10-K/A
Amendment to Annual Report on Form 10-K
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1997 Commission File No: 1-8147
------------------ ------
MEDIQ Incorporated
Delaware 51-0219413
- --------------------------------- ------------------------
(State or other jurisdiction (IRS Employer ID Number)
of incorporation or organization)
One MEDIQ Plaza, Pennsauken, New Jersey (609) 662-3200 08110
- ------------------------------------------------------------- ----------
(Address and telephone number of Principal Executive Offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
- --------------------------------------------------- -----------------------
Common Stock, Par Value $1.00 American Stock Exchange
Series A Preferred Stock, Par Value $.50 American Stock Exchange
7.50% Exchangeable Subordinated Debentures due 2003 American Stock Exchange
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to rule 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 amendments to
this Form 10-K. ___
The number of shares outstanding of each of the registrant's classes of stock as
of December 12, 1997:
Class
- ------------------------
Common Stock 19,368,326 Shares
Series A Preferred Stock 6,267,498 Shares
Documents Incorporated By Reference: None
----
<PAGE>
This Form 10-K/A is being filed for the sole purpose of adding Items 10,
11, 12 and 13, because the definitive proxy statement of MEDIQ Incorporated
("MEDIQ" or the "Company") with regard to its annual meeting of stockholders
will not be filed within 120 days after the end of the Company's 1997 fiscal
year.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth as of January 27, 1998, certain information
concerning the directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name and Offices Director
with the Company Age Since Principal Occupation and Experience
---------------- --- -------- -----------------------------------
<S> <C> <C> <C>
Michael J. Rotko 59 1965 Special Counsel to the U.S. Senate
Chairman of the Investigation of the Persian Gulf War
Board of Directors Syndrome (since 1997); Partner, Drinker
Biddle & Reath LLP, a law firm (1993-1997);
formerly U.S. Attorney, Eastern District of
Pennsylvania (1993); previously First
Assistant U.S. Attorney, Eastern District of
Pennsylvania (1990-1993)
Jacob A. Shipon 59 1981 Physician in private practice; formerly
Vice Chairman of the Director, Copelco Financial Services Group,
Board of Directors Inc.
Thomas E. Carroll 54 1995 President and Chief Executive Officer (since
President and Chief 1995); formerly President and Chief Operating
Executive Officer Officer of MEDIQ/PRN (1994-1995); formerly
Executive Vice President and Chief Operating
Officer of MEDIQ/PRN (1990-1994)
Michael F. Sandler 52 1994 President and Chief Executive Officer of
Director Veritext LLC (court reporting service) (since
1997); formerly Senior Vice President,
Finance and Chief Financial Officer (1988-
1997) and Treasurer (1991-1997) of MEDIQ;
Director, InnoServ Technologies, Inc.
(medical equipment support services)
Sheldon M. Bonovitz 60 1995 Chairman and Partner, Duane, Morris &
Director Heckscher LLP, a law firm; Director of
Comcast Corporation (cable and cellular
technologies) and Surgical Laser
Technologies, Inc. (medical technologies)
Mark S. Levitan 64 1981 Executive Director of the Foundation for
Director Ichthyosis and Related Skin Types; Chairman
of the Board of Directors of HOMECARE USA
(home medical equipment rentals); formerly
Vice President -- Consulting Division,
MedQuist Inc. (healthcare information ser-
vices); formerly Partner, Management Part-
ners, Inc. (healthcare consultants), which
was acquired in 1994 by MedQuist Inc.
H. Scott Miller 48 1992 President, Strategic Advisors, Inc. (merchant
Director banking) (since 1994); formerly Manager,
Private Investor Group, Miller, Anderson &
Sherrerd (financial management services)
(1989-1993)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Offices Director
with the Company Age Since Principal Occupation and Experience
---------------- --- -------- -----------------------------------
<S> <C> <C> <C>
Other Executive Officer
- -----------------------
Jay M. Kaplan 49 n/a Senior Vice President, Finance and Chief
Senior Vice President, Financial Officer (since 1997); Senior Vice
Finance and Chief President and Chief Financial Officer of
Financial Officer MEDIQ/PRN (since 1992).
