UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-K/A
Amendment to 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, 1998 Commission File Number: 1-8147
MEDIQ Incorporated
(Exact name of registrant as specified in its charter)
Delaware 51-0219413
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One MEDIQ Plaza, Pennsauken, New Jersey 08110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 662-3200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
7.50% Exchangeable Subordinated Debentures due 2003 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
- -------------------
Series A 13.0% Cumulative Compounding Preferred Stock, None
Par Value $.01
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 ____
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 7, 1998:
Class
-----
Common Stock, Par Value $.01 1,074,823 Shares
Series A 13.0% Cumulative Compounding Preferred
Stock, Par Value $.01 7,823,506 Shares
Series B 13.25% Cumulative Compounding Perpetual
Preferred Stock, Par Value $.01 2,999,999 Shares
Series C 13.5% Cumulative Compounding Preferred
Stock, Par Value $.01 3,000,000 Shares
There is no public market for the Company's Common Stock, and as such, there is
no practicable manner to obtain an aggregate market valuation.
Documents Incorporated by Reference: None
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 1998 fiscal
year.
<PAGE>
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth as of January 25, 1999, certain
information concerning the directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name and Offices Director
with the Company (1) Age Since Principal Occupation and Experience
- -------------------- --- -------- -----------------------------------
<S> <C> <C> <C>
Bruce C. Bruckmann 45 (2) A Managing Director of Bruckmann, Rosser, Sherrill & Co., Inc.
Director ("BRS"), an investment firm. Officer of Citicorp Venture Capital
Ltd. ("CVC") from 1983 to 1994. Director of Mohawk Industries,
AmeriSource Health Corporation, Chromcraft Revington Corporation, Cort
Furniture Rental Corp., Jitney-Jungle Stores of America, Inc., Town Sports
International, Inc. and Anvil Knitwear, Inc.
Thomas E. Carroll 55 1995 President and Chief Executive Officer since 1995. President and Chief
President, Chief Executive Officer of MEDIQ/PRN Life Support Services, Inc.
Executive Officer and ("MEDIQ/PRN"), a wholly owned subsidiary of the Company, since 1995.
Director President and Chief Operating Officer of MEDIQ/PRN from 1994 to 1995.
Executive Vice President and Chief Operating Officer of MEDIQ/PRN from
1990 to 1994. Director of Roy F. Weston, Inc.
Michael J. Rotko 60 1965 Of Counsel to the law firm of Drinker Biddle & Reath LLP ("DBR").
Director Special Counsel to the United States Senate investigation into issues arising
from the Persian Gulf War from 1997 to 1998. Partner of DBR from 1993
to 1997. United States Attorney, Eastern District of Pennsylvania prior to
joining DBR.
Stephen C. Sherrill 45 (2) A Managing Director of BRS. Officer of CVC from 1983 to 1994.
Director Director of Jitney-Jungle Stores of America, Inc., B&G Foods, Inc.,
HealthPlus Corporation, Doane Pet Care Enterprises, Inc. and Alliance
Laundry Systems LLC.
Robert T. Thompson 44 (2) A Managing Director of Ferrer Freeman Thompson & Co. LLC, an
Director investment firm. Managing Director and Equity Group
Leader of GE Capital Corporation from 1988 to 1995. Director of Vista
Hospice Care and Timm Medical Technologies.
L. John Wilkerson 55 (2) General Partner in Galen Associates, a risk capital partnership. Consultant
Director to the Wilkerson Group, a dedicated healthcare products consulting practice,
and various other positions with the firm since 1980. Director of
British Biotechnology PLC and Stericycle, Inc.
Jay M. Kaplan 50 N/A Senior Vice President-Finance, Treasurer and Chief Financial Officer of the
Senior Vice President- Company since 1997. Senior Vice President and Chief Financial Officer of
Finance, Treasurer and MEDIQ/PRN since 1992.
Chief Financial Officer
</TABLE>
- -------------------
(1) Directors hold their offices for a term of one year or until their
successors are elected and qualified. Executive Officers serve at the
discretion of the Company's Board of Directors.
(2) May 29, 1998, the date of the Company's Merger (as defined under ITEM 13
herein).
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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 other executive officer.
