of Title 18, United States Code, Section 4.
In addition, ATS agreed to repay the government $2.1 million for excess
reimbursement received by ATS from the Medicare Program from 1988 through 1992.
The payment is part of a settlement agreement entered into between ATS, the
United States Government and a former ATS employee, who had filed a civil
lawsuit on behalf of the government against ATS pursuant to the False Claims
Act, Title 31, United States Code, Sections 3729, et seq., relating to ATS's
alleged excess reimbursement. The government has agreed to recommend that no
fine be imposed against ATS and has agreed that ATS will not be barred from
submitting claims to the Medicare Program in the future.
MEDIQ Imaging, the assets of which were sold by the Company in August 1995,
is presently the subject of a criminal and civil investigation by the United
States Attorney's Office for the District of New Jersey and the Department of
Health and Human Services. The investigation has focused on advice given by
MEDIQ Imaging employees to physician customers of MEDIQ Imaging relating to the
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reassignment of certain Medicare claims. The Company and MEDIQ Imaging
voluntarily reported the issue to the government in January 1995 after learning
that the advice given by MEDIQ Imaging employees was inconsistent with the
reassignment regulations. The Company and MEDIQ Imaging have been cooperating in
the investigation. The Company has agreed, subject to certain limitations, to be
responsible for any fine or penalty assessed following the conclusion of the
investigation. Management believes that there has been no violation of any
statute or regulation by MEDIQ Imaging or any of its officers, directors or
employees and intends to vigorously defend any claims that may be brought.
In addition, the Company has pending several legal claims incurred in the
normal course of business, which in the opinion of management, will not have
material effect on the consolidated financial statements. See Note H to the
Company's Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended September 30, 1995.
For the purposes of calculating the aggregate market value of the shares of
common stock of the Company held by nonaffiliates, as shown on the cover page of
this report, it has been assumed that all the outstanding shares were held by
nonaffiliates except for the shares held by directors and executive officers of
the Company. However, this should not be deemed to constitute an admission that
all directors and executive officers of the Company are, in fact, affiliates of
the Company, or that there are not other persons who may be deemed to be
affiliates of the Company. Further information concerning shareholdings of
officers, directors and principal shareholders is included in the Company's
definitive proxy statement filed or to be filed with the Securities and Exchange
Commission.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock and its Series A Preferred Stock, which is
convertible into Common Stock, are listed on the American Stock Exchange. The
following table sets forth the high and low closing prices for the Company's
Common and Preferred Stocks on the American Stock Exchange for the past two
fiscal years.
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COMMON STOCK PREFERRED STOCK
-------------------- --------------------
FISCAL YEAR ENDED SEPTEMBER 30, HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
1995
First Quarter................................................. $ 4.063 $ 3.563 $ 3.813 $ 3.625
Second Quarter................................................ 5.750 3.750 5.500 3.750
Third Quarter................................................. 6.188 5.125 5.750 5.063
Fourth Quarter................................................ 6.188 5.063 5.875 5.375
1994
First Quarter................................................. $ 4.688 $ 3.938 $ 4.500 $ 3.875
Second Quarter................................................ 4.500 3.625 4.313 3.875
Third Quarter................................................. 4.000 3.375 4.000 3.000
Fourth Quarter................................................ 4.250 3.500 4.125 3.500
</TABLE>
As of December 1995, there were approximately 2,000 holders of record of
the Company's Common Stock and approximately 350 holders of record of the
Company's Preferred Stock. Since a portion of the Company's Common Stock and
Preferred Stock is held in 'street' or nominee name, the Company is unable to
determine the exact number of beneficial holders.
Historically, the Company has paid cash dividends on a quarterly basis,
dependent upon the earnings, capital requirements, operating and financial
condition of the Company, compliance with debt agreements, and other factors
deemed relevant by the Board of Directors. The Company did not pay any dividends
in 1995. The Company paid cash dividends of $.03 per share on its Common Stock
and $.018 per share on its Preferred Stock for the first, second and third
quarters of 1994. The terms of one of the Company's indentures currently limits
the payment of future dividends or the purchase of the Company's stock to
approximately $5 million in the aggregate as of September 30, 1995.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below has been derived
from the audited financial statements of the Company. This data is qualified in
its entirety by reference to, and should be read in conjunction with, the
Company's Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere
herein.
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<CAPTION>
YEAR ENDED SEPTEMBER 30,
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1995(3) 1994 1993 1992(4) 1991
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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SUMMARY INCOME STATEMENT DATA:
Revenues (1).................................... $ 132,241 $ 81,498 $ 89,994 $ 102,195 $ 88,895
Operating income (loss) (1)..................... 23,938 1,095 8,378 4,336 (5,507)
Interest expense................................ (28,977) (21,076) (20,807) (18,578) (19,588)
Equity in earnings of unconsolidated
affiliates.................................... 4,731 4,308 4,343 4,776 3,623
Other (2)....................................... 1,403 6,719 5,437 7,693 8,136
Income (loss) from continuing operations before
income tax expense (benefit).................. 1,095 (8,954) (2,649) (1,773) (13,336)
Income (loss) from continuing
operations.................................... (209) (5,848) 1,222 2,388 (6,412)
PER SHARE DATA:
Income (loss) from continuing
operations.................................... $ (.01) $ (.24) $ .05 $ .10 $ (.27)
Cash dividends per common share................. $ -- $ .09 $ .12 $ .06 $ .03
Cash dividends per preferred share.............. $ -- $ .05 $ .07 $ .03 $ .02
Weighted average shares outstanding............. 24,604 24,405 24,366 24,007 23,808
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------------
1995(3) 1994(3) 1993 1992(4) 1991
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Current assets.................................. $ 63,445 $ 35,041 $ 42,500 $ 48,431 $ 62,606
Investments in unconsolidated
affiliates.................................... 43,092 38,338 34,693 26,830 11,359
Investments in discontinued operations.......... 27,070 61,573 63,402 89,768 115,372
Property, plant and equipment................... 132,823 149,051 117,748 112,621 64,349
Total assets.................................... 334,170 377,795 308,827 315,280 282,958
Current liabilities............................. 64,685 59,610 47,001 45,303 50,196
Senior debt, net of current portion............. 136,949 162,436 115,604 131,014 85,547
Subordinated debt, net of current
portion....................................... 81,907 103,388 86,229 63,539 63,539
Stockholders' equity............................ 31,517 36,280 44,574 58,748 74,799
</TABLE>
See Notes to Selected Consolidated Financial Data on next page
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NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Revenues, EBITDA and operating income attributable to MEDIQ/PRN, the
Company's core business, were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, REVENUES EBITDA OPERATING INCOME
- ----------------------------------------- ----------- --------- ----------------
<S> <C> <C> <C>
1995 $ 128,810 $ 60,528 $ 31,469
1994 74,944 25,619 5,283
1993 76,527 30,741 13,364
1992 56,898 22,023 11,082
1991 41,218 16,735 8,861
</TABLE>
EBITDA -- Represents operating income before interest, income taxes,
depreciation and amortization expenses.
(2) Equity participation related to stock transactions by unconsolidated
affiliates was ($.7) million, $3.5 million, $14.5 million and $3.6 million
in 1994, 1993, 1992 and 1991, respectively. Net gains (losses) from the sale
of assets were ($.4) million, $4.7 million, ($.3) million, $3.0 million and
$3.1 million in 1995, 1994, 1993, 1992 and 1991, respectively. In 1992, the
Company recorded a loss reserve of $10.6 million for an investment in a real
estate limited partnership.
(3) On September 30, 1994, MEDIQ/PRN acquired the critical care and life support
rental equipment inventory of KCI. The purchase price, which was primarily
financed with long-term debt, approximated $88 million, including
transaction costs and the assumption of certain capital lease obligations.
(4) In May 1992, MEDIQ/PRN acquired ATI Medical Services, Inc. for $23.9 million
in cash and the assumption of debt. In July 1992, MEDIQ/PRN refinanced its
outstanding debt by issuing $100 million of 11.125% Senior Secured Notes due
1999.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's strategic plan adopted in fiscal 1991, in summary, called for
narrowing the focus of MEDIQ, concentrating the Company's resources in the
development of its core business, selling non-core assets and reducing corporate
debt. On January 20, 1995, the Company announced the formation of a Special
Committee of the Board of Directors for the purpose of exploring alternative
ways of maximizing shareholder value, including a possible sale of the stock or
assets of the Company or certain of its subsidiaries. After exploring a number
of alternatives, the Board of Directors on October 23, 1995 accepted the
recommendation of the Special Committee to reject two outstanding offers to
acquire the Company and terminate any further efforts to sell the Company at the
present time. The Board determined to continue the process of divesting the
Company of substantially all operating assets other than MEDIQ/PRN and using the
proceeds to reduce indebtedness.
With the $88 million acquisition in 1994 of the movable medical equipment
of KCI Therapeutic Services, Inc., a subsidiary of Kinetic Concepts, Inc.
('KCI'), MEDIQ/PRN, the Company's core business, strengthened its position as
the leading company in the United States renting movable critical care and life
support medical equipment to hospitals, home health care, sub-acute and nursing
home providers on an 'as-needed basis.' With the successful integration of these
assets into its 85 office distribution network, MEDIQ/PRN expanded its market
presence, increased market share and improved its service standards.
The Company's other operating subsidiaries reported as continuing
operations include MEDIQ Management Services, Inc., a provider of healthcare
management and consulting services and MEDIQ Diagnostic Centers, Inc., a
provider of management and other administrative support services to diagnostic
imaging centers. In 1993, the Company's other operating subsidiaries also
included PCI of Virginia, Inc. and Harrisburg Healthcare, Inc.
In addition to MEDIQ's core business, the Company has significant
investments in unconsolidated affiliates, PCI Services, Inc. ('PCI') and
NutraMax Products, Inc. ('NutraMax'). The Company owns 2,875,000 shares of the
common stock of PCI, or approximately 47% of the outstanding shares. PCI is a
leading provider of integrated packaging services to pharmaceutical
manufacturers. The Company also owns 4,037,258 shares of the common stock of
NutraMax, or approximately 47% of the outstanding shares. NutraMax is a leading
private label health and personal care products company. The Company's ownership
interest in NutraMax may decrease in the future in the event that certain of the
Company's outstanding debentures are exchanged into shares of NutraMax common
stock owned by the Company. Assuming the Company does not elect to pay cash, the
effect of the exchange of all of such debentures would decrease the Company's
ownership of NutraMax to approximately 21%. The Company's investments in PCI and
NutraMax are accounted for under the equity method of accounting.
The Company has announced its support of the efforts of the Board of
Directors of NutraMax to explore opportunities to maximize value for the
NutraMax shareholders. The Company has also announced its intention to realize
the value of its investment in PCI.
DISCONTINUED OPERATIONS
In the second quarter of fiscal 1995, the Company adopted a plan to sell
its non-core businesses: MEDIQ Mobile X-Ray Services, Inc. ('Mobile X-Ray'), a
provider of portable X-ray and EKG services; MEDIQ Imaging Services, Inc.
('MEDIQ Imaging'), a provider of diagnostic imaging services in mobile and fixed
sites; Medifac, Inc. ('Medifac'), a provider of healthcare facility planning,
architectural and development services; and Health Examinetics, Inc. ('Health
Examinetics'), a provider of mobile health testing services. In the fourth
quarter of fiscal 1995, the Company expanded its plan to sell non-core
businesses to include the operations of HealthQuest, Inc. ('HealthQuest'), a
provider of case management and utilization review services. These operations,
in addition to the Company's equity investment in InnoServ Technologies, Inc.
(formerly MMI Medical,
10
<PAGE>
Inc.), which is anticipated to be distributed to the Company's shareholders in
fiscal 1996, are reported as discontinued operations.
In addition, the Company reported the operations of Mental Health
Management, Inc., ('MHM'), a provider of behavioral health services, as
discontinued operations in fiscal 1993. In August 1993, the Company completed
the tax-free distribution to its stockholders of 100% of the stock of MHM.
In June 1995, the Company sold Medifac and related assets to the management
of Medifac for approximately $11 million, consisting of $6 million in cash and
$5 million in notes, and the assumption of $26.9 million of non-recourse debt.
In August 1995, the Company sold the assets of MEDIQ Imaging to NMC
Diagnostic Services, Inc., a division of W.R. Grace & Co., for approximately $17
million in cash and the assumption of $9.7 million of debt.
The Company anticipates that the disposal of Mobile X-Ray, Health
Examinetics and HealthQuest will be completed in the second quarter of fiscal
1996.
RESULTS OF OPERATIONS
Fiscal Year 1995 Compared with Fiscal Year 1994
Revenues from continuing operations were $132.2 million, as compared to
$81.5 million in the prior year, an increase of $50.7 million, or 62%.
MEDIQ/PRN's revenues increased 72%, to $128.8 million, as compared to revenues
of $74.9 million in the prior year, primarily attributable to the KCI
acquisition. MEDIQ/PRN incorporated the movable medical equipment obtained from
the acquisition on September 30, 1994 into its national distribution network
with the addition of six branch offices, which resulted in substantially higher
revenues. Revenues from the Company's other operating activities (before
intercompany eliminations) were $3.8 million, as compared to $6.3 million in the
prior year.
Operating income from continuing operations was $23.9 million, as compared
to $1.1 million in 1994. The improvement in operating income was attributable to
MEDIQ/PRN, which had operating income of $31.5 million, an increase of $26.2
million over 1994, principally related to additional revenues and improved
operating margins resulting from the KCI acquisition. The Company's other
operating activities had operating income of $.2 million in 1995, as compared to
$1.9 million in the prior year. Non-operating activities, including corporate
overhead, accounted for operating losses of $7.8 million in 1995, as compared to
$6.1 million in 1994.
Operating income from continuing operations in 1995 was adversely affected
by corporate general and administrative expenses of approximately $1.7 million
incurred in connection with the Company's corporate strategic activities during
the year. These activities, which included the formation and activities of a
Special Committee of the Board of Directors to explore alternative ways of
maximizing shareholder value, were concluded in October 1995 when the Board
accepted the recommendation of the Special Committee to reject two outstanding
offers to acquire the Company and terminate any further efforts to sell the
Company at the present time.
The Company anticipates incurring additional expenses in the first quarter
of fiscal 1996 for restructuring charges of approximately $2.0 million for
employee severance costs incurred in connection with a plan approved by the
Board of Directors to downsize corporate functions and consolidate certain
activities with the operations of MEDIQ/PRN. The plan results in the termination
of 29 employees in fiscal 1996. The Company anticipates reductions in corporate
expenses of approximately $1.3 million in 1996 and $2 million annually
thereafter as a result of the downsizing and consolidation of corporate
activities.
Interest expense increased 37%, to $29 million, from $21.1 million in 1994.
Increased debt associated with financing MEDIQ/PRN's acquisition of KCI on
September 30, 1994 resulted in higher interest expense, partially offset by
lower interest at the corporate level. Net cash proceeds from the sale of
discontinued operations in June and August 1995 aggregating approximately $24
million were used to reduce notes payable to banks and other long-term debt.
11
<PAGE>
The Company's equity in the earnings of its unconsolidated affiliates, PCI
and NutraMax, was $4.7 million, as compared to $4.3 million in the prior year.
Operating results may be affected in the event of a sale of the Company's equity
interest in PCI and/or NutraMax as the proceeds from any such sale would be
utilized to reduce indebtedness and, accordingly, would result in reduced
interest expense.
Interest income was $1.5 million in 1995 and $1.4 million in 1994 and was
primarily derived from the Company's note receivable from MHM.
Other charges and credits for 1995 included a loss of $1.1 million from the
sale of the Company's equity interest in New West Eyeworks, Inc. in April 1995
for $3.0 million, and income of $.6 million representing a portion of the
contingent proceeds earned in 1995 from the prior year sale of the Company's
interest in a kidney stone treatment center. Fiscal 1994 included a gain of $4.0
million related to the sale of the kidney stone treatment center and gains
totalling $1.4 million from dividends and the sale of other assets, including a
portion of the Company's equity interest in New West Eyeworks.
Pretax income from continuing operations was $1.1 million for 1995, as
compared to a pretax loss of $9.0 million in the prior year. The improvement in
pretax income was attributable to MEDIQ/PRN and the success of its integration
of the assets acquired in the KCI acquisition into its nationwide distribution
network. The current year included non-recurring expenses of $1.7 million
related to the strategic activities of the Board of Directors and a loss of $1.1
million on the sale of the Company's equity interest in New West Eyeworks. The
pretax loss in 1994 included gains from the sale of the Company's interest in a
kidney stone treatment center and other assets totalling $5.4 million, and a
loss of $.7 million related to the Company's equity participation in common
stock transactions of PCI and NutraMax.
The income tax expense related to continuing operations was $1.3 million,
as compared to a benefit of $3.1 million in the prior year. The Company's
effective tax rates were disproportionate compared to the statutory rates as a
result of goodwill amortization and the non-recognition for state income tax
purposes of certain operating losses.
Revenues from discontinued operations were $78.4 million in 1995, as
compared to $86.6 million in 1994. The net loss from discontinued operations was
$4.7 million in 1995, consisting principally of the net loss on disposal, as
compared to a net loss of $1.5 million in the prior year.
In November 1995, ATS Medical Services, Inc. ('ATS') a subsidiary of the
Company, agreed to repay the government $2.1 million for excess reimbursements
received by ATS from the Medicare Program from 1988 through 1992. Under the
agreement, $75,000 is payable monthly without interest through October 1996 and,
thereafter, $100,000 plus interest is payable monthly through October 1997. Upon
the sale of ATS, the balance is payable in full. The Company recorded a reserve
for such excess reimbursement in fiscal 1994 and has reflected such reserve in
discontinued operations.
Fiscal Year 1994 Compared with Fiscal Year 1993
Revenues from continuing operations were $81.5 million, as compared to $90
million in the prior year, a decrease of $8.5 million, or 9%. Revenues from
MEDIQ/PRN, which decreased 2%, to $74.9 million, were adversely affected by
lower average rental prices in response to competitive pressures. This situation
was mitigated by MEDIQ/PRN's growth in the sub-acute, nursing home and home
health care markets. Revenues from the Company's other operating subsidiaries
were $6.3 million, as compared to $12 million in the prior year, which included
revenues of $5.1 million related to operations that were divested in 1993.
Operating income from continuing operations was $1.1 million, as compared
to $8.4 million in 1993. MEDIQ/PRN's operating income decreased 60%, to $5.3
million, as compared to $13.4 million in 1993. This decrease resulted from
reductions in average rental prices due to competition and higher administrative
and operating expenses. MEDIQ/PRN's operating income was also adversely affected
by higher depreciation and amortization expense related to increases in rental
equipment inventory. The Company's other operating activities had operating
income of $1.9 million, as compared to $1.1
12
<PAGE>
million in 1993. Non-operating activities, including corporate overhead,
accounted for operating losses of $6.1 million in 1994 and 1993.
Interest expense was $21.1 million, which was comparable to the prior year.
The Company's equity in the earnings of its unconsolidated affiliates was
$4.3 million in 1994, which was comparable to the prior year.
Equity participation related to common stock transactions by PCI and
NutraMax resulted in a loss of $.7 million in 1994 and income of $3.5 million in
1993.
Interest income was $1.4 million in 1994 and $1.1 million in 1993 and was
primarily related to the MHM note receivable.
Other income, including gains and losses on the sale of assets, was $6
million in 1994, as compared to $.9 million in 1993. In September 1994, the
Company sold its rights under a management contract for a kidney stone treatment
center to a regional hospital for $4 million in cash and $3 million contingent
upon future earnings, resulting in a gain of $4 million. The Company also
recognized $1.4 million of income from dividends and the sale of other assets in
1994.
The income tax benefit from continuing operations was $3.1 million, as
compared to $3.9 million in the prior year. The Company's effective tax rates
were disproportionate compared to the statutory rates as a result of goodwill
amortization, non-recognition for state income tax purposes of certain operating
losses and permanent differences related to the disposition of assets.
In 1993, the Company repaid approximately $15.9 million of corporate debt
with proceeds from the disposition of operations and the Company's debenture
offering in July 1993. As a result of such repayments, the Company incurred
prepayment premiums of $1.5 million, or $1.0 million net of taxes.
Revenues from discontinued operations were $86.6 million in 1994, as
compared to $84.8 million in 1993. The net loss from discontinued operations was
$1.5 million as compared to net income of $3.0 million in 1993, which included a
net loss on disposal of $.5 million. Fiscal 1994 included a reserve of $1.5
million (net of taxes) related to excess reimbursement received by ATS under the
Medicare program.
LIQUIDITY AND CAPITAL RESOURCES
In 1995, cash provided by operating activities increased to $23.3 million,
as compared to $12.6 million in the prior year. This increase was principally
the result of significantly higher operating income from MEDIQ/PRN. In addition
to cash flow from operations, the Company raised $33 million in cash from the
dispositions of Medifac, MEDIQ Imaging and other assets in 1995. The Company
anticipates that additional dispositions will occur in 1996 and presently
intends to use the net proceeds of any such disposition to further reduce
long-term debt.
Net cash provided by investing activities was $19.6 million for 1995,
principally as a result of the sale of discontinued operations and other assets,
partially offset by expenditures principally for rental medical equipment
totalling $11.5 million. The Company anticipates capital expenditures of
approximately $10 million during fiscal 1996, primarily for rental medical
equipment. The Company intends to fund the rental medical equipment expenditures
with cash from operations.
Net cash used in financing activities was $41.5 million for 1995. Cash flow
from operations and proceeds from the sale of discontinued operations and other
assets were used to repay debt of $42.9 million, partially offset by borrowings
of $1.2 million.
In connection with the KCI acquisition, the Company obtained a $43 million
term loan and issued $10 million of senior subordinated notes (including
warrants) to finance a portion of the purchase price. In addition, KCI provided
financing for the acquisition aggregating $17.1 million (net of related
discounts). Borrowings under the Company's lines of credit and cash proceeds
from the sale of assets in 1994 were utilized to fund the balance of the
purchase price.
The $43 million term loan is payable in equal monthly payments of
approximately $600,000 through December 2000 plus interest at prime plus 2% or,
at the Company's option, a rate equal to the adjusted Eurodollar rate plus
4.25%. The $10 million of senior subordinated notes include warrants
13
<PAGE>
which allow the holders to purchase an aggregate of 10% of the common stock of
MEDIQ/PRN for a nominal amount. Interest on the notes of 10% is payable
semi-annually on April 1 and October 1 and annual principal payments of $1.0
million commence April 1, 2000, with the balance payable on October 1, 2004.
Financing provided by KCI in the amount of $17.1 million was comprised of $8.6
million (net of related discounts) of subordinated notes and two term loans
aggregating $8.5 million. The subordinated notes are due in September 1999 and
bear interest at 10% commencing April 1, 1996. The term loans were paid in
monthly installments through October 1, 1995.
In September 1994, in connection with the KCI acquisition, MEDIQ/PRN
amended the indenture relating to its outstanding $100 million of 11.125% senior
secured notes, which resulted in an increase in the interest rate on the notes
to 12.125% commencing September 30, 1995. The notes, which are not guaranteed by
the Company, are redeemable after July 1997. MEDIQ/PRN is required to offer to
repay a portion of the principal amount of the notes under certain circumstances
(as defined in the indenture). At September 30, 1995, MEDIQ/PRN was not required
to offer to repay any portion of the notes. Interest is payable on the notes
semi-annually on January 1 and July 1. Although MEDIQ/PRN is highly leveraged,
it anticipates that excess cash flow will be sufficient to repay the notes when
due. If MEDIQ/PRN does not generate funds from operations sufficient to repay
the notes upon maturity in 1999, MEDIQ/PRN would attempt to refinance such
indebtedness.
The Company's 7.25% convertible subordinated debentures due 2006 require
the Company to offer to repurchase a portion of the debentures if stockholders'
equity is $40 million or less at the end of two consecutive fiscal quarters.
Since June 30, 1994, the Company's stockholders' equity has been less than $40
million. The requirements to repurchase debentures at December 31, 1994 and June
30, 1995 were satisfied through the Company's previous acquisition of $23.3
million principal amount of debentures. As of September 30, 1995, $22.5 million
of the debentures was classified as current obligations pursuant to the terms of
the indenture. In October and November 1995, the Company repurchased an
aggregate of $11.25 million of its debentures at a discount in the open market
and through a private transaction resulting in a pretax gain of approximately
$1.5 million. This gain will be recorded in the first quarter of fiscal 1996 as
an extraordinary item. The Company is required to either repurchase or redeem
$11.25 million of debentures prior to June 30, 1996 and semi-annually thereafter
until all of the debentures are repurchased or stockholders' equity is more than
$40 million.
As of September 30, 1995, the Company had lines of credit aggregating $16
million, bearing interest at rates ranging from prime (8.75% at September 30,
1995) to prime plus 1.5%. No amounts were outstanding under these facilities at
September 30, 1995. The Company also has a $13.4 million long-term revolving
credit facility. In December 1995, this credit facility which bears interest at
prime plus 1% and, originally set to expire October 1995, was extended to
December 1996. In connection with the extension to December 1996, the facility
was increased to $15.0 million and the interest rate was reduced to prime plus
.5%. In addition, as amended, the facility will be reduced by an amount equal to
50% of the net cash proceeds from the sale of discontinued operations and
certain other assets. At September 30, 1995, the Company had $.6 million
outstanding under this facility. During the first quarter of fiscal 1996, $6.9
million was borrowed under this facility to fund, in part, the repurchase of the
Company's 7.25% convertible subordinated debentures.
Certain of the Company's loan agreements require the maintenance of
specified financial ratios and impose financial and dividend limitations. The
terms of one of the Company's indentures currently limits the payment of future
dividends or the purchase of the Company's stock to approximately $5 million in
the aggregate as of September 30, 1995.
The Company expects that its primary sources of liquidity for operating
activities will be generated through cash flows from MEDIQ/PRN. Proceeds from
the sale of discontinued operations and miscellaneous assets will be used to
repay long-term debt. The Company believes that sufficient funds will be
available from operating cash flows and the sale of assets to meet the Company's
anticipated operating and capital requirements, including obligations to redeem
or repurchase in the open market a portion of the 7.25% debentures. In addition,
the Company is currently evaluating the possibility of refinancing all or a
portion of its consolidated senior and subordinated debt, but there can be no
assurances that such refinancing will occur.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditors' Report............................................................................... 16
Consolidated Statements of Operations -- Three Years Ended September 30, 1995.............................. 17
Consolidated Balance Sheets -- September 30, 1995 and 1994................................................. 18
Consolidated Statements of Stockholders' Equity -- Three Years Ended
September 30, 1995....................................................................................... 19
Consolidated Statements of Cash Flows -- Three Years Ended September 30, 1995.............................. 20
Notes to Consolidated Financial Statements................................................................. 21
</TABLE>
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
MEDIQ Incorporated
Pennsauken, New Jersey
We have audited the accompanying consolidated balance sheets of MEDIQ
Incorporated and subsidiaries as of September 30, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1995. Our audits also
include the financial statement schedules listed in the index at Item 14. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules 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, such consolidated financial statements present fairly, in
all material respects, the financial position of MEDIQ Incorporated and
subsidiaries as of September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 28, 1995
16
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues................................................................... $ 132,241 $ 81,498 $ 89,994
Costs and Expenses:
Operating................................................................ 53,164 38,654 41,903
Selling and administrative............................................... 24,714 20,364 20,526
Depreciation and amortization............................................ 30,425 21,385 19,187
----------- ----------- -----------
108,303 80,403 81,616
----------- ----------- -----------
Operating Income........................................................... 23,938 1,095 8,378
Other (Charges) Credits:
Interest expense......................................................... (28,977) (21,076) (20,807)
Equity in earnings of unconsolidated affiliates.......................... 4,731 4,308 4,343
Equity participation..................................................... 22 (662) 3,519
Interest income.......................................................... 1,502 1,395 1,067
Gain (loss) on sale of assets............................................ (437) 4,672 (315)
Other.................................................................... 316 1,314 1,166
----------- ----------- -----------
Income (Loss) from Continuing Operations before Income Taxes and
Extraordinary Charge..................................................... 1,095 (8,954) (2,649)
Income Tax Expense (Benefit)............................................... 1,304 (3,106) (3,871)
----------- ----------- -----------
Income (Loss) from Continuing Operations before Discontinued Operations and
Extraordinary Charge..................................................... (209) (5,848) 1,222
Discontinued Operations:
Income (loss) from operations (net of income taxes of $1,777,000 in 1995;
($939,000) in 1994 and $3,008,000 in 1993)............................ (5) (1,470) 3,494
Gain (loss) on disposal (net of income taxes of $953,000 in 1995 and $0
in 1993).............................................................. (4,733) -- (467)
----------- ----------- -----------
(4,738) (1,470) 3,027
----------- ----------- -----------
Income (Loss) before Extraordinary Charge.................................. (4,947) (7,318) 4,249
Extraordinary Charge, Early Retirement of Debt (net of income tax benefit
of $509,000)............................................................. -- -- (953)
----------- ----------- -----------
Net Income (Loss).......................................................... $ (4,947) $ (7,318) $ 3,296
----------- ----------- -----------
----------- ----------- -----------
Earnings Per Share:
Income (Loss) from:
Continuing Operations................................................. $ (.01) $ (.24) $ .05
Discontinued Operations............................................... (.19) (.06) .13
----------- ----------- -----------
Income (Loss) before Extraordinary Charge................................ (.20) (.30) .18
Extraordinary Charge..................................................... -- -- (.04)
----------- ----------- -----------
Net Income (Loss)........................................................ $ (.20) $ (.30) $ .14
----------- ----------- -----------
----------- ----------- -----------
Weighted Average Shares Outstanding........................................ 24,604 24,405 24,366
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
17
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1994
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................................................. $ 2,966 $ 1,495
Accounts receivable (net of allowance of $2,207,000 in 1995 and $2,195,000 in
1994)............................................................................. 27,884 16,456
Investment in discontinued operations................................................ 19,009 --
Inventories.......................................................................... 4,181 5,939
Deferred income taxes................................................................ 4,310 3,298
Other current assets................................................................. 5,095 7,853
----------- ------------
Total Current Assets........................................................ 63,445 35,041
Investments in unconsolidated affiliates............................................... 43,092 38,338
Investment in discontinued operations.................................................. 8,061 61,573
Note receivable from MHM............................................................... 10,733 11,500
Property, plant and equipment.......................................................... 132,823 149,051
Goodwill............................................................................... 61,744 64,781
Other assets........................................................................... 14,272 17,511
----------- ------------
Total Assets........................................................................... $ 334,170 $ 377,795
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to financial institutions.............................................. $ -- $ 6,180
Accounts payable..................................................................... 6,694 5,861
Accrued expenses..................................................................... 20,230 23,163
Other current liabilities............................................................ 461 969
Current portion of long-term debt.................................................... 37,300 23,437
----------- ------------
Total Current Liabilities................................................... 64,685 59,610
Senior debt............................................................................ 136,949 162,436
Subordinated debt...................................................................... 81,907 103,388
Deferred income taxes.................................................................. 13,414 10,041
Other liabilities...................................................................... 5,698 6,040
Commitments and contingencies.......................................................... -- --
Stockholders' Equity:
Preferred stock ($.50 par value: Authorized 20,000,000 shares; issued Series A:
6,752,000 in 1995 and 6,816,000 in 1994).......................................... 3,376 3,408
Common stock ($1 par value: Authorized 40,000,000 shares; issued 19,127,000 in 1995
and 19,064,000 in 1994)........................................................... 19,127 19,064
Capital in excess of par value....................................................... 22,124 22,357
Accumulated deficit.................................................................. (6,067) (1,120)
Treasury stock, at cost (preferred shares: 377,000 in 1995 and 377,000 in 1994;
common shares: 1,275,000 in 1995 and 1,335,000
in 1994).......................................................................... (7,043) (7,429)
----------- ------------
Total Stockholders' Equity.................................................. 31,517 36,280
----------- ------------
Total Liabilities and Stockholders' Equity............................................. $ 334,170 $ 377,795
----------- ------------
----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
18
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL RETAINED
-------------------- -------------------- IN EARNINGS
SHARES SHARES EXCESS OF (ACCUMULATED TREASURY
ISSUED AMOUNT ISSUED AMOUNT PAR VALUE DEFICIT) STOCK
--------- --------- --------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance October 1, 1992......... 7,274 $ 3,637 18,605 $ 18,605 $ 23,993 $ 23,136 $ (10,623)
Net income...................... 3,296
Dividends....................... (2,541)
Conversion of preferred stock to
common stock.................. (436) (218) 437 437 (219)
Stock options exercised......... (425) 1,106
Distribution of MHM............. (15,610)
--------- --------- --------- --------- --------- ------------ ----------
Balance September 30,
1993.......................... 6,838 3,419 19,042 19,042 23,349 8,281 (9,517)
Net loss........................ (7,318)
Dividends....................... (2,083)
Conversion of preferred stock to
common stock.................. (22) (11) 22 22 (11)
Issuance of stock............... (600) 1,309
Stock options exercised......... (381) 779
--------- --------- --------- --------- --------- ------------ ----------
Balance September 30,
1994.......................... 6,816 3,408 19,064 19,064 22,357 (1,120) (7,429)
Net loss........................ (4,947)
Conversion of preferred stock to
common stock.................. (64) (32) 63 63 (31)
Stock options exercised......... (202) 386
--------- --------- --------- --------- --------- ------------ ----------
Balance September 30,
1995.......................... 6,752 $ 3,376 19,127 $ 19,127 $ 22,124 $ (6,067) $ (7,043)
--------- --------- --------- --------- --------- ------------ ----------
--------- --------- --------- --------- --------- ------------ ----------
</TABLE>
See Notes to Consolidated Financial Statements
19
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1995 1994 1993
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................................... $ (4,947) $ (7,318) $ 3,296
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization......................................... 30,425 21,385 19,187
Provision for doubtful accounts....................................... 993 984 1,809
Provision for deferred income taxes (benefit)......................... 1,182 (3,146) (1,185)
Undistributed earnings from unconsolidated affiliates................. (4,731) (4,308) (4,343)
Equity participation.................................................. (22) 662 (3,519)
Accretion of acquisition indebtedness................................. 1,402 -- --
Cash provided by discontinued operations.............................. 7,532 3,073 7,364
(Income) loss from discontinued operations............................ 4,738 1,470 (3,027)
Other................................................................. 372 (4,616) 1,484
Increase (decrease), net of effects from acquisitions and
dispositions:
Accounts receivable............................................. (11,305) 1,527 4,048
Inventories..................................................... 1,758 175 446
Accounts payable................................................ (108) (1,615) (2,469)
Accrued expenses................................................ (3,036) 2,303 (5,109)
Other current assets and liabilities............................ (907) 1,987 (632)
---------- ----------- -----------
Net cash provided by operating activities.................................. 23,346 12,563 17,350
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets............................................... 10,957 8,251 9,084
Proceeds from sale of discontinued operations.............................. 23,858 -- --
Purchase of equipment...................................................... (11,548) (7,320) (15,830)
Acquisitions............................................................... -- (70,528) --
Other...................................................................... (3,663) (2,794) (5,891)
---------- ----------- -----------
Net cash provided by (used in) investing activities........................ 19,604 (72,391) (12,637)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings................................................................. 1,190 67,540 34,648
Debt repayments............................................................ (42,853) (19,299) (27,661)
Dividends.................................................................. -- (2,722) (1,903)
Proceeds from exercise of options.......................................... 184 398 642
---------- ----------- -----------
Net cash provided by (used in) financing activities........................ (41,479) 45,917 5,726
---------- ----------- -----------
Increase (decrease) in cash................................................ 1,471 (13,911) 10,439
Cash:
Beginning balance........................................................ 1,495 15,406 4,967
---------- ----------- -----------
Ending balance........................................................... $ 2,966 $ 1,495 $ 15,406
---------- ----------- -----------
---------- ----------- -----------
Supplemental disclosure of cash flow information:
Interest paid............................................................ $ 26,200 $ 20,440 $ 21,213
---------- ----------- -----------
---------- ----------- -----------
Income taxes paid (refunded)............................................. $ 205 $ (2,886) $ (1,342)
---------- ----------- -----------
---------- ----------- -----------
Supplemental disclosure of non-cash investing and financing activities:
Equipment financed with long-term debt and capital leases................ $ 1,808 $ 5,937 $ 8,663
---------- ----------- -----------
---------- ----------- -----------
Portion of acquisitions financed by sellers.............................. $ -- $ 19,384 $ --
---------- ----------- -----------
---------- ----------- -----------
Liabilities assumed in connection with acquisitions...................... $ -- $ 2,804 $ --
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -- The consolidated financial statements
include the accounts of MEDIQ Incorporated and its subsidiaries (the 'Company').
Investments in companies owned 20% to 50% are accounted for under the equity
method of accounting. All other investments are stated at the lower of cost or
net realizable value. In consolidation, all significant intercompany
transactions and balances have been eliminated.
Inventories -- Inventories, which consist primarily of repair parts for
rental equipment and finished goods held for sale, are stated at the lower of
cost (first-in, first-out method) or market.
Property, plant and equipment -- Rental equipment, machinery and equipment,
buildings and improvements, and land are recorded at cost. Capital leases are
recorded at the lower of fair market value or the present value of future lease
payments. The Company provides straight-line depreciation and amortization over
the estimated useful lives (rental equipment and machinery and equipment -- 3 to
10 years and buildings and improvements -- 10 to 40 years).
Goodwill -- The cost of acquired businesses in excess of net assets is
amortized on a straight-line basis primarily over 20 years. Accumulated
amortization was $12 million and $8.6 million as of September 30, 1995 and 1994,
respectively.
Carrying value of long-term assets -- The Company evaluates the carrying
value of long-term assets, including rental equipment, goodwill and other
intangible assets, based upon current and anticipated undiscounted cash flows,
and recognizes an impairment when such estimated cash flows will be less than
the carrying value of the asset. Measurement of the amount of impairment, if
any, is based upon the difference between carrying value and fair value.
Revenue recognition policy -- MEDIQ/PRN Life Support Services, Inc.
('MEDIQ/PRN') recognizes revenue in accordance with the terms of the related
rental agreement and the usage of the related rental equipment. Revenues from
other operating activities are recognized as services are rendered or as income
is earned.
Income taxes -- Effective October 1, 1993, the Company adopted on a
prospective basis the provisions of Statement of Financial Accounting Standards
('SFAS') No. 109, 'Accounting for Income Taxes', which supersedes SFAS No. 96.
The effect of the adoption of SFAS No. 109 was not significant. The Company
files a consolidated federal tax return with its 80% or more owned subsidiaries
and, accordingly, any dividends from included companies are not taxable to the
Company.
Subsidiary and unconsolidated affiliate stock transactions -- Gains
(losses) resulting from the issuance or repurchase of stock by subsidiaries and
unconsolidated affiliates are recognized by the Company as equity participation
in the Consolidated Statements of Operations.
Earnings (loss) per share -- Primary net earnings (loss) per share are
computed by dividing net earnings (loss) by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents include shares issuable upon conversion of the
Company's convertible preferred stock and exercise of outstanding stock options.
Reclassification of accounts -- Certain reclassifications have been made to
conform prior years' balances to the current year presentation.
NOTE B -- ACQUISITIONS
On September 30, 1994, the Company acquired the critical care and life
support rental equipment inventory of KCI Therapeutic Services, Inc., a
subsidiary of Kinetic Concepts, Inc. ('KCI'). The purchase price was
approximately $88 million, including transaction costs and the assumption of
certain capitalized lease obligations. The purchase price was allocated to
assets acquired and liabilities assumed based on fair values at the date of the
acquisition. The excess of the purchase price over fair
21
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B -- ACQUISITIONS--(CONTINUED)
values of the net assets acquired of $44.5 million was recorded as goodwill and
is being amortized over twenty years.
NOTE C -- DISPOSITIONS
The Company's strategic plan adopted in fiscal 1991, in summary, called for
narrowing the focus of MEDIQ, concentrating the Company's resources in the
development of its core business, selling non-core assets and reducing corporate
debt. On January 20, 1995, the Company announced the formation of a Special
Committee of the Board of Directors for the purpose of exploring alternative
ways of maximizing shareholder value, including a possible sale of the stock or
assets of the Company or certain of its subsidiaries. After exploring a number
of alternatives, the Board of Directors on October 23, 1995 accepted the
recommendation of the Special Committee to reject two outstanding offers to
acquire the Company and terminate any further efforts to sell the Company at the
present time. The Board determined to continue the process of divesting the
Company of substantially all operating assets other than MEDIQ/PRN and using the
proceeds to reduce indebtedness.
Sale of Assets
In December 1993, the Company exercised warrants to purchase 229,518 shares
of common stock of New West Eyeworks, Inc. ('New West') in connection with New
West's initial public offering. The warrants were issued to the Company in 1988
together with $5.1 million of New West preferred stock as partial consideration
for the sale of a business. In connection with the offering, the Company
received $1.9 million, representing a partial redemption of the preferred
shares, net proceeds from the sale of 82,500 shares of common stock and partial
payment of accumulated preferred stock dividends and accrued interest. The
Company received an additional 57,143 shares of New West common stock in payment
of the balance of accumulated dividends and interest. The Company recorded
income of $1.2 million in 1994 related to the sale of New West common stock and
the payment of dividends and interest. In April 1995, the Company sold its
remaining investments in New West common stock and preferred stock for aggregate
consideration of $3 million resulting in a $1.1 million pretax loss.
In September 1994, the Company sold its rights under a management contract
related to a kidney stone treatment center for $4 million in cash and $3 million
contingent upon future results of operations. The sale resulted in a pretax gain
of $4 million in 1994 and $.6 million in 1995 representing a portion of the
contingent proceeds.
Discontinued Operations
In the second quarter of fiscal 1995, the Company adopted a plan to sell
four non-core businesses, Medifac, Inc., Health Examinetics, Inc., MEDIQ Mobile
X-Ray Services, Inc. and MEDIQ Imaging Services, Inc., within twelve months. In
the fourth quarter, the Company revised the plan to include the operations of
HealthQuest, Inc., which is anticipated to be sold in fiscal 1996. As a result,
operating results and net assets of these businesses have been reported as
discontinued operations. Discontinued operations also include the Company's
equity investment in InnoServ Technologies, Inc. ('InnoServ,' formerly MMI
Medical, Inc.), which is anticipated to be distributed to the Company's
shareholders during fiscal 1996. The Company's prior year consolidated financial
statements have been restated to report the net assets and operating results of
these businesses as discontinued operations. In addition, the Company reported
the operations of Mental Health Management, Inc., ('MHM') as discontinued
operations in fiscal 1993.
In August 1995, the Company sold the assets of MEDIQ Imaging Services,
Inc., the Company's mobile and fixed site ultrasound and nuclear imaging
business, to NMC Diagnostic Services, Inc., a
22
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C -- DISPOSITIONS--(CONTINUED)
division of W.R. Grace & Co., for approximately $17 million in cash, and the
assumption of $9.7 million of debt.
In June 1995, the Company sold Medifac, Inc., a healthcare facility
planning, design and project management firm, and related assets to the
management of Medifac for approximately $11 million, consisting of $6 million in
cash and $5 million in notes, and the assumption of $26.9 million of non-
recourse debt.
In August 1994, the Company merged its MEDIQ Equipment and Maintenance
Services, Inc. ('MEMS') subsidiary with InnoServ, and the Company received
2,030,000 shares of InnoServ common stock, or approximately 40% of the
outstanding shares, and warrants to purchase at $6.25 per share an additional
325,000 shares of common stock. No gain or loss resulted from the merger.
In August 1993, the Company completed the tax-free distribution to the
Company's shareholders of the stock of MHM, a provider of behavioral healthcare
services. The distribution was accounted for as a dividend with a resultant
reduction in consolidated stockholders' equity of $15.6 million, representing
the Company's equity investment in MHM. In connection with the distribution, the
Company obtained a five-year note receivable from MHM for the balance of unpaid
management fees and intercompany interest in the amount of $11.5 million. The
note bears interest at a rate of prime (8.75% at September 30, 1995) plus 1.5%,
with monthly interest payments for two years which commenced October 1, 1993 and
monthly principal and interest payments for the following three years, based on
a fifteen year amortization period, with the balance due on August 31, 1998.
The Company anticipates that the disposal of Mobile X-Ray, Health
Examinetics and HealthQuest will be completed in the second quarter of fiscal
1996. The estimated loss on the sale of discontinued operations, including
operations to be sold in fiscal 1996, amounted to $4.7 million (net of income
tax expense of $1 million).
The investment in discontinued operations as of September 30, 1995
consisted of (in thousands):
<TABLE>
<S> <C>
Current assets................................................................... $12,270
Current liabilities.............................................................. 8,841
---------
Net current assets............................................................... 3,429
Net fixed assets................................................................. 4,726
Investment in InnoServ........................................................... 8,061
Other noncurrent assets.......................................................... 10,854
---------
$27,070
---------
---------
</TABLE>
The investment in InnoServ, which will be distributed to the Company's
shareholders in the form of a dividend, is reflected as a long-term asset.
Revenues from discontinued operations were $78.4 million, $86.6 million and
$84.8 million in 1995, 1994 and 1993, respectively.
23
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Rental equipment............................................................. $ 205,773 $ 211,373
Equipment and fixtures....................................................... 10,316 9,504
Building and improvements.................................................... 7,272 6,904
Land......................................................................... 149 149
----------- -----------
223,510 227,930
Less accumulated depreciation and amortization............................... (90,687) (78,879)
----------- -----------
$ 132,823 $ 149,051
----------- -----------
----------- -----------
</TABLE>
Depreciation and amortization expense related to property, plant and
equipment was $26.1 million, $19.7 million and $17.7 million in 1995, 1994 and
1993, respectively.
NOTE E -- ACCRUED EXPENSES
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Interest........................................................................ $ 5,301 $ 4,828
Payroll and related taxes....................................................... 3,093 2,008
Insurance....................................................................... 2,195 5,184
Other........................................................................... 9,641 11,143
--------- ---------
$ 20,230 $ 23,163
--------- ---------
--------- ---------
</TABLE>
NOTE F -- NOTES PAYABLE TO FINANCIAL INSTITUTIONS
The Company has $16 million of lines of credit which bear interest at rates
ranging from prime (8.75% at September 30, 1995) to prime plus 1.5% and are
secured primarily by certain accounts receivable, a pledge of the common stock
of MEDIQ/PRN and a second mortgage on real estate. At September 30, 1995, no
amounts were outstanding under these facilities. The amount of available credit
fluctuates based upon the amount of eligible accounts receivable. The average
amount outstanding under lines of credit in 1995 was $8.4 million and the
weighted average interest rate computed on the monthly outstanding balance was
10.1%.
24
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G -- LONG-TERM DEBT
Senior debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Corporate debt:
Revolving credit facility............................................................. $ 567 $ 11,147
Term loans payable in varying installments through 2005 at rates from prime (8.75% at
September 30, 1995) to 12%......................................................... 1,815 1,862
Mortgage payable...................................................................... -- 3,917
Subsidiary debt:
Senior secured notes due 1999......................................................... 100,000 100,000
Term loan payable monthly through 2000 at prime plus 2%............................... 37,493 43,000
Term loans payable in varying installments through 1999 at rates from prime plus 1% to
13%................................................................................ 2,828 13,114
Capital lease obligations payable in varying installments through 1999 at fixed rates
from 8% to 21%..................................................................... 9,046 12,833
----------- -----------
151,749 185,873
Less current portion.................................................................... 14,800 23,437
----------- -----------
$ 136,949 $ 162,436
----------- -----------
----------- -----------
</TABLE>
Subordinated debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1995 1994
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Corporate debt:
7.5% exchangeable subordinated debentures due 2003..................................... $ 34,500 $ 34,500
7.25% convertible subordinated debentures due 2006..................................... 51,729 51,729
Subsidiary debt:
10% subordinated notes due 2004........................................................ 8,664 8,547
10% subordinated notes due 1999........................................................ 9,514 8,612
--------- -----------
104,407 103,388
Less current portion..................................................................... 22,500 --
--------- -----------
$ 81,907 $ 103,388
--------- -----------
--------- -----------
</TABLE>
In September 1994, in connection with the acquisition of the rental
equipment inventory of KCI, the Company obtained financing consisting of a $43.0
million term loan, $8.5 million of senior subordinated notes, $8.6 million of
subordinated notes payable to KCI and two term loans aggregating $8.5 million
payable to KCI. The $43.0 million term loan is payable in equal monthly payments
through December 2000 of approximately $600,000 plus interest at the prime rate
plus 2% or, at the Company's option, a rate equal to the adjusted Eurodollar
rate plus 4.25% and is collateralized by all of the acquired equipment. The $8.5
million of senior subordinated notes, which have a face value of $10 million,
include warrants which allow the holders to purchase, in the aggregate, up to
10% of the common stock of MEDIQ/PRN for a nominal amount. Interest on the notes
of 10% is payable semi-annually on April 1 and October 1. Annual principal
payments on the notes of $1.0 million commence April 1, 2000, with the remaining
principal balance payable on October 1, 2004. The $8.6 million of subordinated
notes payable to KCI, which have a face value of $10 million, mature on
September 30, 1999 and bear interest at 10%, commencing April 1, 1996. The term
loans, aggregating $8.5 million,
25
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G -- LONG-TERM DEBT--(CONTINUED)
were payable to KCI in monthly installments through October 1995. The
subordinated notes payable to KCI and certain of the term notes are carried net
of related discounts. The MHM note receivable is pledged as collateral for the
Company's obligations to KCI.
In October 1993, the Company entered into an agreement with a commercial
bank for a $7.5 million revolving credit facility, which was increased to $13.4
million in August 1994. In December 1995, this credit facility which bears
interest at prime plus 1% and, originally scheduled to expire in October 1995,
was extended to December 1996. In connection with the extension to December
1996, the facility was increased to $15 million and the interest rate was
reduced to prime plus .5%. In addition, as amended, the facility will be reduced
by an amount equal to 50% of the net cash proceeds from the sale of discontinued
operations and certain other assets. At September 30, 1995, the Company had $.6
million outstanding and $2.2 million of letters of credit under this facility.
This facility is secured by a portion of the shares of common stock of NutraMax
and PCI owned by the Company.
In September 1994, in connection with the acquisition of equipment from
KCI, MEDIQ/PRN amended the indenture related to its outstanding $100 million of
11.125% senior secured notes to obtain approval for the transaction. The
amendment also provided for an increase in the interest rate on the notes to
12.125% effective September 30, 1995. Interest on the notes is payable
semi-annually on January 1 and July 1. The notes, which are collateralized by
certain of MEDIQ/PRN's assets, are redeemable at the option of MEDIQ/PRN in
whole or in part on or after July 1, 1997 at specified redemption prices, plus
accrued interest. MEDIQ/PRN is obligated to offer to repay a portion of the
principal amount of the senior secured notes under certain circumstances. At
September 30, 1995, MEDIQ/PRN was not required to offer to repay any portion of
the senior secured notes. The Company's ability to obtain cash from MEDIQ/PRN is
limited by provisions in certain of MEDIQ/PRN's debt agreements. For 1995 and
1994, such provisions did not permit MEDIQ/PRN to pay any dividends to the
Company.
The 7.5% subordinated debentures are exchangeable for an aggregate of
2,255,000 shares of NutraMax common stock owned by the Company, or an equivalent
of $15.30 per share, and are redeemable in whole or in part at the option of the
Company after July 1996. Interest is payable semi-annually on January 15 and
July 15.
The 7.25% subordinated debentures are convertible at any time prior to
maturity into shares of the common stock of the Company at $7.50 per share.
Interest is payable semi-annually on June 1 and December 1. Annual sinking fund
payments equal to 10% of the principal commence in June 1997. The Company is
also required to offer to repurchase a portion of the debentures if
stockholders' equity is $40 million or less at the end of two consecutive fiscal
quarters. Since June 30, 1994, the Company's stockholders' equity has been less
than $40 million. The requirements to repurchase debentures at December 31, 1994
and June 30, 1995 were satisfied through the Company's previous acquisition of
$23.3 million principal amount of debentures. As of September 30, 1995, $22.5
million of the debentures was classified as current obligations pursuant to the
terms of the indenture. In October and November 1995, the Company repurchased an
aggregate of $11.25 million of its debentures at a discount in the open market
and through a private transaction resulting in a pretax gain of approximately
$1.5 million. This gain will be recorded in the first quarter of fiscal 1996 as
an extraordinary item. The Company is required to either repurchase or redeem
$11.25 million of debentures prior to June 30, 1996 and semi-annually thereafter
until all of the debentures are repurchased or stockholders' equity is more than
$40 million.
The Company incurred prepayment premiums in connection with repayments of
debt resulting in an extraordinary charge of $1.5 million, or $1.0 million net
of taxes, in 1993.
26
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G -- LONG-TERM DEBT--(CONTINUED)
Certain of the Company's loan agreements require the maintenance of
specified financial ratios and impose financial and dividend limitations. The
terms of one of the Company's indentures currently limits the payment of future
dividends or the purchase of the Company's stock to approximately $5 million in
the aggregate as of September 30, 1995. As of September 30, 1995, the Company
and one of its subsidiaries did not comply with certain financial ratios,
principally working capital and tangible net worth. Subsequent to September 30,
1995, the Company and its subsidiary obtained the necessary waivers/amendments
from its lenders regarding these ratios. Restricted net assets of consolidated
subsidiaries and unconsolidated affiliates aggregated approximately $38.4
million at September 30, 1995.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, SENIOR SUBORDINATED TOTAL
- ------------------------------------------------------------------------- ----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
1996..................................................................... $ 14,800 $ 22,500 $ 37,300
1997..................................................................... 10,243 22,500 32,743
1998..................................................................... 9,294 6,729 16,023
1999..................................................................... 108,667 -- 108,667
2000..................................................................... 6,931 9,514 16,445
Thereafter............................................................... 1,814 43,164 44,978
----------- ------------ -----------
$ 151,749 $ 104,407 $ 256,156
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
NOTE H -- COMMITMENTS AND CONTINGENCIES
Leases -- The Company leases certain equipment, automobiles and office
space. The future minimum lease payments under noncancelable operating leases
and capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- --------------------------------------------------------------------------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996............................................................................. $ 3,640 $ 4,422
1997............................................................................. 3,211 3,336
1998............................................................................. 2,245 1,979
1999............................................................................. 1,520 810
2000 and thereafter.............................................................. 42 475
--------- ---------
Total minimum lease payments..................................................... 10,658 $ 11,022
---------
---------
Amount representing interest..................................................... 1,612
---------
Present value of minimum lease payments.......................................... $ 9,046
---------
---------
</TABLE>
Total rent expense under operating leases was $5.4 million, $5.2 million
and $5.4 million in 1995, 1994 and 1993, respectively. The leases, which are for
terms of up to 10 years, contain options to renew for additional periods.
At September 30, 1995, rental equipment and machinery and equipment
included assets under capitalized lease obligations of $15.2 million, less
accumulated amortization of $3.2 million.
Purchase Commitments -- MEDIQ/PRN has agreed to purchase from one of its
vendors certain rental equipment parts and supplies, and to obtain certain
remanufacturing services from the vendor in the aggregate amount of
approximately $3.0 million through 1997.
27
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H -- COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Legal Proceedings -- On November 28, 1995, in the United States District
Court for the Middle District of Pennsylvania, ATS Medical Services, Inc.
('ATS'), a subsidiary of the Company, and the president of ATS each pled guilty
to one count of misprision of a felony in violation of Title 18, United States
Code, Section 4. In addition, ATS agreed to repay the government $2.1 million
for excess reimbursement received by ATS from the Medicare Program from 1988
through 1992. The payment is part of a settlement agreement entered into between
ATS, the United States Government and a former ATS employee, who had filed a
civil lawsuit on behalf of the government against ATS pursuant to the False
Claims Act, Title 31, United States Code, Sections 3729, et seq., relating to
ATS's alleged excess reimbursement. The government has agreed to recommend that
no fine be imposed against ATS and has agreed that ATS will not be barred from
submitting claims to the Medicare Program in the future. Under the agreement,
$75,000 is payable monthly without interest through October 1996 and,
thereafter, $100,000 plus interest is payable monthly through October 1997. Upon
the sale of ATS, the balance is payable in full. The Company recorded a reserve
for such excess reimbursement in fiscal 1994 and has reflected such reserve in
discontinued operations.
MEDIQ Imaging, the assets of which were sold by the Company in August 1995,
is presently the subject of a criminal and civil investigation by the United
States Attorney's Office for the District of New Jersey and the Department of
Health and Human Services. The investigation has focused on advice given by
MEDIQ Imaging employees to physician customers of MEDIQ Imaging relating to the
reassignment of certain Medicare claims. The Company and MEDIQ Imaging
voluntarily reported the issue to the government in January 1995 after learning
that the advice given by MEDIQ Imaging employees was inconsistent with the
reassignment regulations. The Company and MEDIQ Imaging have been cooperating in
the investigation. The Company has agreed, subject to certain limitations, to be
responsible for any fine or penalty assessed following the conclusion of the
investigation. Management believes that there has been no violation of any
statute or regulation by MEDIQ Imaging or any of its officers, directors or
employees and intends to vigorously defend any claims that may be brought.
In addition, the Company has pending several legal claims incurred in the
normal course of business. The Company has established reserves relating to its
legal claims and believes that potential liabilities in excess of those recorded
will not have a material adverse effect on the Company's Consolidated Financial
Statements, however, there can be no assurances to this effect.
NOTE I -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of financial instruments is provided in accordance
with the requirements of SFAS No. 107, 'Disclosures About Fair Value of
Financial Instruments'. The estimated fair value amounts have been determined by
the Company using available market information and appropriate methodologies.
However, considerable judgment is necessarily required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Accounts receivable and accounts payable -- The carrying amounts of
these items are an estimate of their fair values at September 30, 1995.
Note receivable from MHM -- The carrying amount of the Company's note
receivable from MHM of $11.5 million is a reasonable estimate of its fair
value since the receivable earns interest at the prime rate plus 1.5%.
28
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I -- FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
Long-term debt (excluding capital lease obligations) -- The fair value
of the Company's publicly traded debt is based on quoted market prices.
Interest rates that are currently available to the Company for issuance of
debt with similar terms and remaining maturities are used to estimate fair
value for debt issues for which quoted market prices are not available. The
carrying amount and estimated fair value of long-term debt are $247.1
million and $234.1 million, respectively.
The fair value estimates presented herein are based on information
available to management as of September 30, 1995, and have not been
comprehensively revalued for purposes of these financial statements since that
date. Current estimates of fair value may differ significantly from the amounts
presented herein.
NOTE J -- COMMON AND PREFERRED STOCK
Series A preferred stock is convertible on a one-for-one basis into shares
of common stock, votes generally with the common stock as a single class, and in
all such votes, has ten votes per share. The preferred stock participates in
cash dividends at a rate equal to 60% of the amount paid on the common stock and
has a $.50 per share preference in the event of dissolution or liquidation.
Cash dividends of $.03 per share on the common stock and $.018 per share on
the preferred stock were paid for the first, second and third quarters of 1994.
NOTE K -- INCOME TAXES
Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................................... $ -- $ -- $ (2,836)
State................................................................. 122 40 150
--------- --------- ---------
122 40 (2,686)
--------- --------- ---------
Deferred:
Federal............................................................... 184 (3,971) (2,549)
State................................................................. 998 825 1,364
--------- --------- ---------
1,182 (3,146) (1,185)
--------- --------- ---------
Total income tax expense (benefit).......................................... $ 1,304 $ (3,106) $ (3,871)
--------- --------- ---------
--------- --------- ---------
</TABLE>
29
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE K -- INCOME TAXES--(CONTINUED)
The differences between the Company's income tax expense (benefit) and the
income tax expense (benefit) computed using the U.S. federal income tax rate
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal tax expense (benefit)..................................... $ 372 $ (3,044) $ (901)
State income taxes, net of federal income taxes............................. 739 571 999
Goodwill amortization....................................................... 344 370 366
Effects of dispositions of subsidiaries..................................... -- (1,174) 6
Utilization of alternative minimum tax credits.............................. -- -- (2,858)
Undistributed earnings of unconsolidated affiliates......................... -- -- (1,182)
Other items -- net.......................................................... (151) 171 (301)
--------- --------- ---------
Income tax expense (benefit)................................................ $ 1,304 $ (3,106) $ (3,871)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Liabilities:
Depreciation.................................................................. $ 31,148 $ 28,424
Intangible assets............................................................. 11,481 9,800
Accrued expenses.............................................................. 381 202
Prepaid expenses.............................................................. 217 118
Other......................................................................... 5,902 4,140
--------- ---------
Gross deferred tax liabilities............................................. 49,129 42,684
Assets:
Net operating and capital loss carryforwards.................................. 27,662 22,604
Tax credit carryforwards...................................................... 5,747 5,747
Accrued expenses and reserves................................................. 8,696 5,173
Intangible assets............................................................. 429 3,907
Other......................................................................... 261 1,128
--------- ---------
Gross deferred tax assets.................................................. 42,795 38,559
Valuation allowance........................................................... (2,770) (2,618)
--------- ---------
40,025 35,941
--------- ---------
Net deferred tax liability.................................................... $ 9,104 $ 6,743
--------- ---------
--------- ---------
</TABLE>
Under the provisions of SFAS No. 96, the deferred tax benefit for 1993 of
$1.2 million resulted principally from depreciation and amortization of $2.7
million, allowance for doubtful accounts of $1.7 million, accrued expenses of
$1.9 million, differences between book and tax gains and losses of $1.6 million
and equity participation of $1.2 million, partially offset by net operating loss
carryforwards of $8 million and the reduction of the alternative minimum tax
accrual of $2.9 million.
Deferred taxes of $1.6 million, $1.2 million and $.3 million were recorded
in 1995, 1994 and 1993, respectively, for the undistributed earnings of
unconsolidated affiliates.
At September 30, 1995 for income tax purposes, the Company had alternative
minimum tax credit carryforwards of approximately $5.1 million, net operating
loss carryforwards of $41 million expiring
30
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE K -- INCOME TAXES--(CONTINUED)
through 2009, and capital loss carryforwards of $31.5 million expiring in 1998.
State net operating loss carryforwards were $46 million, expiring through 2009.
The Company also had a carryforward of Investment Tax Credit and Rehabilitation
Tax Credit of $.6 million expiring through 2003.
NOTE L -- RELATED PARTY TRANSACTIONS
The Company recorded interest income related to the MHM note of $1.2
million, $.9 million and $.8 million in 1995, 1994 and 1993, respectively.
In fiscal 1995 and 1994, the Company incurred legal fees of approximately
$700,000 and $250,000, respectively, to a law firm of which the Company's
Chairman of the Board of Directors is a partner.
The Company derived revenues of $340,000, $327,000 and $225,000 in 1995,
1994 and 1993, respectively, pursuant to agreements to provide financial
management, legal and risk management services to PCI, NutraMax and MHM.
In January 1993, the Company sold PCI of Virginia, Inc. to PCI for
aggregate consideration of $2.3 million which approximated the Company's
investment. In addition, the Company assigned to PCI a purchase option to
acquire the real estate leased by PCI of Virginia, in consideration for which
PCI reimbursed the Company for a $1.0 million deposit.
NOTE M -- STOCK OPTION PLANS
Under the Company's stock option plans, options may be granted to officers
and key employees of the Company and its subsidiaries. No option may be granted
for a term in excess of ten years from the date of grant. As of September 30,
1995, all incentive and non-qualified stock options were exercisable under the
plan. The exercise prices of outstanding options represented the fair market
value at dates of grant. The Company's Board of Directors has reserved a
sufficient number of shares for the exercise of outstanding stock options.
In August 1993, the Company's Board of Directors reduced the exercise
prices of certain outstanding stock options in connection with the distribution
of MHM. A summary of the Company's stock option plan activity for common and
preferred shares for the three years ended September 30, 1995 follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- -----------------
(IN
THOUSANDS)
<S> <C> <C>
Outstanding at October 1, 1992.......................................... 1,909 $2.45 to $5.16
Exercised............................................................. (172) $3.13 to $5.16
Terminated............................................................ (32) $2.45 to $4.09
-----------
Outstanding at September 30, 1993....................................... 1,705 $2.73 to $4.51
Exercised............................................................. (114) $ 3.06
Terminated............................................................ (149) $2.73 to $4.51
-----------
Outstanding at September 30, 1994....................................... 1,442 $2.73 to $4.51
Granted............................................................... 21 $4.02 to $4.13
Exercised............................................................. (60) $2.73 to $3.49
Terminated............................................................ (292) $2.73 to $4.49
-----------
Outstanding at September 30, 1995....................................... 1,111 $2.73 to $4.51
-----------
-----------
</TABLE>
31
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N -- PENSION PLAN
The Company maintains a noncontributory pension plan which provides
retirement benefits to substantially all employees. Employees generally are
eligible to participate in the plan after one year of service and become fully
vested after five years of service. The plan provides defined benefits based on
years of credited service and compensation. The Company makes contributions that
are sufficient to fully fund its actuarially determined cost, generally equal to
the minimum amounts required by ERISA. Assets of the plan consist primarily of
stocks, bonds and annuities.
Net periodic pension expense is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period.................... $ 785 $ 1,193 $ 1,220
Interest cost on projected benefit obligation........................ 929 894 836
Actual return on plan assets......................................... (1,642) (436) (713)
Net amortization and deferrals....................................... 851 (331) 45
--------- --------- ---------
Net periodic pension expense......................................... $ 923 $ 1,320 $ 1,388
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table presents the funded status of the Company's pension
plan and the amounts reflected in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits............................................................. $ (10,427) $ (9,532)
---------- ----------
---------- ----------
Accumulated benefit obligation.............................................. $ (11,291) $ (10,502)
---------- ----------
---------- ----------
Projected benefit obligation.................................................. $ (12,606) $ (12,261)
Plan assets at fair value..................................................... 11,493 10,095
---------- ----------
Projected benefit obligation in excess of plan assets......................... (1,113) (2,166)
Unrecognized net gain......................................................... (2,345) (1,054)
Balance of unrecorded transition obligation................................... 647 701
---------- ----------
Accrued pension liability..................................................... $ (2,811) $ (2,519)
---------- ----------
---------- ----------
</TABLE>
The actuarial assumptions used in determining net periodic pension costs
were:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Discount rate............................................................ 8% 8% 7%
Expected long-term return on plan assets................................. 8% 8% 8%
Weighted average rate of increase in compensation levels................. 4.5% 4.5% 4.5%
</TABLE>
NOTE O -- BUSINESS SEGMENT DATA
The Company operates primarily in one business segment, exclusive of
discontinued operations which include the Diagnostic Imaging Services Group,
MEMS, MHM and other operating segments including Health Examinetics, Medifac and
HealthQuest. Discontinued operations also includes the Company's equity
investment in InnoServ. The Company, through its subsidiary MEDIQ/PRN, rents
medical equipment on a short-term basis nationwide. This segment represents more
than 90% of the consolidated revenues, operating profit and assets exclusive of
corporate assets, which include net assets of discontinued operations of $27.1
million and equity investments of $43.1 million.
32
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE P -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data (in thousands except per share data) for
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
- ---- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues........................................................... $ 31,842 $ 37,036 $ 33,098 $ 30,265(A)
Operating income................................................... 4,676 10,244 6,481 2,537(A)(B)
Income (loss) from continuing operations........................... (616) 1,564 290 (1,447)(A)(B)
Income (loss) from discontinued operations......................... 405 223 (1,482) (3,884)(C)
Net income (loss).................................................. (211) 1,787 (1,192) (5,331)
Earnings per share:
Income (loss) from continuing operations........................... (.03) .06 .01 (.06)
Income (loss) from discontinued operations......................... .02 .01 (.06) (.16)
Net income (loss).................................................. (.01) .07 (.05) (.22)
</TABLE>
- ------------------
(A) Reflects seasonal nature of MEDIQ/PRN's business
(B) Includes non-recurring expenses related to the activities of the Special
Committee of the Board of Directors.
(C) Reflects the expansion of the Company's plan to sell non-core businesses to
include the operations of HealthQuest and the Company's investment in
Innoserv. In addition, the Company revised its estimate of the loss on sale
of discontinued operations.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
- ---- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues........................................................... $ 20,607 $ 22,550 $ 19,728 $ 18,613
Operating income (loss)............................................ 901 3,550 267 (3,623)
Income (loss) from continuing operations........................... (925) (170) (2,855) (1,898)
Income (loss) from discontinued operations......................... (337) 344 6 (1,483)
Net income (loss).................................................. (1,262) 174 (2,849) (3,381)
Earnings per share:
Income (loss) from continuing operations........................... (.04) (.01) (.12) (.08)
Income (loss) from discontinued operations......................... (.01) .02 -- (.06)
Net income (loss).................................................. (.05) .01 (.12) (.14)
</TABLE>
NOTE Q -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company's investments in unconsolidated affiliates consist of NutraMax
Products, Inc. and PCI Services, Inc. The following summary presents the
Company's approximate ownership interest, carrying value and market value as of
September 30.
<TABLE>
<CAPTION>
1995 1994
------------------------------------- -------------------------------------
OWNERSHIP CARRYING MARKET OWNERSHIP CARRYING MARKET
INTEREST VALUE VALUE INTEREST VALUE VALUE
--------------- --------- --------- --------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PCI....................................... 47% $ 24,494 $ 26,234 47% $ 21,861 $ 18,688
NutraMax.................................. 47% 18,598 40,373 47% 16,477 41,887
--------- --------- --------- ---------
$ 43,092 $ 66,607 $ 38,338 $ 60,575
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The Company's ownership interest in NutraMax may decrease in the future in
the event that certain of the Company's outstanding debentures are exchanged
into shares of NutraMax common
33
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE Q -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES--(CONTINUED)
stock owned by the Company. Assuming the Company does not elect to pay cash, the
effect of the exchange of all of such debentures would decrease the Company's
ownership interest of NutraMax to approximately 21%.
Gains (losses) on issuances of common stock by unconsolidated affiliates
were $22,000 ($.7) million and $3.5 million in 1995, 1994 and 1993,
respectively. Undistributed earnings were $17.1 million as of September 30,
1995. Summarized consolidated financial information for unconsolidated
affiliates is as follows:
NUTRAMAX PRODUCTS, INC. -- CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT. 30, OCT. 1,
1995 1994
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Total current assets.................................................................. $ 23,552 $ 21,467
Property and equipment, net........................................................... 23,714 22,499
Goodwill, net......................................................................... 13,978 14,541
Other assets.......................................................................... 1,830 1,943
------------- -----------
$ 63,074 $ 60,450
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Total current liabilities............................................................. $ 9,400 $ 8,295
Long term debt, less current maturities............................................... 12,550 16,183
Deferred income taxes and other liabilities........................................... 1,891 1,215
Stockholders' equity.................................................................. 39,233 34,757
------------- -----------
$ 63,074 $ 60,450
------------- -----------
------------- -----------
</TABLE>
NUTRAMAX PRODUCTS, INC. -- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
SEPT. 30, OCT. 1, OCT. 2,
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales...................................................................... $ 63,111 $ 55,958 $ 31,144
Cost of sales.................................................................. 45,916 38,752 19,598
--------- --------- ---------
Gross profit................................................................... 17,195 17,206 11,546
Selling, general and administrative expenses................................... 8,694 9,281 5,928
--------- --------- ---------
Operating income............................................................... 8,501 7,925 5,618
Other credits (charges)........................................................ (1,111) (833) 251
--------- --------- ---------
Income before income tax expense............................................... 7,390 7,092 5,869
Income tax expense............................................................. 2,916 2,832 2,350
--------- --------- ---------
Net income..................................................................... $ 4,474 $ 4,260 $ 3,519
--------- --------- ---------
--------- --------- ---------
</TABLE>
34
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE Q -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES--(CONTINUED)
PCI SERVICES, INC. -- CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1995 1994
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Total current assets..................................................................... $ 36,214 $ 28,301
Property, plant and equipment, net....................................................... 61,901 44,145
Goodwill, net............................................................................ 10,182 9,857
Other assets............................................................................. 670 1,124
----------- ---------
$ 108,967 $ 83,427
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Total current liabilities................................................................ $ 24,034 $ 17,244
Long-term debt, less current maturities.................................................. 27,208 14,760
Deferred income taxes and other liabilities.............................................. 4,189 4,079
Stockholders' equity..................................................................... 53,536 47,344
----------- ---------
$ 108,967 $ 83,427
----------- ---------
----------- ---------
</TABLE>
PCI SERVICES, INC. -- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenue................................................................ $ 129,785 $ 121,177 $ 111,272
Cost of goods sold......................................................... 101,586 96,092 86,932
----------- ----------- -----------
Gross profit............................................................... 28,199 25,085 24,340
Operating expenses......................................................... 18,554 17,561 15,344
----------- ----------- -----------
Income before income tax expense........................................... 9,645 7,524 8,996
Income tax expense......................................................... 4,073 2,168 2,841
----------- ----------- -----------
Net income................................................................. $ 5,572 $ 5,356 $ 6,155
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE R -- RESTRUCTURING CHARGE
In the first quarter of fiscal 1996, the Company recorded a restructuring
charge of $2.0 million for employee severance costs incurred in connection with
a plan approved by the Board of Directors to downsize corporate functions and
consolidate certain activities with the operations of MEDIQ/PRN. The plan
results in the termination of 29 employees in fiscal 1996. The Company
anticipates reductions in corporate expenses of approximately $1.3 million in
1996 and $2.0 million annually thereafter as a result of the downsizing and
consolidation of corporate activities.