</TABLE>
The Board of Directors and its Committees
The Board of Directors held 23 meetings (including action by unanimous
written consent) during the fiscal year ended September 30, 1997. The Board has
six standing committees, the Executive Committee, the Compensation Committee,
the Stock Option Committee, the Audit Committee, the Pension Plan Retirement
Committee and the Nominating Committee. The Nominating Committee considers
nominees recommended by stockholders in writing, addressed to the Secretary of
the Company not later than 120 days in advance of the date the Company's proxy
statement was released to stockholders for the previous year's annual meeting
(approximately October 1 of each year) for consideration by stockholders at the
next following annual meeting of stockholders. During fiscal 1997, all directors
attended at least 75% of the total number of meetings of the Board of Directors
and committees of the Board on which they served.
The Executive Committee. Messrs. Bonovitz, Carroll, Miller, Rotko and Sandler
served as members of the Executive Committee during fiscal 1997. This committee,
between meetings of the Board of Directors and while the Board of Directors is
not in session, has the power to exercise all of the duties of the Board of
Directors in the management of the business of the Company which is lawfully
delegated to it by the Board of Directors. Although the members of this
committee met frequently, there were no formal meetings of this committee during
fiscal 1997.
The Compensation Committee. Messrs. Bonovitz, Carroll, Miller and Rotko served
as members of the Compensation Committee during fiscal 1997. This committee
reviews categories of compensation levels of the Company's employees and
determines guidelines for future compensation, including incentive compensation.
However, Mr. Carroll is not considered a member of the Compensation Committee as
to any matter relating to his own compensation. This committee held one meeting
during fiscal 1997.
The Stock Option Committee. During fiscal 1997, Messrs. Bonovitz, Miller, Rotko
and Dr. Shipon served as members of the Stock Option Committee. This committee
is authorized to grant options to officers and key employees of the Company
pursuant to the Company's Stock Option Plan and otherwise. This committee held
two meetings during fiscal 1997.
The Audit Committee. Messrs. Bonovitz, Levitan and Miller served as members of
the Audit Committee during fiscal 1997. The primary responsibilities of this
committee are to recommend annually the
<PAGE>
independent public accountants for appointment by the Board as auditors for the
Company, review the scope of the audit made by the accountants, review the audit
reports submitted by the accountants, conduct such other reviews as the
committee deems appropriate and make reports and recommendations to the Board
within the scope of its functions. This committee held one meeting during fiscal
1997.
The Nominating Committee. Messrs. Bonovitz, Miller, Rotko and Dr. Shipon served
as members of the Nominating Committee during fiscal 1997. The primary
responsibility of the Nominating Committee is to consider nominees for director
recommended by stockholders. This committee held no meetings during fiscal 1997.
Compensation of Directors. The Chairman of the Board of Directors received an
annual director's fee of $50,000 for his services in such capacity during fiscal
1997. The other directors who are not executive officers received an annual
director's fee of $15,000 for their services in such capacity during fiscal
1997. Directors who are executive officers of the Company or of any of its
subsidiaries receive no additional compensation for their service as directors.
In addition, in fiscal 1997 the non-officer directors who served on the
Executive Committee received an hourly stipend for performing services for the
Company on board committees and additional services as requested by the
Executive Committee. This amounted to $85,000 in the case of Mr. Bonovitz and
$8,000 in the case of Mr. Miller.
Dr. Shipon is the brother-in-law of Mr. Rotko. Information concerning the
Company's employment agreements with Messrs. Carroll, Kaplan and Sandler is
included as part of the response to Item 11 hereof, and is incorporated by
reference.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, as well as persons beneficially owning more
than 10% of the Company's shares of Common Stock and certain other persons
(collectively, "Covered Persons") to file with the Securities and Exchange
Commission and the American Stock Exchange, within specified time periods,
initial reports of ownership, and subsequent reports of changes in ownership, of
shares of Common Stock and certain other securities of the Company.