<TABLE>
<CAPTION>
Long Term
Compensation:
Securities
Annual Compensation (1) Underlying
Name and ---------------------------------- Stock All Other
Principal Position Year Salary Bonus Options (#) Compensation
- ------------------- ---- -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Thomas E. Carroll 1998 $375,000 $112,000 -- $4,793,000 (2)
President and Chief 1997 350,000 192,000 50,000 2,000 (3)
Executive Officer 1996 297,000 135,000 250,000 2,000 (3)
Jay M. Kaplan 1998 $200,000 $ 40,000 -- $ 484,000 (2)
Senior Vice President- 1997 187,000 94,000 25,000 2,000 (3)
Finance, Treasurer and 1996 177,000 70,000 85,000 2,000 (3)
Chief Financial Officer
</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.
<TABLE>
<CAPTION>
(2) Consists of:
Mr. Carroll Mr. Kaplan
----------- -----------
<S> <C> <C>
Cash bonus paid upon consummation of Company's Merger $4,790,000 $481,000
Company's matching contribution to Company's Profit
Sharing Plan and Trust ("401(k) Savings Plan") 3,000 3,000
</TABLE>
(3) Represents Company's matching contribution to Company's 401(k) Savings
Plan.
Aggregated Option Exercises in Fiscal Year and Fiscal Year End Option/SAR Values
The following table sets forth information concerning option exercises
during fiscal 1998 and option/SAR (Stock Appreciation Rights) at the end of
fiscal 1998 for executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Number of Fiscal Year End Fiscal Year End
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (1) Realized (2) Unexercisable Unexercisable
- ---- ---------------- ------------ ---------------------- ---------------------
<S> <C> <C> <C> <C>
Thomas E. Carroll 23,062 $2,950,000 -- $ --
Jay M. Kaplan 9,225 1,156,000 -- --
</TABLE>
- --------------------
(1) Number of shares of Series A 13.0% Cumulative Compounding Preferred Stock,
par value $.01 ("Series A") issued upon the exercise of 307,500 and 123,012
stock options for Mr. Carroll and Mr. Kaplan, respectively, in connection
with the Company's Merger.
(2) Cash consideration, net of exercise price, of $2,719,000 and $1,064,000,
respectively, plus value attributed to Series A preferred stock of $231,000
and $92,000, respectively, for Mr. Carroll and Mr. Kaplan.
3
<PAGE>
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 ("Pension Plan") for various salary levels and years of service.
<TABLE>
<CAPTION>
Average Annual Estimated Annual Benefits
Compensation During Payable at Age 65 for Various
Plan Membership Years of Plan Membership
------------------- ------------------------------------------
10 20 30 40
-- -- -- --
<S> <C> <C> <C> <C>
$200,000 and above 20,436 39,943 59,362 69,244
100,000 12,036 23,143 34,162 39,844
</TABLE>
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 1998, the maximum amount of annual compensation which
may be included for Pension Plan purposes was $160,000. The figures shown above
apply under the Pension Plan as of September 30, 1998. 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, 1998 is $125,000, although the amount will be actuarilly
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, 1998, Mr. Carroll and Mr. Kaplan had 10 and 25
years of service credited, respectively, under the Pension Plan.
Compensation of Directors
Standard Arrangements Prior to the Merger
The Chairman of the Board of Directors ("Board") was entitled to an
annual fee of $50,000. Non employee directors were entitled to an annual fee of
$15,000. Directors who were active employees of the Company or any of its
subsidiaries were not entitled to any compensation for their service as
directors. Additionally, non employee directors serving on the Executive
Committee of the Board were entitled to an hourly stipend for performing
services for the Company on Board Committees and supplemental services as
requested by the Executive Committee.
Standard Arrangements After the Merger
Each non employee director is paid an annual retainer of $12,000 plus
fees of $1,000 for each Board Meeting attended and $500 for each Committee
Meeting attended. Directors who are active employees of the Company or its
subsidiaries do not receive compensation as directors.