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
INCORPORATED BY REFERENCE
The information called for by Item 10 'Directors and Executive Officers
of the Registrant', Item 11 'Executive Compensation', Item 12 'Security
Ownership of Certain Beneficial Owners and Management' and Item 13 'Certain
Relationships and Related Transactions' is incorporated herein by reference to
the Company's definitive proxy statement for its Annual Meeting of Shareholders
scheduled to be held March 5, 1996, which definitive proxy statement is expected
to be filed with the Commission not later than 120 days after the end of the
fiscal year to which this report relates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a)(1) Financial Statements and Supplementary Data
</TABLE>
<TABLE>
<S> <C>
Report of Independent Auditors 16
Consolidated Statements of Operations 17
Consolidated Balance Sheets 18
Consolidated Statements of Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21-35
</TABLE>
<TABLE>
<S> <C> <C>
The response to this portion of Item 14 is submitted as a separate section of this report.
(a)(2) Financial Statement Schedules
Included in Part IV of this report:
Schedule I -- Condensed Financial Information of Registrant
Schedule II -- Valuation and Qualifying Accounts and Reserves
Other Schedules are omitted because of the absence of conditions under which they are required.
(a)(3) Exhibits
The exhibits are listed in the Index to Exhibits appearing below.
(b) No reports on Form 8-K were filed in the quarter ended September 30, 1995.
(c) Exhibits
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION INCORPORATION REFERENCE OR PAGE NUMBER HEREIN
- ------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
2.1(a) Agreement of Merger and Plan of Reorganization Exhibit 2 to Current Report on Form 8-K filed
among MMI Medical, Inc., MMI Acquisition June 9, 1994.
Subsidiary, Inc., MEDIQ and MEDIQ Equipment and
Maintenance Services, Inc., dated May 18, 1994.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION INCORPORATION REFERENCE OR PAGE NUMBER HEREIN
- ------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
2.1(b) Amendment No. 1 to Agreement of Merger and Plan Filed herewith.
of Reorganization dated October 24, 1995 by and
among MMI Medical, Inc., MMI Acquisition
Subsidiary, Inc., MEDIQ and MEDIQ Equipment and
Maintenance Services, Inc.
2.2(a) Asset Purchase Agreement dated August 23, 1994 Exhibit 2.1 to Current Report on Form 8-K filed
by and among Kinetic Concepts, Inc., KCI October 14, 1994.
Therapeutic Services, Inc., MEDIQ, PRN Holdings,
Inc. and MEDIQ/PRN Life Support Services-I, Inc.
2.2(b) Amendment No. 1 to Asset Purchase Agreement Exhibit 2.2 to Current Report on Form 8-K filed
dated September 30, 1994 by and among Kinetic October 14, 1994.
Concepts, Inc., KCI Therapeutic Services, Inc.,
MEDIQ, PRN Holdings, Inc., and MEDIQ/PRN Life
Support Services-I, Inc.
2.3 Agreement and Plan of Merger dated April 7, 1995 Filed herewith.
by and among MEDIQ, MEDIFAC, Inc., MEDIFAC
Acquisition, Inc., and MEDIFAC Holdings, Inc.
2.4 Asset Purchase Agreement dated August 11, 1995, Filed herewith.
by and among MEDIQ Imaging Services, Inc.,
American Cardiovascular Imaging Labs, Inc.,
Southern Diagnostic, Inc., and NMC Diagnostic
Services, Inc.
3.1 Certificate of Incorporation. Filed herewith.
3.2 By-Laws. Filed herewith.
4.1 Indenture dated as of June 1, 1986 between MEDIQ Exhibit 4.1 to S-2 Registration Statement No.
and Mellon Bank, N.A. for 7.25% Convertible 33-5089 originally filed on May 2, 1986, as
Subordinated Debentures due 2006. amended.
4.2 7.25% Convertible Subordinated Debenture due Exhibit 4.2 to S-2 Registration Statement No.
2006. 33-5089 originally filed on May 2, 1986, as
amended.
4.3 Indenture dated as of July 1, 1993 between MEDIQ Exhibit 4.1 to S-2 Registration Statement No.
and First Fidelity Bank, N.A. for 7.5% 33-61724 originally filed on April 28, 1993, as
Exchangeable Subordinated Debentures due 2003. amended.
4.4 7.5% Exchangeable Subordinated Debentures due Exhibit 4.2 to S-2 Registration Statement No.
2003. 33-61724 originally filed on April 28, 1993, as
amended.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION INCORPORATION REFERENCE OR PAGE NUMBER HEREIN
- ------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
4.5(a) Warrant Agreement, dated as of May 29, 1992 Exhibit 4.5 to Form S-1 Registration Statement
among MEDIQ, MEDIQ/PRN Life Support Services, of MEDIQ/PRN Life Support Services, Inc. (File
Inc. and Internationale Nederlanden Bank, N.V., No. 33-47787), originally Filed on May 8, 1992,
New York Branch. as amended.
4.5(b) Warrant issued to Internationale Nederlanden Exhibit 4.6 to the Form S-1 Registration
(US) Finance Corporation Statement of MEDIQ/PRN Life Support Services,
Inc. (File No. 33-47787), originally Filed on
May 8, 1992, as amended.
4.6(a) Promissory Note dated September 30, 1994 in the Exhibit 4.4 to Current Report on Form 8-K filed
principal amount of $2,956,957 payable by on October 14, 1994.
MEDIQ/PRN Life Support Services-I, Inc. to the
order of KCI Therapeutic Services, Inc.
4.6(b) Promissory Note dated September 30, 1994 in the Exhibit 4.5 to Current Report on Form 8-K filed
principal amount of $5,835,707 payable by on October 14, 1994.
MEDIQ/PRN Life Support Services, Inc. to the
order of KCI Therapeutic Services, Inc.
4.6(c) Negative Covenants Agreement dated September 30, Exhibit 4.6 to Current Report on Form 8-K filed
1994 by and among Kinetic Concepts, Inc., KCI on October 14, 1994.
Therapeutic Services, Inc., MEDIQ/PRN Holdings,
Inc. and MEDIC/PRN Life Support Services-I, Inc.
4.6(d) Guaranty Agreement dated September 30, 1994 made Exhibit 4.7 to Current Report on Form 8-K filed
by PRN Holdings, Inc. in favor of KCI on October 14, 1994.
Therapeutic Services, Inc.
4.6(e) Guaranty Agreement dated September 30, 1994 made Exhibit 4.8 to Current Report on Form 8-K filed
by MEDIQ Incorporated in favor of KCI on October 14, 1994.
Therapeutic Services, Inc.
4.7(a) Loan and Security Agreement by and between Exhibit 4.9 to Current Report on Form 8-K filed
Congress Financial Corporation and MEDIQ/PRN on October 14, 1994.
Life Support Services-I, Inc. dated September
30, 1994.
4.7(b) Amendment No. 1 to Loan and Security Agreement Filed herewith.
by and between Congress Financial Corporation
and MEDIQ/PRN Life Support Services-I, Inc.
dated December 31, 1995.
4.8(a) PRN Holdings, Inc. Note Agreement, dated as of Exhibit 4.10 to Current Report on Form 8-K filed
September 30, 1994 RE: $10,000,000 Senior on October 14, 1994.
Subordinated Notes due October 1, 2004 and
Warrants to Purchase Common Stock.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION INCORPORATION REFERENCE OR PAGE NUMBER HEREIN
- ------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
4.8(b) Form of Warrant to Purchase Shares of Common Exhibit 4.11 to Current Report on Form 8-K filed
Stock of PRN Holdings, Inc. on October 14, 1994.
*Miscellaneous long-term debt instruments and
credit facility agreements of the Company, under
which the underlying authorized debt is equal to
less than 10% of the total assets of the Company
and its subsidiaries on a consolidated basis,
may not be filed as exhibits to this report. The
Company agrees to furnish to the Commission,
upon request, copies of any such unfiled
instruments.
10.6 MEDIQ Executive Security Plan. Filed herewith.
10.7 1987 Stock Option Plan. Filed herewith.
10.8 Employment contract with Michael F. Sandler Filed herewith.
dated as of June 26, 1995.
10.9 Employment contract with Thomas E. Carroll dated Filed herewith.
as of April 27, 1995.
10.10 Employment contract with Jay M. Kaplan dated as Filed herewith.
of June 20, 1995.
11 Statement re computation of per share earnings. Filed herewith.
21 Subsidiaries of the Registrant. Filed herewith.
23 Consent of Deloitte & Touche LLP Filed herewith.
27 Financial Data Schedule Filed herewith.
99.1 Financial Statements of PCI Services, Inc. Items 8 and 14 of the Annual Report on Form 10-K
(approximately 47% owned by MEDIQ as of of PCI Services, Inc. for the fiscal year ended
September 30, 1995). September 30, 1995. (File No. 0-197595).
99.2 Financial Statements of NutraMax Products, Inc. Items 8 and 14 of the Annual Report on Form 10-K
(approximately 47% owned by MEDIQ as of of NutraMax Products, Inc. for the fiscal year
September 30, 1995). ended September 30, 1995. (File No. 0-18671).
</TABLE>
<TABLE>
<S> <C>
(d) Financial Statements of Unconsolidated Affiliates:
The financial statements of NutraMax Products, Inc. and PCI Services, Inc., unconsolidated affiliates
of the Company, which are required to be filed pursuant to Item 14(d) of Form 10-K are filed herein
through incorporation by reference under Rule 12b-23, promulgated under the Securities Exchange Act of
1934, as amended (the 'Act'), to the Annual Report on Form 10-K of each of such companies filed under
the Act, which are included as exhibits to this Annual Report on Form 10-K pursuant to Rule 12b-23(c),
and such exhibits are incorporated by reference into this Annual Report on Form 10-K under Rule 12b-32,
promulgated under the Act.
</TABLE>
39
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE I
CONDENSED STATEMENTS OF OPERATIONS
(REGISTRANT - ONLY)
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Management fees.............................................................. $ 3,930 $ 6,770 $ 9,454
Other........................................................................ 953 1,111 2,874
--------- --------- ---------
4,883 7,881 12,328
Other (income) and expenses:
General and administrative................................................... 7,738 6,880 8,118
Depreciation and amortization................................................ 374 438 934
Interest expense............................................................. 7,801 7,518 7,635
Interest income.............................................................. (5,002) (4,621) (4,134)
(Earnings) losses from unconsolidated subsidiaries and affiliates, net of
taxes..................................................................... (9,635) 1,364 (3,114)
Other -- net................................................................. 73 (1,478) (3,268)
--------- --------- ---------
1,349 10,101 6,171
--------- --------- ---------
Income (Loss) from Continuing Operations before Income Taxes and Extraordinary
Charge....................................................................... 3,534 (2,220) 6,157
Income Tax Benefit............................................................. (670) (96) (573)
--------- --------- ---------
Income (Loss) from Continuing Operations before Extraordinary Charge........... 4,204 (2,124) 6,730
Discontinued Operations (1).................................................... (9,151) (5,194) (2,481)
--------- --------- ---------
Income (Loss) before Extraordinary Charge...................................... (4,947) (7,318) 4,249
Extraordinary Charge, Early Retirement of Debt ................................ -- -- (953)
--------- --------- ---------
Net Income (Loss).............................................................. $ (4,947) $ (7,318) $ 3,296
--------- --------- ---------
--------- --------- ---------
Earnings Per Share:
Income (Loss) from:
Continuing Operations..................................................... $ .17 $ (.09) $ .28
Discontinued Operations (1)............................................... (.37) (.21) (.10)
--------- --------- ---------
Income (Loss) before Extraordinary Charge.................................... (.20) (.30) .18
Extraordinary Charge......................................................... -- -- (.04)
--------- --------- ---------
Net Income (Loss)............................................................ $ (.20) $ (.30) $ .14
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------
(1) Loss from discontinued operations does not agree to the consolidated
statements of operations because the respective management fees and
intercompany interest of discontinued operations have not been eliminated.
See Notes to Schedule I
40
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE I
CONDENSED BALANCE SHEETS
(REGISTRANT - ONLY)
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................................................. $ 926 $ 166
Accounts receivable................................................................... 976 303
Deferred income taxes................................................................. 2,287 867
Investment in discontinued operations................................................. 19,009 --
Other current assets.................................................................. 1,000 2,496
----------- -----------
Total Current Assets......................................................... 24,198 3,832
Investments in unconsolidated subsidiaries and affiliates............................... 89,931 76,012
Investment in discontinued operations................................................... 8,061 61,573
Note receivable -- MHM.................................................................. 10,733 11,500
Deferred income taxes................................................................... 17,106 13,720
Goodwill................................................................................ 638 656
Other assets............................................................................ 9,517 10,272
----------- -----------
Total Assets............................................................................ $ 160,184 $ 177,565
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to financial institutions............................................... $ -- $ 1,000
Accounts payable...................................................................... 467 513
Accrued expenses...................................................................... 10,650 12,608
Other current liabilities............................................................. -- 723
Current portion of long-term debt..................................................... 23,067 1,277
----------- -----------
Total Current Liabilities.................................................... 34,184 16,121
Senior debt............................................................................. 1,815 15,649
Subordinated debt....................................................................... 63,729 86,229
Advances from unconsolidated subsidiaries............................................... 25,052 19,498
Other liabilities....................................................................... 3,887 3,788
Stockholders' Equity:
Preferred stock....................................................................... 3,376 3,408
Common stock.......................................................................... 19,127 19,064
Additional paid-in capital............................................................ 22,124 22,357
Accumulated deficit................................................................... (6,067) (1,120)
Treasury stock........................................................................ (7,043) (7,429)
----------- -----------
Total Stockholders' Equity................................................... 31,517 36,280
----------- -----------
Total Liabilities and Stockholders' Equity.............................................. $ 160,184 $ 177,565
----------- -----------
----------- -----------
</TABLE>
See Notes to Schedule I
41
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE I
CONDENSED STATEMENTS OF CASH FLOWS
(REGISTRANT - ONLY)
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).............................................................. $ (4,947) $ (7,318) $ 3,296
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities......................................................... 5,702 10,681 (19,419)
--------- --------- ---------
Net cash provided by (used in) operating activities.......................... 755 3,363 (16,123)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of discontinued operations,
subsidiaries and assets...................................................... 27,498 1,672 8,667
Net cash provided by (used in) discontinued operations, equity investments and
unconsolidated subsidiaries.................................................. (13,028) (11,557) 9,529
Purchase of property, plant and equipment...................................... (5) (135) (2,421)
Other.......................................................................... 900 (138) (3,099)
--------- --------- ---------
Net cash provided by (used in) investing activities.......................... 15,365 (10,158) 12,676
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings..................................................................... 230 10,634 34,646
Debt repayments................................................................ (15,774) (13,642) (19,623)
Dividends...................................................................... -- (2,722) (1,903)
Proceeds from exercise of stock options........................................ 184 398 642
--------- --------- ---------
Net cash provided by (used in) financing activities.......................... (15,360) (5,332) 13,762
Increase (decrease) in cash.................................................... 760 (12,127) 10,315
Cash
Beginning balance............................................................ 166 12,293 1,978
--------- --------- ---------
Ending balance............................................................... $ 926 $ 166 $ 12,293
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Interest paid................................................................ $ 7,836 $ 7,841 $ 8,218
--------- --------- ---------
--------- --------- ---------
Income taxes paid (refunded)................................................. $ 5 $ (2,801) $ (1,727)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Schedule I
42
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE I
NOTES TO CONDENSED FINANCIAL STATEMENTS
(REGISTRANT - ONLY)
NOTE A -- DEBT
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Senior recourse debt:
Revolving credit facility.................................................. $ 567 $ 11,147
Term loan payable at rates ranging from prime (8.75% at September 30, 1995)
to 12%.................................................................. 1,815 1,862
Mortgage payable........................................................... -- 3,917
Subordinated debt:
7.5% exchangeable subordinated debentures due 2003......................... 34,500 34,500
7.25% convertible subordinated debentures due in 2006...................... 51,729 51,729
----------- -----------
88,611 103,155
Current portion.............................................................. (23,067) (1,277)
----------- -----------
$ 65,544 $ 101,878
----------- -----------
----------- -----------
</TABLE>
Maturities of long term debt at September 30, 1995 are as follows:
<TABLE>
<S> <C>
1996.......................................................... $23,067
1997.......................................................... 22,500
1998.......................................................... 6,729
1999.......................................................... --
2000.......................................................... --
Thereafter.................................................... 36,315
-----------
$88,611
-----------
-----------
</TABLE>
Certain of the Registrant's loan agreements require the maintenance of
specified financial ratios and impose financial and dividend limitations. The
terms of one of the Registrant's indentures currently limits the payment of
future dividends or the purchase of the Registrant's stock to approximately $5
million in the aggregate as of September 30, 1995. At September 30, 1995, the
Registrant complied with these ratios and limitations, as amended.
NOTE B -- DIVIDENDS FROM UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES
There were no cash dividends received by the Registrant from unconsolidated
subsidiaries and affiliates for the fiscal years ended September 30, 1995 and
1994.
43
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO (1) BALANCE AT
BEGINNING COSTS AND CHARGED TO (2) END OF
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1995:
Allowance for doubtful accounts.......... $ 2,195 $ 993 $ -- $ 981 $ 2,207
----------- ----------- ----------------- ----------- -----------
----------- ----------- ----------------- ----------- -----------
Year ended September 30, 1994:
Allowance for doubtful accounts.......... $ 1,968 $ 984 $ 246 $ 1,003 $ 2,195
----------- ----------- ----------------- ----------- -----------
----------- ----------- ----------------- ----------- -----------
Year ended September 30, 1993:
Allowance for doubtful accounts.......... $ 3,975 $ 1,809 $ 723 $ 4,539 $ 1,968
----------- ----------- ----------------- ----------- -----------
----------- ----------- ----------------- ----------- -----------
</TABLE>
- ------------------
(1) Primarily represents allowances for doubtful accounts related to
acquisitions.
(2) Represents accounts directly written-off net of recoveries.
44
<PAGE>
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.
Dated: January 11, 1996 MEDIQ Incorporated
By: /s/ THOMAS E. CARROLL
----------------------------------
Thomas E. Carroll
President and Chief Executive
Officer
By: /s/ MICHAEL F. SANDLER
---------------------------------
Michael F. Sandler
Senior Vice President -- Finance,
Treasurer and Chief Financial
Officer
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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------- -------------------------------------------- ---------------------
<S> <C> <C>
/s/ THOMAS E. CARROLL Director, Chief Executive Officer and January 11, 1996
- ------------------------------------------ President
Thomas E. Carroll
/s/ MICHAEL F. SANDLER Director and Chief Financial Officer January 11, 1996
- ------------------------------------------
Michael F. Sandler
/s/ SHELDON M. BONOVITZ Director January 11, 1996
- ------------------------------------------
Sheldon M. Bonovitz
/s/ LIONEL H. FELZER Director January 11, 1996
- ------------------------------------------
Lionel H. Felzer
/s/ MARK S. LEVITAN Director January 11, 1996
- ------------------------------------------
Mark S. Levitan
- ------------------------------------------ Director January __, 1996
H. Scott Miller
/s/ MICHAEL J. ROTKO Chairman of the Board and Director January 11, 1996
- ------------------------------------------
Michael J. Rotko
/s/ JACOB SHIPON Vice Chairman of the Board and Director January 11, 1996
- ------------------------------------------
Jacob Shipon
- ------------------------------------------ Director January __, 1996
Bernard J. Korman
</TABLE>
45
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION INCORPORATION REFERENCE OR PAGE NUMBER HEREIN
- ------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
2.1(a) Agreement of Merger and Plan of Reorganization Exhibit 2 to Current Report on Form 8-K filed
among MMI Medical, Inc., MMI Acquisition June 9, 1994.
Subsidiary, Inc., MEDIQ and MEDIQ Equipment and
Maintenance Services, Inc., dated May 18, 1994.
2.1(b) Amendment No. 1 to Agreement of Merger and Plan Filed herewith.
of Reorganization dated October 24, 1995 by and
among MMI Medical, Inc., MMI Acquisition
Subsidiary, Inc., MEDIQ and MEDIQ Equipment and
Maintenance Services, Inc.
2.2(a) Asset Purchase Agreement dated August 23, 1994 Exhibit 2.1 to Current Report on Form 8-K filed
by and among Kinetic Concepts, Inc., KCI October 14, 1994.
Therapeutic Services, Inc., MEDIQ, PRN Holdings,
Inc. and MEDIQ/PRN Life Support Services-I, Inc.
2.2(b) Amendment No. 1 to Asset Purchase Agreement Exhibit 2.2 to Current Report on Form 8-K filed
dated September 30, 1994 by and among Kinetic October 14, 1994.
Concepts, Inc., KCI Therapeutic Services, Inc.,
MEDIQ, PRN Holdings, Inc., and MEDIQ/PRN Life
Support Services-I, Inc.
2.3 Agreement and Plan of Merger dated April 7, 1995 Filed herewith.
by and among MEDIQ, MEDIFAC, Inc., MEDIFAC
Acquisition, Inc., and MEDIFAC Holdings, Inc.
2.4 Asset Purchase Agreement dated August 11, 1995, Filed herewith.
by and among MEDIQ Imaging Services, Inc.,
American Cardiovascular Imaging Labs, Inc.,
Southern Diagnostic, Inc., and NMC Diagnostic
Services, Inc.
3.1 Certificate of Incorporation. Filed herewith.
3.2 By-Laws. Filed herewith.
4.1 Indenture dated as of June 1, 1986 between MEDIQ Exhibit 4.1 to S-2 Registration Statement No.
and Mellon Bank, N.A. for 7.25% Convertible 33-5089 originally filed on May 2, 1986, as
Subordinated Debentures due 2006. amended.
4.2 7.25% Convertible Subordinated Debenture due Exhibit 4.2 to S-2 Registration Statement No.
2006. 33-5089 originally filed on May 2, 1986, as
amended.
4.3 Indenture dated as of July 1, 1993 between MEDIQ Exhibit 4.1 to S-2 Registration Statement No.
and First Fidelity Bank, N.A. for 7.5% 33-61724 originally filed on April 28, 1993, as
Exchangeable Subordinated Debentures due 2003. amended.
4.4 7.5% Exchangeable Subordinated Debentures due Exhibit 4.2 to S-2 Registration Statement No.
2003. 33-61724 originally filed on April 28, 1993, as
amended.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION INCORPORATION REFERENCE OR PAGE NUMBER HEREIN
- ------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
4.5(a) Warrant Agreement, dated as of May 29, 1992 Exhibit 4.5 to Form S-1 Registration Statement
among MEDIQ, MEDIQ/PRN Life Support Services, of MEDIQ/PRN Life Support Services, Inc. (File
Inc. and Internationale Nederlanden Bank, N.V., No. 33-47787), originally Filed on May 8, 1992,
New York Branch. as amended.
4.5(b) Warrant issued to Internationale Nederlanden Exhibit 4.6 to the Form S-1 Registration
(US) Finance Corporation Statement of MEDIQ/PRN Life Support Services,
Inc. (File No. 33-47787), originally Filed on
May 8, 1992, as amended.
4.6(a) Promissory Note dated September 30, 1994 in the Exhibit 4.4 to Current Report on Form 8-K filed
principal amount of $2,956,957 payable by on October 14, 1994.
MEDIQ/PRN Life Support Services-I, Inc. to the
order of KCI Therapeutic Services, Inc.
4.6(b) Promissory Note dated September 30, 1994 in the Exhibit 4.5 to Current Report on Form 8-K filed
principal amount of $5,835,707 payable by on October 14, 1994.
MEDIQ/PRN Life Support Services, Inc. to the
order of KCI Therapeutic Services, Inc.
4.6(c) Negative Covenants Agreement dated September 30, Exhibit 4.6 to Current Report on Form 8-K filed
1994 by and among Kinetic Concepts, Inc., KCI on October 14, 1994.
Therapeutic Services, Inc., MEDIQ/PRN Holdings,
Inc. and MEDIC/PRN Life Support Services-I, Inc.
4.6(d) Guaranty Agreement dated September 30, 1994 made Exhibit 4.7 to Current Report on Form 8-K filed
by PRN Holdings, Inc. in favor of KCI on October 14, 1994.
Therapeutic Services, Inc.
4.6(e) Guaranty Agreement dated September 30, 1994 made Exhibit 4.8 to Current Report on Form 8-K filed
by MEDIQ Incorporated in favor of KCI on October 14, 1994.
Therapeutic Services, Inc.
4.7(a) Loan and Security Agreement by and between Exhibit 4.9 to Current Report on Form 8-K filed
Congress Financial Corporation and MEDIQ/PRN on October 14, 1994.
Life Support Services-I, Inc. dated September
30, 1994.
4.7(b) Amendment No. 1 to Loan and Security Agreement Filed herewith.
by and between Congress Financial Corporation
and MEDIQ/PRN Life Support Services-I, Inc.
dated December 31, 1995.
4.8(a) PRN Holdings, Inc. Note Agreement, dated as of Exhibit 4.10 to Current Report on Form 8-K filed
September 30, 1994 RE: $10,000,000 Senior on October 14, 1994.
Subordinated Notes due October 1, 2004 and
Warrants to Purchase Common Stock.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION INCORPORATION REFERENCE OR PAGE NUMBER HEREIN
- ------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
4.8(b) Form of Warrant to Purchase Shares of Common Exhibit 4.11 to Current Report on Form 8-K filed
Stock of PRN Holdings, Inc. on October 14, 1994.
*Miscellaneous long-term debt instruments and
credit facility agreements of the Company, under
which the underlying authorized debt is equal to
less than 10% of the total assets of the Company
and its subsidiaries on a consolidated basis,
may not be filed as exhibits to this report. The
Company agrees to furnish to the Commission,
upon request, copies of any such unfiled
instruments.
10.6 MEDIQ Executive Security Plan. Filed herewith.
10.7 1987 Stock Option Plan. Filed herewith.
10.8 Employment contract with Michael F. Sandler Filed herewith.
dated as of June 26, 1995.
10.9 Employment contract with Thomas E. Carroll dated Filed herewith.
as of April 27, 1995.
10.10 Employment contract with Jay M. Kaplan dated as Filed herewith.
of June 20, 1995.
11 Statement re computation of per share earnings. Filed herewith.
21 Subsidiaries of the Registrant. Filed herewith.
23 Consent of Deloitte & Touche LLP Filed herewith.
27 Financial Data Schedule Filed herewith.
99.1 Financial Statements of PCI Services, Inc. Items 8 and 14 of the Annual Report on Form 10-K
(approximately 47% owned by MEDIQ as of of PCI Services, Inc. for the fiscal year ended
September 30, 1995). September 30, 1995. (File No. 0-197595).
99.2 Financial Statements of NutraMax Products, Inc. Items 8 and 14 of the Annual Report on Form 10-K
(approximately 47% owned by MEDIQ as of of NutraMax Products, Inc. for the fiscal year
September 30, 1995). ended September 30, 1995. (File No. 0-18671).
</TABLE>
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION
This Amendment No. 1 to Agreement and Plan of Reorganization is entered
into as of this 24th day of October, 1995 by and between MMI Medical, Inc., a
California corporation ("MMI") and MEDIQ, Incorporated, a Delaware corporation
("MEDIQ").
WHEREAS, MMI, MEDIQ and certain other parties entered into that certain
Agreement of Merger and Plan of Reorganization (the "Agreement") dated as of
May 18, 1994 pursuant to which MEDIQ Equipment and Maintenance Services, Inc.,
a subsidiary of MEDIQ was merged with a subsidiary of MMI;
WHEREAS, pursuant to the Agreement, MMI agreed to use reasonable efforts
to cause all Registrable Securities (as defined in the Agreement) to be
registered under the 1933 Act as soon as reasonably practical after the filing
of its annual report of Form 10-K for the fiscal year ending April 28, 1995;
WHEREAS, MMI and MEDIQ have agreed to modify the timing of MMI's agreement
to effect such registration.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements contained herein, the parties hereto hereby agree as
follows:
1. Section 11.2(a) of the Agreement is hereby amended to read in full as
follows:
11.2 Registration
(a) MMI shall employ its reasonable efforts to cause all Registrable
Securities to be registered under the 1933 Act as soon as reasonably
practicable during the first quarter of calendar 1996; provided, however,
that if MMI shall furnish to MEDIQ a certificate signed by its President
stating that, in the good faith judgment of the board of directors of MMI,
it would be detrimental to MMI or its shareholders for a registration
statement to be filed in the near future, the MMI shall have the right to
defer the filing of a registration statement with respect to such
Registrable Securities until such time as the board of directors of MMI
deems advisable, but in no event later than April 30, 1996, and thereafter
shall employ its reasonable efforts to cause all Registrable Securities to
be registered under the 1933 Act as soon as practicable.
MMI shall be obligated to effect only one registration pursuant to this
Article XI.
2. All defined terms used herein which are not otherwise defined shall
have the meanings set forth in the Agreement.
3. Except where inconsistent with the express terms of this Amendment
No. 1, all provisions of the Agreement as originally entered into prior to the
date hereof shall remain in full force ad effect.
4. This Amendment shall be governed by and construed in accordance with
the laws of the State of California as applied to contracts between California
residents made and to be performed entirely within the State of California.
5. This amendment may be executed in any number of counterparts by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original and all of which taken together
shall constitute one in the same agreement.
IN WITNESS WHEREOF, each of the parties has caused this Amendment No. 1 to
be executed on its behalf by its officers thereunto duly authorized on the day
and year first above written.
MMI MEDICAL, INC.
By: /s/ Samuel Salen
----------------------------------
Samuel Salen
Its: President
MEDIQ INCORPORATED
By: /s/ Michael Sandler
-----------------------------------
Michael Sandler
Its: Senior Vice President
<PAGE>
AGREEMENT AND PLAN OF MERGER
Parties: MEDIQ INCORPORATED
a Delaware corporation ("Owner")
One Mediq Plaza
Pennsauken, NJ 08110
MEDIFAC, INC.
a Delaware corporation (the "Company")
The Granary
411 North 20th Street
Philadelphia, PA 19130
MEDIFAC ACQUISITION, INC.
a Delaware corporation ("Newco")
The Granary
411 North 20th Street
Philadelphia, PA 19130
MEDIFAC HOLDINGS, INC.
a Delaware corporation ("Parentco")
The Granary
411 North 20th Street
Philadelphia, PA 19130
Date: April 7, 1995
Background: The Company is in the business of providing project management,
architectural planning and design, interior design and development services.
Owner owns all of the issued and outstanding capital stock of the Company (the
"Company's Stock"). Parentco owns all of the issued and outstanding capital
stock of Newco. The parties desire that Newco be merged with and into the
Company (the "Merger") on the terms and conditions set forth in this Agreement
and Plan of Merger ("Agreement"). The respective boards of directors of Owner
and the Company have determined that the Merger and the other transactions
contemplated by this Agreement are in the best interests of Owner and the
Company and their respective shareholders. The board of directors of Newco has
determined that the Merger and the other transactions contemplated by this
Agreement are in the best interests of Newco and its shareholder.
Intending to be legally bound, and in consideration of the mutual
agreements contained herein, the parties agree as follows:
-1-
<PAGE>
1. DEFINED TERMS
Certain defined terms used in this Agreement and not specifically
defined in context are defined in this Section 1, as follows:
1.1. "Accounts Receivable" means (a) any right to payment for goods
sold, leased or licensed or for services rendered, whether or not it has been
earned by performance, whether billed or unbilled, and whether or not it is
evidenced by any Contract, (b) any note receivable, or (c) any other receivable
or right to payment of any nature.
1.2. "Ancillary Agreements" means the Real Estate Agreement
and the Management Agreement.
1.3. "Asset" means any real, personal, mixed, tangible or intangible
property of any nature, including, but not limited to, (a) Cash Assets, (b)
Accounts Receivable, (c) other current assets of any nature including, but not
limited to, prepayments, deposits and escrows, (d) Tangible Property, (e) Real
Property, (f) Intangibles, (g) Contract Rights, (h) claims, causes of action and
other legal rights and remedies of any nature, and (i) goodwill and
miscellaneous assets of any nature including, but not limited to, rights with
respect to telephone numbers, rights with respect to telephone and other
directory listings, marketing materials and advertisements, books and records,
correspondence files, data bases, customer lists, prospect lists, supplier
lists, and other files and records of any nature, whether stored in written form
or on any type of computer, electronic or other media.
1.4. "Cash Asset" means any cash on hand, cash in bank or other
accounts, readily marketable securities, and other cash-equivalent liquid
assets of any nature.
1.5. "Consent" means any consent, approval, order or authorization
of, or any declaration, filing or registration with, or any application or
report to, or any waiver by, or any other action (whether similar or dissimilar
to any of the foregoing) of, by or with, any Person, which is legally necessary
in order to take a specified action or actions in a specified manner and/or to
achieve a specified result.
1.6. "Contract" means any written or oral contract, agreement,
instrument, order, arrangement, commitment or understanding of a legally binding
nature, including, but not limited to, sales orders, purchase orders, leases,
subleases, data processing agreements, maintenance agreements, license
agreements, sublicense agreements, loan agreements, promissory notes, security
agreements, pledge agreements, deeds, mortgages, guaranties, indemnities,
warranties, employment agreements, consulting agreements, sales representative
agreements, joint venture agreements, buy-sell agreements, subscriptions,
options or warrants.
1.7. "Contract Right" means any right, power or remedy of any nature
under any Contract including, but not limited to, rights to receive property or
services or otherwise derive benefits from the payment, satisfaction or
performance of another party's Obligations, rights to demand that another party
accept property or services or take any other actions, and rights to pursue or
exercise remedies or options.
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1.8. "Employee Benefit Plan" means any employee benefit plan as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or any other plan, program, policy or arrangement for or
regarding bonuses, commissions, incentive compensation, severance, vacation,
deferred compensation, pensions, profit sharing, retirement, payroll savings,
stock options, stock purchases, stock awards, stock ownership, phantom stock,
stock appreciation rights, medical/dental expense payment or reimbursement,
disability income or protection, sick pay, group insurance, self insurance,
death benefits, employee welfare or fringe benefits of any nature; but not
including employment Contracts with individual employees or Contracts with
independent contractors.
1.9. "Encumbrance" means any lien, security interest, pledge,
mortgage, easement, covenant, restriction, reservation, conditional sale, prior
assignment, or other encumbrance, claim, burden or charge of any nature.
1.10. "GAAP" means generally accepted accounting principles under
United States accounting rules and regulations, as in effect from time to time,
consistently applied throughout the applicable periods.
1.11. "Insurance Policy" means any public liability, product
liability, general liability, comprehensive, property damage, vehicle, life,
hospital, medical, dental, disability, workers' compensation, key man, fidelity
bond, theft, forgery, errors and omissions, directors' and officers' liability,
or other insurance policy of any nature.
1.12. "Intangible" means any name, corporate name, fictitious name,
trademark, trademark application, service mark, service mark application, trade
name, brand name, product name, slogan, trade secret, know-how, patent, patent
application, copyright, copyright application, design, logo, formula, invention,
product right, computer program, operating system, applications system,
firmware, software, or other intangible asset of any nature, whether in use,
under development or design, or inactive, but not including any software.
1.13. "Judgment" means any order, writ, injunction, citation, award,
decree or other judgment of any nature of any foreign, federal, state or local
court, governmental body, administrative agency, regulatory authority or
arbitration tribunal.
1.14. "Law" means any provision of any foreign, federal, state or
local law, statute, ordinance, charter, constitution, treaty, rule or
regulation.
1.15. "Material Adverse Effect" means, with respect to any Person,
any adverse effect on the financial condition, financial performance, financial
prospects, business prospects or operations of such Person and its Subsidiaries,
which is or will be material, under either GAAP or applicable legal principles,
to such Person and its Subsidiaries.
1.16. "Obligation" means any debt, liability or obligation of any
nature, whether secured, unsecured, recourse, nonrecourse, liquidated,
unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained,
known, unknown or otherwise.
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1.17. "Permit" means any license, permit, approval, waiver, order,
authorization, right or privilege of any nature, granted, issued, approved or
allowed by any foreign, federal, state or local governmental body,
administrative agency or regulatory authority.
1.18. "Person" means any individual, sole proprietorship, joint
venture, partnership, corporation, association, cooperative, trust, estate,
governmental body, administrative agency, regulatory authority or other entity
of any nature.
1.19. "Proceeding" means any demand, claim, suit, action,
litigation, governmental investigation, arbitration, administrative hearing or
other legal proceeding of any nature.
1.20. "Real Property" means any real estate, land, building,
condominium, town house, structure or other real property of any nature, all
shares of stock or other ownership interests in cooperative or condominium
associations or other forms of ownership interest through which interests in
real estate may be held, and all appurtenant and ancillary rights thereto,
including, but not limited to, easements, covenants, water rights, sewer rights
and utility rights.
1.21. "Subsidiary" means, with respect to any Person, any other
Person as to which such Person directly or indirectly owns or has the power to
vote, or to exercise a controlling influence with respect to, 50% or more of the
securities or interests of any class of such other Person which are entitled to
vote for the election of directors or others performing similar functions. OMD,
Inc. ("OMD") shall be deemed a Subsidiary of the Company within the meaning of
Section 4.2 below.
1.22. "Tangible Property" means any furniture, fixtures, leasehold
improvements, vehicles, office equipment, computer equipment, other equipment,
machinery, tools, forms, supplies or other tangible personal property of any
nature, whether constituting fixed assets, inventory or otherwise.
1.23. "Tax" means (a) any foreign, federal, state or local income,
earnings, profits, gross receipts, franchise, capital stock, net worth, sales,
use, occupancy, severance, general property, real property, personal property,
intangible property, license, stamp, transfer, fuel, excise, payroll, employment
withholding, unemployment compensation, social security or other tax of any
nature, (b) any foreign, federal, state or local organization fee, qualification
fee, annual report fee, filing fee, occupation fee, assessment, sewer rent or
other fee or charge of any nature, or (c) any deficiency, interest or penalty or
addition thereto, whether disputed or not, imposed with respect to any of the
foregoing.
2. MERGER
2.1. Merger. On the Effective Date (as defined in Section 10.1),
Newco shall be merged with and into the Company in accordance with this
Agreement and in compliance with the Delaware General Corporation Law ("DGCL"),
and the Merger shall have the effect provided for in the DGCL. The Company
(sometimes referred to below as the "Surviving Corporation") shall be the
surviving corporation of the Merger and shall continue to exist and to be
governed by the Laws of the State of Delaware. The corporate existence and
identity of the Company shall continue unaffected and unimpaired by the Merger.
On the Effective Date, the Company shall succeed to and be fully vested with the
corporate existence and identity of Newco, and the separate corporate existence
and identity of Newco shall cease.
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2.2. Name of Surviving Corporation. The name of the Surviving
Corporation shall be "Medifac, Inc."
2.3. Certificate of Incorporation. The Certificate of
Incorporation of the Company immediately before the Merger shall be the
Certificate of Incorporation of the Surviving Corporation immediately after
the Merger, unless and until otherwise subsequently amended or modified.
2.4. Bylaws. The Bylaws of the Company immediately before the
Merger shall be the Bylaws of the Surviving Corporation immediately after the
Merger, unless and until otherwise subsequently amended or modified.
2.5. Directors. Immediately after Merger, the directors of the
Surviving Corporation shall consist of the persons listed below, who shall
serve in accordance with the Bylaws of the Surviving Corporation and until
their successors are elected and have qualified:
James W. Eastwood
2.6. Officers. On the Effective Date, the officers of the Surviving
Corporation shall consist of the persons listed below who shall hold the
office(s) in the Surviving Corporation set forth opposite their name and shall
serve in accordance with the Bylaws of the Surviving Corporation:
Name Office
James W. Eastwood Chairman and President
Michael Goldenberg Secretary
Salvatore Scelsi Treasurer
2.7. Conversion of Newco Stock. On the Effective Date, each share of
the total of 100 shares of common stock, par value $10.00 per share, of Newco
issued and outstanding immediately before the Effective Date shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
automatically converted into and become one share of common stock, $10.00 par
value per share, of the Surviving Corporation. It is the intention of the
parties that, immediately after the Merger, Parentco shall own all of the issued
and outstanding capital stock of the Surviving Corporation.
2.8. Conversion of the Company's Stock. On the Effective Date, each
share of the total of 100 shares of common stock, $10.00 par value per share, of
the Company issued and outstanding immediately before the Effective Date shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be automatically converted into the right to receive (i) $15,000.00 in
cash, and (ii) a subordinated note of the Surviving Corporation in the principal
amount of $15,000.00 (the "Subordinated Note"). The Subordinated Note shall have
a term of six years, and shall be repayable as follows: (a) interest only on the
outstanding principal amount shall be payable monthly during the first two years
of the term, at an annual rate of .5% above the National Commercial Rate of
Meridian Bank, as the same may vary from time to time; (b) for the remaining
four years of the term, interest on the outstanding principal amount shall be
payable monthly at an annual rate of 9.5%, and principal shall be payable at
such periodic intervals and upon such an
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amortization schedule as set forth in the Subordinated Note; and (c) all unpaid
principal and interest shall be payable at the expiration of the six year term.
The Subordinated Note, together with the fees due pursuant to the Management
Agreement described in Section 10.2.10, shall be secured by (i) a guaranty of
Granary Partners, L.P., which shall be secured by subordinated mortgage on the
Granary, and (ii) a life insurance policy on the life of James W. Eastwood,
which policy shall be purchased by the Surviving Corporation, shall have Owner
as the beneficiary and shall be in such amount as mutually agreed upon by Owner
and Parentco. The terms and conditions of the Subordinated Note, the guaranty
and mortgage from Granary Partners, L.P. and the other documents relating
thereto shall be mutually agreed upon by Owner and Parentco. The Subordinated
Note shall be subject and subordinate in every respect to the Financing, as
hereinafter defined, upon such terms and conditions as are reasonably acceptable
to Owner and Parentco.
2.9. Treasury Stock. On the Effective Date, each share of the
Company's Stock which is held by the Company (as a treasury share), immediately
before the Effective Date shall, by virtue of the Merger and without any action
on the part of the Company, be automatically canceled.
2.10. Exchange Procedures. At Closing (as defined in Section 6.1),
Owner shall surrender certificates evidencing all of the Company's Stock in
exchange for the following consideration (the "Merger Consideration"):
2.10.1 Cash Payment. An aggregate of $1,500,000,
payable by wire transfer of federal funds to the account of Owner designated
by Owner, or by bank cashier's or certified check; and
2.10.2 Subordinated Note. A Subordinated Note in the
aggregate principal amount of $1,500,000.
2.11. No Dissenter's Rights. Owner, as the only stockholder of
the Company, has approved and voted for the Merger and, therefore, shall not
be entitled to exercise any dissenter's rights.
2.12. Cash at Closing. As of the Effective Date, the Company shall
have cash (the "Closing Cash Amount") in an amount equal to the sum of (i)
$389,500, (ii) the accrued bonuses as of the Effective Date for 1995 for all
employees of the Company, and (iii) the amount of accounts payable of the
Company as of the Effective Date (the "Closing Payables").
2.13. Closing Balance Sheet. Within 45 days of the Closing, the
Company shall prepare a balance sheet of the Company as of the Effective Date
(the "Closing Balance Sheet"). The Closing Balance Sheet shall be prepared in
accordance with generally accepted accounting principles, consistently applied.
The Company and Owner shall fully cooperate in connection with the preparation
of the Closing Balance Sheet. Owner shall have ten (10) business days after
receipt of the Closing Balance Sheet to notify the Company in writing of any
objections to the Closing Balance Sheet. If Owner notifies the Company of any
objections within such period, then the Closing Balance Sheet shall be reviewed
as soon as possible, at the joint shared expense of Owner and the Surviving
Corporation, by the Company's independent certified public accounting firm (the
"Company's Accountants"). The parties shall instruct the Company's Accountants
to resolve any disagreements and deliver a final report to the parties as soon
as possible.
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2.14. Adjustment. If the amount of cash reflected on the Closing
Balance Sheet is less than the Closing Cash Amount, Owner shall pay to the
Surviving Corporation, within five business days after the Closing Balance Sheet
is finalized, the amount of such deficiency. If the amount of cash reflected on
the Closing Balance Sheet is more than the Closing Cash Amount, the Surviving
Corporation shall pay to Owner, within five business days after the Closing
Balance Sheet is finalized, the amount of such excess.
3. [INTENTIONALLY OMITTED]
4. REPRESENTATIONS OF OWNER
Knowing that Parentco and Newco rely thereon, Owner represents and
warrants to Parentco and Newco as follows:
4.1. Organization. The Company is a corporation that is duly
organized, validly existing and in good standing under the Law of the State of
Delaware, its jurisdiction of incorporation. The Company is duly qualified or
registered to do business as a foreign corporation in the States of
Pennsylvania, New Jersey and New York. Accurate and complete copies of the
charter and bylaws of the Company, including all amendments to date, are
attached to Schedule 4.1. The Company has the full corporate power and
authority to own its Assets, conduct its business as and where such business is
presently conducted, and enter into and perform this Agreement.
4.2. Subsidiaries. Schedule 4.2 sets forth a list of each direct or
indirect Subsidiary of the Company (such Subsidiaries and the Company being
hereinafter referred to as the "Companies"), setting forth as to each such
Subsidiary its name, jurisdiction of incorporation, and the percentage of voting
securities or other interest owned by the Company or any of its Subsidiaries.
Except as set forth on Schedule 4.2, each of the Company's Subsidiaries (a) is a
corporation duly organized, validly existing, and in good standing under the
laws of its respective jurisdiction of incorporation, (b) is duly qualified or
registered to do business as a foreign corporation or entity in each
jurisdiction set forth on Schedule 4.2, and (c) has the full corporate power and
authority to own its respective Assets and conduct its respective business as
and where such business is presently conducted. All of the issued and
outstanding capital stock of each of the Company's Subsidiaries is duly
authorized, validly issued, fully paid and non-assessable, with no liability
attaching to the ownership thereof. Except for (i) Medifac Architect, P.C., the
shares of which are owned by Michael R. Arnold, (ii) Medifac Architects, Inc.,
the shares of which are owned by Norman H. Martin and Michael R. Arnold, and
(iii) Medifac Architects, P.A., the shares of which are owned by Michael R.
Arnold, the shares of each of the Company's Subsidiaries are owned by the
Company, free and clear of all Encumbrances. Except as set forth on Schedule
4.2, there are no outstanding stock appreciation rights, phantom stock or other
contracts or Contract rights relating to the issuance, sale, redemption,
disposition or voting of any shares of capital stock or other securities of any
of the Company's Subsidiaries. Except for the Company's interest in its
Subsidiaries, to the knowledge of Owner, the Company does not own directly or
indirectly any interest in any other Person.
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4.3. Effect of Agreement. The execution, delivery and performance of
this Agreement and the Ancillary Agreements, and the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements, by
Owner and the Company have been (or as of the Closing Date shall have been) duly
authorized by all necessary corporate actions by their respective boards of
directors and stockholders and do not constitute a violation of or default under
their respective charters, bylaws and/or other organizational documents. The
execution, delivery and performance of this Agreement and the Ancillary
Agreements, and the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements, by Owner and the Company (a) do not
constitute a default or breach (immediately or after the giving of notice,
passage of time or both) under any Contract to which Owner is a party or by
which it is bound, (b) do not constitute a violation of any Law or Judgment that
is applicable to Owner (c) do not result in the creation of any Encumbrance
upon, or give to any third party any interest in, any of the business or Assets
of the Companies, or any of the capital stock of the Companies except as
contemplated by this Agreement and the Ancillary Agreements, and (d) except as
stated on Schedule 4.3 (the "Required Consents") and except for the filing of
the Certificate of Merger with the proper officials of the State of Delaware, do
not require the Consent of any Person. This Agreement constitutes and the
Ancillary Agreements, when executed and delivered, will constitute the valid and
legally binding agreements of Owner and the Company, enforceable against them in
accordance with their respective terms.
4.4. Corporate Records. Accurate and complete copies of the contents
of the minute books and stock books of the Companies have been delivered to
Parentco. Such minute books and stock books include (a) minutes of all meetings
of the stockholders, boards of directors and any committees of the boards of
directors at which any material action was taken, which minutes accurately
record all actions taken at such meetings, (b) accurate and complete written
statements of all actions taken by the stockholders, boards of directors and any
committees of the boards of directors without a meeting at which any material
action was taken, and (c) accurate and complete records of the issuance,
transfer and cancellation of all shares of capital stock and other securities
since the date of incorporation. Neither the stockholders, boards of directors
or any committee of the boards has taken any material action other than those
actions reflected in the records referenced in clauses (a) and (b) of the
preceding sentence.
4.5. Capital Stock and Ownership. The authorized capital stock of
the Company consists of 100 shares of Common Stock, $10.00 par value, all of
which are issued, outstanding and owned by Owners, and no shares are held in
treasury. Except for Owner, there are no other record or beneficial owners of
any shares of capital stock of the Company. Except for the 100 shares of the
Company's Stock owned by Owner, there are no other issued or outstanding shares
of capital stock of the Company. All of the issued and outstanding shares of
capital stock of the Company have been duly authorized and validly issued, and
are fully paid and nonassessable, with no liability attaching to the ownership
thereof. All offerings, sales and issuances by the Company of any shares of
capital stock were conducted in compliance with all applicable federal and state
securities Laws and all applicable state corporation Laws. Except for this
Agreement, there are no outstanding stock appreciation rights, phantom stock, or
other Contracts or Contract Rights relating to the offering, sale, issuance,
redemption, disposition or voting of any shares of capital stock, or other
securities of the Company.
4.6. Assets. Except as set forth on Schedule 4.6, Owner has
taken no action that would result in any Encumbrance on any Assets of any of
the Companies.
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4.7. Obligations. Except as set forth on Schedule 4.7, Owner has
incurred no Obligations on behalf of any of the Companies.
4.8. Employee Benefit Plans. Except as listed on Schedule 4.8, none
of the Companies sponsors, maintains or contributes to, nor do the Companies
have any ongoing Obligation with respect to, any Employee Benefit Plan. Except
as described on Schedule 4.8, none of the Companies has agreed or committed, or
has any understanding whether legally binding or not, to create any additional
Employee Benefit Plan or to continue, modify, change or terminate any Employee
Benefit Plan. Any Employee Benefit Plan that is a "Pension Plan" (as defined in
Section 3(2) of ERISA) that the Companies have established, maintained,
sponsored or contributed to, and with respect to which the Companies have any
ongoing Obligation, is intended to qualify under Sections 401 and 501 of the
Code. Except as otherwise described on Schedule 4.8, with respect to each
Employee Benefit Plan listed on Schedule 4.8, (a) the Companies have made all
payments required to be made and have accrued in accordance with GAAP all
payments due but not yet payable; (b) the Companies have operated and currently
operate such plans in compliance with the plan documents and in all material
respects with all applicable Laws including, but not limited to, ERISA, the
Internal Revenue Code of 1986, as amended (the "Code"), (including, but not
limited to, Section 4980B thereof) and the regulations thereunder; (c) there has
not been any violation of the reporting and disclosure provisions of the Code
and ERISA; (d) there has not been any Prohibited Transaction (as defined in
ERISA or the Code); and (e) there has not been any violation of Sections 404,
406 or 407 of ERISA. None of the Companies has any direct or indirect Obligation
under any Employee Benefit Plan other than the Employee Benefit Plans listed on
Schedule 4.8. Except as described on Schedule 4.8, there are no circumstances
arising out of the sponsorship of or contribution to any Employee Benefit Plan
by the Companies that will result in the Companies having any direct or indirect
liability other than liability for contributions, benefit payments,
administrative costs and liabilities incurred in the ordinary course of
business. There would be no direct or indirect liability of any of the Companies
under Title IV of ERISA if any Employee Benefit Plan listed on Schedule 4.8 were
terminated as of the Closing Date. No event has occurred and no circumstances
currently exist that do or will result in any civil penalty being assessed
pursuant to Section 502 of ERISA, any tax being imposed under Section 4975 of
the Code, any liability for a breach of fiduciary or other responsibility under
ERISA or the Code in connection with any Employee Benefit Plan or any other
Obligation under applicable Law (including, but not limited to, those relating
to Section 4980B of the Code or Sections 601 through 609 of ERISA) with respect
to any Employee Benefit Plan that has been established, maintained or
contributed to by any of the Companies or any other entity or entities that,
together with any of the Companies, constitute elements of either a controlled
group of corporations (within the meaning of Section 414(b) of the Code), a
group of trades or businesses under common control (within the meaning of
Section 414(c) of the Code or Section 4001 of ERISA), an affiliated service
group (within the meaning of Section 414(m) of the Code), or another arrangement
covered by Section 414(o) of the Code.
4.9. Taxes.
4.9.1 General. Schedule 4.9.1 is an accurate and
complete list of all federal, state, local and other Tax returns and reports
(including, but not limited to, information returns) (collectively "Returns")
filed by the Companies with respect to their last five fiscal years. Accurate
and complete copies of all Returns filed by the Companies with respect to
their last five fiscal years have been delivered or made available to Newco.
Except as explained on Schedule 4.9.1, (a) each of the Companies has properly
and timely filed all Tax Returns required to be filed by it, all of
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which were accurately prepared and completed; (b) each of the Companies has
properly withheld from payments to its employees, agents, representatives,
contractors and suppliers all amounts required by Law to be withheld for Taxes;
(c) each of the Companies has paid all amounts for Taxes required to be paid by
it except for current Taxes which are not yet due or Taxes which are being
contested in good faith as disclosed on Schedule 4.9.1 by appropriate
proceedings diligently prosecuted, provided that, in either case, adequate
reserves therefor have been established in accordance with GAAP; (d) no audit of
any of the Companies by any governmental taxing authority has ever been
conducted, is currently pending or, to Owner's knowledge, threatened; (e) no
notice of any proposed Tax audit, or of any Tax deficiency or adjustment, has
been received by any of the Companies, and there is no reasonable basis for any
Tax deficiency or adjustment to be assessed against any of the Companies; and
(f) there are no agreements or waivers currently in effect that provide for an
extension of time for the assessment of any tax against any of the Companies.
4.9.2 Affiliated Group. None of the Companies
has been a member of an affiliated group filing a consolidated federal income
Tax Return other than a group the common parent of which is the Owner (the
"Affiliated Group"). The Affiliated Group has filed all income Tax Returns
that it was required to file for each taxable period during which any of the
Companies was a member of the group. No director or officer (or employee
responsible for Tax matters) of any of the Companies expects any authority to
assess any additional Taxes against the Affiliated Group for any taxable
period during which any of the Companies was a member of the group. There is
no dispute or claim concerning any Tax liability of the Affiliated Group for
any taxable period during which any of the Companies was a member of the group
either (A) claimed or raised by any authority in writing or (B) as to which
any of the directors and officers (and employees responsible for Tax matters)
of any of the Companies has knowledge based upon personal contact with any
agent of such authority. Except as disclosed on Schedule 4.9.2, the Affiliated
Group has not waived any statute of limitations in respect of any Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency
for any taxable period during which any of the Companies was a member of the
group. None of the Companies has any liability for the Taxes of any person
other than the Companies (A) under Treasury Reg. Section 1.1.1502-6 (or any
similar provision of state, local or foreign law), (B) as a transferee or
successor, (C) by contract, or (D) otherwise.
4.10. Proceedings and Judgments. Except as described on Schedule
4.10, to Owner's knowledge, (a) no Proceeding is currently pending or threatened
against or relating to any of the Companies, any of the Companies' Businesses or
any of the Companies' Assets, or the transactions contemplated by this
Agreement; and (b) no Judgment is currently outstanding against or relating to
the Company or the Companies' Businesses or any of the Companies' Assets.
4.11. Insurance. Schedule 4.11 is an accurate and complete list and
description of (a) each Insurance Policy currently owned or maintained by or for
the benefit of any of the Companies (excluding Insurance Policies for Employee
Benefit Plans that are listed on Schedule 4.11), and (b) each Insurance Policy
owned or maintained by or for the benefit of any of the Companies at any time
since January 1, 1990. Each such Insurance Policy is or was in full force and
effect during the period of coverage set forth on Schedule 4.11. Neither Owner
nor, to Owner's knowledge, any of the Companies has received any notice of
cancellation with respect to any such current Insurance Policy. Except as
explained on Schedule 4.11, no claim is pending under any Insurance Policy
listed on Schedule 4.11, nor has any claim occurred thereunder since January 1,
1990.
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4.12. Related Party Transactions. Except as explained on Schedule
4.12 and for intercompany transactions between Owner and the Companies
consistent with past practices, there are no Contracts, arrangements,
transactions or understandings of any nature between any of the Companies and
Owner or any director or officer of Owner or between any of the Companies and
any Person that is an affiliate (as such term is defined for purposes of the
Exchange Act) or immediate family member of any director or officer of Owner.
4.13. Brokerage Fees. No Person acting on behalf of any of the
Companies or Owner is entitled to any brokerage, finder's or investment
banking fee in connection with the transactions contemplated by this
Agreement.
4.14. Full Disclosure. No representation or warranty made by Owner
in this Agreement or the Ancillary Agreements or pursuant hereto or thereto
contains or will contain any untrue statement of any material fact, or omits or
will omit any material fact necessary to make the statements made, in the
context in which made, not false or misleading. The copies of documents
comprising or attached to the Schedules to this Agreement and the Ancillary
Agreements, or otherwise delivered or provided to Parentco and Newco in
connection with the transactions contemplated by this Agreement, are accurate
and complete and are not missing any amendments, modifications, correspondence
or other related papers that would be pertinent to Parentco's and Newco's
understanding thereof.
5. REPRESENTATIONS OF PARENTCO AND NEWCO
Knowing that the Owner relies thereon, Parentco and Newco jointly
and severally, represent and warrant to Owner as follows:
5.1. Organization. Parentco and Newco each is a corporation that is
duly organized, validly existing and in good standing under the Law of the State
of Delaware. Parentco and Newco each has the full corporate power and authority
to own its Assets, and enter into and perform this Agreement and the Ancillary
Agreements.
5.2. Agreement. Parentco's and Newco's execution, delivery and
performance of this Agreement and the Ancillary Agreements, and the consummation
of the transactions contemplated by this Agreement and the Ancillary Agreements,
(a) have been duly authorized by all necessary corporate actions by Parentco's
and Newco's board of directors and stockholders; (b) do not constitute a
violation of or default under Parentco's and Newco's charter or bylaws; (c) do
not constitute a default or breach (immediately or after the giving of notice,
passage of time or both) under any Contract to which Parentco or Newco is a
party or by which Parentco or Newco is bound; (d) do not constitute a violation
of any Law or Judgment that is applicable to Parentco or Newco, to the business
or Assets of Parentco or Newco, or to the transactions contemplated by this
Agreement; and (e) except as stated on Schedule 5.2 and except for the filing of
the Certificate of Merger with the proper officials of the State of Delaware, do
not require the Consent of any Person. This Agreement constitutes and the
Ancillary Agreements, when executed and delivered, will constitute the valid and
legally binding agreements of Parentco and Newco, enforceable against them in
accordance with their respective terms.
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5.3. Proceedings. There is no Proceeding currently pending
or, to the knowledge of Parentco or Newco, threatened against Parentco or
Newco which has, or so far as Newco can now reasonably foresee will have, a
Material Adverse Effect on Newco, or on Parentco's or Newco's ability to
perform this Agreement.
5.4. Brokerage Fees. No Person acting on behalf of Parentco or
Newco is entitled to any brokerage, finder's or investment banking fee in
connection with the transactions contemplated by this Agreement.
5.5. Full Disclosure. None of the representations and warranties
made by Parentco or Newco in this Agreement or the Ancillary Agreements or
pursuant hereto or thereto contains any untrue statement of any material fact,
or omits any material fact necessary to make the statements made, in the context
in which made, not false or misleading.
6. CERTAIN OBLIGATIONS OF THE COMPANY AND OWNER PENDING CLOSING
6.1. Investigation. During the period from the date of this
Agreement to the Closing Date, Owner shall provide, and shall cause the
Companies to provide, to Parentco and Newco and their authorized representatives
all information concerning the Companies and their businesses, Assets and that
financial conditions that is reasonably requested by Parentco and Newco.
6.2. Conduct Pending Closing. During the period from the date of
this Agreement to the Closing Date, except with the express prior written
consent of Parentco.
6.2.1 Outside the Ordinary Course. Owner shall not
take any action that would cause the Companies to do anything outside the
ordinary course of business consistent with past practices.
6.2.2 Corporate Action. Owner shall cause each of the
Companies not to (i) declare, pay or set aside for payment any dividend or
other distribution, or make any direct or indirect redemption, retirement or
acquisition of any shares of its capital stock, (ii) make any change in its
accounting policies or practices, (iii) issue, or authorize the issuance, of
any shares of capital stock or other securities or grant any rights with
respect to its shares of capital stock or other securities, (iv) amend its
certificate of incorporation or bylaws (or other organizational documents), or
merge with or into, consolidate with, completely or partially liquidate or
dissolve, or be involved in any other business combination with any other
Person, (v) change, or authorize a change in, the rights of its outstanding
capital stock or the character of its business, (vi) adopt or amend any
Employee Benefit Plan.
6.2.3 Compliance. Owner shall (i) maintain all
Insurance Policies relating to the Companies and their businesses and Assets
in full force and effect, (ii) duly and timely file all Tax Returns required
to be filed by the Companies, (iii) fully pay due all Taxes payable by the
Companies or assessed against them or any of their respective Assets, (iv)
continue to maintain the Employee Benefit Plans of the Companies in accordance
with their respective terms.
6.2.4 Other Matters. Owner shall not, and shall cause
the Companies not to, sell, transfer, give or otherwise dispose of, or create
any Encumbrance upon, any of the Company's Stock.
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6.3. Acquisition Proposals. During the period from the date of this
Agreement until June 30, 1995, Owner shall not, and shall cause the Companies
and the respective directors, officers, employees, affiliates, associates,
advisors, representatives and agents of Owner and the Companies not to, directly
or indirectly, solicit, initiate or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to, or consider
the merits of any unsolicited inquiries, or proposals from, any Person (other
than Parentco and Newco and their respective officers, employees,
representatives and agents) relating to any transaction involving the sale of
the business or Assets of any of the Companies, or any of the capital stock of
any of the Companies or any merger, consolidation, business combination, or
similar transaction involving any of the Companies.
6.4. Consents. Between the date of this Agreement and the Closing
Date, Owner shall, and shall cause the Companies to, in good faith, use all
reasonable efforts to obtain as promptly as practicable, and shall cooperate
with Parentco and Newco in obtaining, the Required Consents.
6.5. Advice of Changes. Between the date of this Agreement and the
Closing Date, Owner shall promptly advise Parentco in writing of any fact of
which it obtains knowledge from a source other than an officer or employee of
the Company and which, if existing or known as of the date of this Agreement,
would have been required to be set forth or disclosed in or pursuant to this
Agreement (it being understood that any such advice shall not be deemed to
modify the representations, warranties or covenants of Owner contained in this
Agreement).
6.6. Accounting Adjustment and Contribution of OMD. On the Closing
Date immediately prior to the Effective Date, Owner shall take all actions
necessary or appropriate to (i) properly contribute to the capital of the
Company the Mediq Advance account and the current Federal Taxes Payable
(Receivable) account; and (ii) contribute all of the issued and outstanding
shares of OMD to the Company.
6.7. Reasonable Efforts. Owner shall, and shall cause the Company
to, use all reasonable efforts to consummate the transactions contemplated by
this Agreement as promptly as practicable, and neither Owner nor the Company
shall take, or cause to be taken, or to the best of its ability permit to be
taken, any action that would impair the prospect of completing the transactions
contemplated by this Agreement.
7. CERTAIN OBLIGATIONS OF PARENTCO AND NEWCO PENDING CLOSING
7.1. Consents. Between the date of this Agreement and the
Closing Date, Parentco and Newco shall, in good faith, use all reasonable
efforts to obtain as promptly as practicable, and shall cooperate with Owner
and the Company in obtaining, the Required Consents.
7.2. Advice of Changes. Between the date of this Agreement and the
Closing Date, Parentco shall promptly advise Owner in writing of any fact of
which it obtains knowledge and which, if existing or known as of the date of
this Agreement, would have been required to be set forth or disclosed in or
pursuant to this Agreement (it being understood that any such advice shall not
be deemed to modify the representations, warranties and covenants of Parentco or
Newco contained in this Agreement).
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7.3. Financing. Parentco and Newco shall use all reasonable efforts
to obtain financing, subject to reasonable and customary conditions, from
reputable lenders in an aggregate amount which will be adequate to pay the
$1,500,000 cash payment portion of the Merger Consideration, and provide a line
of credit, in the amount of $1,000,000, to be used as working capital (said loan
and line of credit being jointly referred to herein as the "Financing").
7.4. Reasonable Efforts. Parentco and Newco shall use all reasonable
efforts to consummate the transactions contemplated by this Agreement as
promptly as practicable, and neither Parentco nor Newco shall take, cause to be
taken, or to the best of its ability permit to be taken, any action that would
impair the prospect of completing the transactions contemplated by this
Agreement.
8. CONDITIONS PRECEDENT TO CLOSING BY OWNER
Each obligation of Owner to be performed on the Closing Date shall
be subject to the satisfaction of each of the following conditions, except to
the extent that such satisfaction is waived by Owner in writing:
8.1. Representations of Parentco and Newco. All representations,
warranties and certifications of Parentco and Newco contained in this Agreement
and the Ancillary Agreements and in any written statement or document delivered
to Owner by Parentco or Newco under or in connection with this Agreement or the
Ancillary Agreements, taken individually and together, shall be true on and as
of the Closing Date, with the same force and effect as though made on and as of
the Closing Date, except that any such representation, warranty or certification
made as of a specified date shall be true on and as of such date.
8.2. Performance by Parentco and Newco. All of the covenants,
terms and conditions of this Agreement to be satisfied or performed by
Parentco or Newco on or before the Closing Date shall have been substantially
satisfied or performed.
8.3. Absence of Proceedings. No Proceeding shall have been
instituted or threatened on or before the Closing Date by any Person (other than
Owner or any of the Companies), no Judgment shall have been issued, and no new
Law shall have been enacted, that seeks to or does prohibit or restrain, or that
seeks damages as a result of, the consummation of the transactions contemplated
by this Agreement.
8.4. Consents. All Required Consents shall have been obtained.
8.5. Owner's Board Approval. This Agreement and the transactions
contemplated hereby shall have been approved by Owner's board of directors.
9. CONDITIONS PRECEDENT TO CLOSING BY PARENTCO, NEWCO AND THE SHAREHOLDER
Each obligation of Parentco and Newco to be performed on the Closing
Date shall be subject to the satisfaction of each of the following conditions,
except to the extent that such satisfaction is waived by Parentco in writing:
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9.1. Representations of Owner. All of the representations,
warranties and certifications of Owner contained in this Agreement and the
Ancillary Agreements and in any written statement or document delivered by Owner
under or in connection with this Agreement, taken individually and together,
("Owner's Representations and Warranties") shall be true on and as of the
Closing Date, with the same force and effect as though made on and as of the
Closing Date, except that any such representation, warranty or certification
made as of a specified date shall be true on and as of such date.
9.2. Performance by Owner. All of the covenants, terms and
conditions of this Agreement to be satisfied or performed by Owner on or
before the Closing Date shall have been satisfied or performed.
9.3. Absence of Adverse Changes. There shall not have been any
change or casualty loss between the date of this Agreement and the Closing
Date that has or would have a Material Adverse Effect on the Company.
9.4. Absence of Proceedings. No Proceeding shall have been
instituted or threatened on or before the Closing Date by any Person (other than
Parentco or Newco) no Judgment shall have been issued, and no new Law shall have
been enacted, that seeks to or does prohibit or restrain, or that seeks damages
as a result of, the consummation of the transactions contemplated by this
Agreement.
9.5. Consents. All Required Consents shall have been obtained.
9.6. Financing. Newco shall have received the proceeds of the
Financing.
9.7. OMD. Prior to the Closing Date, Owner shall have
contributed all of the issued and outstanding shares of OMD to the Company.
9.8. Owner's Board Approval. This Agreement and the transactions
contemplated hereby shall have been approved by Owner's board of directors.
10. CLOSING
10.1. Closing. Unless this Agreement is terminated in accordance
with Section 13, the closing of the Merger and the other transactions
contemplated by this Agreement ("Closing") shall be held at 10:00 A.M. local
time on the fifth business day after the conditions to closing set forth in
Sections 8.4, 8.5, 9.5 and 9.6 are satisfied, or such other time and date as is
agreed upon by Owner and Parentco, at the offices of Blank, Rome, Comisky &
McCauley, Four Penn Center Plaza, Philadelphia, Pennsylvania 19103, or such
other location as is agreed upon by Owner and Parentco. The parties shall cause
Certificate of Merger to be filed with the Secretary of State of the State of
Delaware on the Closing Date or as soon as thereafter as is possible, and the
Merger shall be effective on the date and time specified in the Certificate of
Merger (the "Effective Date"). The parties shall take such further actions as
may be required by the DGCL in connection with such filing and the consummation
of the Merger.
10.2. Obligations of Owner at Closing. At the Closing, Owner
shall deliver the following to Parentco and Newco:
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10.2.1 The Company Stock. Stock certificates
representing all of the Company's Stock, together with assignments separate
from certificate in blank, dated the Effective Date and duly executed by
Owner, and stamps or other proper evidence of the payment of any stock
transfer or similar Taxes due as a result of the transfer of the Company's
Stock.
10.2.2 Instruments of Transfer. All instruments or
documents necessary to change the names of the individuals who have access to
or are authorized to make withdrawals from or dispositions of all bank
accounts, other accounts, certificates of deposits, marketable securities,
other investments, safe deposit boxes, lock boxes and safes of the Companies
and all keys and combinations to all safe deposit boxes, lock boxes and safes
of the Companies.
10.2.3 Certificate of Merger. A Certificate of
Merger, in form and substance, acceptable to the parties ("Certificate of
Merger"), dated the Closing Date and duly executed by the Company and Owner.
10.2.4 Consents. The original signed copies of all
Consents listed on Schedule 4.3.
10.2.5 Corporate Records and Resignations. All of the
original minute books and stock books of the Companies and duly executed
resignations, dated the Effective Date, of all directors and officers of the
Companies other than as specified by Parentco.
10.2.6 Good Standing. Good standing certificates for
the Companies, dated no earlier than ten (10) days before the Closing Date,
from their respective jurisdictions of incorporation and from each other
jurisdiction in which they are qualified or registered to do business as a
foreign corporation.