It has recently come to the attention of the Company that the conversion in
February 1997 of the Company's 7.25% Convertible Debentures Due 2006 owned by a
trust established by Bernard B. Rotko, M.D.,the Company's founder (the "Trust"),
which holds in excess of 10% of the Company's Common Stock, was not reported to
the Securities and Exchange Commission in a monthly Statement of Changes in
Beneficial Ownership, as required under Section 16(a) of the Securities Exchange
Act of 1934, as amended. The Trust's debentures were automatically converted
into Common Stock upon the expiration of the Company's offer to repurchase all
such debentures outstanding on February 21, 1997. This information is currently
being filed with the Securities and Exchange Commission.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the annual
and long-term compensation paid or accrued for the Company's Chief Executive
Officer and certain other of the Company's executive officers whose total annual
salary and bonus exceeded $100,000 for services rendered to the Company and its
subsidiaries during fiscal years 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Long Term
Compensation
Securities
Annual Compensation(1) Underlying
---------------------------------- Stock
Name and Principal Position Year Salary ($) Bonus ($) Options(#)
- --------------------------- ---- ---------- --------- -------------
<S> <C> <C> <C> <C>
Thomas E. Carroll 1997 350,000 192,000 50,000
President and Chief 1996 297,000 135,000 250,000
Executive Officer 1995 265,000 206,000 --
Michael F. Sandler (a) 1997 250,000 88,000 --
Senior Vice President - 1996 250,000 100,000 --
Finance, Treasurer & Chief 1995 250,000 100,000 --
Financial Officer
Jay M. Kaplan 1997 187,000 94,000 25,000
Senior Vice President - Finance & 1996 177,000 70,000 85,000
Chief Financial Officer 1995 165,000 74,000 --
</TABLE>
- ----------
(1) The Company has omitted in the Summary Compensation Table information
concerning the value of perquisites and other personal benefits which, in
the aggregate, do not exceed the lesser of $50,000 or 10% of the total
salary and bonus reported for the named executive officers.
(a) Mr. Sandler resigned as an officer of the Company effective September 30,
1997.
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL 1997
============================================================================================================================
Individual Grants
- ---------------------------------------------------------------------------------------
Percent of Potential Realizable Value
Total at
Number of Options/SARs Assumed Annual Rates of
Securities Granted to Stock Price: Appreciation
Underlying Employees Exercise or for Option Term
Option/SARs in Fiscal Base Price Expiration --------------------------
Name Granted (#) Year ($/Sh) Date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Carroll 50,000 9.04% 8.06 6/23/07 254,000 642,000
- ----------------------------------------------------------------------------------------------------------------------------
Michael F. Sandler -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Jay M. Kaplan 25,000 4.52% 8.06 6/23/07 127,000 321,000
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1997
AND FISCAL YEAR-END OPTION/SAR VALUES
- -------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Fiscal Options/SARs at
Year-End Fiscal Year-End ($)
Shares Acquired on Value Realized (#) Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable (1,2) Unexercisable (3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas E. Carroll (4) -- -- 150,000/158,000 603,000/483,000
- -------------------------------------------------------------------------------------------------------------------------------
Michael F. Sandler -- -- 165,000/-- 879,000/--
- -------------------------------------------------------------------------------------------------------------------------------
Jay M. Kaplan -- -- 35,000/88,000 137,000/273,000
===============================================================================================================================
</TABLE>
- ----------
(1) No stock options or SARs were exercised by the named executive officers in
fiscal 1997.
(2) Options are to acquire shares of the Company's Common Stock.
(3) Based upon the closing prices at September 30, 1997.
(4) At the Company's fiscal year end, SARs granted to Mr. Caroll had no value.
Retirement Plan
The following table shows the estimated annual pension benefits payable
upon retirement to participants of the Company's noncontributory defined benefit
pension plan (the "Pension Plan") for various salary levels and years of
service:
<PAGE>
Average Annual Estimated Annual Benefits
Compensation During Payable at Age 65 for Various
Plan Membership Years of Plan Membership
------------------- ----------------------------------------------------
10 20 30 40
------- ------- ------- -------
$500,000 $19,132 $37,342 $55,482 $64,722
400,000 19,132 37,342 55,482 64,722
300,000 19,132 37,342 55,482 64,722
200,000 19,132 37,342 55,482 64,722
100,000 12,132 23,342 34,482 40,222
Average annual benefits are based upon the participant's annual
compensation (including bonuses and similar special pay), as more fully defined
in the Pension Plan, over the number of years of participation up to a maximum
of 35 years. During fiscal 1997, the maximum amount of annual compensation which
may be included for Pension Plan purposes was $150,000. The figures shown above
apply under the Pension Plan as of September 30, 1997. Estimated annual benefits
are determined in part by the average Social Security wage base during the 35
years ending in the year of Social Security Normal Retirement Age. The benefit
amounts listed are not subject to any deduction for Social Security or other
offset amounts. As a result of limitations imposed under Federal income tax law,
the maximum annual benefit payable under the Pension Plan for the fiscal year
ending September 30, 1997 is $120,000, although the amount will be actuarially
adjusted in accordance with Federal income tax regulations if payments commence
prior to or following the date that unreduced Social Security benefits become
payable. As of September 30, 1997, Messrs. Carroll, Sandler and Kaplan had 9, 9
and 24 years of service credited, respectively, under the Pension Plan.