Employment Agreements
In April 1995, the Company and MEDIQ/PRN entered into a two year
employment agreement with Mr. Carroll under which he agreed to serve as
President and Chief Operating Officer of the Company and MEDIQ/PRN. Pursuant to
this agreement, Mr. Carroll received a one time special payment of $100,000 in
April 1995. Mr. Carroll was subsequently appointed as President and Chief
Executive Officer of the Company and MEDIQ/PRN. In November 1997, the term of
Mr. Carroll's employment agreement was extended to November 13, 1999. He is
entitled to receive an annual salary of $374,500 and an incentive bonus of up to
60% of his base salary based on the achievement of performance criteria approved
by the Compensation Committee of the Company's Board. This agreement also
provided that Mr. Caroll receive a one time "success bonus" if a "Strategic
Transaction" (as defined therein) occurred before June 30, 1998. The Merger
constituted a "Strategic Transaction" and, accordingly, the Company paid a bonus
to Mr. Carroll in fiscal 1998 as disclosed in the "Summary Compensation Table"
herein under this Item. Upon receipt of such "success bonus," Mr. Carroll
forfeited any stock appreciation rights previously granted to him pursuant to
his employment agreement. Under
4
<PAGE>
his employment agreement, Mr. Carroll is entitled to receive an additional
payment from the Company to compensate him for liabilities, if any, imposed
under Section 4999 of the Internal Revenue Code of 1986, as amended, or any
successor provision thereto. In addition, Mr. Carroll has agreed not to compete
with the business of the Company for two years following the termination of his
employment under certain circumstances.
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. 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. Mr. Kaplan currently is entitled to receive an
annual salary of $200,000. Under the terms of his employment agreement, Mr.
Kaplan was entitled to a one time cash bonus upon the occurrence of a "Sale
Event" (as defined therein). The Merger constituted a "Sale Event" and,
accordingly, the Company paid Mr. Kaplan a bonus in fiscal 1998 as disclosed in
the "Summary Compensation Table" herein under this Item.
These employment agreements also include other provisions relating to
benefits, confidentiality and other provisions customary in agreements of this
nature.
Compensation Committee Interlocks and Insider Participation
Mr. Carroll, the Company's President and Chief Executive Officer,
Michael J. Rotko, Sheldon M. Bonovitz and H. Scott Miller served on the
Compensation Committee of the Board during fiscal 1998 prior to the Merger. Mr.
Carroll did not participate on the Compensation Committee as to any matter
relating to his compensation. Since the Merger, the Compensation Committee
consists of Bruce C. Bruckmann, Robert T. Thompson and L. John Wilkerson.
Mr. Bruckmann is a Managing Director of BRS, which was the sponsoring
investor in the Merger and through beneficial ownership is a principal
stockholder of the Company's Common Stock, and also which provides management,
business and organizational strategy and merchant and investment banking
services to the Company. Mr. Thompson is a Managing Director of Ferrer Freemen
Thompson & Co. LLC, which was a principal co-investor in the Merger and through
beneficial ownership is a principal stockholder of the Company's Common Stock,
and also which provides management, business and organizational strategy and
merchant and investment banking services to the Company. Mr. Wilkerson is a
General Partner of Galen Associates, which was a principal co-investor in the
Merger and through beneficial ownership is a principal stockholder of the
Company's Common Stock, and also which provides management, business and
organizational strategy and merchant and investment banking services to the
Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of January 25, 1999, the beneficial
ownership of shares of the Company's Common Stock and each series of Preferred
Stock by (i) each person and entity who is known by the Company to be the
beneficial owner of more than 5% of such shares, (ii) each director of the
Company, (iii) each of the Company's executive officers named in the "Summary
Compensation Table" (included under ITEM 11 herein) and (iv) all directors and
executive officers of the Company as a group.
5
<PAGE>
<TABLE>
<CAPTION>
Number of Shares/Percent
-------------------------------------------------------------------------
Series A Series B Series C
Common Preferred Preferred Preferred
Name of Beneficial Owner Stock Stock (1) Stock (2) Stock (3)
- ------------------------ ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Bruckmann, Rosser, Sherrill & Co., L.P.(4) 465,259/43.3% 3,155,841/40.3% 899,057/30.0% 1,625,015/54.2%
Health Care Capital Partners, L.P.(5) 199,013/18.5% 1,349,896/17.3% 384,567/12.9% 695,092/23.2%
Galen Partners III, L.P. (6) 132,675/12.4% 899,930/11.5% 256,378/8.5% 463,395/15.4%
Michael J. Rotko (7) 54,891/5.1% 569,250/7.3% 475,017/15.9% --
Bessie G. Rotko (8) -- 486,506/6.2% 1,340,219/44.7% --
Rotko 1983 Trust -- 243,253/3.1% 475,017/15.9% --
-Michael J. Rotko Share (9), (10)
Rotko 1983 Trust -- 243,253/3.1% 475,017/15.9% --
-Judith M. Shipon Share (9), (11)
Judith M. Shipon (12) 54,891/5.1% 243,253/3.1% 475,017/15.9% --
Thomas E. Carroll (13) 56,888/5.3% 94,816/1.2% 19,724* 35,650/1.2%
Jay M. Kaplan (13) 10,077* 29,724* 5,149* 9,306*
Bruce C. Bruckmann (14) 497,531/46.3% 3,374,739/43.1% 961,418/32.0% 1,737,731/57.9%
Stephen C. Sherrill (14) 497,531/46.3% 3,374,739/43.1% 961,418/32.0% 1,737,731/57.9%
Robert T. Thompson (15) 199,013/18.5% 1,349,896/17.3% 384,567/12.9% 695,092/23.2%
L. John Wilkerson (16) 132,675/12.4% 899,930/11.5% 256,378/8.5% 463,395/15.4%
All directors & executive officers as
a group(7 persons) 951,075/88.5% 6,318,355/80.8% 2,102,253/70.1% 2,941,174/98.0%
</TABLE>
* Less than one percent of the total number of shares outstanding of the
applicable equity security.