10.2.7 Certified Resolutions. Copies of the
resolutions duly adopted by the respective boards of directors of the Company
and Owner, authorizing the Company and Owner to execute, deliver and perform
this Agreement and to consummate the transactions contemplated by this
Agreement, certified by an officer of the Company and Owner, as the case may
be, as in full force and effect, without modification or rescission, on and as
of the Closing Date.
10.2.8 Closing Certificate. A certificate dated the
Closing Date and duly executed by proper officers of Owner in which Owner
represents and warrants to Parentco and Newco that the conditions set forth in
Sections 9.1, 9.2, 9.3, 9.4 and 9.7 have been satisfied.
10.2.9 General Release. A General Release of the
Companies, in form acceptable to Owner and Parentco dated the Closing Date and
duly executed by Owner.
10.2.10 Management Agreement. A Management Agreement,
in form and substance acceptable to Owner and Parentco (the "Management
Agreement"), dated the Closing Date, and duly executed by Owner, providing for
the payment by the Surviving Corporation to Owner of a fee (the "Annual
Service Fee"), in an amount per year for seven years calculated as set forth
below, in exchange for the provision by Owner to Newco of certain management
services over such seven year period. The Annual Service Fee shall equal the
result of: (i) the quotient of (A) the amount of the Company's net accounts
receivable as reflected on the Closing Balance Sheet, less
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all billings made by the Company in excess of costs and income recognized on
uncompleted projects as reflected on the Closing Balance Sheet, divided by (B)
seven, less (ii) $375,000.
10.2.11 Lease Agreement. A lease agreement (the
"Granary Lease"), in form and substance acceptable to Owner and Parentco,
dated the Closing Date, and duly executed by Owner, providing that the
Surviving Corporation shall lease the property located at 411 North Twentieth
Street, Philadelphia, Pennsylvania (the "Granary") from Owner at the same rent
the Company currently pays Owner for the use of such property.
10.2.12 Other Documents. All other agreements,
certificates, instruments, opinions and documents reasonably requested by
Parentco in order to fully consummate the transactions contemplated by this
Agreement.
10.3. Obligations of Parentco and Newco at Closing. At the
Closing, Parentco and Newco shall deliver the following to Owner:
10.3.1 Payment. The Merger Consideration shall be
paid in accordance with Section 2.10.
10.3.2 Certificate of Merger. The Certificate of
Merger, dated the Closing Date and duly executed by Newco and Parentco.
10.3.3 Good Standing. Good standing certificates for
Parentco, Newco, dated no earlier than ten (10) days before the Closing Date,
from the State of Delaware.
10.3.4 Certified Resolutions. Copies of the
resolutions duly adopted by the board of directors of Parentco, Newco,
authorizing Parentco and Newco to execute, deliver and perform this Agreement
and to consummate the transactions contemplated by this Agreement, certified
by an officer of Parentco and Newco as in full force and effect, without
modification or rescission, on and as of the Closing Date.
10.3.5 Closing Certificate. A certificate dated the
Closing Date and duly executed by proper officers of Parentco and Newco, in
which Parentco and Newco jointly and severally, represent and warrant to Owner
that the conditions set forth in Sections 8.1, 8.2 and 8.3 have been
satisfied.
10.3.6 Management Agreement. The Management
Agreement, dated the Closing Date and duly executed by the Surviving
Corporation.
10.3.7 Lease Agreement. The Granary Lease, dated the
Closing Date and duly executed by the Surviving Corporation.
10.3.8 Guaranty and Life Insurance Policy. The
Guaranty of Granary Partners, L.P. referred to in Section 2.8, dated the
Closing Date and duly executed by Granary Partners, L.P., and the life
insurance policy on the life of James W. Eastwood referred to in Section 2.8.
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10.3.9 Other Documents. All other agreements,
certificates, instruments, opinions and documents reasonably requested by
Owner in order to fully consummate the transactions contemplated by this
Agreement.
11. CERTAIN POST-CLOSING OBLIGATIONS
11.1. Transition and Cooperation. From and after the Closing Date,
(a) Owner shall fully cooperate to transfer to Parentco the control and
enjoyment of the Company in accordance with this Agreement; and (b) Owner shall
promptly deliver to the Company all correspondence, papers, documents and other
items and materials received by Owner or found to be in the possession of Owner
which pertain to the Company. At any time and from time to time after the
Closing Date, at the Company's request and without further consideration, Owner
shall promptly execute and deliver all such further agreements, certificates,
instruments and documents and perform such further actions as the Company may
reasonably request, in order to fully consummate the transactions contemplated
hereby and carry out the purposes and intent of this Agreement.
11.2. Tax Matters.
11.2.1 Tax Sharing Agreements. Any Tax sharing
agreement between Owner and any of the Companies shall be terminated as of the
Closing Date and shall have no further effect for any taxable year (whether the
current year, a future year, or a past year).
11.2.2 Returns for Periods Through the Closing
Date. Owner shall include the income of the Companies (including any deferred
income triggered into income by Treasury Reg. Section 1.1502-13 and Treasury
Reg. Section 1.1502-14 and any excess loss accounts taken into income under
Treasury Reg. Section 1.1502-19) on Owner's consolidated federal income Tax
Returns for all periods through the Closing Date and pay all federal income
Taxes attributable to such income. The Companies will furnish Tax information to
Owner for inclusion in Owner's federal consolidated income Tax Return and
separate company state Tax Returns for the period which includes the Closing
Date in accordance with Companies' past custom and practice. Owner shall take no
position on such Tax Returns relating to the Companies that is inconsistent with
past practices. The income of the Companies shall be apportioned to the period
up to and including the Closing Date and the period after the Closing Date by
closing the books of the Companies as of the end of the Closing Date.
11.2.3 Audits. Owner shall permit the Companies
and their counsel to participate in any audits of Owner's consolidated federal
income Tax Returns to the extent that such returns relate to the Companies.
Owner shall not settle any such audit in a manner which would adversely affect
the Companies after the Closing Date without the prior written consent of
Parentco, which consent shall not unreasonably be withheld.
11.2.4 Election Out of Consolidated Group. The
Companies shall not elect to be excluded from Owner's consolidated group under
Treasury Reg. Section 1.1502-76(b)(5)(ii) for the Owner group taxable year that
includes the Closing Date.
11.2.5 No Carrybacks. Surviving Corporation shall
not carryback any post-acquisition Tax attribute of any of the Companies into
the Owner's consolidated Tax Return.
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11.2.6 Section 338(h)(10) Election. Owner shall
join with Parentco and Newco in making an election under Sections 338(g) and
338(h)(10) of the Code (and any corresponding elections under state, local, or
foreign tax law)(collectively a "Section 338(h)(10) Election") with respect to
the Merger. Owner shall pay any Tax attributable to the making of the Section
338(h)(10) Election and will indemnify Parentco, Newco and the Companies,
against any adverse consequences arising out of any failure to pay such Tax.
Owner shall also pay any state, local, or foreign Tax and indemnify Parentco,
Newco and the Companies against any adverse consequences arising out of any
failure to pay such Tax attributable to an election under state, local, or
foreign law similar to the election available under Section 338(g) of the Code
(or which results from the making of an election under Section 338(g) of the
Code) with respect to the Merger where the state, local, or foreign Tax
jurisdiction (i) does not provide or recognize a Section 338(h)(10) election
or (ii) does not apply its provisions corresponding to Section 338(h)(10) of
the Code to the purchase and sale of the stock of the Companies (for example,
because the Companies file a separate company Tax return in such
jurisdiction).
11.2.7 Certain Limitations. Parentco and Newco
covenant and agree that they will take no action, including, but not limited
to, any merger or liquidation that would adversely affect the categorization
of the Merger as a qualified stock purchase for the purpose of Section 338 of
the Code.
11.3. The Company's Employee Benefit Plans. As soon as practicable,
following the Effective Date, Surviving Corporation shall establish a retirement
plan which shall include a cash or deferred arrangement described in Section
401(k) of the Code. It is intended that such plan will satisfy the applicable
requirements of the Code and ERISA. After establishing such 401(k) retirement
plan, those same assets attributable to the entire accounts, whether or not
vested, of the participants in the Mediq Incorporated Employees' Savings Plan
who become employees of Surviving Corporation on the Effective Date shall be
transferred to Surviving Corporation's 401(k) retirement plan as soon as
practicable. Such accounts shall be adjusted for all investment experience
through the date of the actual transfer. Such accounts shall include the actual
assets allocated to each participant's account, including stock of Owner, and
all employer matching contributions with respect to deferrals made by
participants for all periods through the Effective Date. The vesting provisions
of Mediq Incorporated Pension Plan ("Pension Plan") shall be amended to provide
that employees of the Companies on the Effective Date who are participants in
the Pension Plan shall continue to receive vesting credit for employment with
the Surviving Corporation. The Surviving Corporation shall periodically notify
Owner upon the termination of employment of an employee of the Surviving
Corporation who was a participant in the Pension Plan.
11.4. Nondisclosure. At all times after the Closing Date, except
with the Company's prior written consent or as legally required in the
reasonable written opinion of counsel to Owner, Owner shall not, directly or
indirectly, in any capacity communicate, publish or otherwise disclose to any
Person, or use for the benefit of any Person, any confidential or proprietary
property, knowledge or information of any of the Companies or concerning any of
their businesses, assets or financial conditions, no matter when or how such
knowledge or information was obtained.
11.5. Noncompetition. During the period beginning on the Closing
Date and ending on the third anniversary of the Closing Date, except with the
Company's prior written consent, Owner shall not, directly or indirectly, in any
capacity, at any location where the Companies have conducted or are conducting
business as of the Closing:
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11.5.1 Non-Solicitation. Communicate with or solicit
any Person who is, or during such period becomes, a customer, prospect,
supplier, employee, salesman, agent or representative of, or a consultant to,
any of the Companies, in any manner which interferes or might interfere with
such Person's relationship with any of the Companies, or in an effort to
obtain any such Person as a customer, employee, salesman, agent or
representative of, or a consultant to, any other Person that conducts a
business competitive with or similar to the project management, interior
design or architectural planning and design businesses (the "Business") of any
of the Companies.
11.5.2 Competing Business. Establish, own, manage,
operate, finance or control, or participate in the establishment, ownership,
management, operation, financing or control of, or be a director, officer,
employee, salesman, agent or representative of, or be a consultant to, any
Person that conducts a business competitive with or similar to the Business of
any of the Companies.
11.6. Enforcement of Covenants. Owner expressly acknowledges that it
would be extremely difficult to measure the damages that might result from any
breach of the Covenants, and that any breach of the Covenants will result in
irreparable injury to the Company for which money damages could not adequately
compensate. If a breach of the Covenants occurs, then the Company shall be
entitled, in addition to all other rights and remedies that it may have at law
or in equity, to have an injunction issued by any competent court enjoining and
restraining the Owner and all other Persons involved therein from continuing
such breach. The existence of any claim or cause of action that the Owner or any
such other Person may have against any of the Companies shall not constitute a
defense or bar to the enforcement of any of the Covenants. If the Company must
resort to litigation to enforce any of the Covenants that has a fixed term, then
such term shall be extended for a period of time equal to the period during
which a breach of such Covenant was occurring, beginning on the date of a final
court order (without further right of appeal) holding that such a breach
occurred or, if later, the last day of the original fixed term of such Covenant.
11.7. Scope of Covenants. If any Covenant, or any part thereof, or
the application thereof, is construed to be invalid, illegal or unenforceable,
then the other Covenants, or the other portions of such Covenant, or the
application thereof, shall not be affected thereby and shall be enforceable
without regard thereto. If any of the Covenants is determined to be
unenforceable because of its scope, duration, geographical area or other factor,
then the court making such determination shall have the power to reduce or limit
such scope, duration, area or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
12. INDEMNIFICATION
12.1. Indemnification Obligations of Owner. From and after the
Closing Date, Owner shall indemnify and hold harmless Parentco, Newco, the
Companies and all existing and future, direct or indirect, subsidiaries of the
Companies (collectively, the "Company Group"), and their respective successors
and assigns, and their respective shareholders, directors, officers, employees,
agents and representatives ("Indemnified Persons"), from and against any and all
actions, suits, claims, demands, debts, liabilities, obligations, losses,
damages, costs and expenses, including, but not limited to, reasonable
attorney's fees and court costs, arising out of or caused by, directly or
indirectly, any of all of the following:
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12.1.1 Misrepresentation. Any misrepresentation,
breach or failure of any warranty or representation made by the Owner in or
pursuant to this Agreement.
12.1.2 Nonperformance. Any failure or refusal by
Owner to satisfy or perform any covenant, term or condition of this Agreement
required to be satisfied or performed by it.
12.1.3 Employee Benefit Plans. Any Proceeding arising
out of, directly or indirectly, the Savings Plan or the Pension Plan and any
act or omission of Owner, or any act or omission of any of the Companies prior
to the Effective Date, relating to the Savings Plan or the Pension Plan.
12.1.4 Taxes. Any deficiency or adjustment for Taxes
and related interest, penalties and expenses, assessed against or imposed upon
any of the Companies (or their successors) with respect to any period ending
on or before the Closing Date, including any liability of any of the Companies
for Taxes of Owner or any of its Subsidiaries or affiliates other than any of
the Companies (i) under Treasury Reg. Section 1.1502-6 (or any similar
provision of state, local or foreign law), (ii) as a transferee or successor,
(iii) by contract, or (iv) otherwise.
12.2. Indemnification Obligations of Parentco and the Surviving
Corporation. From and after the Closing Date, Parentco and the Surviving
Corporation, jointly and severally, shall indemnify and hold harmless Owner and
its Indemnified Persons from and against any and all actions, suits, claims,
demands, debts, liabilities, obligations, losses, damages, costs and expenses,
including, but not limited to, reasonable attorney's fees and court costs,
arising out of or caused by, directly or indirectly, any of all of the
following:
12.2.1 Misrepresentation. Any misrepresentation,
breach or failure of any warranty or representation made by Parentco or Newco
in or pursuant to this Agreement.
12.2.2 Nonperformance. Any failure or refusal by
Parentco or Newco to satisfy or perform any covenant, term or condition of
this Agreement required to be satisfied or performed by it.
12.2.3 Proceedings Against Owner. Any Proceeding
against Owner by any Person (other than Parentco or the Surviving Corporation)
solely as a result of Owner having been a shareholder of the Company and not
as a result of any act or omission of Owner.
12.3. Indemnification Procedures. With respect to each event,
occurrence or matter ("Indemnification Matter") as to which the members of the
Company Group or Owner (in either case, referred to as the "Indemnitee") are
entitled to indemnification from another party (referred to as the "Indemnitor")
under this Section 12:
12.3.1 Notice. Within ten (10) days after the
Indemnitee receives written documents underlying the Indemnification Matter
or, if the Indemnification Matter does not involve a third party action, suit,
claim or demand, promptly after the Indemnitee first has actual knowledge of
the Indemnification Matter, the Indemnitee shall give notice to the Indemnitor
of the nature of the Indemnification Matter and the amount demanded or claimed
in connection therewith ("Indemnification Notice"), together with copies of
any such written documents.
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12.3.2 Defense. If a third party action, suit, claim
or demand is involved, then, upon receipt of the Indemnification Notice, the
Indemnitor shall, at its expense and through counsel of its choice, promptly
assume and have sole control over the litigation, defense or settlement (the
"Defense") of the Indemnification Matter, except that (a) the Indemnitee may,
at its option and expense and through counsel of its choice, participate in
(but not control) the Defense; (b) if the Indemnitee reasonably believes that
the handling of the Defense by the Indemnitor may have a material adverse
effect on the Indemnitee, its business or financial condition, or its
relationship with any customer, prospect, supplier, employee, salesman,
consultant, agent or representative, then the Indemnitee may, at its option
and expense and through counsel of its choice, assume control of the Defense,
provided that the Indemnitor shall be entitled to participate in the Defense
at its expense and through counsel of its choice, and provided further that
the Indemnitee shall not consent to any judgment or agree to any settlement
without the Indemnitor's prior written consent, which consent shall not be
unreasonably withheld or delayed; (c) the Indemnitor shall not consent to any
Judgment, or agree to any settlement, without the Indemnitee's prior written
consent provided that, if the Indemnitee withholds its consent to any monetary
Judgment or monetary settlement which is acceptable to the Indemnitor and
which does not exceed the limitation set forth in Section 12.4.2, then the
Indemnitor's liability with respect to such Indemnification Matter shall be
limited to such monetary amount; (d) if the Indemnitor does not promptly
assume control over the Defense or, after doing so, does not continue to
prosecute the Defense in good faith, the Indemnitee may, at its option and
through counsel of its choice, but at the Indemnitor's expense, assume control
over the Defense provided that the Indemnitor shall continue to be obligated
to indemnify the Indemnitee with respect thereto. In any event, the Indemnitor
and the Indemnitee shall fully cooperate with each other in connection with
the Defense, including, but not limited to, by furnishing all available
documentary or other evidence as is reasonably requested by the other.
12.3.3 Payments. All amounts owed by the Indemnitor
to the Indemnitee (if any) shall be paid in cash in full within five (5)
business days after a final Judgment (without further right of appeal)
determining the amount owed is rendered, or after a final settlement or
agreement as to the amount owed is executed.
12.4. Limits on Indemnification. The Indemnitor's liability
under this Section 12 shall be limited as follows:
12.4.1 Threshold. No amount shall be payable by the
Indemnitor under this Section 12 unless and until the aggregate amount
otherwise payable by the Indemnitor under this Section 12 exceeds Ten Thousand
Dollars ($10,000), in which event the Indemnitor shall pay such aggregate
amount and all future amounts payable by the Indemnitor under this Section 12.
12.4.2 Ceiling. The Indemnitor's total liability
under this Section 12 shall not exceed the sum of Three Million Dollars
($3,000,000).
12.4.3 Time Periods. With respect to any
Indemnification Matter that does not involve a third party or governmental
claim, demand or Proceeding, the Indemnitor shall have no liability unless the
Indemnitee gives an Indemnification Notice with respect thereto within three
(3) years after the Closing Date. With respect to an Indemnification Matter
that involves a third party or governmental claim, demand or proceeding, the
liability of Indemnitor shall not be affected if the Indemnitee gives an
Indemnification Notice with respect thereto after the expiration of the three
year period after the Closing Date.
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12.4.4 Exceptions. None of the foregoing limitations
shall apply in the case of any Indemnification Matter involving recklessness,
intentional misrepresentation, fraud or criminal liability or Taxes.
12.5. Setoff and Holdback. In addition to all other rights and
remedies that the Indemnitee may have, the Indemnitee shall have the right to
setoff, against any amounts due to the Indemnitor, whether due under this
Agreement, any of the other Contracts contemplated by this Agreement or
otherwise, any sums for which the Indemnitee is entitled to indemnification
under this Section 12; provided that the Indemnitee's rights to indemnification
under this Section 12 shall not be in any manner limited by or to this right of
setoff. If any Indemnification Matters are pending at a time when the Indemnitee
is required to pay any amount due to the Indemnitor, then the Indemnitee shall
have the right, upon notice to the Indemnitor, to withhold from such payment,
until final determination of such pending Indemnification Matters, the total
amount for which the Indemnitor may become liable as a result thereof, as
determined by the Indemnitee reasonably and in good faith.
13. TERMINATION
13.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time before Closing, whether
before or after approval by Acquiror's shareholders in accordance with any of
the following methods:
13.1.1 Mutual Consent. By the mutual written consent
of Parentco and Owner.
13.1.2 Termination Date. By written notice from
Parentco to Owner or from to Owner to Parentco, if the Closing does not occur
on or before June 30, 1995 for any reason other than a breach of this
Agreement by the party giving such notice.
13.1.3 Failure of Parentco's and Newco's Conditions.
By written notice from Parentco to Owner, if it becomes certain, for all
practical purposes, that any of the conditions to the closing obligations of
Parentco and Newco set forth in Section 9 cannot be satisfied for a reason
other than Parentco's or Newco's breach of this Agreement, and Parentco is not
willing to waive the satisfaction of such condition.
13.1.4 Failure of Owner's Conditions. By written
notice from Owner to Parentco, if it becomes certain, for all practical
purposes, that any of the conditions to the closing obligations of Owner set
forth in Section 8 cannot be satisfied for a reason other than Owner's breach
of this Agreement, and Owner is not willing to waive the satisfaction of such
condition.
13.2. Effect of Termination. Upon termination of this Agreement
pursuant to Section 13.1, this Agreement shall be of no further force and
effect, and there shall be no liability on the part of any party hereto, except
for the obligations of the parties under Sections 14.1, 14.2 and 14.3 and except
that no such termination shall relieve any party from liability for any breach
of this Agreement prior to such termination. Each party's rights under this
Section 13 is in addition to all other rights it may have under this Agreement
or otherwise, and the exercise of its rights under this Section 13 shall not be
deemed an election of remedies.
14. OTHER PROVISIONS
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14.1. Confidentiality. During the period from the date of this
Agreement to the Closing Date, each of the parties shall maintain the
confidentiality of all confidential information which is disclosed to them in
connection with this Agreement. If this Agreement is terminated in accordance
with Section 13, then each party shall promptly return all confidential
information and materials of the other parties, and the provisions of the
foregoing sentence shall survive such termination indefinitely. The parties
acknowledge that any breach of this Section 14.1 may cause irreparable injury to
the others for which money damages could not adequately compensate. If there is
such a breach, the aggrieved parties shall be entitled, in addition to all other
rights and remedies they may have at law or in equity, to have an injunction
issued by any competent court enjoining and restraining the breaching parties
from continuing such breach. The existence of any claim or cause of action which
any of the breaching parties may have against any of the aggrieved parties shall
not constitute a defense or bar to the enforcement of this Section 14.1.
14.2. Fees and Expenses. Parentco and Newco shall pay all of the
fees and expenses incurred by them, and Owner shall pay all fees and expenses
incurred by the Company and it, in negotiating and preparing this Agreement (and
all other Contracts executed in connection herewith or therewith) and in
consummating the transactions contemplated by this Agreement; provided, that
Newco and Owner shall each be responsible for and shall each pay one-half of the
counsel fees of any lender which are payable by Parentco and/or Newco in
connection with a Financing. The parties acknowledge that Blank, Rome, Comisky &
McCauley is not representing the Company in this transaction.
14.3. Publicity. All voluntary public announcements concerning the
transactions contemplated by this Agreement shall be mutually acceptable to both
Parentco and Owner. Unless required by Law, no party shall make any public
announcement or issue any press release concerning the transactions contemplated
by this Agreement without the prior written consent of Parentco and Owner. With
respect to any announcement that any of the parties is required by Law or stock
exchange or NASDAQ regulation to issue, such party shall, to the extent possible
under the circumstances, review the necessity for the contents of the
announcement with the other party before issuing the announcement.
14.4. Notices. All notices, consents or other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or one
business day after being sent by a nationally recognized overnight delivery
service, charges prepaid, to the parties at their respective addresses stated on
the first page of this Agreement. Notices may also be given by facsimile and
shall be effective on the date transmitted if confirmed within forty-eight (48)
hours thereafter by a signed original sent in the manner provided in the
preceding sentence. Any notice to Owner shall be sent to the attention of Alan
Einhorn, Corporate Counsel. A copy of each notice to Parentco, Newco or the
Surviving Corporation shall be simultaneously sent to Arthur H. Miller at Blank,
Rome, Comisky & McCauley, 1200 Four Penn Center Plaza, Philadelphia, PA 19103.
Any party may change its address for notice and the address to which copies must
be sent by giving notice of the new addresses to the other parties in accordance
with this Section 14.4, provided that any such change of address notice shall
not be effective unless and until received.
14.5. Survival of Representations. All representations and
warranties made in this Agreement or pursuant hereto shall survive the date of
this Agreement, the Effective Date, the Closing Date and the consummation of the
transactions contemplated by this Agreement.
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<PAGE>
14.6. Interpretation of Representations. Each representation and
warranty made in this Agreement or pursuant hereto is independent of all other
representations and warranties made by the same parties, whether or not covering
related or similar matters, and must be independently and separately satisfied.
Exceptions or qualifications to any such representation or warranty shall not be
construed as exceptions or qualifications to any other representation or
warranty.
14.7. Reliance by Parentco, Newco and the Shareholder.
Notwithstanding the right of Parentco, Newco and the Shareholder to investigate
the business, Assets and financial condition of the Companies, and
notwithstanding any knowledge determined or determinable by Parentco, Newco and
the Shareholder as a result of such investigation, Parentco, Newco and the
Shareholder have the unqualified right to rely upon, and has relied upon, each
of the representations and warranties made by the Owner in this Agreement or
pursuant hereto.
14.8. Entire Understanding. This Agreement, together with the
Exhibits and Schedules hereto which are hereby incorporated herein as a part of
this Agreement, states the entire understanding among the parties with respect
to the subject matter hereof, and supersedes all prior oral and written
communications and agreements, and all contemporaneous oral communications and
agreements, with respect to the subject matter hereof.
14.9. Parties in Interest. This Agreement shall bind, benefit, and
be enforceable by and against the parties to this Agreement and their respective
successors, permitted assigns, heirs, estates and personal representatives.
Nothing in this Agreement is intended to confer, or shall be deemed to confer,
any rights or remedies upon any Persons other than the parties hereto and their
respective heirs, estates, personal representatives, successors and permitted
assigns.
14.10. Amendment. This Agreement may be amended, modified or
supplemented by the parties hereto, whether before or after approval by a
party's shareholders, provided that any such amendment, modification or
supplement shall be in writing and signed by the parties hereto.
14.11. Waivers. No waiver with respect to this Agreement shall be
enforceable unless in writing and signed by the party against whom enforcement
is sought. Except as otherwise expressly provided herein, no failure to
exercise, delay in exercising, or single or partial exercise of any right, power
or remedy by any party, and no course of dealing between or among any of the
parties, shall constitute a waiver of, or shall preclude any other or further
exercise of, any right, power or remedy.
14.12. Severability. If any provision of this Agreement is
construed to be invalid, illegal or unenforceable, then the remaining
provisions hereof shall not be affected thereby and shall be enforceable
without regard thereto.
14.13. Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
an original hereof, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one counterpart hereof.
14.14. Section Headings. The section and subsection headings in
this Agreement are used solely for convenience of reference, do not constitute
a part of this Agreement, and shall not affect its interpretation.
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<PAGE>
14.15. References. All words used in this Agreement shall be
construed to be of such number and gender as the context requires or permits.
Unless a particular context clearly requires otherwise, the words "hereof" and
"hereunder" and similar references refer to this Agreement in its entirety and
not to any specific section or subsection of this Agreement.
14.16. Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
14.17. Schedules. The parties agree that within ten (10) business
days of the date of this Agreement, Owner shall furnish to Parentco and Newco
and Parentco and Newco shall furnish to Owner, all Schedules called for by this
Agreement which were not delivered upon execution of this Agreement. If any
party receiving a Schedule from another party pursuant to this Section 14.17
objects, for any reason, to anything disclosed on such Schedule, the objecting
party shall have the right to terminate this Agreement by written notice to the
other party.
Witness the due execution and delivery hereof as of the date first
stated above.
MEDIQ INCORPORATED
By: /s/ Michael S. Sandler
---------------------------
Name: Michael S. Sandler
Title:
MEDIFAC HOLDINGS, INC.
By: /s/ James W. Eastwood
--------------------------
Name: James W. Eastwood
Title:
MEDIFAC, INC.
By: /s/ Michael S. Sandler
--------------------------
Name: Michael S. Sandler
Title:
MEDIFAC ACQUISITION, INC.
By: /s/ James W. Eastwood
--------------------------
Name: James W. Eastwood
Title:
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ASSET PURCHASE AGREEMENT
This AGREEMENT is made on the 11th day of August, 1995 by and among
MEDIQ Imaging Services, Inc. and its wholly-owned subsidiaries American
Cardiovascular Imaging Labs, Inc. and Southeastern Diagnostics, Inc., with
offices located at One Mediq Plaza, Pennsauken, New Jersey 08110 (hereinafter
referred to collectively as "Sellers") and NMC Diagnostics Services Inc., a
Delaware corporation (hereinafter referred to as "Buyer").
W I T N E S S E T H:
WHEREAS, Sellers own and operate a diagnostic testing business
throughout the United States (the "Business"); and
WHEREAS, Sellers desire to sell to Buyer and Buyer desires to purchase
from Sellers certain assets of the Business.
NOW, THEREFORE, the parties agree as follows:
I. Terms of Purchase and Sale
A. Subject to the terms and conditions hereinafter set forth,
Sellers hereby agree to sell, convey, transfer and deliver to
Buyer, and Buyer agrees to purchase and accept from Sellers,
all of Sellers' right, title and interest in and to the
following assets of the Business (the "Assets") to the extent
such Assets do not constitute Excluded Assets (hereinafter
defined):
1. all inventory, wherever located, used or held for
sale in connection with the conduct of the
Business, including, without limitation, supplies,
raw materials, scrap, containers, packaging materials
and spares;
2. all machinery, equipment, parts, tooling, motor
vehicles, furniture, furnishings, fixtures,
supplies, plant and office equipment and all other
tangible personal property of the Business, wherever
located;
3. all files and operating data and records primarily
relating to the Business and the conduct of
the Business, including, without limitation, all
books, manuals, fixed assets records, documents,
2
<PAGE>
computer software, operating procedures, customer
lists, sales records, credit information,
correspondence, literature, sales and advertising
materials, designs and drawings, models, patterns,
slogans and books of account;
4. all customer and supplier lists primarily relating
to, or otherwise material to the conduct of,
the Business;
5. the leases for real property for space solely
occupied by Sellers set forth on Exhibit
II.I (the "Leases");
6. leases, subleases and assignments (whether as
lessee, sublessee, or assignee) of machinery,
equipment and other personal property used
primarily by the Business (the "Equipment Leases");
7. all of the Business' accounts and notes receivable
reflected on the books of the Sellers on the
Closing Date;
8. all of the Sellers' cash, cash in banks, cash
equivalents, deposits, investments, securities,
advance payments, prepaid items and expenses,
deferred charges, rights of offset and credits and
claims for refund;
9. all contracts and agreements of the Sellers relating
to the operations of the Business (except as excluded
herein); all purchase and sale orders (and orders
evidenced solely by order acknowledgements),
contracts and agreements of the Sellers relating to
the purchase of products, materials or services used
in connection with the conduct of the Business; all
agreements of the Sellers with medical providers; the
Leases; the Equipment Leases; and all other contracts
and agreements entered into by Sellers in the conduct
of the Business including, without limitation, all
agreements set forth on Exhibit II.J, (except those
contracts required to be included on Exhibit II.J,
but which are not included if such contracts are not
in compliance with laws in effect on the Closing
Date) (collectively, the
<PAGE>
3
"Assigned Contracts");
10. all intellectual property which is or has been used
to conduct the Business, including, without
limitation, all patents, patent applications,
copyrights and copyright applications; registered and
unregistered trademarks and service marks, trademark
and service mark registrations, trademark and service
mark applications for registration; all patent,
trademark, service mark, trade name and know-how
rights granted to the Business under licensing or
other agreements; and all know-how, proprietary
information, production methods, trade and business
secrets and computer software;
11. all rights, claims or causes of action against third
parties primarily relating to the Assets, Business or
operation of the Business;
12. all assignable third party warranties and guarantees
with respect to any of the Assets; and
13. all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, tax
abatements and other similar permits or rights and
all pending applications therefor related to the
Business ("Permits"), other than Medicare provider
numbers but including such provider numbers for South
Carolina and Colorado.
B. Excluded Assets. Notwithstanding anything contained in
Section I.A. hereof to the contrary, Sellers are not selling,
assigning, transferring or conveying to Buyer any asset or
item not described in Section I.A. Without limiting the
foregoing, the following assets, rights and properties are
excluded from the transactions contemplated in this Agreement
(the "Excluded Assets"):
1. any equipment and other personal property, wherever
located, owned by third parties who are not
affiliated with Sellers, and any equipment and other
personal property not presently used or being stored,
prepared or repaired for use by Sellers primarily in
the
<PAGE>
4
operation of the Business as it is currently being
conducted.
2. the name "MEDIQ" and any derivation thereof:
3. to the extent not reflected as assets on the Closing
Balance Sheet, refunds for taxes paid and any claim
that Sellers or any of their affiliates may have,
have had or will have against a third party with
respect to any events or acts occurring prior to the
Closing;
4. to the extent not reflected on the Closing Balance
Sheet, accounts receivable from Sellers' affiliates,
Sellers' pension, profit-sharing or other funded
employee benefit plan assets or liabilities;
5. the capital stock of or owned or held by Sellers;
6. all corporate minute books and stock books and
records of Sellers;
7. the assets, properties and rights not primarily used
in the Business owned or held by any affiliate of any
Seller (other than any other Seller);
8. Sellers' Medicare and Medicaid provider numbers
other than the provider numbers for South Carolina
and Colorado;
9. banking or financial institution accounts or any
deposit or concentration accounts or safety deposit
boxes (but not the cash or cash equivalents in such
accounts or boxes);
10. all bonds and letters of credit including, but not
limited to, those posted to support Sellers' and the
Business' workers' compensation obligations and
general liability and other insurance obligations,
policies and premiums;
11. books and records that Sellers are required to
retain pursuant to any statute, rule, regulation or
ordinance; and
12. assets, properties and rights of any nature that are
not reflected on the Closing Balance Sheet and either
(i) are used by Sellers or their affiliates
(including, without limitation, Mediq or any
subsidiary or division thereof) in providing general
corporate, insurance and
5
<PAGE>
administrative services to divisions, subsidiaries or
operating units of Sellers or their affiliates as
well as to the Business or (ii) used by Sellers or
their affiliates (including, without limitation,
Mediq or any subsidiary or division thereof) in any
business or businesses other than the Business.
C. Obligations Under Assigned Contracts; Assumed Liabilities.
1. Subject to the terms and conditions of this
Agreement, at the Closing, Sellers will assign and
transfer to Buyer the Assigned Contracts, and Buyer
will assume and in a timely fashion will pay, perform
and/or discharge: (1) all of Sellers' obligations and
liabilities under the Assigned Contracts (other than
any such obligations and liabilities which were to be
performed on or prior to the Closing Date
("Pre-Closing Performance") unless (x) if such
Pre-Closing Performance involved the payment of
money, such monetary obligation is reflected as a
liability on the Closing Balance Sheet or (y) if such
Pre-Closing Performance did not involve the payment
of money, such obligation is of a nature arising in
the ordinary course of the Business and does not
constitute a violation of laws in effect on the
Closing Date) and the assigned Permits in accordance
with the respective terms thereof; (2) liabilities
and expenses of the Sellers of a nature required to
be set forth, and that are set forth on the Proposed
Balance Sheet; (3) the Liens (as hereinafter
defined); (4) the obligations and liabilities of the
Business arising from events occurring after Closing;
(5) accounts payable and accrued expenses to the
extent set forth on the Closing Balance Sheet (6) to
the extent of any Unused Basket Amount (as
hereinafter defined), any other liabilities of the
Sellers; (7) taxes to be paid by Buyer pursuant to
Section I.D below and (8) the obligations and
liabilities set forth on Exhibit I.C (collectively
the liabilities and obligations described in
6
<PAGE>
clauses (1) through (8) are referred to as the
"Assumed Liabilities"). Buyer assumes no other
liabilities of the Sellers unless specifically
assumed by Buyer in this Agreement. Without limiting
the foregoing, Buyer is not assuming any tax
liability accruing prior to the Effective Date, and
is not assuming any litigation based solely on events
occurring prior to the Effective Date, is not
assuming any liability of any nature under any of
Sellers' pension plans (other than the obligation, if
any, to pay the amount of any payable or expense
expressly accrued on the Closing Balance Sheet).
2. Except as herein provided, to the extent that any
lease, contract, license, permit, agreement, sales or
purchase order, commitment, property interest,
qualification or other Asset described in Section
I.A, and not otherwise excluded in Section I.B, to be
sold, assigned or conveyed to Buyer, cannot be sold,
assigned or conveyed, without the approval, consent
or waiver ("Consent") of any third person (including
any landlord or any government or governmental unit),
or if such sale, assignment or conveyance or
attempted sale, assignment or conveyance would
constitute a breach thereof or a violation of any
law, decree, order, regulation or other governmental
edict, this Agreement shall not (unless and until
such Consent is obtained) constitute or require a
sale, assignment or conveyance thereof, or an
attempted sale, assignment or conveyance thereof.
Buyer and Seller shall each use good faith efforts,
and shall cooperate with each other, to obtain all
Consents necessary to sell, assign or convey the
Assets to Buyer as soon as practicable at no cost or
liability to Sellers. If any of the Consents have not
been obtained by Buyer or Sellers as of the Closing,
(i) the Purchase Price set forth in Section I.E shall
not be affected thereby and Buyer shall purchase all
remaining Assets and (ii) the liabilities
7
<PAGE>
and obligations assumed by Buyer pursuant to Section
I.C shall not be affected thereby and Buyer shall
assume, pay, perform and discharge the Assumed
Liabilities in respect of all Assigned Contracts and
Permits as if all consents had been obtained and all
Assigned Contracts and Permits were sold, assigned
and conveyed to Buyer.
3. In order, however, to provide Buyer the full
realization and value of every Assigned Contract on
and after the Closing Date the Sellers shall, by
themselves or by their agents, at the request and
expense of Buyer, and in such manner as Buyer shall
reasonably specify and as shall be permitted by law
and shall not be in violation of the Assigned
Contracts, take all such reasonable action (including
without limitation the appointment of the Buyer as
attorney-in-fact for the Sellers or, upon receipt of
indemnity from Buyer reasonably satisfactory to the
Sellers, the subcontracting with Buyer to effect a
"pass-through" of the rights and obligations that
will remain with the Seller that is a primary party
to such Assigned Contract) and do or cause to be done
all such things as shall be necessary or proper (i)
to assure that the rights and obligations of Sellers
under such Assigned Contracts shall be preserved for
the benefit of Buyer and (ii) to facilitate receipt
of the consideration to be received by the Sellers in
and under any such Assigned Contract, which
consideration the Sellers shall hold for the benefit
of, and upon request of Buyer shall deliver to, Buyer
to the extent herein provided
D. Payment of Taxes and Other Charges; Prorations.
1. At the Closing or thereafter at the request of
Sellers, Buyer shall pay all real property transfer
taxes, sales and use taxes, documentary stamp taxes,
recording charges and other fees and taxes imposed
8
by any governmental entity in connection with the
transfer of the Assets (the "Transactional Taxes").
Buyer shall (a) pay the cost of obtaining title
insurance, if any, including, without limitation, all
premiums and title closing costs required to be paid
in connection therewith, and (b) pay the cost of all
real property surveys and investigation, if any,
obtained by Buyer in connection with the transactions
contemplated hereunder and any costs associated with
obtaining landlord or other consents to the
transaction contemplated hereby; however, Sellers
will be responsible for their internal costs of
obtaining such consents. Buyer shall prepare and
file, and Sellers shall fully cooperate with Buyer
with respect to such preparation and filing of, any
returns and other filings relating to any such taxes,
fees, charges or transfers, as may be required.
2. Any and all taxes (other than sales and use, excise,
payroll, income, franchise, corporate or similar
taxes, including any taxes payable to local franchise
authorities, which are imposed or assessed against
either party based upon or measured by revenues of
such party), rents, utilities, payments and receipts,
rentals, costs, charges, fees or expenses connected
with or used in the operations of the Business, and
any and all revenues in connection with the Assumed
Contracts shall be prorated between the parties as of
the close of business on the date immediately
preceding the Effective Date and Sellers shall bear
their proportion of the costs and shall be entitled
to their proportion of the revenues through the date
immediately preceding the Effective Date and Buyer
shall bear its proportion of the costs and shall be
entitled to its proportion of the revenues from the
Effective Date. Taxes (other than sales and use,
excise, payroll, income, franchise, corporate or
similar taxes, including any taxes payable to local
franchise authorities, which are imposed or
9
<PAGE>
assessed against either party based upon or measured
by revenues of such party) shall be prorated on the
basis of the taxable year of the authority levying
such taxes as of the close of business on the date
immediately preceding the Effective Date and all
other amounts shall be prorated as of the close of
business on the date immediately preceding the
Effective Date based on a thirty (30) day month and a
360-day year. Each party agrees to promptly make
payments to the other party in respect of amounts due
and owing such other party for adjustments required
by this Section as soon as such amounts are
determined or determinable. Notwithstanding anything
to the contrary herein, in no event shall Sellers
have any liability to Buyer for prorations pursuant
to this Section to the extent such prorations are
reflected on the Closing Balance Sheet.
E. The aggregate purchase price for the Assets and covenants not
to compete hereunder (the "Purchase Price") shall be the sum
of $19,400,000.00. The Purchase Price will be allocated as set
forth in Exhibit I.E. The parties hereto agree to file all
income, franchise and other tax returns in a manner consistent
with such allocation. No party shall take any position with
any taxing authority inconsistent with such allocation unless
otherwise required by applicable law.
F. No sooner than five business days nor later than one business
day prior to the Closing Date, Sellers will provide to Buyer a
proposed Closing Balance Sheet (as hereinafter defined), and a
good faith estimate (the "Estimated Adjustment") of the
"Purchase Price Adjustment" (as hereinafter defined) based on
the Sellers' consolidated records at such date. Such proposed
Closing Balance Sheet ("Proposed Balance Sheet") will be
prepared by Sellers based upon Sellers' financial condition at
May 31, 1995 updated to reflect an estimate of the results of
operations for June 1995 (but without estimate of the results
of operations for July 1995 even
10
<PAGE>
though such results will be reflected in the Closing Balance
Sheet). The Proposed Balance Sheet and Estimated Adjustment
are attached hereto as Exhibit I.F(1). The "Purchase Price
Adjustment" shall be the amount by which the Adjusted Book
Value of the Sellers differs from $5,812,000 (the "Beginning
Balance") (e.g. if the Adjusted Book Value exceeds the
Beginning Balance, the Purchase Price will be increased by the
amount of the excess, or if the Adjusted Book Value is less
than the Beginning Balance, the Purchase Price will be
decreased by the amount of such difference). As used herein,
the "Adjusted Book Value" of the Sellers shall mean the amount
by which (a) the aggregate amount of the assets reflected on
the Closing Balance Sheet exceeds (b) the aggregate amount of
the liabilities reflected on the Closing Balance Sheet,
exclusive of goodwill, Sellers' inter-company payables and
receivables, federal and state taxes and deferred taxes, all
as reflected on the Closing Balance Sheet. The parties agree
that the reserve for uncollectible accounts receivable to be
used on the Proposed Balance Sheet and Closing Balance Sheet
shall be calculated as set forth on Exhibit I.F(2). In the
event Buyer collects more than the amount reflected on the
Closing Balance Sheet net of such reserve in respect of
accounts receivable of the Sellers outstanding on the Closing
Date, Buyer shall promptly from time to time remit such excess
to Sellers and in any event within twenty (20) days of receipt
by Buyer of any applicable payment.
G. As soon as practicable, but in any event within 60 days
following the Closing Date, Sellers shall prepare and deliver
to Buyer (x) a consolidated balance sheet of the Sellers
prepared as of a point in time immediately prior to the close
of business on the Effective Date (the "Closing Balance
Sheet") prepared in accordance with generally accepted
accounting principles ("GAAP") and reflecting accounting
principles consistent with those used in the preparation of
the Proposed Balance Sheet and the
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consolidated balance sheet of Sellers attached hereto as
Exhibit I.G (all such principles not in accordance with GAAP
are detailed in notes to Exhibit I.G) (the "Accounting
Principles") and (y) a calculation of the proposed final
Purchase Price Adjustment (the "Purchase Price Adjustment
Calculation"). Buyer acknowledges that the Proposed Balance
Sheet was prepared assuming Closing occurred on June 30, 1995
and that the Closing Balance Sheet will be prepared as
aforesaid as of the close of business on the actual Effective
Date and accordingly will reflect the results of operations
and change in financial condition arising between such dates
in addition to any other adjustments that would have otherwise
been made in preparing the Closing Balance Sheet. If Sellers
have not obtained reactivation of existing provider numbers
for Florida or New Jersey before the delivery of the Closing
Balance Sheet, the receivables with respect to those states
which Sellers are unable to collect without such reactivated
provider numbers will not be included on the Closing Balance
Sheet; provided, however, that at such time as Sellers obtain
such reactivated provider numbers, Buyer will collect those
receivables pursuant to Section IV.K for Sellers' account and
shall promptly pay any such amounts collected to Sellers.
Buyer shall give Sellers such access to the employees and
books and records of the Business as may be necessary to allow
Sellers to prepare the Closing Balance Sheet and the Purchase
Price Adjustment Calculation. The Closing Balance Sheet and
the Purchase Price Adjustment Calculation (and the resulting
Purchase Price Adjustment), when delivered to Buyer, shall be
deemed conclusive and binding on the parties, unless Buyer
notifies Sellers, within 30 days after receipt of the Closing
Balance Sheet, of its disagreement therewith (which notice
shall state with reasonable specificity the reasons for any
disagreement and the amounts in dispute). If there is a
disagreement regarding the Purchase Price Adjustment
Calculation (and the resulting
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<PAGE>
Purchase Price Adjustment) and Closing Balance Sheet, and such
disagreement cannot be resolved by the parties within 30 days
following receipt by Buyer of the Closing Balance Sheet and
the Purchase Price Adjustment Calculation, the dispute shall
be submitted to a nationally recognized firm of independent
auditors acceptable to both Buyer and Sellers, and the
determination by such independent auditing firm shall be
binding and conclusive upon the parties. Buyer and Sellers
shall each pay one-half of the cost of the fees and expenses
of such independent auditing firm. Delivery and acceptance of
the Closing Balance Sheet will not diminish Buyer's rights
under Article V of this Agreement; provided, however, that the
amounts accrued for an item on the Closing Balance Sheet will
be taken into account in assessing the amount of any damages
to which Buyer may be entitled pursuant to Article V.
H. To the extent the Purchase Price Adjustment as finally
determined pursuant to subsection G exceeds the Estimated
Adjustment by a positive amount, Buyer shall pay the
difference to Sellers. To the extent the Purchase Price
Adjustment is less than the Estimated Adjustment or exceeds
the Estimated Adjustment by a negative amount, Sellers shall
pay the difference to Buyer. Any amount due pursuant to this
Section shall be paid by Buyer to Sellers or by Sellers to
Buyer, as the case may be, within 10 days after any disputes
have been resolved and the final determination of the Purchase
Price Adjustment is made.
I. On the Closing Date, Buyer shall pay to Sellers by wire
transfer the Purchase Price adjusted by the amount calculated
in Section I.F.
II. Representations and Warranties of Sellers
Sellers represent, warrant, and agree as follows:
A. Sellers are corporations duly incorporated, validly existing
and in good standing under the laws of their respective states
of incorporation, have
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filed and paid all applicable annual reports and fees with the
applicable Secretaries of State, and have the corporate power
to own their respective properties and assets and carry on
their respective business as is presently being conducted.
Sellers have furnished to Buyer certified copies of Articles
of Organization and By-Laws and a certificate of good standing
certified by the applicable Secretary of State of their
respective states of incorporation. These documents are
contained in Exhibit II.A.
B. Sellers are owned as shown on Exhibit II.B which exhibit sets
forth the state of incorporation of each Seller.
C. The execution and delivery of this Agreement do not, and the
consummation of the purchase and sale will not, violate any
provision of, or result in the acceleration of any obligation
under any mortgage, lien, lease, agree- ment, instrument,
order, license, arbitration award, judgment, or decree to
which the Sellers are a party or by which each is bound (other
than agreements, if any, wherein the consent of the other
party thereto is required and the loan agreement with Congress
Financial Corporation) in such a way as to have a material
adverse effect on the Business taken as a whole (a "Material
Adverse Effect").
D. Except as set forth on Exhibit II.F, Sellers have, or will
have prior to the Closing Date, all permits and licenses
necessary for the operation of Business as conducted at
Closing, including valid Medicare provider numbers, and to
receive private, state and federal government payment for
furnishing diagnostic testing and related products and
services other than any permits or licenses the failure of
which to have would not have a Material Adverse Effect. A
listing of all such licenses and permits and current license
numbers has been provided to Buyer.
E. There are now no pending or to Sellers' knowledge, threatened
claims, suits, actions, assessments, arbitration awards or
proceedings at law or in equity or before any governmental
instrumentality or other agency which,
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<PAGE>
if adversely determined, would have a Material Adverse Effect
to which Sellers are a party or which the Business is or may
be subject except as described in Exhibit II.E attached
hereto. No suits or actions by any referring physician of
Sellers has been settled in the past year. Sellers are not in
violation of or in default with respect to any judgment,
order, award, writ, injunction or decree of any court,
governmental department, commission, agency, instrumentality,
arbitrator, administrative agency or governmental authority,
where such violation or default, severally or in the
aggregate, would have a Material Adverse Effect or will
prevent the consummation of the transactions contemplated
hereby.
F. Except as disclosed on Exhibit II.F, to Sellers' knowledge,
Sellers are not now nor have they ever been at any time during
which a majority of their capital stock was owned directly or
indirectly by Mediq Incorporated, a Delaware corporation
("Mediq"), investigated, charged or implicated in any
violation of any state or federal statute or regulation
involving fraudulent and abusive practices with respect to
participation in state and/or federally sponsored
reimbursement programs, including but not limited to
fraudulent billing practices. The Business has properly billed
all intermediaries and third party payors for all products
supplied and services rendered by the Business and has
maintained its records to reflect such billing practices
except where any failure to do so would not have a Material
Adverse Effect. No funds are now or will be withheld by any
Medicare intermediary or other insurance carrier except those
disclosed to Buyer on Exhibit II.F. All Medicare or third
party overpayments have been properly reported and returned to
the applicable party as required by law or contract except
where any failure to do so would not have a Material Adverse
Effect.
G. The consolidated balance sheets of the Sellers as of January
31, 1995, and the related income statements for the period
then ended, all attached hereto as Exhibit I.G, (the "Balance
Sheet"), fairly present in all material
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<PAGE>
respects the financial position of the Sellers as of January
31, 1995 in accordance with GAAP (except that Buyer
acknowledges that such financial statements do not reflect any
effect that may result from the matters described in Exhibits
II.E, II.F, or II.K). Except as set forth on Exhibit II.K,
since January 31, 1995, the Business has been operated in the
normal course of business in all material respects.
H. Sellers have good and marketable title to and own free and
clear of any liens or encumbrances, except for Liens, all the
Assets. As used herein, "Liens" shall mean (a) minor
imperfections of title, none of which, individually or in the
aggregate, materially detracts from the value of or impairs
the use of the affected item, affects Buyer's ability to sell
the item (other than liens resulting from liabilities
reflected on the Proposed Balance Sheet) or impairs the
operations of the Business, (b) liens for current taxes not
yet due and payable, (c) encumbrances for debts which will be
released on or before the Closing Date, and (d) as disclosed
on Exhibit II.H. No other warranties, express or implied, are
made by Sellers, and Buyer waives all such warranties, other
than as set forth expressly in this Agreement, regarding the
title, value, condition and use of the Assets, including, but
not limited to, warranties, of habitability, merchantability
or fitness for a particular purpose. Buyer hereby affirms that
Sellers, their agents, employees and/or attorneys have not
made nor has Buyer relied upon any representation, warranty or
promise with respect to the Assets or any other subject matter
of this Agreement except as expressly set forth in this
Agreement. The Assets include all of the assets and interests
in assets of Sellers and their affiliates that are used in the
operation of the Business as presently conducted, other than
the Excluded Assets.
I. The Leases and the copies of leases annexed to Exhibit II.I
are true and complete copies of all real and all material
personal property leases of the
16
Sellers. No other warranties, express or implied, are made by
Sellers, and Buyer waives all such warranties, other than as
set forth expressly in this Agreement regarding the title,
value, condition and use of the real properties together with
the leasehold improvements, fixtures, and equipment therein
which are the subject of such Leases, including, but not
limited to, warranties of habitability, merchantability or
fitness for a particular purpose. Buyer hereby affirms that
Sellers, their agents, employees and/or attorneys have not
made nor has Buyer relied upon any representation, warranty or
promise with respect to such real property or any other
subject matter of this Agreement except as expressly set forth
in this Agreement. No party to any Lease has sent written
notice to the other claiming that such party is in default
thereunder, which default remains uncured. There has not
occurred any event which would constitute a breach of or
default in the performance of any material covenant, agreement
or condition contained in any Lease by Sellers and, to the
best of Sellers' knowledge, any other party thereto which
would have a Material Adverse Effect. Sellers are not
obligated to pay any leasing or brokerage commission relating
to any Lease which has not been paid prior to the date hereof,
and does not have any enforceable obligation to pay any
leasing or brokerage commission upon the renewal or extension
of any Lease. Except as expressly set forth in the Leases,
none of the Leases imposes any restrictions that would
materially interfere with the continued operation of the
Business as currently conducted. No renewal option under any
Lease has been exercised unless the renewal notice is attached
as Exhibit II.I.
J. The contracts listed on Exhibit II.J and the copies of such
contracts annexed to Exhibit II.J are true and complete copies
of all contracts of Sellers relating to the operations of the
Business of (i) all employment agreements, consulting
agreements in amounts with payments exceeding
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$40,000.00 per year (unless with a referring physician, all of
which are attached), joint venture, and agency agreements to
which the Sellers are a party and which would continue to bind
the Sellers one year beyond the date hereof; (ii) with
principal suppliers of the Business with payments exceeding
$40,000.00 per year, $200,000 over the term of the contract or
for a term in excess of two years; (iii) bonus, incentive
compensation, profit-sharing, deferred compensation and
post-termination obligations and trust agreements of the
Sellers in effect or under which any amounts which exceed
$40,000.00 remain unpaid on the date hereof or are to become
effective after the date hereof; (iv) any contract limiting
the freedom of the Business to compete in any line of business
or with any entity; and (v) all other contracts, the loss of
which would have a Material Adverse Effect, not otherwise set
forth in other Exhibits hereto. To the best of Sellers'
knowledge, except as set forth in Exhibit II.K, there is no
existing breach or default by any other party to any Contract,
and to the best of Sellers' knowledge, except as set forth in
Exhibit II.K, no event has occurred which with the passage of
time or giving of notice would constitute a breach or default
by any party under an Assigned Contract, result in a loss of
rights or result in the creation of any encumbrance under an
Assigned Contract, except any of the foregoing which would not
have a Material Adverse Effect.
K. Except as set forth on Exhibit II.K, since January 31, 1995:
1. There has been no material adverse change in the
financial condition, results of operations, assets,
liabilities, licenses, permits, material agreements,
method of accounting or manner of conducting the
Business taken as a whole other than, in each case,
changes in the ordinary course of business and other
than changes relating to the economy in general or
industry conditions.
2. There has been no damage, destruction or other
casualty loss
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<PAGE>
materially and adversely affecting the business,
properties, financial condition or results of
operations of the Business taken as a whole except
any such loss which is covered by insurance.
3. There has been no increase in compensation payable or
to become payable by the Sellers to any of its
officers, employees or agents other than increases in
the ordinary course of business.
4. The Sellers have not entered into any material
contracts, agreements or licenses which would be
required to be forth in Exhibit II.I or II.J other
than those set forth in Exhibit II.I or II.J and
previously delivered to Buyer.
5. The Sellers have not incurred any indebtedness for
borrowed money or purchase money indebtedness other
than in the ordinary course of business.
L. There are no outstanding options or rights to purchase the
stock of the Sellers that would affect this transaction.
M. To Sellers' knowledge, as of January 31, 1995, all
liabilities of Sellers required by GAAP to be set forth on a
balance sheet that was prepared on and as of January 31, 1995,
are reflected on the Balance Sheet (except that Buyer
acknowledges that such Balance Sheet does not reflect any
effect that may result from the matters described in Exhibits
II.E, II.F, or II.K). Any and all attorneys' and accountants'
fees and disbursements and other costs incurred on behalf of
Sellers in connection with this Agreement and related
agreements shall not become Assumed Liabilities.
N. During each of the past ten calendar years, or such shorter
period as such entity has been directly or indirectly majority
owned by Mediq, the Sellers have been and presently are
insured against the normal risks of their business on a
claims-made basis, including, without limitation, professional
liability, and general liability insurance in aggregate annual
amounts of not
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less than $5,000,000.00, and with a deductible not exceeding
$250,000.00. Sellers will, at Sellers' option, either maintain
such claims-made coverage or purchase "tail" coverage
affording professional liability and general liability
insurance for a period of three years following the Effective
Date. Certificates evidencing such policies that are currently
in place (the "Insurance Policies") are attached as Exhibit
II.N. All premiums due on the Insurance Policies or renewals
thereof have been paid and to Sellers' knowledge, Sellers are
not in default under any of the Insurance Policies. Sellers
have not received any notice or other communication from any
issuer of the Insurance Policies canceling or materially
amending any of the Insurance Policies, materially increasing
any deductibles or retained amounts thereunder, or materially
increasing the annual or other premiums payable thereunder,
and, to the best of Sellers' knowledge, no such cancellation,
amendment or increase of deductibles, retainages or premiums
is threatened.
O. The present conduct of the Business by Sellers complies in all
respects with the applicable provisions of federal, state, and
local laws (including the Federal False Claims Act, the RICO
Statute, 42 U.S.C. 1320a-7b, 42 U.S.C. 1395 nn, or any related
state self-referral statutes) and all government licenses,
permits, and other authorizations applicable thereto, except
where failure to comply would not have a Material Adverse
Effect.
P. No work stoppages or other labor disputes involving the
Business are pending or, to the best of Sellers' knowledge,
threatened during the last 3 years. Sellers have no knowledge
that any individual (other than Stephen Doppelt) having an
annual salary in excess of $40,000.00 currently has an
intention to terminate his/her employment except as set forth
in Exhibit II.P. Sellers have no collective bargaining
agreements currently in effect. Seller has no material
arrearages in the payment of wages, taxes or worker's
compensation assessments or penalties.
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<PAGE>
1. Exhibit II.P contains a complete list of Sellers'
(i) current pension, profit sharing, stock bonus,
deferred compensation, retirement or other "employee
pension benefit plans," as that term is defined in
Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") (the
"Pension Plans"); (ii) current "employee welfare
benefit plans" as that term is defined in Section
3(1) of ERISA, whether insured or otherwise (the
"Welfare Benefit Plans"); and (iii) other material
employee benefit plans, policies and practices
including deferred compensation arrangements or other
similar programs (the "Non-ERISA Plans"), maintained
or contributed to with respect to any employee of the
Business (all of such plans shall hereinafter be
referred to collectively as "Employee Plans"). A copy
of each Employee Plan has been furnished to Buyer.
None of the Employee Plans are "voluntary employees'
beneficiary associations" ("VEBAs") as described in
Section 501(c)(9) of the Internal Revenue Code of
1986, as amended (the "Code").
2. Sellers do not contribute, are not required to
contribute, and have never been required to
contribute to any multiemployer plan within the
meaning of Section 3(37) of ERISA.
3. Except for medical insurance coverage required by law
to be provided to former employees, no Employee Plan
provides health or life insurance benefits for
retirees.
4. No Employee Plan, any trust created thereunder, or,
to the best of Sellers' knowledge, any trustee or
fiduciary (as defined in Section 3(21) of ERISA)
thereof, has engaged in a "prohibited transaction" as
such term is defined in Section 4975 of the Code or
Section 406 of ERISA which would have a Material
Adverse Effect.
5. Sellers have made all contributions, paid all
premiums and satisfied
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<PAGE>
all liabilities with respect to the Employee Plans
which are payable as of the date hereof except any of
the foregoing which would not have a Material Adverse
Effect.
Q. Sellers have filed all tax returns required to be filed by
them commencing with the taxable period the Sellers were first
majority-owned by Mediq through the fiscal year ended
September 30, 1993, and has timely filed all extensions of
time for the period ending September 30, 1994, and has paid,
or has set up adequate reserves for or will have set up
adequate reserves for the payment of all taxes (other than the
Transactional Taxes) required to be paid in respect of the
periods covered by such returns and extensions and, except as
aforesaid, has set up adequate reserves for the payment of all
income, franchise, property, sales, use, employment, Social
Security, or other taxes anticipated to be payable in respect
of the period subsequent to September 30, 1993 (including any
federal, state or local income, sales or franchise tax or
other taxes measured by income or profits arising out of, or
attributable to, the transactions contemplated hereby) and,
except as aforesaid, for the payment of all other taxes
(including, without limitation, all employment taxes, sales or
use taxes, or stamp taxes). Sellers are not delinquent in the
payment of any tax, assessment or governmental charge nor,
except as set forth on Exhibit II.Q, have the Sellers during
the time directly or indirectly majority owned by Mediq
requested any extensions of time within which to file any tax
returns which have not since been filed other than the period
ended September 30, 1994 except for those taxes whose
nonpayment would not have a Material Adverse Effect. Except as
set forth on Exhibit II.Q, no deficiencies for any tax,
assessment or governmental charge have been proposed
(tentatively or definitively), asserted or assessed against
the Sellers during the time directly or indirectly
majority-owned by Mediq, and no requests for waivers of the
time to assess any such tax are pending.
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<PAGE>
Except as set forth on Exhibit II.Q, the federal, state, local
or foreign income tax returns of the Sellers have never been
audited by the Internal Revenue Service (or comparable state
or foreign agency). Except as set forth on Exhibit II.Q,
Sellers are not currently subject to any outstanding federal,
state or local tax audit. For the purpose of this agreement,
the term "tax" shall include all federal, state, local, and
foreign taxes. Copies of all state and federal income tax
returns of the Sellers for the preceding three years have been
delivered to Buyer prior to Effective Date.
R. Exhibit II.R hereto is a complete and accurate list as of the
date hereof of the name, position and compensation of each
current employee, including any individual on disability or
leave of absence (whether paid or unpaid) of the Sellers. All
individuals included on Exhibit II.R are herein referred to as
the "Employees".
S. The Sellers have no patents, trademarks, or applications for
the same. To Sellers' knowledge, the Business is not
infringing upon the valid patents, trademarks or copyrights of
others.
T. "Hazardous Substances" means (i) a pollutant or contaminant
as defined in 42 U.S.C.ss.9601(33); (ii) any hazardous waste
as defined in 40 C.F.R. Part 260 (iii) any "hazardous
substance" as defined in 42 U.S.C.ss. 9601(14); (iv) any
petroleum, crude oil, natural gas, synthetic gas, or fraction
or compound thereof; (v) any radioactive substance; (vi) any
radioactive material; or (vii) any other hazardous substance
subject to any other law, regulation, or ordinance regulating
or establishing standards of conduct concerning the protection
of the environment each in effect as of the date hereof.
"Environmental Law" means the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended;
the Resource Conservation and Recovery Act; the Toxic
Substances Control Act; statutes and regulations regulating
radioactive material, and the state counterparts
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of these laws and any regulations promulgated pursuant to such
laws each in effect as of the date hereof.
"Routine Business Activities" means the use of lubrication,
cleaning, and other substances used in building maintenance;
the use of office supplies in retail quantities; consumer
products; the use of gardening supplies commonly used for
normal landscaping and the use, handling, generation,
transportation, treatment or disposal of Hazardous Substances
in the ordinary course of the diagnostic testing business.
The operations of the Company and Subsidiaries are in
compliance with the terms of all applicable Environmental Laws
and with all permits or orders issued to the Sellers pursuant
to any Environmental Law except for such non-compliance which
would not reasonably be expected to have a Material Adverse
Effect.
To the best of Sellers' knowledge, there has been no leak,
spill, discharge or release in a reportable quantity of any
Hazardous Substance which requires remediation at or from the
real property owned or leased by Sellers while a direct or
indirect majority-owned subsidiary of Mediq except as set
forth on Exhibit II.T.
To the best of Sellers' knowledge (other than those used in
Routine Business Activities), there are not Hazardous
Substances located on or at any of Sellers' business locations
in material violation by Sellers of any applicable
Environmental Law, nor, to the best of Sellers' knowledge,
have there been any underground storage tanks located at any
of any such business locations, except as set forth in Exhibit
II.T.
To the best of Sellers' knowledge, the Business'
operating locations have not been used as a regulated
hazardous waste site.
U. The responses of Sellers contained in the correspondence from
Sellers to Sellers' counsel attached hereto as Exhibit II.U
are true in all material respects.
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III. Representation of Buyer
Buyer represents and warrants as follows:
A. Buyer is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of
Delaware, and has the corporate power to own the properties
and assets to be conveyed herein to Buyer and carry on its
business and the Business of Sellers as it is presently being
conducted. Buyer has furnished to Sellers a copy of its
Articles of Organization and a copy of a Certificate of Good
Standing certified by the Secretary of State of Delaware.
These documents are contained in Exhibit III.A.
B. Buyer has the corporate power to enter into and to perform
all of its obligations under this Agreement and all
appropriate corporate action has been taken by Buyer to
approve the execution, delivery, and performance by Buyer of
this Agreement. The execution, delivery, and performance by
Buyer of this Agreement have been approved by the Board of
Directors of Buyer's parent company. The execution and
delivery of this Agreement do not, and the consummation of
this purchase and sale will not, violate any provision or
result in the acceleration of any obligation under any
mortgage, lien, lease, agreement, instrument, order, license,
arbitration award, judgment or decree to which Buyer is a
party or by which it is bound (other than agreements, if any,
wherein the consent of the other party thereto is required) in
such a way as to materially affect the Buyer and will not
violate and conflict with any other material restriction of
any kind or character to which the Buyer is subject.
C. Buyer has available to it sufficient resources to pay in full
the Purchase Price. The Guaranty by National Medical Care,
Inc. ("NMC") set forth on the signature page hereto has been
duly executed by NMC and is a legal and valid binding
obligation of NMC enforceable against NMC in accordance with
its terms.
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D. There are no pending or to Buyer's knowledge threatened
claims, suits, actions, assessments, arbitration awards or
proceedings at law or in equity or before any governmental
instrumentality or other agency to which Buyer is a party or
to which it is subject which would reasonably be expected to
restrain or prohibit the consummation of the transactions
contemplated hereby.
E. The balance sheet attached as Exhibit III.E fairly presents
the financial condition of NMC. Buyer is an indirect
wholly-owned subsidiary of NMC.
IV. Covenants and Agreements of the Parties
A. Sellers and Buyer represent and warrant that all negotiations
relative to this Agreement have been carried out directly with
each other, without the intervention of any person, other than
each party's respective counsel, and other than KBL
Healthcare, Inc. and Woodbury Associates, Inc. Sellers agree
to indemnify and hold Buyer harmless against and in respect of
any claim for brokerage or other commissions relative to this
Agreement or to the purchase and sale contemplated hereby
incurred by Sellers (including amounts owed to KBL Healthcare,
Inc.) and also in respect of all expenses of any character
incurred by the Sellers in connection with this Agreement or
such purchase and sale other than any expenses accrued on the
Closing Balance Sheet, to the extent accrued on the Closing
Balance Sheet. Buyer agrees to indemnify and hold Sellers
harmless against and in respect of any claim for brokerage or
other commissions relative to this Agreement or to the
purchase and sale contemplated hereby incurred by Buyer
(including amounts owed to Woodbury Associates, Inc.) and also
in respect of all expenses of any character incurred by the
Buyer in connection with this Agreement or such purchase and
sale.
B. Sellers and Buyer shall cooperate to comply with any and all
public health, health planning and licensure statutes and
regulations and will, if required, notify the appropriate
governmental agencies, either state or federal, of the
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<PAGE>
transactions contemplated by this Agreement, to the extent so
required, in order to preserve and/or transfer to Buyer the
state and federal approvals and any other permits and licenses
of the Business included in the Assets. Sellers shall not be
required to pay any third-party expenses or incur any
liability in connection with their undertaking under this
Section. Buyer will reimburse Sellers for reasonable
third-party out-of-pocket expenses.
C. Covenant Not to Disclose Trade Secrets
Sellers acknowledge that in the course of owning the Assets
and operating the Business, Sellers have become privy to
various trade secrets of the Business.
Sellers agree not to disclose to any person, firm or
corporation any information known by Sellers to be trade
secrets of the Business included in the Assets, including, but
not limited to, information of the Business regarding: the
identity and relationships of patients, employees, customers
or vendors affiliated with the Business, compensation of
employees or independent contractors, financial data, pricing
information, regulatory approval and reimbursement strategies,
marketing and sales programs, data, operations and clinical
manuals and expansion of the Business' market, provided,
however, Sellers shall not be prohibited from disclosing any
such information to the extent Sellers are required to
disclose such information by law, to the extent such
information is publicly-known or becomes publicly-known
through no unauthorized act or fault of Sellers or in
connection with any lawsuit or other judicial or
administrative proceeding.
Covenant Not to Solicit Employees
Sellers agree that the Business has invested substantial time
and effort in assembling and training its present staff of
personnel. In addition, as a result of employment by the
Business such personnel have gained knowledge of the business
affairs, marketing, patients and methods of operation of the
Business. Accordingly, for a period of two years after the
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Effective Date, Sellers will not directly or indirectly induce
or solicit any of the Employees to leave their employment with
the Buyer, provided, however, that Sellers may offer
employment at any time to any of such Employees who approach
any Seller seeking employment or who are no longer employed by
Buyer at the time Sellers approach any such Employee. Nothing
contained herein shall affect any right Buyer may have against
any Employee pursuant to any agreement between Buyer and such
Employee or otherwise.
Covenant Not to Compete
For a period of 7 years after the Effective Date,
Sellers will not engage, directly or indirectly, through a
parent, subsidiary or otherwise, either as principal, agent,
proprietor, shareholder of more than 5% of the voting rights,
owner or partner, or participate in the ownership, management,
operation or control of any facility or business providing
diagnostic testing of the types set forth on Exhibit IV.C
within the United States. Notwithstanding anything to the
contrary contained herein, the restrictions contained herein
shall not restrict Sellers or any of their affiliates
(including, without limitation, Mediq or any subsidiary or
division thereof) from operating or owning any of their
existing businesses or investments, provided that they do not
expand into the foregoing prohibited activities. The
restrictions contained in this paragraph shall not be binding
upon any third party purchaser of any assets, stock, division
or business unit of Mediq or any affiliate thereof or of
Mediq; provided such purchaser is not more than 5% owned by
Mediq.
Sellers acknowledge that the foregoing restrictions are
necessary for the protection of the Buyer and that any breach
thereof may cause the Buyer irreparable damage. The Buyer
shall be entitled to the issuance by a court of competent
jurisdiction of an injunction in favor of the Buyer enjoining
the breach or threatened breach of said restrictions. The
foregoing provision
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shall not constitute a waiver of any other remedies the Buyer
may have in law or in equity.
In the event a court of competent jurisdiction determines
that the foregoing restrictions are unreasonable,
then the restrictions shall be reduced by the court to the
extent necessary to be enforced by the court.
D. Buyer and Sellers will cooperate in securing all consents,
approvals, waivers or permits relating to the sale and
transfer of the Assets from each person or governmental
authority whose consent, approval, waiver or permit is
necessary to or for the operation and conduct of the Business
after the Effective Date at no cost or liability to Sellers,
including approvals required by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR Act"). Sellers shall
not be required to pay any third-party expenses or incur any
liability in connection with their undertaking under this
Section. Buyer will reimburse Sellers for reasonable
third-party out-of-pocket expenses.
E. Subject to the provisions of Sections I.F and IV.K, Sellers
and Buyer will cooperate to ensure the orderly transition of
collection responsibility to Buyer for any Accounts Receivable
outstanding as of the Closing Date at no cost or liability to
Sellers.
F. For the period of 3 years after the date hereof, Sellers and
Buyer agree to keep the terms of this Agreement confidential
and will not disclose the terms to any third persons or entity
except in connection with claims asserted under this
Agreement, as required by law (including, without limitation,
any filing with any governmental agency or instrumentality) or
for the operation of the Business and except that Sellers or
their affiliates may issue press releases regarding this
Agreement and the transactions contemplated hereby with
Buyer's consent, which consent shall not be unreasonably
withheld.