Employment Agreements
In April 1995, the Company entered into an employment agreement with Mr.
Carroll for an initial two-year term (and thereafter renewable from year to
year), under which he agreed to serve as President and Chief Operating Officer
of MEDIQ/PRN. Mr. Carroll was subsequently appointed as President and Chief
Executive Officer of the Company. The agreement provided for a special bonus to
be paid to Mr. Carroll upon the occurrence of a Sale Event (as defined in the
agreement) equal to the sum of (i) .25% of the aggregate purchase price up to
$375 million and (ii) 1.5% of any amount by which such aggregate purchase price
exceeds $375 million (the "Transaction Bonus"). The agreement also provided, in
the event that the Board of Directors decided to abandon a Sale Event (as
defined in the agreement), for the grant to Mr. Carroll, in lieu of payment of
the Transaction Bonus, of both (i) 10-year options to purchase 100,000 shares of
Common Stock of the Company and (ii) stock appreciation rights in MEDIQ/PRN
equal to 2% of the increase over specified periods, of the earnings of MEDIQ/PRN
before interest, taxes, depreciation and amortization expense, as calculated
pursuant to a formula contained in the agreement ("SAR Compensation"). In
October 1995, following the Board of Directors' determination not to proceed
with a Sale Event, the Company granted such Options to Mr. Carroll at an
exercise price of $4.00, the market value of the Common Stock as of the date of
grant, and issued to him the SAR Compensation.
<PAGE>
In November 1997, Mr. Carroll's employment agreement was amended to, among
other things, extend Mr. Carroll's employment term to November 13, 1999 and
extend his noncompetition obligations to two years following termination of his
employment for any reason. The agreement, as amended, also provides for the
payment of the Transaction Bonus upon the occurrence of a "Strategic
Transaction" (as defined in the agreement) any time before June 30, 1998.
Receipt of the Transaction Bonus would forfeit all of Mr. Carroll's rights to
any SAR Compensation otherwise granted in the agreement. Pursuant to this
agreement, Mr. Carroll receives an annual salary of $350,000, and an incentive
bonus of up to 60% of his base salary based on the achievement of performance
criteria approved by the Compensation Committee.
In June 1995, the Company entered into a two-year employment agreement with
Mr. Sandler (which replaced a prior agreement entered into in 1988). The
agreement was amended in September 1997 (the "Amended Agreement") to effectuate
Mr. Sandler's resignation, as of September 30, 1997, as an officer of the
Company and as an officer and/or director of any of the Company's subsidiaries.
Mr. Sandler remains a director and, until September 30, 1998, an employee, of
the Company at his annual rate of salary in effect as of September 1, 1997, and
has agreed to provide certain services during such period upon request. The
Amended Agreement extends the period during which Mr. Sandler is entitled to a
special bonus payable upon the occurrence of an Event of Sale (as defined
therein) until September 30, 1998. The special bonus payable upon an Event of
Sale would be equal to (i) $500,000 if the fair market value per share received
by stockholders (the "Share Value") is $6.50 or greater, plus an additional
$1,000 for each additional $.01 by which the Share Value exceeds $6.50 and (ii)
$200,000 if the Share Value is less than $6.50, plus any additional bonus at the
sole discretion of the Board of Directors.
In June 1995, the Company entered into an eighteen-month employment
agreement with Mr. Kaplan providing for a minimum salary of $165,000 and an
incentive bonus based on the achievement of performance criteria approved by the
Compensation Committee. Mr. Kaplan currently receives an annual salary of
$185,000. This agreement automatically renews from year to year unless and until
either party gives prior notice of an election to terminate at the end of the
then-current term. The agreement also provides for a special bonus to be paid to
Mr. Kaplan upon the sale of MEDIQ/PRN if such sale occurs during the term of the
agreement. Mr. Kaplan's special bonus in the event of such a transaction would
be equal to the sum of (i) .025% of the aggregate purchase price, up to $375
million, of MEDIQ/PRN as determined by such event plus (ii) .15% of any amount
by which such aggregate purchase price exceeds $375 million.