(1) Series A 13.0% Cumulative Compounding Preferred Stock, par value $.01.
(2) Series B 13.25% Cumulative Compounding Perpetual Preferred Stock, par value
$.01.
(3) Series C 13.5% Cumulative Compounding Preferred Stock, par value $.01.
(4) A limited partnership, the sole general partner of which is BRS Partners,
Limited Partnership ("BRS Partners") and the manager of which is Bruckmann,
Rosser, Sherrill & Co., Inc. ("BRS"). The sole general partner of BRS
Partners is BRSE Associates, Inc. ("BRSE Associates"). Bruce C. Bruckmann,
Harold O. Rosser II, Stephen C. Sherrill and Stephen F. Edwards are the
only stockholders of BRS and BRSE Associates and may be deemed to share
beneficial ownership of the shares shown as beneficially owned by BRS. Such
individuals disclaim beneficial ownership of any such shares. Address is:
Two Greenwich Plaza, Suite 100, Greenwich, CT 06830.
(5) Includes 7,947 shares of Common Stock, 53,907 shares of Series A Preferred
Stock, 15,357 shares of Series B Preferred Stock and 27,758 shares of
Series C Preferred Stock held by Health Care Executive Partners, L.P.
("HCEP"). Health Care Capital Partners, L.P. (together with HCEP, the "FFT
Entities") disclaims beneficial ownership of such shares. The FFT Entities
are limited partnerships for which Ferrer Freeman Thompson & Co. LLC
("FFT") is the general partner. Carlos A. Ferrer, David A. Freeman and
Robert T. Thompson are the only voting members of FFT and may be deemed to
share beneficial ownership of the shares shown as beneficially owned by the
FFT Entities. Such individuals disclaim beneficial ownership of any such
shares. Address is: c/o Ferrer Freeman Thompson & Co. LLC, The Mill, 70
Glenville Street, Greenwich, CT 06831.
(6) Includes 11,660.08 shares of Common Stock, 79,089.9 shares of Series A
Preferred Stock, 22,531.65 shares of Series B Preferred Stock and 40,725.24
shares of Series C Preferred Stock held by Galen Partners International
III, L.P. ("Galen International") and 527.47 shares of Common Stock,
3,577.85 shares of Series A Preferred Stock, 1,019.28 shares of Series B
Preferred Stock and 1,842.32 shares of Series C Preferred Stock held by
Galen Employee Fund III, L.P. ("Galen Employee Fund"). Galen Partners III,
L.P. ("Galen Partners" and, together with Galen International and Galen
Employee Fund, the "Galen Entities") disclaims beneficial ownership of such
shares. L. John Wilkerson is a general partner of the general partner of
each of Galen Partners and Galen International. Mr. Wilkerson disclaims
beneficial ownership of the shares held by Galen Partners and Galen
International, except to the extent of his proportionate partnership
interest therein. Address is: 610 Fifth Avenue, Rockefeller Center, New
York, NY 10020.
(7) Includes 243,253 shares of Series A Preferred Stock and 475,017 shares of
Series B Preferred Stock held by the Rotko 1983 Trust-Michael Rotko Share,
of which Mr. Rotko is a co-trustee. Address is: P.O. Box 369, Unionville,
PA 19375.