G. Buyer and Sellers shall each, from time to time after the
date hereof, at the
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request of the other and without further consideration,
execute and deliver such further instruments of assignment,
transfer or assumption and take such further action as the
other may reasonably request in order more effectively to
transfer, reduce to possession and record title to any of the
Assets or to implement the assumption of Assumed Liabilities.
Any and all out-of-pocket expenses involved in compliance with
this Section shall be promptly reimbursed by the requesting
party to the other.
H. After the Closing Date, Buyer will make available to Sellers
and their affiliates, accountants, attorneys and
representatives upon reasonable request during normal business
hours reasonable access to all records, data and personnel of
the Business necessary in connection with Sellers' conduct of
litigation and tax matters or as otherwise reasonably
requested by Sellers, at no cost to Buyer other than Buyer's
internal costs (e.g., Sellers will reimburse Buyer for
reasonable third-party out-of-pocket expenses). Sellers will
make available to Buyer upon reasonable request during normal
business hours reasonable access to all records and data
relating to the Business not transferred to Buyer as
reasonably necessary to continue operations of the Business at
no cost to Sellers other than Sellers' internal costs (e.g.,
Buyer will reimburse Sellers for reasonable third-party
out-of-pocket expenses).
I. Buyer shall use commercially reasonable efforts, and shall
cooperate with Sellers, to (1) cause Buyer to be substituted
in all respects for Sellers or any of their affiliates,
effective as of the Effective Date, in respect of all
obligations of Sellers and any such affiliate under any
contract or agreement included in the Assumed Liabilities and
under each of the guaranties, letters of credit, bonds and
letters of comfort obtained by Sellers or any of such
affiliates relating to the Assets (collectively, the
"Guaranties") listed on Exhibit IV.I and (2) cause Sellers and
their affiliates to be released from all Assumed Liabilities
under the contracts,
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<PAGE>
agreements and Guaranties described in the preceding clause
(1).
J. Effective as of the Closing Date, Sellers' employment of the
Employees shall cease. Effective as of the Closing Date, Buyer
shall offer "at-will" employment to all of the Employees
except Stephen Doppelt who shall be offered a consulting
arrangement on the terms and conditions set forth on Exhibit
IV.J. All Employees who accept Buyer's offer of employment are
herein referred to as the "Transferred Employees". Buyer's
offer of employment to the Transferred Employees shall be at
the substantially similar salary or wage level as applicable
to such Transferred Employees immediately before the Closing
and on terms and conditions that are substantially similar to
those provided by Buyer to its current employees of like rank
and job title.
Effective as of the Closing Date, Buyer shall designate a
pre-existing group health insurance plan ("Buyer's Health
Plan") that will provide coverage to all Transferred Employees
and their dependents. Buyer's Health Plan shall not contain
any exclusion or limitation with respect to any pre-existing
condition of any Transferred Employees or their dependents.
If any Transferred Employee becomes covered by any employee
benefit plan, program or policy of the Buyer, such Transferred
Employee shall be given credit under such plan, program or
policy for all service with Sellers prior to the Closing Date
for all purposes; provided, however, that such service shall
not be credited for purposes of benefit accruals under any
defined benefit pension plan.
K. Commencing one month after the Effective Date, Buyer shall
provide reports, monthly for the first three months following
Closing and quarterly thereafter, to Sellers regarding the
amounts collected on the accounts receivable of the Business
outstanding as of the Effective Date (the "Accounts
Receivable") and Buyer's efforts to collect such accounts.
Buyer shall, at Buyer's election, either (i) apply at least
the same efforts in the
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collection of the Accounts Receivable as Buyer applies in the
collection of its own accounts receivable or (ii) use the same
personnel and procedures to collect the Accounts Receivable as
were used by the Business immediately prior to the Effective
Date, in the same positions, with the same responsibilities
and at the same salaries and hours. The collection of all
accounts receivable received from an account debtor of the
Business as of the Effective Date shall be applied to the
oldest outstanding invoice with such account debtor which is
not then in dispute consistent with Buyer's general
overpayment policies; provided, however, notwithstanding the
foregoing, any payments made by an account debtor in respect
of a designated account shall be applied to the account so
designated. For purposes of the preceding sentence, a disputed
invoice is an invoice that is the subject of a written dispute
from the account debtor which is reasonably recognized by
Buyer as disputed in accordance with its general policies;
upon the resolution of any such dispute, such invoice shall no
longer be considered disputed and collections from the account
debtor shall be applied in accordance with the previous
sentence as if such dispute had not arisen. Provided that
Buyer has collected in respect of Accounts Receivable at least
the amount set forth on the Closing Balance Sheet in respect
of such Accounts Receivable net of the reserve calculated as
herein set forth, promptly after the first anniversary of the
Effective Date, Buyer shall transfer to Sellers, at no cost to
Sellers, all Accounts Receivable that remain uncollected at
such time. Following a transfer of any Accounts Receivable to
Sellers, Buyer acknowledges that Sellers may collect such
Accounts Receivable for Sellers' benefit in any manner Sellers
deem appropriate, provided such efforts do not materially
jeopardize Buyer's business relationship with the account
debtor. Except as expressly provided in Section IV.K, Buyer
makes no representation regarding its ability to collect the
Accounts Receivable.
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<PAGE>
L. Provided that the failure to pay does not cause Buyer to
breach any Assigned Contract, Buyer shall not pay any amounts
in respect of bonuses accrued on the Proposed Balance Sheet or
Closing Balance Sheet to any Employees until the earlier of
(i) 90 days after Closing or (ii) such time as the parties
have resolved the Closing Balance Sheet in accordance with
Section I.G and any adjustment to the Purchase Price has been
paid.
M. Buyer acknowledges and agrees that the name and service mark
"MEDIQ" and all derivations thereof (the "Name") is owned by
Sellers and that by the sale of the Assets, or otherwise,
Sellers are not relinquishing any interest in or rights to the
Name, nor permitting Buyer (after the Effective Date) to use,
license or otherwise have any rights in or to the Name, except
on such terms as are expressly set forth in this Section.
Sellers will permit use of the name by Buyer for transition
purposes during a period not to exceed eight months subsequent
to the Effective Date (the "Transition Period"), on the
following terms and conditions:
a. By the end of the Transition Period, Buyer shall
have caused the removal of the Name from all of the
Assets including any motor vehicles, stationery,
business cards, and other documents. During the
Transition Period Buyer shall not affix, or cause to
be affixed, the Name to any of the Assets or its
assets, vehicles, machinery or equipment.
b. Within a reasonable period of time after the
Effective Date, Buyer and the Business shall notify
its customers, suppliers and others with whom the
Buyer and the Business does business of the Business'
change of name.
c. Buyer may use the name solely in connection with the
Business in accordance with this Section IV.M and
shall have no right to license, assign or otherwise
transfer any rights in or to the Name.
V. Survival of Representations and Warranties; Indemnification
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<PAGE>
A. The representations and warranties made by any party hereto
in this Agreement or in any Schedule, Exhibit, certificate or
other document delivered by or on behalf of any party hereto
pursuant to this Agreement shall be deemed to be continuing
and shall survive the Effective Date, but shall expire on
December 31, 1996, except matters with respect to Section II.Q
(taxes) and Section II.P (employee benefits), which shall
expire on the expiration of the applicable statute of
limitations (the "Representation Expiration Date"), unless a
specific claim in writing with respect to any such
representation or warranty shall have been made, or any action
at law or in equity shall have been commenced or filed in
respect thereof, prior to such Representation Expiration Date.
Nothing in this section shall terminate or affect the
obligations and indemnities of the parties with respect to
covenants and agreements contained or referenced in this
Agreement that are to be performed by their specific terms, in
whole or in part, after the Closing Date or the
above-referenced Representation Expiration Date.
B. Sellers shall indemnify, defend, save and hold harmless Buyer
and its successors and assigns, and their employees,
representatives, officers, directors and agents (collectively,
the "Buyer Indemnified Parties") from and against any and all
debts, losses, claims, damages, costs, demands, fines,
judgments, penalties, obligations, payments and liabilities,
including, without limitation, those arising out of any breach
of warranty, representation or covenant, lawsuit, action or
proceeding, together with any reasonable costs and expenses
(including, without limitation, reasonable attorneys' fees and
out-of-pocket expenses) incurred in connection with any of the
foregoing whether by a third party or a party to this
Agreement (collectively, "Claims") resulting from (a) any
breach of or inaccuracy in any representation or warranty made
by Sellers in this Agreement, (b) any breach of any covenant
of Sellers contained in this Agreement, (c) any
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<PAGE>
liability of the Business other than the Assumed Liabilities;
(d) any amounts Buyer reasonably determines it is required to
pay pursuant only to the express terms of, and actually does
pay to Employees pursuant only to the express terms of, the
agreements set forth on Exhibit V.A ("Key Employee
Agreements") solely as a result of Buyer's termination of the
employment of such Employee within 60 days of the Effective
Date, or (e) enforcing any rights to indemnification under
this section. For indemnification purposes, in determining
whether a breach of any warranty, representation, or covenant
has occurred; any language referring to a Material Adverse
Effect or any materiality limits will not be considered.
Notwithstanding the foregoing, Sellers shall not be liable for
any Claims pursuant to section V.A or V.B until the aggregate
amount of such Claims exceeds the Basket Amount and then only
to the extent of such excess. The "Basket Amount" shall mean
$50,000 less any amounts actually paid by Buyer in respect of
liabilities of Sellers pursuant to Section I.C(6) and "Unused
Basket Amount" shall mean the positive difference (if any)
between $50,000 and the amount of any Claims for which Buyer
would be entitled to indemnification pursuant to section V.A
or V.B but for the preceding sentence. The Sellers indemnity
obligation in respect of Section V.B(d) shall only arise to
the extent Buyer reasonably determines an obligation to pay
exists and actually does pay under any Key Employee Agreement,
there is no modification of the Key Employee Agreements by
Buyer and shall exist only to the extent that amounts payable
to an Employee covered thereby are in excess of amounts such
Employee would be entitled to under Buyer's severance policies
as applicable to such Employee in accordance with the terms of
this Agreement (and then only for the amount of such excess).
The Sellers shall be liable for all other Claims, and the
aggregate liability of all Sellers hereunder with respect to
any and all Claims shall be limited to the Purchase Price;
provided, however, that Buyer's right to
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<PAGE>
indemnification under clause (a) of this Section V.B shall
expire on the Representation Expiration Date applicable to
such claim unless Sellers shall have received written notice
of a specific Claim prior to such expiration date, in which
case such indemnification shall not expire with respect to
such Claim until it is resolved.
C. In addition to the indemnification set forth in Section V.B,
Sellers shall indemnify, defend, save and hold harmless the
Buyer Indemnified Parties from and against all Claims arising
solely from or settlements of, and shall assume the defense
and all expenses related thereto of the potential
investigation and/or inquiry of the Department of Health and
Human Services pending in the United States Attorney's Office
in the Northern District of New Jersey. Buyer's right to
indemnification under this Section V.C is conditioned upon
Sellers' unconditional right, notwithstanding anything to the
contrary contained in Section V.E, to assume the defense of
the proceedings described in this Section V.C using counsel of
Sellers' choice and to control the defense of and settlement
of such proceedings without complying with the requirements
set forth in Section V.E. unless Buyer becomes a party in the
suit (in which case the provisions of Section V.E shall
apply). Provided that such Employees are at the time employed
by Buyer, Buyer will make available to Sellers such Employees
and access to books and records as Sellers may reasonably
request in connection with such proceedings, at no expense to
Buyer.
D. Buyer shall indemnify, defend, save and hold harmless Sellers
and their successors and assigns, and their employees,
representatives, officers, directors and agents (collectively
the "Seller Indemnified Parties") from and against any and all
Claims resulting from (a) any breach of or inaccuracy in any
representation or warranty made by Buyer in this Agreement, or
(b) any breach of any covenant of Buyer contained in this
Agreement, or (c) the Assumed Liabilities, or any liabilities
or obligations of the Business
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<PAGE>
accruing for acts or omissions taking place after the
Effective Date, or (d) any guarantee or obligation to assure
performance given or made by Sellers or any of their
affiliates with respect to any obligation or liability of
Sellers disclosed on Exhibit IV.I. Sellers' right to
indemnification under clause (a) shall expire on the
Representation Expiration Date unless Buyer shall have
received written notice of a specific Claim prior to such
expiration date, in which case such indemnification shall not
expire with respect to such Claim.
E. 1. A party seeking indemnification pursuant to this
Article V (an "Indemnified Party") shall give prompt
notice to the party from whom such indemnification is
sought (the "Indemnifying Party") of the assertion of
any matter reasonably anticipated to bring rise to a
Claim by a third party or by the Indemnified Party in
respect of which indemnity may be sought hereunder (a
"Third Party Claim") and shall give the Indemnifying
Party such information with respect thereto as the
Indemnifying Party may reasonably request, but no
failure to give such notice shall relieve the
Indemnifying Party of any liability hereunder (except
to the extent the Indemnifying Party has suffered
actual prejudice thereby). If the Indemnifying Party
establishes to the reasonable satisfaction of the
Indemnified Party that the Indemnifying Party has
(and will continue to have) adequate financial
resources to satisfy and discharge such Claim, the
Indemnifying Party shall have the right, exercisable
by written notice (the "Notice") to the Indemnified
Party (which notice shall state that the Indemnifying
Party expressly agrees that as between the
Indemnifying Party and the Indemnified Party, the
Indemnifying Party shall be solely obligated to
satisfy and discharge the Third Party Claim) within
fourteen (14) days of receipt of notice from the
Indemnified Party of the commencement of or assertion
of any Third
37
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Party Claim, to assume the defense of such Third
Party Claim, using counsel selected by the
Indemnifying Party and reasonably acceptable to the
Indemnified Party; provided that the Indemnifying
Party shall not have the right but has the
obligation, to the extent set forth herein, if
requested by the Indemnified Party to assume the
defense of a Third Party Claim (A) seeking an
injunction, restraining order, declaratory relief or
other non-monetary relief or (B) if the named parties
to any such action (including any impleaded parties)
includes both the Indemnified Party and the
Indemnifying Party, and the Indemnified Party shall
have been advised in writing by counsel that under
applicable standards of professional conduct
(assuming no waiver of conflict is given) the
Indemnified Party and Indemnifying Party may not be
represented by the same counsel, in which case such
Indemnified Party shall have the right to assume
control of the defense of a Third Party Claim of the
type set forth in clause (A) above and to participate
in the defense of a Third Party Claim of the type set
forth in clause (B) above and all Claims in
connection therewith shall be reimbursed by the
Indemnifying Party. In addition, if the Indemnifying
Party fails to give the Indemnified Party the Notice
complying with the provisions stated above within the
stated time period, the Indemnified Party shall have
the right to assume control of the defense of the
Third Party Claim and all Claims in connection
therewith shall be reimbursed by the Indemnifying
Party upon demand of the Indemnified Party.
2. If at any time after the Indemnified Party assumes
the defense of a Third Party Claim pursuant to
Section E.1, the conditions set forth in clauses E.1
(A) or (B) above no longer exist, the Indemnifying
Party shall have the right to assume the defense as
set forth above as if the Indemnified Party never
assumed the defense of such
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Claim.
3. The Indemnifying Party or the Indemnified Party, as
the case may be, shall in any event have the right to
participate, at its own expense, in the defense of
any Third Party Claim which the other is defending.
4. The Indemnifying Party, if it shall have assumed the
defense of any Third Party Claim in accordance with
the terms hereof, shall have the right, upon thirty
(30) days prior written notice to the Indemnified
Party, to consent to the entry of judgment with
respect to, or otherwise settle such Third Party
Claim unless (i) the Third Party Claim involves
equitable or other non-monetary damages or (ii) in
the reasonable judgment of the Indemnified Party such
settlement would have a Material Adverse Effect on
the Indemnified Party's business (including any
material impairment of its relationships with
customers and suppliers) in which case such
settlement only may be made with the written consent
of the Indemnified Party, which consent shall not be
unreasonably withheld. At the expense of the
Indemnifying Party, the Indemnified Party shall have
the sole and exclusive right to settle any Third
Party Claim, on such terms and conditions as it deems
reasonably appropriate, (x) if the Indemnifying Party
fails to assume the defense in accordance with the
terms hereof or (y) to the extent such Third Party
Claim involves only equitable or other non-monetary
relief or would have a Material Adverse Effect on the
Indemnified Party's business, with the consent of the
Indemnifying Party, which consent shall not be
unreasonably withheld.
5. Whether or not the Indemnifying Party chooses to
defend or prosecute any Claim involving a third
party, all the parties hereto shall cooperate in the
defense or prosecution thereof and shall
39
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furnish such records, information and testimony, and
attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably
requested in connection therewith.
F. 1. Buyer and Sellers acknowledge and agree that their
sole and exclusive remedy with respect to any and all
claims relating to the subject matter of this
Agreement shall be pursuant to the indemnification
provisions set forth in this Article V. In
furtherance of the foregoing, Buyer and Sellers
hereby waive, to the fullest extent permitted under
applicable law, any and all rights, claims and causes
of action (including rights of contribution, if any)
it may have against Sellers or any of Sellers'
affiliates (in the case of Buyer), or Buyer or any of
Buyer's affiliates (in the case of Sellers) arising
under or based upon any federal, state or local
statute, law, ordinance, rule, regulation or judicial
decision (including, without limitation, any such
relating to environmental matters or arising under or
based upon any securities law, common law or
otherwise); provided, however, that no party waives
its rights to commence proceedings to enforce its
rights under this Article in accordance with the
provisions of Section VIII.F.
2. The amount of any Claim for which indemnification is
provided under this Article V shall be net of (i) any
amounts recovered (less costs of collecting) by the
Indemnified Party pursuant to any indemnification by
or indemnification agreement with any third party who
was primarily liable for the Claim (a "Collateral
Source") and (ii) any benefit (including any tax
benefit if and when realized) that accrues to Buyer
or Sellers in respect of the matter for which a Claim
is asserted. If the amount to be netted hereunder
from any payment required in Section V.B, V.C or V.D
is determined after payment by the Indemnifying Party
of any amount otherwise
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<PAGE>
required to be paid to an Indemnified Party pursuant
to this Article V, the Indemnified Party shall repay
to the Indemnifying Party, promptly after such
determination, any amount that the Indemnifying Party
would not have had to pay pursuant to this Article V
had such determination been made at the time of such
payment. Indemnification under this Article V shall
not be available to any Indemnified Party unless such
Indemnified Party first seeks recovery from a
Collateral Source for such Claim before making any
claim for indemnification by the Indemnifying Party.
Provided an Indemnifying Party has satisfied all
Indemnification obligations to the Indemnified Party,
any Indemnifying Party may, in its sole discretion,
require any Indemnified Party to grant an assignment
of the right of such Indemnified Party to assert a
Claim against any Collateral Source. In the event of
such assignment, the Indemnifying Party shall pursue
such Claim at its own expense.
G. Notwithstanding anything to the contrary contained herein, no
Buyer Indemnified Party shall be entitled to indemnification
hereunder for any "Claim" that arises in connection with (1)
any cost in respect of a compliance program except with
respect to, and to the extent of, the costs of implementing a
compliance program that Buyer is required to institute solely
as a result of actions of Sellers occurring prior to Closing
and not as a result of any event or occurrence taking place
after Closing or (2) any loss of business or revenues
resulting from a future change in business practice required
to comply with law or resulting from the litigation,
investigation or inquiry referred to in Section V.C, to the
extent the basis and claims of such litigation, investigation
or inquiry have been disclosed to Buyer prior to the date
hereof, or Buyer is otherwise aware of such basis and claims
prior to the date hereof, or (3) any loss of business or
revenues resulting from an amendment to any agreement or
change in manner of
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doing business entered into or effected (x) prior to the date
hereof that has been disclosed to Buyer by or on behalf of
Sellers (or Buyer is otherwise aware of prior to the date
hereof) or (y) after the date hereof by Buyer. Nothing in this
Section V.G shall be taken to expand Sellers' indemnification
obligations set forth in any other Section of this Agreement.
VI. Conditions Precedent
A. The obligation of Buyer to complete Closing under this
Agreement is subject to the waiver by Buyer or the fulfillment
prior to, or on the Closing Date of each of the following
conditions:
1. Sellers' representations and warranties contained in
this agreement shall be true in all material respects
on the Closing Date as though such representations
and warranties were made at such time except that any
such representation and warranty made as of a
specified date shall have been true in all material
respects on and as of such date.
2. The Sellers shall have performed and complied in all
material respects with all agreements and conditions
required by this Agreement to be performed or
complied with by them prior to or on the Closing
Date.
3. Sellers shall have delivered to Buyer a certificate
of Sellers executed by the President or any Vice
President and the Chief Financial Officer, Treasurer
or any Assistant Treasurer and dated as of the
Closing Date certifying that the conditions specified
in Sections VI.A.1 and VI.A.2 have been satisfied.
4. Sellers shall have delivered to Buyer a favorable
opinion of the attorney for Sellers, dated as of the
Closing Date and in the form attached as Exhibit
VI.A, to the effect that:
a. Sellers are duly incorporated and validly
existing under the laws of the state where
incorporated and are in good
42
standing in that state; that each of the
Sellers has corporate power and authority to
own all its property and assets;
b. The execution and delivery of this Agreement
and the consummation of the purchase and
sale have been duly authorized by all
necessary corporate action on the part of
Sellers.
5. Sellers shall have accrued all benefits arising prior
to Closing to employees of the Business up through
the Effective Date.
6. No claim, action, suit, investigation or other
proceeding shall be pending or threatened before any
court or governmental agency which presents a
substantial risk of the restraint or prohibition of
the transactions contemplated by this Agreement.
7. All governmental filings, approvals and consents
shall have been accomplished or obtained that are
necessary in order that the transactions contemplated
hereby may be accomplished in compliance with law and
all waiting periods, including the waiting period
under the HSR Act shall have expired without
extensions or been earlier terminated, other than any
such filings, approvals, consents or waiting periods
as are not (in the aggregate) material.
B. All obligations of Sellers to complete Closing under this
Agreement are subject to the waiver by Sellers or the
fulfillment prior to, or on, the Closing Date of each of the
following conditions:
1. Buyer's representations and warranties contained in
this Agreement shall be true in all material respects
on the Closing Date as though such representations
and warranties were made at such time except that any
such representation and warranty made as of a
specified date shall have been true in all material
respects on and as of such date.
2. Buyer shall have performed and complied in all
material respects
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<PAGE>
with all agreements and conditions required by this
Agreement to be performed or complied with by them
prior to or on the Closing Date.
3. Buyer shall have paid the Purchase Price as adjusted
pursuant to Section I.F to Sellers on the Closing
Date.
4. Buyer shall have delivered to Sellers a favorable
opinion of the attorney for Buyer dated as of the
Closing Date and in the same form attached hereto as
Exhibit VI.B.
5. Buyer shall have delivered to Sellers a certificate
of Buyer executed by the President or any Vice
President and the Treasurer or Assistant Treasurer of
Buyer and dated as of the Closing Date certifying
that the conditions specified in Sections VI.B.1 and
VI.B.2 have been satisfied.
6. No claim, action, suit, investigation or other
proceeding shall be pending or threatened before any
court or governmental agency which presents a
substantial risk of the restraint or prohibition of
the transactions contemplated by this Agreement.
7. All governmental filings, approvals and consents
shall have been accomplished or obtained that are
necessary in order that the transactions contemplated
hereby may be accomplished in compliance with law and
all waiting periods, including the waiting period
under the HSR Act shall have expired without
extension or been earlier terminated, other than any
such filings, approvals, consents or waiting periods
as are not (in the aggregate) material.
VII. Right To Proceed; Closing
A. The purchase and sale hereby contemplated shall be consummated
and closed (the "Closing") at the offices of counsel to
Sellers at 10:00 a.m. local time on Friday, August 11, 1995,
or at such time and place as the parties shall agree (the
"Closing Date") and is effective as of the close of business
on July 31, 1995 (the "Effective Date").
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B. On the Effective Date, Sellers shall deliver to Buyer the
following:
All documents necessary to transfer the Assets to Buyer,
including all documents to be attached as Exhibits hereto.
1. The certificate required by Section VI.A.3.
2. The opinion of counsel required by section VI.A.4.
3. Access to all records, and other instruments and
documents held by Sellers relating to the Business,
or the properties or business of the Business.
4. The Lease Assignments attached as Exhibit VII.B(4)
(a), for the sites attached as Exhibit VII.B(4)(b).
5. The Assignment of Contracts attached as Exhibit VII.
B(5).
C. On the Closing Date, Buyer shall deliver to Sellers the
following:
1. The Purchase Price as adjusted pursuant to Section
I.F by wire transfer of immediately available funds
to an account designated by Seller.
2. The opinion of counsel and certificates referred to
in Section VI.B.
3. An Assumption Agreement in the form of Exhibit VII.C.
VIII. Miscellaneous
A. Any notices or other circumstances required or permitted
hereunder shall be sufficiently given if hand-delivered (by
express delivery service or otherwise), sent by certified
mail, express mail service or overnight delivery service,
postage prepaid, addressed as follows:
To Buyer:
NMC Diagnostics Services, Inc.
c/o National Medical Care, Inc.
Reservoir Place
1601 Trapelo Road
Waltham, MA 02154
Attention: DSD/Law Department
To Sellers:
45
<PAGE>
MEDIQ, Inc.
One Mediq Plaza
Pennsauken, NJ 08110
Attn: Michael Sandler
and Alan S. Einhorn
With Copies To:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attn: Henry N. Nassau
or such other address as shall be furnished in writing by
either party, and such notice or communication shall be deemed
to have been given when delivered if delivered by hand (by
express delivery or otherwise), or five days after the date of
mailing if mailed prepaid and properly addressed.
B. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors,
heirs, and assigns, provided that this Agreement may not be
assigned by either party without the consent of the other
party. Any attempted assignment of this Agreement in violation
of the provisions of this section is void.
C. This Agreement may be amended with respect to any of the
terms contained herein only by means of a writing signed by
all the parties hereto.
D. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other
party.
E. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
F. In the event that any dispute or controversy arises between
the parties out
46
of or relating to this Agreement, a party shall notify the
other party in writing of the existence of the dispute or
controversy, and the parties shall meet and negotiate in good
faith to attempt to resolve the matter. If such efforts do not
resolve the dispute or controversy, each party shall appoint
an arbitrator of choice from a list of arbitrators recognized
by the American Arbitration Association. The appointed
arbitrators will appoint a third arbitrator from the list to
hear the parties and settle the dispute or controversy. The
proceedings shall be governed by the Commercial Rules of the
American Arbitration Association then in effect and shall be
conducted in Philadelphia, Pennsylvania. The arbitrators shall
have no power to award punitive or exemplary damages, to
ignore or vary the terms of the Agreement, and shall be bound
to apply controlling law. Arbitration shall be binding and the
exclusive remedy for the settlement of the dispute or
controversy. The party who prevails on entry of the award of
judgment shall be entitled to its costs and expenses,
including reasonable attorney's fees incurred in connection
therewith.
G. Whether the transactions contemplated by this Agreement are
consummated or fail to be consummated for any reason
whatsoever, each of the parties hereto shall pay its own
expenses and the fees and expenses of its counsel and
accountants and other experts, except as otherwise
specifically provided herein.
H. If any term, provision, covenant or restriction of this
Agreement that is not material to the benefits to be received
or obligations to be performed hereunder by either party
hereto is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be
affected, impaired or invalidated.
I. This Agreement contains the entire agreement between the
parties hereto with respect to the subject matter hereof and,
except for the Confidentiality
47
<PAGE>
Agreement, supersedes all prior and contemporaneous agreements
and understandings, oral or written, with respect to such
transactions.
J. As used in this Agreement, all references to "Seller's
knowledge" shall mean the actual knowledge of Stephen Doppelt,
David Perocchi, Nancy Pacious, Daniel Burneika, Mark Foley,
Michael Sandler, John Mitchell, Daniel Nye, Susan Van Houten
and Edward Crouch. All representations and warranties in this
Agreement regarding or made by any Seller are made only with
respect to time periods during which such Seller was directly
or indirectly majority owned by Mediq.
K. Any information disclosed in any Exhibit will be considered as
disclosed in each of the Exhibits. The disclosure of any
matter in the Exhibits should not be construed as indicating
that such matter is required to be disclosed in order for any
representation or warranty in this Agreement to be true and
correct.
L. The section and other headings contained in this Agreement are
for reference purposes only and shall not affect the meaning
or interpretation of this Agreement. All references to
Sections or Articles contained herein mean Sections or
Articles of this Agreement unless otherwise stated. All
capitalized terms defined herein are equally applicable to
both the singular and plural forms of such terms.
M. It is understood and agreed that neither the specification of
any dollar amount in the representations and warranties
contained in this Agreement nor the inclusion of any specific
item in the Schedules or Exhibits is intended to imply that
such amounts or any higher or lower amount, or the items so
included or other items, are or are not material, or are
required to be included in the Exhibits, and neither party
shall use the fact of the setting of such amounts or the fact
of the inclusion of any such item in the Exhibits in any
dispute or controversy between the parties as to whether any
obligation, item or matter is or is not material or are
required to be
48
<PAGE>
included in the Exhibits, for purposes of this Agreement.
N. Except as expressly contemplated herein, nothing in this
Agreement is intended (i) to confer any right or benefit on
any person other than the parties to this Agreement and their
respective successors and permitted assigns; or (ii) to modify
or discharge the obligation or liability of any third person
to any party to this Agreement, and no provision hereof shall
give any third person any right of subrogation or action
against any party to this Agreement. In no event shall Sellers
be liable to third parties other than Buyer's successor, if
any, in connection with any aspect of the transactions
contemplated by this Agreement, nor shall any third party be
or become a beneficiary of such rights, nor shall Buyer act or
hold itself out as Sellers' agent in any activity including,
but not limited to, dealings with any such third party.
49
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by the parties and
each of the corporate parties has caused this Agreement to be executed by a duly
authorized person, all as of the day first above written.
MEDIQ IMAGING SERVICES, INC.,
AMERICAN CARDIOVASCULAR
IMAGING LABS, INC., and
SOUTHEASTERN DIAGNOSTICS, INC.
By:/s/ Stephen Doppelt
-----------------------------
Stephen Doppelt
President
NMC DIAGNOSTICS SERVICES, INC.
By:/s/ Leon Maraist
----------------------------
Leon Maraist
Vice President
50
GUARANTEE:
The performance of all of the covenants, liabilities and obligations of
NMC Diagnostics Services, Inc. hereunder are unconditionally and irrevocably
guaranteed as surety by National Medical Care, Inc., its parent.
By:/s/ Ernestine M. Lowrie
----------------------------------
Ernestine M. Lowrie
Senior Vice President
GUARANTEE:
The performance of all of the covenants, liabilities and obligations of
Mediq Imaging Services, Inc., American Cardiovascular Imaging Labs, Inc. and
Southeastern Diagnostics, Inc. hereunder are unconditionally and irrevocably
guaranteed as surety by Mediq Incorporated, its parent and Mediq Incorporated
agrees to be bound by the provisions of Section IV.C hereof.
By:/s/ Michael F. Sandler
----------------------------------
Michael F. Sandler
Senior Vice President of Finance
51
EXHIBITS
--------
<TABLE>
<S> <C>
EXHIBIT I.C Assumed Liabilities
EXHIBIT I.E Purchase Price Allocation
EXHIBIT I.F(1) Proposed Closing Balance Sheet and Estimated Adjustment
EXHIBIT I.F(2) Receivables Reserve
EXHIBIT I.G Balance Sheet
EXHIBIT II.A Articles of Incorporation, By-Laws, Certificate of Good
Standing of Sellers
EXHIBIT II.B Ownership
EXHIBIT II.E Claims
EXHIBIT II.F Medicare and Third Party Investigations/Funds Withheld
EXHIBIT II.H Liens
EXHIBIT II.I Leases
EXHIBIT II.J Contracts
EXHIBIT II.K Financial or Business Changes
EXHIBIT II.N Insurance
EXHIBIT II.P Employee Benefit Plans
EXHIBIT II.Q Taxes
EXHIBIT II.R List of Employees
EXHIBIT II.T Hazardous Material Disclosure
EXHIBIT III.A Corporate Documents of the Buyer
EXHIBIT III.E Balance Sheet of National Medical Care, Inc.
EXHIBIT IV.C Sellers' PRNs
EXHIBIT IV.I Guaranties
EXHIBIT IV.J Doppelt Consulting Agreement
EXHIBIT V.A Key Employee Agreement
EXHIBIT VI.A Legal Opinion Letter of Sellers
EXHIBIT VI.B Legal Opinion Letter of Buyer
EXHIBIT VII.B(4)(a) Lease Assignments
EXHIBIT VII.B(4)(b) List of Business Locations
EXHIBIT VII.B(5) Assignment of Contracts
EXHIBIT VII.C Assumption Agreement
</TABLE>
STATE
OF
DELAWARE
Office of SECRETARY OF STATE
I, Glenn C. Kenton Secretary of State of the State of
Delaware, do hereby certify that the Certificate of Incorporation of the "HCI,
INC.", was received and filed in this office the eighth day of December, A.D.
1977, at 9 o'clock A.M.
And I do hereby further certify that the said "HCI, INC.",
filed a Certificate of Agreement of Merger, changing its corporate title to
"MEDIQ INCORPORATED", on the thirty-first day of December, A.D. 1980, at 9
o'clock A.M.
And I do hereby further certify that the aforesaid Corporation
is duly incorporated under the laws of the State of Delaware and is in good
standing and has a legal corporate existence so far as the records of this
office show and is duly authorized to transact business.
And I do hereby further certify that the said "MEDIQ
INCORPORATED", is the last known title of record of the aforesaid Corporation.
In Testimony Whereof, I have hereunto set my
hand and official seal at Dover this
seventeenth day of March in the year
of our Lord one thousand nine
hundred and eighty-one.
/s/ Glenn C. Kenton
------------------------------------------
Glenn C. Kenton, Secretary of State
<PAGE>
laws of the States of Delaware, Pennsylvania, New Jersey and Nevada, do hereby
agree as follows:
1. Merger. The Constituent Corporations other than HCI shall be merged
with and into HCI (thereafter to be known as MEDIQ INCORPORATED) on the
effective date hereinafter set forth in accordance with the applicable laws of
the states of Delaware New Jersey, Pennsylvania and Nevada, and on the terms and
conditions set forth in this Plan and Agreement of Merger. From and after such
effective date, HCI shall be the surviving corporation (the "Surviving
Corporation") and shall continue to do business as a corporation organized and
existing under the laws of the State of Delaware, unaffected and-unimpaired by
the Merger with all rights, privileges, immunities and powers, and subject to
all the duties and liabilities of a corporation organized and existing under the
laws of the State o Delaware.
2. Certificate of Incorporation of Surviving Corporation.
The Certificate of Incorporation of the Surviving Corporation,
upon the effective date of this merger, shall be and shall read
as follows:
CERTIFICATE OF INCORPORATION
I. The corporate name is MEDIQ INCORPORATED.
II. The address of the registered office of the Corporation
in the State of Delaware is 901 Market Street in the City of Wilmington, County
of New Castle. The registered agent in charge thereof is Corporation Guarantee
and Trust Company.
-2-
<PAGE>
III. The nature of the business or objects or purposes to be
transacted, promoted or carried on by the Corporation are as
follows:
To buy, sell, lease, dispose of, distribute, import, export,
manufacture, produce, and trade and in general deal in and with all materials,
devices, implements, goods, wares, merchandise, and services of any and every
character, either as principal, broker, or agent of others;
To construct, repair, operate and maintain, trade and
deal in any and all kinds of machinery. and any and all kinds of
mechanical apparatus, and any and all kinds of fixtures and
supplies;
To manufacture, purchase or otherwise acquire, invest in, own,
create a security interest in, pledge, sell, assign, transfer, rent, lease or
otherwise dispose of; trade, deal in, and deal with goods, wares, merchandise
and personal property of every class and description:
To acquire, and to pay, for in cash, stock, bonds or other
indebtedness of this Corporation or otherwise, the good will, rights, assets and
property and to undertake or assume the whole or any part of the obligations or
liabilities of, any person, firm, association or corporation;
To subscribe, for, purchase or otherwise acquire, own, hold,
invest, in, sell, assign, transfer, exchange, pledge, mortgage, grant security
interests in or otherwise deal and trade in, or with, shares of stock, bonds,
Coupons, promissory notes,
-3-
<PAGE>
pledges, obligations, contracts, leases, evidences of indebtedness, or
securities of any company corporation or association, domestic or foreign, and
of any governmental or quasi-governmental entity or authority;
To receive, collect, hold, and dispose of, interest, dividend;
and income of and from any of the shares of stock, bonds, coupons, promissory
notes, pledges, obligations, contracts, leases, evidence of indebtedness,
securities or other property held or owned by it;
To issue bonds, debentures or obligations of this Corporation
and borrow money on the note or notes of this Corporation for any of the objects
or purposes of the Corporation and to secure the same by pledge, mortgage, deed,
security interest, or trust or otherwise in or upon any property, real or
personal, of any kind and nature. at any time owned by the Corporation;
To purchase, hold, sell and transfer the shares of its
own capital stock; and
To do anything and everything necessary, suitable convenient,
or proper for the accomplishment of any of the purposes or the attainment of one
or more of the objects herein enumerated, or incidental to the powers herein
named, or which shall at any time appear conducive or expedient to the benefit
or protection of the Corporation, and in general to carry on any other business
in connection with the foregoing; to have and exercise all the powers conferred
by the laws of the State of
-4-
<PAGE>
Delaware upon corporations formed under the General Corporation Law of the State
of Delaware and to do any, and all of the acts and things hereinabove set forth
to the same extent as natural persons might or could do.
The foregoing clauses shall be construed both as objects and
powers; and it is hereby expressly provided that the foregoing enumeration of
specific powers shall not be held to limit or restrict in any manner the powers
of the Corporation.
IV. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 100,000 shares of preferred
stock of a par value of $100.00 per share, and 10,000,000 shares of common stock
of a par value of $1.00 per share.
The preferred stock may be issued with the voting rights,
designations, preferences, qualification, privileges, limitations, options,
conversion rights, and other special rights, if any, as shall be stated or
expressed in the resolution or resolutions providing for the issuance of such
stock, adopted by the Board of Directors. Authority is hereby expressly granted
to and vested in the Board of Directors to authorize the issuance of the shares
of the preferred stock and to fix by resolution or Resolutions the terms
thereof, including without limitation, the following:
a. The dividends payable and preferences in respect
to the payment thereof;
-5-
<PAGE>
b. The terms and conditions an which, and the price
or prices at which, such shares may be made subject to
redemption;
c. The rights of such shares upon the voluntary or
involuntary dissolution of, or upon any other distribution of the
assets of, the Corporation;
d Whether or not such shares shall be made convertible
into, or exchangeable for, shares of any other classes or of any series of any
other class or classes of stock of the Corporation, and if made so convertible
or exchangeable, the conversion price or prices, or the rates of exchange, and
the adjustments, if any, at which, and the other terms and conditions upon
which, any such conversion or exchange may be made; and
e. Whether or not such shares shall be entitled to
other special rights in addition to those in the Articles provided for.
No stockholder of the Corporation shall by reason of his
holding shares of any class have any pre-emptive or preferential right to
purchase or subscribe to any shares of any class of this Corporation, now or
hereafter to be authorized, or any notes, debentures, bonds or other securities
convertible into or carrying options or warrants to purchase shares of any
Class, now or hereafter to be authorized, whether or not the issuance of any
such shares, or such notes, debentures, bonds or other securities, would
adversely affect the dividend or voting rights of such stockholder, other than
such rights, if any, as the Board
-6-
<PAGE>
of Directors, in its discretion from time to time may grant and at such price as
the Board of Directors in its discretion may fix; and the Board of Directors may
issue shares of any class of this Corporation, or any notes debentures, bonds or
other securities convertible into or carrying options or warrants to purchase
shares of any class, either in whole or in part, to the existing stockholders of
any class.
Except as otherwise specifically required by law or as
specifically provided in the resolutions of the Board of Directors authorizing
the issuance of the preferred stock, the exclusive voting power of the
Corporation shall be vested in the common stock of the Corporation. Each holder
of common stock shall be entitled to one vote for each share held by such
holder.
The holders of the shares of the Corporation's common stock
shall not be entitled to cumulative voting in voting for directors, i.e. they
shall not be entitled in so voting to multiply the number of votes to which they
are entitled by the number of directors to be elected by them in the same
election.
V. The name and address of the Incorporator is as follows:
Name Address
---- -------
Ira S. Pim, Jr. 2225 Land Title Building
Philadelphia, PA 19101
VI. The Corporation is to have perpetual existence.
VII. Private property of the shareholders shall not be
subject to the payment of corporate debts to any extent
whatsoever.
-7-
<PAGE>
VIII. All corporate powers of the Corporation shall be exercised by
the Board of Directors except as otherwise provided by law. Directors need not
be shareholders. The Board of Directors may, by resolution or resolutions passed
by a majority of the whole Board designate an executive Committee and one or
more other committees, each committee to consist of two or more of the directors
of the Corporation, which, to the extent provided in such resolution or
resolutions or in the By-Laws of the Corporation, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Corporation, and may have power to authorize the seal of the
Corporation to be affixed to all papers which may require it.
The number of the directors of the Corporation shall be fixed
from time to time by the By-Laws, and may be altered from time to time by
amendment.of the By-Laws, but never shall be less than three. The By-Laws may
also prescribe the number of directors necessary to constitute a quorum of the
Board, which number shall not be more than a majority nor less than one-third of
the total number of directors, and in no event less than two directors.
The shareholders and the directors may hold their meetings,
and the Corporation may have an office or offices, outside the State of Delaware
if the By-Laws so provide, and the books and records of the Corporation may be
kept outside the State of Delaware to the extent permitted by the laws of that
State.
-8-
<PAGE>
None of the directors need be a resident of the State of
Delaware.
Subject to By-Laws made by the shareholders the Board of
Directors may make By-Laws and from time-to-time may alter, amend, or repeal any
By-Laws, but any By-Laws made by the Board of Directors may be altered, amended,
or repealed by the shareholders at any annual meeting or at any special meeting,
provided that notice of such proposed alteration, amendment or repeal is
included in the notice of such special meeting.
The Board of Directors shall have power from time to time to
fix the amount to be reserved by the Corporation over and above its capital
stock paid in and to fix and determine and to vary the amount of the working
capital of the Corporation, and to direct. and determine he use and disposition
of the working capital and of any surplus or net profits over and above the
capital stock paid in.
The Board of Directors may from time to time, in such manner
and upon such terms and.conditions as the Board of Directors may determine,
enter into, establish, reestablish, amend, alter,or repeal, and may put into
effect and carry out, agreements or plans for distributing, selling, or granting
options on shares of stock of the Corporation or any other securities or
property of the Corporation, to or for the benefit of the officers and employees
of the Corporation or any of them, or for their participation in any manner in
the profits of the Corporation, in addition to or apart from their regular
-9-
<PAGE>
compensation, or for providing such officers and employees, or any of them, at
the expense of the Corporation, in whole or in part, with medical services,
insurance against accident, sickness, or death, pensions or payments during old
age, disability, or unemployment, and education, housing, social service,
recreation, or other aids and benefits for their relief or general welfare.
The Board of Directors from time to time shall determine
whether and to what extent and at what times and place a and under what
conditions and regulations the accounts and books of the Corporation, or any of
them, shall be open to the inspection of the shareholders, and no shareholder
shall have any right to inspect any account, book, or document of the
Corporation, except as conferred by statute or as authorized by resolution of
the Board of Directors.
In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the Board of Directors may exercise all
such powers and do all such acts and things as maybe .exercised or done by the
Corporation, subject, nevertheless, to the express provisions of the laws of
Delaware, of this Certificate of Incorporation; and of the By-Laws, of the
Corporation.
In the absence of fraud, no contractor other transaction of
the corporation shall be affected or invalidated in any way by the fact that any
of the directors of the Corporation are in any wise interested in or connected
with any
-10-
<PAGE>
other party to such contract or transaction or are themselves parties to such
contract or transaction, provided that such interest shall be, fully disclosed
or otherwise known to the Board of Directors at its meeting at which such
contract or transaction is authorized or confirmed; and provided further that at
the meeting of the Board of Directors authorizing or confirming such con.tract
or transaction there shall be present a quorum of directors not so interested or
connected and such contractor transaction shall be ap proved by a majority of
such quorum, which majority shall consist of directors not so interested or
connected. Any such contract, transaction, or act of the Corporation or of the
Board of Directors or by any committee, thereof which shall be required to be,
and shall be ratified by the holders of a majority of the; shares of stock of
the Corporation having voting power and voting at any annual meeting or at any
special meeting called for such purpose, shall be as valid and as binding as
though ratified by every shareholder of the Corporation. Any director of the
Corporation may vote upon any contract or other transaction between the
Corporation and any subsidiary or affiliated Corporation without regard to the
fact that he is also a director of such subsidiary or affiliated corporation.
IX. The Corporation re.serves the right to amend, alter,
change, or repeal any provision contained in this Certificate of
Incorporation in the manner now and hereafter prescribed by
-11-
<PAGE>
statute; and all rights herein conferred upon the shareholders are granted
subject to this reservation.
3. By-Laws of Surviving Corporation. The By-Laws of HCI
in force on the effective date of the merger shall be the By-Laws
of the Surviving Corporation until altered, amended or repealed.
4. Directors and Officers.
(a) The following persons shall be and become the directors of
the Surviving Corporation upon the effective date of the merger and shall hold
office until the first annual meeting of the shareholders of the Surviving
Corporation after the effective date of the merger and until their respective
successors are elected and shall have duly qualified:
Bernard B. Rotko, M.D.
Bernard J. Korman
Lionel R. Felzer
Michael J. Rotko, Esquire
Harvey J. Comita
Maurice Wiener
Ian J. Berg
Eugene M. Schloss, Jr.
If on the effective date of the merger a vacancy shall exist
in the Board of Directors of the Surviving Corporation for any reason
whatsoever, such vacancy may be filled by the Board of Directors of the
Surviving Corporation as provided in its By-Laws.
(b) The first annual meeting of the shareholders of the
Surviving Corporation after the effective date of the merger, shall be the
annual meeting provided for in its By-Laws, for the fiscaL year ending September
30, 1981.
-12-
<PAGE>
(c) The following persons shall be executive or administrative
officers of the Surviving Corporation, from and after the effective date of the
merger, subject to the provisions of the By-Laws of the Surviving Corporation,
and shall hold office until the first annual meeting of the directors of the
Surviving Corporation after the effective date of the merger and until their
respective successors are elected and shall have duly qualified:
Bernard B. Rotko. M.D. Chairman of the Board
Bernard J. Korman President
Lionel H. FeLzer Vice President
Harvey J. Comita, Vice President
Robert Mathews Vice President
Norman E. Martin Vice President
Ian J. Berg Vice President
Lionel Felzer Treasurer
Eugene M. Schloss, Jr. Secretary
The Board of Directors.shall elect or appoint such additional
officers as they shall determine, subject to the provisions of the By-Laws of
the Surviving Corporation. If, on the effective date of the merger a vacancy
shall existing any office, for any reason whatsoever, such vacancy may be filled
by the Board of Directors of the Surviving Corporation as provided in its
By-Laws.
(d) The first regular meeting of the Board of Directors of the
Surviving Corporation after the effective date of the merger shall be held as
soon as practicable thereafter.
5. Conversion of Shares of the Constituent Corporations.
The manner of converting the outstanding shares of the capital
stock of the Constituent Corporations into the new shares of the
-13-
<PAGE>
common capital stock of the Surviving Corporation created by Paragraph 2 of this
Plan and Agreement of Merger (which shares for such purpose shall be validly
issued, fully paid and non-assessable) shall be as follows:
(a) Each common share without par value of A-PRN outstanding
on the effective date of the merger shall be changed and converted into 451.005
shares of the Common Stock of the Surviving Corporation, which shares of common
stock of the Surviving Corporation shall thereupon be issued and outstanding.
(b) Each common share of the par value of $1 of HCI
outstanding on the effective date of the merger shall be changed and converted
into 27.465 shares of the Common Stock of the Surviving Corporation, which
shares of common stock of the Surviving Corporation shall thereupon he issued
and outstanding.
(c) Each common share of the par value of $1 of HOSQUIP
outstanding on the effective date of the merger shall be changed and converted
into 16.240 shares of the Common Stock of the Surviving Corporation, which
shares of common stock of the Surviving Corporation shall thereupon be issued
and outstanding.
(d) Each common share of the par value of $1 of MMG
outstanding on the effective date of the merger shall be changed and converted
into 115.64 shares of the Common Stock of the Surviving Corporation, which
shares of common stock of the Surviving Corporation shall thereupon be issued
and outstanding.
(e) Each common share of the par value of $1 of Olney
outstanding on the effective date of the merger shall be changed
-14-
<PAGE>
and converted into 1.0144 shares of the Common Stock of the Surviving
Corporation, which shares of common stock of the Surviving Corporation shall
thereupon be issued and outstanding.
(f) Each common share of the par value of $100 of Oxford
outstanding on the effective date of the merger shall be changed and converted
into 85.593 shares of the Common Stock of the Surviving Corporation, which
shares of common stock of the Surviving Corporation shall thereupon be issued
and outstanding.
(g) Each common share of the par value of $.01 of Pan-Optics
Outstanding on the effective date of the merger shall be changed and converted
into .94738 shares of the Common Stock of the Surviving Corporation. which
shares of common stock of the Surviving Corporation shall thereupon be issued
and outstanding.
(h) Each common share of the par value of $1 of RERM
outstanding on the effective date of the merger shall be changed and converted
into 1.542 shares of the Common Stock of the Surviving Corporation, which shares
of common stock of the Surviving Corporation Shall thereupon be issued and
outstanding.
(i) Each common share of each class of the par value of $.01
of FMC outstanding on the effective date of the merger shall be changed and
converted into .00204 shares of the Surviving Corporation, which shares common
stock of the Surviving Corporation shall thereupon be issued and outstanding,
unless dissenters' rights are exercised.
(j) Each common share of the par value of $10 of
Medifac outstanding on the effective date of the merger shall be
-15-
<PAGE>
changed and converted into 413.54 shares of the Common Stock of the Surviving
Corporation, which shares of Common stock of the Surviving Corporation shall
thereupon be issued and outstanding.
6. Effect of Merger. Upon this merger becoming effective:
(a) The separate corporate existence of each of the
Constituent Corporations, except HCI, and the Surviving Corporation shall become
the owner, without other transfer or further act or deed, of all of the rights,
privileges, powers, property franchises, estates and interests every kind of the
Constituent Corporations, as effectually the property the Surviving Corporation
as they were of the respective Constituent Corporations; and the Surviving
Corporation shall be subject to all debt and liabilities of the Constituent
Corporations in the same manner as the Surviving Corporation had itself incurred
them; and the Surviving Corporation shall be subject to all of the restrictions,
disabilities duties of each of the merged Constituent Corporations shall not
revert be in any way impaired by reason of this merger; and rights of credits
and liens upon any property of any of Constituent Corporations shall be
preserved unimpaired.
(b) The assets and liabilities of the merged Constituent
Corporation shall be taken up on the books of the Surviving Corporation in the
amount at which they shall at that time be carried on the books of each of the
merged Constituent Corporations.
-16-
<PAGE>
7. Right to Amend Certificate of Incorporation. The Surviving
Corporation shall have, and reserves hereby, the right to amend, alter, change
or repeal its amended Certificate of Incorporation in the manner now or
hereafter prescribed by the Statute; and all rights or powers conferred herein
and in such amended Certificate of Incorporation on shareholders, directors and
officers are subject to this reservation.
8. Submission to Shareholders. This Plan and Agreement of Merger shall
be submitted to the shareholders of each of the Constituent Corporations hereto
for approval, at meetings to be held on or before the filing hereof. or
otherwise approved by the unanimous written consent of all shareholders of each
such respective Constituent Corporation in the manner provided by the applicable
laws of the States of Delaware, Pennsylvania, New Jersey and Nevada
respectively. Upon such required approval, the proper officers of each
Constituent Corporation shall, and hereby are authorized and directed to,
perform all such further acts and execute and deliver to the proper authorities
for filing, all documents as the same may be necessary or proper to render
effective the merger contemplated by this Plan and Agreement.
9. Prohibited Actions. From and after the date hereof,
and prior to the effective date of the merger, none of the
Constituent Corporations will engage in any activity or
transaction other than in the ordinary course of business without
first obtaining the approval of the others. None of the
-17-
<PAGE>
Constituent Corporations will declare or pay any dividend on its stock of any
class prior to the effective date of this merger.
10. Expenses of Merger. The Surviving Corporation shall
pay all expenses of carrying this Plan and Agreement into effect
and of accomplishing the merger, not paid by the merged
Constituent Corporations, prior to the effective date of the
merger.
11. Delivery of Deed and Instruments. From time to time, as and when
requested by the Surviving Corporation or by its successors or assigns, each of
the Constituent Corporations shall execute and deliver, or cause to be executed
and delivered, all deeds and other instruments and shall take, or cause to be
taken, all such other and further actions as the Surviving Corporation may deem
necessary and desirable in order more fully to vest in and confirm to the
Surviving Corporation title to and possession or all the property, rights,
privileges, powers and franchises referred to in Paragraph 1 hereof, and
otherwise to carry out the intent and purposes of this Plan and Agreement of
Merger. For the convenience of the parties, and to facilitate the filing and
recording of this Plan and Agreement of Merger, any number of counterparts
hereof maybe executed and each such executed counterpart shall be deemed to be
original instrument.
12. Service of Process. The Secretaries of State of the
States of Pennsylvania, New Jersey and Nevada are hereby
designated as the agents for the serviced of process upon the
Surviving Corporation in any proceeding for the enforcement of
-18-
<PAGE>
any obligation of any Constituent Corporation formerly
incorporated in their respective states.
13. Abandonment of Merger. Anything herein or elsewhere to
the contrary notwithstanding, this Plan and Agreement of Merger
may be terminated and abandoned before it becomes effective:
(a) By mutual consent of the Boards of Directors of
all Constituent Corporations;
(b) By the Board of Directors of any of the Constituent
Corporations if any material litigation shall be pending or threatened against
or affecting any of the Constituent Corporations, or any of their respective
assets, or the merger; which litigation, in the judgment of such Board, renders
it inadvisable to proceed with the merger.
12. Effective Date of Merger. Notwithstanding the date upon which this
Agreement and Plan of Merger and/or any Certificate or other document required
in connection therewith, shall be filed and/or recorded and/or certified by the
Secretary of State of Delaware, Pennsylvania, New Jersey or Nevada, or recorded
in any other office in which the same shall be required, this Plan and Agreement
of Merger shall be effective as of the close of business on December 31, 1980,
for accounting purposes only.
IN WITNESS WHEREOF, each of the Constituent Corporations has caused
this Plan and Agreement of Merger to be executed by its
-19-
<PAGE>
respective duly authorized officers and its Corporate Seal affixed, the day and
year first above written.
A-PRN, Inc.
By: /s/ Lee F. Weiler
------------------------------------------
Lee F. Weiler, Vice President
Attest: /s/ Eugene M. Schloss Jr.
------------------------------------------
Eugene M. Schloss Jr., Secretary
HCI, INC.
By: /s/ Lionel H. Felzer
-------------------------------------------
Lionel H. Felzer, President
Attest: /s/ Eugene M. Schloss Jr.
------------------------------------------
Eugene M. Schloss Jr., Secretary
HOSQUIP Leasing, Inc.
By: /s/ Lionel H. Felzer
------------------------------------------
Lionel H. Felzer, President
Attest: /s/ Eugene M. Schloss Jr.
-----------------------------------------
Eugene M. Schloss Jr., Secretary
Medical Management Group, Inc.
By: /s/ Lionel H. Felzer
-----------------------------------------
Lionel H. Felzer, Vice President
Attest: /s/ Eugene M. Schloss Jr.
-----------------------------------------
Eugene M. Schloss Jr.
Assistant Secretary
-20-
<PAGE>
Olney Hospital
By: /s/ Bernard B. Rotko
-------------------------------------------
Bernard B. Rotko, M.D., President
Attest: /s/ Eugene M. Schloss Jr.
-------------------------------------------
Eugene M. Schloss Jr., Secretary
Oxford Hospital, Inc.
By: /s/ Lionel H. Felzer
-------------------------------------------
Lionel H. Felzer, President
Attest: /s/ Eugene M. Schloss Jr.
------------------------------------------
Eugene M. Schloss Jr.
Assistant Secretary
Pan-Optics, Inc.
By: /s/ Lionel H. Felzer
-------------------------------------------
Lionel H. Felzer, Vice President
Attest: /s/ Eugene M. Schloss Jr.
-------------------------------------------
Eugene M. Schloss Jr.
Assistant Secretary
R. H. Realty Management, Inc.
By: /s/ Lionel H. Felzer
-------------------------------------------
Lionel H. Felzer, President
Attest: /s/ Eugene M. Schloss Jr.
-------------------------------------------
Eugene M. Schloss Jr., Secretary
-21-
<PAGE>
Family Medical Care, Inc.
By: /s/ Eugene M. Schloss Jr.
--------------------------------------------
Eugene M. Schloss Jr., President
Attest: /s/ Leonard Herscovici
-------------------------------------------
Leonard Herscovici, Secretary
Medifac Inc
By: /s/ Peter I. Bentivegna
-------------------------------------------
Peter I. Bentivegna
Executive Vice President
Attest: /s/ Eugene M. Schloss
-------------------------------------------
Eugene M. Schloss, Esq., Secretary
-22-
<PAGE>
I, EUGENE M. SCHLOSS, JR., Secretary, of HCI, INC., a corporation
organized and existing under the laws of the State of Delaware, hereby certify,
as such secretary and under the seal of the aid corporation, that the Plan and
Agreement of Merger to which this certificate is attached, after having been
first duly signed on behalf of said corporation by the President and Secretary
of HCI, INC., a corporation of the State of Delaware, was duly submitted to the
sole stockholder of said HCI, INC. for the purpose of considering and taking
action upon said Plan and Agreement of Merger, that 1,000 shares of stock of
said corporation were on said date issued and outstanding and that the holder of
1,000 shares voted by he execution of a written consent in favor of said Plan
and Agreement of Merger and the holders of no shares voted against same, the
said affirmative vote representing at least a majority of the total number of
shares of the outstanding capital stock of said corporation, and that thereby
the Plan and Agreement of Merger, was at said meeting duly adopted as the act of
the stockholders of said HCI, INC., and the duly adopted agreement of the said
corporation.
WITNESS my hand and seal of said HCI, INC. on this 30th day
of December 1980.
Corporate Seal:
/s/ EUGENE M. SCHLOSS, JR.
----------------------------------------
EUGENE M. SCHLOSS, JR. SECRETARY
<PAGE>
THE ABOVE PLAN AND AGREEMENT OF MERGER, having been executed by the
President and Secretary of each corporate party hereto, and having been adopted
separately by the stockholders of each corporate party thereto, in accordance
with the provisions of, the General Corporation Law of the State of Delaware,
and the fact having been certified on said Plan and Agreement of Merger by the
Secretary of each corporate party thereto, the Vice President and Secretary of
RCI, INC., a Delaware corporation, do now hereby execute the said Plan and
Agreement of Merger under the corporate seals of the said corporation by the
Authority of the directors and stockholders thereof, as the respective act, deed
and agreement of each of said corporation, on the 30th day of December, 1980.
HCI, INC.
Corporate Seal:
By: /s/ BERNARD J. KORMAN
----------------------------------------
BERNARD J. KORMAN, VICE PRESIDENT
Attest: /s/ EUGENE M. SCHLOSS JR.
----------------------------------------
EUGENE M. SCHLOSS JR., SECRETARY
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MEDIQ INCORPORATED
MEDIQ Incorporated, a corporation organized and existing under
and by virtue of t he General Corporation Law of the State of Delaware; does
hereby certify:
FIRST: That the Board of Directors of this Corporation, at a
meeting duly convened pursuant to notice, at which a quorum was present and
acting throughout, adopted a resolution proposing and declaring advisable the
following amendment to the Corporation's certificate of Incorporation:
RESOLVED, that the Certificate of Incorporation of this
Corporation be amended by changing Article IV so that, as ended, that
Article shall be read in its entirety as follows: am
"IV. The total number of shares of all classes of stock which
the Corporation shall have the authority to issue is 100,000 shares of preferred
stock of a par value of $100.00 per share, and 25,000,000 shares of common stock
of a par value of $1.00 per share.
The preferred stock may be issued with the voting rights,
designations, preferences, qualifications, privileges, limitations, options,
conversion rights, and other special rights, if any, as shall be stated or
expressed in the resolution or resolutions providing for the issuance of such
stock, adopted
<PAGE>
by the Board of Directors. Authority is, hereby expressly granted to and vested
in the Board of Directors to authorize the issuance of the shares of the
preferred stock and to fix by resolution or resolutions the terms thereof,
including without limitation, the following:
a. The dividends payable and preferences in respect
to the payment thereof;
b. The terms and conditions on which, and the price
or prices at which, such shares may be made subject to redemption;
c. The rights of such shares upon the voluntary or
involuntary dissolution of, or upon any other distribution of the
assets of, the Corporation
d. Whether or not such shares shall be made convertible
into, or exchangeable for, shares of any other classes or of any series. of
any other class or classes of stock of the Corporation, and if made so
convertible or exchangeable, the conversion price or prices, or the rates of
exchange, and the adjustments, if any, at which, and the other terms and
conditions upon which, any such conversion or exchange may be made; and e.
Whether or not such shares shall be entitled to other special rights in
addition to those in the Articles provided for.
No stockholder of the Corporation shall, by reason of his
holding shares of any class, have any preemptive or preferential right to
purchase or subscribe to any shares of any class of this Corporation, now or
hereafter to be authorized, or
-2-
<PAGE>
any notes, debentures, bonds or other securities convertible into, or carrying
options or warrants to purchase, shares of any class, now or hereafter to be
authorized, whether or not the issuance of any such shares, or such notes,
debentures, bonds or other securities, would adversely affect the dividend or
voting rights or such stockholder, other than such rights, if any, as the Board
of Directors, its discretion, from time to time may grant, and at such price as
the Board of Directors, in its discretion, may fix; and the Board of Directors
may issue shares of any class of this Corporation, or any.notes, debentures,
bonds or other securities convertible into, or carrying options or warrants to
purchase, shares of any class, either in whole or in part, to the existing
stockholders of any class.
Except as otherwise specifically required by law
or as Specifically provided in the resolutions of the Board of Directors
authorizing the issuance of the preferred stock, the exclusive voting power of
the Corporation shall be vested in the common stock of the Corporation. Each
holder of common stock shall be entitled to one vote for each share held by such
holder.
The holders of the shares of the Corporation's
common stock shall not be entitled to cumulative voting in voting for directors;
i.e. they shall not be entitled in so voting, to multiply the number of votes to
which they are entitled by the number of directors to be elected by them in the
same election."
SECOND: That the Stockholders of the Corporation,
at a meeting duly convened pursuant to notice, at which a quorum
-3-
<PAGE>
was present and acting throughout, have given consent to the amendment in
accordance with the provisions of the General Corporation Law of the State of
Delaware.
THIRD: That the amendment was duly adopted in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware.
FOURTH: That the capital of the Corporation will
not be reduced, under or by reason of said amendment.
IN WITNESS WHEREOF, MEDIQ Incorporated has caused this
Certificate of Amendment to be signed by Bernard J. Korman, its
President, and attested by Eugene M. Schloss, Jr., its Secretary,
this 28th day of February, 1984.
MEDIQ Incorporated
By: /s/ Bernard J. Korman
---------------------------------------
Bernard J. Korman, President
Attest: /s/ Eugene M. Schloss Jr.
---------------------------------------
Eugene M. Schloss Jr., Secretary
-4-
<PAGE>
State of Delaware
Office of the Secretary of State
---------------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "MEDIQ INCORPORATED" FILED IN THIS OFFICE ON THE SEVENTEENTH DAY OF
MARCH, A.D. 1993, AT 3 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDINGS.
* * * * * * * * * *
/s/ William T. Quillen
--------------------------------------
William T. Quillen, Secretary of State
AUTHENTICATION:
DATE: 03/18/1993
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF MEDIQ INCORPORATED
The undersigned, being the Senior Vice President Chief Financial
officer of MEDIQ incorporated, certifies that in accordance with Section 242 of
the Delaware General Corporation Law, the following amendment to the Certificate
of Incorporation was duly considered and approved by the holders of a majority
of the voting power of the outstanding shares qualified to vote thereon at the
annual meeting of stockholders duly called and held on March 17, 1993:
RESOLVED, that the first sentence of Article IV of the
Certificate of Incorporation of this Corporation shall read in its
entirety as follows:
"The total number of shares of all classes of stock which the Company
shall have the authority to issue is 20,000,000 shares of Preferred
Stock of a par value of $.50 per share and 40,000,000 shares of Common
Stock of a par value of $1.00 per share.
IN WITNESS WHEREOF, MEDIQ Incorporated has caused its corporate seal to
be hereunto affixed and this Certificate to be signed by it Senior Vice
President Chief Financial Officer, Michael F. Sandler, and attested by its
Secretary, Eugene M. Schloss, Jr., this 17th day of March, 1993.
(Corporate Seal] MEDIQ INCORPORATED
By: /s/ Michael F. Sandler
----------------------------------------
Michael F. Sandler
Senior Vice President -
Chief Financial Officer
Attest: /s/ Eugene M. Schloss Jr.
----------------------------------------
Eugene M. Schloss Jr., Secretary
<PAGE>
STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
----------------------------
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF MEDIQ INCORPORATED FILED IN THIS OFFICE ON THE TWENTY-SEVENTH DAY
OF FEBRUARY, A.D. 1987. AT 3:30 O'CLOCK P.M.
* * * * * * * * * *
/s/ Michael Harkins
-----------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION:
DATE: 03/05/1987
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF MEDIQ Incorporated
The undersigned, being vice President of MEDIQ Incorporated
(the "Corporation"), certifies that in accordance with Section 242 of the
Delaware General Corporation Law the following amendment to the Certificate of
Incorporation was duly considered and approved by the holders of a majority of
the voting power of the outstanding shares qualified to vote thereon at the
annual meeting of stockholders duly called and held on February 27, 1987:
RESOLVED, that the Corporation amend its Certificate of
Incorporation as permitted by Section 102 (b) (7) of the
General Corporation Law of the State of Delaware, by adding a
new Article X thereto, as follows:
"X. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section
174 of the Delaware General Corporation Law, or (iv)'for any
transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is
hereafter amended to authorize the further elimination or
limitation of the liability of a director, then the liability
of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the amended
Delaware General Corporation Law. Any repeal or modification
of the foregoing paragraph by the stockholders of the
Corporation shall be prospective only, and shall not adversely
affect any elimination or limitation of the personal
<PAGE>
liability of a director of the corporation
existing at the time of such repeal or
modification."
IN WITNESS WHEREOF, MEDIQ Incorporated has caused its
corporate seal to be hereunto affixed and this certificate to be signed by its
Vice President, Ian J. Berg and attested by its Assistant Secretary, Jordan W.
Felzer this 27th day of February, 1987.
MEDIQ Incorporated
By: /s/ Ian J. Berg
--------------------------------------
Ian J. Berg, Vice President
Attest: /s/ Jordan W. Felzer
----------------------
Jordan W. Felzer
Assistant Secretary
Sworn to and subscribed
before me this 27th day
of February, 1987.
/s/ Jacqueline L. Swann
- ------------------------------
(Notary Public)
-2-
<PAGE>
STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
----------------------------
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF
DELAWARE DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF MEDIQ
INCORPORATED FILED IN THIS OFFICE ON THE TWENTY-FIRST DAY OF MAY,
A.D. 1986, AT 9 O'CLOCK A.M.
* * * * * * * * * *
/s/ Michael Harkins
-----------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION:
DATE:
-3-
<PAGE>
CERTIFICATE OF DESIGNATION
OF
MEDIQ Incorporated
UNDER SECTION 151 OF THE DELAWARE GENERAL CORPORATION
LAW, MEDIQ Incorporated, a Delaware Corporation (the
"Corporation"), certifies as follows:
FIRST: Under the authority contained in Article IV of the
Certificate of Incorporation of the Corporation, the Board of Directors of the
Corporation has designated 100,000 of the authorized but unissued shares of
Preferred Stock of the Corporation, par value $100 per share, as shares of
"Series A Preferred Stock."
SECOND: The following resolution was duly adopted by
the Board of Directors, and such resolution has not been modified
and is in full force and effect on the date hereof:
RESOLVED, that the Board of Directors hereby designates, from
the authorized but unissued shares of Preferred Stock of the Corporation, par
value $100 per share (the "Preferred Stock"), a series of Preferred Stock to
consist of 100,000 shares, and hereby fixes the voting powers, designations,
preferences, and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, of the shares of such
series, in addition to those set forth in the Certificate of Incorporation as
follows:
(a) Designation. The designation of the series of
Preferred Stock created by this resolution shall be "Series A
<PAGE>
Preferred Stock" and the number of shares constituting the Series A Preferred
Stock shall be 100,000 shares. The number of authorized shares of the Series A
Preferred Stock may be increased or reduced by further resolution duly adopted
by the Board of Directors and by the filing of a certificate pursuant to the
provisions of the General Corporation Law of the State of Delaware stating that
such increase or reduction has been so authorized.
(b) Dividends.
(1) The annual rate of cash dividends on each
share of the Series A Preferred Stock shall be equal to one hundred twenty times
the then current rate of cash dividends payable on each share of Common Stock of
the Corporation, par value $1 per share (the "Common Stock"), including any
extraordinary dividends or distributions, whether payable in cash or other
property, except a dividend payable solely in shares of any class of capital
stock of the Corporation.
Notwithstanding the foregoing, however, at such time as the
shareholders of the Corporation shall approve an amendment of the Corporation's
Certificate of Incorporation to increase the authorized Preferred Stock to not
less than 20,000,000 shares and such amendment shall have been filed in Delaware
in accordance with the Delaware General Corporation Law (the "Effective Date"),
the Board of Directors hereby authorizes a 200-for-1 stock split of the Series A
Preferred Stock, resulting in the designation (under Paragraph (a)) hereby of
20,000,000 shares of authorized
-2-
<PAGE>
Series A Preferred Stock (the "Preferred Stock Split"), and as of the Effective
Date the above annual rate of cash dividends on each share of Series A Preferred
Stock shall be equal to 60% of the then current rate of cash dividends payable
on each share of Common Stock. In calculating the amount of any dividend payable
on the Series A Preferred Stock, such dividend shall be rounded to the closest
one-hundredth of one cent ($.0001).
(2) Dividends of shares of Series A Preferred
Stock may be paid to holders of Series A Preferred Stock, if a dividend of
shares of Common Stock at the same rate per share is paid simultaneously to
holders of Common Stock, and dividends of Common Stock may be paid to holders of
Common Stock, if a dividend of shares of Series A Preferred Stock at the same
rate per share is paid simultaneously to holders of Series A Preferred Stock.
Dividends shall be payable, where, as and if
declared by the Board of Directors, provided, however, that concurrently with
the declaration of any dividend on the Common Stock, the Corporation shall
declare the requisite dividend on the Series A Preferred Stock. Each such
dividend shall be paid to the holders of record of shares of the Series A
Preferred Stock as they appear on the stock books of the Corporation on such
record date, not more than 60 or less than 10 days preceding the payment date
thereof, as shall be fixed by the Board of Directors or a duly authorized
Committee thereof.
-3-
<PAGE>
(3) Notwithstanding the foregoing provisions of
this Paragraph (b), dividends on the Series A Preferred Stock may not be paid if
(i) the Corporation is insolvent or would be rendered insolvent thereby or (ii)
such payment would impair the Corporation's capital.