<PAGE>
The employment agreements described above also include other provisions
relating to benefits, confidentiality and other provisions customary in
agreements of this nature. In addition, Mr. Carroll has agreed not to compete
with the business of MEDIQ/PRN for one year following the termination of his
employment under certain circumstances.
Compensation Committee Interlocks and Insider Participation
Mr. Carroll, the Company's President and Chief Executive Officer, served on
the Compensation Committee of the Board of Directors during fiscal year 1997,
except that Mr. Carroll was not a member of the Compensation Committee as to any
matter relating to his compensation.
Other
Messrs. Miller and Sandler served as directors of MHM Services, Inc.
("MHM") until they resigned from such positions in January 1997. The Company is
the payee under a certain note payable from MHM dated August 31, 1993, with an
amount outstanding of $10,477,776 as of January 27, 1998, which bears interest
at a rate of prime plus 1.5%, currently 10.0% (the "MHM Note"). In addition, MHM
is indebted to the Company for approximately an additional $390,000 that is not
represented by the MHM Note. MHM made payments to the Company with respect to
principal and interest payments on this indebtedness as well as professional
fees totaling $601,000 in 1997. The Rotko Trusts described above together own
approximately 907,000 shares of the common stock of MHM. Certain other trusts
established by Bernard B. Rotko for the benefit of certain grandchildren hold
approximately an aggregate of 15,000 shares of the common stock of MHM.
In February 1997, the Company was sued in the Superior Court of New Jersey
by MHM. The suit challenged the validity of the Note. In addition, beginning in
February 1997, MHM stopped making the required monthly installments on the MHM
Note, and therefore, the Company gave notice to MHM of its default on the MHM
Note and declared all sums outstanding under the MHM Note to be immediately due
and payable. In September 1997, as a result of continued deterioration of MHM's
financial condition, the Company recorded a reserve for the remaining balance of
the MHM Note, which had been partially reserved in 1996, and accrued interest on
the MHM Note. In October 1997, the Company filed a motion for summary judgment
against MHM. In November 1997, the Court granted summary judgment in favor of
the Company against MHM on all counts. Specifically, the Court ruled that the
MHM Note was valid and enforceable. The Court also rejected MHM's request for a
stay pending appeal. MHM has filed an appeal which is currently pending.
Mr. Sandler served as a director of NutraMax Products, Inc. ("NutraMax")
until he resigned from such position in December, 1996. In September 1996 the
Company entered into an agreement with NutraMax pursuant to which NutraMax has
agreed to repurchase all of the shares of NutraMax owned by the Company. In
December
<PAGE>
1996 NutraMax paid $19.9 million of the purchase price to the Company and gave
to the Company its promissory note in the original principal amount of $16.4
million. As of September 30, 1997, the outstanding balance on the Note was $4.9
million. In addition, the Company received payments from NutraMax of $7,000 in
1997 for professional service fees.
Messrs. Bonovitz and Miller served as directors of PCI Services, Inc.
("PCI") until they resigned from such positions in October 1996. In fiscal 1997,
in connection with the acquisition of PCI by Cardinal Health,Inc.("Cardinal"),
the Company's interest in PCI was converted into shares of common stock of
Cardinal with a market value of approximately $79.2 million based on the
closing price on October 11, 1996. The Company sold its Cardinal shares in
January 1997 for approximately $88.4 million and used the proceeds to reduce
debt. The Company received payments from PCI of $2,000 in 1997 for professional
service fees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 27, 1998, the beneficial
ownership of shares of the Company's Common Stock and Preferred Stock by:
(i) each person who is known by the Company to be the beneficial owner of more
than 5% of the such shares; (ii) each director of the Company; (iii) each of the
Company's executive officers named in the Summary Compensation Table (included
elsewhere herein); and (iv) all directors and executive officers of the Company
as a group. This information is based upon public filings and, in the case of
the Company's officers and directors, information provided to the Company by
such persons.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
--------------------------------- ----------------------------
Percent Percent
Number of Class Number of Class
Name(1)(2) of Shares Outstanding of Shares Outstanding
---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Michael J. Rotko(3)(4) 4,137,260 21.4% 4,145,793 66.2%
Jacob A. Shipon(3)(4) 4,091,565 21.1% 4,100,098 65.4%
Thomas E. Carroll(5) 341,101 1.7%
Michael F. Sandler(6) 186,617 1.0% -- --
Sheldon M. Bonovitz 34,100 * -- --
H. Scott Miller(7) 13,600 * 4,300 *
Mark S. Levitan 5,150 * -- --
Jay M. Kaplan(8) 155,366 * -- --
Bernard J. Korman 2,009,422 10.4% 801,030 12.8%
c/o Graduate Health
System
22nd & Chestnut Streets
Philadelphia, PA 19103
All directors and 5,326,095 26.7% 4,602,994 73.5%
executive officers as
a group (8 persons)
</TABLE>
- ----------
* Less than one percent
(1) Unless otherwise indicated, beneficial ownership is based on sole voting
and dispositive power with respect to the shares, and shares are held by
the person listed or members of his or her family. Shares of Common Stock
which the individual has the right to acquire, upon exercise of options and
in certain other circumstances, are deemed to be outstanding and
beneficially owned by the individual.