(8) Includes 243,253 shares of Series A Preferred Stock and 475,017 shares of
Series B Preferred Stock held by the Rotko 1983 Trust-Michael J. Rotko
Share, of which Ms. Rotko is a co-trustee, and 243,253 shares of Series A
Preferred Stock and 475,017 shares of Series B Preferred Stock held by the
Rotko 1983 Trust-Judith M. Shipon Share, of which Ms. Rotko is a
co-trustee. Address is: 100 Breyer Estates #4N, Elkins Park, PA 19027.
6
<PAGE>
(9) Address is: c/o Schnader Harrison Segal & Lewis, 1600 Market Street, Suite
3600, Philadelphia, PA 19103-7286, Attention: John D. Iskrant, Esquire.
(10) Michael J. Rotko, Bessie G. Rotko and PNC Bank Corp. share voting and
dispositive power as co-trustees of the Rotko 1983 Trust-Michael J. Rotko
Share.
(11) Judith M. Shipon, Bessie G. Rotko and PNC Bank Corp. share voting and
dispositive power as co-trustees of the Rotko 1983 Trust-Judith M. Shipon
Share.
(12) Includes 243,253 shares of Series A Preferred Stock and 475,017 shares of
Series B Preferred Stock held by the Rotko 1983 Trust-Judith M. Shipon
Share, of which Ms. Shipon is a co-trustee. Address is: 1115 Devon Road,
Rydal, PA 19046.
(13) Address is: c/o MEDIQ Incorporated, One MEDIQ Plaza, Pennsauken, NJ
08110-1460
(14) Includes shares which are owned by BRS and certain other entities and
individuals affiliated with BRS. Although Messrs. Bruckmann and Sherrill
may be deemed to share beneficial ownership of such shares, such
individuals disclaim beneficial ownership thereof. See Note 4 above. The
address for Messrs. Bruckmann and Sherrill is the same as that for
Bruckmann, Rosser, Sherrill & Co., L.P.
(15) Consists of shares which are owned by the FFT Entities. Although Mr.
Thompson may be deemed to share beneficial ownership of such shares, such
individual disclaims beneficial ownership thereof. See Note 5 above. The
address for Mr. Thompson is the same as that for Ferrer Freeman Thompson &
Co. LLC.
(16) Consists of shares which are owned by the Galen Entities. Although Mr.
Wilkerson may be deemed to share beneficial ownership of such shares, such
individual disclaims ownership thereof, except to the extent of his
proportionate partnership interest therein. The address for Mr. Wilkerson
is the same as that for Galen Partners III, L.P.
Holders Agreement
Upon consummation of the Merger, the Company, MQ Acquisition
Corporation ("MQ", which was merged into the Company upon consummation of the
Merger), the BRS Entities (consisting of Bruckmann, Rosser, Sherrill & Co. L.P.
("BRSLP") and certain associated entities and individuals), the Co-Investors
(consisting of funds affiliated with FFT and Galen Partners), the Rotko Entities
(consisting of Bessie G. Rotko, Michael J. Rotko, Judith M. Shipon, Rotko 1983
Trust-Michael J. Rotko Share and Rotko 1983 Trust-Judith M. Shipon Share) and
the Management Stockholders (consisting of Thomas E. Carroll, Jay M. Kaplan,
certain other management personnel of the Company and certain other persons)
entered into a Securities Purchase and Holders Agreement ("Holders Agreement")
containing, among other things, certain agreements among the signatory
stockholders with respect to the capital stock of the Company. The following is
a summary of the material items of the Holders Agreement.
The Holders Agreement contains provisions which, with certain
exceptions, restrict the parties thereto from transferring any equity securities
of the Company except pursuant to the terms of the Holders Agreement. Subject to
certain exceptions, in the event that certain holders of Common Stock and
Preferred Stock propose to sell at least 2% of such securities then outstanding,
the parties to the Holders Agreement have the right to require the proposed
transferee to purchase, on the same terms and conditions as given to the
proposed transferor, a pro rata portion of like securities held by such parties
to the Holders Agreement. Subject to certain exceptions, if the Company proposes
to issue and sell any of its shares of Common Stock or any shares convertible
into Common Stock, the Company must first offer to each of the other parties to
the Holders Agreement who holds in excess of 5% of Common Stock of the Company
(or, in the case of the Rotko Entities, such entities in the aggregate) and each
Management Stockholder who was a Management Stockholder as of the date of
consummation of the Merger and who is an "accredited investor" (as defined in
the Securities Act) to purchase pro rata portions of the securities to be sold
in such a transaction on the same terms and conditions as the proposed issuance.