(c) Conversion into Common Stock.
(1) At such time as the shareholders of the
Corporation shall approve an amendment of the Corporation's Certificate of
Incorporation to increase the authorized common stock Of the Corporation to not
less than 50,000,000 shares of common stock (the "Common Stock Increase"), and
such amendment shall have been filed in Delaware in accordance with the Delaware
General Corporation law, the shares of Series A Preferred Stock (after giving
effect to the Preferred Stock Split) shall thereafter be convertible, at the
option of the holder thereof, at any time into fully paid and nonassessable
shares of Common Stock of the Corporation at an initial rate (the "conversion
rate"), subject to adjustment as hereinafter provided, of one share of Common
Stock for each share of Series A Preferred Stock. If the shareholders of the
Corporation shall not have approved the Common Stock Increase, then the shares
of Series A Preferred Stock shall not be convertible into shares of common stock
as set forth above and all the provisions in this Paragraph (c) shall be null
and void and shall be of no further force or effect.
Any holder who converts the shares of Series A Preferred Stock
after the record date for any dividend payment on
-4-
<PAGE>
shares of Series A Preferred Stock but prior to such dividend payment date shall
nonetheless be entitled to receive any such dividend.
(2) In order to convert shares of Series A
Preferred Stock into Common Stock, the holder thereof shall surrender the
certificate or certificates for such shares of Series A Preferred Stock, duly
endorsed to the Corporation or in blank, at the office of the Transfer Agent for
Series A Preferred Stock (or at such other place as may be designated by the
Corporation), shall give written notice to the Corporation at said office that
such holder elects to convert said shares of Series A Preferred Stock, and shall
state in writing therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. As soon as practicable
thereafter, the Corporation shall issue or deliver at said office to the person
for whose account such shares of Series A Preferred Stock were so surrendered,
or to the nominee or nominees of such person, certificates for the number of
full shares of Common Stock to be issued as aforesaid, together with a cash
adjustment in respect of any fraction of a share as hereinafter provided if not
convertible into a number of whole shares. Subject to the following provisions
of this subparagraph (c)(2), such conversion shall be deemed to have been made
as of the date of such surrender of certificates for the shares of Series A
Preferred Stock to be converted; and the person or persons entitled to receive
Common Stock issuable upon the conversion of such shares
-5-
<PAGE>
of Series A Preferred Stock shall be treated for all purposes as the record
holder or holders of such Common Stock on such date. The Corporation shall not
be required to convert any shares of Series A Preferred Stock, and no surrender
of shares of Series A Preferred Stock shall be effective for that purpose, while
the stock transfer books of the Corporation are closed for any purpose, but the
surrender of shares of Series A Preferred Stock for conversion during any period
while such books are so closed shall become effective for conversion immediately
upon the reopening of such books, but at the conversion rate in effect at the
date of such surrender.
(3) The number of shares of Common Stock into
which the shares of Series A Preferred Stock shall be convertible shall be
subject to adjustment from time to time as detailed below; provided, however,
that if an adjustment in the shares of Series A Preferred Stock is required and
made pursuant to Paragraph (g) hereof, no adjustment under this Paragraph (c)(3)
shall be made on account of the transaction that required the aforementioned
adjustment under Paragraph (g):
(i) In case the Corporation shall (A)
subdivide its outstanding shares of Common Stock, (B) combine
its outstanding shares of Common Stock into a smaller number
of shares or (C) issue by reclassification of its shares of
Common Stock any shares of the capital stock of the
Corporation, then the conversion rate in effect immediately
prior thereto
-6-
<PAGE>
shall be adjusted as provided below so that the holder of any
share of Series A Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares
of the capital stock of the Corporation which he would have
owned or have been entitled to receive after the happening of
any of the events described above, had such share of Series A
Preferred Stock been converted on or immediately prior to the
effective date of such subdivision, combination or
reclassification, as the case may be. An adjustment made
pursuant to this clause (i) shall become effective at the
opening of business on the business day next following the
effective date of a subdivision, combination or
reclassification.
(ii) In case the Corporation shall issue
rights or warrants (excluding the right to convert the Series
A Preferred Stock into Common Stock as provided herein) to all
holders of its Common Stock entitling them (for a period
expiring within 45 days after the record date mentioned below)
to purchase shares of Common Stock at a price per share less
than the current market price per share (as defined in clause
(v) below) of Common Stock at the record date mentioned below,
the number of shares of Common Stock into which each share of
Series A Preferred Stock shall thereafter be convertible shall
be determined by multiplying the
-7-
<PAGE>
number of shares of Common Stock into which such share of
Series A Preferred Stock was theretofore convertible by a
fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on the record date for the
issuance of such rights or warrants plus the number of
additional shares offered for subscription or purchase, and
the denominator of which shall be the number of shares of
Common Stock outstanding on the record date for the issuance
of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so
offered would purchase at such current market price. Such
adjustment shall be made when ever such rights or warrants are
issued, and shall become effective at the opening of business
on the business day next following the record date for the
determination of the shareholders entitled to receive such
rights or warrants.
(iii) In case the Corporation shall
distribute to all holders of its Common Stock evidences of its
indebtedness or assets (excluding cash dividends to the extent
payable under applicable state law) or rights to subscribe
applicable to its Common Stock (excluding those referred to in
clause (ii) above), then in, each such case the number of
shares of Common Stock into which each share of Series A
Preferred Stock
-8-
<PAGE>
shall thereafter be convertible shall be determined by
multiplying the number of shares of Common Stock into which
such share of Series A Preferred Stock was theretofore
convertible by a fraction, the numerator of which shall be the
current market price per share (as defined in clause (v)
below) of Common Stock on the date of such distribution, and
the denominator of which shall be such current market price
per share of the Common Stock less the then fair market value
(as determined by the Board, whose determination shall be
conclusive and described in a statement filed with the
Transfer Agent) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights
applicable to one share of the Common Stock. Such adjustment
shall be made whenever any such distribution is made, and
shall be come effective at the opening of business on the
business day next following the record date for the
determination of stockholders entitled to receive such
distribution.
(iv) The corporation may make such
adjustments in the conversion rate, in addition to those
required by the foregoing provisions, as it considers to be
advisable in order that any event treated for federal income
tax purposes as a dividend
-9-
<PAGE>
of stock or stock rights shall not be taxable to the
recipients.
(v) For the purpose of any computation
under clauses (ii) and (iii) above and clause (x) below, the
current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing
prices for the 30 consecutive business days commencing 45
business days before the day in question. The closing price
for each day shall be the last reported sales price regular
way or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked
prices regular way, in either case on the American Exchange,
or, if the Common Stock is not then listed or admitted to
trading on such exchange, on the principal national
securities exchange on which the Common Stock is then listed
or admitted to trading, or if not then listed or admitted to
trading on any national securities exchange, the average of
the closing bid and asked prices as furnished by any New
York Stock Exchange firm selected from time to time by the
Corporation for the purpose.
(vi) All calculations under this
subparagraph (c) shall be made to the nearest one-
hundredth of a share.
(vii) Whenever the number of shares of
Common Stock deliverable upon the conversion of each
-10-
<PAGE>
share of Series A Preferred Stock shall be adjusted pursuant
to the provisions of this subparagraph (3), the Corporation
shall promptly (i) file with the Transfer Agent a certificate,
signed by the Chairman of the Board or the President or a Vice
President of the Corporation, and (ii) mail to all record
holders of shares of Series A Preferred Stock, at their last
addresses as they shall appear upon the stock registry books
of the Corporation, a notice setting forth the increased or
decreased number of shares of Common Stock thereafter
deliverable upon the conversion of each share of Series A
Preferred Stock. The certificate filed with the Transfer Agent
shall show in reasonable detail the method of calculation and
the facts requiring such adjustment and upon which such
calculation is based.
(viii) For the purposes of this subparagraph
(3), the term "Common Stock" shall mean (a) the class of stock
designated as the Common Stock of the Corporation at the date
of initial issuance of Series A Preferred Stock, or (b) any
other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of
changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time
the holder co of any share of Series A Preferred
-11-
<PAGE>
Stock surrendered for conversion shall become entitled to
receive any shares of the Corporation other than shares of its
Common Stock, thereafter the number of such other shares so
receivable upon conversion of any share of Series A Preferred
Stock shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in
clauses (i) through (v), inclusive.
(ix) After the shares of Series A Preferred
Stock become convertible, at all times a sufficient number of
shares of the authorized but unissued shares of the class of
stock to be issued upon conversion of the Series A Preferred
Stock shall be reserved by the Corporation for the purpose of
converting all shares of Series A Preferred Stock at the time
outstanding.
(x) The Corporation shall not be required,
in connection with any conversion of Series A Preferred Stock,
to issue a fraction of a share of its Common Stock nor to
deliver any stock certificate representing a fraction thereof,
but in lieu thereof the Corporation shall make a cash payment
equal to such fraction multiplied by the market price of the
Common Stock on the date of conversion.
(xi) In case at any time the Corporation
shall propose:
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<PAGE>
(A) to pay any dividend payable in
shares upon its Common Stock or make any
distribution (other than cash dividends) to
the holders of its Common Stock; or
(B) to offer for subscription to the
holders of its Common Stock any additional
shares of any class or any other rights; or
(C) any capital reorganization or
reclassification of its shares (except a
change in par value), or the consolidation or
merger of the Corporation with another
corporation; or
(D) the voluntary dissolution,
liquidation or winding up of the Corporation;
then, and in any one or more of said cases, the Corporation
shall cause at least fifteen days' prior notice of the date on
which (a) the books of the Corporation shall close, or a
record shall be taken for such stock dividend, distribution or
subscription rights or (b) such capital reorganization,
reclassification, consolidation, merger, dissolution,
liquidation or winding up shall take place, as the case may
be, to be mailed to the Transfer Agents for the Series A
Preferred Stock and for the Common Stock and to the holders of
record of the Series A Preferred Stock.
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<PAGE>
(xii) In case the Corporation or any
successor company shall consolidate or merge with, or sell all
or substantially all of its assets to, any other company, the
right which the holders of Series A Preferred Stock have to
receive additional shares of Common Stock on conversion of
their Series A Preferred Stock on account of any adjustment
made pursuant to the provisions of this subparagraph (3) shall
continue and be preserved in respect of any stock or other
securities of the successor company into which the Series A
Preferred Stock shall thereafter become convertible.
(xiii) Irrespective of any adjustments in
the initial conversion rate, certificates representing
shares of the Series A Preferred Stock theretofore or
thereafter issued which express the initial conversion
rate shall nevertheless be valid for all purposes.
(d) Voting Rights. (1) Except as otherwise set forth
in this resolution and except in statutory proceedings in which, and then only
to the extent to which, their vote is at the time required by law, on matters
subject to a vote by holders of the Common Stock, the holders of Series A
Preferred Stock shall be entitled to 2,000 votes per share; provided, however,
that upon the occurrence of the Preferred Stock Split, the holders of Series A
Preferred Stock shall thereafter be entitled to 10 votes for each share of
Series A Preferred Stock held. On all such
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<PAGE>
matters the holders of shares of Series A Preferred Stock and shares of Common
Stock shall vote together and not as separate classes, except as otherwise
required by law and except as provided in Paragraph (d)(3) below.
(2) Unless the vote or consent of the holders of
a greater number of shares shall then be required by law, and except as may
otherwise be provided with respect to a series of Preferred Stock in the
Certificate of Designation for that series, the consent of holders of at least
66 2/3% of the shares of the Series A Preferred Stock at the time outstanding,
voting as a single class, given in person or by proxy, by vote at a meeting
called for that purpose (or consented to in writing by such holders), shall be
necessary for authorizing, effecting or validating the amendment, alteration or
repeal of any provisions of the Certificate of Incorporation or of any
certificate amendatory thereof or supplemental thereto (including any
Certificate of Designation, preference and rights or any similar document
relating to any series of Preferred Stock) which would adversely affect the
preferences, rights or powers of the Series A Preferred Stock.
(3) Notwithstanding anything to the contrary
herein contained, the rights of the holders of Series A Preferred Stock to vote
in the election of Directors shall be limit ed to the extent that the holders of
Series A Preferred Stock shall not have the right to elect any person who is not
an officer or employee of the Corporation ("Outside Director'), and each such
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<PAGE>
Outside Director will be elected by the Common shareholders voting as a separate
class; provided, however, that this Paragraph (d)(3) shall become null and void
and shall be of no further force or effect (i) if the number of outstanding
shares of Series A Preferred Stock should decrease below an amount equal to 15%
of the aggregate number of the then outstanding shares of Series A Preferred
Stock and Common Stock, (ii) the Company's securities are no longer listed and
traded on the American Stock Exchange, or (iii) the American Stock Exchange
shall change its policies and procedures with respect to the conditions under
which the Exchange will approve the listing of securities that are entitled to
voting rights in excess of one vote per share.
(4) Corporate Notices and Report. The
Corporation shall transmit to the holders of Series A Preferred Stock (a) all
quarterly, annual and other reports sent by the Corporation to its shareholders
generally and (b) all notices and reports required by law or the Corporation's
Certificate of Incorporation to be furnished by the Corporation to holders of
Common Stock.
(e) Liquidation Rights.
(1) Upon the dissolution, liquidation or winding
up of the Corporation, the holders of the shares Of the Series A Preferred Stock
shall be entitled to receive from assets of the Corporation available for
distribution to its stockholders, before any payment or distribution shall be
made on the Common Stock or any other class of stock ranking junior to the
Series A
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<PAGE>
Preferred Stock upon liquidation, an amount equal to $100 per share (as
appropriately adjusted for stock splits and recapitalizations); provided,
however, that upon the occurrence of the Preferred Stock Split, the above
liquidation amount shall thereafter be equal to $.SO per share (as
appropriately adjusted for any future stock splits and recapitalizations).
(2) None of the sale, transfer or lease of all
or substantially all of the property or business of the Corporation, the
merger or consolidation of the Corporation into or with any other corporation or
the merger or consolidation of any other corporation into or with the
Corporation or any dissolution, liquidation, winding up or reorganization of the
Corporation, shall be deemed to be a dissolution, liquidation or winding up,
voluntary or involuntary, for the purposes of this Paragraph (e), provided that
in each case effective provision is made in the Certificate of Incorporation of
the resulting and surviving corporation or otherwise for the protection of the
rights of the holders of Series A Preferred Stock.
(3) If after the payment to the holders of the
shares of the Series A Preferred Stock of the full preferential amounts provided
for in this Paragraph (e), assets or surplus funds remaining this Corporation
upon any dissolution, liquidation or winding up of the Corporation then the
holders of the Series A Preferred Stock shall be entitled to share in all such
remaining assets or surplus funds in the same manner as if
-17-
<PAGE>
all shares of Series A Preferred Stock had been converted into Common Stock as
provided herein.
(4) In the event the assets of the Corporation
available for distribution to the holders of shares of the Series A Preferred
Stock upon any dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to Paragraph (e)(1), no such
distribution shall be made on account of any shares of any other class or series
of preferred stock ranking on a parity with the shares of the Series A Preferred
Stock upon such dissolution, liquidation or winding up unless proportionate
distributive amounts shall be paid on account of the shares of the Series A
Preferred Stock, ratably, in proportion to the full distributable amounts for
which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
(f) Ranking. For purposes of this resolution, any
stock of any class or classes of the Corporation shall be deemed
to rank:
(1) Prior to shares of the Series A Preferred
Stock, either as to dividends or upon liquidation, if the holders of such class
or classes shall be entitled to the receipt of dividends, or of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in preference or priority to the holders of shares of the
Series A Preferred Stock.
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<PAGE>
(2) On a parity with shares of the Series A
Preferred Stock, either as to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates or redemption or liquidation prices per
share be different from those of the Series A Preferred Stock, if the holders of
such stock shall be entitled to the receipt of dividends, or of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in proportion to their respective dividend rates or liquidation
prices, without preference or priority, one over the other, as between the
holders of such stock and the holders of the Series A Preferred Stock; and
(3) Junior to shares of the Series A Preferred
Stock, either as to dividends or upon liquidation, if the holders of shares of
the Series A Preferred Stock shall be entitled to receipt of dividends, or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the holders of
shares of such class or classes.
(g) Adjustment.
(1) The number of shares of Series A Preferred
Stock outstanding shall be subject to adjustment as follows:
(A) If and whenever the Corporation
shall declare any dividend or distribution on the Common Stock payable in
shares of Common Stock, the Corporation shall, concurrently with the declaration
of such dividend or distribution on the
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<PAGE>
Common Stock, declare an equivalent dividend or distribution, as the case may
be, on the shares of Series A Preferred Stock. The terms and provisions of any
such dividend or distribution declared on such shares shall be identical to the
terms and provisions of any such dividend or distribution declared on the Common
Stock, except that the dividend or distribution declared on the shares of Series
A Preferred Stock shall be payable in shares of Series A Preferred Stock.
Without limiting the generality of the foregoing, whenever any such dividend or
distribution payable in shares of Common Stock and Series A Preferred Stock are
declared on the Common Stock and Series A Preferred Stock, respectively, (i) the
number of shares payable in respect of the dividend or distribution on the
Common Stock and the dividend or distribution on the shares of Series A
Preferred Stock shall be the same in respect of each outstanding share of Common
Stock and Series A Preferred Stock, and (ii) the record and payment dates,
respectively, in respect of the dividend or distribution on the Common Stock and
the dividend or distribution on Series A Preferred Stock shall be the same.
If and whenever the Corporation shall declare any dividend or
distribution on the Common Stock payable in shares of the capital stock of the
Corporation (excluding those referred to in the preceding paragraph), the
Corporation shall, concurrently with the declaration of such dividend or
distribution, declare an identical dividend or distribution, as the case may be,
on the shares of Series A Preferred Stock.
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<PAGE>
(B) If and whenever the Corporation
shall grant rights or warrants to the holders of Common Stock, as such,
entitling them (for a period of not more than 45 days after the record date
fixed for the issuance of such rights or warrants) to subscribe for or to
purchase (i) shares of Common Stock (or securities convertible into shares of
Common Stock) or (ii) shares of any other capital stock of the Corporation (or
securities convertible into any capital stock of the Corporation), the
Corporation shall, concurrently with the granting of such rights or warrants to
the holders of Common Stock, grant to the holders of the shares of Series A
Preferred Stock equivalent rights or warrants. The terms and provisions of any
such rights or warrants granted to the holders of the shares of Series A
Preferred Stock shall be identical to the terms and provisions of any such
rights or warrants granted to the holders of Common Stock, except that the
rights or warrants granted to the holders of the shares of Series A Preferred
Stock, as a result of rights or warrants granted holders of Common Stock to
subscribe for or to purchase shares of Common Stock (or securities convertible
into Common Stock), shall be rights or warrants to subscribe for or to purchase
shares of Series A Preferred Stock (or securities convertible into shares of
Series A Preferred Stock). Without limiting the generality of the foregoing,
whenever any such rights or warrants to subscribe for or to purchase shares of
Common Stock (or securities convertible into shares of Common Stock) and Series
A Preferred Stock (or
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<PAGE>
securities convertible into shares of Series A Preferred Stock) are granted to
the holders of Common Stock and Series A Preferred Stock, respectively, (i) the
number of such rights or warrants granted in respect of each outstanding share
of Common Stock and Series A Preferred Stock shall be identical, (ii) the number
of shares of Common Stock, Series A Preferred Stock and shares of any other
capital stock purchasable upon exercise of each such right or warrant granted to
the respective holders of Common Stock and Series A Preferred Stock shall be
identical, and (iii) the ratio of the price per share of Common Stock to the
price per share of Series A Preferred Stock, each purchasable upon exercise of
such rights or warrants granted to the respective holders of Common Stock and
Series A Preferred Stock, shall be identical to the ratio of the Current Market
Price (as hereinafter defined) of a share of Common Stock to the Current Market
Price of a share of Series A Preferred Stock.
If and whenever the Corporation shall grant rights to the
holders of Series A Preferred Stock, as such, entitling them (for a period of
not more than 45 days after the record date fixed for the issuance of such
rights) to subscribe for or to purchase at a price per share less than the
Current Market Price per share (as defined in paragraph (g)(6) hereof) (i)
shares of Series A Preferred Stock (or securities convertible into shares of
Series A Preferred Stock) or (ii) shares of any other capital stock of the
Corporation (or securities convertible into any capital stock of the
Corporation), the Corporation shall,
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<PAGE>
concurrently with the granting of such rights to the holders of Series A
Preferred Stock, grant to the holders of the shares of Common Stock equivalent
rights. The terms and provisions of any such rights granted to the holders of
the shares of Common Stock shall be identical to the terms and provisions of any
such rights granted to the holders of Series A Preferred Stock, except that the
rights granted to the holders of the shares of Common Stock, as a result of
rights granted holders of Series A Preferred Stock to subscribe for or to
purchase shares of Series A Preferred Stock (or securities convertible into
shares of Series A Preferred Stock), shall be rights to subscribe for or to
purchase shares of Common Stock (or securities convertible into shares of Common
Stock). Without limiting the generality of the foregoing, whenever any such
rights to subscribe for or to purchase shares of Series A Preferred Stock (or
securities convertible into shares of Series A Preferred Stock) and Common Stock
(or securities convertible into shares of Common Stock) are granted to the
holders of Series A Preferred Stock and Common Stock, respectively, (i) the
number of such rights granted in respect of each outstanding share of Common
Stock and Series A Preferred Stock shall be identical, (ii) the number of shares
of Common Stock, Series A Preferred Stock and shares of any other capital stock
purchasable upon exercise of each such right granted to the respective holders
of Common Stock and Series A Preferred Stock shall be identical, and (iii) the
ratio of the price per share of Common Stock to the price per share of Series A
Preferred Stock,
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<PAGE>
each purchasable upon exercise of such rights granted to the respective holders
of Common Stock and Series A Preferred Stock shall be identical to the ratio of
the Current Market Price (as hereinafter defined) of a share of Common Stock to
the Current Market Price of a share of Series A Preferred Stock.
(C) The Corporation shall not split or
subdivide or combine its outstanding shares of Common Stock unless, currently
therewith, the Corporation shall make a proportionate split or subdivision or
combination of the outstanding shares of Series A Preferred Stock.
(2) In the event of an increase or decrease, as
the case may be, pursuant to Paragraphs (g)(1)(A) and (C) hereof, in the number
of shares of Series A Preferred Stock outstanding, the liquidation preference
per share of Series A Preferred Stock shall be proportionately decreased or
increased, as the case may be, so that the aggregate liquidation preference on
all outstanding shares of Series A Preferred Stock shall be unchanged.
(3) Irrespective of any of the adjustments in
the number of shares of Series A Preferred Stock, stock certificates
theretofore or thereafter issued may continue to express the number of shares as
are stated in a similar stock certificate issuable initially or at some
subsequent time and such number of shares of Series A Preferred Stock specified
therein shall be deemed to have been so adjusted. Fractional shares resulting
from any adjustment pursuant to this Paragraph (g) shall be
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<PAGE>
treated in the same manner as fractional shares resulting from the same
adjustment to the Common Stock.
(4) Shares of Series A Preferred Stock and
Common Stock at any time owned by the Corporation shall not be deemed to be
outstanding for purposes of any computation herein.
(5) In the case of any event which requires that
an adjustment to increase the number of shares of Series A Preferred Stock be
made effective as of a record date, the Corporation may elect to defer issuing
the additional shares of Series A Preferred Stock until the occurrence of such
event; provided, however, that the Corporation shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
(6) For the purpose of any computation herein,
the Current Market Prices per share of Common Stock, Series A Preferred Stock or
any other capital stock (or securities convertible into any of such securities)
on any date shall be the average of the highest reported bid and the lowest
reported asked prices at the close of business as reported by the National
Association of Securities Dealers Automated Quotation System, or if the Common
Stock or.Series A Preferred Stock is listed on a national securities exchange,
the average of the closing sale prices on the principal stock exchange on which
the Common Stock or Series A Preferred Stock is listed, in each case for 30
consecutive trading days commencing 45 trading days before the
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<PAGE>
date in question. In the absence of one or more such quotations, the Board of
Directors shall determine the current Market Price on the basis of such
quotation or other valuation method as it, in its sole discretion, considers
appropriate.
(7) No adjustment shall be made because the
Corporation issues, in exchange for cash, property or services, shares of Common
Stock, or any securities convertible into or exchangeable for shares of Common
Stock, or securities carrying the right to purchase shares of Common Stock or
such convertible or exchangeable securities. Furthermore, no adjustment need be
made under this Paragraph (g) for sale of shares of Common Stock pursuant to a
Corporation plan providing for reinvestment of dividends or interest.
(8) Whenever the number of shares of Series A
Preferred Stock is adjusted, as herein provided, the Corporation shall promptly
mail by first class, postage prepaid, to each holder notice of such adjustment
or adjustments, setting forth the number of shares of Series A Preferred Stock
after such adjustment, together with a brief statement of the facts requiring
such adjustment and setting forth the computation by which such adjustment was
made. Such notice shall be conclusive evidence of the correctness of such
adjustment.
(9) The Corporation will pay any and all taxes
that may be payable in respect of the issuance or delivery of additional
shares of this Series upon adjustment pursuant hereto. The Corporation shall
not, however, be required to pay any tax
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<PAGE>
which may be payable in respect of any transfer involving issue and delivery of
Series A Preferred Stock in the name other than in which the outstanding shares
of Series A Preferred Stock so adjusted were registered and no such issue and
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of any such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(h) Restrictions on Certain Action. So long as any shares of
Series A Preferred Stock are outstanding, the Corporation shall not, without the
consent, given in writing or by resolution adopted at a meeting duly called for
the purpose by the holders of record, of the applicable percentage stated below
of the holders of the shares of Series A Preferred Stock then outstanding,
(1) Without the consent, given as aforesaid, of
such holders of at least 66 2/3% of the outstanding shares of
Series A Preferred Stock,
(a) Authorize (or increase the
authorized number of shares of) any class of stock ranking senior to the
Series A Preferred Stock in any respect ('Prior Stock') or any class of stock
ranking on a parity with the Series A Preferred Stock ("Parity Stock"); or
(b) Make any changes in the preferences,
qualifications, limitations, restrictions or special or relative
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<PAGE>
rights of the Series A Preferred Stock so as to affect the Series
A Preferred Stock adversely; or
(2) Without the consent, given as aforesaid, of
such holders of at least a majority of the outstanding shares of Series A
Preferred Stock, merge or consolidate with any other corporation, or sell or
otherwise dispose of all or substantially all of its assets, unless (i) under
the terms of such merger, consolidation or sale or other disposition of assets
(A) the Series A Preferred Stock shall remain outstanding with no adverse
changes in its preferences, qualifications, limitations, restrictions or special
or relative rights or (B) each holder of Series A Preferred Stock shall receive,
in exchange for such Series A Preferred Stock, securities of the surviving,
resulting or acquiring entity which shall in the aggregate possess preferences,
qualifications, limitations, restrictions or special or relative rights which
are at least as favorable as those possessed by the Series A Preferred Stock
immediately prior to the effective date of such merger, consolidation or sale or
other disposition of assets, and adequate provision shall be made whereby such
securities received in exchange for the Series A Preferred Stock shall
thereafter be convertible into the number of shares of Common Stock (or into
such shares of stock, securities or assets as may be issuable or payable with
respect to, or in exchange for, the number of shares of common Stock or the
other shares of stock, securities or assets, as the case may be) into which the
Series A Preferred Stock would have been
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convertible immediately prior to such merger, consolidation or sale or other
disposition of assets, and (ii) immediately after such merger, consolidation or
sale or other disposition of assets, there shall be no shares of Prior Stock or
Parity Stock outstanding (except to the extent that any Prior Stock or Parity
Stock shall have been issued in accordance with the provisions of this paragraph
(h) prior thereto).
(i) Reissuance of Shares. Shares of Series A Preferred Stock
which have been purchased, or which have been converted into shares of stock of
any other class or classes, shall have the status of authorized and unissued
shares of Preferred Stock and may be reissued as part of a series of which they
were originally a part or may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board or as part of any
other series of Preferred Stock, all subject to the conditions or restrictions
on issuance set forth in any resolution or resolutions adopted by the Board
providing for the issue of any series of Preferred Stock and the filing of the
appropriate Certificate of Designation in accordance with the Delaware General
Corporation law.
(j) No Other Rights. The shares of the Series A Preferred
Stock shall not have any relative, participating, optional or other special
rights and powers other than as set forth above in this Certificate of
Designation and in the certificate of Incorporation of the Corporation.
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(k) Amendment. The Board of Directors shall have the power to
resolve any ambiguity or correct any error in this Certificate of Designation
and its action in so doing, as evidenced by a Board resolution, shall be final
and conclusive.
IN WITNESS WHEREOF, MEDIQ Incorporated has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by its
President, Bernard J. Korman, and attested by its Secretary, Eugene M. Schloss,
Jr., this 20th day of May, 1986.
MEDIQ Incorporated
By: /s/ Bernard J. Korman
---------------------------------
[Corporate Seal]
ATTEST:
____________________________
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<PAGE>
STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
----------------------------
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF
DELAWARE DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF MEDIQ INCORPORATED FILED
IN THIS OFFICE ON THE FOURTEENTH DAY OF JULY, A.D. 1986, AT 3:30
O'CLOCK P.M.
* * * * * * * * * *
/s/ Michael Harkins
-----------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION:
DATE:
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF MEDIQ Incorporated
The undersigned, being the Senior Vice President Finance of
MEDIQ Incorporated, certifies that the following amendment to the Certificate of
Incorporation was duly considered and approved by the holders of a majority of
the outstanding stock qualified to vote thereon at a special meeting duly called
and held on July 14, 1986, in accordance with Section 242 of the Delaware
General Corporation Law:
RESOLVED, that the Certificate of Incorporation of
the Company be amended by changing the first sentence of
Article IV so that as amended the first sentence of such
Article shall read in its entirety as follows.,
"The total number of shares of all classes of stock which the
Company shall have the authority to issue is 200,000,000
shares of Preferred Stock of a par value of $.SO per share and
200,000,000 shares of Common Stock of a par value of $1.00 per
share."
<PAGE>
IN WITNESS WHEREOF, MEDIQ Incorporated has caused its
corporate seal to be hereunto affixed and this certificate to be signed by its
Senior Vice President Finance, Lionel Felzer, and attested by its Secretary,
Eugene M. Schloss, Jr., this 11th day of July, 1986.
MEDIQ Incorporated
By: /s/ Lionel H. Felzer
---------------------------------------
Lionel H. Felzer
Senior Vice President - Finance
[CORPORATE SEAL]
Attest: /s/ Eugene M. Schloss Jr.
--------------------------
Eugene M. Schloss Jr.
Secretary
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<PAGE>
OFFICE OF SECRETARY OF STATE
----------------------------
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
STOCK DESIGNATION OF MEDIQ INCORPORATED FILED IN THIS OFFICE ON THE FOURTEENTH
DAY OF JULY, A.D. 1986, AT 3:31 O'CLOCK P.M.
* * * * * * * * * *
/s/ Michael Harkins
-----------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION:
DATE: 07/15/1986
<PAGE>
CERTIFICATE OF INCREASE
TO
CERTIFICATE OF DESIGNATION
OF MEDIQ Incorporated
The undersigned being the Senior Vice President Finance of
MEDIQ Incorporated, certifies that the following increase to the Certificate of
Designation of MEDIQ incorporated filed on May 21, 1986 was duly considered and
approved by the Board of Directors of MEDIQ Incorporated, and such resolution
has not been modified and is in full force and effect oh the date hereof, all in
accordance with Section 151(g) of the Delaware General Corporation Law:
RESOLVED, that,the Board of Directors hereby
designates, effective upon approval by shareholders of an
increase in the authorized shares of Preferred Stock to
200,000,000 shares and a reduction in the par value of such
stock to $.50 per share, that the number of shares
constituting the Series A Preferred Stock of the Company
shall.be 20,000,000 shares.
IN WITNESS WHEREOF, MEDIQ Incorporated has caused its
corporate seal to be hereunto affixed and this increase to the
<PAGE>
Certificate of Designation to be signed by its Senior Vice President - Finance,
Lionel Felzer, and attested by its Secretary, Eugene M. Schloss, Jr., this
11th day of July, 1986.
MEDIQ Incorporated
By: /s/ Lionel H. Felzer
----------------------------------
Lionel H. Felzer
Senior Vice President - Finance
[CORPORATE SEAL]
Attest: /s/ Eugene M. Schloss Jr.
----------------------------
Eugene M. Schloss Jr.
Secretary
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<PAGE>
STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
----------------------------
I, GLENN C. KENTON, SECRETARY OF STATE OF THE STATE OF
DELAWARE DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF MEDIQ INCORPORATED FILED
IN THIS OFFICE ON THE TWELFTH DAY OF MARCH, A.D. 1984, AT 9
O'CLOCK A.M.
* * * * * * * * * *
/s/ Michael Harkins
-----------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION:
DATE: 03/27/1984
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MEDIQ INCORPORATED
MEDIQ Incorporated, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware; does
hereby certify:
FIRST: That the Board of Directors of this Corporation, at a
meeting duly convened pursuant to notice, at which a quorum was present and
acting throughout, adopted a resolution proposing and declaring advisable the
following amendment to the Corporation's Certificate of Incorporation:
RESOLVED, that the Certificate of incorporation of
this Corporation be amended by changing Article IV so that, as
amended, that Article shall be read in its entirety as
follows:
"IV. The total number of shares of all classes of stock which
the Corporation shall have the authority to issue is 100,000 shares of preferred
stock of a par value of $100.00 per share, and 25,000,000 shares of common stock
of a par value of $1.00 per share.
The preferred stock may be issued with the voting rights,
designations, preferences, qualifications, privileges, limitations, options,
conversion rights and other special rights, if any, as shall be stated or
expressed in the resolution or resolutions providing for the issuance of such
stock, adopted by
<PAGE>
the Board of Directors. Authority is hereby expressly granted to and vested in
the Board of Directors to authorize the issuance of the shares of the preferred
stock and to fix by resolution or resolutions the terms thereof, including
without limitation, the following:
a. The dividends Payable And preferences in
respect to the payment thereof;
b. The terms and conditions on which, and the
price or prices at which, such shares may be made subject to
redemption;
c. The rights of such shares upon the voluntary
or involuntary dissolution of, or upon any other distribution of
the assets of, the Corporation;
d. Whether or not such shares shall be made
convertible into, or exchangeable for, shares of any other classes or of any
series. of any other class or classes of stock of the Corporation, and if made
so convertible or exchangeable, the conversion price or prices, or the rates of
exchange, and the adjustments, if any, at which, and the other terms and
conditions upon which, any such conversion or exchange may be made; and e.
Whether or not such shares shall be entitled to other special rights in addition
to those in the Articles provided for.
No stockholder of the Corporation shall, by reason of his
holding shares of any class, have any preemptive or preferential right to
purchase or subscribe to any shares of any class of this Corporation, now or
hereafter to be authorized, or
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<PAGE>
any notes, debentures, bonds or other securities convertible into, or carrying
options or warrants to purchase, shares of any class, now or hereafter to be
authorized, whether or not the issuance of any such shares, or such notes,
debentures, bonds or other securities, would adversely affect the dividend or
voting rights or such stockholder, other than such rights, if any, as the Board
of Directors, in its discretion, from time to time may grant, and at such price
as the Board of Directors, in its discretion, may fix; and the Board of
Directors may issue shares of any class of this Corporation, or any notes,
debentures, bonds or other securities convertible into, or carrying options or
warrants to purchase, shares of any class, either in whole or in part, to the
existing stockholders of any class.
Except as otherwise specifically required by law or as
specifically provided in the resolutions of the Board of Directors authorizing
the issuance of the preferred stock, the exclusive voting power of the
Corporation shall be vested in the common stock of the Corporation. Each holder
of common stock shall be entitled to one vote for each share held by such
holder.
The holders of the shares of the Corporation's common stock
shall not be entitled to cumulative voting in voting for directors; i.e. they
shall not be entitled in so voting, to multiply the number of votes to which
they are entitled by the number of directors to be elected by them in the same
election.
SECOND: That the Stockholders of the Corporation, at a
meeting duly convened pursuant to notice, at which a quorum was
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<PAGE>
present and acting throughout, have given consent to the amendment in accordance
with the provisions of the General Corporation Law of the State of Delaware.
THIRD: That the amendment was duly adopted in
accordance with the applicable provisions of Section 242 of the
General Corporation Law of the State of Delaware.
FOURTH: That the,capital of the Corporation will not
be reduced, under or by reason of said amendment.
IN WITNESS WHEREOF, MEDIQ Incorporated has caused this
Certificate of Amendment to be signed by Bernard J. Korman, its President, and
attested by Eugene M. Schloss, Jr., its Secretary, this 28th day of February,
1984.
MEDIQ INCORPORATED
By: /s/ Bernard J. Korman
---------------------------------------
Bernard J. Korman,
President
Attest: /s/ Eugene M. Schloss Jr.
--------------------------------------
Eugene M. Schloss Jr.
Secretary
-4-
MEDIQ INCORPORATED
RESTATED
BY-LAWS
(Including Amendments through November 6, 1995)
ARTICLE I
Section 1. The address of the registered office of the
corporation in the State of Delaware is 901 Market Street in the
City of Wilmington, County of New Castle. The registered office
need not be identical with the principal office of the
corporation and may be changed from time to time by the board of
directors.
Section 2. The corporation may have its principal
office and other offices at such other places within and without
the State of Delaware as the board of directors may from time to
time determine or the business of the corporation requires.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the
election of directors shall be held at the registered office of
the corporation in the State of Delaware, at such place as may be
fixed from time to time by the board of directors, or at such
other place either within or without the State of Delaware as
<PAGE>
shall be designated from time to time by the board of directors
and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be
stated in the notice of the meeting or in a duly executed waiver
of notice thereof.
Section 2. Annual meetings of stockholders shall be
held on such date and at such time as shall be designated from
time to time by the board of directors and stated in the notice
of the meeting. At such meetings, they shall elect a board of
directors, which election shall be by written ballot and transact
such other business as may properly be brought before the
meeting.
Section 3. Written notice of the annual meeting,
stating the place, date and hour of the meeting, shall be given
to each stockholder entitled to vote at such meeting not less
than ten (10) nor more than sixty (60) days before the date of
the meeting.
Section 4. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute
or by the certificate of incorporation, may be called by the
Chairman or President and shall be called by the President or
Secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning
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<PAGE>
not less than twenty percent (20%) in amount of the entire
capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 5. Written notice of a special meeting,
stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called, shall be given to
each stockholder entitled to vote at such meeting, not less than
ten (10) nor more than sixty (60) days before the date of the
meeting.
Section 6. Business transacted at any special meeting
of stockholders shall be limited to the purposes stated in the
notice.
Section 7. Subject to the provisions of any series of
Preferred Stock at the time outstanding, the holders of record of
shares of any class entitled to vote representing a majority of
the total number of votes authorized to be cast by shares of all
classes then issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a
quorum for all meetings of the stockholders for the transaction
of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the
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<PAGE>
stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting
from time to time, whether or not a quorum is present, without
notice other than announcement at the meeting. At such adjourned
meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. The stockholders present at a
duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 8. At each meeting of the stockholders, every
holder of Common Stock entitled to vote thereat shall be entitled
to one vote in person or by proxy for each share of common stock
held by such stockholders and each holder of Preferred Stock
having voting power shall be entitled to such vote as may be
provided in the resolution of the board of directors providing
for such shares. Except as may otherwise be provided for any
series of Preferred Stock which may at the time be outstanding,
neither fractional shares nor scrip fractional shares shall be
entitled to any vote. When any share is held jointly by several
persons, any one of them may vote at any meeting in person or by
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<PAGE>
proxy in respect of such share, but if more than one of them
shall be present at such meeting in person or by proxy, and such
joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such
share. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest
on the challenger. If the holder of any such share is a minor or
a person of unsound mind, and subject to guardianship, or to the
legal control of any other person as regards the charge or
management of such share, he may vote by his guardian or such
other person appointed or having such control, and such vote may
be given in person or by proxy. No proxy shall be entitled to
vote after three (3) years from its date, unless the proxy
provides for a longer period. Every proxy shall have been
executed in writing (which shall include telegraphing, cabling or
telephotographic transmission), and shall be filed with the
secretary of the corporation, or with such other officer or agent
of the corporation as the secretary may direct, before or at the
time of the meeting. When a quorum is present at any meeting,
the vote of the holders of the majority of the shares having
voting power present in person or represented by proxy shall
decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes
or of the certificate of incorporation or these by-laws a
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<PAGE>
different vote is required, in which case such express provision
shall govern and control the decision of such question.
Section 9. The board of directors may appoint a judge
or judges of election to serve at any election of directors and
at voting on any other matter that may properly come before a
meeting of stockholders. The judge or judges of election shall
decide all questions regarding the qualifications of voters, the
validity of proxies and the acceptance or rejection of votes. If
no such appointment shall be made, or if any of the judges so
appointed shall fail to attend, or refuse or be unable to serve,
then such appointment may be made by the presiding officer of the
meeting.
Section 10. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at
any annual or special meeting of stockholders of a corporation,
or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting
forth the action so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at
a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent
-6-
<PAGE>
shall be given to those stockholders who have not consented in
writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall
constitute the whole board shall be set at ten (10). Within the
limits above specified, the number of directors shall be
determined by resolution of the board of directors, or by the
stockholders at the annual meeting. No reduction in the number
of directors shall have the effect of removing any director from
office prior to the expiration of his term. The directors shall
be elected at the annual meeting of stockholders, except as
provided in Section 2 of this Article, and each director shall
hold office until the next annual meeting of stockholders and
thereafter until his successor is duly elected and qualified,
unless a prior vacancy shall occur by reason of his death,
resignation or removal from office. Directors need not be
stockholders.
Section 2. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office,
though less than a quorum, or by the stockholders, and the
directors so chosen shall hold office until the next annual
meeting of stockholders and until his successor is duly elected
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<PAGE>
and qualified, unless a prior vacancy shall occur by reason of
his death, resignation or removal from office. If there are no
directors in office, then an election of directors may be held in
the manner provided by statute. If, at the time of filling any
vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding giving the right to
vote for such directors, summarily order an election to be held
to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office.
Section 3. The business and affairs of the corporation
shall be managed by its board of directors, which may exercise
all such powers of the corporation and do all such lawful acts
and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation
may hold meetings, both regular and special, either within or
without the State of Delaware.
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<PAGE>
Section 5. The first meeting of each newly elected
board of directors shall be held at such time and place as shall
be fixed by the vote of the stockholders at the annual meeting
and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting,
provided a quorum shall be present. In the event of the failure
of the stockholders to fix the time or place of such first
meeting of the newly elected board of directors, or in the event
such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors
may be held without notice at such time and at such place as
shall from time to time be determined by the board.
Section 7. Special meetings of the board may be called
by the Chairman, the President, the Secretary or any two
directors on two (2) days' notice to each director, either
personally or by mail or by telegram. The attendance of a
director at a meeting shall constitute waiver of notice of such
meeting except where a director attends a meeting for the express
purpose of objecting to the transaction of any business on the
ground that the meeting has not been lawfully called or convened.
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<PAGE>
Section 8. At all meetings of the board, a majority of
the directors in office shall constitute a quorum for the
transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall
be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting
of the board of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the cer-
tificate of incorporation or these by-laws, any action required
or permitted to be taken at any meeting of the board of directors
or of any committee thereof may be taken without a meeting, if
all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board of committee.
Section 10. Members of the board of directors, or any
committee designated by such board, may participate in a meeting
of such board or committee by means of conference telephone or
similar communications equipment by means of which all such
persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in
person at such meeting.
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<PAGE>
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the
directors, and may designate one or more directors as alternative
members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of
directors to act at any meeting in the place of any such absent
or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors, shall have
and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee
shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders a dissolution of
the corporation or a revocation of a dissolution, or amending the
by-laws of the corporation; and, unless the resolution or the
certificate of incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend
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<PAGE>
or to authorize the issuance of stock. Such committee or
committees shall have such name or names as may be determined
from time to time by resolution adopted by the board of
directors.
Section 12. Each committee shall keep regular minutes
of its meetings and report the same to the board of directors
when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the
certificate of incorporation or by these by-laws, the board of
directors shall have the authority to fix the compensation of
directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be
paid a fixed sum for attendance at each meeting of the board of
directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special
or standing committees may be allowed similar compensation for
attending committee meetings.
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<PAGE>
REMOVAL OF DIRECTORS
Section 14. At any special meeting of the stock-
holders, duly called as provided in these by-laws, any director
or directors may, by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to
vote for the election of directors, be removed from office,
either with or without cause. At such meeting, a successor or
successors may be elected, or if any such vacancy is not so
filled, it may be filled by the directors as provided in Section
2 above.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of statute
or of the certificate of incorporation or of these by-laws,
notice is required to be given to any director or stockholder, it
shall not be construed to mean personal notice, but such notice
may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may
also be given by telegram or telephone.
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<PAGE>
Section 2. Whenever any notice is required to be given
under the provisions of statute or of the certificate of
incorporation or of these by-laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed
equivalent to notice.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be
chosen by the board of directors and shall be a Chairman, a
President, a Secretary and a Treasurer. The board of directors
may also choose one or more Vice Presidents, a Controller and one
or more assistant secretaries, assistant treasurers and assistant
controllers. Any number of offices may be held by the same
person unless otherwise provided by the certificate of
incorporation or these by-laws.
Section 2. The board of directors at its first meeting
after each annual meeting of stockholders shall elect the
appropriate officers of the corporation.
Section 3. The board of directors may appoint such
other officers and agents as it shall deem necessary who shall
hold their offices for such terms and shall exercise such powers
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<PAGE>
and perform such duties as shall be determined from time to time
by the board.
Section 4. The salaries of all officers and agents of
the corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold
office until their successors are elected and qualified. Any
officer elected or appointed by the board of directors may be
removed at any time by the affirmative vote of a majority of the
board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall preside at
all meetings of the stockholders and of the board of directors,
shall act in an advisory capacity to the other principal officers
and shall have such powers and perform such duties as the board
may prescribe.
PRESIDENT AND VICE PRESIDENTS
Section 7. The President shall be the chief executive
officer of the corporation and shall perform such executive and
administrative functions and duties as are delegated to him by
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<PAGE>
the board of directors and shall, in the absence of or inability
to act of the Chairman, temporarily act in his place, and shall
perform such other duties and have such other powers as the board
of directors may from time to time prescribe.
Section 8. The President shall execute bonds, mort-
gages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
Section 9. A Vice-President shall perform such
executive and administrative functions and duties as are
delegated to him by the board of directors or the President and
shall perform such other duties and have such other powers as the
board of directors or the President may from time to time
prescribe.
Section 10. In the absence or inability to act of the
President, the Vice-President (or in the event there be more than
one Vice-President, the Vice-Presidents in the order designated,
or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so
acting shall have all the powers of and be subject to all the
restrictions upon the President.
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THE SECRETARY AND ASSISTANT SECRETARY
<PAGE>
Section 11. The Secretary shall attend all meetings of
the board of directors and all meetings of the stockholders and
shall record all the proceedings of the meetings of the
stockholders and of the board of directors in a book to be kept
for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings
of the board of directors, and shall perform such other duties
and have such other powers as may be prescribed from time to time
by the board of directors or President, under whose supervision
he shall be. He shall have custody of the corporate seal of the
corporation and he or an Assistant Secretary shall have authority
to affix the same to any instrument requiring it. When so
affixed, it may be attested by his signature or by the signature
of such Assistant Secretary. The board of directors may give
general authority to any other officer to affix the seal of the
corporation and to attest the affixing by his signature.
Section 12. The assistant secretary, or if there be
more than one, the assistant secretaries in the order determined
by the board of directors (or if there be no such determination,
then in the order of their election), shall, in the absence of
the Secretary or in the event of his inability to act, perform
the duties and exercise the powers of the Secretary and shall
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<PAGE>
perform such other duties and have such other powers as the board
of directors or the President may from time to time prescribe.
THE TREASURER, CONTROLLER AND ASSISTANT TREASURERS
Section 13. The Treasurer shall be the chief financial
and accounting officer of the corporation and shall have the
custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books
belonging to the corporation, and shall deposit all monies and
other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the
board of directors. The Treasurer also have such other duties
and have such other powers as the board of directors or the
Section 14. The Treasurer shall disburse the funds of
the corporation as may be ordered by the board of directors,
taking proper vouchers for such disbursements, and shall render
to the President and the board of directors, at its regular
meetings, or when the board of directors so requires, an account
of all his transactions as treasurer and of the financial
condition of the corporation.
Section 15. If required by the board of directors, the
Treasurer and Controller shall give the corporation a bond (which
shall be renewed every six years) in such sum and with such
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<PAGE>
surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of their
offices and for the restoration to the corporation, in case of
their death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever
kind in their possession or under their control belonging to the
corporation.
Section 16. The Controller, if one be appointed by the
board of directors, shall perform such of the duties of the
Treasurer and exercise such of the powers of the Treasurer as
shall be delegated to him by the Treasurer, and shall perform
such other duties and exercise such other powers as the board of
directors or the President may from time to time prescribe.
Section 17. The Assistant Treasurer, or if there shall
be more than one, the Assistant Treasurers in the order
determined by the board of directors (or if there be no such
determination, then in the order of their election), shall, in
the absence of the Treasurer or in the event of his inability to
act, perform the duties and exercise the powers of the Treasurer
to the extent not being performed and exercised by the
Controller, and shall perform such other duties and have such
other powers as the board of directors or the President may from
time to time prescribe.
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<PAGE>
Section 18. A person may hold more than one office,
except that no one may be President and Treasurer or President
and Secretary or Treasurer and Secretary at the same time.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the
name of the corporation by the Chairman, the President or a Vice-
President, and the Secretary or an Assistant Secretary of the
corporation, certifying the number of shares owned by him in the
corporation. If the corporation shall be authorized to issue
more than one class of stock or more than one series of any
class, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of
such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of
stock, provided that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or
back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who
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<PAGE>
so requests the designations, preferences and relative,
participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Where a certificate is countersigned (1) by
a transfer agent other than the corporation or its employee, or,
(2) by a registrar other than the corporation or its employee,
any other signature on the certificate may be facsimile. In case
any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The President or any Vice President
together with the Secretary or any Assistant Secretary may direct
a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the
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<PAGE>
board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it
shall require and/or to give the corporation a bond in such sum
as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction
upon its books, subject only to the powers of the board of
directors to prohibit certain transfers of stock set forth in the
certificate of incorporation of the corporation.
FIXING RECORD DATE
Section 5. In order that the corporation may determine
the stockholders entitled to (a) notice of or to vote at any
meeting of stockholders or any adjournment thereof, (b) express
consent to corporate action in writing without a meeting, (c)
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<PAGE>
receive payment of any dividend or other distribution or
allotment of any rights or (d) exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be less than ten (10) nor
more than sixty (60) days before the date of such meeting, nor
more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote such
shares as the owner thereof, and to hold liable for calls and
assessments a person registered on its books as the owner of
shares, and the corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have
express or other notice of such claim or interest, except as
otherwise provided by the laws of Delaware.
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ARTICLE VII
CONTRACTS, LOANS, CHECKS, DEPOSITS AND PROXIES
Section 1. The board of directors may authorize any
officer or officers, agent or agents, to enter into any contract
or execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or
confined to specific instances.
Section 2. No loans shall be contracted on behalf of
the corporation, and no evidences of indebtedness shall be issued
in its name unless authorized by a resolution of the board of
directors. Such authority may be general or confined to specific
instances.
Section 3. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued
in the name of the corporation shall be signed by such officer or
officers, agent or agents of the corporation and in such manner
as shall from time to time be determined by resolution of the
board of directors.
Section 4. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of
the corporation in such banks, trust companies or other
depositories as the board of directors may select.
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Section 5. Proxies to vote with respect to shares of
stock of other corporations owned by or standing in the name of
the corporation may be executed and delivered from time to time
on behalf of the corporation by the Chairman, President or a
Vice-President or by any other person or persons thereunto
authorized by the board of directors.
ARTICLE VIII
GENERAL PROVISIONS
INDEMNIFICATION
Section 1. Third Party Actions. Any person who was or
is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Corporation) by reason
of the fact that he is or was a director, officer, employee, or
agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit
plans, shall be indemnified and held harmless by the Corporation
to the full extent authorized by the Delaware General Corporation
Laws, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader
<PAGE>
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indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against expenses, liability and
loss including attorneys' fees) judgments, fines, ERISA excise
taxes or penalties, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal
action or proceedings, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceedings by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful. The right to
indemnification conferred in this Section shall be a contract
right.
Section 2. Derivative Actions. Any person who was or
is a party, or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
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request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise, including service with respect to employee
benefits plans, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment), against
expenses, liability and loss (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation; except, however, that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the
Court of Chancery of the county in which the registered office of
the Corporation is located or the court in which such action or
suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court of
Chancery or such other court shall deem proper.
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<PAGE>
Section 3. Mandatory Indemnification. To the extent
that a director, officer, employee or agent as above described
has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraph 1 or 2 of
this Article or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection
therewith.
Section 4. Procedure for Effecting Indemnification.
Any indemnification under paragraphs 1 or 2 of this Article
(unless ordered by a court) shall be made only as authorized in
the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of
conduct set forth in such subsection. Such determination shall
be made:
(a) By the vote of the Board of Directors
consisting of directors who were not parties to such action, suit
or proceedings; or
(b) If such action is not obtainable, or even if
obtainable the vote of the disinterested directors so directs, by
independent legal counsel in a written opinion; or
(c) By the stockholders.
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<PAGE>
Section 5. Advancement of Expenses. Expenses
(including attorneys' fees) incurred in defending a civil,
criminal, administrative or investigative action, suit or
proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director, officer,
employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article. Such expenses
(including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate.
Section 6. Supplementary Coverage. The
indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Article shall
not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office.
Section 7. Power to Purchase Insurance. The
Corporation may, by action of the Board of Directors, purchase
and maintain insurance on behalf of any person who is or was a
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director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability
under the provisions of this Article.
Section 8. Extension of Coverage. The indemnification
and advancement of expenses provided by, or granted pursuant to,
this Article shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a
person.
DIVIDENDS
Section 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of
incorporation, if any, may be declared by the board of directors
at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property or in shares of its capital
stock, subject to the provisions of the certificate of
incorporation. Such dividends, if any, shall be paid to the
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holders of Common Stock in proportion to their respective
ownership of Common Stock and shall, subject to the provisions of
such series, be paid to the holders of each series of Preferred
Stock, if any, in proportion to their respective ownership of
Preferred Stock of such series. The declaration and payment of
such dividends or other distributions and the determination of
earnings, profit, surplus (including paid-in capital) and capital
available for dividends and other purposes shall, to the extent
permitted by law, lie wholly in the discretion of the board of
directors, and no stockholder shall be entitled to receive or be
paid any dividends or to receive any distribution except as
determined by the board in the exercise of said discretion.
Subject to the provisions of any series of Preferred Stock which
may at the time be outstanding, the board may also distribute to
the holders of capital stock of each class (and series) in
proportion to their respective ownership of such class (or
series), additional shares of such class (and of any series) or
of any other class in such manner and on such terms as they may
deem proper.
Section 2. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for
dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves
to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for
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such other purpose as the directors shall think conducive to the
interest of the corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at
such annual meeting, and at any special meeting of the stock-
holders when called for by vote of the stockholders, a full and
clear statement of the business and condition of the corporation.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
SEAL
Section 5. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization
and the words "Corporate Seal, Delaware." The seal may be used
by causing it or a facsimile thereof to be impressed or affixed
or reproduced otherwise.
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ARTICLE IX
AMENDMENTS
Section 1. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the board of directors
or by the stockholders at any regular meeting of the board of
directors or of the stockholders, or at any special meeting of
the board of directors or of the stockholders if notice of such
alteration, amendment, repeal or adoption of now Bylaws is
contained in the notice of such special meeting.
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as of December 31, 1995
CONGRESS FINANCIAL CORPORATION
1133 Avenue of the Americas
New York, New York 10036
RE: Amendment and Consent
Gentlemen:
Reference is further made to certain financing agreements
including, but not limited to, a Loan and Security Agreement dated September 30,
1994 (the "Loan Agreement"), a Term Promissory Note dated September 30, 1994, in
the original principal amount of $43,000,000 and other agreements, documents and
guaranties granting collateral security or creating or evidencing indebtedness,
each executed by MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC. ("Borrower") in favor
of CONGRESS FINANCIAL CORPORATION ("Lender"), pursuant to which Lender has
extended and may hereafter extend certain loans, advances and other financial
accommodations to Borrower (the foregoing, together with all related agreements,
documents or instruments, as the same may now exist or hereafter be amended or
supplemented, are collectively referred to herein as the "Financing
Agreements"). All capitalized terms used herein shall have the respective
meanings specified in the Loan Agreement unless otherwise defined herein.
Borrower has requested that Lender amend certain provisions of
the Loan Agreement and waive the breach by Borrower of certain covenants and
Lender is willing to do so subject to the terms and provisions hereof.
In consideration of the foregoing, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Notwithstanding anything to the contrary contained in the
Loan Agreement, all revenues, income, expenses, assets and liabilities related
to the transfer to Borrower (in accordance with GAAP and the requirements of the
Securities and Exchange Commission) of the subordinated indebtedness owed by
Holdings to KCI, and all goodwill related thereto, shall be excluded from the
<PAGE>
calculation of the covenants contained in Sections 9.9, 9.11, 9.13, 9.14 and
9.15 of the Loan Agreement.
2. With regard to the covenant contained in Section 9.7 of the
Loan Agreement, Lender hereby consents to the purchase by Borrower of certain
equipment from Mediq Mobile X-Ray Services Inc. for a purchase price of
$1,875,000 and the resale of such equipment by Borrower to Mediq Mobile X-Ray
Services Inc. for a purchase price of $1,453,125.
3. Except as specifically set forth herein, no other changes,
amendments or modifications to the Loan Agreement or the other Financing
Agreements are intended or implied and, in all other respects, the Loan
Agreement and other Financing Agreements shall remain in full force and effect
and are hereby specifically ratified and confirmed in accordance with their
terms as of the date hereof. In the event that any term or provision of this
letter conflicts with any term or provision of the Financing Agreements, the
term or provision of this letter agreement shall control.
Very truly yours,
MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC.
By: /s/ Jay M. Kaplan
-------------------------------
Title: Sr. VP - CFO
READ AND AGREED:
CONGRESS FINANCIAL CORPORATION
By: /s/ Frank S. Chiovari
-------------------------------
Title: Vice Pres.
MEDIQ, INC.
EXECUTIVE SECURITY PLAN
ARTICLE I
PURPOSE
The purpose of the Mediq, Inc. Executive Security Plan is to provide designated
executives of Mediq, Inc. and its divisions and subsidiaries with a tax-favored
investment opportunity. By providing a means whereby base salary and/or bonuses
may be deferred to some period after termination of employment, the Plan will
aid in retaining and attracting executives of exceptional ability, providing
executives with a means to supplement their standard of living at retirement.
Compensation reductions made pursuant to the Plan will be credited with interest
for the benefit of each Participant. The value of a Participant's deferrals, and
interest earned on compensation reductions, will vary by such factors as the
amount and duration of the compensation reductions, the Participant's age at the
time of reduction, the date benefits commence, and other factors. The intent of
the Plan is to credit Participant's compensation reductions with a specific rate
of interest, rather than to provide defined benefits. However, to provide
additional financial security, and to protect the purpose of the Plan, a
supplemental death benefit is provided to qualifying Participants.
ARTICLE II
DEFINITIONS
2.1 "Administrator" shall mean the individual appointed to
administer the Plan pursuant to Article IX.
2.2 "Age" shall mean the Participant's chronological age at
any time of reference.
2.3 "Beneficiary" shall mean the person or persons designated
by a Participant pursuant to Section 6.8.
2.4 "Board" shall mean the Company's Board of Directors in
office at any time of reference.
2.5 "Change In Control" shall mean the sale of the Company or
substantially all of its assets, in any form whatsoever, including
merger, acquisition, consolidation or other reorganization or a
significant stock acquisition. Significant stock acquisition shall
be deemed to have
<PAGE>
occurred, if during any two year period, more than 51% of the votes
attributed to the Company's equity securities shall be acquired by
any corporation, person or group. Group shall mean persons who act
in concert as described in Section 14(d)(2) of the Securities
Exchange Act of 1934, as amended.
2.6 "Company" shall mean Mediq, Inc. and any successor
thereto.
2.7 "Compensation" shall mean the total compensation paid by the
Company for a Plan Year, as reported for Federal Income Tax
purposes on Form W-2 or any replacement thereof, and any
compensation deferred to a retirement plan which qualifies under
Section 401(k) of the Internal Revenue Code.
2.8 "Deferral Election Form" shall mean a written agreement between a
Participant and the Company, whereby a Participant agrees to defer
a portion of his Compensation pursuant to the provisions of the
Plan, and the Company agrees to make benefit payments in accordance
with the provisions of the Plan.
2.9 "Deferred Benefit Account" means the accounts maintained on the
books of the Company pursuant to Article V. A separate Deferred
Benefit Account shall be maintained for each Participant. A
Participant's Deferred Benefit Account shall be utilized solely as
a device for the measurement and determination of the amounts to be
paid to the Participants pursuant to the Plan and shall be subject
to Article VII hereof. A Participant's Deferred Benefit Account
shall not constitute or be treated as a trust fund of any kind.
2.10 "Determination Date" shall mean each December 31 of each calendar
year and, for each Participant, his date of death, his Normal
Retirement Date or the date of his Retirement, as applicable.
2.11 "Effective Date" shall mean October 1, 1985.
2.12 "Eligible Employee" shall mean any officer of the Company who has
completed at least six months of active full-time employment.
2.13 "Normal Retirement Date" shall mean the later of a Participant's
Age 65 or the date on which a Participant has fully deferred all
the amounts which he had elected to defer with respect to each
Deferral Election Form.
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2.14 "Participant" shall mean each Eligible Employee who has executed a
Deferral Election Form in accordance with Article III, and any
former Eligible Employee who remains entitled to a benefit pursuant
to Article VI.
2.15 "Payout Period" shall mean the period of time throughout which
benefits are payable under the terms of this Plan. The Payout
Period shall be an uninterrupted period of time of 180 months.
Alternatively, at a Participant's or Beneficiary's election, the
Payout Period may be any uninterrupted period of time ranging from
60-180 months. Such election shall be made in accordance with
procedures established by the Administrator.
2.16 "Plan" shall mean the Mediq, Inc. Executive Security Plan
as described in this instrument, as amended from time to
time.
2.17 "Plan Year" shall initially mean the period beginning on October 1,
1985 and ending December 31, 1985. Thereafter Plan Year shall mean
the 12 consecutive month period beginning on January 1 and ending
on December 31.
2.18 "Retirement" shall mean any severance from full-time employment
after attaining his Normal Retirement Date.
2.19 "Retirement Interest Yield" shall mean the average for the Plan
Year or part thereof preceding the Determination Date of Moody's
Seasoned Corporate Bond Yield Index as published by Moody's
Investor Service, Inc., or if no longer published, a substantially
similar average selected by the Administrator, plus 2 percentage
points.
2.20 "Termination Interest Yield" shall mean the average for
the Plan Year or part thereof preceding the Determination
Date of Moody's Seasoned Corporate Bond Yield Index as
published by Moody's Investor Service, Inc. or, if no
longer published, a substantially similar average selected
by the Administrator.
2.21 "Termination of Employment" means voluntary or involuntary
termination of employment for reasons other than death or
Retirement.
ARTICLE III
PARTICIPATION
3.1 Each Eligible Employee who elects to participate in the
Plan shall execute a Deferral Election Form prior to the
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first day of the Plan Year in which the deferral shall
first occur.
3.2 Each employee who shall subsequently become an Eligible Employee
may elect to participate in the Plan by executing a Deferral
Election Form no less than thirty (30) days prior to that date on
which the deferral shall first occur. The election to participate
shall be effective only upon receipt by the Administrator of the
Deferral Election Form, properly completed and executed in
conformity with the Plan.
ARTICLE IV
RULES GOVERNING DEFERRALS
4.1 At the time he executes his Deferral Election Form, a Participant
shall direct the Plan Administrator as to the timing and amounts of
Compensation to be deferred. In the event a Participant requests
that a Compensation deferral be applied against any future bonus
payment, and such bonus payment is insufficient to meet the
Participant's deferral request, the remaining Compensation deferral
shall be applied against salary remaining to be paid during the
Plan Year. Notwithstanding the preceding, an Eligible Employee may
not elect to defer any portion of any bonus payment attributable to
service performed at any time during the same Plan Year in which
the Deferral Election form has been executed.
4.2 An Eligible Employee who elects to participate in the Plan must
agree to defer a portion of his Compensation for a period of not
less than one Plan Year or more than four Plan Years.
4.3 Throughout any one Plan Year, a Participant may not defer
less than $5,000 (excepting Plan Years in which the
Participant elects not to defer any portion of his
Compensation) or more than $50,000.
4.4 In the aggregate, a Participant may not elect to defer
less than $20,000 or more than $200,000.
4.5 Prior to any Plan Year, a Participant may elect to make additional
deferrals pursuant to a new Deferral Election Form provided,
however, such additional deferral conforms with limitations set
forth in Section 4.3 and 4.4.
4.6 An election to defer income pursuant to this Plan is
irrevocable and shall continue until the earlier of the
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Termination of Employment, death or that time otherwise provided by
the terms of the applicable Deferral Election Forms.
ARTICLE V
DEFERRED BENEFIT ACCOUNT
5.1 For recordkeeping purposes only, the Company shall maintain
separate Deferred Benefit Accounts for each Participant. The
existence of these accounts shall not require any segregation of
assets. More than one Deferred Benefit Account may be maintained
for each Participant as may be necessary to reflect each Deferral
Election Form.
5.2 The amount of Compensation that a Participant elects to
defer shall be credited to the Participant's Deferred
Benefit Account through each Plan Year at the same time as
the Participant is paid the non-deferred portion of the
Compensation which is the source of the deferral.
5.3 On each Determination Date, the Company shall credit a
Participant's Deferred Benefit Account, an additional sum equal to
interest at either the Retirement Interest Yield or, to the extent
benefits are to be determined in accordance with Section 6.2, the
Termination Interest
Yield.
ARTICLE VI
BENEFITS
6.1 Termination Within Initial Four Plan Years. Upon Termination of
Employment at any time within the first four Plan Years of Plan
participation, the Company shall pay to the Participant, a
termination benefit equal to his aggregated deferrals through the
date of Termination credited with an interest yield of 6%,
compounded annually. The termination benefit shall be payable in a
lump sum within 120 days following Termination of Employment. Upon
such Termination of Employment, the Participant shall immediately
cease to be eligible for any other benefit otherwise provided in
this Plan.
6.2 Termination After Four Plan Years. Upon Termination of Employment
at any time after the first four Plan Years of Plan participation,
the Company shall continue to maintain the Participant's Deferred
Benefit Account. Upon Participant's attaining his Normal Retirement
Date, the Company shall pay Participant (or his designated
Beneficiary, to the extent applicable, if Participant
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<PAGE>
shall die prior to the expiration of the Payout Period) a
retirement benefit equal to the Participant's Deferred Benefit
Account determined pursuant to Section 5.3, using the Retirement
Interest Yield through the month preceding Participant's
Termination of Employment and the Termination Interest Yield for
the period beginning with the first day of the month of
Participant's Termination of Employment and ending on the month
preceding Participant's Normal Retirement Date.
6.3 Death. Upon the death of a Participant, while an active employee of
the Company, the Company shall pay the designated Beneficiary of
the deceased Participant a death benefit, in lieu of any other
benefit provided hereunder, equal to the greater of (i) the
Participant's Deferred Benefit Account determined pursuant to
Section 5.3, using the Retirement Interest Yield, or (ii) an amount
specified in the Participant Deferral and Participant Agreement.
6.4 Retirement. If a Participant remains continuously employed by the
Company until he attains his Normal Retirement Date, the Company
shall pay to the Participant, a Retirement benefit, commencing upon
the first month subsequent to his Retirement, equal to his Deferred
Benefit Account, determined pursuant to Section 5.3 using the
Retirement Interest Yield.
6.5 For the purposes of this Article VI, elections to make additional
deferrals pursuant to Section 4.5, shall be considered separately,
and the Plan Year for which such additional deferral becomes
effective shall be treated as the first year of Plan participation
on Plan entry with respect to such segregated amounts.
6.6 Form of Distribution:
A. Upon the initiation of benefits as described in
Section 6.2, the Company shall annuitize the amount
specified therein utilizing an interest rate equal to
the average of the Termination Interest Yield during
the five calendar years immediately preceding the
commencement of benefits and pay the benefit to
Participant or his Beneficiary, if applicable, in
equal monthly installments commencing upon the first
day of the first month following Participant's Normal
Retirement Date and continuing uninterrupted
throughout the Payout Period.
B. Upon Participant's death, as described in Section
6.3, the Company shall annuitize the amount specified
therein utilizing an interest rate equal to 8% and
pay the benefit to Participant's Beneficiary in equal
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monthly installments commencing upon the first day of the
first month following Participant's death and continuing
uninterrupted throughout the Payout Period.
C. Upon Participant's Retirement as described in Section
6.4, the Company shall annuitize the amount specified
therein utilizing an interest rate equal to the
average of the Retirement Interest Yield during the
five calendar years immediately preceding the
commencement of benefits and pay the benefit to
Participant or his Beneficiary, if applicable, in
equal monthly installments commencing upon the first
day of the first month following Participant's
Retirement and continuing uninterrupted throughout
the Payout Period.
6.7 To the extent required by the law in effect at the time
payments are made, the Company shall withhold any taxes
required by the federal or any state or local government
from payments made hereunder.
6.8 Unless the Participant files a written notice of a different
Beneficiary designation with the Committee, the Participant's
Beneficiary shall be the Beneficiary designated in the Employee
Savings Plan. The Participant may designate a Beneficiary by filing
a written notice of such designation with the Committee in such
form as the Company requires and may include contingent
beneficiaries. The Participant may from time to time change the
designated Beneficiary or Beneficiaries without the consent of such
Beneficiary or Beneficiaries by filing a new designation in writing
with the Committee. (If a Participant maintains his primary
residence in a state which has community property laws, the spouse
of a married Participant shall join in any designation of a
Beneficiary or Beneficiaries other than the spouse.) If no
designation shall be in effect at the time when any benefits
payable under this Plan shall become due, the Beneficiary shall be
the spouse of the Participant, or if no spouse is then living, the
representatives of the Participant's estate.
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ARTICLE VII
CHANGE IN CONTROL
7.1 If there is a Change in Control, notwithstanding any other
provision of this Plan:
A. each Participant or his Beneficiary who is then
receiving a benefit hereunder shall have the right to
request to be paid by the Company a lump sum payment
equal to the present value of the remaining payments
due him under this Plan based upon an interest rate
which is set forth in Section 6.6 C. hereof;
B. each Participant at any time during an eighteen (18)
month period immediately following a Change in
Control shall have the right to request and be paid a
lump sum settlement equal to the amount of his
Deferred Benefit Account.
7.2 Amounts payable pursuant to Section 7.1 shall be paid to the
Participant or his Beneficiary, as applicable, as soon as possible
following the date of the request, but in no instance prior to the
first day of the first Plan Year following the date of the request.
In the event no such request is made, the Plan and Deferral
Election form shall remain in full force and effect.
ARTICLE VIII
UNFUNDED PLAN
8.1 Benefits are payable as they become due irrespective of any actual
investments the Company may make to meet its obligations. The
Company is under no obligation to purchase or maintain any asset,
and any reference to investments is solely for the purpose of
computing the value of benefits. Neither this Plan nor any action
taken pursuant to the provisions of this Plan shall create or be
considered to create a trust of any kind, or a fiduciary
relationship between the Company and the Participating Employees,
or any other person. To the extent a Participant or any other
person acquires a right to receive payments from the Company under
this Plan, such right shall be no greater than the right of an
unsecured creditor of Company.