(2) Unless otherwise indicated, the address of each person listed in the table
is c/o One MEDIQ Plaza, Pennsauken, NJ 08110-1460.
(3) Michael J. Rotko is the son of Bessie G. Rotko. Mrs. Rotko, who resigned as
a director effective November 29, 1995, is the income beneficiary, during
her lifetime, of certain trusts (the "Rotko Trusts") created by her late
husband, Bernard B. Rotko, M.D., who was the founder of the Company. The
Rotko Trusts collectively hold 3,638,664 shares of Common Stock and
3,647,197 shares of Preferred Stock, as to which Mrs. Rotko, Mr. Rotko,
Judith M. Shipon, John Iskrant, Esq. and PNC Bank Corp. share voting and
dispositive power as co-trustees. Mrs. Shipon is the wife of Jacob A.
Shipon and the daughter of Mrs. Rotko and the late Dr. Rotko. The shares
set forth in the above chart for Mr. Rotko include 7,308 shares of Common
Stock and 7,308 shares of Preferred Stock, respectively, held as custodian
for children. Mr. Rotko is also a co-trustee of four additional Trusts
established by the late Dr. Rotko for the benefit of certain grandchildren
of Dr. Rotko. Collectively, these four Trusts hold 49,941 shares of Common
Stock and 49,941 shares of Preferred Stock. As a trustee of the Trusts
described above (including the Rotko Trusts), Mr. Rotko may be deemed a
beneficial owner of the shares owned by the Trusts, which consequently are
included in the Stock Ownership Table.
(4) Dr. Shipon is the son-in-law of Mrs. Rotko. Includes 441,351 shares of
Common Stock and 441,351 shares of Preferred Stock, respectively, which are
owned by Mrs. Shipon, Dr. Shipon's spouse. Mrs. Shipon is a trustee of the
Rotko Trusts described in footnote 3, and may be deemed a beneficial owner
of the shares owned by the Rotko Trusts, which are included in Dr. Shipon's
share ownership in the Stock Ownership Table. Mrs. Shipon is also a trustee
of two additional trusts established by the late Dr. Rotko for the benefit
of certain grandchildren. Collectively, the trusts for the benefit of
certain grandchildren of Dr. Rotko of which Mrs. Shipon serves as
co-trustee hold 9,900 shares of Common stock and 9,900 shares of Preferred
Stock, which are included in Dr. Shipon's share ownership in the Stock
Ownership Table. Dr. Shipon disclaims beneficial ownership of the shares
held by his wife.
(5) Includes 7,375 shares of Common Stock owned by Mr. Carroll's spouse and
children, and 307,500 shares of Common Stock which may be acquired upon
exercise of stock options.
(6) Includes 165,000 shares of Common Stock which may be acquired upon exercise
of stock options.
<PAGE>
(7) H. Scott Miller provides financial advisory services to the Rotko Trusts
described in footnote 3. Includes 1,600 shares of Preferred Stock held by
the estate of Mr. Miller's mother.
(8) Includes 123,012 shares of Common Stock which may be acquired upon exercise
of stock options.