If prior to the consummation of a public offering with respect to such class or
series of securities, holders of a majority of shares of Common Stock held by
the parties to the Holders Agreement approve the sale of the Company (whether by
merger, consolidation, sale of all or substantially all of its assets or the
sale of all of its outstanding capital stock) or holders of a majority of the
then outstanding shares of any class or series of the Preferred Stock held by
the parties to the Holders Agreement approve the sale of all of such class or
series of stock, the parties to the Holders Agreement will agree to sell and
will be permitted to sell all of their shares of Common Stock or Preferred
Stock, as the case may be, on the same terms and conditions as such holders
holding a majority of shares of Common Stock or Preferred Stock. The Holders
Agreement provides that, subject to certain exceptions, if the Company shall
redeem shares of Series A Preferred Stock or Series C Preferred Stock, BRSLP or
a third party designated by it will offer to purchase from the Rotko Entities a
percentage of the Series B Preferred Stock held by them
7
<PAGE>
equal to the aggregate liquidation preference of the Series A Preferred Stock or
Series C Preferred Stock so redeemed (not including any redemption of Series A
Preferred Stock issued as consideration in the Merger) divided by the sum of the
aggregate liquidation preference of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock then outstanding plus the
original cost of the shares of Common Stock then outstanding. The BRS Entities,
the Co-Investors, the Rotko Entities and the Management Stockholders have been
granted the right to participate, or "piggyback," in certain registrations of
Series A Preferred Stock and Series B Preferred Stock by the Company.
The Holders Agreement contains certain rights of the Company to
repurchase securities held by each Management Stockholder upon termination of
his or her employment (other than by reason of retirement) with the Company
within a specified period of time after the consummation of the Merger at
formula prices which depend in part upon the circumstances of the termination.
Pursuant to the Holders Agreement, each of the parties thereto will
ensure that the Board is composed at all times of at least six persons, with the
number to be designated as follows: (a) one person designated by the Rotko 1983
Trusts, for so long as the Rotko Entities collectively own 5% of the Common
Stock on a fully diluted basis; (b) one person designated by the FFT Entities
for so long as they (and their respective affiliates) own at least 5% of the
Common Stock on a fully diluted basis; (c) one person designated by the Galen
Entities for so long as they (and their respective affiliates) own at least 5%
of the Common Stock on a fully diluted basis; (d) the Chief Executive Officer of
the Company and (e) such number of persons as the BRS Entities may determine,
provided that if the number of directors designated by BRSLP is greater than
three, such additional directors shall be independent of the Company and shall
have been approved by the FFT Entities and the Galen Entities. The right to
designate a director is not transferable by the Rotko Entities, the FFT Entities
or the Galen Entities without the prior consent of BRSLP. BRSLP agrees with the
FFT Entities and the Galen Entities that it will not assign to third parties
unaffiliated with BRSLP the rights to designate one or more of the remaining
members of the Board without the prior consent of the FFT Entities and the Galen
Entities. In the event BRSLP transfers to any person other than BRSLP the right
to designate one or more of the remaining members of the Board, BRSLP agrees
that it shall obtain from such transferee an undertaking to vote in favor of the
persons designated by (a), (b), (c) and (d) above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
Pursuant to the terms of an Agreement and Plan of Merger dated January
14, 1998, as amended, the Company merged with MQ on May 29, 1998 (the "Merger").
MQ was formed by BRSLP solely to consummate the Merger and acquire a controlling
interest in the Company. Upon consummation of the Merger, MQ was merged into the
Company, with the Company remaining as the surviving corporation. The aggregate
consideration paid in connection with the Merger was $390.8 million, which
included $20.0 million of newly issued preferred stock of the Company. The
Merger consideration was derived through an auction process and subsequent
negotiations with the successful bidder, in consultation with an independent
financial advisor and legal counsel.
The BRS Entities and Co-Investors were the controlling holders of MQ's
capital stock. Upon consummation of the Merger, the capital stock of MQ was
converted into capital stock of the Company, and in so doing, the BRS Entities
and Co-Investors obtained a controlling interest in the Company, with beneficial
ownership of 829,219 shares, or 77.2%, of the Company's Common Stock (the only
voting security after the Merger). Additionally, the BRS Entities and
Co-Investors have beneficial ownership of the remaining capital stock of the
Company, consisting of 5,624,565 shares, or 71.9%, of the Series A Preferred
Stock, 1,602,363 shares, or 53.4%, of the Series B Preferred Stock and 2,896,218
shares, or 96.5%, of the Series C Preferred Stock. Mr. Bruckmann and Stephen C.