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ARTICLE IX
ASSIGNMENT
9.1 No Participant, Beneficiary or heir shall have any right to
commute, sell, transfer, assign or otherwise convey the right to
receive any payment under the terms of this Plan. Any such
attempted assignment shall be considered null and void.
ARTICLE X
ADMINISTRATION
10.1 The Board shall appoint, on behalf of all Participants, an
Administrator. The Administrator may be removed by the Board at any
time and he may resign at any time by submitting his resignation in
writing to the Board. A new Administrator shall be appointed as
soon as possible in the event that the Administrator is removed or
resigns from his position. Any person so appointed shall signify
his acceptance by filing a written acceptance with the Board.
10.2 The Administrator is responsible for the day to day administration
of the Plan. He may appoint other persons or entities to perform
any of his fiduciary functions. Such appointment shall be made and
accepted by the appointee in writing and shall be effective upon
the written approval of the Board. The Administrator and any such
appointee may employ advisors and other persons necessary or
convenient to help him carry out his duties including his fiduciary
duties. The Administrator shall have the right to remove any such
appointee from his position. Any person, group of persons or entity
may serve in more than one fiduciary capacity.
10.3 The Administrator shall maintain or shall cause to be maintained
accurate and detailed records and accounts of Participants and of
their rights under the Plan and of all investments, receipts,
disbursements and other transactions. Such accounts, books and
records relating thereto shall be open at all reasonable times to
inspection and audit by the Board and by persons designated
thereby.
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10.4 In addition to any powers, rights and duties set forth elsewhere in
the Plan, the Administrator shall have the following powers and
duties:
A. To adopt such rules and regulations consistent with
the provisions of the Plan;
B. To enforce the Plan in accordance with its terms and
any rules and regulations he establishes;
C. To maintain records concerning the Pan sufficient to
prepare reports, returns and other information
required by the Plan or by law;
D. To construe and interpret the Plan and to resolve all
questions arising under the Plan;
E. To direct the Company to pay benefits under the Plan,
and to give such other directions and instructions as
may be necessary for the proper administration of the
Plan;
F. To be responsible for the preparation, filing and
disclosure on behalf of the Plan of such documents
and reports as are required by any applicable Federal
or State law.
10.5 The Company shall furnish the Administrator such data and
information as he may require. The records of the Company shall be
determinative of each Participant's period of employment,
termination of employment and the reason therefor, leave of
absence, reemployment, years of service, personal data, and
compensation or bonus reductions. Participants and their
Beneficiaries shall furnish to the Administrator such evidence,
data, or information, and execute such documents as the
Administrator requests.
10.6 Neither the Administrator nor the Board nor the Company shall be
liable to any person for any action taken or omitted in connection
with the administration of this Plan unless attributable to his own
fraud or willful misconduct; nor shall the Company be liable to any
person for any such action unless attributable to fraud or willful
misconduct on the part of a director, officer or employee of the
Company.
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10.7 Each Member or Beneficiary must claim any benefit to which he is
entitled under this Plan by a written notification to the
Administrator. If a claim is denied, it must be denied within a
reasonable period of time, and be contained in a written notice
stating the following:
A. The specific reason for the denial.
B. Specific reference to the Plan on which the denial is
based.
C. Description of additional information for the
claimant to present his claim, if any, and an
explanation of why such material is necessary.
D. An explanation of the Plan's claim review procedure.
The claimant will have 60 days to request a review of the denial by
the Administrator, who will provide a full and fair review. The
request for review must be written and submitted to the same person
who handles initial claims. The claimant may review pertinent
documents, and he may submit issues and comments in writing.
The decision by the Administrator with respect to the review must
be given within 60 days after receipt of the request, unless
special circumstances require an extension (such as for a hearing).
In no event shall the decision be delayed beyond 120 days after
receipt of the request for review. The decision shall be written in
a manner calculated to be understood by the claimant, and it shall
include specific reasons and refer to specific Plan provisions as
to its effect.
ARTICLE XI
AMENDMENT AND TERMINATION
11.1 The Plan may be amended in whole or in part by the Company any
time. Notice of any such amendment shall be given in writing to
each Participant and each Beneficiary of a deceased Participant.
11.2 Subject to Section 11.3, no amendment hereto shall permit amounts
accumulated pursuant to the Plan prior to the amendment to be paid
to a Participant or Beneficiary prior to the time he would
otherwise be entitled thereto.
11.3 The Company reserves the sole right to terminate the Plan an/or the
Deferral Election Form pertaining to the Participant at any time
prior to the commencement of
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payment of his benefits, but only in the event that the Company, in
its sole discretion, shall determine that the economics of the Plan
have been adversely and materially affected by a change in tax
laws, other government action or other event beyond the control of
the Participant and the Company. In the event of any such
termination, the Participant shall be entitled to a Deferred
Benefit equal to the amount of his Deferred Benefit Account
determined under Section 5.3, using the Retirement Interest Yield
as of the date of termination of the Plan and/or his Deferral
Election Form.
ARTICLE XII
MISCELLANEOUS
12.1 The benefits provided for the Participants under this Plan are in
addition to benefits provided by any other plan or program of the
Company and, except as otherwise expressly provided for herein, the
benefits of this Plan shall supplement and shall not supersede any
plan or agreement between the Company and any Participant or any
provisions contained herein.
12.2 The Plan shall be governed and construed under the laws of the
State of New Jersey as in effect at the time of its adoption.
12.3 The courts of the State of New Jersey shall have exclusive
jurisdiction in any or all actions arising under this Plan.
12.4 The terms of this Plan shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, executors,
administrators and successors.
12.5 The interest of any Participant or any beneficiary receiving
payments hereunder shall not be subject to anticipation, nor to
voluntary or involuntary alienation until distribution is actually
made.
12.6 All headings preceding the text of the several Articles hereof are
inserted solely for reference and shall not constitute a part of
this Plan, nor affect its meaning, construction or effect.
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12.7 Where the context admits, words in the masculine gender
shall include the feminine and neuter genders.
DATE OF ADOPTION BY
THE BOARD OF DIRECTORS OF
MEDIQ, INC.
November 15, 1985 /s/ LIONEL H. FELZER
- ----------------------------- -----------------------------
Title: Senior Vice President
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MEDIQ INCORPORATED
1987 STOCK OPTION PLAN
1. Definitions
As used in this Plan, the following definitions apply to the
terms indicated below:
A. "Board" means the Board of Directors of the
Company.
B. "Committee" means the Stock Option Committee appointed by
the Board from time to time to administer the Plan. The Committee shall consist
of at least three persons, who shall be directors of the Company, and who shall
not be or have been eligible, while serving on the Committee or within one year
prior thereto, to receive grants of Options pursuant to this Plan or any plan of
the Company or any of its affiliates entitling the participants therein to
acquire stock, stock options, or stock appreciation rights of the Company or any
of its affiliates.
C. "Company" means MEDIQ Incorporated.
D. "Fair Market Value" of a Share on a given day
means the mean between the highest and lowest quoted selling prices of a Share
as reported on the principal securities exchange on which the Shares are then
listed or admitted to trading, or if not so reported, the mean between the
highest and lowest selling prices as reported on the National Association of
Securities Dealers Automated Quotation System, or if not so reported, as
furnished by any members of the National Association
<PAGE>
of Securities Dealers, Inc. selected by the Committee. If the
price of a Share shall not be so quoted, the Fair Market Value
shall be determined by the Committee taking into account all
relevant facts and circumstances.
E. "Grantee" means a person who is either an Optionee
or an Optionee-Shareholder.
F. "Incentive Stock Option" means an Option that
qualifies as an incentive stock option within the meaning of
Section 422A of the Internal Revenue Code.
G. "Nonqualified Option" means an option that is not
an Incentive Stock Option.
H. "Option" means a right to purchase Shares under the terms
and conditions of this Plan as evidenced by an option certificate or agreement
for Shares in such form, not inconsistent with this Plan, as the Committee may
adopt for general use or for specific cases from time to time.
I. "Optionee" means a person other than an Optionee-
Shareholder to whom an option is granted under this Plan.
J. "Optionee-Shareholder" means a person to whom an option is
granted under this Plan and who at the time such option is granted owns,
actually or constructively, stock of the Company possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or its parent or subsidiary corporations.
K. "Plan" means this MEDIQ Incorporated 1987 Stock
Option Plan, including any amendments to the Plan.
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L. "Share" means a share of the Company's common
stock, par value $1 per share, now or hereafter owned by the
Company as treasury stock, or authorized but unissued shares of
the Company's common stock, subject to adjustment as provided in
this Plan.
M. "Subsidiary" means any corporation, now or hereafter
existent, in an unbroken chain of corporations beginning with the Company if, at
the time of granting an Option, each of the corporations in the unbroken chain
owns stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.
N. Options shall be deemed "granted" under this Plan on the
date on which the Committee, by appropriate action, approves the grant of an
Option hereunder or on such subsequent date as the Committee may designate.
O. As used herein, the masculine includes the
feminine, the plural includes the singular, and the singular
includes the plural.
2. Purpose
The purposes of the Plan are as follows:
A. To secure for the Company and its shareholders the
benefits arising from share ownership by those officers and key employees of the
Company and its Subsidiaries who will be responsible for the Company's future
growth and continued success. The Plan is intended to provide an incentive to
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officers and key employees by providing them with an opportunity to acquire an
equity interest or increase an existing equity interest in the Company, thereby
increasing their personal stake in its continued success and progress.
B. To enable the Company and its Subsidiaries to obtain and
retain the services of key employees, by providing such key employees with an
opportunity to acquire Shares under the terms and conditions and in the manner
contemplated by this Plan.
3. Plan Adoption and Term
A. This Plan shall become effective upon its adoption by the
Board or by the Committee acting pursuant to authority duly vested in it by the
Board, and options may be issued upon such adoption and from time to time
thereafter; provided, however, that the Plan, if adopted by the Committee, shall
be submitted to the Board for its approval at its next regularly scheduled
meeting, and further, that the Plan shall be submitted to the Company's
shareholders for their approval at the next annual meeting of shareholders, or
prior thereto at a special meeting of shareholders expressly called for such
purpose; and provided further, that the approval of the Company's shareholders
shall be obtained within 12 months of the date of adoption of the Plan. If the
Plan is not approved at such a meeting by the affirmative vote of a majority of
all shares entitled to vote upon the matter, then this Plan and all Options then
outstanding
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under it shall forthwith automatically terminate and be of no
force and effect.
B. Subject to the provisions hereinafter contained relating to
amendment or discontinuance, this Plan shall continue to be in effect for ten
(10) years from the date of adoption of this Plan by the Committee or the Board
or the date of Shareholder approval, whichever is earlier. No Options may be
granted hereunder except within such period of ten (10) years.
4. Administration of Plan
A. This Plan shall be administered by the Committee. Except as
otherwise expressly provided in this Plan, the Committee shall have authority to
interpret the provisions of the Plan, to construe the terms of any Option, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of Options granted hereunder, and to make all
other determinations in the judgment of the Committee necessary or desirable for
the administration of the Plan. Without limiting the foregoing, the Committee,
shall, to the extent and in the manner contemplated herein, exercise the
discretion granted to it to determine who shall participate in the Plan, how
many Shares shall be sold to each such participant, and the prices at which
Shares shall be sold to participants. The Committee may correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any Option
in the manner and to the extent it shall deem expedient to carry the
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Plan into effect and shall be the sole and final judge of such expediency.
B. No member of the Committee shall be liable for any action
taken or omitted or any determination made by him in good faith relating to the
Plan, and the Company shall indemnify and hold harmless each member of the
Committee and each other director or employee of the Company to whom any duty or
power relating to the administration or interpretation of the Plan has been
delegated against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Committee) arising out of any act or omission in connection with the Plan,
unless arising out of such person's own fault or bad faith.
C. Any power granted to the Committee either in this Plan or
by the Board, except the granting of any Option or the determination of
eligibility of individual employees to participate in the Plan, may at any time
be exercised by the Board, and any determination by the Committee, other than
with respect to the granting of any Option or the determination of eligibility
of individual employees to participate in the Plan, shall be subject to review
and reversal or modification by the Board on its own motion.
5. Eligibility
Officers and key employees of the Company and its
Subsidiaries shall be eligible for selection by the Committee to
participate in the Plan. No member of the Board shall be
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eligible to participate in the Plan unless he or she is also an officer or
employee of the Company or a Subsidiary and no member of the Committee shall be
eligible to participate in the Plan. An employee who has been granted an Option
may, if he or she is otherwise eligible, be granted an additional Option or
Options if the Committee shall so determine.
6. Options
A. Subject to adjustment as provided in Paragraph 13 hereof,
Options may be issued pursuant to the Plan for the purchase of not more than
1,000,000 Shares; provided, however, that if prior to the termination of the
Plan, an Option shall expire or terminate for any reason without having been
exercised in full, the unpurchased Shares subject thereto shall again be
available for the purposes of the Plan.
B. All Options granted under the Plan shall be clearly
identified either as Incentive Stock Options or as Non- qualified Options. Each
Option granted under the Plan shall be evidenced by an option certificate in
such form, not inconsistent with this Plan, as the Committee may adopt for
general use or for specific cases from time to time.
C. The aggregate Fair Market Value (determined as of the time
Options are granted) of the Shares with respect to which incentive stock options
are exercisable for the first time by an Optionee during any calendar year
(whether granted under this Plan or any other plan of the Company or any parent
or Subsidiary
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of the Company under which incentive stock options may be granted), shall not
exceed $100,000.
7. Option Price
A. The purchase price per Share deliverable upon the exercise
of an Option shall be determined by the Committee; provided, however, that the
purchase price per Share at which Shares may be purchased pursuant to any
Incentive Stock Option shall not be less than 100% of the Fair Market Value of
such Shares on the date an Option is granted to an Optionee and shall not be
less than 110% of the Fair Market Value of such Shares on the date an Option is
granted to an Optionee-Shareholder.
B. Payment for Shares purchased by exercise of an Option may
be made (1) in cash; (2) in Shares valued at their, Fair Market Value on the
date of exercise, or (3) in a combination of cash and Shares.
8. Duration of Options
Each Incentive Stock Option and all rights thereunder shall
expire and such Incentive Stock Option shall no longer be exercisable on a date
not later than ten (10) years from the date on which the Incentive Stock Option
was granted. Each Non- qualified Option and all rights thereunder shall expire
and such Nonqualified Option shall no longer be exercisable on a date not later
than ten (10) years and one (1) day from the date on which the Nonqualified
Option was granted. Options may expire and cease to be exercisable on such
earlier date as the Committee may determine at the time of grant. Provided,
however, that any
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Incentive Stock Option granted to an Optionee-Shareholder and all rights
thereunder shall expire and such Incentive Stock Option shall no longer be
exercisable on a date not later than five (5) years from the date on which such
Incentive Stock Option was granted. All Options regardless of to whom granted
shall be subject to earlier termination as provided herein.
9. Conditions Relating to Exercise of Options
A. The Shares subject to any Option may be purchased
at any time during the term of the option, unless, at the time an Option is
granted, the Committee shall have fixed a specific period or periods in which
exercise must take place. To the extent an Option is not exercised when it
becomes initially exercisable, or is exercised only in part, the Option or
remaining part thereof shall not expire but shall be carried forward and shall
be exercisable until the expiration or termination of the Option. Partial
exercise is permitted from time to time provided that no partial exercise of an
Option shall be for a number of Shares having a purchase price of less than
$1,000.
B. No Option shall be transferable by the Grantee thereof
other than by will or by the laws of descent and distribution and Options shall
be exercisable during the lifetime of a Grantee only by such Grantee or, to the
extent that such exercise would not prevent an Option from qualifying as an
incentive stock option under the Internal Revenue Code, by his or her guardian
or legal representative.
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C. Certificates for Shares purchased upon exercise of Options
shall be issued either in the name of the Grantee or in the name of the Grantee
and another person jointly with the right of survivorship. Such certificates
shall be delivered as soon as practical following the date the Option is
exercised.
D. An Option shall be exercised by the delivery to the Company
at its principal office, to the attention of its Secretary, of written notice of
the number of Shares with respect to which the Option is being exercised, and of
the name or names in which the certificate for the Shares is to be issued, and
by paying the purchase price for the Shares in accordance with Paragraph 7
hereof.
E. Notwithstanding any other provision in this Plan, no Option
may be exercised unless and until (i) this Plan has been approved by the Board
and by the shareholders of the Company, (ii) the Shares to be issued upon the
exercise thereof have been registered under the Securities Act of 1933 and
applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration. The Company shall not be under any
obligation to register under applicable Federal or state securities laws any
Shares to be issued upon the exercise of an Option granted hereunder, or to
comply with an appropriate exemption from registration under such laws in order
to permit the exercise of an Option or the issuance and sale of Shares subject
to such Option. If the Company chooses to comply with such an exemption from
registration, the
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certificates for Shares issued under the Plan, may, at the direction of the
Committee, bear an appropriate restrictive legend restricting the transfer or
pledge of the Shares represented thereby, and the Committee may also give
appropriate stop transfer instructions to the transfer agent of the Company.
Provided, however, that if the operation of this Paragraph 9E would cause
Incentive Stock Options to become exercisable in such a way as to violate
Paragraph 6C hereof, the exercisability of such Incentive Stock Options shall be
delayed as necessary to avoid such a violation.
F. Any person exercising an Option or transferring or
receiving Shares shall comply with all regulations and requirements of any
governmental authority having jurisdiction over the issuance, transfer, or sale
of securities of the Company or the requirements of any stock exchange on which
the Shares may be listed, and as a condition to receiving any Shares, shall
execute all such instruments as the Committee in its sole discretion may deem
necessary or advisable.
G. Each Option shall be subject to the requirement that if the
Committee shall determine that the listing, registration or qualification of the
Shares subject to such Option upon any securities exchange or under any state or
Federal law, or the consent or approval of any governmental or regulatory body
is necessary or desirable as a condition of, or in connection with, the granting
of such Option or the issuance or purchase of Shares thereunder, such option may
not be exercised in
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whole or in part unless such listing, registration, qualification, consent or
approval shall have been effective or obtained free of any conditions not
acceptable to the Committee.
10. Effect of Termination of Employment or Death.
A. In the event that the employment of a Grantee
with the Company or a Subsidiary shall at any time be terminated for cause, then
all rights of any kind under any Option then held by such Grantee shall
immediately lapse and terminate.
B. In the event that a Grantee shall at any time cease to be
employed by the Company for any reason other than the termination of the
Grantee's employment for cause or the death of the Grantee, the term of each
Option held by such Grantee shall expire on the earlier of the termination date
set forth in the Option and a date three (3) months after the date on which
employment terminates. During such period, the Option shall be exercisable only
to the extent it was exercisable at the time of termination of employment. If,
however, the death of the Grantee should occur before the date on which the
Option would terminate hereunder, the termination of the Option will be governed
by subparagraph C below.
C. In the event of the death of any Grantee, any Option then
held by such Grantee which shall not have lapsed or terminated prior to the
Grantee's death, shall, notwithstanding the termination date stated in such
Option, be exercisable by the executors, administrators, legatees or
distributees of the Grantee's estate for a period of six (6) months after the
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Grantee's death as to that number of Shares which were purchasable by the
Grantee at the time of his or her death. Provided, however, that in no case
shall an Incentive Stock Option granted to an Optionee remain exercisable after
a date ten (10) years from the date on which such Incentive Stock Option was
granted; nor shall an Incentive Stock Option granted to an Optionee- Shareholder
remain exercisable after a date five (5) year from the date on which such
Incentive Stock Option was granted.
11. No Special Employment Rights.
Nothing contained in the Plan or in any Option shall confer
upon any Grantee any right with respect to the continuation of his or her
employment by the Company or interfere in any way with the right of the Company,
subject to the terms of any separate employment agreement to the contrary, at
any time to terminate such employment or to increase or decrease the
compensation of the Grantee from the rate in existence at the time of the grant
of an Option. Whether an authorized leave of absence, or absence in military or
government service, shall constitute a termination of employment shall be
determined by the Committee at the time.
12. Rights as a Shareholder.
The Grantee of an Option shall have no rights as a shareholder
with respect to any Shares covered by the Option until the date such Option is
exercised. Except as otherwise expressly provided in the Plan no adjustment
shall be made for
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dividends or other rights for which the record date occurs prior to the date of
exercise.
13. Anti-dilution Provision.
Except as otherwise expressly provided herein, the following
provisions shall apply to all Shares authorized for issuance and optioned,
granted or awarded under the Plan:
A. In case the Company shall (i) declare a dividend or
dividends on its Shares payable in shares of its capital stock, (ii) subdivide
its outstanding Shares, (iii) combine its outstanding Shares into a smaller
number of shares, or (iv) issue any shares of capital stock by reclassification
of its Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation), the
number of shares of capital stock authorized under the Plan will be adjusted
proportionately. Similarly, in any such event, there will be a proportionate
adjustment in the number of shares of capital stock subject to unexercised
Options (but without adjustment to the aggregate option price).
B. In the event that the outstanding common stock of the
Company is changed or converted into, or exchanged for, a different number or
kind of shares or other securities of the Company or of another corporation, by
reason of reorganization, merger, consolidation or combination, appropriate
adjustment will be made by the Committee in the number and kind of Shares for
which Options may or may have been awarded under the Plan, to the end that the
proportionate interests of Grantees shall be
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maintained as before the occurrence of such event; provided, however, that in
the event of any kind of delayed transaction which may constitute a change in
control of the Company, the Committee, with the approval of the majority of the
members of the Board who are not then holding Options, may modify any and all
outstanding Options so as to accelerate, as a consequence of or in connection
with such transaction, a Grantee's right to exercise any such Option.
14. Withholding Taxes
Whenever an Option is to be exercised under the Plan, the
Company shall have the right to require the Grantee, as a condition of exercise
of the Option, to remit to the Company an amount sufficient to satisfy the
Company's (or a Subsidiary's) Federal, state and local withholding tax
obligation, if any, that will, in the sole opinion of the Committee, result from
the exercise.
15. Amendment of the Plan.
The Plan may at any time or from time to time be terminated,
modified or amended by a majority of the shareholders of the Company. The Board
may at any time and from time to time modify or amend the Plan in any respect,
except that, without shareholder approval, the Board may not (a) materially
increase the benefits accruing to participants under the Plan, (b) materially
increase the number of Shares which may be issued under the Plan, or (c)
materially modify the requirements as to eligibility for participation under the
Plan. The termination or
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modification or amendment of the Plan shall not, without the consent of a
Grantee affect his rights under an Option previously granted to him or her. With
the consent of the Grantee, the Board may amend outstanding Options in a manner
not inconsistent with the Plan.
16. Miscellaneous.
A. It is expressly understood that this Plan grants powers to
the Committee but does not require their exercise; nor shall any person, by
reason of the adoption of this Plan, be deemed to be entitled to the grant of
any Option; nor shall any rights begin to accrue under the Plan except as
Options may be granted hereunder.
B. All expenses of the Plan, including the cost of
maintaining records, shall be borne by Company.
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Exhibit A
FORM OF AMENDMENT TO THE
1987 STOCK OPTION PLAN
Section 6A of the Company's 1987 Stock option Plan will be amended to
read in full as follows:
6. Options
A. Subject to adjustment as provided in paragraph 13 hereof,
Options may be issued pursuant to the Plan for the purchase of not more than
2,000,000 Shares; provided, however, that if prior to the termination of the
Plan, an Option shall expire or terminate for any reason without having been
exercised in full, the unpurchased Shares subject thereto shall again be
available for the purposes of the Plan.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of June 26, 1995, between MEDIQ
Incorporated, a Delaware corporation ("MEDIQ"), and Michael F. Sandler (the
"Executive").
BACKGROUND
WHEREAS, Executive is currently the Senior Vice President of
Finance and Chief Financial Officer of MEDIQ; and
WHEREAS, MEDIQ recognizes, in addition to Executive's other duties, the
significant responsibility of Executive with respect to assisting in the
possible sale of MEDIQ; and
WHEREAS, MEDIQ acknowledges and recognizes that it would serve the best
interests of MEDIQ to assure itself of the continued employment of the Executive
as its Senior Vice President of Finance and Chief Financial Officer and the
assistance of Executive in maximizing the value received for MEDIQ in any
potential sale and that the compensation provided for herein represents the fair
value of the services to be provided by Executive with respect to maximizing
such value and with respect to the other services to be provided hereunder; and
WHEREAS, MEDIQ acknowledges and recognizes that it will receive
significant benefit from Executive continuing his employment with MEDIQ; and
WHEREAS, Executive desires to continue his employment with MEDIQ on the
terms and conditions provided in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
SECTION 1. CAPACITY AND DUTIES
1.1 Employment; Acceptance of Employment. MEDIQ
hereby employs Executive and Executive hereby accepts employment
by MEDIQ for the period and upon the terms and conditions
hereinafter set forth.
1.2 Capacity and Duties.
(a) Executive shall be employed by MEDIQ as
Senior Vice President of Finance and Chief Financial Officer and shall perform
such other executive duties and shall have such executive authority, consistent
with his position as may from time to time be specified by the Board of
Directors of MEDIQ (the
<PAGE>
"Board"). From the date hereof until a Sale Event (as hereinafter defined)
occurs or any such sale or divestiture is finally abandoned by the Board,
Executive shall report directly to the Board or any duly authorized committee
thereof having authority over such proposed sale or divestiture. Following any
Sale Event or abandonment of such sale or divestiture by the Board, Executive
shall report as to all matters hereunder to the Chief Executive Officer of
MEDIQ. In the event that this Agreement is assigned to a liquidating trust (the
"Trust") by MEDIQ as contemplated under Section 6.4, Executive shall agree to
serve as an executive employee of the Trust with, to the fullest extent
possible, executive duties and authority consistent with his position at MEDIQ
and, in such capacity, shall report directly to the trustees of the Trust.
(b) Executive shall devote his full working time,
energy, skill and best efforts to the performance of his duties hereunder, in a
manner which will faithfully and diligently further the business and interests
of MEDIQ, and shall not be employed by or participate or engage in or be a part
of in any manner the management or operation of any business enterprise other
than MEDIQ (and the other subsidiaries or affiliates of MEDIQ on whose boards of
directors Executive currently sits) without the prior written consent of the
Board, which consent may be granted or withheld in its sole discretion.
SECTION 2. TERM OF EMPLOYMENT
2.1 Term. The initial term of Executive's employment hereunder
shall commence on the date hereof, shall continue until June 30, 1997 and shall
thereafter automatically be renewed from year to year unless and until either
party shall give notice of his or its election to terminate Executive's
employment at least 60 days prior to the end of the then-current term, unless
earlier terminated as hereinafter provided. Such initial term, and each renewal
term are hereafter referred to collectively as the "Contract Period."
SECTION 3. COMPENSATION
3.1 Basic Compensation.
As compensation for Executive's services
hereunder, MEDIQ shall pay to Executive a salary at the annual rate of $250,000
(the "Base Salary"). Such Base Salary shall be payable in accordance with
MEDIQ's regular payroll practices in effect from time to time. Such Base Salary
shall be subject to increase based on normal periodic merit review by the
Compensation Committee of the Board of Directors of MEDIQ (the "Compensation
Committee") or the appropriate governing body of
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the Trust, as applicable in accordance with the corporate policies of MEDIQ
(such annual base salary, including the foregoing adjustments, if any, is
hereinafter referred to as the "annual base salary").
3.2 Performance Bonus. During the Contract Period, Executive
may receive an annual performance bonus at the sole discretion of the
Compensation Committee or the appropriate governing body of the Trust, as
applicable in accordance with the corporate policies of MEDIQ.
3.3 Employee Benefits. In addition to the compensation
provided for in Section 3.1, Executive shall be entitled during the term of his
employment to participate in all of MEDIQ's employee benefit plans and benefit
programs as may from, time to time be provided for other employees of MEDIQ
whose duties, responsibilities, and compensation are reasonably comparable to
those of Executive including without limitation (a) Executive shall be entitled
to thirty (30) business days vacation per year, (b) MEDIQ shall provide
Executive with an automobile in accordance with the terms of MEDIQ's executive
benefits plan (the reasonable expenses of which automobile shall be borne by
MEDIQ), (c) MEDIQ shall cause Executive to be included at "Level A" in its
Incentive Compensation Plan, a copy of which is attached hereto as Exhibit A,
and (d) Executive shall be covered as an insured under such Directors' and
Officers' Liability insurance as MEDIQ maintains generally for its Officers and
Directors. If Executive becomes a participant in any employee benefit plan,
practice or policy of MEDIQ or its affiliates, Executive shall be given credit
under such plan for all service in the employ of MEDIQ and any predecessors
thereto or affiliates thereof prior to the date hereof for purposes of
eligibility and vesting, benefit accrual and for all other purposes for which
such service is either taken into account or recognized under the terms of such
plan, practice or policy.
3.4 Expense Reimbursement. During the term of his employment,
MEDIQ shall reimburse Executive for all reasonable expenses incurred by him in
accordance with its regular reimbursement policies as in effect from time to
time and upon receipt of itemized vouchers therefor and such other supporting
information as MEDIQ may reasonably require.
3.5 Transaction Compensation.
(a) If, during the Applicable Period (as herein
defined), a Sale Event (as hereafter defined) occurs, Executive shall be
entitled to receive a one-time bonus calculated as provided in paragraph (b)
below. For the purposes of this Agreement, a "Sale Event" means any sale or
divestiture of, by or involving MEDIQ including a sale of substantially all of
MEDIQ's stock or assets (including through merger, tender, exchange or
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<PAGE>
otherwise, including distributions of MEDIQ's assets to its stockholders or into
a liquidating trust and including, without limitation, a sale or divestiture to
the Management Group (as defined in Section 6.10 hereof)), in either case in one
or more transactions. Executive's bonus shall be paid in cash within 10 days
after the consummation of a Sale Event. The term "Applicable Period" shall mean
(a) the Contract Period and (b) the one-year period thereafter in the event
Section 4.1, 4.2 or 4.4 hereof is applicable.
(b) Executive's bonus payable upon a Sale Event
shall be based on the fair market value per share ("Share Value") received by
MEDIQ's stockholders in the transaction. In the event that MEDIQ's stockholders
receive a Share Value of $6.50 or more, Executive's bonus shall equal $500,000
plus an additional $1,000 for each additional $.01 by which the Share Value
received by MEDIQ's stockholders exceeds $6.50. In the event that the
stockholders receive Share Value of less than $6.50 upon a Sale Event, Executive
shall receive a bonus in the amount of $200,000 plus any additional bonus at the
sole discretion of the Board. If the Sale Event includes or consists of a
distribution of MEDIQ's assets to its stockholders or into the Trust, for
purposes of calculating Executive's bonus hereunder, MEDIQ's stockholders will
be deemed to have received Share Value equal to the fair market value of Such
assets, net of liabilities assumed (the "Net Proceeds"), at the time they are
distributed. If the distribution is into the Trust, such Share Value will be
deemed to be increased by any increase in the Net Proceeds from the date of
distribution into the Trust until the date of distribution from the Trust to
MEDIQ's Shareholders, whether or not such subsequent distribution occurs during
the Applicable Period. In the event of such deemed increase in the Share Value,
Executive's bonus will be recalculated hereunder and any additional amounts
payable to him shall be paid to him within ten days of each such distribution
from the Trust. With respect to any distribution of non-cash assets, if the
parties are unable to agree on the value of the Net Proceeds upon which
Executive's bonus shall be based, the Board of Directors and Executive shall
select an investment banking firm, reasonably acceptable to each of them, to
make such determination. The expenses of the investment banking firm shall be
borne by MEDIQ, unless the investment banking firm shall determine that the
Executive's position regarding the value of the Net Proceeds was unreasonable
under the circumstances, in which case such fees and expenses shall be shared
equally between MEDIQ and Executive.
(c) Executive acknowledges that a Sale Event may
not occur, that the Board may determine not to pursue a Sale Event, that such a
transaction can occur only upon proper authorization of the Board, or a duly
constituted committee thereof, and accordingly there can be no assurance that
any bonus will become payable to Executive under this Section.
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<PAGE>
SECTION 4. TERMINATION OF EMPLOYMENT
4.1 Death of Executive. Executive's employment hereunder shall
immediately terminate upon his death, upon which MEDIQ shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, bonuses, expense reimbursement, etc.) earned or accrued as of the date
of Executive's death in accordance with generally accepted accounting principles
("GAAP") and except as otherwise provided in Section 3.5 hereof.
4.2 Disability of Executive. If Executive, in the reasonable
opinion of a physician selected by the Board, is unable, for any reason, to
perform his duties hereunder for a period of 180 consecutive days then the Board
shall have the right to terminate Executive's employment upon 30 days' prior
written notice to Executive at any time during the continuation of such
inability, in which event MEDIQ shall not thereafter be obligated to make any
further payments hereunder other than amounts (including salary, bonuses,
expense reimbursement, etc.) earned or accrued under this Agreement as of the
date of such termination in accordance with GAAP and except as otherwise
provided in Section 3.5 hereof.
4.3 Termination for Cause. Executive's employment hereunder
shall terminate immediately upon notice that MEDIQ is terminating Executive for
"cause" (as defined herein), in which event MEDIQ shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, bonuses, expense reimbursement, etc.) earned or accrued under this
Agreement as of the date of such termination in accordance with GAAP. As used
herein, "cause" shall mean the following, which for purposes of subsections (v)
through (ix) shall not have been corrected after notice and a reasonable
opportunity to cure:
(i) misconduct involving dishonesty which
adversely affects MEDIQ;
(ii) fraud, theft or misappropriation or
embezzlement of MEDIQ's funds;
(iii) conviction of any felony, crime
involving fraud or misrepresentation, or of any other crime (whether or not
connected with his employment) the effect of which is likely to adversely affect
MEDIQ or its affiliates;
(iv) illegal possession or use of any
controlled substance;
(v) Executive's failure to materially
Perform his duties under this Agreement;
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<PAGE>
(vi) repeated and consistent failure of
Executive to be present at work during normal business hours unless the absence
is because of a disability determined pursuant to Section 4.2;
(vii) willful violation of any reasonable
express direction or any reasonable rule or regulation
established by the Board;
(viii) repeated insubordination, gross
incompetence, or misconduct in the performance of, or gross
neglect of, Executive's duties hereunder; or
(ix) use of alcohol or other drugs which
interferes with the performance by Executive of his duties.
4.4 Termination Without Cause.
(a) In the event:
(i) Executive's employment is terminated
by MEDIQ for any reason other than cause or the death or
disability of Executive; or
(ii) this Agreement is not renewed by MEDIQ
at the end of any Contract Period on terms and conditions no less favorable to
Executive than those in effect at such time, or Executive's employment is
terminated by Executive for "Good Reason" (as defined herein): MEDIQ shall
within 10 days thereafter pay Executive all amounts due under Sections 3.1, 3.2
(if such bonus has been agreed to) 3.3, 3.4 and 3.5 (including Base Salary,
benefits, expense reimbursements and compensation for unused vacation time)
earned or accrued as of the date of such termination in accordance with GAAP and
a lump sum payment equal to Executive's then current Base Salary for the then-
remaining Contract Period and a period of one year thereafter, discounted to
present value at the Prime Rate, not to exceed 12% in effect on the date of
non-renewal or termination as published in the Wall Street Journal. Executive
shall continue to receive from MEDIQ until the expiration of the period of one
year after the end of the Contract Period then in effect his then current
incentive compensation and employee benefits Executive would have received had
he continued employment and such event had not occurred. Upon making such
payments, MEDIQ shall have no further obligation to Executive hereunder except
as otherwise provided in Section 3.5.
(b) As used herein, the term "Good Reason" shall
mean the following:
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<PAGE>
(i) material breach of MEDIQ's material
obligations under this Agreement, not corrected after notice and
a reasonable opportunity to cure;
(ii) any change in Executive's Base Salary,
title, any material change in Executive's duties or authority (except solely to
accommodate the reasonable requirements of the Trust), and any material change
in Executive's employee benefits; or
(iii) MEDIQ's requiring Executive to be
based at a location outside a 35-mile radius of Pennsauken, New Jersey, except
for reasonably required travel on MEDIQ's business.
(c) There shall be no requirement on the part of
Executive to seek other employment in order to be entitled to the full amount of
any payments or benefits to be made pursuant to this Agreement or any other
agreement between Executive and MEDIQ, and no compensation or other benefits
from any such other employment shall reduce the payment obligations of MEDIQ
under this Section 4.4.
SECTION 5. RESTRICTIVE COVENANTS
5.1 Confidentiality. Executive acknowledges a duty of
confidentiality owed to MEDIQ and shall not, at any time during or after his
employment by MEDIQ, retain in writing, use, divulge, furnish, or make
accessible to anyone, without the express authorization of the Board, any trade
secret, private or confidential information or knowledge of MEDIQ or any of its
affiliates obtained or acquired by him while so employed. All computer software,
telephone lists, customer lists, price lists, contract forms, catalogs, books,
records, and files acquired while an employee of MEDIQ, are acknowledged to be
the property of MEDIQ and shall not be duplicated, removed from MEDIQ's
possession or made use of other than in pursuit of MEDIQ's business and, upon
termination of employment for any reason, Executive shall deliver to MEDIQ,
without further demand, all copies thereof which are then in his possession or
under his control.
5.2 Inventions and Improvements. During the term of his
employment, Executive shall promptly communicate to MEDIQ all ideas, discoveries
and inventions which are or may be useful to MEDIQ or its business. Executive
acknowledges that all ideas, discoveries, inventions, and improvements which are
made, conceived, or reduced to practice by him and every item of knowledge
relating to MEDIQ's business interests (including potential business interests)
gained by him during his employment hereunder are the property of MEDIQ, and
Executive hereby
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<PAGE>
irrevocably assigns all such ideas, discoveries, inventions, improvements, and
knowledge to MEDIQ for its sole use and benefit, without additional
compensation. The provisions of this Section shall apply whether such ideas,
discoveries, inventions, improvements or knowledge are conceived, made or gained
by him alone or with others, whether during or after usual working hours,
whether on or off the job, whether applicable to matters directly or indirectly
related to MEDIQ's business interests (including potential business interests),
and whether or not within the specific realm of his duties. Executive shall,
upon request of MEDIQ, at any time during or after his employment with MEDIQ,
sign all instruments and documents requested by MEDIQ arid otherwise cooperate
with MEDIQ to protect its right to such ideas, discoveries, inventions,
improvements, and knowledge, including applying for, obtaining, and enforcing
patents and copyrights thereon in any and all countries.
5.3 Injunctive and Other Relief.
(a) Executive acknowledges and agrees that the
covenants contained herein are fair and reasonable in light of the consideration
paid hereunder, and that damages alone may not be an adequate remedy for any
breach by Executive of his covenants contained herein and accordingly expressly
agrees that, in addition to any other remedies which MEDIQ may have, MEDIQ shall
be entitled to injunctive relief in any court of competent jurisdiction for any
breach or threatened breach of any such covenants by Executive. Nothing
contained herein shall prevent or delay MEDIQ from seeking, in any court of
competent jurisdiction, specific performance or other equitable remedies in the
event of any breach or intended breach by Executive of any of its obligations
hereunder.
(b) Notwithstanding the equitable relief
available to MEDIQ, the Executive, in the event of a breach of his covenants
contained in Section 5 hereof, understands and agrees that the uncertainties and
delay inherent in the legal process could result in a continuing breach for some
period of time, and therefore, continuing injury to MEDIQ until and unless MEDIQ
can obtain such equitable relief. Therefore, in addition to such equitable
relief, MEDIQ shall be entitled to monetary damages for any such period of
breach until the termination of such breach, in an amount deemed reasonable to
cover all actual losses, plus all monies received by Executive as a result of
said breach and all reasonable costs and attorneys' fees incurred by MEDIQ in
enforcing this Agreement. If Executive should use or reveal to any other person
or entity any confidential information, this will be considered a continuing
violation on a daily basis for so long a period of time as such confidential
information is made use of by Executive or any such other person or entity.
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<PAGE>
SECTION 6. MISCELLANEOUS
6.1 Arbitration.
(a) All disputes arising out of or relating to
this Agreement which cannot be settled by the parties shall promptly be
submitted to and determined by a single arbitrator in Philadelphia,
Pennsylvania, pursuant to the rules and regulations then obtaining of the
American Arbitration Association; provided that nothing herein shall preclude
MEDIQ from seeking, in any court of competent jurisdiction, damages, specific
performance or other equitable remedies in the case of any breach or threatened
breach by Executive of Section 5 hereof. The decision of the arbitrator shall be
final and binding upon the parties, and judgement upon such decision may be
entered in any court of competent jurisdiction.
(b) Discovery shall be allowed pursuant to the
intendment of the United States Federal Rules of Civil Procedure and as the
arbitrators determine appropriate under the circumstances.
(c) Such arbitrator shall be required to apply
the contractual provisions hereof in deciding any matter submitted to it and
shall not have any authority, by reason of this Agreement or otherwise, to
render a decision that is contrary to the mutual intent of the parties as set
forth in this Agreement.
6.2 Prior Employment. Executive represents and warrants that
he is not a party to any other employment, non-competition or other agreement or
restriction which could interfere with his employment with MEDIQ or his rights
and obligations hereunder; and that his execution of this Agreement and the
performance of his duties hereunder will not breach the provisions of any
contract, agreement, or understanding to which he is party or any duty owed by
him to any other person.
6.3 Severability. The invalidity or inenforceability of any
particular provision or part of any provision of this Agreement shall not affect
the other provisions or parts hereof. If any provision hereof is determined to
be invalid or unenforceable by a court of competent jurisdiction, Executive
shall negotiate in good faith to provide MEDIQ with protection as nearly
equivalent to that found to be invalid or unenforceable and if any such
provision shall be so determined to be invalid or unenforceable by reason of the
duration or geographical scope of the covenants contained therein, such duration
or geographical scope, or both, shall be considered to be reduced to a duration
or geographical scope to the extent necessary to cure such invalidity.
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<PAGE>
6.4 Assignment. This Agreement shall not be assignable by
Executive, and shall be assignable by MEDIQ only to any person or entity which
becomes a successor in interest (by purchase of assets or stock, or by merger,
or otherwise) to MEDIQ in the business or substantially all of the business
presently operated by it or to any liquidating trust into which substantially
all of the assets of MEDIQ are transferred. Subject to the foregoing, this
Agreement and the rights and obligations set forth herein shall inure to the
benefit of, and be binding upon, the parties hereto and each of their respective
permitted successors, assigns, heirs, executors and administrators.
6.5 Notices. All notices hereunder shall be in writing and
shall be sufficiently given if hand-delivered, sent by documented overnight
delivery service or registered or certified mail, postage prepaid, return
receipt requested or by telegram, fax or telecopy (confirmed by U.S. mail),
receipt acknowledged, addressed as set forth below or to such other person
and/or at such other address as may be furnished in writing by any party hereto
to the other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against any party if given as provided in this Agreement; provided that nothing
herein shall be deemed to affect the right of any party to serve process in any
other manner permitted by law.
(a) If to MEDIQ:
MEDIQ Incorporated
One MEDIQ Plaza
Pennsauken, NJ 08110-1460
Tel: (609) 665-9300
Fax: (609) 486-4725
Attention: Michael J. Rotko, Esq.
With a copy to:
Drinker Biddle & Reath
1100 Philadelphia National Bank Building
Broad and Chestnut Streets
Philadelphia, PA 19107
Tel: (215) 988-2700
Fax: (215) 988-2757
Attention: William M. Goldstein, Esq.
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<PAGE>
(b) If to Executive:
Michael F. Sandler
13 Christopher Avenue
Kendall Park, NJ 08824
With a copy to:
Barry M. Abelson, Esq.
Pepper, Hamilton & Scheetz
3000 Two Logan Square, 18th and Arch Streets
Philadelphia, PA 19103-2799
6.6 Entire Agreement and Modification. This Agreement
constitutes the entire agreement between the parties hereto with respect to the
matters contemplated herein and supersedes all prior agreements and
understandings with respect thereto, including, without limitation, the
Employment Agreement dated November 14, 1988, as amended (except the provision
thereof regarding stock options). Any amendment, modification, or waiver of this
Agreement shall not be effective unless in writing. Neither the failure nor any
delay on the part of any party to exercise any right, remedy, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power, or privilege with
respect to any occurrence be construed as a waiver of any right, remedy, power,
or privilege with respect to any other occurrence.
6.7 Governing Law. This Agreement is made pursuant to, and
shall be construed and enforced in accordance with, the internal laws of the
State of New Jersey (and United States federal law, to the extent applicable),
without giving effect to otherwise applicable principles of conflicts of law.
6.8 Headings; Counterparts. The headings of paragraphs in this
Agreement are for convenience only and shall not affect its interpretation. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original and all of which, when taken together, shall be deemed
to constitute but one and the same Agreement.
6.9 Further Assurances. Each of the parties hereto shall
execute such further instruments and take such other actions as any other party
shall reasonably request in order to effectuate the purposes of this Agreement.
6.10 MEDIQ Acknowledgements. MEDIQ acknowledges that
as of the date hereof it has no claims of any kind against
Executive arising out of or relating in any manner to Executive's
participation in the management-led buy-out group including
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Bernard Korman (the "Management Group"). Except as set forth in the letter
between MEDIQ Acquisition Corporation ("MAC") and Dillon, Read & Co., Inc. dated
January 18, 1995 (the "Dillon, Read Letter"), recognizing the importance of
Executive's fiduciary obligations to MEDIQ with respect to the sale of MEDIQ,
Executive shall not, from the date hereof, during the term of his employment
hereunder, enter into any agreement or discussions to acquire an equity interest
in any potential purchaser of MEDIQ, including the Management Group, nor shall
Executive disclose to the Management Group any information relating to a Sale
Event, until such time as a definitive agreement for a Sale Event is executed or
Sale Event occurs, whichever first occurs. After the first to occur of a Sale
Event or the execution of a definitive agreement for a Sale Event, Executive may
negotiate and agree with potential purchasers of MEDIQ, including the Management
Group, to obtain an equity interest in and an executive and board position with
such purchaser.
6.11 Executive's Acknowledgements. Executive represents and
warrants that, except for the Dillon Read Letter described in Section 6.10, he
has no agreement or relationship with the Management Group requiring him to
render to or perform services on behalf of such Group or that imposes any
fiduciary obligation on Executive with respect to such Management Group.
Executive further represents and warrants that he is not an officer or director
of any entity controlled by the Management Group.
6.12 Legal Fees. MEDIQ shall pay all reasonable legal fees at
the normal hourly rates of Pepper, Hamilton & Scheetz incurred by Executive in
connection with the preparation, negotiation and execution of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
MEDIQ Incorporated
By:/s/ Michael J. Rotko
-------------------------------
Michael J. Rotko, Esq.
/s/ Michael F. Sandler
-------------------------------
Michael F. Sandler
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of April 27, 1995, between MEDIQ
Incorporated, a Delaware corporation ("MEDIQ"), and MEDIQ/PRN Life Support
Services, Inc., a Delaware corporation ("MEDIQ/PRN"), and Thomas Carroll (the
"Executive").
Background
WHEREAS, Executive is currently the President and Chief
Operating Officer of MEDIQ/PRN, a wholly-owned subsidiary of
MEDIQ; and
WHEREAS, MEDIQ recognizes, in addition to Executive's other duties, the
significant responsibility of Executive with respect to assisting in the
possible sale of MEDIQ/PRN; and
WHEREAS, MEDIQ acknowledges and recognizes that it would serve the best
interests of MEDIQ to assure itself of the continued employment of the Executive
as President and Chief Operating Officer of MEDIQ/PRN and the assistance of the
Executive in maximizing the value received for MEDIQ/PRN in any potential sale
and that the compensation provided for herein represents the fair value of the
services to be provided by Executive with respect to maximizing such value and
with respect to the other services to be provided hereunder; and
WHEREAS, MEDIQ/PRN acknowledges and recognizes it will receive
significant benefit from Executive continuing his employment with MEDIQ/PRN; and
WHEREAS, Executive desires to continue his employment with MEDIQ/PRN
and to render services to MEDIQ (while it owns MEDIQ/PRN) and MEDIQ/PRN on the
terms and conditions provided in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
SECTION 1. CAPACITY AND DUTIES
1.1 Employment. MEDIQ/PRN hereby employs Executive, and
Executive hereby accepts employment by MEDIQ/PRN, for the Contract Period (as
defined below) and upon the terms and conditions hereinafter set forth.
1.2 Capacity and Duties.
(a) Executive shall be employed by MEDIQ/PRN
generally as the President and Chief Operating Officer of
<PAGE>
MEDIQ/PRN and shall perform such other executive duties, and shall have such
executive authority, consistent with such position, as may from time to time be
specified by the Board of Directors of MEDIQ or any duly authorized committee
thereof (the "Board"). From the date hereof until a Sale Event (as hereinafter
defined) occurs or any such sale or divestiture is finally abandoned by the
Board, Executive shall report directly and exclusively to the Board of Directors
of MEDIQ, or any duly authorized committee thereof having authority over such
proposed sale or divestiture. Following any Sale Event or abandonment of such
sale or divestiture by the Board, the Executive shall report as to all matters
hereunder to the Chief Executive Officer of MEDIQ. During the Contract Period,
Executive's position (including status, office, titles, authority, duties and
responsibilities) shall be at least commensurate in all respects with those
held, exercised and assigned immediately preceding the effective time of this
Agreement. There shall be no material diminution in the position of Executive
with MEDIQ or MEDIQ/PRN other than as provided herein unless the parties
otherwise agree in writing. As long as Executive is President and Chief
Operating Officer of MEDIQ/PRN, MEDIQ shall cause Executive to be elected and
reelected as a director of MEDIQ/PRN.
(b) Executive shall devote his full working
time, energy, skill and best efforts to the performance of his duties
hereunder, in a manner which will faithfully and diligently serve the business
and interests of MEDIQ/PRN and its affiliates (as defined below), provided that
Executive may devote such time as is reasonably required for charitable and
other personal activities in accordance with MEDIQ's practices and policies.
Executive's duties shall include using all reasonable efforts to maximize the
value received for MEDIQ/PRN in any Sale Event.
(c) For purposes of this Agreement, an
"affiliate" means any person or entity which controls MEDIQ/PRN, is controlled
by MEDIQ/PRN, or which is under common control with MEDIQ/PRN. For the purposes
of this definition of "affiliate," "control" means the power to direct the
management and policies of a person or entity, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" shall have correlative meanings; provided
that, any person or entity who owns beneficially, either directly or through one
or more intermediaries, more than 20% of the ownership interests in a specified
entity shall be presumed to control such entity for the purposes of the
definition of "affiliate." For the purposes of this Agreement, neither Bessie G.
Rotko, Lionel Felzer nor their lineal descendants, children, spouses or any
trust for the benefit of any of them (collectively, the "Rotko Group") shall be
"affiliates" of MEDIQ or MEDIQ/PRN.
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SECTION 2. TERM OF EMPLOYMENT
2.1 Term. The initial term of Executive's employment hereunder
shall be for a period of two years, commencing on the date hereof, and shall
thereafter automatically be renewed from year to year unless and until either
party shall give notice of his or its election to terminate Executive's
employment at least 60 days prior to the end of the then current term, unless
earlier terminated as hereinafter provided. Such initial term, and each renewal
term are hereafter referred to collectively as the "Contract Period."
SECTION 3. COMPENSATION
3.1 Basic Compensation. As compensation for Executive's
services hereunder, MEDIQ/PRN shall pay Executive a salary at the annual rate of
$265,000. Such base salary shall be payable in installments in accordance with
MEDIQ's regular payroll practices in effect from time to time. Such base salary
shall be subject to increase based on normal periodic merit review by the
Compensation Committee of the Board of Directors of MEDIQ (the "Compensation
Committee") in accordance with he corporate policies of MEDIQ (such annual base
salary, including the foregoing adjustments, if any, is hereinafter referred to
as "annual base salary"); provided, however, that the amount of such increase
shall not be less than the percentage amount, if any, by which the CPI (as
hereafter defined) for the calendar month immediately preceding such anniversary
date exceeds the CPI for same month of the immediately preceding year. For
purposes of this Section 3.1, the term "CPI" shall mean the Consumer Price Index
for All Urban Consumers for all items for New Jersey, as published by the Bureau
of Labor Statistics of the United States Department of Labor, or of any revised
or successor index hereafter published by the Bureau of Labor Statistics of
other agency of the United States government succeeding to its functions. The
annual base salary of Executive shall not be decreased at any time during the
Contract Period from the amount then in effect, unless Executive otherwise
agrees in writing. Participation in deferred compensation, discretionary bonus,
retirement and other employee benefit plans and in fringe benefits shall not
reduce the annual base salary payable to Executive under this Section 3.1.
3.2 Signing Bonus. Contemporaneously with signing
this Agreement, the Executive will be paid a one time cash bonus
in the amount of $100,000.
3.3 Benefits.
(a) During the Contract Period, Executive (and
Executive's family, if applicable) shall be entitled to
participate in all incentive, savings, retirement, welfare and
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other employee benefit plans, practices, policies and programs that MEDIQ/PRN or
MEDIQ may provide for the benefit of its executive employees generally (together
with the fringe benefits described below, "Employee Benefits"). Executive shall
also be entitled to participate in any other fringe benefits which may be or
become applicable to MEDIQ's or MEDIQ/PRN's executive employees, including the
payment of reasonable expenses for attending annual and periodic meetings of
trade associations and any other benefits that are commensurate with the duties
and responsibilities to be performed by Executive under this Agreement. In no
event shall the Employee Benefits provided to Executive be less favorable, in
the aggregate, than the employee benefits plans, practices, policies and
programs provided to Executive immediately preceding the effective date of this
Agreement.
(b) If Executive becomes a participant in any
employee benefit plan, practice or policy of MEDIQ/PRN or its affiliates,
Executive shall be given credit under such plan for all service in the employ of
MEDIQ/PRN and any predecessors thereto or affiliates thereof prior to the date
hereof, for purposes of eligibility and vesting, benefit accrual and for all
other purposes for which such service is either taken into account or recognized
under the terms of such plan, practice or policy.
(c) During the Contract Period, Executive shall
be entitled to a private office, and such secretarial services as have been
previously provided to Executive, and such other assistance and accommodations
as shall be suitable to the character of Executive's position with MEDIQ/PRN and
adequate for the performance of Executive's duties hereunder.
(d) MEDIQ/PRN shall pay or reimburse Executive
for all reasonable expenses (including expenses of travel and accommodations)
incurred or paid by Executive in connection with the performance of Executive's
duties hereunder upon receipt of itemized vouchers therefor and such other
supporting information as MEDIQ/PRN shall reasonably require.
(e) During the Contract Period, MEDIQ/PRN shall
continue to provide Executive with a leased automobile for use by Executive
consistent with past practices and shall continue to pay or reimburse Executive
for expenses reasonably incurred by Executive for the maintenance and operation
of such automobile upon receipt of itemized vouchers therefor and such other
supporting information as MEDIQ/PRN shall reasonably require.
(f) During the Contract Period, MEDIQ/PRN shall
continue to provide Executive with a cellular telephone and related telephone
service or a cellular telephone allowance consistent with past practices.
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(g) During the Contract Period, Executive shall
be entitled to paid vacations in a manner commensurate with Executive's status
as the President and Chief Operating Officer of MEDIQ/PRN, which shall not be
less than the annual vacation period to which Executive is presently entitled.
3.4 Transaction Compensation.
(a) If, during the term o this Agreement, a Sale
Event (as hereafter defined) occurs, Executive shall be entitled to receive a
one-time bonus calculated as provided in paragraph (b) below. For the purposes
of this Agreement, a "Sale Event" means any sale or divestiture of MEDIQ/PRN,
including (i) a sale of substantially all of its stock (including through
merger, tender, exchange or otherwise) or assets, in either case in one or more
related transactions, (ii) a Change in Control (as defined below) and (iii) any
sale or distribution of the stock of MEDIQ/PRN which results in a Change in
Control at the time of such sale or distribution or at any time within the
immediately succeeding twelve (12) months. Executive's bonus shall be paid in
cash within 30 days after the consummation of a Sale Event.
(b) Executive's bonus payable upon a Sale Event
shall equal the sum of (i) .25% of the aggregate purchase price paid for
MEDIQ/PRN up to a maximum aggregate purchase price of $375,000,000, plus (ii) if
the aggregate purchase price paid for MEDIQ/PRN exceeds $375,000,000, 1.5% of
any purchase price in excess of $375,000,000. For purposes of calculating the
bonus, the aggregate purchase price shall equal the sum of (x) the total cash
consideration paid for MEDIQ/PRN (including, without limitation, in respect of
any warrants or other security of MEDIQ or MEDIQ/PRN), plus (y) the fair market
value of any securities or other property received as consideration for
MEDIQ/PRN (including, without limitation, in respect of any warrants or other
security of MEDIQ or MEDIQ/PRN), plus (z) the aggregate amount (including,
without limitation, accrued but unpaid interest and the unpaid amount of any
capital leases) of any aggregate liabilities of MEDIQ/PRN assumed or refinanced
by the purchaser in connection with the completion of the acquisition, other
than current liabilities taken into account in computing the working capital of
MEDIQ/PRN (except for current liabilities for indebtedness for money borrowed
(including accrued but unpaid interest or capital leases)). The aggregate
purchase price on which Executive's bonus is to be calculated is hereafter
called "Enterprise Value" of MEDIQ/PRN. In the event of any dispute between
Executive and MEDIQ regarding the Enterprise Value of MEDIQ/PRN on which
Executive's bonus shall be calculated, the Board of Directors and Executive
shall select an investment banking firm, reasonably acceptable to each of them,
to make the determination of the Enterprise Value of MEDIQ/PRN. The fees and
expenses of the investment banking firm incurred in making such
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determination shall be borne by MEDIQ, unless the investment banking firm shall
determine that the Executive's position regarding the calculation of Enterprise
Value was unreasonable under the circumstances, in which case such fees and
expenses shall be shared equally between MEDIQ and Executive.
(c) Executive acknowledges that a Sale Event may
not occur, that the Board of Directors may determine not to pursue a Sale Event,
that such a transaction can occur only upon proper authorization of the Board of
Directors, or a duly constituted committee thereof, and accordingly there can be
no assurance that any bonus will become payable to Executive under this Section.
(d) In the event that MEDIQ/PRN is sold or deemed
sold as part of an overall transaction involving the sale or other divestiture
of all of MEDIQ and/or its other partly or wholly owned subsidiaries, or in
connection with a Change in Control of MEDIQ, Executive's bonus shall be paid
based on the Enterprise Value of MEDIQ/PRN implicit in such transaction if such
Enterprise Value is readily ascertainable. If the Enterprise Value of MEDIQ/PRN
is not readily ascertainable in such transaction, and the parties are unable to
agree on the portion of the purchase price representing the Enterprise Value of
MEDIQ/PRN on which Executive's bonus shall be calculated, the Board of Directors
and Executive shall select an investment banking firm, reasonably acceptable to
each of them, to make such determination. The expenses of the investment banking
firm incurred in making such determination shall be borne by MEDIQ, unless the
investment banking firm shall determine that the Executive's position regarding
the calculation of Enterprise Value was unreasonable under the circumstances, in
which case such fees and expenses shall be shared equally between MEDIQ and
Executive.
(e) For the purposes of Section 3.4 of this
Agreement a "Change in Control" shall mean the earlier of such time as (i) the
Rotko Group collectively ceases to beneficially own more than 35% of the voting
securities of MEDIQ (or MEDIQ/PRN, as the case may be) or (ii) the Rotko Group
collectively ceases to beneficially own more than 50% of the voting securities
of MEDIQ (or MEDIQ/PRN, as the case may be) and none of MEDIQ's securities are
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
3.5 Performance Bonus. During the Contract Period, Executive
shall receive, commencing with fiscal year 1995, an annual performance bonus of
0 to 60% of his base salary in effect for such year ("incentive compensation"),
calculated in such fashion and based on the achievement of certain performance
criteria to be established by the Chief Executive Officer and approved by the
Board of Directors of MEDIQ or the Compensation
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Committee prior to the beginning of such year. Executive's incentive
compensation in respect of any fiscal year in which Executive's employment
terminates shall be prorated for the number of days that he was employed during
such year. For the 1995 fiscal year (i.e., the twelve (12) month period ending
September 30, 1995) incentive compensation shall be paid, calculated and based
upon the performance criteria approved by MEDIQ prior to the date hereof, a
description of which is contained on Exhibit 1 to this Agreement). For
successive fiscal years, Executive's incentive compensation shall be paid,
calculated and based upon performance criteria as set forth above. The Board of
Directors, although under no obligation to do so, may determine from time to
time to pay to Executive compensation in addition to the annual base salary and
incentive compensation required to be paid above. If a Sale Event occurs prior
to March 31, 1996, Executive shall not be entitled to receive an incentive bonus
with respect to the fiscal year ending September 30, 1996.
3.6 Options and SARS Granted if Company is Not Sold.
(a) Upon the earlier of the (i) abandonment of a
Sale Event by the Board of Directors of MEDIQ or (ii) March 31, 1995 if no Sale
Event has occurred prior to such date, MEDIQ shall immediately, and with no
further action, award, or cause to be awarded to Executive, the stock options
and stock appreciation rights described in paragraphs (b) through (c) below in
lieu of the transaction compensation set forth in Section 3.4. In such event,
Executive shall no longer be entitled to the incentive compensation provided
under Section 3.4.
(b) Upon satisfaction of the conditions set
forth in Section 3.6(a) above ("Grant Date"), MEDIQ shall immediately, and
with no further action, grant Executive options to purchase 100,000 common
shares of MEDIQ at a cash purchase price per share equal to the fair market
value of a share of common stock of MEDIQ on the date such grant is made. For
these purposes, fair market value shall mean the last sale price of MEDIQ stock
on the American Stock Exchange as reported in the Wall Street Journal. The
options will be immediately exercisable, in whole or in part, upon grant for a
period of ten years from the date of this Agreement. Upon termination of
Executive's employment for Cause or termination of Executive's employment other
than for Good Reason, in either case prior to the Grant Date, Executive shall no
longer be eligible to receive any options pursuant to this Section 3.6. The
effect of such termination on any options granted or earned by Executive on or
after such Grant Date shall be determined by the terms and conditions of the
options. The options shall be set forth in a written stock option agreement
containing the terms set forth in this Section and containing such other terms,
not inconsistent herewith, that are consistent with the terms of MEDIQ's
standard employee options and related
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plans in effect on the date hereof ("Standard Option Terms") and as are set
forth in the plan, or as the parties may otherwise agree. Within 90 days after
such grant, MEDIQ shall prepare and file a Registration Statement on Form S-8,
if it is then eligible for the use of such form, with respect to the common
stock issuable upon exercise of such options. The number of common shares of
MEDIQ contemplated by this Section 3.6(b) as being possibly granted to Executive
(and any consideration payable in respect thereof) shall be subject to
adjustment and treatment from and after the date hereof until actually granted
to Executive in the same manner that is provided in the Standard Option Terms as
if such options were actually granted on the date hereof but remain unexercised
until their actual grant.
(c) (i) Upon satisfaction of the conditions
set forth in Section 3.6(a) above, the Executive shall also be granted,
immediately and with no further action, stock appreciation rights, the value of
which shall be settled in cash as provided in subparagraph (ii) below, with
respect to that number of shares of common stock of MEDIQ/PRN equal to 2% of
MEDIQ/PRN's common stock then outstanding after giving pro forma effect to the
SAR.
(ii) Except as provided in clause (iv)
below, upon the termination of Executive's employment for any reason,
Executive shall be entitled to be paid the value of his SARs in cash. Payment of
the value of Executive's SARs shall be made within 120 days of the termination
of his employment; provided, however, that if Executive's employment with
MEDIQ/PRN is terminated prior to the second anniversary of the date of this
Agreement, payment shall be made within 120 days of such anniversary based upon
the value of his SARs on such second anniversary. In addition, Executive may, at
his option, request payment of the value of his SARs at the time of such
request, in whole or in part, on each fifth anniversary of the date of this
Agreement (or upon the occurrence of any event that would constitute a "Sale
Event") regardless of when it occurs) and such request(s) shall not result in
cancellation of such SARs ("Payment Request"). The value of Executive's SARs to
be paid to him (or his estate) upon the termination of his employment (or any
earlier request as provided above) shall be the amount obtained by solving the
following formula:
Value of SARS = 2% [(Terminal Value of MEDIQ/PRN) - (Base Value of
MEDIQ/PRN)] - all amounts previously paid on
account of the SARs granted hereunder
Where:
(A) Terminal Value of MEDIQ/PRN
meansthe amount calculated by multiplying 6 times the EBITDA of MEDIQ/PRN for
the 12 month period ending on the last day of
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MEDIQ/PRN's fiscal year preceding the year in which termination of Executive's
employment or the applicable Payment Request or a Payment Request occurs, except
that if the termination of Executive's employment or a Payment Request occurs
more than 210 days after the close of such fiscal year, EBITDA shall be
calculated for the 12 month period ending on the last day of the second fiscal
quarter of the fiscal year in which the termination of Executive's employment or
the applicable Payment Request occurs.
(B) Base Value of MEDIQ/PRN
means the amount equal to 6 times (i) $60,000,000 (assumed EBITDA of
MEDIQ/PRN for the 12 month period ended September 30, 1995, which amount will
not be changed based on actual EBITDA for such period) and (ii) increased at a
compound annual rate of 2.50% during the period beginning September 30, 1995,
and ending on the last day of the 12 month period for which EBITDA is calculated
in computing the Terminal Value of MEDIQ/PRN.
(C) EBITDA of MEDIQ/PRN for
any period means MEDIQ/PRN's income before interest, taxes, depreciation
and amortization expense during such period, calculated in accordance with
general accepted accounting principles, consistent with those used in the
preparation of MEDIQ/PRN's annual financial statements. In calculating EBITDA of
MEDIQ/PRN: (I) except as contemplated in subclause (II) hereof, no allocation,
charge or deduction will be made for overhead costs of any other person or
affiliate (including without limitation MEDIQ); (II) no allocation, charge or
deduction will be made for services rendered by any affiliate other than the
costs (including reasonable overhead costs) that would be charged to MEDIQ/PRN
for such services by an unrelated third party in an arm's length transaction;
(III) no allocation, charge or deduction will be made for any extraordinary or
non-recurring expense or income items; and (IV) no charge or deduction will be
made for any expense attributable to any SARs or options granted hereunder. In
the event of any dispute relating to calculation of EBITDA, the dispute shall be
resolved by the Company's regular outside accountants.
(iii) Executive's SARS shall not be
transferrable to any person (except as provided in Section 6.4).
(iv) Executive's SARS shall terminate
and be of no force or effect in the event Executive is discharged for Cause
prior to the second anniversary of the date of this Agreement, thereafter, the
SARs shall not be forfeitable and shall be paid as herein provided.
(v) A hypothetical example of the
computation of the value of Executive's SARS is attached hereto
as Exhibit 2.
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SECTION 4. TERMINATION OF EMPLOYMENT
4.1 Death of Executive.
(a) Executive's employment hereunder shall
immediately terminate upon his death, upon which MEDIQ/PRN shall pay amounts due
under Sections 3.1 and 3.3 (including salary, Employee Benefits, expense
reimbursements and compensation for unused vacation time) accrued as of the date
of Executive's death in accordance with generally accepted accounting principles
("GAAP).
(b) If Executive, in the reasonable opinion of
MEDIQ is Disabled (as defined below), MEDIQ/PRN shall have the right to
terminate Executive's employment upon thirty days prior written notice to
Executive at any time after the expiration of the 180 day period referred to
below, in which event MEDIQ/PRN shall pay amounts due under Sections 3.1 and 3.3
(including salary, Employee Benefits, expense reimbursements and compensation
for unused vacation time) accrued as of the date of Executive's termination
because of Disability in accordance with GAAP. As used in this Agreement, the
term "Disabled" or "Disability" shall mean the inability of Executive to perform
substantially Executive's duties and responsibilities to MEDIQ/PRN by reason of
a physical or mental disability or infirmity for a continuous period of at least
180 days. The date of disability shall be on the last day of such 180 day
period. The determination of whether the Disability has occurred shall be made
by a licensed physician chosen by the Board of Directors of MEDIQ. The benefits
payable under Sections 4.1, 4.2 or otherwise under this Agreement shall be
reduced by the amount of any benefits to which Executive may be entitled under
the benefit plans and programs of MEDIQ/PRN, including the disability plan, any
supplementary retirement plan or agreement or insurance policies maintained by
MEDIQ/PRN for the benefit of Executive.
4.2 Continuing Benefits Following Death or Disability. In
addition to any payments or benefits contemplated by Section 4.1, if Executive's
employment is terminated for death or Disability, Executive (and, as applicable,
his family and estate) shall continue to receive all base salary, incentive
compensation and all Employee Benefits Executive (and, as applicable, his
family) would have received for the balance of the Contract Period had his
employment not been so terminated. In such event, (a) Executive (or his estate
if applicable) shall, on the Grant Date, receive options and SARs under Section
3.6 with the same effect and benefit as if Executive were employed at such date
and his employment immediately terminated after the grant of the option and SARs
for death or Disability, and (b) Executive (or, as applicable, his estate) shall
not thereafter be entitled to any transaction compensation under Section 3.4,
unless a Sale Event occurred prior to the date Executive's employment was
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terminated for death or Disability, in which case Executive (or, as applicable,
his estate) shall receive transaction compensation under Section 3.4 but shall
not receive options or SARs under Section 3.6.
4.3 Termination for Cause.
(a) Except as otherwise provided in this
Agreement, the employment of Executive hereunder shall terminate upon the
earliest to occur of the dates specified below:
(i) the end of the Contract Period;
(ii) the close of business on the date of
Executive's death;
(iii) the close of business on the date
which is 30 days after the date on which MEDIQ/PRN delivers to Executive a
written notice of MEDIQ/PRN's election to terminate Executive's employment for
"Cause" (as hereinafter defined);
(iv) the close of business on,the date
which is 30 days after the date on which Executive delivers to MEDIQ/PRN a
notice of Executive's election to terminate Executive's employment under this
Agreement for "Good Reason" (as hereinafter defined); provided, however, that
Executive's notice of election to terminate his employment for Good Reason shall
provide MEDIQ/PRN with a reasonable opportunity to cure the behavior that
constitutes Good Reason, which reasonable opportunity shall in no event be less
than 15 or more than 30 days;
(v) the close of business on the date
which is 30 days after the date on which MEDIQ/PRN shall have delivered to
Executive a written notice of MEDIQ/PRN's election to terminate Executive's
employment because of Disability; or
(vi) the close of business on the date
which is 60 days after the date on which MEDIQ/PRN shall have delivered to
Executive a written notice that the Board of Directors of MEDIQ has adopted a
resolution terminating the employment of Executive hereunder and such
termination is not for death, Cause or Disability.
Provided, however, that in no event shall termination of Executive's employment
hereunder be effective until all amounts, then due Executive hereunder are paid
in full.
(b) Any purported termination by MEDIQ or
MEDIQ/PRN or by Executive shall be communicated by written Notice of Termination
(as hereinafter defined) to the other. For purposes of this Agreement, a "Notice
of Termination" shall mean
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a notice which indicates the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated. For purposes of this Agreement, no such purported
termination shall be effective without delivery of such Notice of Termination.
Termination of employment will not cause a termination of this Agreement, the
terms of which shall survive any termination of employment in accordance with
the express terms hereof.