Agreements with MQ Acquisition Corporation
On January 15, 1998, the Company announced that, pursuant to the terms of a
definitive agreement and plan of merger (the "Merger Agreement"), MQ Acquisition
Corporation ("Acquiror"), a Delaware corporation formed by Bruckmann, Rosser,
Sherrill & Co., Inc. ("BRS"), has agreed to acquire MEDIQ in a transaction
whereby Acquiror will be merged with and into MEDIQ, with MEDIQ surviving (the
"Merger"). In the Merger, holders of MEDIQ's outstanding Common Stock and
Preferred Stock will be entitled to receive in exchange for each share of Common
Stock or Preferred Stock, as the case may be, $13.75 in cash and 0.075 shares of
a newly created 13% Cumulative Compounding Preferred Stock (the "13% Senior
Preferred Stock") of the Surviving Corporation. The 13% Senior Preferred Stock
will have a liquidation preference of $10.00 per share. Including the assumption
of debt, the total purchase price will be approximately $526 million.
In connection with, and as a condition to entering into the Merger
Agreement, Acquiror required that Bessie Rotko, Michael Rotko, Judith Shipon and
a trust for the benefit of the Rotko family members (together, the "Rotko
Entities") enter into an agreement pursuant to which they will receive a number
of shares of the Common Stock of the Surviving Corporation equal to 10.98% of
the total outstanding shares of Common Stock of the Surviving Corporation and
1,340,200 shares of the Series B Preferred Stock of the Surviving Corporation
having the terms and conditions as set forth in Exhibit I to such Agreement, in
exchange for 1,000,000 shares of Preferred Stock held by them. The transaction
is subject to the approval by (i) holders of a majority of the outstanding
Preferred Stock voting as a class and (ii) holders of a majority of the total
voting power of the Preferred Stock and the Common Stock, voting together as a
single class. The Rotko Entities have also been given the right, following the
Merger, to have a representative named to MEDIQ's Board of Directors.
The Rotko Entities also granted Acquiror an option, pursuant to the Stock
Option Agreement, to purchase all of the MEDIQ Common Stock and Preferred Stock
owned by them, representing a majority of the outstanding Preferred Stock and a
majority of the outstanding total voting power of the Preferred Stock and the
Common Stock, voting together as a single class. The option is exercisable upon
the occurrence of certain events, as set forth in more detail in the Stock
Option Agreement. The Rotko Entities also entered into Stockholder Agreements
under which they have agreed to vote in favor of, and otherwise to support the
Merger, subject to the limitations set forth therein.
Members of MEDIQ's senior management, including Thomas E. Carroll,
President and Chief Executive Officer, will remain in place after the Merger and
will retain an equity interest in the surviving corporation.
The transaction is intended to be treated as a recapitalization for
financial reporting purposes. The Board of Directors of MEDIQ and a Special
Committee thereof have unanimously approved the Merger Agreement. The Merger is
subject to customary closing conditions in addition to MEDIQ shareholder
approval, including Hart-Scott-Rodino review and funding of committed financing.
BRS has received financing commitments for the transaction from Credit Suisse
First Boston, NationsBank and Banque Nationale de Paris, which commitments are
subject to customary conditions.
An affiliate of BRS and related investors are committed to invest up to
$98,600,000 in securities of the Acquiror, upon satisfaction of the conditions
to Acquiror's obligations under the Merger Agreement, and BRS has provided MEDIQ
with certain other financial assurances. MEDIQ may become obligated to pay
Acquiror a break-up fee of $16,500,000, plus documented expenses up to a maximum
of $5,000,000, under the circumstances set forth in the Merger Agreement.
On January 15, 1998, a complaint, purporting to be a class action, was
filed in Delaware Chancery Court, naming each of the MEDIQ directors as
defendants and seeking to enjoin consummation of the Merger, or, in the
alternative, compensatory damages. Plaintiff alleges generally that the
directors have breached fiduciary duties to stockholders. MEDIQ believes that
the allegations in the complaint are completely without merit and intends to
vigorously defend this case.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until February 1997, Michael J. Rotko was a partner in the law firm of
Drinker Biddle & Reath LLP, which provided legal services to the Company during
fiscal year 1997 and in prior years. The Company was not charged by Drinker
Biddle & Reath for any of Mr. Rotko's time on Company matters.
Sheldon M. Bonovitz is Chairman of and a partner in the law firm of Duane,
Morris & Heckscher LLP, which provided legal services to the Company during
fiscal 1997.
The responses under Item 11, "Other," and Item 12, "Agreements with MQ
Acquisition Corporation" are incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment to Annual Report on Form
10-K to be signed on its behalf by the undersigned, hereunto duly authorized, on
January 28, 1998.
MEDIQ Incorporated
BY: /s/ Thomas E. Carroll
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