Sherrill are Managing Directors of BRS, the sponsor of the Merger, and through
beneficial ownership with the BRS Entities are principal stockholders of the
Company's Common Stock, each with deemed beneficial ownership of 497,531 shares,
or 46.3%. Mr. Bruckmann and Mr. Sherrill are Directors of the Company's Board.
Mr. Thompson is a Managing Director of FFT and Mr. Wilkerson is a General
Partner in Galen Associates ("Galen"). Through beneficial ownership with
Co-Investors affiliated with each, Mr. Thompson and Mr. Wilkerson are principal
stockholders of the Company's Common Stock with deemed beneficial ownership of
199,013 shares, or
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18.5%, and 132,675 shares, or 12.4%, respectively. Mr. Thompson and Mr.
Wilkerson are Directors of the Board.
Upon consummation of the Merger, the Company paid BRS, FFT and Galen a
closing fee and related expenses of $6.2 million in the aggregate. In addition,
MEDIQ/PRN entered into a management services agreement with BRS, FFT and Galen
in which BRS, FFT and Galen will be paid annually in the aggregate the greater
of $1.0 million or 1.5% of EBITDA (as defined in the agreement) for certain
management, business and organizational strategy and merchant and investment
banking services rendered to the Company. The amount of the annual management
fee may be increased under certain circumstances based upon performance or other
criteria to be established by the Board of Directors of MEDIQ/PRN. In fiscal
1998, the Company incurred $.3 million in fees with respect to the management
services agreement.
In connection with the Merger, Michael F. Sandler, a member of the
Board until the date of the Merger and a former executive officer, received a
one time special cash bonus of $1.3 million.
Upon consummation of the Merger, Mr. Carroll, the Company's President
and Chief Executive Officer and a Director, and Mr. Kaplan, the Company's Senior
Vice President-Finance, Treasurer and Chief Financial Officer, each received a
special cash bonus of $4.8 million and $.5 million, respectively. Additionally,
Mr. Carroll obtained beneficial ownership of 56,888 shares, or 5.3%, of the
Company's Common Stock, 94,816 shares, or 1.2%, of Series A Preferred Stock,
19,724 shares (less than 1%) of Series B Preferred Stock and 35,650 shares, or
1.2%, of Series C Preferred Stock. Mr. Kaplan obtained ownership of 10,077
shares of Common Stock, 29,724 shares of Series A Preferred Stock, 5,149 shares
of Series B Preferred Stock and 9,306 shares of Series C Preferred Stock, each
of which is less than a 1% interest. The Common Stock and Series B, Series C and
69,234 and 18,073 shares, respectively, of Series A Preferred Stock obtained by
Mr. Carroll and Mr. Kaplan resulted from an equity contribution in the Company
at the time of the Merger, as required by the Merger, and a subsequent purchase
of Common Stock. The aggregate amount invested was $1.8 million by Mr. Carroll
and $.4 million by Mr. Kaplan.
Prior to the Company's Merger, the Rotko Entities collectively
controlled 63.4% of the combined voting power of the then outstanding common and
preferred stocks. Their voting power alone was sufficient to approve the Merger.
Upon consummation of the Merger, the Rotko Entities collectively are principal
stockholders of the Company's Common Stock with beneficial ownership of 109,782
shares, or 10.2%. In addition, the Rotko Entities collectively have beneficial
ownership of 632,361 shares, or 8.1%, of Series A Preferred Stock and 1,340,219
shares, or 44.7%, of Series B Preferred Stock. The Rotko Entities obtained their
interests in Common Stock and Series B Preferred Stock through conversion of 1.0
million shares of pre merger preferred stock. This conversion was in lieu of the
$13.75 cash and 0.075 of a share of Series A Preferred Stock exchanged for each
share of pre merger common and preferred stock offered to other pre merger
stockholders pursuant to the Merger.
Certain Business Relationships
Mr. Rotko is of Counsel to the law firm of Drinker Biddle & Reath LLP,
which provided legal services to the Company during fiscal 1998.
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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, 1999.
MEDIQ Incorporated
BY: /s/ Thomas E. Carroll
------------------------------------
Thomas E. Carroll
President and Chief Executive Officer
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