(c) For the purposes of this Agreement, the term
"Cause" shall mean
(i) fraud, theft, misappropriation or
embezzlement of MEDIQ's or MEDIQ/PRN's funds;
(ii) conviction of any felony, crime
involving fraud or misrepresentation, or of any other crime (whether or not
connected with his employment) the effect of which is likely to adversely affect
MEDIQ or MEDIQ/PRN, except if Executive's actions which result in such a
conviction were taken in good faith and in a manner Executive reasonably
believed not to be adverse to the interests of MEDIQ or MEDIQ/PRN;
(iii) after a written demand for
substantial performance to Executive from the Boards of Directors of MEDIQ
and MEDIQ/PRN (the mailing of such written demand having been authorized by at
least sixty percent (60%) of the directors then in office) which specifically
identifies the manner in which the Boards of Directors believe that Executive
has intentionally materially breached Executive's duties and provides Executive
with a 30 day period in which to cure such breach, the willful and continuing
intentional material breach by Executive substantially to perform Executive's
duties with MEDIQ and MEDIQ/PRN (other than any such failure resulting from
Disability);
(iv) abuse of alcohol or other drugs
which interferes with the performance by Executive of his duties, provided
that Executive has been given 30 days notice by MEDIQ/PRN of its intent to
terminate Executive pursuant to this provision during which time Executive has
not demonstrated the cessation of such abuse to the reasonable satisfaction of
the Board of Directors.
Notwithstanding the foregoing or any other provision hereof, Executive shall not
be deemed to have been terminated for Cause unless there shall have been
delivered to Executive a copy of a resolution duly adopted by the affirmative
vote of not less than sixty percent (60%) of the entire membership or the Boards
of Directors of MEDIQ and MEDIQ/PRN at a meeting of such Boards of
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Directors called and held for that purpose (after at least 15 days prior written
notice to Executive and an opportunity for Executive, together with Executive's
counsel, to be heard before such Boards), finding that, in the good faith option
of the Boards of Directors of MEDIQ and MEDIQ/PRN, Executive was guilty of
conduct set forth above and specifying the particulars thereof in reasonable
detail.
(d) For the purposes of this Agreement, the term
"Good Reason" shall mean the occurrence of any of the events or conditions
described in subparagraphs (i) through (vi) hereof without Executive's express
written consent:
(i) a material diminution of Executive's
status, title, position, scope of authority or responsibilities (including
reporting responsibilities); the assignment to Executive of any duties or
responsibilities which, in Executive's reasonable judgment, are inconsistent
with such status, title, position, authorities or responsibilities; or any
removal of Executive from or failure to reappoint or reelect Executive to any of
such positions, except in connection with the termination of Executive's
employment for Disability, Cause, as a result of Executive's death or by
Executive other than for Good Reason;
(ii) a reduction by MEDIQ/PRN in
Executive's compensation (other than the transaction compensation payable
pursuant to Section 3.4 hereof) following a Sale Event and any payment to
Executive resulting therefrom) or benefits as in effect on the date hereof or as
the same may be increased from time to time;
(iii) the relocation of MEDIQ/PRN's
principal executive offices to a location outside a 25-mile radius of
Philadelphia, Pennsylvania or MEDIQ/PRN's requiring Executive to be based at any
place other than Pennsauken, New Jersey, except for reasonably required travel
on MEDIQ/PRN's business;
(iv) the materially adverse and
substantial alteration in the nature and quality of the office space within
which Executive performs Executive's duties, including the size and location
thereof, as well as the secretarial and administrative support provided to
Executive;
(v) any material breach by MEDIQ or
MEDIQ/PRN of any material provision of this Agreement; and
(vi) the failure of MEDIQ to obtain a
satisfactory agreement from any purchaser of MEDIQ/PRN or successor or permitted
assignee of MEDIQ to assume and agree to perform this Agreement.
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4.4 Termination Without Cause.
(a) In the event
(i) Executive's employment is terminated (x) by
MEDIQ/PRN for any reason other than Cause, or the death or
Disability of Executive or (y) by Executive for Good Reason; or
(ii) this Agreement is not renewed by MEDIQ/PRN
at the end of any Contract Period on terms and conditions no less favorable
to Executive than those in effect at such time, MEDIQ/PRN shall immediately pay
Executive all amounts due under Sections 3.1 and 3.3 (including base salary,
Employee Benefits, expense reimbursements and compensation for unused vacation
time) accrued as of the date of such termination in accordance with GAAP. In
such event, Executive (and, as applicable, his family) shall also continue to
receive from MEDIQ/PRN until two years after the end of the Contract Period then
in effect, all base salary, incentive compensation and Employee Benefits that
Executive (and, as applicable, his family) would have received had he continued
employment and such event had not occurred. In addition, Executive shall also be
paid transaction compensation under Section 3.4 if a Sale Event occurs following
any such event and prior to the second anniversary of this Agreement. If
Executive does not receive transaction compensation under the preceding
sentence, he shall be entitled to receive options and SARs under Section 3.6
with the same effect and benefit as if Executive were employed at such date and
his employment was terminated immediately after the grant of the options and
SARs by MEDIQ/PRN without Cause.
(b) There shall be no requirement on the part of
Executive to seek other employment or otherwise mitigate damages in order to be
entitled to the full amount of any payments or benefits to be made pursuant to
this Agreement or any other agreement between Executive and MEDIQ, MEDIQ/PRN or
any of their affiliates; provided, however, if Executive's employment is
terminated by MEDIQ/PRN other than for Cause or the death or Disability of
Executive, or by Executive for Good Reason, Executive shall, for so long as he
is being paid amounts in respect of base salary hereunder, use reasonable
efforts following twelve (12) months after his employment has been so
terminated, to find alternative employment; provided, however, such reasonable
efforts shall not require Executive to move, commute more than 35 miles to his
office or accept employment of a stature materially less than the executive
position Executive had with MEDIQ/PRN. No payment or benefit under any portion
of this Agreement shall be subject to offset; provided, however, that any
employment earnings of Executive (including self-employed earnings) earned by
Executive after the twelve (12) months following a termination described in
Section 4.4(a) shall reduce the compensation and benefits payable to Executive
under
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this Section 4.4 on a dollar for dollar basis during the period for which they
were earned.
SECTION 5. RESTRICTIVE COVENANTS
5.1 Confidentiality. Executive acknowledges a duty of
confidentiality owed to MEDIQ and MEDIQ/PRN and shall not, directly or
indirectly, at any time during or after his employment by MEDIQ/PRN, divulge,
furnish, or make accessible to anyone, without the express authorization of the
Board, any trade secret, private or confidential or proprietary information or
know-how of MEDIQ or MEDIQ/PRN or any of its affiliates obtained or acquired by
him while so employed. All computer software and books paid for by MEDIQ or
MEDIQ/PRN, and all records and files generated or acquired while an employee of
MEDIQ and in the capacity as an employee of MEDIQ are acknowledged to be the
property of MEDIQ and shall not be removed from MEDIQ or MEDIQ/PRN's possession
or made use of other than in pursuit of MEDIQ or MEDIQ/PRN's business and, upon
termination of employment for any reason, Executive shall deliver to MEDIQ,
without further demand, all copies thereof which are then in his possession or
under his control. The provisions of this Section 5.1 shall not apply to
information which (i) is or becomes generally available to the public other than
as a result of a disclosure by Executive, (ii) was available to Executive on a
non-confidential basis prior to its disclosure to Executive, (iii) becomes
available to Executive on a non-confidential basis from a source other than the
MEDIQ or MEDIQ/PRN, (iv) must be disclosed by law or by order of a court or
governmental authority, or (v) is used to enforce Executive's rights with MEDIQ
or MEDIQ/PRN. This Section 5.1 shall terminate on the date that a sale or other
transfer of MEDIQ/PRN is completed.
5.2 Noncompetition.
(a) At any time while employed hereunder and,
except as provided in the last sentence of this paragraph (a), for a period of
one year following termination of Executive's employment for any reason,
Executive shall not, directly or indirectly: (i) engage, anywhere in the
Territory (as defined in Section 5.2(b) below), in the renting of any product or
equipment substantially similar to and in competition with any product or
equipment which at any time during the period of twelve months prior to the date
of this Agreement has been rented by MEDIQ/PRN or any product or equipment which
MEDIQ/PRN was developing during such period for future rental, or the provision
of any service substantially similar to and in competition with any service
offered by MEDIQ/PRN at any time during the period of twelve months prior to the
date of this Agreement; (ii) be or become a stockholder, partner, owner,
officer, director or employee or agent of, or a consultant to or give financial
or other assistance to, any person or entity engaging in any such
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activities; (iii) seek in competition with the business of MEDIQ/PRN to procure
orders from or do business with any customer of MEDIQ/PRN; or (iv) solicit or
contact with a view to the engagement or employment by any person or entity of
any person who is an employee of MEDIQ/PRN as of the date of this Agreement,
provided this will not preclude hiring any person who contacts Executive for
employment and who has not been employed by MEDIQ or MEDIQ/PRN at any time
during the preceding six months. Nothing herein shall prohibit Executive from
owning, as a passive investor, in the aggregate not more than 5% of the
outstanding publicly traded stock of any corporation so engaged. The duration of
Executive's covenants set forth in this Section shall be extended by a period of
time equal to the number of days, if any, during which Executive is in violation
of the provisions hereof. Executive shall not be bound by this paragraph (a) in
the event that (1) Executive's employment is terminated by MEDIQ/PRN without
Cause or (2) Executive terminates his employment for Good Reason or (3)
Executive's employment ceases on or after the expiration of the Contract Period,
and MEDIQ/PRN shall have failed to offer to renew Executive's employment on
terms no less favorable to Executive than those in effect at such time.
(b) For the purposes of this Agreement,
"Territory" means the United States.
(c) If any party hereto learns of any breach or
potential breach of this Agreement such party shall immediately notify the other
party hereto of such event, specifying the basis therefor in reasonable detail.
MEDIQ may, in its sole discretion, afford Executive an opportunity to remedy or
otherwise cure such breach or potential breach before seeking legal redress,
provided that Executive is actively seeking to cure or remedy such breach or
potential breach; but such opportunity to remedy shall be without prejudice to
the right of MEDIQ to seek and obtain injunctive or other relief.
5.3 Injunctive and Other Relief.
(a) Executive acknowledges and agrees that the
covenants contained in Sections 5.1 and 5.2 above are fair and reasonable in
light of the consideration paid hereunder, and that damages alone shall not be
an adequate remedy for any breach by Executive of his covenants contained herein
and accordingly expressly agrees that, in addition to any other remedies which
MEDIQ may have, MEDIQ shall be entitled to injunctive relief in any court of
competent jurisdiction for any breach or threatened breach of any such covenants
by Executive. Nothing contained herein shall prevent or delay MEDIQ from
seeking, in any court of competent jurisdiction, specific performance or other
equitable remedies in the event of any breach or intended breach by Executive of
any of his obligations hereunder. In the event
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MEDIQ prevails in an action en enforce its rights under Sections 5.1 and 5.2, it
shall be entitled to be reimbursed for its costs and reasonable attorneys' fees
associated with so enforcing its rights.
SECTION 6. MISCELLANEOUS
6.1 MEDIQ. MEDIQ shall be jointly and severally liable for all
obligations and liabilities of MEDIQ/PRN to Executive arising under this
Agreement at any time during which MEDIQ owns in excess of 50% of the voting
securities of MEDIQ/PRN.
6.2 Reimbursement of Counsel Fees; Arbitration.
MEDIQ shall pay all reasonable legal fees at the normal hourly rates of
Dechert Price & Rhoads, accounting fees and related expenses incurred by
Executive in connection with the preparation, negotiation and execution of this
Agreement. Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The prevailing party, shall
be entitled to recover form the other party all of its legal fees, accounting
fees and related expenses incurred in any such arbitration including, without
limitation, all expenses of arbitration, court costs, transcript costs, fees of
experts, witness fees, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees and all other
disbursements or expenditures of the types customarily incurred in connection
with prosecuting, defending or investigating any arbitration, action or suit.
6.3 Severability. The invalidity or unenforceability of any
particular provision or part of any provision of this Agreement shall not affect
the other provisions or parts hereof. If any provision hereof is determined to
be invalid or unenforceable by a court of competent jurisdiction, Executive
shall negotiate in good faith to provide MEDIQ with protection as nearly
equivalent to that found to be invalid or unenforceable and if any such
provision shall be so determined to be invalid or unenforceable by reason of the
duration or geographical scope of the covenants contained therein, such duration
or geographical scope, or both, shall be considered to be reduced to a duration
or geographical scope to the extent necessary to cure such invalidity.
6.4 Assignment. Neither this Agreement nor any right
or interest hereunder shall be assignable by Executive, Executive's
beneficiaries, or legal representatives without MEDIQ's prior written consent;
provided, however, that nothing
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herein shall preclude (i) Executive from designating a beneficiary to receive
any benefit payable hereunder upon Executive's death, or (ii) the executors,
administrators, or other legal representatives of Executive or Executive's
estate from assigning any rights hereunder to devisees, legatees, beneficiaries,
testamentary trustees or other legal heirs of Executive (each a "Distributee").
If Executive should die while any amounts would still be payable to Executive if
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to
Executive's Distributee or, if there is no such Distributee, to Executive's
estate.
6.5 Notices. All notices hereunder shall be in writing and
shall be sufficiently given if hand-delivered, sent by documented overnight
delivery service or registered or certified mail, postage prepaid, return
receipt requested or by telegram, fax or telecopy (confirmed by U.S. mail),
receipt acknowledged, addressed as set forth below or to such other person
and/or at such other address as may be furnished in writing by any party hereto
to the other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against any party if given as provided in this Agreement; provided that nothing
herein shall be deemed to affect the right of any party to serve process in any
other manner permitted by law.
If to MEDIQ or MEDIQ/PRN:
MEDIQ Incorporated
One MEDIQ Plaza
Pennsauken, NJ 08110-1460
Tel: (609) 665-9300
Fax: (609) 486-4725
Attention: Michael J. Rotko
With a copy to:
Drinker Biddle & Reath
1100 Philadelphia National Bank Building
Broad and Chestnut Streets
Philadelphia, PA 19107
Tel: (215) 988-2700
Fax: (215) 988-2757
Attention: William M. Goldstein, Esq.
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<PAGE>
If to Executive:
Thomas Carroll
118 Jaffey Road
Malvern, PA 19355
With a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Tel: (215) 994-2138
Fax: (215) 994-2222
Attention: Henry N. Nassau, Esq.
6.6 Entire Agreement and Modification. This Agreement (and any
Employee Benefit plan or agreement contemplated hereby) constitutes the entire
agreement between the parties hereto with respect to the matters contemplated
herein and supersedes all prior agreements and understandings with respect
thereto. Any amendment, modification, or waiver of this Agreement shall not be
effective unless in writing. Neither the failure nor any delay on the part of
any party to exercise any right, remedy, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further exercise of the
same or of any other right, remedy, power, or privilege with respect to any
occurrence be construed as a waiver of any right, remedy, power, or privilege
with respect to any other occurrence.
6.7 Governing Law. This Agreement is made pursuant to, and
shall be construed and enforced in accordance with, the internal laws of the
State of New Jersey (and United States federal law, to the extent applicable),
without giving effect to otherwise applicable principles of conflicts of law.
6.8 Headings; Counterparts. The headings of sections in this
Agreement are for convenience only and shall not affect its interpretation. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original and all of which, when taken together, shall be deemed
to constitute but one and the same Agreement.
6.9 Further Assurances. Each of the parties hereto shall
execute such further instruments and take such other actions as any other party
shall reasonably request in order to effectuate the purposes of this Agreement.
6.10 Indemnification. MEDIQ/PRN shall pay, as
additional compensation under this Agreement, an amount equal to
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Executive's liability (including all taxes on such amount). If any, under
Internal Revenue Code ss.4998 (or any successor provisions by reason or payments
under any provision of this Agreement or otherwise. Throughout the Contract
period and for a period of five (5) years thereafter, MEDIQ and MEDIQ/PRN shall
indemnify and defend executive against all claims arising out of Executive's
activities as an officer of, director of or employee of MEDIQ and MEDIQ/PRN to
the fullest extent permitted under the law of the applicable state or
incorporation. MEDIQ and MEDIQ/PRN shall indemnify Executive from any claims
arising out of the letter agreement between Executive and Dillon Read & Co.
dated January 18, 1995 (the "Dillon Read Letter"). Neither MEDIQ nor MEDIQ/PRN
shall assert any claims against Executive arising out of the Dillon Read Letter.
In addition to the foregoing, Executive shall, upon reasonable notice, furnish
such information and proper assistance to MEDIQ or MEDIQ/PRN as may reasonably
be required by MEDIQ or MEDIQ/PRN in connection with any litigation in which it
is, or may become, a party.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
MEDIQ INCORPORATED
By:/s/ Michael J. Rotko
--------------------------------
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
By:/s/ Jay M. Kaplan
--------------------------------
/s/ Thomas E. Carroll
--------------------------------
Thomas Carroll
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AWARD AS A % OF BASE SALARY
USING TWO ADDITIVE PERFORMANCE MEASURES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
I. DIVISION NET PROFIT AS % OF BUDGETED PRE-TAX INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PARTICIPANT BELOW
CATEGORY 90% 90% 100% 110% 120+%
-------- --- --- ---- ---- -----
A 0 20 40 53 60
B 0 10 20 27 30
C 0 5 10 13 15
D 0 2 4 6 7
- -----------------------------------------------------------------------------------------------------------------------------------
II. INDIVIDUAL PERFORMANCE VERSUS OBJECTIVES AND POSITION STANDARDS
- -----------------------------------------------------------------------------------------------------------------------------------
PARTICIPANT BELOW ALMOST AT MEETS EXCEEDS FAR EXCEEDS
CATEGORY OBJECTIVES OBJECTIVES OBJECTIVES OBJECTIVES OBJECTIVES
- -------- ---------- ---------- ---------- ---------- ----------
A -- -- -- -- --
B 0 6 12 16 18
C 0 5 10 13 15
D 0 4 8 10 11
</TABLE>
NOTE:
Division Net Profit as percentage of Budgeted Pre-Tax Income has always been
interrupted as Division Pre-Tax Income as a percentage of Budgeted Pre-Tax
Income.
<PAGE>
EXHIBIT 2
Facts: 1) EBITDA used in calculating base value is
$60,000,000
2) Termination of Executive's employment occurs on
1/1/98
3) EBITDA used in calculating terminal value for the
12 months ended 9/30/97 is $70,000,000
Calculation of Base Value
1) $60,000,000 x 1.025 = $61,500,000
2) $61,500,000 x 1.025 = $63,037,500
3) Base value = 6 x $63,037,500
4) 6 x $63,037,500 = $378,225,000
Calculation of Terminal Value
Terminal value - 6 x (9/30/97 EBITDA) = $420,000,000
Calculation of SAR Payment
Value of SARS - 2% (Terminal Value - Base Value)
= $835,500
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of June 20, 1995, between MEDIQ
Incorporated, a Delaware corporation ("MEDIQ"), MEDIQ/PRN Life Support Services,
Inc., a Delaware corporation, and PRN Holdings, Inc., a Delaware corporation
(together "MEDIQ/PRN"), and Jay M. Kaplan (the "Executive").
BACKGROUND
WHEREAS, Executive is currently the Senior Vice President
and Chief Financial Officer of MEDIQ/PRN; and
WHEREAS, MEDIQ recognizes, in addition to Executive's other duties, the
significant responsibility of Executive with respect to assisting in the
possible sale MEDIQ/PRN; and
WHEREAS, MEDIQ acknowledges and recognizes that it would serve the best
interests of MEDIQ to assure itself of the continued employment of the Executive
as Senior Vice President and Chief Financial Officer of MEDIQ/PRN and the
assistance of Executive in maximizing the value received for MEDIQ/PRN in any
potential sale and that the compensation provided for herein represents the fair
value of the services to be provided by Executive with respect to maximizing
such value and with respect to the other services to be provided hereunder; and
WHEREAS, MEDIQ/PRN acknowledges and recognizes that it will receive
significant benefit from Executive continuing his employment with MEDIQ/PRN; and
WHEREAS, Executive desires to continue his employment with MEDIQ/PRN
and to render services to MEDIQ (while it owns MEDIQ/PRN) and MEDIQ/PRN on the
terms and conditions provided in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending, to be legally bound
hereby, the parties hereto agree as follows:
SECTION 1. CAPACITY AND DUTIES
1.1 Employment; Acceptance of Employment. MEDIQ/PRN
hereby employs Executive and Executive hereby accepts employment
by MEDIQ/PRN for the period and upon the terms and conditions
hereinafter set forth.
<PAGE>
1.2 Capacity and Duties.
(a) Executive shall be employed by MEDIQ/PRN as
the Senior Vice President and Chief Financial Officer of MEDIQ/PRN and shall
perform such other executive duties and shall have such executive authority,
consistent with his position as may from time to time be specified by the
President of MEDIQ/PRN. From the date hereof until a Sale Event (as hereinafter
defined) occurs or any such sale or divestiture is finally abandoned by the
Board, Executive shall report directly and exclusively to the Board of Directors
of MEDIQ or any duly authorized committee thereof having authority over such
proposed sale or divestiture. Following any Sale Event or abandonment of such
sale or divestiture by the Board, Executive shall report as to all matters
hereunder to the President of MEDIQ/PRN.
(b) Executive shall devote his full working time,
energy, skill and best efforts to the performance of his duties hereunder, in a
manner which will faithfully and diligently further the business and interests
of MEDIQ and MEDIQ/PRN, and shall not be employed by or participate or engage in
or be a part of in any manner the management or operation of any business
enterprise other than MEDIQ or MEDIQ/PRN without the prior written consent of
the Board, which consent may be granted or withheld in its sole discretion.
SECTION 2. TERM OF EMPLOYMENT
2.1 Term. The initial term of Executive's employment hereunder
shall be eighteen months commencing on the date hereof and shall thereafter
automatically be renewed from year to year unless and until either party shall
give notice of his or its election to terminate Executive's employment at least
60 days prior to the end of the then-current term, unless earlier terminated as
hereinafter provided. Such initial term, and each renewal term are hereafter
referred to collectively as the "Contract Period."
SECTION 3. COMPENSATION
3.1 Basic Compensation.
As compensation for Executive's services
hereunder, MEDIQ/PRN shall pay to Executive a salary at the annual rate of
$165,000 (the "Base Salary"). Such Base Salary shall be payable in accordance
with MEDIQ/PRN's regular payroll practices in effect from time to time. Such
Base Salary shall be subject to increase based on normal periodic merit review
by the Compensation Committee of the Board of Directors of MEDIQ (the
"Compensation Committee") in accordance with the corporate
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policies of MEDIQ and MEDIQ/PRN (such annual base salary, including the
foregoing adjustments, if any, is hereinafter referred to as the "annual base
salary").
3.2 Performance Bonus. During the Contract Period,
Executive shall be entitled to receive an annual performance
bonus in accordance with the corporate bonus plan and policies of
MEDIQ/PRN as approved by the Compensation Committee.
3.3 Employee Benefits. In addition to the compensation
provided for in Section 3.1, Executive shall be entitled during the term of his
employment to participate in all of MEDIQ/PRN's employee benefit plans and
benefit programs as may from time to time be provided for other employees of
MEDIQ/PRN whose duties, responsibilities, and compensation are reasonably
comparable to those of Executive. If Executive becomes a participant in any
employee benefit plan, practice or policy of MEDIQ/PRN or its affiliates,
Executive shall be given credit under such plan for all service in the employ of
MEDIQ/PRN and any predecessors thereto or affiliates thereof prior to the date
hereof, for purposes of eligibility and vesting, benefit accrual and for all
other purposes for which such service is either taken into account or recognized
under the terms of such plan, practice or policy.
3.4 Vacation. Executive shall be entitled to
vacations which shall not be less than the annual vacation period
to which Executive is presently entitled.
3.5 Expense Reimbursement. During the term of his employment,
MEDIQ/PRN shall reimburse Executive for all reasonable expenses incurred by him
in accordance with its regular reimbursement policies as in effect from time to
time and upon receipt of itemized vouchers therefor and such other supporting
information as MEDIQ/PRN may reasonably require.
3.6 Transaction Compensation.
(a) If, during the term of this Agreement, a Sale
Event (as hereafter defined) occurs, Executive shall be entitled to receive a
one-time bonus calculated as provided in paragraph (b) below. For the purposes
of this Agreement, a "Sale Event" means any sale or divestiture of MEDIQ/PRN,
including a sale of substantially all of its stock (including through merger,
tender, exchange or otherwise) or assets, in either case in one or more related
transactions. Executive's bonus shall be paid in cash within 30 days after the
consummation of a Sale Event.
(b) Executive's bonus payable upon a Sale Event
shall equal the sum of (i) .025% of the aggregate purchase price paid for
MEDIQ/PRN up to a maximum aggregate purchase price of $375,000,000 plus (ii) if
the aggregate purchase price paid for
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MEDIQ/PRN exceeds $375,000,000, .15% of any purchase price in excess of
$375,000,000. For purposes of calculating the bonus, the aggregate purchase
price shall equal the sum of (x) the total cash consideration paid for MEDIQ/PRN
(including, without limitation, in respect of any warrants or other security of
MEDIQ or MEDIQ/PRN), plus (y) the fair market value of any securities or other
property received as consideration for MEDIQ/PRN (including, without limitation,
in respect of any warrants or other security of MEDIQ or MEDIQ/PRN), plus (z)
the aggregate amount (including without limitation, accrued but unpaid interest
and the unpaid amount of any capital leases) of any aggregate liabilities of
MEDIQ/PRN assumed or refinanced by the purchaser in connection with the
completion of the acquisition, other than current liabilities taken into account
in computing the working capital of MEDIQ/PRN (except for current liabilities
for indebtedness for money borrowed (including accrued but unpaid interest or
capital leases)). The aggregate purchase price on which Executive's bonus is to
be calculated is hereafter called "Enterprise Value" of MEDIQ/PRN. In the event
of any dispute between Executive and MEDIQ regarding the Enterprise Value of
MEDIQ/PRN on which Executive's bonus shall be calculated, the Board and
Executive shall select an investment banking firm, reasonably acceptable to each
of them, to make the determination of the Enterprise Value of MEDIQ/PRN. The
fees and expenses of the investment banking firm incurred in making such
determination shall be borne by MEDIQ, unless the investment banking firm shall
determine that the Executive's position regarding the calculation of Enterprise
Value was unreasonable under the circumstances, in which case such fees and
expenses shall be shared equally between MEDIQ and Executive.
(c) Executive acknowledges that a Sale Event may
not occur, that the Board may determine not to pursue a Sale Event, that such a
transaction can occur only upon proper authorization of the Board, or a duly
constituted committee thereof, and accordingly there can be no assurance that
any bonus will become payable to Executive under this Section.
(d) In the event that MEDIQ/PRN is sold or deemed
sold as part of an overall transaction involving the sale or other divestiture
of all of MEDIQ and/or its other partly or wholly owned subsidiaries,
Executive's bonus shall be paid based on the Enterprise Value of MEDIQ/PRN
implicit in such transaction if such Enterprise Value is readily ascertainable.
If the Enterprise Value of MEDIQ/PRN is not readily ascertainable in such
transaction, and the parties are unable to agree on the portion of the purchase
price representing the Enterprise Value of MEDIQ/PRN on which Executive's bonus
shall be calculated, the Board and Executive shall select an investment banking
firm reasonably acceptable to each of them, to make such determination. The
expenses of the investment banking firm incurred in making such determination
shall be borne by MEDIQ,
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unless the investment banking firm shall determine that the Executive's position
regarding the calculation of Enterprise Value was unreasonable under the
circumstances, in which case such fees and expenses shall be shared equally
between MEDIQ and Executive.
SECTION 4. TERMINATION OF EMPLOYMENT
4.1 Death of Executive. Executive's employment hereunder shall
immediately terminate upon his death, upon which MEDIQ/PRN shall not thereafter
be obligated to make any further payments hereunder other than amounts
(including salary, bonuses, expense reimbursement, etc.) earned or accrued as of
the date of Executive's death in accordance with generally accepted accounting
principles ("GAAP").
4.2 Disability of Executive. If Executive, in the reasonable
opinion of a physician selected by the Board, is unable, for any reason, to
perform his duties hereunder for a period of 180 consecutive days then the Board
shall have the right to terminate Executive's employment upon 30 days' prior
written notice to Executive at any time during the continuation of such
inability, in which event MEDIQ/PRN shall not thereafter be obligated to make
any further payments hereunder other than amounts (including salary, bonuses,
expense reimbursement, etc.) earned or accrued under this Agreement as of the
date of such termination in accordance with GAAP.
4.3 Termination for Cause. Executive's employment shall
terminate immediately upon notice that MEDIQ/PRN is terminating Executive for
"cause" (as defined herein), in which event MEDIQ/PRN shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, bonuses, expense reimbursement, etc.) earned or accrued under this
Agreement as of the date of such termination in accordance with GAAP. As used
herein "cause" shall include, without limitation the following, not corrected
after notice and a reasonable opportunity to cure:
(i) dishonestly;
(ii) fraud, theft or misappropriation or,
embezzlement of MEDIQ or MEDIQ/PRN's funds;
(iii) conviction of any felony, crime
involving fraud or misrepresentation, or of any other crime (whether or not
connected with his employment) the effect of which is likely to adversely affect
MEDIQ, MEDIQ/PRN or their affiliates;
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<PAGE>
(iv) material breach of Executive's
obligations under this Agreement;
(v) repeated and consistent failure of
Executive to be present at work during normal business hours unless the absence
is because of a disability determined pursuant to Section 4.2;
(vi) willful violation of any express
direction or any rule or regulation established by the Board;
(vii) gross incompetence in the performance
of, or gross neglect of, Executive's duties hereunder;
(viii) illegal possession or use of any
controlled substance; or
(ix) use of alcohol or other drugs which
interferes with the performance by Executive of his duties.
4.4 Termination Without Cause.
(a) In the event
(i) Executive's employment is terminated
by MEDIQ/PRN for any reason other than cause or the death or
disability of Executive; or
(ii) this Agreement is not renewed by
MEDIQ/PRN at the end of any Contract Period on terms and conditions no less
favorable to Executive than those in effect at such time, MEDIQ/PRN shall
immediately pay Executive all amounts due under Section 3.1, 3.2, 3.3 and 3.4
(including Base Salary, Executive Benefits, expense reimbursements and
compensation for unused vacation time) earned or accrued as of the date of such
termination in accordance with GAAP. In such event, Executive shall also
continue to receive his then current Base Salary and employee benefits from
MEDIQ/PRN for eighteen months following the date of termination. Upon making
such payments, MEDIQ and MEDIQ/PRN shall have no further obligation to Executive
hereunder.
SECTION 5. RESTRICTIVE COVENANTS
5.1 Confidentiality. Executive acknowledges a duty of
confidentiality owed to MEDIQ and MEDIQ/PRN and shall not, at any time during or
after his employment by MEDIQ/PRN, retain in writing, use, divulge, furnish, or
make accessible to anyone, without the express authorization of the Board, any
trade secret, private or confidential information or knowledge of MEDIQ,
MEDIQ/PRN or any of their affiliates obtained or acquired by him
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<PAGE>
while so employed. All computer software, telephone lists, customer lists, price
lists, contract forms, catalogs, books, records, and files acquired while an
employee of MEDIQ/PRN, are acknowledged to be the property of MEDIQ/PRN and
shall not be duplicated, removed from MEDIQ/PRN's possession or made use of
other than in pursuit of MEDIQ/PRN's business and, upon termination of
employment for any reason, Executive shall deliver to MEDIQ/PRN, without further
demand, all copies thereof which are then in his possession or his control.
5.2 Inventions and Improvements. During the term of his
employment, Executive shall promptly communicate to MEDIQ/PRN all ideas,
discoveries and inventions which are or may be useful to MEDIQ/PRN or its
business. Executive acknowledges that all ideas, discoveries, inventions, and
improvements which are made, conceived, or reduced to practice by him and every
item of knowledge relating to MEDIQ/PRN's business interests (including
potential business interests) gained by him during his employment hereunder are
the property of MEDIQ/PRN, and Executive hereby irrevocably assigns all such
ideas, discoveries, inventions, improvements, and knowledge to MEDIQ/PRN for its
sole use and benefit, without additional compensation. The provisions of this
Section shall apply whether such ideas, discoveries, inventions, improvements or
knowledge are conceived, made or gained by him alone or with others, whether
during or after usual working hours, whether on or off the job, whether
applicable to matters directly or indirectly related to MEDIQ/PRN's business
interests (including potential business interests), and whether or not within
the specific realm of his duties. Executive shall, upon request of MEDIQ/PRN, at
any time during or after his employment with MEDIQ/PRN, sign all instruments and
documents requested by MEDIQ/PRN and otherwise cooperate with MEDIQ/PRN to
protect its right to such ideas, discoveries, inventions, improvements, and
knowledge, including applying for, obtaining, and enforcing patents and
copyrights thereon in any and all countries.
5.3 Injunctive and Other Relief.
(a) Executive acknowledges and agrees that the
covenants contained herein are fair and reasonable in light of the consideration
paid hereunder, and that damages alone shall not be an adequate remedy for any
breach by Executive of his covenants contained herein and accordingly expressly
agrees that, in addition to any other remedies which MEDIQ/PRN may have,
MEDIQ/PRN shall be entitled to injunctive relief in any court of competent
jurisdiction for any breach or threatened breach of any such covenants by
Executive. Nothing contained herein shall prevent or delay MEDIQ/PRN from
seeking, in any court of competent jurisdiction, specific performance or other
equitable remedies in the event of any breach or intended breach by Executive of
any of its obligations hereunder.
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(b) Notwithstanding the equitable relief
available to MEDIQ/PRN, the Executive, in the event of a breach of his covenants
contained in Section 5 hereof, understands and agrees that the uncertainties and
delay inherent in the legal process would result in a continuing breach for some
period of time, and therefore, continuing injury to MEDIQ/PRN until and unless
MEDIQ/PRN can obtain such equitable relief. Therefore, in addition to such
equitable relief, MEDIQ/PRN shall be entitled to monetary damages for any such
period of breach until the termination of such breach, in an amount deemed
reasonable to cover all actual and consequential losses, plus all monies
received by Executive as a result of said breach and all costs and attorneys'
fees incurred by MEDIQ/PRN in enforcing this Agreement. If Executive should use
or reveal to any other person or entity any confidential information, this will
be considered a continuing violation on a daily basis for so long a period of
time as such confidential information is made use of by Executive or any such
other person or entity.
SECTION 6. MISCELLANEOUS
6.1 Arbitration.
(a) All disputes arising out of or relating to
this Agreement which cannot be settled by the parties shall promptly be
submitted to and determined by a single arbitrator in Philadelphia,
Pennsylvania, pursuant to the rules and regulations then obtaining of the
American Arbitration Association; provided that nothing herein shall preclude
MEDIQ or MEDIQ/PRN from seeking, in any court of competent jurisdiction,
damages, specific performance or other equitable remedies in the case of any
breach or threatened breach by Executive of Section 5 hereof. The decision of
the arbitrator shall be final and binding upon the parties, and judgement upon
such decision may be entered in any court of competent jurisdiction.
(b) Discovery shall be allowed pursuant to the
intendment of the United States Federal Rules of Civil Procedure and as the
arbitrators determine appropriate under the circumstances.
(c) Such arbitrator shall be required to apply
the contractual provisions hereof in deciding any matter submitted to it and
shall not have any authority, by reason of this Agreement or otherwise, to
render a decision that is contrary to the mutual intent of the parties as set
forth in this Agreement.
6.2 Prior Employment. Executive represents and
warrants that he is not a party to any other employment, non-
competition or other agreement or restriction which could
-8-
<PAGE>
interfere with his employment with MEDIQ/PRN or his or MEDIQ/PRN's rights and
obligations hereunder; and that his execution of this Agreement and the
performance of his duties hereunder will not breach the provisions of any
contract, agreement, or understanding to which is party or any duty owed by him
to any other person.
6.3 Severability. The invalidity or unenforceability of any
particular provision or part of any provision of this Agreement shall not affect
the other provisions or parts hereof. If any provision hereof is determined to
be invalid or unenforceable by a court of competent jurisdiction, Executive
shall negotiate in good faith to provide MEDIQ and MEDIQ/PRN with protection as
nearly equivalent to that found to be invalid or unenforceable and if any such
provision shall be so determined to be invalid or unenforceable by reason of the
duration or geographical scope of the covenants contained therein, such duration
or geographical scope, or both, shall be considered to be reduced to a duration
or geographical scope to the extent necessary to cure such invalidity.
6.4 Assignment. This Agreement shall not be assignable by
Executive, and shall be assignable by MEDIQ or MEDIQ/PRN only to any person or
entity which may become a successor in interest (by purchase of assets or stock,
or by merger, or otherwise) to MEDIQ or MEDIQ/PRN in the business or a portion
of the business presently operated by it. Subject to the foregoing, this
Agreement and the rights and obligations set forth herein shall inure to the
benefit of, and be binding upon, the parties hereto and each of their respective
permitted successors, assigns, heirs, executors and administrators.
6.5 Notices. All notices hereunder shall be in writing and
shall be sufficiently given if hand-delivered, sent by documented overnight
delivery service or registered or certified mail, postage prepaid, return
receipt requested or by telegram, fax or telecopy (confirmed by U.S. mail),
receipt acknowledged, addressed as set forth below or to such other person
and/or at such other address as may be furnished in writing by any party hereto
to the other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against any party if given as provided in this Agreement; provided that nothing
herein shall be deemed to affect the right of any party to serve process in (any
other manner permitted by law.
-9-
<PAGE>
(a) If to MEDIQ or MEDIQ/PRN:
MEDIQ Incorporated
One MEDIQ Plaza
Pennsauken, NJ 08110-1460
Tel: (609) 665-9300
Fax: (609) 486-4725
Attention: Michael J. Rotko, Esq.
With a copy to:
Drinker Biddle & Reath
1100 Philadelphia National Bank Building
Broad and Chestnut Streets
Philadelphia, PA 19107
Tel: (215) 988-2700
Fax: (215) 988-2757
Attention: William M. Goldstein, Esq.
(b) If to Executive:
Jay M. Kaplan
1372 Indian Creek Dr.
Wynnewood, PA 19096
With a copy to:
-------------------------------
-------------------------------
-------------------------------
6.6 Entire Agreement and Modification. This Agreement
constitutes the entire agreement between the parties hereto with respect to the
matters contemplated herein and supersedes all prior agreements and
understandings with respect thereto. Any amendment, modification, or waiver of
this Agreement shall not be effective unless in writing. Neither the failure nor
any delay on the part of any party to exercise any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power, or privilege
with respect to any occurrence be construed as a waiver of any right, remedy,
power, or privilege with respect to any other occurrence.
6.7 Governing Law. This Agreement is made pursuant
to, and shall be construed and enforced in accordance with, the
internal laws of the State of New Jersey (and United States
-10-
<PAGE>
federal law, to the extent applicable), without giving effect to otherwise
applicable principles of conflicts of law.
6.8 Headings; Counterparts. The headings of paragraphs in this
Agreement are for convenience only and shall not affect its interpretation. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original and all of which, when taken together, shall be deemed
to constitute but one and the same Agreement.
6.9 Further Assurances. Each of the parties hereto shall
execute such further instruments and take such other actions as any other party
shall reasonably request in order to effectuate the purposes of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
MEDIQ Incorporated
By:/s/ Michael J. Rotko
--------------------------------
Michael J. Rotko, Esq.
MEDIQ/PRN Life Support Services, Inc.
By:/s/ Thomas Carroll
---------------------------------
Thomas Carroll
PRN Holdings, Inc.
By:/s/ Thomas Carroll
---------------------------------
Thomas Carroll
/s/ Jay M. Kaplan
---------------------------------
Jay M. Kaplan
-11-
EXHIBIT 11
MEDIQ INCORPORATED AND SUBSIDIARIES
Computation of Net Income Per Common Share
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computation of Primary Earnings Per Share:
Net Income (Loss) $ (4,947) $ (7,318) $ 3,296
======== ======== ========
Weighted Average Number of Primary Shares:
Beginning Balance 24,174 24,034 23,766
Assumed Conversion of Options 430 371 600
-------- -------- --------
Total 24,604 24,405 24,366
======== ======== ========
Primary Earnings (Loss) Per Share $ (.20) $ (.30) $ .14
======== ======== ========
Computation of Fully Diluted Earnings Per Share:
Net Income (Loss) $ (4,947) $ (7,318) 3,296
Interest and Amortization on Convertible
Subordinated Debentures - Net of Tax 2,317 2,317 2,762
-------- -------- --------
Total $ (2,630) $ (5,001) $ 6,058
======== ======== ========
Weighted Average Number of Fully Diluted Shares:
Beginning Balance 24,174 24,034 23,766
Assumed Conversion of Options 445 371 631
Assumed Conversion of Debentures 6,897 6,897 6,380
-------- -------- --------
Total 31,516 31,302 30,777
======== ======== ========
Fully Diluted Earnings (Loss) Per Share $ (.08) $ (.16) $.20
======== ======== ========
</TABLE>
EXHIBIT 21
Set forth below is a list of MEDIQ's subsidiaries, as of December 13,
1995, with their respective states of incorporation, names under which they do
business and the percentage of their voting securities owned by the Company as
of such date.
<TABLE>
<CAPTION>
State of Percentage
Name Incorporation of Ownership
---- ------------- ------------
<S> <C> <C>
Alpha Health Consultants, Inc.(1) DE 100
ATS Medical Services, Inc.(2) PA 100
Health Examinetics, Inc. DE 100
Healthquest, Inc.(3) DE 67
Jersey Kidney Specialists, Inc.(4) NJ 100
MCHC, Inc. DE 100
MDTC Haddon, Inc.(5) DE 100
MEDIQ Diagnostic Centers Inc. DE 100
MEDIQ Diagnostic Centers-I Inc.(5) DE 100
MEDIQ Healthcare, Inc. DE 100
MEDIQ Investment Services, Inc. DE 100
MEDIQ Management Services, Inc. DE 100
MEDIQ Marin, Inc. DE 100
MEDIQ Mobile X-Ray Services, Inc. DE 100
MEDIQ/PRN Life Support Services, Inc.(6) DE 100
MEDIQ/PRN Life Support Services - I, Inc.(6) DE 100
MEDIQ Services, Inc. DE 100
P. I. Corporation (3) DE 100
PRN Holdings, Inc. DE 100
Thera-Kinetics Acquisition Corporation NJ 100
MEDIQ Surgical Equipment Services, Inc. DE 100
</TABLE>
- ----------
(1) Subsidiary of MEDIQ Management Services, Inc.
(2) Subsidiary of MEDIQ Mobile X-Ray Services, Inc.
(3) Subsidiary of MEDIQ Investment Services, Inc.
(4) Subsidiary of MICD, Inc.
(5) Subsidiary of MEDIQ Diagnostic Centers Inc.
(6) Subsidiary of PRN Holdings, Inc.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference, in the Registration
Statements listed below of our report, dated December 28, 1995 appearing in this
Annual Report on Form 10-K of MEDIQ Incorporated and subsidiaries for the year
ended September 30, 1995.
Registration Statement No. 33-13122 on Form S-8
Registration Statement No. 33-11042 on Form S-8
Registration Statement No. 33-16802 on Form S-8
Registration Statement No. 33-5089 on Form S-2
Registration Statement No. 33-47416 on Form S-8
Registration Statement No. 33-59126 on Form S-3
Registration Statement No. 33-61724 on Form S-2
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
January 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
MEDIQ INCORPORATED AND SUBSIDIARIES
Financial Data Schedule
(Unaudited)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,966
<SECURITIES> 0
<RECEIVABLES> 30,091
<ALLOWANCES> 2,207
<INVENTORY> 4,181
<CURRENT-ASSETS> 63,445
<PP&E> 223,510
<DEPRECIATION> 90,687
<TOTAL-ASSETS> 334,170
<CURRENT-LIABILITIES> 64,685
<BONDS> 218,856
<COMMON> 19,127
0
3,376
<OTHER-SE> 9,014
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 132,241
<CGS> 0
<TOTAL-COSTS> 108,303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,977
<INCOME-PRETAX> 1,095
<INCOME-TAX> 1,304
<INCOME-CONTINUING> (209)
<DISCONTINUED> (4,738)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,947)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: September 30, 1995 Commission File
Number: 0-19795
PCI SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0336586
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1403 Foulk Road, Suite 102
Wilmington, Delaware 19803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 479-0281
Securities registered pursuant to Section
12(b) of the Act: None
Securities registered pursuant to Section
12(g) of the Act: Common Stock,
par value $.001 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
The aggregate market value of the registrant's voting stock held by
nonaffiliates (based upon the closing price of $9.875) on December 1, 1995, was
approximately $33,900,000. As of December 1, 1995, there were 6,126,250 shares
of Common Stock, par value $.001 per share, outstanding.
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 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_
Documents Incorporated by Reference
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held in 1996 are incorporated by reference into Part III. The index to
Exhibits begins on page 27.
<PAGE>
PART I
ITEM 1. BUSINESS
General
PCI Services, Inc. (the "Company") provides integrated packaging services
to meet the diverse and changing packaging needs of its pharmaceutical customers
in the United States and Europe.
The packaging of a pharmaceutical product is an integral part of its
efficacy, safety and consumer acceptance. While many pharmaceutical companies
package certain products at their own facilities, many regularly utilize
independent packagers for other products and special circumstances. Some
manufacturers also use independent packagers to provide additional packaging
capacity for peaks in demand, and some manufacturers do not package their
products, using independent packagers for all of their packaging needs.
The pharmaceutical industry is affected by global concerns relating to
health care reform, the regulatory climate, environmental protection and general
economic conditions. The Company is unable to determine the effect, if any,
changes in the pharmaceutical industry may have on pharmaceutical packagers. The
market for pharmaceutical packaging services has benefited from increased
competition in the pharmaceutical industry, particularly for over-the-counter
products, increased use of "unit-dose" packaging and changes in regulatory
practices.
The Company's Packaging Services
The Company provides a wide range of packaging services to its
pharmaceutical customers. By offering a single source of integrated packaging
services, the Company can assist a pharmaceutical manufacturer in enhancing
quality and uniformity, reducing waste through increased production efficiency,
and obtaining faster delivery by reducing multiple vendor involvement. The
customer can select the full range of packaging services or may select only
those which meet its needs for a particular product.
The Company packages pharmaceutical products in the form of tablets,
capsules, powders, ointments, lotions and liquids. The packaging services
offered by the Company include blister packaging, bottle filling, strip
packaging, pouching, capsule filling and cold-forming, as well as tamper-evident
and child-resistant features. Blister packaging consists of a blister affixed to
a rigid or semi-rigid backing material, through which an individual dose is
expelled. Bottle filling uses high speed equipment which fills glass or plastic
bottles with pharmaceutical products, and then adds cotton, safety seals, caps
and labels in one production line. Strip packaging is often used for products
that require extra protection from moisture, light and tampering and generally
consists of higher density materials produced in a perforated strip of packages.
Pouching, which is similar to strip packaging, is often used for larger volume
packages filled with powders or liquids, but can also be used as a unit-dose
package for tablets or capsules, and consists of a flexible packaging material
(plastic, foil, paper or synthetic materials) which is formed, filled and
sealed. Capsule filling consists of hard gelatin capsules which are filled with
pharmaceutical products in the form of powders, granules, pellets or tablets.
Cold-forming uses laminated foil, which is formed, filled and heat-sealed, and
is generally used for products requiring extra protection from moisture.
Tamper-evident and child-resistant features may take the form of blister,
shrink-wrap, over-wrap or other packaging.
Additional packaging services provided by the Company include the
production of folding cartons, thermoformed components, and the printing of
product inserts. Folding cartons are printed, die cut and glued boxes ready for
machine or hand filling with blisters, bottles or other pharmaceutical packages.
Thermoformed components consist of vacuum formed plastic trays and display
components.
<PAGE>
The Company provides production services from layout and design
through full color printing, die cutting, folding and gluing. The Company's
services include the design, printing and folding of inserts, containing
important dosage and other information, for the customer to add to its
pharmaceutical packages or for the Company to include as part of its other
packaging services.
Marketing
The Company markets its services primarily through the development of
relationships with senior managers within the purchasing, manufacturing, quality
assurance, marketing and package development departments of pharmaceutical
companies. These relationships are fostered and maintained by the Company's
senior management and sales force, as well as by representatives from the
Company's manufacturing and quality assurance operations. The Company's existing
customers, as well as potential new accounts, are contacted on a regular basis
by the Company's senior management and sales force.
In general, pharmaceutical packaging services are provided by the Company
to its customers on an as-needed basis. The Company also has single source
relationships, in which the pharmaceutical manufacturer relies principally on
the Company to fulfill particular needs. A single source relationship can
increase volume predictability and decrease production setup time and costs,
resulting in increased operating efficiencies for the Company. In addition,
single sourcing can help streamline the customer's purchasing operations, reduce
its inventory, warehousing and personnel expenses and increase vendor
reliability, quality assurance and responsiveness.
Customers
For the fiscal years ended September 30, 1995, 1994 and 1993, divisions or
affiliates of Johnson & Johnson accounted for an aggregate of 24%, 21% and 22%,
respectively, of net revenue. The Company maintains separate relationships with
each of these divisions or affiliates and believes that purchasing decisions are
made on an independent basis.
Competition
The Company believes that competition for pharmaceutical packaging services
is based primarily on quality, the variety of packaging services available,
customer service, responsiveness and price. The Company competes with several
companies that provide many types of packaging services, and a large number of
companies that provide one or a few types of packaging services. The Company
currently competes with companies that are larger and have greater financial and
other resources. The Company believes that while there are a large number of
independent providers of one or more pharmaceutical packaging services, only a
few, such as the Company, offer a broad range of services. In order to compete
successfully, the Company believes an independent packager must have expertise
in the packaging services required, satisfy the high quality standards of
pharmaceutical companies and the U.S. Food and Drug Administration ("FDA"), and
respond to the diverse and changing needs of the pharmaceutical industry, all at
competitive prices.
Government Regulation and Quality Assurance
The Company's domestic pharmaceutical packaging operations are required to
be, and the Company believes that such operations are, conducted pursuant to the
current Good Manufacturing Practices standards of the FDA. The Company is
registered with the FDA as a pharmaceutical packager and its pharmaceutical
packaging facilities undergo general FDA inspections every two years. In
addition, certain of the Company's facilities are subject to limited inspections
from time to time in
<PAGE>
connection with the Company being designated in new drug applications by
pharmaceutical companies as a potential independent packager. The purpose of the
inspections is to review the Company's capability to package the new drug in
question. Only those companies designated in an approved new drug application
may provide packaging services with respect to such new drug. While the Company
does not conduct an independent analysis of the products provided by its
customers for packaging, rigorous controls are maintained to account for product
utilization. The Company is also subject to various rules and regulations
administered by the Drug Enforcement Administration division of the United
States Department of Health and Human Services and other federal, state and
local agencies. In addition, the Company's facilities are inspected periodically
by the Company's customers as part of their quality assurance process, with the
frequency of inspections varying by customer and packaging service.
The Company's operations in Germany are subject to state and local
certification requirements, including compliance with the current Good
Manufacturing Practices adopted by the European Community. The Company's
facility in Germany is also subject to periodic regulatory and customer
inspections.
Employees
The Company has approximately 1,300 employees engaged in executive, sales,
technical and administrative functions and production. Certain of the Company's
employees at certain of the domestic facilities are represented by unions
pursuant to contracts expiring in 2000. As is customary in Germany, certain
terms and conditions of employment for the Company's employees in that country
are regulated by national union contracts. The number of persons employed by the
Company fluctuates depending upon the volume of business.
Company History
The Company was incorporated on September 20, 1991 under the laws of the
State of Delaware. Prior to its initial public offering in January 1992, the
Company had been a wholly-owned subsidiary of MEDIQ Incorporated ("MEDIQ").
MEDIQ, a 47% owner of the Company, is currently exploring alternative ways to
maximize MEDIQ's shareholder value. MEDIQ has announced its intention to pursue
the realization of the value of its investment in the Company.
Financial Information About Foreign and Domestic Operations
Financial information about foreign and domestic operations is discussed in
Note J to the Consolidated Financial Statements included elsewhere herein.
<PAGE>
ITEM 2. PROPERTIES
The Company operates the following principal facilities (which are
leased unless otherwise indicated):
<TABLE>
<CAPTION>
Approximate
Location Type of Facility Square Feet
- -------- ---------------- -----------
<S> <C> <C>
Philadelphia, Pennsylvania (1) Executive Offices
and Manufacturing 293,000
Philadelphia, Pennsylvania (1) Manufacturing 165,000
Ivyland, Pennsylvania Manufacturing 22,000
Pennsauken, New Jersey (1) Manufacturing 120,000
Moorestown, New Jersey Manufacturing 20,000
Gurabo, Puerto Rico Manufacturing 65,000
Manati, Puerto Rico Manufacturing 51,000
Richmond, Virginia (1) Manufacturing 62,000
Waiblingen, Germany (see below) Manufacturing 70,000
Schorndorf, Germany (1)(2) Manufacturing 105,000
</TABLE>
- ---------------
(1) Owned
(2) Anticipated to be operational early 1996.
The Company's facilities in New Jersey, Germany, Puerto Rico and Virginia
also contain regional administrative and sales offices. The Company is
constructing a new pharmaceutical packaging facility in Schorndorf, Germany to
replace the Company's facility in Waiblingen, Germany, the lease on which
expires in April 1996. The Company believes that its facilities are well
maintained and in good operating condition, and that such facilities will be
adequate for all of the Company's reasonably foreseeable requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company may, from time to time, become involved in various legal
proceedings incidental to its business, some of which may be covered by
insurance. The Company knows of no litigation, either pending or threatened,
which is likely to have a material adverse effect on the Company. The Company
has never been subject to any product liability claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended September 30, 1995.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Market Information
The following table sets forth, for the periods indicated, the high and low
prices for the common stock as reported by NASDAQ.
High Low
---- ---
Fiscal year ended September 30, 1995:
First Quarter $ 7.000 $ 5.500
Second Quarter 7.875 6.250
Third Quarter 9.500 6.750
Fourth Quarter 10.125 8.625
Fiscal year ended September 30, 1994:
First Quarter $11.750 $ 8.750
Second Quarter 12.750 9.750
Third Quarter 10.750 8.750
Fourth Quarter 9.500 6.250
Common Stock Holders
The Company believes there are approximately 1,500 holders of common stock,
including shares held in street name by brokers.
Dividends
The Company did not declare any dividends on its common stock in the fiscal
years ended September 30, 1995, 1994 and 1993. Pursuant to a lending
arrangement, there are restrictions on the amount of dividends which may be
paid, the most restrictive of which limits cash dividends to no more than 50% of
net income during any year. Any future determination to pay cash dividends will
be at the discretion of the Board of Directors, and will be dependent upon the
Company's financial condition, results of operations, capital requirements and
such other factors as the Board of Directors deem relevant.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below has been derived
from the audited financial statements of the Company. This data is qualified in
its entirety by reference to, and should be read in conjunction with,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1995 1994 1993(1) 1992 1991
---- ---- ------- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue $129,785 $ 121,177 $ 111,272 $ 75,430 $ 67,825
Cost of goods sold 101,586 96,092 86,932 58,097 55,452
-------- --------- --------- -------- --------
Gross profit 28,199 25,085 24,340 17,333 12,373
Selling, general and
administrative expenses 16,613 16,249 14,334 8,377 6,961
Interest expense 1,838 1,527 1,269 632 1,318
Other (income) expense 103 (215) (259) (106) (107)
Management fees - MEDIQ (2) -- -- -- -- 3,400
-------- --------- --------- -------- --------
Income before income tax expense 9,645 7,524 8,996 8,430 801
Income tax expense 4,073 2,168 2,841 3,114 754
-------- --------- --------- -------- --------
Net income $ 5,572 $ 5,356 $ 6,155 $ 5,316 $ 47
======== ========= ========= ======== ========
Earnings per share $ .91 $ .79 $ .92 $ 1.05 $ .02
======== ========= ========= ======== ========
Weighted average shares outstanding (3)(4) 6,138 6,787 6,726 5,079 2,875
======== ========= ========= ======== ========
September 30,
-----------------------------------------------------
1995 1994 1993(1) 1992(4) 1991
---- ---- ------- ------- ----
(in thousands)
Balance Sheet Data:
Working capital $ 12,180 $ 11,057 $ 12,817 $ 13,096 $ 8,224
Total assets 108,967 83,427 80,122 49,690 40,694
Long-term debt, less current maturities 27,208 14,760 11,577 6,304 9,104
Due to MEDIQ (4) -- -- -- -- 9,199
Notes payable to MEDIQ (4) -- -- -- -- 12,300
Stockholders' equity (3)(4) 53,536 47,344 48,354 33,513 1,917
</TABLE>
See Notes to Selected Consolidated Financial Data on following page.
<PAGE>
Notes to Selected Consolidated Financial Data
(1) In December 1992, the Company issued 660,000 shares of common stock to
acquire Allpack Industrielle Lohnverpackung GmbH ("Allpack").
(2) Management fees - MEDIQ represented primarily an allocation of MEDIQ's
overhead and its costs to provide senior management, financial, legal,
accounting and risk management services to the Company. In connection with
the Company's initial public offering, certain relationships with MEDIQ
were restructured. Effective October 1, 1991, the Company entered into a
services agreement pursuant to which the Company obtains certain legal,
accounting, tax and risk management services from MEDIQ. Costs for such
services were $100,000 for each of the fiscal years 1995, 1994, 1993 and
1992, and are included in selling, general and administrative expenses. The
Company believes that the terms of the services agreement and MEDIQ's
charges for such services are on terms no less favorable than those that
could be obtained from unaffiliated third parties for comparable services.
(3) In August 1994, the Company repurchased the 660,000 shares of common stock
which had been issued in connection with the acquisition of Allpack.
(4) In February 1992, the Company completed its initial public offering
consisting of 3,306,250 shares of common stock at a price of $10 per share.
The Company utilized a portion of the proceeds to repay amounts outstanding
to MEDIQ, to purchase equipment under capital lease arrangements and to
retire certain term loan obligations.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto, contained elsewhere herein.
Results of Operations
The Company's pharmaceutical packaging services are generally provided on
an as-needed basis. As a result, revenue per customer and profit margins per
order can vary significantly from year to year and quarter to quarter. Results
for any particular quarter are not necessarily indicative of results for any
subsequent quarter or related fiscal year.
Effective October 1, 1994, the Company sold its 70% interest in
KR-Verpackung GmbH ("KR") of Muggensturm, Germany and its manufacturing
facility, to the management of KR for $5,201,000, including the assumption of
debt of $4,379,000. The sale of KR and the manufacturing facility resulted in a
pretax loss of $23,000. Revenues from KR were $6,700,000 and $5,852,000, for
1994 and 1993, respectively, and net income was $152,000 and $203,000,
respectively.
The following table sets forth for the periods indicated the percentage
relationship that items in the Consolidated Statements of Operations bear to net
revenue.
Year Ended September 30,
--------------------------
1995 1994 1993
---- ---- ----
Net revenue 100.0% 100.0% 100.0%
Cost of goods sold 78.3 79.3 78.1
----- ----- -----
Gross profit 21.7 20.7 21.9
Selling, general and administrative expenses 12.8 13.4 12.9
Interest and other (income) expense 1.5 1.1 .9
----- ----- -----
Income before income tax expense 7.4 6.2 8.1
Income tax expense 3.1 1.8 2.6
----- ----- -----
Net income 4.3% 4.4% 5.5%
===== ===== =====
Fiscal Year 1995 Compared to Fiscal Year 1994
Net revenue was $129,785,000, an increase of $8,608,000, or 7.1%, over
prior year net revenue of $121,177,000, which included revenues from KR of
$6,700,000. This increase was primarily attributable to the introduction by
customers of several new pharmaceutical products, as well as revenues from the
Company's new pharmaceutical insert/outsert manufacturing facility in New
Jersey, which commenced production in April 1994, and increased demand for
packaging services from the Company's facilities in Puerto Rico.
Gross profit was 21.7% of net revenue, as compared to 20.7% in 1994. This
increase was attributable to changes in product mix and improved results from
the Company's foreign operations, which had been adversely affected in the prior
year as a result of a decision by a major European customer to discontinue a
packaging contract with the Company in order to perform the packaging in its own
facilities. The Company has mitigated this loss by obtaining additional foreign
business, including the return of a portion of the discontinued contract. Gross
profit for 1995 was also affected by decreased contributions from the Company's
facilities in Puerto Rico as a result of competitive pressures.
Selling, general and administrative expenses were $16,613,000, as compared
to $16,249,000 in 1994. As a percentage of net revenue, selling, general and
administrative expenses decreased to 12.8%, as compared to 13.4% in the prior
year as a result of the allocation of these costs over higher net revenues.
<PAGE>
Interest expense was $1,838,000, as compared to $1,527,000 in 1994. This
increase was primarily attributable to debt incurred in the fourth quarter of
1994 in connection with the purchase of shares of the Company's common stock,
partially offset by the elimination of interest expense related to the mortgage
on KR's manufacturing facility. Capitalized interest expense related to new
facilities in Philadelphia, Pennsylvania and Schorndorf, Germany was $318,000 in
1995.
The Company's effective income tax rate increased to 42.2%, as compared to
28.8% in 1994 principally as a result of lower earnings from operations in
Puerto Rico combined with growth of the Company's other operations. The Revenue
Reconciliation Act of 1993 limits Section 936 tax credits applicable to
operations in Puerto Rico. These limitations did not adversely impact, nor are
they anticipated to adversely impact, the Company's effective income tax rate.
Fiscal Year 1994 Compared to Fiscal Year 1993
Net revenue was $121,177,000, an increase of $9,905,000, or 8.9%, as
compared to 1993. The increase was primarily attributable to increased volume to
existing customers and an expanded customer base. Strong demand for contract
packaging, carton manufacturing and insert manufacturing services continued to
generate new business.
Gross profit increased to $25,085,000, representing a gross margin on net
revenue of 20.7%, as compared to 21.9% in 1993. The gross margin decrease was
caused by domestic product mix and a lower profit contribution from the
Company's foreign operations. Foreign gross profit margins were adversely
affected in 1994 as a result of a decision by a major European customer to
discontinue a packaging contract with the Company in order to perform the
packaging in its own facilities. Customer decisions to move packaging into the
customers' facilities are a normal occurrence in the pharmaceutical packaging
industry. While the Company mitigated this loss by obtaining additional foreign
business, including the return of a portion of the discontinued contract, these
operations did not return to profitability until the fourth quarter of 1994.
Gross margins were also adversely affected by costs associated with the
Company's new pharmaceutical insert manufacturing plant in New Jersey, which
commenced production in April 1994.
Selling, general and administrative expenses were $16,249,000, an increase
of $1,915,000, or 13.4%, as compared to 1993 expenses of $14,334,000. As a
percentage of net revenue, selling, general and administrative expenses
increased to 13.4% from 12.9% in 1993, primarily attributable to costs
associated with increased sales and marketing expenses.
Interest expense increased to $1,527,000, as compared to $1,269,000 in
1993. This increase resulted primarily from debt assumed in connection with the
acquisition of the Company's Virginia facility in January 1993 and debt incurred
in connection with the purchase of an operating facility
in April 1993 which had previously been leased.
The Company's effective income tax rate decreased to 28.8% in 1994 as
compared to 31.6% in 1993 as a result of higher earnings from operations in
Puerto Rico.
Liquidity and Capital Resources
At September 30, 1995, the Company had working capital of $12,180,000
including cash and cash equivalents of $3,619,000. Net cash provided by
operations was $11,400,000 for 1995, which was comparable to 1994. Net cash
provided by operations for 1995 was adversely affected by increased accounts
receivable attributable to increased revenues and the elimination of a discount
policy. In addition, inventories increased in the fourth quarter of 1995 in
anticipation of increased business in the first quarter of fiscal 1996.
Investing activities for 1995 consisted principally of capital expenditures
of $23,777,000, of which approximately $8,100,000 was attributable to building
improvements for the Company's new
pharmaceutical packaging facility in Philadelphia, Pennsylvania and
$8,500,000 was attributable to the purchase of land and construction costs for a
new pharmaceutical packaging facility in Schorndorf, Germany, with the remainder
attributable to equipment purchases. The Schorndorf facility, which is scheduled
to open in January 1996, will replace the Company's facility in Waiblingen,
Germany, which is leased through April 1996. The Company anticipates capital
expenditures in 1996 of approximately $8,000,000 for equipment and $7,000,000
for the Schorndorf facility. Investing activities also included proceeds from
the sale of assets, including KR, of $1,141,000 and the payment of $533,000
representing the final installment of the contingent consideration related to
the 1992 acquisition of a business in Puerto Rico.
Financing activities for 1995 included debt repayments of $3,754,000 and
borrowings of $16,317,000, of which approximately $8,600,000 related to the new
packaging facility in Philadelphia and $5,500,000 related to the new facility in
Schorndorf. In addition, the Company purchased an aggregate of 55,000 shares of
its common stock for $382,000 pursuant to a stock buy-back program, initiated by
the Company's Board of Directors in fiscal 1994. The program allows for the
purchase of 245,000 additional shares of common stock from time to time in the
open market or through private transactions.
During 1995, the Company entered into agreements with a bank and state and
municipal authorities to finance building improvements and equipment for the new
facility in Philadelphia. The bank financing includes a mortgage of $3,800,000
payable in monthly installments over 15 years with interest at the prime rate
plus .25% and state and municipal financing of approximately $5,000,000,
including $4,000,000 payable over 15 years with interest at 2%, $500,000 payable
over 15 years with interest at 5.25% and $500,000 payable over 7 years with
interest at 2%.
In addition, the Company entered into a $13,000,000 mortgage with a bank in
Germany to finance the construction of the new packaging facility in Schorndorf,
Germany. The financing bears interest at the rate of 7.73% for the first five
years, and, thereafter, at a rate to be negotiated. Interest only is payable for
the first two years, and then principal and interest is payable monthly until
maturity in 2014. At September 30, 1995, $5,478,000 was outstanding under this
facility.
At September 30, 1995, the Company had approximately $2,000,000 available
under its lines of credit.
Management believes that working capital, anticipated funds to be generated
from future operations and available credit facilities will be sufficient to
meet anticipated operating and capital needs. Depending upon the future growth
of the business, additional financing may be required.
Subsequent Event
Effective December 1, 1995, the Company exercised its option to repurchase
shares of preferred stock of Tri-Line, a subsidiary of the Company, issued in
connection with the acquisition in 1992. The purchase price was $900,000,
representing the book value of such shares (which were included in other
liabilities in the Company's Consolidated Balance Sheets), and was funded out of
working capital.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Independent Auditors' Report 13
Consolidated Statements of Operations -
Three Years Ended September 30, 1995 14
Consolidated Balance Sheets - September 30, 1995 and 1994 15
Consolidated Statements of Stockholders' Equity -
Three Years Ended September 30, 1995 16
Consolidated Statements of Cash Flows -
Three Years Ended September 30, 1995 17
Notes to Consolidated Financial Statements 18
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
PCI Services, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheets of PCI
Services, Inc. and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1995. Our
audits also include the financial statement schedule listed in the index at Item
14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement 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, such consolidated financial statements present fairly,
in all material respects, the financial position of PCI Services, Inc. and
subsidiaries as of September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
November 17, 1995
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1995 1994 1993
------------- ------------- --------------
<S> <C> <C> <C>
Net revenue $129,785,000 $ 121,177,000 $ 111,272,000
Cost of goods sold 101,586,000 96,092,000 86,932,000
------------- ------------- --------------
Gross profit 28,199,000 25,085,000 24,340,000
Selling, general and administrative expenses 16,613,000 16,249,000 14,334,000
Interest expense 1,838,000 1,527,000 1,269,000
Other (income) expense 103,000 (215,000) (259,000)
------------- ------------- --------------
Income before income tax expense 9,645,000 7,524,000 8,996,000
Income tax expense 4,073,000 2,168,000 2,841,000
------------- ------------- --------------
Net income $ 5,572,000 $ 5,356,000 $ 6,155,000
============= ============= ==============
Earnings per share $ .91 $ .79 $ .92
============= ============= ==============
Weighted average shares outstanding 6,138,000 6,787,000 6,726,000
============= ============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-----------------------------
ASSETS 1995 1994
- ------ ------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,619,000 $ 3,089,000
Accounts receivable, less allowance for
doubtful accounts of $211,000 - 1995;
$103,000 - 1994 17,940,000 13,858,000
Inventories 11,588,000 8,444,000
Deferred income taxes 1,241,000 621,000
Net assets held for sale -- 683,000
Other current assets 1,826,000 1,606,000
------------- ------------
Total current assets 36,214,000 28,301,000
Property, plant and equipment, net 61,901,000 44,145,000
Goodwill, net of accumulated amortization of
$2,235,000 - 1995; $1,930,000 - 1994 10,182,000 9,857,000
Other assets 670,000 1,124,000
------------- ------------
$ 108,967,000 $ 83,427,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to financial institutions $ 2,005,000 $ 1,553,000
Accounts payable 9,746,000 6,241,000
Accrued payroll and related taxes 1,747,000 1,301,000
Accrued insurance 1,649,000 1,332,000
Accrued expenses - other 3,595,000 2,741,000
Federal, state and foreign taxes payable 1,650,000 668,000
Long-term debt - current maturities 3,642,000 3,408,000
------------- ------------
Total current liabilities 24,034,000 17,244,000
Long-term debt, less current maturities 27,208,000 14,760,000
Deferred income taxes 2,758,000 2,254,000
Other 1,431,000 1,825,000
Stockholders' equity:
Preferred stock - $.001 par value:
Authorized - 10,000,000 shares
Issued and outstanding - none -- --
Common stock - $.001 par value:
Authorized - 25,000,000 shares
Issued: 6,841,250 - 1995 and 1994
Outstanding: 6,126,250 - 1995; 6,181,250 - 1994 7,000 7,000
Additional paid-in capital 35,461,000 35,461,000
Retained earnings 22,399,000 16,827,000
Foreign currency translation adjustment 1,331,000 329,000
Treasury stock, at cost: 715,000 - 1995;
660,000 - 1994 (5,662,000) (5,280,000)
------------- ------------
53,536,000 47,344,000
------------- ------------
$ 108,967,000 $ 83,427,000
============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency
------------ ---------- --------
Shares Paid-In Retained Translation Treasury
Issued Amount Capital Earnings Adjustment Stock
------ ------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1992 6,181,250 $6,000 $ 28,191,000 $ 5,316,000 $ -- $ --
Issuance of common stock -
Acquisition of Allpack 660,000 1,000 8,801,000 -- -- --
Contribution of capital -- -- 71,000 -- -- --
Foreign currency
translation adjustment -- -- -- -- (187,000) --
Net income -- -- -- 6,155,000 -- --
---------- ------- ------------ ------------ ----------- -----------
Balance at September 30, 1993 6,841,250 7,000 37,063,000 11,471,000 (187,000) --
Acquisition of treasury stock -- -- (1,602,000) -- -- (5,280,000)
Foreign currency
translation adjustment -- -- -- -- 516,000 --
Net income -- -- -- 5,356,000 -- --
---------- ------- ------------ ------------ ----------- -----------
Balance at September 30, 1994 6,841,250 7,000 35,461,000 16,827,000 329,000 (5,280,000)
Acquisition of treasury stock -- -- -- -- -- (382,000)
Foreign currency
translation adjustment -- -- -- -- 1,002,000 --
Net income -- -- -- 5,572,000 -- --
---------- ------- ------------ ------------ ------------ -----------
Balance at September 30, 1995 6,841,250 $7,000 $ 35,461,000 $22,399,000 $ 1,331,000 $(5,662,000)
========== ======= ============ ============ ============= ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,572,000 $ 5,356,000 $ 6,155,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,926,000 5,390,000 4,812,000
Deferred taxes (144,000) (481,000) 638,000
Other 168,000 246,000 139,000
Increase (decrease), net of effect of acquisitions:
Accounts receivable (4,080,000) (288,000) (738,000)
Inventories (2,976,000) (968,000) 254,000
Other current assets (74,000) (336,000) (498,000)
Accounts payable 3,380,000 1,972,000 (649,000)
Accrued payroll and related taxes 384,000 17,000 (355,000)
Accrued expenses - other 1,152,000 343,000 430,000
Federal, state and foreign taxes payable 1,092,000 107,000 (301,000)
------------ ------------ -----------
Net cash provided by operating activities 11,400,000 11,358,000 9,887,000
Cash flows from investing activities:
Proceeds from sale of assets 1,141,000 356,000 --
Acquisition and construction of property, plant and equipment (23,777,000) (11,952,000) (5,740,000)
Acquisitions and contingent consideration (533,000) (533,000) (1,227,000)
Other 296,000 (763,000) 433,000
------------ ------------ -----------
Net cash used in investing activities (22,873,000) (12,892,000) (6,534,000)
Cash flows from financing activities:
Borrowings 16,317,000 14,543,000 2,579,000
Debt repayments (3,754,000) (8,404,000) (4,521,000)
Acquisition of treasury stock (382,000) (6,882,000) --
Other (186,000) (162,000) (380,000)
------------ ------------ -----------
Net cash provided by (used in) financing activities 11,995,000 (905,000) (2,322,000)
Effect of exchange rate changes on cash 8,000 (98,000) (35,000)
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents 530,000 (2,537,000) 996,000
Cash and cash equivalents:
Beginning of period 3,089,000 5,626,000 4,630,000
------------ ------------ -----------
End of period $ 3,619,000 $ 3,089,000 $ 5,626,000
=========== =========== ==========
Supplemental disclosures of cash flow information:
Interest paid $ 1,891,000 $ 1,391,000 $ 1,239,000
=========== =========== ==========
Income taxes paid $ 3,302,000 $ 2,385,000 $ 2,527,000
=========== =========== ==========
Supplemental disclosures of non-cash investing and financing activities:
Plant and equipment financed with long-term debt $ -- $ 1,035,000 $ 4,443,000
=========== =========== ==========
Issuance of stock - acquisition of Allpack $ -- $ -- $ 8,802,000
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Note A - Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include
the accounts of PCI Services, Inc. and its subsidiaries (the "Company"). In
consolidation, all significant intercompany transactions and balances have been
eliminated.
Cash Equivalents - Cash equivalents include all unrestricted, liquid
investments purchased with maturities of three months or less.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Capital leases are recorded at the lower of fair market value or the
present value of future lease payments. The Company provides for depreciation
and amortization on a straight-line basis as follows:
Buildings 25 to 30 years
Building improvements 15 to 30 years
Machinery, equipment, furniture and fixtures 5 to 10 years
Goodwill - The purchase price in excess of net assets acquired is amortized
on a straight-line basis over forty years.
Carrying Value of Long-Term Assets - The Company evaluates the carrying
value of long-term assets, including goodwill, based upon current and
anticipated net income and/or undiscounted cash flows and recognizes an
impairment when it is probable that such estimated future net income and/or cash
flows will be less than the carrying value of the asset. Measurement of the
amount of impairment, if any, is based upon the difference between carrying
value and fair value.
Foreign Currency Translation - In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation," the
consolidated financial statements of the Company's German subsidiary, Allpack
Industrielle Lohnverpackung GmbH ("Allpack"), are translated from deutschemarks
to U.S. dollars using the exchange rate at the balance sheet date for assets and
liabilities, and the weighted average exchange rate during the period for
results of operations and cash flows. The related translation adjustment is
included as a separate component of stockholders' equity.
Revenue Recognition - The Company recognizes revenue on specific orders
when they are shipped. In certain situations, based on individual agreements
with customers, revenue is recognized when the packaging services are completed,
and delivery is deferred at the customer's request.
Income Taxes - Effective October 1, 1993, the Company adopted the
provisions of SFAS No. 109, "Accounting for Income Taxes", which supersedes SFAS
No. 96. The Company adopted SFAS No. 96 in fiscal 1990. The effect of the
adoption of SFAS No. 109 was not significant for the year ended September 30,
1994.
<PAGE>
Note A - Summary of Significant Accounting Policies (Continued)
Earnings Per Share - Earnings per share computations are based upon the
weighted average number of common shares outstanding. Outstanding stock options
have been excluded from the calculation of weighted average shares outstanding,
since the dilutive effect is less than 3%.
Reclassifications - Certain items in the prior years' financial statements
have been reclassified to conform with the 1995 presentation.
Note B - Sale of KR - Verpackung GmbH
Effective October 1, 1994, the Company sold its 70% interest in
KR-Verpackung GmbH ("KR") of Muggensturm, Germany and its manufacturing
facility, to the management of KR for $5,201,000, including the assumption of
debt of $4,379,000. The net assets of KR and the manufacturing facility were
classified as "Assets Held For Sale" in the accompanying balance sheet as of
September 30, 1994. The sale of KR and the manufacturing facility resulted in a
pretax loss of $23,000. Revenues from KR were $6,700,000 and $5,852,000, for
1994 and 1993, respectively, and net income was $152,000 and $203,000,
respectively.
Note C - Inventories
September 30,
1995 1994
---- ----
Raw materials $ 6,894,000 $5,077,000
Work in process 1,000,000 1,760,000
Finished goods 3,694,000 1,607,000
----------- ----------
$11,588,000 $8,444,000
=========== ==========
Note D - Property, Plant and Equipment
September 30,
1995 1994
---- ----
Land $ 4,161,000 $ 1,388,000
Building and improvements 26,819,000 12,289,000
Machinery, equipment, furniture and fixtures 58,750,000 49,684,000
Equipment under capital lease 1,341,000 3,667,000
------------ ------------
91,071,000 67,028,000
Less: accumulated depreciation and amortization 29,170,000 22,883,000
------------ ------------
$ 61,901,000 $ 44,145,000
============ ============
Depreciation and amortization expense related to property, plant and
equipment for fiscal years 1995, 1994 and 1993 was $6,538,000, $5,037,000 and
$4,472,000, respectively.
<PAGE>
Note E - Notes Payable to Financial Institutions
At September 30, 1995, the Company had $1,010,000 available under unsecured
lines of credit with a financial institution with $2,005,000 outstanding bearing
interest at rates ranging from 3.56% to 5.35%. The average amount outstanding in
fiscal year 1995 was $1,624,000 and the weighted average interest rate computed
on the monthly outstanding balance was 4.7%.
Note F - Long-Term Debt
<TABLE>
<CAPTION>
September 30,
1995 1994
---- ----
<S> <C> <C>
Revolving credit facility, maturing
March 31, 1997, with interest at the
prime rate (8.75% at September 30, 1995) $ 3,000,000 $ 2,802,000
Term loans with variable interest rates of prime
to prime plus 0.25% and fixed rates of
2% to 10% maturing through 2002 14,435,000 12,070,000
Mortgages with interest rates ranging from a fixed rate
of 2% to prime plus 0.25% maturing through 2011 13,326,000 2,352,000
Capital lease obligations with interest rates ranging
from 8.5% to 13% maturing through 1997 89,000 944,000
----------- -----------
30,850,000 18,168,000
Less: current maturities 3,642,000 3,408,000
----------- -----------
$27,208,000 $14,760,000
=========== ===========
</TABLE>
Maturities of long-term debt are as follows:
Year Ending September 30,
1996 $ 3,642,000
1997 7,174,000
1998 4,877,000
1999 3,260,000
2000 1,455,000
Thereafter 10,442,000
-----------
$30,850,000
===========
In 1995, the Company entered into agreements with a bank and state and
municipal authorities to finance building improvements and equipment for the new
packaging facility in Philadelphia, Pennsylvania. The bank financing included a
mortgage of $3,800,000 payable over 15 years with interest at the prime rate
plus .25% and state and municipal financing of approximately $5,000,000 of term
loans and a mortgage, with $4,000,000 payable over 15 years with interest at 2%,
$500,000 payable over 15 years with interest at 5.25% and $500,000 payable over
7 years with interest at 2%.
In February 1995, the Company entered into a $13,000,000 mortgage with a
bank in Germany to finance the construction of the new packaging facility in
Schorndorf, Germany. The financing bears interest at the rate of 7.73% for the
first five years, and at a rate to be negotiated for the remainder of the term.
Interest only is payable for the first two years, and then principal and
interest is payable monthly until maturity in 2014. At September 30, 1995,
$5,478,000 was outstanding under this facility.
<PAGE>
Note F - Long-Term Debt (Continued)
In August 1994, the Company entered into an agreement with a commercial
lender for a revolving credit facility and two term notes of $7,500,000 and
$983,000. The revolving credit facility has been extended to March 31, 1997 and
bears interest, at the Company's option, at the prime rate or LIBOR plus 2%.
Draws under this facility for equipment purchases aggregating $1,000,000 or more
are converted to term notes, payable over a maximum of 60 months. At September
30, 1995, $3,000,000 was outstanding under this facility, with $1,000,000
available for additional borrowing. The $7,500,000 term note is payable monthly
through August 1999 with interest at the prime rate plus .25%. The $983,000 term
note is payable monthly through May 1999 plus interest at the prime rate.
The revolving credit facility and certain term loans and mortgages require
the maintenance of specific balance sheet and operating ratios and impose other
financial and dividend limitations. The most restrictive of these provisions
limits cash dividends to no more than 50% of net income in any one year. At
September 30, 1995, the Company either complied with or obtained the necessary
waivers from its lenders regarding these ratios and limitations.
The net carrying value of assets pledged as collateral under long-term debt
agreements was approximately $79,000,000 as of September 30, 1995.
Note G - Commitments and Contingencies
Leases - The Company leases certain manufacturing and warehouse facilities
and equipment. Rental expense for operating leases was $1,497,000, $1,452,000
and $1,286,000 for fiscal years 1995, 1994 and 1993, respectively. At September
30, 1995 equipment under capitalized lease obligations was $1,341,000, less
accumulated amortization of $787,000. Future minimum payments under capital
leases and noncancelable operating leases are as follows:
Capital Operating
Leases Leases
--------- -----------
Year Ending September 30,
1996 $ 86,000 $ 830,000
1997 5,000 372,000
1998 -- 161,000
1999 -- 58,000
2000 and thereafter -- 33,000
--------- ----------
Total minimum lease payments 91,000 $1,454,000
==========
Amount representing interest 2,000
----------
Present value of minimum lease payments $ 89,000
==========
Letters of Credit - As of September 30, 1995, the Company had outstanding
letters of credit of $2,657,000, which secure the Company's obligations under
insurance programs.
<PAGE>
Note H - Income Taxes
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $3,193,000 $1,793,000 $1,799,000
State 925,000 629,000 404,000
Foreign 99,000 227,000 --
---------- ---------- ----------
4,217,000 2,649,000 2,203,000
---------- ---------- ----------
Deferred:
Federal (283,000) 10,000 (86,000)
State 187,000 (230,000) 12,000
Foreign (48,000) (261,000) 712,000
---------- ---------- ----------
(144,000) (481,000) 638,000
---------- ---------- ----------
Total income tax expense $4,073,000 $2,168,000 $2,841,000
========== ========== ==========
</TABLE>
The differences between the provision for income taxes and income taxes
computed using the U.S. federal income tax rate were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory expense $3,279,000 $2,558,000 $3,059,000
Goodwill amortization 110,000 91,000 86,000
State tax, net of federal benefit 833,000 311,000 268,000
Puerto Rico operations (280,000) (813,000) (657,000)
Other 131,000 21,000 85,000
---------- ---------- ----------
Total income tax expense $4,073,000 $2,168,000 $2,841,000
========== ========== ==========
</TABLE>
<PAGE>
Note H - Income Taxes (Continued)
Significant components of deferred tax assets and liabilities were as follows:
September 30,
--------------------
1995 1994
---- ----
Liabilities
Depreciation expense $ 3,293,000 $ 3,079,000
Deferred acquisition costs 194,000 179,000
Amortization of goodwill 375,000 161,000
Other 446,000 231,000
----------- -----------
4,308,000 3,650,000
Assets
Foreign net operating losses 627,000 770,000
State net operating losses 277,000 317,000
Inventory capitalization 266,000 178,000
Insurance accruals 861,000 534,000
Other 1,037,000 295,000
----------- -----------
3,068,000 2,094,000
Valuation allowance (277,000) (77,000)
----------- -----------
2,791,000 2,017,000
----------- -----------
Net deferred tax liability $ 1,517,000 $ 1,633,000
=========== ===========
Under the provisions of SFAS No. 96, the deferred tax provision for fiscal
year 1993 of $638,000 resulted principally from depreciation of $432,000 and the
net tax effect of the German net operating loss of $597,000, partially offset by
insurance accruals of $271,000.
At September 30, 1995, the Company had state net operating loss
carryforwards of approximately $5,200,000, expiring through 2009, and German net
operating loss carryforwards of $1,600,000, which can be carried forward
indefinitely.
At September 30, 1995 and 1994, the balance of undistributed earnings of
foreign subsidiaries was $587,000 and $747,000, respectively. It is presumed
that ultimately these earnings will be distributed to the Company. The tax
effect of this presumption was evaluated by assuming that these earning were
remitted to the Company in the period in which they were earned and that the
Company received the benefit of all available tax planning alternatives and
available tax credits and deductions.
<PAGE>
Note I - Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data for fiscal years 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue $28,610,000 $31,912,000 $34,703,000 $34,560,000
Gross profit 6,024,000 6,064,000 8,342,000 7,769,000
Net income 1,041,000 1,121,000 1,698,000 1,712,000
Earnings per share .17 .18 .28 .28
Weighted average shares
outstanding 6,173,000 6,127,000 6,126,000 6,126,000
1994
- ----
Net revenue $27,917,000 $30,413,000 $31,427,000 $31,420,000
Gross profit 5,614,000 5,993,000 6,364,000 7,114,000
Net income 1,305,000 1,471,000 1,146,000 1,434,000
Earnings per share .19 .22 .17 .22
Weighted average shares
outstanding 6,841,000 6,841,000 6,841,000 6,626,000
</TABLE>
Note J - Geographic Segment Data
The Company operates in the United States (including Puerto Rico) and
Europe. The following table presents operating results for fiscal years 1995 and
1994 and identifiable assets of the Company as of September 30, 1995 and 1994,
by geographic area.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
United States $107,094,000 $ 96,449,000
Europe 23,177,000 24,728,000
Intersegment eliminations (486,000) --
------------ ------------
$129,785,000 $121,177,000
============ ============
Pre-tax income (loss):
United States $ 9,175,000 $ 7,630,000
Europe 470,000 (106,000)
------------ ------------
$ 9,645,000 $ 7,524,000
============ ============
September 30,
--------------------
1995 1994
---- ----
Identifiable assets:
United States $ 90,848,000 $ 72,987,000
Europe 27,108,000 18,696,000
Intersegment eliminations (8,989,000) (8,256,000)
------------ ------------
$108,967,000 $ 83,427,000
============ ============
</TABLE>
<PAGE>
Note K - Related Party Transactions
MEDIQ - The Board of Directors of MEDIQ Incorporated ("MEDIQ"), a 47% owner
of the Company, is currently exploring alternative ways to maximize MEDIQ's
shareholder value. MEDIQ has announced its intention to pursue the realization
of the value of its investment in the Company.
PCI/Virginia - Effective October 1, 1991, the Company transferred by
dividend to MEDIQ all of the capital stock of PCI/Virginia, resulting in a
reduction of stockholders' equity of $1,996,000. In January 1993, the Company
exercised its purchase option and acquired PCI/Virginia from MEDIQ for aggregate
consideration equal to MEDIQ's net book value of approximately $2,300,000. In
addition, MEDIQ assigned to the Company a purchase option to acquire the real
estate leased by PCI/Virginia, in consideration for which the Company reimbursed
MEDIQ for a $1,010,000 deposit previously made on the purchase. For the periods
in which PCI/Virginia was owned by MEDIQ, the Company provided senior management
services to PCI/Virginia and recognized management fee income of $97,000 for
1993.
Pennsauken Facility - Effective February 25, 1994, the asset and related
mortgage obligation related to the Pennsauken, New Jersey facility were
transferred from MEDIQ to the Company. Prior to such date, in anticipation of
this transfer, the asset, the related mortgage obligation and all costs related
to the ownership and operation of the facility, were reflected in the Company's
financial statements.
Insurance - The Company obtains certain insurance coverages through
insurance programs administered by MEDIQ, including worker's compensation
coverage through June 1, 1992. Insurance expense related to such insurance
programs was $322,000, $681,000 and $471,000 for fiscal years 1995, 1994 and
1993, respectively.
Services Agreement - The Company obtains certain legal, accounting, tax and
risk management services from MEDIQ. Costs for such services were $100,000 for
each of the fiscal years 1995, 1994 and 1993, and are included in selling,
general and administrative expenses. The Company believes that the terms of the
services agreement and MEDIQ's charges for such services are on terms no less
favorable than those that could be obtained from unaffiliated third parties for
comparable services.
Inventory Purchases - The Company purchases certain packaging materials
from a company owned by one of its directors, totalling $1,782,000, $1,486,000
and $1,073,000 for fiscal years 1995, 1994 and 1993, respectively. Amounts due
to this company were $238,000 and $168,000 as of September 30, 1995 and 1994,
respectively.
Pledge of Stock - A portion of the shares of the Company's stock owned by
MEDIQ secures certain MEDIQ indebtedness.
Note L - Major Customers
Divisions or affiliates of Johnson & Johnson accounted for an aggregate of
24%, 21% and 22%, of net revenue for fiscal years 1995, 1994 and 1993,
respectively.
<PAGE>
Note M - Stock Option Plan
In September 1991, the Company's Board of Directors adopted a stock option
plan under which 600,000 shares have been reserved for stock options. These
options may be granted to directors, officers and key employees of the Company
and its subsidiaries. No option may be granted under the plan for a term in
excess of ten years from the date of grant. As of September 30, 1995, 408,000
stock options were exercisable under the plan. The stock option prices listed
below represent the fair market value at dates of grant. A summary of stock
option activity for fiscal years 1995 and 1994 follows:
Number of Option Price
Shares Per Share
------ ---------
September 30, 1993 415,000 $10.00 - 12.25
Granted 45,000 10.00 - 10.75
Terminated (5,000) 12.25
------- --------------
September 30, 1994 455,000 $10.00 - 10.75
Granted 25,000 6.50
------- --------------
September 30, 1995 480,000 $ 6.50 - 10.75
======= ==============
Note N - Employee Benefit Plans
The Company maintains and administers a money purchase pension plan and a
profit sharing plan for substantially all of its employees other than those
covered by collective bargaining agreements or compensated solely on a
commission basis. The benefits accruing under these plans are funded by
contributions made by the Company and earnings thereon. Under the money purchase
pension plan, the Company contributes in each year an amount equal to 4% of each
participant's earnings up to the Social Security taxable wage tax base for the
year and an additional amount equal to 8% of each participant's earnings in
excess of the taxable wage base. Under the profit sharing plan, the Company
contributes an annual amount determined at the discretion of the Company's Board
of Directors.
The Company also participates in multi-employer plans which provide defined
benefits to employees covered by collective bargaining agreements.
Expenses related to these plans were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Money purchase pension plan $ 529,000 $ 495,000 $ 462,000
Profit sharing plan 367,000 374,000 315,000
Multi-employer plans 451,000 432,000 361,000
---------- ---------- ----------
$1,347,000 $1,301,000 $1,138,000
========== ========== ==========
</TABLE>
Note O - Subsequent Event
Effective December 1, 1995, the Company exercised its option to repurchase
shares of preferred stock of Tri-Line, a subsidiary of the Company, issued in
connection with the acquisition in 1992. The purchase price was $900,000,
representing the book value of such shares (which were included in other
liabilities in the Company's Consolidated Balance Sheets).
<PAGE>
PART III
The information required to be included herein has been incorporated herein
by reference to the Registrant's proxy statement relating to the Annual Meeting
of Stockholders scheduled to be held in 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The response to this portion of Item 14 is submitted as a separate
section of this report commencing on page 12.
(a) (2) Financial Statement Schedules
Schedule II Valuation and qualifying accounts and reserves
Other schedules are omitted because of the absence of conditions under
which they are required.
(a) (3) Exhibits. The exhibits are listed on the Index to Exhibits appearing
below.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
fourth quarter of fiscal 1995.
(c) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Exhibit
Number Description and Method of Filing
- ------ --------------------------------
<S> <C>
3(a) Certificate of Incorporation of the Registrant (1)
3(b) By-Laws of the Registrant (1)
10(a) Stock Option Plan of the Registrant (1)
10(b) Amendment No. 1 to Stock Option Plan of the Registrant (2)
10(c) Profit Sharing Plan of Packaging Coordinators, Inc. (1)
10(d) Profit Sharing Trust Agreement of Packaging Coordinators, Inc. (1)
10(e) Money Purchase Pension Plan of Packaging Coordinators, Inc. (1)
10(f) Money Purchase Pension Plan Trust of Packaging Coordinators Inc. (1)
10(g) Services Agreement, dated September 20, 1991, between the Registrant and
MEDIQ Incorporated (1)
10(h) Tax Allocation/Sharing Agreement, dated September 20, 1991, between
the Registrant and MEDIQ Incorporated (1)
10(i) Registration Rights Agreement, dated September 20, 1991, between the
Registrant, MEDIQ incorporated and MEDIQ Investment Services, Inc. (1)
10(j) Lease dated November 20, 1990 between Packaging Coordinators, Inc. and D.D. Williamson
(PR), Ltd. (1)
10(k) Reimbursement Agreement, dated September 27, 1991, between Packaging
Coordinators, Inc. and MEDIQ Incorporated (1)
10(l) Real Estate Agreement, dated September 27, 1991, between Packaging Coordinators,
Inc. and MEDIQ Incorporated (1)
10(m) Annual Incentive Compensation Plan (1)
10(n) Employment Agreement dated August 27, 1991 between Packaging
Coordinators, Inc. and Daniel F. Gerner (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description and Method of Filing
- ------ --------------------------------
<S> <C>
10(o) Letter Agreement dated July 22, 1992 between Packaging Coordinators,
Inc. and McNeil Consumer Products Company (1)
10(p) Insurance Program Agreement dated October 1, 1991 by and between the
Registrant and MEDIQ Incorporated (1)
10(q) English translation of Share Purchase Agreement, dated as of November 30, 1993 (3)
10(r) English translation of Letter Agreement, dated December 4, 1992,
amending the Share Purchase Agreement (3)
10(s) English translation of Agreement, dated August 1994, between the Company and
the Hofliger family (4)
10(t) English translations of Share Transfer Agreement and Real Estate
Purchase Agreement, dated October 20, 1994, between Allpack, Raimund Merkel,
Renate-Hasenohr-Merkel and KR-Verpackung Gmbh (4)
10(u) Loan Agreement, dated January 23, 1986, between MEDIQ and Fidelity Bank (4)
10(v) Amendment, Assignment, Assumption and Release Agreement, dated as of February 25, 1994,
among MEDIQ, Packaging Coordinators, Inc. and First Fidelity Bank, National
Association (4)
10(w) Mortgage Modification and Assumption Agreement, dated as of February 25, 1994,
among MEDIQ, Packaging Coordinators, Inc. and First Fidelity Bank, National Association (4)
10(x) Amended and Restated Promissory Note, dated February 25, 1994 in the principal
amount of $2,490,000(4)
10(y) Loan Agreement, dated as of August 30, 1994, between the Company, Packaging
Coordinators, Inc., PCI of Virginia, Inc., PCI/Delvco, Inc., PCI/Tri-Line
(USA), Inc. and Meridian Bank (4)
10(z) Revolving Credit Note, dated August 30, 1994, in the principal amount of $5,000,000 (4)
10(aa) First Term Loan Note, dated August 30, 1994, in the principal amount of $7,500,000 (4)
10(bb) Second Term Loan Note, dated August 30, 1994, in the principal amount of
$983,250 (4)
10(cc) Agreement of Sale, dated July 28, 1994, between Interco, Incorporated and Packaging
Coordinators, Inc., as amended on September 19, 1994 (4)
10(dd) Acquisition Agreement, dated September 19, 1994, between PIDC Financing Corporation
and Packaging Coordinators, Inc. (4)
10(ee) English Language Translation of Loan Agreement, dated February 22, 1995, between
Allpack Industrielle Lohnverpackung GmbH and Waiblingen District Sparkasse
Savings Bank (5)
21 Subsidiaries of the Registrant (5)
23 Consent of Deloitte & Touche LLP, Independent Certified Public Accountants (5)
(1) Incorporated by reference to Registration Statement on Form S-1 filed September 25, 1991 as amended.
(2) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended September 30, 1992.
(3) Incorporated by reference to Current Report on Form 8-K, dated December 4, 1992.
(4) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended September 30, 1994.
(5) Filed herewith.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to requirements of Section 13 of 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.
Dated: December 11, 1995 PCI SERVICES, INC.
By:/s/ Richard S. Sauter
-----------------------------------
Richard S. Sauter
Chief Executive Officer
By:/s/ Michael F. Sandler
-----------------------------------
Michael F. Sandler
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include at least a
majority of the Board of Directors on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Bernard J. Korman Chairman of the Board December 11, 1995
- -------------------------
Bernard J. Korman of Directors
/s/ Richard S. Sauter Vice Chairman of the December 11, 1995
- -------------------------
Richard S. Sauter Board of Directors and
Chief Executive Officer
/s/ Lawrence Chimerine Director December 11, 1995
- -------------------------
Lawrence Chimerine
/s/ Herbert Lotman Director December 11, 1995
- -------------------------
Herbert Lotman
/s/ Robert Purcell Director December 11, 1995
- -------------------------
Robert Purcell
/s/ Theodore H. Seidenberg Director December 11, 1995
- -------------------------
Theodore H. Seidenberg
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------------------------
Additions
Description Balance at Charged to Balance
Beginning Costs and (1) at End
of Period Expenses Deductions of Period
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended September 30, 1995
- -----------------------------
Allowance for doubtful accounts $103 $121 $(13) $211
==== ==== ==== ====
Year ended September 30, 1994
- -----------------------------
Allowance for doubtful accounts $ 76 $ 27 $ -- $103
==== ==== ==== ====
Year ended September 30, 1993
- -----------------------------
Allowance for doubtful accounts $139 $ 30 $(93) $ 76
==== ==== ==== ====
</TABLE>
- ----------
(1) Represents accounts directly written-off net of recoveries
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1995 Commission File
Number: 0-18671
NUTRAMAX PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 061200464
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
9 Blackburn Drive, Gloucester, Massachusetts 01930
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 283-1800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value
$.001 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --
The aggregate market value of the registrant's voting stock held by
nonaffiliates (based upon the closing price of $9.50) on December 1, 1995 was
approximately $36,700,000. As of December 1, 1995, there were 8,519,952 shares
of Common Stock, par value $.001 per share, outstanding.
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 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
---
Documents Incorporated by Reference
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held in 1996 are incorporated by reference into Part III. The Index to Exhibits
begins on page 25.
<PAGE>
PART I
ITEM 1. BUSINESS
General
NutraMax Products, Inc. (the "Company") is a private label health and
personal care products company. The Company's strategy is to offer a line of
quality products equivalent to national brands at lower cost to consumers while
providing greater profit potential to retailers than the national brands.
National brands dominate health and personal care product categories. However,
in recent years private label products have captured increased market share by
appealing to value conscious consumers seeking lower cost products of comparable
quality. The Company received the 1993 Retail Excellence Award as the Private
Label Company of the Year, with the selection based on a survey conducted by a
major trade journal.
The Company was incorporated on April 20, 1987 under the laws of the
State of Delaware.
Products
Feminine Needs -- The Company manufactures disposable douches for sale under
its value brands Sweet*n FreshR and Sweet LoveR and on a private label basis. As
a result of the growth of the Company's other product lines, sales of douche
products in fiscal 1995 were 24% of net sales, as compared to 25% in 1994 and
56% in 1993. The Company also markets private label feminine yeast infection
medication products containing the active ingredient clotrimazole.
Cough/Cold Products -- In December 1993, the Company acquired the leading
manufacturer and distributor of private label cough drops and throat lozenges,
which also manufactures cough drops on a contract basis for national branded
companies. The acquisition enabled the Company to offer an extensive line of
solid dosage cough/cold products, including cough drops, throat lozenges,
sugar-free products, vitamin C drops and liquid center items. Sales of
cough/cold products represented 34% and 33% of net sales in fiscal 1995 and
1994, respectively.
Baby Care -- The Company manufactures disposable baby bottle liners on a
private label basis and under its value brand Fresh*n EasyR. The Company
manufactures pediatric electrolyte oral maintenance solution, a product which is
used to replace minerals lost by children who suffer from diarrhea and vomiting,
for sale under its value brand NutraMax Baby Care Pediatric Electrolyte and on a
private label basis. During fiscal years 1995, 1994 and 1993, sales of baby care
products represented 19%, 21% and 28% of net sales, respectively.
Ophthalmics -- In June 1993, the Company acquired a manufacturer of private
label over-the-counter and prescription ophthalmic products for retail and
industrial customers, enabling the Company to offer a broad line of eye care
products, including over-the-counter contact lens solutions, artificial tears
and eye drops, as well as generic prescription eye care products. Sales of
ophthalmic products represented 10% and 11% of net sales in fiscal 1995 and
1994, respectively.
Adult Nutrition Products -- In March 1995, the Company introduced a new line
of adult high calorie liquid nutrition products which are sold under its value
brand NutraMax Plus High Calorie Liquid Nutrition and on a private label basis.
This product is the Company's entry into the growing adult nutrition category.
The products are manufactured by a third party and marketed by the Company
through its distribution channels.
Personal Care -- The Company manufactures ready-to-use disposable enemas for
sale under its value brand Pure & Gentle, on a private label basis and for the
institutional market.
2
<PAGE>
Other Products -- The Company's other products consist principally of a
patented line of sterile, prefilled, disposable dilution bottles used in
laboratory testing of water, waste water, foods, drug products, pharmaceuticals
and cosmetics.
New Product Strategy
The Company's growth strategy includes the acquisition and development of new
products, and the extension or modification of existing product lines to
correspond with national branded products and product variations. The Company
expects to add new product lines through internal development, acquisition and
joint venture or partnership agreements. The Company contemplates that product
line expansion will enable the Company to capitalize on its established
distribution channels and manufacturing and marketing expertise. New products
will most likely focus on consumer packaged goods, including health and personal
care products. The Company has recently expanded its product lines to include
the following:
Oral Care -- In October 1995, the Company acquired the assets and assumed
certain liabilities of Mi-Lor Corporation, Professional Brushes, Inc. and Codent
Dental Products, Inc., companies engaged in the manufacturing and marketing of
toothbrushes, dental floss and related products for the store brand market. The
acquisition is the Company's entry into the private label oral care segment.
These products are manufactured in an 88,000 square foot manufacturing facility
located in Florence, Massachusetts which was acquired by the Company as part of
the transaction. Oral care products are being marketed by the Company through
its existing distribution channels.
Marketing and Distribution
The Company utilizes national brand marketing methods to meet the specific
needs of its customers. Such marketing methods include designing contemporary
packaging to improve point-of-purchase impact and increase consumer appeal. The
Company also uses price, display, packaging, bonus and multi-pack promotions to
increase sales and retailer support. Sales are made through the Company's sales
representatives and independent brokers.
Customers
For fiscal years 1995 and 1994, American Home Products, Inc. accounted for
14% and 17% of net sales, respectively. For fiscal year 1993, no individual
customer represented in excess of 10% of the Company's net sales. While the
Company is continually expanding its distribution and customer base, the loss of
one or more of its largest customers, if not replaced with other comparable
business, could have a material adverse effect on the Company's results of
operations.
Competition
The markets in which the Company competes are dominated by nationally
advertised brand name products marketed by established consumer packaged goods
companies, most of which have greater marketing, financial and human resources
than the Company. The Company also competes with several other private label
manufacturers and marketers. Competition for consumer health and personal care
products is based primarily on product reliability, price, customer service, and
the ability to provide tamper resistant/evident packaging. Growth in sales of
private label products is also dependent on increasing the amount of shelf space
available at retail stores in order to maximize brand awareness and consumer
trial. The Company experiences aggressive price competition from time to time
from branded and other private label competitors. There can be no assurance
that such price competition will not have a material adverse effect on the
Company's results of operations.
3
<PAGE>
Governmental Regulation and Health Issues
The Company is registered with the Food & Drug Administration ("FDA") as a
manufacturer for certain of its products. The primary forms of governmental
regulation are the current "good manufacturing practices" and "good laboratory
practices" guidelines administered by the FDA, which set forth the protocols to
be followed in the manufacture, storage, packaging and distribution of medical
products for human use. Certain of the Company's ophthalmic products are subject
to additional FDA regulations relating to pre-market approval of products. The
Company's operations are also subject to periodic inspections by the FDA.
Promotional claims made with respect to health and personal care products are
also subject to regulation by the FDA, and by the Federal Trade Commission.
The use of health and personal care products may result in allergic or other
adverse reactions in users. Since 1952, a number of studies have been published
in medical journals concerning the relationship of douching to the incidence of
pelvic inflammatory disease. These studies provide no conclusive results on the
issue of whether douching causes this disease. A 1990 study showed an
association between douching and the disease and concluded that further studies
were needed. A 1993 study stated that the results of the study lend support to
the hypothesis that douching can predispose a woman to pelvic inflammatory
disease. Although the Company believes its douche products are safe when used in
accordance with instructions accompanying the product package, negative
publicity resulting from such studies and any future studies may affect sales of
douche products. In such event there could be a material adverse impact on the
Company's results of operations.
Employees
The Company has approximately 580 full-time employees engaged in quality
control, marketing and sales, general corporate and administrative positions and
manufacturing operations. The Company believes that relations with its employees
are satisfactory.
ITEM 2. PROPERTIES
The Company currently operates the following facilities (which are owned
unless otherwise indicated):
<TABLE>
<CAPTION>
Approximate
Location Type of Facility Square Feet
- -------- ---------------- -----------
<S> <C> <C>
Gloucester, Massachusetts (1) Corporate and Administrative Offices, 111,000
Manufacturing Facilities
Fairton, New Jersey Manufacturing 48,000
Brockton, Massachusetts Manufacturing 66,000
Florence, Massachusetts (2) Manufacturing 88,000
</TABLE>
- -----------------
(1) Consists of four facilities, of which three are leased.
(2) Acquired in October 1995.
The Company believes that its present facilities will be adequate for all of
its reasonably foreseeable manufacturing, warehousing and distribution
requirements, or that alternative facilities can be obtained at a reasonable
cost.
4
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company, like other companies in the store brand industry, has been the
subject of claims and litigation brought by national brand name companies based
on packaging alleged to be similar to competing brand name products. The Company
is also subject to certain claims and informal complaints relating to its
products which are incidental and routine to its business and for which the
Company maintains insurance coverage. The Company knows of no litigation, either
pending or threatened, which is likely to have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1995.
5
<PAGE>
PART II
ITEM 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
Market Information
The following table sets forth, for the periods indicated, the high and low
prices for the common stock as reported by The Nasdaq Stock Market. The
Company's common stock is traded on The Nasdaq Stock Market's National Market
System under the symbol "NMPC".
<TABLE>
<CAPTION>
Fiscal 1995: High Low
----------- ---- ----
<S> <C> <C>
First Quarter $10.375 $ 8.750
Second Quarter 9.750 7.750
Third Quarter 9.375 5.750
Fourth Quarter 10.000 7.750
Fiscal 1994:
------------
First Quarter $16.125 $10.500
Second Quarter 12.750 10.750
Third Quarter 11.625 7.875
Fourth Quarter 10.750 8.250
</TABLE>
Common Stock Holders
The Company believes there are approximately 2,500 holders of common stock,
including shares held in street name by brokers.
Dividends
The Company has never declared or paid any cash dividends. The declaration of
dividends by the Company in the future will at all times be subject to the sole
discretion of the Company's Board of Directors, and will depend upon operating
results, capital requirements and financial position. See notes to the
consolidated financial statements included elsewhere herein.
6
<PAGE>
ITEM 6. Selected Consolidated Financial Data
The selected consolidated financial data presented below has been derived
from the audited financial statements of the Company. This data is qualified in
its entirety by reference to, and should be read in conjunction with,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Company's Consolidated Financial Statements included
elsewhere herein.
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------
Sept. 30, Oct. 1, Oct. 2, Sept. 30, Sept. 30,
1995 1994(1) 1993(2) 1992 1991
--------- ------- ------ -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
- ----------------------
Net sales $ 63,111 $ 55,958 $ 31,144 $ 25,151 $ 20,115
Cost of sales 45,916 38,752 19,598 13,908 11,330
-------- -------- -------- -------- -------
Gross profit 17,195 17,206 11,546 11,243 8,785
Selling, general and administrative expenses 8,694 9,281 5,928 5,715 4,639
-------- -------- -------- -------- -------
Operating income 8,501 7,925 5,618 5,528 4,146
Other credits (charges):
Interest expense (1,427) (928) -- -- (650)
Other 316 95 251 338 244
-------- -------- -------- -------- -------
Income before income tax expense 7,390 7,092 5,869 5,866 3,740
Income tax expense 2,916 2,832 2,350 2,397 1,605
-------- -------- -------- -------- -------
Net income $ 4,474 $ 4,260 $ 3,519 $ 3,469 $ 2,135
======== ======== ======== ======== =======
Earnings per share $ .53 $ .50 $ .43 $ .43 $ .35
======== ======== ======== ======== =======
Weighted average shares
outstanding (3) 8,520 8,480 8,235 8,090 6,143
======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Sept. 30, Oct. 1, Oct. 2, Sept. 30, Sept. 30,
1995 1994(1) 1993(2) 1992 1991
---------- ------- ------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
- -------------------
Working capital $ 14,152 $ 13,172 $ 9,703 $ 10,235 $ 8,559
Total assets 63,074 60,450 33,207 25,925 22,416
Long-term debt, less current maturities 12,550 16,183 -- -- --
Stockholders' equity 39,233 34,757 29,953 22,549 19,026
</TABLE>
- ------------------
(1) In December 1993, the Company acquired a manufacturer and distributor of
private label cough/cold products for $13,500,000 which was financed with
proceeds from a revolving credit facility.
(2) In June 1993, the Company acquired a manufacturer of private label
over-the-counter and prescription ophthalmic products, for approximately
202,000 shares of the Company's common stock with a market value of
$2,846,000.
(3) In August 1991, the Company completed a public stock offering consisting of
2,150,000 shares of common stock.
7
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto, contained elsewhere herein.
Results of Operations
The Consolidated Statements of Operations include the results of operations
of acquired companies from the dates acquired: Optopics Laboratories Corporation
("Optopics") (June 1993) and Powers Pharmaceutical Corporation ("Powers")
(December 1993). The following table sets forth, for all periods indicated, the
percentage relationship that items in the Consolidated Statements of Operations
bear to net sales.
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
Sept. 30, Oct. 1, Oct. 2,
1995 1994 1993
-------- ------ ------
<S> <C> <C> <C>
Net sales 100% 100% 100%
Cost of sales 73 69 63
--- --- ---
Gross profit 27 31 37
Selling, general and administrative expenses 14 17 19
--- --- ---
Operating income 13 14 18
Other credits (charges) (1) (1) 1
--- --- ---
Income before income tax expense 12 13 19
Income tax expense 5 5 8
--- --- ---
Net income 7% 8% 11%
=== === ===
</TABLE>
Fiscal Year 1995 Compared to Fiscal Year 1994
Net sales for 1995 were $63,111,000, an increase of $7,153,000, or 13%, over
1994 net sales of $55,958,000. The increase in net sales was primarily
attributable to sales of Cough/Cold products resulting from the acquisition of
Powers in December 1993 and the introduction of the Adult Nutrition product line
in March 1995, in addition to increased volume in other product categories.
Gross profit for 1995 was $17,195,000, or 27% of net sales, as compared to
$17,206,000, or 31% in 1994. The decrease in the gross margin reflects the
impact of lower production levels for Cough/Cold products, competitive pressure
on the Company's Feminine Needs and Personal Care products and changes in
product mix. In addition, the Company experienced higher raw material costs in
1995, which are not expected to continue through 1996.
Selling, general and administrative expenses for 1995 were $8,694,000 or
14% of net sales, as compared to $9,281,000, or 17% of net sales in 1994. The
decrease in selling, general and administrative expenses was primarily
attributable to a decrease in bad debt expense and professional fees partially
offset by commissions and freight expenses associated with the increase in
sales. The decrease, as a percentage of net sales, resulted from decreased costs
allocated over higher net sales.
Interest expense for 1995 was $1,427,000, as compared to $928,000 in the
prior year. This increase was primarily attributable to debt incurred in
connection with the acquisition of Powers and increases in interest rates.
8
<PAGE>
Fiscal Year 1994 Compared to Fiscal Year 1993
Net sales for 1994 were $55,958,000, an increase of $24,814,000, or 80%,
over 1993 net sales of $31,144,000. The increase in net sales was primarily
attributable to sales of cough/cold products which represented 33% of net sales
in 1994. The increase in net sales was also attributable to increased unit sales
of ophthalmics and baby care products, partially offset by a decrease in sales
of certain feminine needs products. Sales of certain feminine needs products
decreased as a result of lower average sale prices in response to continued
competitive pressure, while unit sales for the year stabilized. The timing,
frequency and nature of promotional activities in this category by brand
manufacturers and other private label companies have had the effect of
decreasing sale prices.
Gross profit for 1994 increased to $17,206,000, or 31% of net sales, as
compared to $11,546,000, or 37% in 1993. The decrease in the gross margin
reflected changes in product mix and the impact of competitive pricing pressure
relating to certain of the Company's feminine needs products. The Company also
incurred an increase in manufacturing overhead expenses in connection with
anticipated higher sales of ophthalmics products.
Selling, general and administrative expenses for 1994 were $9,281,000, or
17% of net sales, as compared to $5,928,000, or 19% of net sales in 1993. Fiscal
1994 included ten months of Powers' operations which accounted for a significant
portion of the increase in selling, general and administrative expenses. As a
percentage of net sales, selling, general and administrative expenses decreased
as a result of the allocation of these costs over substantially higher net
sales.
Interest expense of $928,000 for 1994 was attributable to debt incurred in
connection with the acquisition of Powers. Other income for 1994 was $95,000, as
compared to $251,000 in 1993. The decrease was primarily attributable to lower
interest income as a result of the use of investments to fund, in part,
acquisitions.
Seasonality
During the last four months of the calendar year, retailers focus their
merchandising efforts on and devote more shelf space to seasonal and holiday
merchandise. As a result, sales of certain of the Company's products tend to be
weaker in the Company's first quarter (ending in December), and normally
strengthen in the second quarter as retailers replenish their shelves with
health and personal care products. Sales of pediatric electrolyte and cough/cold
products may help mitigate weaker sales in the Company's first quarter, as the
Company's customers purchase such products to stock inventories in anticipation
of the winter months. Consequently, the results of any one quarter may not
necessarily be indicative of results of future quarters.
Liquidity and Capital Resources
As of September 30, 1995, the Company's working capital increased to
$14,152,000, as compared to $13,172,000 on October 1, 1994. Net cash provided by
operating activities increased to $7,605,000 in 1995 from $5,400,000 in the
prior year. This increase was primarily attributable to improved operating
results and changes in working capital. The change in working capital was
primarily attributable to increased collections of accounts receivable and
stabilization of inventory levels partially offset by increased payments for
income taxes.
Net cash used in investing activities was $4,306,000 in 1995 and consisted
primarily of capital expenditures for additional capacity. The Company
anticipates capital expenditures of approximately $5,800,000 in fiscal 1996 for
additional manufacturing capacity at the Company's existing facilities and the
facility acquired in October 1995. See "Recent Developments".
9
<PAGE>
Net cash used in financing activities for 1995 consisted primarily of debt
repayments of $3,174,000.
In December 1994, the Company converted its $20,000,000 credit facility
into an $8,000,000 revolving credit facility, two term loans aggregating
$9,000,000 and a mortgage of $1,000,000, all of which are secured by
substantially all of the Company's assets. The revolving credit facility bears
interest at prime and/or, at the Company's option, LIBOR plus 2%, and expires in
January 1997. The average amount outstanding under this facility during the year
amounted to $6,452,000, and the weighted average interest rate computed on the
monthly outstanding balance was 8.14%. At September 30, 1995, $5,118,000 was
outstanding under this facility. The amount of available credit fluctuates based
upon the amount of eligible accounts receivable and inventory. As of September
30, 1995, $2,800,000 of credit was available. The term loans bear interest at
prime plus .5% and/or, at the Company's option, LIBOR plus 2.5%, and are payable
in quarterly principal installments of $450,000 through November 1999. The
mortgage bears interest at prime plus .5% and/or, at the Company's option, LIBOR
plus 2.5%, and is payable in quarterly principal installments of $17,000, with a
final payment of approximately $680,000 in November 1999. The interest rates on
the term loans and the mortgage ranged from 8.25% to 9% during 1995.
The Company believes that its existing working capital, anticipated funds
to be generated from future operations and funds available under the revolving
credit facility will be sufficient to meet all of the Company's operating and
capital needs for the foreseeable future. However, depending upon future growth
of the business, additional financing may be required.
Recent Developments
In October 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of Mi-Lor Corporation, Professional Brushes, Inc.
and Codent Dental Products, Inc., which manufacture and market toothbrushes,
dental floss and related products for the store brand market. The purchase price
consisted of $1,800,000 in cash, obtained under the Company's revolving credit
facility, liabilities assumed of $225,000 and related expenses of approximately
$375,000.
Other Information
The Board of Directors of MEDIQ Incorporated ("MEDIQ"), a 47% owner of the
Company, is currently in the process of exploring alternative ways to maximize
MEDIQ's shareholder value, which could include the disposition of its holdings
in the Company. In connection with MEDIQ's activities, the Company formed a
Special Committee of its Board of Directors to explore strategic alternatives
for the Company. The Committee has retained Wasserstein Perella & Co. as
financial advisors to seek opportunities for the Company to enhance shareholder
value. However there can be no assurances that a transaction will occur.
10
<PAGE>
Item 8. Financial Statements And Supplemental Data
<TABLE>
<S> <C>
Independent Auditors' Report 12
Consolidated Statements of Operations - Three Years Ended September 30, 1995 13
Consolidated Balance Sheets - September 30, 1995 and October 1, 1994 14
Consolidated Statements of Stockholders' Equity - Three Years Ended September 30, 1995 15
Consolidated Statements of Cash Flows - Three Years Ended September 30, 1995 16
Notes to Consolidated Financial Statements 17-24
</TABLE>
11
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
NutraMax Products, Inc.
Gloucester, Massachusetts
We have audited the accompanying consolidated balance sheets of NutraMax
Products, Inc. and subsidiaries as of September 30, 1995 and October 1, 1994,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended September 30,
1995. Our audits also included the financial statement schedule listed in the
Index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and the financial statement
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, such consolidated financial statements present fairly, in all
material respects, the financial position of NutraMax Products, Inc. and
subsidiaries as of September 30, 1995 and October 1, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended September 30, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 3, 1995
12
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
Sept. 30, Oct. 1, Oct. 2,
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Net Sales $63,111,000 $55,958,000 $31,144,000
Cost of Sales 45,916,000 38,752,000 19,598,000
----------- ----------- -----------
Gross Profit 17,195,000 17,206,000 11,546,000
Selling, General and Administrative Expenses 8,694,000 9,281,000 5,928,000
----------- ----------- -----------
Operating Income 8,501,000 7,925,000 5,618,000
Other Credits (charges):
Interest expense (1,427,000) (928,000) --
Interest income 13,000 60,000 235,000
Other 303,000 35,000 16,000
----------- ----------- -----------
Income Before Income Tax Expense 7,390,000 7,092,000 5,869,000
Income Tax Expense 2,916,000 2,832,000 2,350,000
----------- ----------- -----------
Net Income $ 4,474,000 $ 4,260,000 $ 3,519,000
=========== =========== ===========
Earnings Per Share $ .53 $ .50 $ .43
=========== =========== ===========
Weighted Average Shares Outstanding 8,520,000 8,480,000 8,235,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, October 1,
1995 1994
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 503,000 $ 376,000
Accounts receivable, less allowance for doubtful accounts
of $601,000 in 1995 and $738,000 in 1994 9,050,000 8,074,000
Inventories 12,497,000 11,238,000
Deferred income taxes 977,000 1,050,000
Prepaid expenses and other 525,000 729,000
----------- -----------
Total Current Assets 23,552,000 21,467,000
Property, Plant and Equipment, net 23,714,000 22,499,000
Goodwill, net of accumulated amortization of $2,609,000
in 1995 and $2,046,000 in 1994 13,978,000 14,541,000
Other Assets 1,830,000 1,943,000
----------- -----------
$63,074,000 $60,450,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,191,000 $ 4,865,000
Accrued payroll and related taxes 366,000 608,000
Accrued expenses - other 939,000 1,378,000
Current maturities of long-term debt 1,904,000 1,444,000
----------- -----------
Total Current Liabilities 9,400,000 8,295,000
Long-Term Debt, less current maturities 12,550,000 16,183,000
Other Long Term Liabilities 312,000 312,000
Deferred Income Taxes 1,579,000 903,000
Stockholders' Equity:
Common stock - $.001 par value:
Authorized - 20,000,000 shares
Issued and outstanding: 8,520,000 shares in 1995
and 1994 9,000 9,000
Additional paid-in capital 22,567,000 22,565,000
Retained earnings 16,657,000 12,183,000
----------- -----------
Total Stockholders' Equity 39,233,000 34,757,000
----------- -----------
$63,074,000 $60,450,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------
Shares Additional Retained
Issued Amount Paid-In Capital Earnings Total
---------- --------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1992 8,094,000 $ 8,000 $18,137,000 $ 4,404,000 $22,549,000
Issuance of stock -
management compensation 53,000 -- 212,000 -- 212,000
Exercise of stock options and warrants 90,000 -- 827,000 -- 827,000
Issuance of stock -
acquisition of Optopics 202,000 -- 2,846,000 -- 2,846,000
Net income -- -- -- 3,519,000 3,519,000
--------- --------- ----------- ----------- -----------
Balance at October 2, 1993 8,439,000 8,000 22,022,000 7,923,000 29,953,000
Issuance of stock -
management compensation 53,000 -- 318,000 -- 318,000
Exercise of stock options 28,000 1,000 225,000 -- 226,000
Net income -- -- -- 4,260,000 4,260,000
--------- --------- ----------- ----------- -----------
Balance at October 1, 1994 8,520,000 9,000 22,565,000 12,183,000 34,757,000
Exercise of stock options (1) -- -- 2,000 -- 2,000
Net income -- -- -- 4,474,000 4,474,000
--------- --------- ----------- ----------- -----------
Balance at September 30, 1995 8,520,000 $ 9,000 $22,567,000 $16,657,000 $39,233,000
========= ========= =========== =========== ===========
</TABLE>
- ------------------
(1) 180 stock options were exercised in 1995.
See notes to consolidated financial statements.
15
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------
Sept. 30, Oct. 1, Oct. 2,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 4,474,000 $ 4,260,000 $ 3,519,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,857,000 3,527,000 1,948,000
Deferred taxes 732,000 419,000 545,000
Other (227,000) 286,000 82,000
Increase (decrease), net of effect of acquisitions:
Accounts receivable (838,000) (1,471,000) (1,851,000)
Inventories (1,259,000) (4,647,000) (2,112,000)
Prepaid expenses and other 379,000 (94,000) (251,000)
Accounts payable 1,326,000 1,433,000 (226,000)
Accrued payroll and related taxes (242,000) (71,000) 16,000
Accrued expenses - other (386,000) 721,000 (352,000)
Income taxes (211,000) 1,037,000 (752,000)
----------- ---------- ----------
Net cash provided by operating activities 7,605,000 5,400,000 566,000
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired -- (13,541,000) (245,000)
Purchases of property, plant and equipment (3,937,000) (3,929,000 (3,420,000)
Maturities of short-term investments -- -- 4,940,000
Deferred costs (527,000) (532,000) (620,000)
Other 158,000 74,000 (270,000)
----------- ---------- ----------
Net cash provided by (used in) investing activities (4,306,000) (17,928,000) 385,000
Cash Flows from Financing Activities:
Borrowings -- 19,166,000 --
Proceeds from exercise of stock options
and warrants 2,000 177,000 613,000
Debt repayments (3,174,000) (7,838,000) (3,167,000)
----------- ---------- ----------
Net cash provided by (used in) financing activities (3,172,000) 11,505,000 (2,554,000)
----------- ---------- ----------
Net Increase (Decrease) in Cash 127,000 (1,023,000) (1,603,000)
Cash:
Beginning of year 376,000 1,399,000 3,002,000
----------- ---------- ----------
End of year $ 503,000 $ 376,000 $ 1,399,000
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Income taxes paid $ 2,384,000 $ 1,534,000 $ 2,458,000
=========== =========== ===========
Interest paid $ 1,297,000 $ 831,000 $ --
=========== =========== ===========
Supplemental Disclosure of Non-Cash Financing
and Investing Activities:
Issuance of stock - acquisition of Optopics $ -- $ -- $2,846,000
=========== =========== ===========
Issuance of stock - non-cash compensation $ -- $ 318,000 $ 212,000
=========== =========== ===========
Plant and equipment financed with long-term
debt and capital lease obligations $ -- $ 794,000 $ --
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies
Principles of Consolidation -- The consolidated financial statements
include the accounts of NutraMax Products, Inc. and its subsidiaries (the
"Company"). In consolidation, all significant intercompany transactions and
balances have been eliminated.
Inventories -- Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property, Plant and Equipment -- Property, plant and equipment are stated
at cost. The Company's policy of providing for depreciation and amortization is
as follows:
Buildings 20 years on a straight-line basis
Liquid packaging machines 32,000 to 48,000 machine hours
which approximate a five to eight
and one-half year life
Machinery, equipment, molds 5 to 10 years on a straight-line
and furniture and fixtures basis
Leasehold improvements The terms of the related lease
on a straight-line basis
Vehicles 3 to 5 years on a straight-line
basis
Goodwill -- The purchase price in excess of net assets acquired is
amortized on a straight-line basis over periods from thirty to forty years. The
Company evaluates the carrying value of goodwill based upon current and
anticipated net income and undiscounted cash flows, and recognizes an impairment
when it is probable that such estimated future net income and/or cash flows will
be less than the carrying value of goodwill. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and fair
value.
Other Assets -- Other assets include intangible assets which are amortized
on a straight-line basis over the estimated periods of related benefit, ranging
from three to fifteen years. Accumulated amortization was $213,000 and $187,000
as of September 30, 1995 and October 1, 1994, respectively. Other assets also
include external costs deferred in connection with tools, dies and the design of
packaging materials for the Company's products which are amortized on a
straight-line basis over four years.
Income Taxes -- Effective October 3, 1993, the Company adopted on a
prospective basis the provisions of Statement of Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes", which supersedes SFAS No. 96. The effect
of adopting SFAS No. 109 was not significant.
Earnings Per Share -- Earnings per share computations are based upon the
weighted average number of common shares outstanding. Stock options have been
excluded from the calculation of weighted average shares outstanding since the
dilutive effect is less than 3%.
Reclassification of Accounts -- Certain reclassifications have been made to
conform prior years' balances to the current year presentation.
17
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B - Acquisitions
Powers Pharmaceutical Corporation -- In December 1993, the Company acquired
all of the outstanding common stock of Certified Corporation, parent of Powers
Pharmaceutical Corporation ("Powers"), for $13,500,000 in cash and related
expenses of $236,000. Powers, based in Brockton, Massachusetts, is the nation's
leading manufacturer and distributor of private label cough drops and throat
lozenges, and also manufactures cough drops on a contract basis. The transaction
was accounted for by the purchase method of accounting. The excess of the
purchase price over the fair values of the net assets acquired of $6,206,000 is
amortized over thirty years.
Optopics Laboratories Corporation -- In June 1993, the Company acquired all
of the assets and assumed all of the liabilities of Optopics Laboratories
Corporation ("Optopics") for approximately 202,000 shares of the Company's
common stock, with a market value of $2,846,000, and related transaction costs
of $245,000. Additionally, the Company acquired Optopics' manufacturing facility
for $800,000 in cash, which was previously leased from the former stockholders
of Optopics. Optopics is a manufacturer of private label over-the-counter and
prescription ophthalmics products. The acquisition was accounted for by the
purchase method of accounting. The excess of the purchase price over the
estimated fair value of the net assets acquired of $4,325,000 is amortized over
thirty years.
Note C - Inventories
<TABLE>
<CAPTION>
Sept. 30, Oct. 1,
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $ 5,278,000 $ 4,799,000
Finished goods 6,088,000 5,600,000
Work in process 417,000 355,000
Machinery parts and factory supplies 714,000 484,000
----------- -----------
$12,497,000 $11,238,000
=========== ===========
</TABLE>
Note D - Property, Plant and Equipment
<TABLE>
<CAPTION>
Sept. 30, Oct. 1,
1995 1994
----------- -----------
<S> <C> <C>
Machinery and equipment $21,211,000 $18,684,000
Land, buildings and improvements 8,131,000 7,392,000
Molds 2,611,000 2,268,000
Furniture and fixtures 1,496,000 1,253,000
Vehicles 25,000 41,000
----------- -----------
33,474,000 29,638,000
Less: Accumulated depreciation and amortization 9,760,000 7,139,000
----------- -----------
$23,714,000 $22,499,000
=========== ===========
</TABLE>
Depreciation and amortization expense for property, plant and equipment for
1995, 1994 and 1993 was $2,725,000, $2,390,000 and $1,177,000, respectively.
18
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Long-Term Debt
<TABLE>
<CAPTION>
Sept. 30, Oct. 1,
1995 1994
----------- -----------
<S> <C> <C>
Revolving credit facility $ 5,118,000 $ 7,850,000
Term loans 7,650,000 9,000,000
Mortgages 1,654,000 733,000
Capital lease obligation 32,000 44,000
----------- -----------
14,454,000 17,627,000
Less: Current maturities of long-term debt 1,904,000 1,444,000
----------- -----------
$12,550,000 $16,183,000
=========== ===========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1996 $ 1,904,000
1997 7,668,000
1998 1,876,000
1999 1,871,000
2000 1,135,000
-----------
$14,454,000
===========
</TABLE>
The revolving credit facility bears interest at prime (8.75% at September
30, 1995) and/or, at the Company's option, LIBOR plus 2% (7.875% at September
30, 1995), and expires in January 1997. The average amount outstanding under
this facility during the year amounted to $6,452,000, and the weighted average
interest rate computed on the monthly outstanding balance was 8.14%. The amount
of available credit fluctuates based upon eligible accounts receivable and
inventory. As of September 30, 1995, $2,800,000 of credit was available. The
term loans bear interest at prime plus .5% (9.25% at September 30, 1995) and/or,
at the Company's option, LIBOR plus 2.5% (8.375% at September 30, 1995), and are
payable in quarterly principal installments of $450,000 through November 1999.
The mortgage bears interest at prime plus .5% and/or, at the Company's option,
LIBOR plus 2.5%, and is payable in quarterly principal installments of $17,000,
with a final payment of approximately $680,000 in November 1999. The interest
rates on the term loans and the mortgage ranged from 8.25% to 9% during 1995 and
were 8.375% at September 30, 1995.
The Company has an additional mortgage which bears interest at 7% and is
payable in monthly installments of $7,000 including interest, with a final
payment of approximately $670,000 due in February 1997.
The revolving credit facility and term loans, which are collateralized by
substantially all of the Company's assets, require the maintenance of certain
balance sheet and operating ratios and impose certain dividend limitations. The
most restrictive of these provisions limits the payment of cash dividends to
approximately $8,900,000 as of September 30, 1995.
19
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note F - Commitments and Contingencies
Leases -- The Company leases certain of its administrative, manufacturing,
distribution and warehouse facilities under operating leases. The Company also
leases certain equipment under operating and capital leases. Future minimum
payments under noncancelable operating and capital leases are as follows:
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Leases Leases
----------- -------- --------
<S> <C> <C> <C>
1996 $387,000 $ 11,000
1997 93,000 11,000
1998 1,000 11,000
1999 -- 2,000
-------- --------
Total minimum lease payments $481,000 35,000
========
Amount representing interest 3,000
--------
Present value of minimum lease payments $ 32,000
========
</TABLE>
Rental expense for operating leases was $387,000, $413,000 and $456,000 for
1995, 1994 and 1993, respectively.
Litigation -- The Company has pending certain legal actions and claims
incurred in the normal course of business and is actively pursuing the defense
thereof. In the opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's financial statements.
Note G - Income Taxes
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
Sept. 30, Oct. 1, Oct. 2,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $1,769,000 $2,014,000 $1,368,000
State 415,000 399,000 437,000
---------- ---------- ----------
2,184,000 2,413,000 1,805,000
Deferred:
Federal 696,000 395,000 511,000
State 36,000 24,000 34,000
---------- ---------- ----------
732,000 419,000 545,000
---------- ---------- ----------
$2,916,000 $2,832,000 $2,350,000
========== ========== ==========
</TABLE>
20
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note G - Income Taxes (Continued)
The difference between the Company's income tax and the statutory federal
tax is reconciled below:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
Sept. 30, Oct. 1, Oct. 2,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal tax $2,513,000 $2,411,000 $1,996,000
Nondeductible goodwill amortization 189,000 179,000 87,000
State tax, net of federal benefit 298,000 279,000 311,000
Other (84,000) (37,000) (44,000)
---------- ---------- ----------
Income tax expense $2,916,000 $2,832,000 $2,350,000
========== ========== ==========
</TABLE>
As of September 30, 1995, the Company had Federal net operating loss
carryforwards of $2,418,000 which are available to offset future taxable income.
The Company also has investment tax credit carryforwards of $208,000.
Utilization of the operating loss carryforwards, which expire in fiscal years
1997 to 2007, is limited to $1,049,000 annually.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
Sept. 30, Oct. 1,
1995 1994
---------- ----------
<S> <C> <C>
Assets:
Net operating loss carryforwards $ 822,000 $1,311,000
Allowance for bad debts 236,000 291,000
Inventory 234,000 302,000
Investment tax credits 208,000 156,000
Other 331,000 309,000
---------- ----------
1,831,000 2,369,000
Valuation allowance -- (58,000)
---------- ----------
Deferred tax assets 1,831,000 2,311,000
---------- ----------
Liabilities:
Depreciation and amortization 2,387,000 1,965,000
Other 46,000 199,000
---------- ----------
Deferred tax liabilities 2,433,000 2,164,000
---------- ----------
Net deferred tax liability (asset) $ 602,000 $ (147,000)
========== ==========
</TABLE>
Under the provisions of SFAS No. 96, the deferred tax provision for fiscal
year 1993 of $545,000 resulted principally from utilization of acquired net
operating loss carryforwards of $436,000 and depreciation of $189,000, partially
offset by the allowance for doubtful accounts of $58,000.
21
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H - Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data for fiscal years 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $15,123,000 $15,055,000 $15,184,000 $17,749,000
Gross profit 4,602,000 4,279,000 3,863,000 4,451,000
Net income 1,238,000 1,111,000 857,000 1,268,000
Earnings per share .15 .13 .10 .15
Weighted average shares outstanding 8,520,000 8,520,000 8,520,000 8,520,000
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1994 (1) Quarter Quarter Quarter Quarter
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $10,201,000 $14,977,000 $15,399,000 $15,381,000
Gross profit 3,260,000 4,628,000 4,808,000 4,510,000
Net income 662,000 1,110,000 1,185,000 1,303,000
Earnings per share .08 .13 .14 .15
Weighted average shares outstanding 8,440,000 8,455,000 8,506,000 8,520,000
</TABLE>
- -----------
(1) Includes the results of operations of Powers from the date of acquisition.
Note I - Related Party Transactions
Services Agreement -- The Company obtains certain legal, accounting, tax,
insurance and human resource services from MEDIQ Incorporated ("MEDIQ"), the
owner of approximately 47% of the outstanding common stock. Costs for such
services were $100,000 for each of the three years ended September 30, 1995. The
Company believes that MEDIQ's charges for such services are on terms no less
favorable to the Company than those that could be obtained from unaffiliated
third parties for comparable services.
Insurance -- The Company obtains certain insurance coverages through
programs administered by MEDIQ. Insurance expense under these programs was
$409,000, $464,000 and $213,000 for fiscal years 1995, 1994 and 1993,
respectively.
Pledge of Stock -- A portion of the shares of the Company's stock owned by
MEDIQ is subject to exchange for outstanding MEDIQ debentures and a portion
secures certain MEDIQ indebtedness.
22
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note J - Stock Options
The Company maintains a Stock Option Plan which includes an Incentive Stock
Option Program and a Non-Qualified Stock Option Program. Incentive stock options
may be granted to key employees, including the Company's officers, at the
discretion of the Stock Option Plan Committee, until termination of the Plan.
Non-qualified stock options may be granted to employees, non-employee
directors, advisors and independent consultants at the discretion of the
Committee. No options may be granted under the programs for a term in excess of
five years from the date of grant. As of September 30, 1995, 401,000 stock
options were exercisable under such plans. The stock option prices listed below
represent the quoted market value of the common stock at dates of grant.
A summary of stock option activity for the three years ended September 30,
1995 follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- ------------
<S> <C> <C>
October 1, 1992 345,000 $4.00-$8.50
Granted 88,000 $12.25
Exercised (70,000) $5.00-$8.50
-------
October 2, 1993 363,000 $4.00-$12.25
Granted 524,000 $9.63-$12.00
Exercised (27,000) $4.00-$12.00
Terminated (15,000) $6.00-$12.25
-------
October 1, 1994 845,000 $6.00-$12.25
Granted 60,000 $9.38-$9.69
Exercised --(1) $6.00
-------
September 30, 1995 905,000 $6.00-$12.25
=======
</TABLE>
- ----------------
(1) 180 stock options were exercised in 1995.
Note K - Major Customers
American Home Products, Inc. accounted for 14% and 17% of net sales in 1995
and 1994, respectively. No individual customer represented in excess of 10% of
the Company's net sales for 1993.
Note L - Special Committee
The Board of Directors of MEDIQ Incorporated ("MEDIQ"), a 47% owner of the
Company, is currently in the process of exploring alternative ways to maximize
MEDIQ's shareholder value, which could include the disposition of its holdings
in the Company. In connection with MEDIQ's activities, the Company formed a
Special Committee of its Board of Directors to explore strategic alternatives
for the Company. The Committee has retained Wasserstein Perella & Co. as
financial advisors to seek opportunities for the Company to enhance shareholder
value.
23
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note M - Subsequent Event
In October 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of Mi-Lor Corporation, Professional Brushes, Inc.
and Codent Dental Products, Inc., which manufacture and market toothbrushes,
dental floss and related products for the store brand market. The purchase price
consisted of $1,800,000 in cash, liabilities assumed of $225,000 and related
expenses of approximately $375,000.
24
<PAGE>
PART III
The information required to be included herein has been incorporated herein by
reference to the Registrant's proxy statement relating to the annual meeting of
its stockholders scheduled to be held in 1996.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) (1) The response to this portion of Item 14 is submitted as a separate
section of this report commencing on page 11.
(a) (2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts and Reserves
Other schedules are omitted because of the absence of conditions under which
they are required.
(a) (3) and (c) Exhibits (numbered in accordance with Item 601 of
Regulation S-K).
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method of
Number Description Filing
- ------- ----------- ---------
<S> <C> <C>
3(a) Restated and Amended Certificate of
Incorporation (1)
3(b) Amendment, filed June 12, 1991, to the
Company's Certificate of Incorporation (1)
3(c) Amendment, filed March 5, 1992 to the
Company's Certificate of Incorporation (2)
3(d) By-Laws (1)
10(a) Employment Agreement between the Company
and Donald E. Lepone, dated November 28, 1993 (3)
10(b) Employment Agreement between the Company
and Richard Zakin, dated January 1, 1994 (3)
10(c) Employment Agreement between the Company
and Gary A. LeDuc, dated January 1, 1994 (4)
10(h) 1988 Stock Option Plan (adopted
April 28, 1988) (5)
10(i) Amendment No. 1 to the 1988 Stock Option Plan (2)
10(j) Amendment No. 2 to the 1988 Stock Option Plan (2)
10(k) Amendment No. 3 to the 1988 Stock Option Plan (2)
10(l) Amendment No. 4 to the 1988 Stock Option Plan (3)
10(m) Letter, dated March 29, 1994, from the Company
to Donald E. Lepone, reflecting the terms of
a stock option grant (4)
10(n) Tax Allocation/Sharing Agreement between
the Company and MEDIQ Incorporated, dated
July 25, 1990 (1)
10(o) Lease Agreement, dated January 1, 1987,
between The Aid-Pack Limited Partnership
and Aid-Pack, Inc. (6)
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
Number Description Filing
- ------- ----------- ---------
<S> <C> <C>
10(p) Lease Extension Agreement, dated May 1, 1991,
between The Aid-Pack Limited Partnership
and the Company (6)
10(q) Registration Rights Agreement, dated July 1, 1991
between MEDIQ Incorporated and the Company (7)
10(r) Amendment to Registration Rights Agreement, dated July 1, 1991
among MEDIQ, MEDIQ Investment Services, Inc. and the Company (8)
10(s) Services Agreement, dated August 22, 1991
between MEDIQ Incorporated and the Company (7)
10(t) Revolving Credit and Security Agreement between the Company
and State Street Bank and Trust Company (8)
10(u) Revolving Credit and Security Agreement between the Company
and State Street Bank and Trust Company (8)
21 Subsidiaries of the Company (4)
23 Consent of Deloitte & Touche LLP, Independent Certified
Public Accountants (4)
27 Financial Data Schedule (4)
</TABLE>
(1) Filed as an Exhibit to the Company's Registration Statement on Form S-1 on
July 5, 1991, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
fiscal year 1992, and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
fiscal year 1994, and incorporated herein by reference.
(4) Filed herewith.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1990, and incorporated herein by
reference.
(6) Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 on August 15, 1991, and incorporated herein by
reference.
(7) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1991, and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
fiscal 1993, and incorporated herein by reference.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the fourth
quarter of fiscal 1995.
26
<PAGE>
SIGNATURES
Pursuant to requirements of Section 13 of 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.
Dated: December 8, 1995 NUTRAMAX PRODUCTS, INC.
By: /s/ Donald E. Lepone
-------------------------------
Donald E. Lepone, President
and Chief Executive Officer
By: /s/ Robert F. Burns
-------------------------------
Robert F. Burns, Vice
President, Treasurer and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include at least a
majority of the Board of Directors on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ Bernard J. Korman Chairman of the Board December 8, 1995
- ---------------------
Bernard J. Korman
/s/ Donald E. Lepone President, Chief December 8, 1995
- -------------------- Executive Officer and
Donald E. Lepone Director
/s/ Donald M. Gleklen Director December 8, 1995
- ---------------------
Donald M. Gleklen
/s/ Frederick W. McCarthy Director December 8, 1995
- -------------------------
Frederick W. McCarthy
/s/ Dennis M. Newnham Director December 8, 1995
- ---------------------
Dennis M. Newnham
/s/ Michael F. Sandler Director December 8, 1995
- ----------------------
Michael F. Sandler
</TABLE>
27
<PAGE>
NUTRAMAX PRODUCTS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS 1995, 1994 AND 1993
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C - Additions COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------
(1) (2)
Description Balance at Charged to Charged to Deductions Balance
Beginning Costs and Other at End
of Period Expenses Accounts of Period
- ---------------------------------------------------------------------------------------------------------------------
Year ended September 30, 1995:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $738,000 $149,000 $ -- $(286,000) $601,000
======== ======== ======== ========= ========
Year ended October 1, 1994:
Allowance for doubtful accounts $375,000 $337,000 $ 73,000 $ (47,000) $738,000
======== ======== ======== ========= ========
Year ended October 2, 1993:
Allowance for doubtful accounts $275,000 $ 83,000 $ 17,000 $ -- $375,000
======== ======== ======== ========= ========
</TABLE>
(1) Includes allowance from acquisition of Optopics in 1993 and Powers in 1994.
(2) Represents accounts directly written-off net of recoveries.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December __, 1995
